When are the coveted principles of Natural Justice applied in Administrative Law?

Goutham Krishna Gujaral

B.A.LL.B (Hons.)

Natural justice is indeed a humanising principle for it seeks to ensure that law is fair and just and that there occurs no miscarriage of justice. The phrases ‘substantial justice’, ‘fundamental justice’, ‘universal justice’ or ‘fair play in action’ also alludes to the notion of natural justice. It functions on the basis of preconceptions such as ‘man is basically good and hence he must not be harmed’ and ‘one ought to treat others as one would like oneself to be treated’. Though considered a highly noble concept that has much potential, there exists no definition for the same, because the vagueness and ambiguity of the concept is so much so that it has been criticized as ‘sadly lacking in precision’ as per the 1914 decision of R v. Local Government Board, ex p Arlidge[1]. In spite of its flaws, natural justice is widely accepted, adopted and enforced and is considered “an essential part of the philosophy of law.” You may disagree with the previous statement saying ‘uncertainty of law is a cardinal sin’. However, do bear in mind that the vice of said uncertainty is far outweighed by virtues such as greater possibilities of fairness and prevention of miscarriage of justice among others that the law of natural justice offers. Natural justice mandates procedural fairness and hence seeks to make the decision-making process fair and reasonable. Actions of the public authorities are also subject to be governed by the principles of natural justice. Such actions come under the ambit of administrative law for it is the law that deals with the decision-making of administrative units of the government (administrative tribunals, commissions etc).

If one were to trace the history of administrative law, he would stumble up on the conclusion that administrative law flourished as a body of law in the twentieth century because of the creation of more government agencies owing to the newly popular notion of ‘welfare state’. Though natural justice principles were in existence since ancient times, there was little intersection of the same with the realm of administrative law. In fact the very first intersection between the said realms of law occurred in 1963 in Britain in the landmark case of Ridge v. Baldwin[2] where the principle laid down by the Donoughmore Committe, that administrative decisions ought to be immune from the principles of natural justice, was set aside. In the modern day, an administrative body is expected to act with fairness in all instances even if the statute is silent about such application. Miscarriage of justice is thus sought to be avoided in earnest. This common law principle is in use in India and is highlighted by cases such as Maneka Gandhi v. Union of India[3].

The following rules are pre-requisites to the application of principles of natural justice to administrative law:

  1. The right to procedural fairness must be secured for both parties. They should be allowed to access non-confidential information and must be given sufficient time to prepare their case. Hence, both parties ought to be given proper opportunity to present their case.
  2. The persons making submissions are entitled to an opportunity to be heard.
  3. The decision-maker must be an unbiased person as regard to the case concerned. He must be someone who holds no personal interest in the outcome of the case.

Specific instances of application of natural justice principles

Specific instances of application of natural justice in administrative law fall within the ambit of disciplinary actions against:

  1. Government employees: A civil servant of the government cannot be dismissed without holding an inquiry against him and into the concerned matter. He should also be informed of the charges against him for which said inquiry is being conducted.
  2. Employees of public authorities: An employee who is employed under a public authority cannot be dismissed without being granting a fair hearing.
  3. Pensioners: It is impossible for the government to reduce or to withhold the pension of a person without giving the pensioner an opportunity to be heard.
  4. Students: A student who is facing disciplinary action cannot be expelled for he is entitled to fair hearing before appropriate authorities as per the principles of natural justice. The same is so even if his exam results are sought to be cancelled as a disciplinary action. However, it must be borne in mind that said principle does not hold true for expulsions from the institution on the basis of academic grounds.

 

