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This article provides the readers with an insight into the Gains of Hindu Learning Act of 1930 by analyzing the act in detail, pointing out the loopholes, and providing suggestions.

Introduction

Hindu law is known for its existence from ancient sources and scripts written by scholars. These sources have originated centuries back, and the soul of Hindu law lies in these texts which include almost every matter of the current scenario from marriage, divorce, rights, and duties of spouses to property and maintenance. Matters pertaining to property were always debated, even in the contemporary era. The property which is earned, whether it comes under coparcenary or self-acquired property and their definitions of how a property can be classified into either of the categories were always a matter of discussion for an extended period until the Hindu gains of learning act were passed 1930. The Joint Hindu family has its traces in the patriarchal society where Karta was the head of the family and he took all the decisions. There was no room for the self-acquired property. The self-acquired property was legally recognized after this act came into effect. The core meaning of this act signifies all the properties a person earns through his learnings. Learning can be in any educational form. Any property a person earns by the application of his education or by any trade practices or profession is self-acquired property. It is recognized under the gains of learning act that he has the sole right over the property, and no other person even a member of the Joint Hindu family, can have control over it. This article aims to deeply analyze the importance of gains of the Hindu Learning Act 1930 by quoting various relevant judgments and individual property rights.

Historical Backdrop

Coparcenary property is passed on from generation as of amendment passed in the year 2005, both males and females have equal rights over the ancestral property. This makes the individuals have joint possession of the property. The coparcenary property however cannot be disposed of by any of the individuals. One can only dispose of his share of the property. However, as one individual owns the self-acquired property, it can be disposed of by him.

Before 1930, the position of self-acquired property was unknown; therefore, there were many conflicting views. The self-acquired property itself was not recognized under a separate law. The earlier rule was unjust as no person could have self-acquired property because it was of the view that any property earned through the fund of a Joint Hindu family will naturally become a part of the joint Hindu family. It even includes educational funding. Even if an individual’s education was funded by the joint-Hindu family, and he earns property through his efforts and learnings, it would still count as joint property. Subsequently, in the year 1930, to give clarity regarding the partition of the property, the Hindu gains of learning act was passed. The first attempt to pass this legislature was made in the year 1898 in the madras legislature. Sir Bhashyam Iyengar was the one to make this attempt. Nevertheless, it went in vain because of the veto powers of the governor in the year 1901. Later the act came into effect on the year 25^th July 1930.

The main motive behind passing this act was fulfilled by removing the loopholes regarding property distribution and clearing the ambiguous nature of property rights. This act started to realize the efforts and learnings of an individual to earn property. The learnings of the individual are dominant rather than the means of learning. Whether funding to provide learning was through the joint family was less important. On the contrary, this act was not initiated to give property to the individual blindly. A thin line of distinction was drawn between individual rights on property and coparcenary rights. When the coparcener sets up a private firm with the earnings of the joint family, then the share of the organization’s profit must be shared between other coparceners. On the other hand, the salary earned by applying own skills belongs to the coparcener only. This gave clarity to the act. The only property earned through direct funding comes under the family’s rights.

Judicial Position After the Act

In the case, Durvasula Gangadharudu v. Durvasula Narasammah and Ors¹ the matter of discussion was whether the property earned by a lawyer employing his profession comes under self-acquired. The court in this case held that it would depend on the factual circumstances. In most cases, the education or learnings of the lawyer would be funded by the family so that it would be treated as a jointly owned property. This led to not realizing the efforts of the individual to acquire a property. The individual’s consent on whether he wanted to share the property was of no value. This led to holding every member of the joint Hindu family jointly responsible for legal conflicts arising from the property. Moreover, it resulted in undue pressure on children as they naturally become part of the property through coparcenary rights before attaining maturity to understand the consequences and their rights. A property earned by an artist, exhibiting his own talent and skills was still considered joint property. There was no value given to his skills. A property was realized as self-earned only when there was no direct or indirect funding source. In the case, of Laleshman Mayaram v. Jamnabai,² the petitioner was a lawyer by profession and a judge filed a petition for claiming self-acquired property. The family funded only elementary education, and every other achievement was self-earned. So, his acquired property was considered self-acquired. In another case, Amar Nath Gokulchand v. Hukum Chand Nathul Mal.,³ Gokulchand spent 7 years abroad for his education. When he returned, the property he earned was partitioned between the family. This was later challenged. The court held that even though he did his education abroad, there was no proof that he funded the education with self-earned money. The family’s earnings funded it. Therefore, the property is subjected to partition.

In the case, Chandrakant Manilal Shah And Anr., v. Commissioner of Income Tax,⁴ Chandrakant Manila, the Karta in the joint Hindu family along with his son Naresh Manila started a partnership firm. But the partnership was held invalid because no earnings or property or any asset was contributed by the son which is necessary for a partnership. He only contributed skill and labour. Court held the partnership valid, stating the fact that according to the gains of the Hindu Learning act, even skills and learnings to acquire property are recognized under the self-acquired property.

In Balbir Singh Uppal and Anr., v. Gurmeet Singh Uppal and Ors.⁵ The petitioner was residing in Pakistan and owned some ancestral property in Pakistan. But after the partition, he moved to Delhi and started residing in Delhi with his son (defendant). The petitioner gave a share of the joint family property to the son to start his business. The issue was whether the profit earned in the business should be shared with the joint family. The court in this case made a significant observation. It was stated that in matters where the capital of the business is contributed more by the assets of the joint family, then the profit of the business should be shared with the family. But if the learnings of the individual play a more significant role in the business than the capital then it is not necessary to yield the profit. In the present case, as the business was of herbal medicines, the knowledge of the defendant was more important in the business regarding different herbs. The family property was just a supplement in the business for support. Therefore, it was held that the earnings are self-acquired.

Loopholes and Conclusion

One of the major loopholes of the act was that the reasonable amount clause was not added to the Hindu gains of Learning Act, of 1930. The law allows the members of the joint family to use the funds of the family for self-acquiring property through learning. But the proportion in which these funds can be used was not mentioned anywhere. This may result in a disproportion in the distribution of the resources and members might take unfair advantage of it. In the present scenario, the cost of education is also increasing and differs from place to place. This would result in a substantial loss in the family fund. The same concept of reasonable proportion is applied in other fields of Hindu law as well. Where the daughter has the same right as the sons to get a proportional share of the property.

Another important suggestion is when the family fund is used by the member for learning purposes, he should have the moral obligation to repay it in any form to the family. Similar to the right of the son to repay the father’s debts in Hindu law. In the current scenario, more important to determine cases regarding property is to differentiate them based on whether the property is attained through learning. This ignores the fact that learning is gained only through the proper allocation of the family fund. Learnings are something that cannot be measured it is intangible.

Another vital motive behind this right was to improve the status of widows. When the property earned is considered joint property, and after the passing away of the member, it did not provide widows with the status to get a share of the property. This resulted in deteriorating their condition in society and being vulnerable to poverty. To uplift their status, this act was important. The matter of the hour is only to preserve the joint family’s fund. The family and its members should complement each other where funds are proportionally allocated to its members, and in return, the members owe an obligation to the family.

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References

1. Durvasula Gangadharudu v Durvasula Narasammah and Ors, (1872) Mad. H.C. 47
2. Laleshman Mayaram v Jamnabai, (1882) I.L.R. 6 Bom. 225.
3. Amar Nath Gokulchand v Hukum Chand Nathul Mal, 1921 (23) BomLR 671.
4. Chandrakant Manilal Shah and Anr., v Commissioner of Income Tax, [1991] INSC 272.
5. Balbir Singh Uppal and Anr., v Gurmeet Singh Uppal and Ors, SR. NO. 307 I.E CWP 17923 OF 2005.