General Instances of application of natural justice

  1. Discretionary powers: Black’s Law Dictionary[4] defines discretionary power as “one which is not imperative or, if imperative, the time, manner or extent of execution of which is left to donee’s discretion.” When a public official, while acting in an official capacity, decides upon an official matter solely on the exercise of his own judgement, he is exercising his power of discretion. In the exercise of such powers, the principles of natural justice must be adhered to so as to ensure that such exercise of said power is not unfettered.
  2. Right to property: Article 300-A of the Constitution of India provides for the right of a person not to be deprived of his property except by authority of law. If a person’s right to property is taken away from him by administrative action, and not by way of any written law, he is entitled to have principles of natural justice applied in case of such deprivation. For instance, in the case of Pratap v. Soni v. Gandhidham Development Authority[5] it was held that, prior to the passing of an administrative order to demolish a house the occupant ought to be given appropriate show-cause notice.
  3. Powers of search and seizure: Powers of search and seizure that are rather extraordinary are given to the State so as to ensure security of the society. The exercise of such powers by the State becomes unwarranted if they do not adhere to the principles of natural justice. For instance, in order to exercise the power of confiscation, the affected party must be given the right to be heard.
  4. Government contracts: In case of the government contracting with a private party, the principles of natural justice ought to be adhered to, provided the action has a statutory basis, as was stated in the case of State of Haryana v. Ram Kishan.[6] By way of the doctrine of fairness, it is thus possible to amend or alter the express terms of such a contract.
  5. Blacklisting: The process of blacklisting disables or disqualifies a person from dealing with the concerned authority of a particular area for certain purposes. It is a relatively modern administrative technique which Wade classifies an oppressive instrument by both legal and constitutional impropriety. In modern India, where corruption is common practice and scams are being exposed every other day, blacklisting is quite common an occurrence. The persons that are proposed to be blacklisted are to be guaranteed a right to be heard.
  6. Replacement of statutory bodies and withdrawal of benefits: Principles of natural justice must be adhered to if the government seeks to suspend or supersede a statutory body such as Panchayat or a Municipal Corporation. If a person is to be stripped of the benefits granted to him by way of administrative action, he must be granted a fair and just hearing.
  7. Licensing: Licensing equips the licensing authority with the power to regulate certain activities. Though cancellation of a license is not strictly an administrative activity, the refusal to grant a license or suspension of license before actually cancelling it constitutes an administrative action. Principles of natural justice must be applied to such cases.

Apart from the abovementioned, there exist numerous instances of administrative action where principles of natural justice must be applied. Deletion of the name of a person from the election roll, termination of citizenship of an Indian citizen owing to him having acquired the citizenship of another country, an application for winding up by a co-operative society due to insolvency etc are a few examples of the same. The fact that it is somewhat a hectic task to enumerate and elucidate such quasi-judicial and administrative functions is testament to the growth of administrative law as a body of law. It is also further testament to the necessity of the application of principles of natural justice to ensure that the concept of fair play is very much in play as far the growing realm of administrative law is concerned.

 

[1](1914) 1 KB 160 (199).

[2] [1964] A C 40.

[3](1978) 1 SCC 248: AIR 1978 SC 597: (1978) 2 SCR 621.

[4]Black’s Law Dictionary (5th Edition)

[5] AIR 1985 Guj 68.

[6] AIR 1988 SC 1301

Privacy and the Media: A Critical Analysis

Sahina Mumtaz Laskar

media

“There are laws to protect the freedom of press, but none that are worth anything to protect the people from the press”………………Mark Twain.

The media in India enjoys a great deal of freedom and when it is threatened, the response is vociferous. Nevertheless, there is the need to maintain a balance between free expression and other community and individual rights; hence this responsibility should not be borne by the judiciary alone, but by all those who enjoy these rights.

The strength and importance of media in a democracy is well recognized. It plays the role of a conscious keeper, a watchdog of the functionaries of society and attempts to attend to the wrongs in our system, by bringing them to the knowledge of all, hoping for correction. It is indisputable that in many dimensions the unprecedented media revolution has resulted in great gains for the general public. Even the judicial wing of the state has benefited from the ethical and fearless journalism and taken suo motu cognizance of the matters in various cases after relying on their reports and news highlighting grave violations of human rights. The criminal justice system in this country has many lacunae which are used by the rich and powerful to go scot-free. Figures speak for themselves in this case as does the conviction rate in our country which is abysmally low at 4 percent. In such circumstances the media plays a crucial role in not only mobilizing public opinion but bringing to light injustices which most likely would have gone unnoticed otherwise.

The Indian media enjoys two fold protections under the Constitution, in the form of Article 19(1) (a) [freedom of free speech and expression] and Article 19(1) (g) [freedom to engage in any profession, occupation, trade or business]. In today’s world, it is very difficult for any medium to strike a balance between responsibility to do good work and the urge to gain more profit and thus on this point the conflict of the media with the privacy of a person is coincided.

It is true that the freedom of media is the very test upon which a democratic nation belongs. Liberty is an essential ingredient of any society. Almost, the Preamble of every Constitution declares a common object, that is – to secure liberty of thought and expression but liberty when disturbs morality becomes a bane rather than a boon. Thus, the media should be aware of its huge responsibility upon the society and work accordingly.