This article is written by Vishal Menon, from Symbiosis Law School, Hyderabad.

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Background

For an empowered, affluent, and Aatmanirbhar India, workers must have more influence. Even after 73 years of independence, 90% of employees are still employed in the unorganized sector, where they are not eligible for all social security benefits. Over 50 crores of people are employed in both the formal and unorganized sectors combined. For the first time, a government is taking care of employees and their families in both the organized and unorganized sectors. India, a country where employment is not at will, has seen its fair share of job-related lawsuits, many of which involved allegations of unfair labour practices and wrongful termination. Although mainly restricted to the industrial sectors, labour unions have continued to be active throughout the nation. The new labour laws in India have not yet gone into force. 29 federal labour statutes are replaced by the four labour codes. Once put into effect, it will significantly alter our labour law system.

Defining Labour Laws in India

Labour law, often known as employment law, is the set of laws, administrative judgements, and precedents that address the legal rights and constraints of workers and their organizations. As a result, it mediates a number of relationship-related issues between trade unions, both employers and workers. In other words, labour law outlines the duties and responsibilities of employees, union members, and employers. In general, labour law addresses:

• Industrial relations include union certification, labour-management interactions, collective bargaining, and unfair labour practices.
• Occupational health and safety;
• Employment requirements, such as severance compensation, minimum salary, layoff processes, general holidays, yearly leave, and working hours.

In the past, the Indian government at the federal and state levels strove to guarantee that employees had a high level of protection, but in reality, this has changed because of the structure of government and since labour is a topic on the concurrent list of the Indian Constitution. The Minimum Wages Act of 1948 mandates that businesses pay the government-set minimum wage and cap workweeks at 40 hours (9 hours a day including an hour of break). Since the reward for overtime is 100% of the overall salary, it is strongly discouraged. The Payment of Wages Act of 1936 requires that wages be paid promptly by bank transfer or postal service on the last working day of each month.

The Payment of Wages Act of 1936 requires that wages be paid promptly by bank transfer or postal service on the last working day of each month. Each employee is required to take 15 working days of fully paid vacation time each year, in addition to an extra 7 completely paid sick days, under the Factories Act of 1948 and the Shops and Establishments Act of 1960. Every company’s female employees are now entitled to 6 months of fully compensated maternity leave thanks to the Maternity Benefit (Amendment) Act of 2017. Additionally, it offers 6 weeks of paid time off in the event of a miscarriage or medical termination of pregnancy.

Workers can access the essential social security for retirement benefits, medical care, and unemployment benefits through the Employees’ Provident Fund Organization and the Employees’ State Insurance, all of which are controlled by statutes. Employees who qualify for Employees’ State Insurance coverage (those making less than Rs. 21000/month) are also eligible for 90 days of paid medical leave. It is always possible to include more rights in an employment contract than the bare minimum required by law. Four labour regulations were adopted by the Indian parliament in the 2019 and 2020 sessions. The Industrial Relations Code 2020, The Code on Social Security 2020, The Occupational Safety, Health and Working Conditions Code 2020, and The Code on Wages 2019 will combine 44 current labour laws.

History of Labour laws

The need for improved working conditions, the right to organize, and employer demands to limit employee rights in numerous groups and keep labour costs down led to the development of labour law. Therefore, the situation of labour legislation at any one moment is both a result of and an element of conflicts between various interests in society.

One of the earliest organizations to address labour concerns was the International Labour Organization (ILO). Following the signing of the Treaty of Versailles, which brought an end to World War I, the League of Nations formed the ILO as an agency. During and soon after the war, several countries focused on post-war rebuilding and the preservation of labour unions. Workers who wanted improved working conditions, as well as trade unions that objected by going on strike, were routinely and violently suppressed. Following the achievement of independence in 1947, a number of fundamental labour rights—including the ability to join and participate in unions, the idea of workplace equality, and the desire to establish a living wage and respectable working conditions—were incorporated into the Indian Constitution of 1950.

Constitutional Provisions under Labour laws

Articles 14–16, 19(1)(c), 23–24, 38, and 41–43A of the 1950 Indian Constitution specifically address labour rights. Everyone shall be treated equally under the law, according to article 14, and discrimination against citizens is prohibited under article 15. Article 16 also grants the right to “equality of opportunity” for employment or other state-related appointments. Everyone has the special right “to organize groups or unions,” according to Article 19(1)(c). Articles 23 and 24 forbid child labour under the age of 14 in factories, mines, or “any other dangerous occupation,” respectively. Article 23 also outlaws all forms of trafficking and forced labour. According to the Indian Constitution, labour is a concurrent topic, meaning that both the Union and the state governments have the authority to enact and enforce labour laws. The majority of significant pieces of legislation have been passed by the Parliament.

The following categories apply to the laws:

1) Central Government-enacted labour legislation, whose exclusive enforcement rests with the Central Government.

2) Central government-enacted labour rules that are upheld by both the federal and state governments.

3) State governments implement federal labour rules that the federal government enacts.

4) The different State Governments have passed and are enforcing labour regulations that are applicable to their respective States.

Indian Labour Policy

India’s labour strategy has evolved in response to the country’s unique circumstances in order to meet the demands of social justice and planned economic growth. Its dual goals are to preserve industrial peace and advance worker welfare.

Workplace reforms implemented since 2014

The use of IT-enabled systems for inspection has been made required for openness and accountability.

• The maximum allowable gratuity has risen as of March 29, 2018, from Rs. 10 Lakhs to Rs. 20 Lakhs.
• On 16.02.2017, the Payment of Wages Act became effective. Salary distribution to workers by check or giving it to their bank account for credit.
• The 2017 Maternity Benefit Amendment Act went into effect on April 1, 2017, and raised the 12 to 26 weeks of paid maternity leave weeks.

The 4 Labour Codes of India

2019 Code of Wages

The Code on Wages aims to control salary and bonus payments in all work situations involving any type of manufacture, trade, or industry. It combines four pieces of legislation: the Equal Remuneration Act, the Payment of Bonus Act of 1965, the Minimum Wage Act, and the Payment of Wages Act.

The Code’s primary characteristics are:

1. The State or Central Government may not revise the minimum wage more frequently than every five years.
2. Any person who directly or indirectly employs one or more people at an institution is considered an employer for purposes of this term.
3. The Payment of Salaries Act only applies to workers making less than Rs. 24,000 per month in wages. The Code on Wages has now eliminated this upper restriction. Therefore, regardless of monthly earnings, the Code should be applicable to all employees.
4. In contrast to the many definitions provided in the Payment of Wages Act, 1936, the Minimum Wages Act, 1948 (Minimum Wages Act, 1948), and the Payment of Bonus Act, 1965, the Code offers a uniform definition of the term “Wages.”
5. Employers are required to provide salaries equal to at least 50% of total compensation under the conditions outlined in the Code. Basic pay, dearness allowance, and retention allowance are included in the calculation of earnings; home rent allowance, conveyance, statutory bonus, overtime allowance, and commissions are not. Basic wage and dearness allowance must make up at least 50% of the cost to the company.
6. Employers are not allowed to pay employees less than the minimum wage. The Central or State Governments, depending on the situation, are obligated to notify minimum salaries based on I the time or quantity produced, (ii) the employees’ skill, and (iii) the complexity of the task.
7. According to the requirements of the Code, the Central and State Governments should establish Advisory Boards. Members of the Central Advisory Board must represent both businesses and employees, as well as five state government representatives and independents. The State Advisory Board must include an independent member as well as representatives from companies and employees.
8. State Advisory Boards will be made up of independent individuals, employers, and workers. Additionally, women will make up one-third of the total members of the central and state boards. The Boards will provide guidance to the national governments on a variety of topics, such as setting minimum salaries and (ii) expanding possibilities for women in the workforce.