Our Constitutional framers could foresee that if the freedom of press is not regulated without any restriction how it can create havoc in the society and thus they mandated the restrictions upon Article 19(2). But law cannot become enforceable if it is restricted only to books, statutes, Acts etc. Judicial interpretation is a core element for the law to be validated.

Sociological, political, moral and legal implications of surrogacy

surrogacySriansh Prakash and Drishti Parnami
“Surrogacy contracts alienate a woman from her love for the child and frequently involve exploitation. Surrogacy leads to the weakening of the link between parent and child”.
Elizabeth Anderson
ABSTRACT
Indian society is considered to be economically feeble, but ethically and traditionally it is very potent. It is a society which boasts of its ideologies and its anxiety for the welfare of all. The question arises, how a country with such an ideology can legalize renting or loaning a womb of a women’s body. Through this article we aim to draw the attention of the readers towards the growing idea of commercializing surrogacy, firstly, we will be presenting the comparative view of both the thoughts, the one that is in favor of legalizing surrogacy and believes in the liberty of individuals, the other which oppose the above on the grounds of morality and ethics. We also aim to enlighten the readers by screening through this article the brighter and the darker side of the commercialization of surrogacy and we will be further justifying, through various political ideologies and social implications that commercializing or selling a womb of a women’s body is against the natural process and each and everything present on this earth naturally are not preordained to be bought and sold by humans. We will be picturising that the trading of body parts of a human being; in case of surrogacy, the womb of a woman can lead to catastrophic effect on the Indian society. And India, has become the market of surrogacy, contemptible and proficient, we will be critically analyzing the Assisted Reproductive Technologies bill, 2010 that legalize money-making surrogacy in India.

 

“The labor of bearing a child is more intimately bound up with a women’s identity than other types of labor. The work of pregnancy is long term, complex and involves an emotional and physical bonding between mother and fetus.”
Margaret Jane Radin and Carole Patemanstress