2020 Social Security Code

The Code on Social Security aims to update and codify the social security laws to cover all employees and workers, whether they are employed in the organized, unorganized, or any other sector.

Employees’ Compensation Act of 1923, Employees’ State Insurance Act of 1948, Employees’ Provident Funds and Miscellaneous Provisions Act of 1952, Employment Exchanges (Compulsory Notice of Vacancies) Act of 1959, Maternity Benefit Act of 1961, Payment of Gratuity Act of 1972, Cine Workers Welfare Fund Act of 1981, Building and Other Construction Workers Welfare Cess Act of 1996, and Unorganized Workers’ Social Security Act of 2008.

The Code’s primary characteristics are:

1. Fixed-term employment, home-based workers, independent contractors, platform workers, and gig workers have all been defined.
2. The term “employee” was added and is now used consistently across the whole Code.
3. According to Section 3 of the Code, if an industry establishment is already registered under another Central labour regulation, registration is not required.
4. The enforceability of social security organizations and their bylaws is provided in Section 4 of the Code. It is necessary for the administration of funds for various personnel.
5. A fixed limitation period of 5 years will be established under Section 125 of the Code, including actions and enquiries to determine an employee’s financial obligations.
6. Aggregators are described in the Code as a digital middleman or marketplace that connects a service’s user or buyer with its supplier or provider. The list of aggregators must pay between 1% and 2% of their yearly revenue to the social security fund, as stated in Schedule 7 of the Code.
7. Employers are required to pay gratuities to fixed-term employees on a pro-rata basis. For working journalists, the gratuity term has been lowered from five years to three.

2020 Industrial Relation Code

The Code on Industrial Relations aims to make compliance easier to achieve and encourages convenience for customers and employees. The Industrial Disputes Act of 1947, the Industrial Employment (Standing Orders) Act of 1946, and the Trade Unions Act of 1926 are all included in this law.

The appropriate government may require the employer of an industrial business where 100 or more workers are engaged or have been employed on any day over the previous 12 months to form a works committee.

Industrial establishments with 20 or more employees must have a grievance redressal committee or committees to handle individual grievance problems.

Any trade union with seven or more members may register online or in another manner under the Code.

Every industrial enterprise where 300 or more employees are engaged or were employed on any day during the previous year is subject to the Standing Orders.

The Code’s primary characteristics are:

1. Defines “employee” and “fixed-term employment” in the introduction.
2. In the Code, the phrase “workmen” has been changed to “worker.”
3. Today, more than 50% of employees define a “strike” as “mass casual leave” on any given day.
4. Any grievance must now be filed with the grievance redressal committee in accordance with the Code, and an inquiry and its investigation must be finished within 90 days. The time frame begins on the day the employee was suspended.
5. According to the Industrial Establishment Standing Order Act of 1946, standing orders were only applicable to workplaces with 100 or more employees. Standing order requirements have now been raised from 100 to 300 employees.
6. In establishments with several trade unions, the Code has established a “single negotiating union.” According to Section 14 of the Code, this only negotiating union must have 51% or more workers as members. Terms with the employer may only be discussed by one negotiating union. In the absence of a qualifying exclusive bargaining union, a bargaining council made up of at least 20% of the workforce shall be established.
7. After being laid off, people might find employment thanks to provisions in the Code. An initial fund made up of payments from the employer and the appropriate government must be established.
8. The Central Government shall establish a national industrial tribunal and one or more industrial tribunals as the framework for resolving labour disputes.

Occupational Safety, Health, and Working Conditions Code of 2020

The Code on Occupational Safety, Health, and Working Conditions aim to control workplace health and safety conditions for employees in all mines and docks as well as companies with 10 or more employees.

It incorporates thirteen pieces of legislation, including the Factories Act of 1948, the Mines Act of 1952, the Dock Workers Act of 1986, the Contract Labor Act of 1970, the Inter-State Migrant Workers Act of 1979, the Plantations Labor Act of 1951, the Working Journalist and Other News Paper Employees (Conditions of Service and Miscellaneous Provision) Act of 1955, the Working Journalist (Fixation of Rates of Wages) Act of 1958, the Motor Transport Workers Act of 1961, The Sales Promotion Employees (Conditions of Service) Act, 1976 and The Beedi and Cigar Workers (Conditions of Employment) Act, 1966.

The Code’s primary characteristics are:

1. For those working in transportation, media, and sales, specific clauses outline leave policies and working hours.
2. Section 32 of the Code lays forth the rules for leave encashment at the moment of discharge/dismissal, death, or superannuation while employed. At the conclusion of the calendar year, provisions pertaining to leave encashment are available. Most importantly, the Code allows for leave carryover in the event that a worker does not use all of the leave that is granted to him in a given calendar year. However, the maximum number of days of unpaid leave that may be carried forward is 30, and any unpaid leave that has been denied can be carried forward indefinitely.
3. All businesses are required to provide bathrooms, showers, and locker rooms for employees who identify as male, female, or transgender.
4. There is now a clause that allows the employee to provide permission for the employer to work overtime. It will also be applicable to small businesses with up to 10 employees. The workers will also be paid twice as much for any overtime they put in.
5. Employers are expected to arrange for the employee’s yearly health exams at their own expense.

Conclusion

The Minimum Wages Act of 1948 mandates that businesses pay the government-set minimum wage and cap workweeks at 40 hours (9 hours a day including an hour of break). Since the reward for overtime is 100% of the overall salary, it is strongly discouraged. Each employee is required to take 15 working days of fully paid vacation time each year, in addition to an extra 7 completely paid sick days. Every company’s female employees are now entitled to 6 months of fully compensated maternity leave. Four labour regulations were adopted by the Indian parliament in the 2019 and 2020 sessions.

The need for improved working conditions, the right to organize, and employer demands to limit employee rights led to the development of labour law. Following the achievement of independence in 1947, a number of fundamental labour rights were incorporated into the Indian Constitution. India’s labour strategy has evolved to meet the demands of social justice and planned economic growth. The use of IT-enabled systems for inspection has been made required for openness and accountability. The Code on Wages aims to control salary and bonus payments in all work situations involving any type of manufacture, trade, or industry.

---

References

1. New Labour Code for India
2. Minimum Wages Act, 1948
3. The Payment of Wages Act, 1936
4. The Factories Act, 1948)

This article is written by Puneet Kaur, a second-year student.

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Bharath Institute of Law is organizing a Two-Day Interdisciplinary National Conference in commemoration of UN Day on October 17 & 18, 2022.

ABOUT

Bharath Institute of Law is located in Chennai and is a part of the Bharath Institute of Higher Education and Research (BIHER).

THEME

The event is a two-day Inter-disciplinary National Conference titled “Humanization Of Modern International Law: International Peace and Security Issues” on October 17 & 18, 2022, under the auspice of United Nations day.

Although best known for peacekeeping, conflict prevention, and humanitarian assistance, there are many other ways the United Nations and its System affect our lives. The Organization works on a broad range of fundamental issues, from sustainable development, environment, and refugees protection, disaster relief, counter-terrorism, disarmament and non-proliferation, to promoting democracy, human rights, gender equality, and the advancement of women, governance, economic and social development, and international health, clearing landmines, expanding food production, and more.

Considering these objectives and functions of the UN, School of Law is organizing a Two Day Interdisciplinary national Conference in commemoration of UN Day on October 17 & 18, 2022.

SUB-THEME

• UN peacekeeping force & peace-making process
• Climate Resilience & Ecosystem Restoration
• Russia-Ukraine crisis & Disaster relief
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Introduction

The advancement in the mode of communication has made human life very easy. Earlier the modes of communication available were very time-consuming and less efficient. In today’s world with the advancement of technology, communication has become very easy and a speedy process. The whole world is now turned into a small village considering the fact that the internet has made access to anyone and anything very simple. Social media is one such platform where people are connected. The term social media is related to computer-based technology facilitating the sharing of ideas, thoughts, and information through various virtual platforms. Social media is internet-based and provides users with the quick electronic communication of content, such as personal information, documents, videos, and photos. More than 4.5 billion people use social media, as of October 2021. Social media has paved the direction of how society thinks. It has become a platform for the dissemination of truth as well as lies. When everything is affected by the social media justice system and judges are no exception to it.

Independence of Judges

Judiciary being the 3^rd organ of the government, it is important that it is independent of any influence from the other two organs of the government or people in general. The term is normative in a sense as it provides what courts and judges ought to possess. The independence of the judiciary is important to save the general public from any unjust treatment. The concept of independence of judges has come from England’s Act of Settlement. Independence of the judiciary is important in a country like India owing to the diversity of the population residing in India. Provisions in judiciary securing the independence of Judiciary:

• Security of tenure. (Art.124(2))
• Salary and allowances.
• Power to punish for its contempt. (Art.129 in Supreme Court, Art.215 in High Court)
• Separation of judiciary from the executive. (Article 50)
• No practice after retirement.

With great powers of the judiciary comes great responsibilities upon the judges.  Indian Judiciary in the Chief Justices’ Conference, 1999 laid down several principles and these were accepted by all the High Courts.  Justice must not only be done but it must also be seen to be done. The working members of the higher judiciary must sustain and reaffirm the people’s faith in the impartiality of the judiciary. Keeping this in mind Judge of the Supreme Court or a High Court, in any capacity whether official or personal capacity, erodes the credibility of the Indian justice system has to be avoided. A Judge should not participate in the election to any office of a Club, society or other association; further, he shall hold elective office only in a society or association which is related to the law. Close association with those who practice in the same court shall be avoided. A Judge should not permit any member of his immediate family if a member of the Bar, to appear before him or even be associated in any manner with a cause to be dealt with by him.

No member of his family, who is a member of the Bar, shall share the same residence with him or use any other facilities provided to judge for professional work. A Judge shall avoid hearing and deciding a matter in which a member of his family, a close relation or a friend is concerned. A Judge shall be extra vigilant while entering into public debate or expressing his views in public on political matters or on matters that are pending or are likely to arise for judicial determination. He must avoid situations where he has to give interviews to the media. A Judge shall not accept gifts or hospitality from anyone other than his family, close relations and friends. A Judge should not engage directly or indirectly in trade or business (Publication of a legal or any activity in the nature of a hobby shall not be construed as trade or business).

A Judge must not engage himself in contributions or raising of any fund for any purpose. A Judge should not seek any extra financial benefit in the form of a privilege because of his office unless it is clearly available. Any doubt arising in this context must be resolved and clarified through the Chief Justice. Every Judge must always keep this thing in mind that they are always subjected to the public gaze owning to this fact they must act or omit in a manner that does not result in depreciating the reputation attached to the occupation. The Preamble of the Bangalore Principles of Judicial Conduct, 2002, laid down the principles that are intended to establish standards for the ethical conduct of judges. These guidelines put forward guidance to judges and regulate judicial conduct. The main aim of the principles is to assist members of the other two organs of the government along with the general public to support the judicial system in India.

Media Trials

Social media has become a platform that does not circulate facts but rather matters that can help them gain TRP. Protracted debates and discussions are held that are merely based on speculation, which hurts the rights of witnesses and the accused. The Freedom of speech and expression that is provided under the Article 19(1)(a) has been misused again and again. The criminal jurisprudence followed in India is based on the theory that any accused cannot be held guilty until his guilt is not proven in a court of law. Social media circulates views that may or may not be true about both the victims and the accused.  

The media does not consider the principle that governs trials in India which is “Guilty beyond reasonable doubt” and “Innocent until proven guilty”. It puts a burden on the trial courts which have the duty to minimize the effects of prejudicial publicity. Continuous remarks from such social media platforms can force judges to take decisions in the favour of the media rather than what is actually demanded in the case. Recently we saw in the Nupur Sharma case the bench comprising Justice Surya Kant and Justice Pardiwala during the hearing of the writ petition being filed made oral remarks which led to many personal attacks on the judges. Sometimes the general public fails to understand the questions asked in the courtroom are conscientiously for fulfilling the requirements of the law. Media can only circulate the words of the judges without knowing the contexts for the same which impacts the private lives of the judges.

Impact of social media

Judges are also normal citizens of the country and like any other citizen of a country they are also free to use social media but they must bear in mind that their active participation requires careful consideration. Judges must comply with the legal and ethical ramifications keeping in mind the nature of their profession. Positive aspect of social media is that it brings closeness, and openness in the society but at the same time any posts of judges are subjected to misrepresentation or misinterpretation of the content posted by them, or even led to cyberbullying and threats to privacy and safety. In 2011, the International Bar Association Legal Policy & Research Unit (IBA LPRU), conducted a global survey to consider the impact of Online Social Networking (OSN) on the legal profession.  

The survey conducted to measure the impact of OSN on the legal profession revealed that judge use of social media raised specific concerns, 40% responded that judges’ use of OSN negatively affected public confidence in the justice system and undermined judicial independence. People have access to the words said by judges by most of them lack the knowledge of the law and they fail to interpret the actual meaning behind the rationale given by judges. Support for judicial use of social media is made apparent by Union Law Minister Ravi Shankar Prasad.

He supports the idea of social media platforms involving in spreading of thoughts, views and knowledge. Judges must be given complete independence to give judgment as to what they decide keeping in mind the rule of law. Media -trials have become commonplace in India. Before a case is decided in a court of law people already have passed their judgment about the matter about which they have no idea. Judges must keep in mind how they are portraying themselves on social media. They must not give any comments regarding the case they are hearing in court. In 2014, IBA’s Legal Policy and Research Unit (LPRU) published its International Principles on Social Media Conduct for the Legal Profession. Pros and cons of the use of social media and guidance regarding judicial conduct and ethics are given in this research.

There is a need to regulate the disclosure of judicial proceedings because those who do not have the knowledge of law forget the fact that law has no space for sentiments. Judgments are passed keeping in mind all the legal aspects and there are meager chances that the judgment can be biased. Criticizing any judgment on legal grounds is acceptable in a democracy but criticizing judges and giving them personal remarks accounts for defamation. Maintaining their oath of allegiance to the Constitution of India, and sustaining the dignity of the office they hold, Judges have to turn deaf to any criticism. In the Global Programme for the Implementation of the Doha Declaration, it was discussed that in order to bridge the gap between a fair comments on any judgment and personal comments on judges there is a need for education, training and recommendations on how social media can affect its users.