Commercialization of surrogacy is a contemporary legal issue, as there is a recent development in the ART technology, and thus, the proper laws regarding this issue has to framed as it is a very sensitive issue bearing with many social, legal, moral and political implications. Through this article we indented to bring the attention of the readers, government officials or the public at the large, towards the Assisted Reproductive technology bill, which was proposed in 2010. This bill claims for insuring the medical, social and legal rights of the surrogate mother and the genetic parents . In the projected bill various guidelines are laid down related to the procedures that the ART clinics have to follow. It includes the rights, duties, offences and the penalties the ART clinics, genetic parents, donor and the surrogate mother hold and has to follow. Also, in the last nearly 20 years have seen an exponential growth of infertility clinics that use techniques requiring handling of spermatozoa or the oocyte outside the body, or the use of a surrogate mother. As of today, anyone can open infertility or assisted reproductive technology (ART) clinic; no permission is required to do so. Therefore, it becomes essential to regulate and keep the check on the clinics, so that the services they are providing are ethical.
In the proposed bill, due moral, social and legal concern has been taken by the drafters, but the bill lacks on certain aspects like due compensation to the woman . In the west up to 50 per cent of the total cost goes to the surrogate mother while in India most of the money is appropriated by sperm banks, ART clinics and lawyers. The Assisted Reproductive Technology (Regulation) Bill 2010 has not touched many of the ethical and social issues related to surrogacy and the rights of a woman and a child. It particularly provides for an agreement, legally enforceable where the surrogate mother can receive monetary compensation.
Commercial surrogacy in India, dubbed as the “surrogacy capital of the world”, is projected to become a whopping US$2.3 billion industry by 2012 . In India poverty rate is 32.7%, i.e. this no. of people lives below the International poverty line thus, and such high level of poverty level makes Indian citizens prone to exploitation from the western countries.
The question here arises is that if the Indian government is legalizing renting the women’s womb that why we can’t we legitimize the renting of women’s body i.e. prostitution. Or selling and buying of organs. Transplantation of Human Organ Act, 1994 has banned the sale of human organs, organ loaning , but the legalization of commercial surrogacy as per Assisted Reproductive technology Bill, 2010 is rendering the above act void.
King Solomon had a case to decide where there were two claimants of a baby. The fate of this baby was in the hands of the king, the claimants of the baby were not ready to give up their respective claims on the baby and hence, the king ordered the baby to be separated into two equal halves and give each claimant their shares. The mother on hearing this was shattered and she immediately gave up her claim on the baby. King Solomon gave up the baby to this woman who was the actual mother of the baby. This case which was decided by the King to meet the true ends of Justice also highlights another phenomenon which is the relationship a mother shares with her child and this very special bond especially in the Indian context holds a very vital place.
Giving birth to a baby is not a manufacturing process rather it is the amalgamation of a very special bond which starts to develop when the fetus is in the mother’s womb.
“Surrogacy”, means an arrangement in which a woman agrees to a pregnancy, achieved through assisted reproductive technology, in which neither of the gametes belong to her or her husband, with the intention to carry it and hand over the child to the person or persons for whom she is acting as a surrogate.
According to the ART bill, 2010, estimated data of the infertility rate is 15% of the world. Total fertility rate of India is 3 per woman, whereas, the fertility rate per woman is 2 in United State. Moreover it is to be noted that the rate of infertility in India is due to the lack of proper health care facilities and not because of biological reasons. A country that has fertility rate of 3 per woman and the population of 1,241,491,960 is not in any need of promoting surrogacy.
Adoption V. Surrogacy
It is estimated that there are 160 to 200 million orphans worldwide . To have an idea of the enormity of the numbers compare it with the population of Unites states which is just 300 millions. Also, it is believed that most of the orphans, due to lack of care and affection, divert into criminal activities, which is again the problem that any society or state has to face. There are over 25 million orphans in India. 5,000 children under the age of 5 die every day in India due to preventable causes. More than 60% of women in India are chronically poor. India has the highest child malnutrition rate of the world’s regions.
Indian government, instead of promoting commercialization of surrogacy, should divert its concentration towards the improved health facilities of the millions of women and children. In India, the infertility rate is estimated to be 10% in Indian women 98% have secondary sterility they have been pregnant at least once before but are unable to conceive again. Their problems are due to untreated disease, poor health care practices or malnutrition. Most of these can be avoided through effective antenatal and postnatal care and through good primary health care with basic facilities to diagnose and treat infertility.
Millions of children are living without love, affection and proper care all over the world, thus any government or authority instead of encouraging the complex process of surrogating, which can render the health of the surrogate mother, the child in risk, as bearing the child is a very complex and a risky procedure. Also the Mother Mortality rate in India is 253.8 , which is very high as compared to the first world nations. In Italy it is only 3.9, whereas in US 16.6 . Thus, as per the Indian medical conditions, there is a high threat implicated to the woman’s health, who is bearing a child.
Indian government, instead of catering the needs of the western society for the need of the child, concentrates its attention towards requirements of its citizens.
Surrogacy can be opposed on various grounds one such reason is that surrogacy is exploitative. Outsourcing surrogacy to India further degrades the women and takes advantage of their poverty and lack of opportunities. The status of women in India is already brow beaten and critics of commercial surrogacy put forward a common objection that gestational labor is different from other types of labor.
A divide of the feminists believes that surrogacy brings with it a freedom of the woman to choose and thus promotes gender equality. Satz strikes on this contention,” commercial surrogacy allows women’s labor to be used and controlled by others and reinforces stereotypes about women, e.g.:- pregnancy contracts give buyers substantial control rights over women’s bodies, right to determine what the woman eats, drinks, reads, etc.” This opinion of Satz leaves us on another important question: – Are woman baby-machines?