Conclusion

Judiciary is a body responsible for adjudicating law. It has the power that provides justice to the victims. For the proper functioning of the judiciary, it is important that it does not have an undue influence on anyone. Its proper functioning is important to maintain harmony in society. Judges are social workers and any judgment passed by them is based on as per the rule established in law and with due deliberations. Their judgments must not be made a tool to attack them personally, as it is against the justice system.

References

1. www.investopedia.com › terms › s “Social Media: Definition, Effects, and List of Top Apps” -…Accessed on 13 September, 2022
2. Data Reportal. “Global Social Media Stats October 2021”Accessed on 13 September, 2022
3. www.royal.uk › act-settlement-0The Act of Settlement | The Royal Family
4. www.barandbench.com › columns › social-media-and-the Social Media and the Judiciary – Bar and Bench

This article is written by Rishita Vekta, B.A.LLB(H) 2nd Year, from Lloyd Law College, Greater Noida U.P.

INTRODUCTION

India is a democratic country; therefore, the people of the country are its superheroes. The government, constitution, laws, and others, as such, all exist for the people and by the people. So, laws are meant for the citizens of the country, and they can be shaped by the people. In India, the law-making process is carried on by the central or union government for the whole country and by each state government for each state, as well as the local municipal councils and districts for their respective districts. The Lok Sabha and the Rajya Sabha are India’s two legislative houses, and for a law to be passed in India, it must pass through the two legislative houses of the parliament of India. A bill is used to present legislative proposals to either house of the Indian Parliament.

 A bill is a draught legislative proposal that, after being approved by both chambers of parliament and the president, becomes law. A law is not passed or enforced as such. It is first crafted as a bill by the legislative houses, and before it is enforced or passed, the bill must be passed or approved by both houses. A bill is a drafted legislative proposal that, after being approved by both chambers of parliament and the president, becomes law. After the bill has been drafted, it must be publicized in the newspapers and the people must be given a democratic opportunity to comment. The legislature must adopt a bill before it becomes a law, and in most situations, the administration must also approve it. A bill is referred to as an act of the legislature or a statute once it has been made into law. The President can assent, withhold assent, and send the measure back for consideration, and he can also sit on it if both houses of Congress concur. The bill then passes both houses if they agree. The president will then sign this agreed-upon bill into law, making it applicable throughout the country. 

DEMOCRATIZATION IN LAW-MAKING       

As a democratic country, there must be public participation in the law-making process. As a democratic country, there must not only be the right to franchise and elect their representative but the people must also participate in the law-making process. In the democratization of law-making, the central government must publish the details of the legislation. The drafted bill must contain the provisions, its impact on the environment and the lives of the affected people. The public must be given 30 days to comment. Comments are submitted to the parliamentary standing committee to amend the necessary provisions in the bill to make the bill people-friendly.

THE PRE-LEGISLATIVE CONSULTATION POLICY

The Pre-Legislative Consultation Policy was developed by the Central Government in 2014. This policy gives individuals like you and me the opportunity to participate in the drafting of laws before it is to made or enforced as law in our country. According to this policy, the government must give a chance to all the people of the country to participate in the process of law-making so that the law made by the government is for all. Since the law made by the government will be for the good of the public and since the people themselves are involved in the law-making process, the law made will not be violated on a large scale and will be followed by the majority of the population. This ideology of law-making is successfully achieved by the government publishing the proposals made by the legislative assembly to the general public to receive their feedback on any draught or proposed legislation for at least 30 days. Public consultation is the procedure where you inform the government of your opinions on how a policy might affect you.

These requests for comment must include the proposed legislation or at the very least information about it, such as its financial ramifications and effects on the environment, citizens’ lives and livelihoods, and their fundamental rights. The main objective of the Pre-Legislative Consultation Policy is to assist citizens in legitimate and expanding demands for more transparency from the government. This policy is considered to be the most effective tool for citizens to participate in the process of law-making in our country in a democratic manner.

It is important that laws be drafted in a democratic form. In the first place, we, the people, elect our representatives and they make the laws for us in parliament, and we the people play a crucial role in shaping those laws made by them. They also ensure that the final policy or law drafted is relevant and serves the people for whom it was drafted.

It is essential that we have policy tools like PLP in a nation like ours with such a wide range of interests so that all groups feel as though their opinions are given the proper respect and recognition. To make sure that the government receives useful suggestions from those whose lives will be impacted by its laws, consultation with the pertinent stakeholders is essential.

The Muslim Women (Protection of Rights on Marriage) Bill of 2017, which forbids the practice of triple talaq, is a clear illustration of this. The appropriate organizations weren’t appropriately contacted before the measure was enacted. One of the many errors in the bill is that triple talaq was stated as a cognizable offence. Another alarming development is that the police were given the right to hold Muslim men without any judicial review or inquiry into whether the subject actually warranted detention. In essence, this meant that the rules were still in effect even though neither spouse had filed a formal complaint. Additionally, the government did not draught the measure after engaging with concerned representatives of civil society, such as advocates for women’s rights, defence attorneys, or even Muslims. In this case, the bill or the law passed by the legislative assembly would have been drafted more effectively if a pre-legislative consultative procedure had been used

The Transgender Persons (Protection of Rights) Bill, 2016, which drastically curtailed the rights of transgender people as recognized in the seminal case of NALSA v. Union of India¹, serves as another illustration of how the government neglected to engage with concerned community members. The transgender community essentially rejected the Bill outright because they felt it was not in their best interests because it was not adequately discussed and consulted with during the bill’s development. In short, the Bill incorrectly lumps intersex people and transgender people together, seeing them as interchangeable, and it neglected to adequately address significant issues at the time, like the repeal of Section 377 of the IPC. It also did not respond to the Trans community’s widespread call for inclusive marital and inheritance rules. Another grievous omission was the failure to gender-neutralize offences in order to properly exclude members of the transgender community. In this instance, much more effective legislation could have been drafted if a pre-legislative consultative procedure had been used, in which the Trans community had been properly informed and consulted before the Bill was drafted.

Kerala has set an example for Pre Legislative Consultation Policy. In Kerala, the state ensures public participation to draft its police law. The draft bill was placed on the Kerala police website inviting feedback from the public at large. When the draft bill was introduced in the house at that time there was a district-level town hall meeting. A select Committee was set up and amendments were made which included people-friendly provisions. And Kerala Police Act was passed.

CONCLUSION

There will be effective law-making only when the public also participates in the law-making process. The Second Administrative Reforms Commission has emphasized that public participation in law-making is vital for the functioning of the law-making process. The policy-making and law-making process should be available in regional language also so that the people would understand the law and suggest some changes in the law.  Public comment is essential and necessary changes should also be made by the legislature. Our country should develop a social audit legislation wherein there must be a legal obligation on policymakers to consult the public.  

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CITATIONS

1. SC Writ Petition (Civil) No. 400 of 2012

This article is written by Sree Lekshmi B J; third year law student from Sastra University, Thanjavur.

Introduction

A company is an artificial person that exists to serve a purpose, but some circumstances could cause it to fail. When a company fails, it could potentially eliminate jobs for everyone connected to it and have a detrimental effect on the nation’s economy.

Every effort is made to prevent this from happening, but when it couldn’t be helped and an organization is about to enter into insolvency proceedings, the transactions and agreements made by the organization prior to the start of those proceedings are assessed, and those that are found to be detrimental to the organization and those connected to it or that violate the interests of the debtor or the creditor are deemed null and void. Avoidance of pre-bankruptcy procedures is the name of the process.

The laws governing insolvency and bankruptcy have figured out how to strike a balance between the rights of the debtor and the creditor. The debtor cannot be forced to sell off assets like shares of stock, real estate, or other assets, or to sign a contract that goes against his rights or interests in any way by creditors of the entity with the authority to collect debts from the debtor’s estate. The activities taken and agreements made in this regard are avoidable and preventable in order to safeguard the interests of the debtors, and as a result, are referred to as avoidable transactions.

The protection of debtors’ assets, their maximization as a value, and the availability of credit in place of those assets continue to be the goals of avoidable transactions. Ultimately, improving the company’s financial situation and streamlining the resolution procedure will result in a fair allocation of the assets.

Prior to the start of the insolvency proceedings, the two parties may enter into contracts involving simple assets like shares, buildings, or land or more complex agreements like those involving a franchise, taking over construction projects, etc. Given its prominence and value as one of a company’s most precious assets, the land would be a target for any creditor who set out to pay off their debts to the debtor while ignoring other creditors. Land contracts between a creditor and a debtor should be avoided in addition to all other contracts.

The UNCITRAL model, in accordance with part 2 of its legislative guide, calls for the avoidance of specific transactions on the part of the debtor in order to guarantee the treatment of all creditors equally and protect the rights of the debtors and prevent them from being coerced by creditors into entering into a contract for the transfer of any asset at a value that is less than its true value.

Avoiding favoritism on the part of the debtor is another way to look at the situation. The debtor can prefer one creditor over another and get into an agreement with him on the transfer of an asset as soon as they learn that bankruptcy procedures will soon begin.

To ensure the preservation of the rights of all parties involved, these transactions that were made before the start of the insolvency procedures are canceled or declared to be ineffective. There are differences between the rules of different countries, even though different jurisdictions have based their insolvency laws on the UNCITRAL model.

Under sections 43 to 51 of the 2016 Insolvency and Bankruptcy Code, transactions that can be avoided, commonly known as vulnerable transactions, are addressed.

Under the IBC, the following transactions can be avoided:

1. Preferential Transaction
2. Undervalued Transaction
3. Extortionate Credit Transaction

According to section 46 of the 2016 IBC, the debtor must avoid the aforementioned transactions throughout the relevant period, which is two years in the case of a related party and one year in all other cases before the insolvency beginning date.

Model and Avoidance Procedures for UNCITRAL

The UNCITRAL Model Law is intended to help States give their insolvency laws a contemporary legal foundation so that they can deal with cross-border insolvency processes involving debtors who are in serious financial difficulty or insolvency more efficiently¹. The legislative guide is composed of four parts on insolvency legislation, covering the objectives, structural issues, mechanisms for resolving the debtor’s financial difficulties, the start, termination, and avoidance of proceedings, as well as other similar provisions that call for detailed consideration.

In the legislative guide’s part 2 on debtor rights, it is stated that it is preferable for the right to keep those excluded assets to be made clear in the insolvency law when a debtor is a natural person and that certain assets are typically excluded from the insolvency estate to allow the debtor to preserve its rights and those of its family².

Avoidance proceedings are likewise covered by recommendations 87 to 99 in the same section of the legislative handbook. The avoidance proceedings are based on a general principle of insolvency law that gives priority to the collective goal and overall maximization of the value of the assets and credit availability to facilitate equal treatment for all the creditors and the debtor’s rights rather than providing individual remedies to the creditors who could claim the assets by entering into a contract with the debtor before the commencement of the insolvency proceedings.

“Provisions dealing with avoidance powers are designed to support these collective goals, ensuring that creditors receive a fair allocation of an insolvent debtor’s assets consistent with established priorities and preserving the integrity of the insolvency estate,” reads a statement about this in the guide.

The UNCITRAL model also stipulates a few avoidance criteria. There are several factors, including the normal course of business, defenses, and both subjective and objective criteria. The state may choose any of the criteria as long as the overall goal—to strike a balance between the interests of the individual and the estate—remains the same.

Criteria

1. Objective Criteria: The focus is on measurable issues, such as whether the transaction occurred during the questionable time frame and whether it demonstrated any of the several broad legal requirements.
2. Subjective Criteria: The subjective approach is more case-specific, and the issues that might come up include whether there was a desire to conceal assets from creditors and when the debtor became insolvent—whether that occurred during or after the transaction.
3. Combination of the two: The majority of states’ insolvency laws are more subjective in nature, but they also provide a deadline by which the transaction must have been completed. For instance, in India, the applicable period is two years for a related party and one year for any other creditor.
4. Ordinary Course of Business: There is a distinction made between what might be seen as a routine or ordinary business transaction and what is extraordinary and ought to be avoided as part of an avoidable transaction. Along with conventions and standard business practices, the debtor’s prior actions may have an impact here.

The states are allowed to use either of the criteria as a starting point when deciding how to handle the aforementioned unnecessary transactions.

Avoidance tactics used worldwide

Different jurisdictions follow different sets of avoiding powers; by classifying them broadly, we can conclude that there are single sets and double sets of avoiding powers. Civil law countries like France and Spain are followers of a single set of avoiding powers, whereas common law countries follow a double set of avoiding powers. As previously stated, the UNCITRAL model is merely providing a guide to the states to formulate proper avoidance actions.

• American Viewpoint: A technique to invalidate perfectly legal transactions because they were made before the start of insolvency proceedings is the use of clawback actions or avoidance powers. The usual justification for invalidating such a deal is that the creditors who would be getting the firm’s assets but losing all control over them once the formal processes started would try to seize control of them beforehand by manipulation or other unethical ways. The transactions made before the bankruptcy proceedings, as was already indicated, are detrimental to the firm’s assets worthwhile also violating the rights of the debtor and other creditors. The goal of American bankruptcy law is to give creditors the most advantage possible.
• Automatic Stay: A fundamental tenet of the American insolvency regime is the automatic stay. When insolvency procedures begin, the rules of the automatic stay described in Section 362 of the bankruptcy code take effect. Any creditor would not be able to seize any assets or property from the debtor as a result of the stay. By allowing the creditors to pursue their recovery options, this approach benefits them. However, there are some exceptions to the automatic stay, and the court can change it if there is a good basis to do so. Creditors are protected by the automatic stay because it prevents the value of the debtor’s property from declining and guarantees that it is distributed fairly.
• Absolute Priority Rule: Another important tenet of the US insolvency process is the Absolute Priority Rule. This rule is based on fairness and equity because it requires that creditors who have investments be paid in priority to other creditors who have smaller investments. Because equity holders have the lowest priority, they will be paid last and secured creditors will be paid first. However, this rule can be circumvented by voting of senior members; if votes of senior members are obtained, payment of junior class or unsecured creditors can be possible.
• Avoidance action: The bankruptcy law in the US outlines several techniques that let debtors avoid the pre-bankruptcy transfer of assets. Due to the possibility of bias on the part of creditors, this affords debtors the right to raise the worth of their bankruptcy estate and prevent its decline before filing for bankruptcy.

• Australian Viewpoint: The clauses specified in the Bankruptcy Act, 1924-1946 deal with the transfer of property under Australian law at the time of bankruptcy. It is addressed in Section 95 of the Act, which states that if the debtor declares bankruptcy on a bankruptcy petition filed within six months, any transfer of property, payment, or obligation made in favor of any creditor or person acting in the creditor’s behalf and a creditor a preference, precedence, or other benefits over other creditors, shall be null and void. The Downs Distributing Co. Pty. Ltd. V. Associated Blue Star Stores Pty. Ltd. In the end, the court’s conclusion was influenced by the bankruptcy act’s Ltd provision.
• Indian Viewpoint: The common law nations influence the avoidance powers of the insolvency and bankruptcy code, which is a relatively young piece of legislation. Contracts for the transfer of assets or property may be the subject of avoidance procedures, which are covered under Sections 43 to 51.

Any contract involving the transfer of any asset or property may be avoided, and the parties may declare any contracts they have entered into to be null and void. Land contracts are no exception; the Jaypee Infratech Limited v. Axis Bank Limited case is the ideal illustration of how to prevent a transaction based on the transfer of real property.

In this instance, the holding company of Jaypee Infratech Limited, Jaiprakash Associates Limited (JIL), established the aforementioned subsidiary as a special purpose vehicle for the construction of an expressway and entered into a contract with the Yamuna Expressway Industrial Development Authority. Loans were obtained for this purpose from several banks jointly, and the land and 51 percent of JIL’s stock were mortgaged.

Later, when an IDBI bank petition was filed about it, some of JIL’s lenders declared it to be a non-performing asset, and the NCLT issued an order under section 7 of the IBC, 2016 to start the insolvency procedures. The corporate debtor engaged in transactions that resulted in an obligation on its immovable property, and those transactions were alleged to have been preferential, undervalued, and fraudulent in the application submitted by the designated IRP.

The request was reviewed and approved. The creditors filed an appeal to invalidate the NCLT orders.

The issues, therefore, faced by the supreme court were as follows:

1. Whether the transactions entered into by the debtor undervalued, preferential and fraudulent?

2. Whether the respondents were financial creditors given the fact that the property was mortgaged to them?

The land was mortgaged, according to the NCLT, to mislead the lenders. The debtor was already in financial trouble at the time the transactions were made, and the creditors were aware of the debtor’s predicament at the time the mortgage contract was signed. Because the debtor’s only goal was to make money, the adjudicating authority believed that the debtor was attempting to conduct a fraudulent transaction during the twilight period and did not meet the definition of an ordinary course of business.

The appellate authority, on the other hand, determined that the mortgage was made in the normal course of business and therefore section 43(2) was not invoked. Additionally, the transactions were not preferential nor undervalued, and the adjudicating authority cannot issue any directives in this regard.

The apex court determined that the debtors had engaged in a preferential transaction in terms of preference. The supreme court upheld NCLT’s ruling and declared that section 43³ applied to the current situation. A translation must pass the three-fold criteria to qualify as a preferential transaction under this clause, i.e. observing Sections 43(4) and 43(2) criteria, and not violating any of the Section 43 exceptions (3).

The transactions in which the corporate debtor shall be judged to have been granted a preference are discussed in subsection 2 section 43. The clause expressly mentions a corporate debtor transferring property or an interest in that property to a creditor in exchange for payment of financial or operational debt. The clause intends to invalidate any transactions involving the transfer of property in which a corporate debtor granted precedence. hence include transactions relating to land within its purview.

The Goodwill Theaters v. Sunteck Realty, in which it was questioned whether the developer who had been granted development rights by the landowner should be classified as an operational creditor, adopted a different strategy and determined that because the transfer of development rights did not amount to the supply of goods or services, the developer would not be classified as an operational creditor.

The aforementioned transactions specified in subsection 3 will not be regarded as preferential transactions if the transfer is carried out in the ordinary course of business and is establishing a security interest in the property.

Undervalued transactions are another sort of transaction that can be prevented thanks to section 45 of the code. The IRP believed that the transactions in the aforementioned matter of Jaypee Infratech were not only preferential but also undervalued; nonetheless, it was finally decided that the transaction was undervalued. A deal is considered undervalued if the corporate debtor pays less than the asset’s true value.

The aforementioned situation is another illustration of a transaction that may be avoided because it is cheating the creditors. The IBC’s Section 49 addresses the prohibition against deceiving the creditor. This clause would apply if the corporate debtor had purposefully entered into a transaction at a discount.

Last but not least, the IBC allows for exorbitant credit transactions, another category of unnecessary transactions. In Section 50, extortionate transactions are discussed. A transaction is deemed exorbitant if it is unfavorable to the corporate debtor and is made at a time when the debtor is at its most vulnerable. It’s possible that the contract was either blindly signed by the debtor without reading it or that it was purposefully drafted in the creditor’s favor so that the debtor would sign it while at a vulnerable moment.

Conclusion

We have determined that some transactions are avoidable and, as a result, ruled void if there is a conflict between the interests of the debtor and any other creditors, including the firm. Regarding the laws governing such proceedings, diverse perspectives have been adopted by jurisdictions around the world. However, it is important to make very thorough judgments about the deals and agreements made.

They might be produced as part of routine company operations. Land contracts, in particular, the land being one of the most important assets of any business could become an easy target by the creditors who desire to injure the debtor by taking it away at a reduced price, at the same time the debtor could also engage in a land transaction with ill will. To protect the interests of all parties involved, the avoidance procedures must therefore be thoroughly assessed and finally dismissed.

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References

1. UNCITRAL Model on Cross-Border Insolvency (1997) available at https://uncitral.un.org/en/texts/insolvency/modellaw/cross-border_insolvency
2. UNCITRAL Legislative Guide on Insolvency Law Part 2 https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/05-80722_ebook.pdf Page 167 Point 20.
3. (1) Where the liquidator or the resolution professional, as the case may be, is of the opinion that the corporate debtor has at a relevant time given a preference in such transactions and in such manner as laid down in sub-section (2) to any persons as referred to in sub-section (4), he shall apply to the Adjudicating Authority for avoidance of preferential transactions and for, one or more of the orders referred to in section 44.

This article is written by Bhagyashri Neware, LLM student from Maharashtra National Law University, Aurangabad.

Introduction

A company is a legal entity formed by a group of individuals to get indulged in business. Companies in order to gain profits and reduce competition from the market often involve in activities like mergers and acquisitions. Mergers and acquisitions are a type of reconstruction that helps in expanding the business. Reconstruction is the building up of a completely new structure or description of which one has only a few parts or only partial evidence. In the case of John Holt Nigeria Ltd & Anor v. Holts African Workers Union & ors, Ademola CJN held that it was lawful for the company to re-organize by way of a reconstruction plan to improve its business and profits. Mergers and acquisitions are terms describing the consolidation of companies or assets through various types of financial transactions. Mergers refer to a process when a larger company or company of similar size merges to form a single unit. Acquisitions happen when a larger company acquires a smaller company.

Mergers and Acquisitions in other words can be stated as a business tactic in which the senior executives of the companies foresee the market strategies of economic growth, market competition, higher revenues, and adhering to higher synergies by merging or acquiring a target company to create a higher share in the market. Microsoft acquisition of Intuit (1994-1995); In 1994, Microsoft proposed a deal that would be the largest acquisition ever made in history. Microsoft saw an opportunity in Intuit’s recurring fees for processing online check-writing transactions. If the deal would have fixed Microsoft would have accounted for 90% of the market. The deal was later called off as the U.S. Justice Dept. of April 1995 sued to stop the deal, stating that the combination could lead to higher prices in the market and less competition. In June 2022, the largest acquisition ever made was the takeover of Mannesmann by Vodafone occurred in 2000. Vodafone, a mobile operator company, acquired Mannesmann, a German-owned industrial conglomerate company.

Mergers and acquisitions are some of the best business restructuring processes that have gained substantial prominence in the present-day corporate world. Virtual mergers and acquisitions have become a trend, especially in Covid period but during Covid lockdown mergers and acquisitions were down by 57% in 2020 as compared to 2019.  The modern world requires creative space for the management of its affairs. Mergers and acquisitions help in getting the required technology and the labor for running that technology.

Types of Mergers and Acquisitions Transactions

• Horizontal- Horizontal merger happens when companies with similar kind of work merge together. This type of merger kills the competition in the market and increases revenue.
• Vertical- Vertical merger takes place between a company and its supporting small businesses. This helps in expanding business by expanding in the early stages but which later leads to reducing the cost of purchasing.
• Conglomerate- It is between companies with a completely different types of businesses. It is usually for diversification reasons. Usually, at the time of off-season or when a certain business is growing through losses, it is important that the businesses must have a certain level of investment in other businesses set up to overcome losses from one side of the business.
• Concentric- When two companies operate in the same business but it is not identical but rather complementary to each other merges.

All these types of mergers have their own significance in the corporate business. All the mergers revolve around the fact that the acquirer company wants to gain profit, eliminate competition from the market, keeping themselves updated with technological advancement.

Forms of Integration

• Statutory- When an acquirer company is much larger than the target company, the acquirer company after acquiring the target company takes all the assets and liabilities of the target company and that company ceases to exist as a separate entity.
• Subsidiary- In this form of integration, the target becomes a subsidiary to the acquirer and also maintains its business.
• Consolidation- In this type of integration, the earlier identity of both the companies ceases to exist and a completely new entity is formed.

The word integration suggests coming together for a cause. Here, companies integrate for meeting their company’s goals and objectives.

Forms of Acquisition

• Stock purchase: The acquirer pays the target entity shareholders cash or shares in exchange for shares of the target company. Shareholders also bear the tax liability.
• Asset purchase: The acquirer purchases the target’s assets and pays the target directly. The acquirer will not assume any of the target’s liabilities.

Mergers and Acquisitions Deal Structure

It is a binding agreement between the parties involved in a merger or acquisition. It states what each party involved is entitled to and what they are obliged to do according to the principles laid down by the agreement. Deal structure is simple terms, talks about the terms and conditions of a merger and acquisition. The deal is made on the basis that the top priorities of both the parties are kept upfront and it is made sure that they are satisfied, along with the risk that each party must bear. Three ways of structuring M&A deals are asset acquisition, stock purchase, and mergers.

Stages in Merger and Acquisition

1. Merger and Acquisition Strategy Process:  The first step is to look at the accelerating business through mergers and acquisitions. The factors involved for the same can be location, raw material, technology, labour, skills etc.  Another most important factor is to arrange finance through loans, cash etc. The third step is to look for a suitable company which can match the expectations lay down by the acquirer company. It is very important to develop a preliminary valuation with the target company.
2. Target Identification Strategies:  In this stage of merger and acquisition, it is important for acquirer companies to have a strong research work setup for target identification. The future course of actions and estimated profits are calculated through customer choices, technological setup, management etc. of both acquirer and the target company before merging or acquiring its business. Before entering into the transactions of merging or acquiring it is very important for an acquirer company to produce a list of target companies, to know the risk involve in such transactions, take advice from the market experts etc.
3. Information Exchange:  When both parties agree to go ahead with the deal the documentation process starts. A binding legal document is formed to carry out the process of mergers and acquisitions. After that, the entities share their company details with each other to know about the position of both the companies.
4. Valuation and Synergies: Both the parties wish to strike a deal where they can earn profits. Agreement is reached between the parties only when both the parties feel that the offer is reasonable. Buyer tries to assess the situation by keeping in mind the perks of the target company which won’t be possible without the merger and acquisition.
5. Offer and Negotiation: At this stage, an offer is given to the shareholders of the target company. Both the parties try to negotiate the prices to strike a deal that can be beneficial to both of them.
6. Due Diligence:  Due diligence includes a review of the target entity including products, customer base, financial books, human resources etc. The objective is to ensure that information is correct based on which the offer was made. In case of any wrong information, revision is done to justify the actual information.
7. Purchase Agreement: At this stage of Mergers and Acquisitions a draft of the agreement is outlined about the cash and stock to be given to target shareholders. It also includes the date and time of the payment.
8. Deal closure and integration: After the purchase agreement, both the parties close the deal by signing the document and the acquirer company acquires the target company. The management staff of both companies works together to act as a single identity.

Each and every step of mergers and acquisitions is important and requires various skill sets, research, time, and resources to fulfil. Any mistake regarding any of these steps might result in huge losses. The merger of America Online and Time Warner is one of the biggest failures in the history of mergers and acquisitions. The managers behind this deal failed to analyze the dynamics of new media landscape and got rushed into getting a new media platform. Thus, the company reported a loss of US$ 99billion- which is one of the largest annual net loss ever reported.

Advantages of Merger and Acquisition

• The common goal of mergers and acquisitions is to create synergies with the mutual perks of the single entity thus formed, which won’t be possible if the companies would have worked separately.
• It provides higher revenues and strong market powers by merging and acquiring a company with upgraded capabilities without having to take the risk of developing the same internally.
• When a company acquires a completely different business it helps it in diversification of cash flows and avoidance of losses during a slowdown in their industry.
• Start-ups usually have skills and knowledge but they lack resources to expand their innovation. M&A provides these start-ups a way to reach out to companies with financial stability and these start-ups will provide human resources to the companies.

Disadvantages of Merger and Acquisition

• Mergers and acquisitions eliminate or reduce the competition in the market. This increases profit for the acquirer company but at the same time, it leads to a substantial increase in prices. The company can now increase its prices thus acquiring the monopoly power in the market. The consumers will not be left with many choices rather than to purchase those products at high prices.
• Merger and acquisition lead to job losses owing to the fact that the acquirer company has its own working staff and thus it takes few people in employment from the target company who are highly skilled. Thus, underperforming staff’s jobs are taken away.
• When the size of an acquirer company increases, the situation might lead to the loss in the same degree of control that earlier prevailed. Workers might lose interest in their work.
• Any mistake in the valuation of the whole process might lead to huge losses.

Laws Governing M&A in India

In India, the process of mergers and acquisitions are court driven and requires the sanction of National Company Law Tribunal. Other than court-based M&A, the legislative reforms have introduced short-form mergers that can be carried out privately without invoking the domain of the courts. On the regulatory front, SEBI has been active in making and implementing regulations governing takeovers.

Companies Act, 2013

Mergers & Acquisitions are governed under the Section 230-240 of Chapter XV of the Companies Act, 2013. It lays down various steps and procedures to be followed during mergers and acquisitions. It regulates and prohibits anti-competitive agreements.

Conclusion

Mergers and acquisitions bring out the idea of extracting the best out of everything. They lead to innovation and growth in various fields. The laws regarding mergers and acquisitions are made in a way to regulate competition and fluctuations in money flows. Mergers and acquisitions have given the corporate world different perspectives looking into business objectives. 

References

1. Wild C. and Weinstein S. (2009) Smith and Keenan’s Company Law; Pearson Education Ltd, 14^th Ed.
2. Aina K.O.; Company Law and Business Associations 1, Law 534, National Open University of Nigeria.
3. Companies Act 2013, Act of Parliament,2013(India).

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This article is written by Rishita Vekta, B.A.LL.B (2^nd Year) student from Lloyd Law College, Greater Noida U.P.