Another important political connotation which is closely attached to surrogacy is that, what are the moral limits of market i.e. Are there something’s in this world which money can’t buy or everything is up for sale; only one should be capable of paying?
“There are, in a civilized society, some things that money cannot buy.”
Treating children as commodities degrades them by using them as instruments of profit rather than cherishing them as persons worthy of love and care. Contract pregnancy also degrades women by treating their bodies as factories and by paying them not to bond with the children they bear.
Elizabeth Anderson advances a compelling version of this argument. “By requiring the surrogate mother to repress whatever parental love she feels for the child,” Anderson writes surrogacy contracts “convert women’s labor into a form of alienated labor.” The surrogate’s labor is alienated “because she must divert it from the end which the social practices of pregnancy rightly promote—an emotional bond with her child.” Commercial surrogacy challenges the conventional assumptions of maternal bonding which is based on the concept of natural and instinctive link between the mother and her fetus/child. Recently researchers have contested this assumption and argued that most surrogate mothers do not bond with the babies they relinquish to the social parents. The detachment has been measured by the success rate of relinquishment, percentage of surrogates reporting satisfaction with the process and evidence of no psychological problems as a result of relinquishment. I draw on my findings on gestational surrogacy in India to contend that maternal bonding is effectively an emotion integral to the physiological process of child birth and is deeply rooted in the cultural context of motherhood
In her critique of commercial surrogacy, for example, Elizabeth Anderson avoids the suggestion that the norms of the market are in principle unattractive or anti- egalitarian, but focuses on where these norms legitimately apply. ’To say that something is properly regarded as a commodity is to claim that the norms of the market are appropriate for regulating its production, exchange and enjoyment’: this suggests nothing particularly disreputable in market norms. The problem, for Anderson, arises when these are applied to the way we allocate and understand parental rights and responsibilities or the way we treat women’s reproductive labor, for when this happens, ‘children are reduced from objects of love to objects of use’ and women ‘from subjects of respect and consideration to objects of use’.
Political philosophers offer two objections to the commoditization of certain transactions. The first focuses on coercion; exchanges that are driven by severe inequality, ignorance, or dire economic necessity are problematic. The second objection focuses on corruption and holds that the market has a degrading effect on certain goods and practices. As the Baby M case unfolded, both objections were aimed at surrogacy, effectively framing the transactions as illicit commoditization. Opponents claimed that surrogacy unfairly exploited poor women who unwillingly entered contracts that they would come to regret. Critics also claimed that surrogacy degraded children and women by treating children as commodities to be exchanged for profit and women’s bodies as childbearing factories; the arrangements also degraded the mother–child relationship by paying women not to bond with their children.
Surrogacy arrangements were not completely unfamiliar to lawmakers or to the public in 1986, when the Baby M story first attracted media attention. In the early 1980s, a few courts had addressed whether surrogacy contracts were enforceable, and in 1986 a bill regulating (but allowing) the enforcement of these novel arrangements was under consideration in the New York legislature. Surrogacy had also received some media and academic attention. But the Baby M case—a dramatic and emotional legal battle between a housewife who had dropped out of high school and a couple with graduate degrees and professional careers who sought to have a child with her assistance—focused national attention. Many argue that surrogate arrangements depersonalize reproduction and create a separation of genetic, gestational and social parenthood. It is also argued that the child is conceived not for their own sakes but for another benefit.
What is the degree of stress on the couple and on the surrogate mother? Can anyone predict the intensity of emotions attached to that baby? What are the adverse psychological effects on the child when it is separated in his early infancy from the mother giving birth? What identity crisis might ensue a? Will there be desire on the part of the child to know his gestational father or mother?
Will surrogate arrangements be used only for infertile couples or even for same sex couple or just for the sake convenience of the couple who want the child but are not ready to bear pains for that?
What happens when the child is born handicapped and no one wants it? Should the surrogate and the couple be unknown to each other? Should the child be told or there should be total confidentiality? What if wife’s sister donates the eggs and the husband’s brother donates the sperms and the fertilization in vitro is carried out and subsequently it is implanted into the wife’s uterus? When after the multiple implantation the time comes to selective abortion, what criteria should be applied and which fetus is to be aborted? Will there be sex selective abortion?
The ends do not justify means. In the market of reproduction it is seen that the sperms and the eggs are sold and wombs are rented. The use of technology to bear a child by such means is contrary to the unity of marriage and the dignity of procreation of human being.
By passing the natural method of conception, fertilizing more embryos than needed, discarding excess embryos, unnatural environment for embryos, freezing them and destroying them in research are the issues involved in misuse of technology. If during the time in which the embryos are in storage if the couple divorces what is to be done with it and by whom? The religious concepts believe that life begins of at conception; it may amount to abortion which is contrary to both law and ethics. Since more embryos than required are fertilized in the lab, the spare embryos are frozen. In the process some of them are killed. The remaining embryos are human lives that, given a chance, would develop in to a man or women. They are used even for experimentation which can be fatal to them. Donation of sperms or ova involves separation of biological and social roles of parenthood and is equivalent to adoption. In this view there needs to be change into the adoption laws. Surrogacy contracts reduce the embryos/children to the objects of barter by putting a price tag in them which is immoral and illegal as well.

Moral aspects
“You say that you gave me everything and I should be grateful. But I am the product that was sold. You say that you wanted me so much that you bought me. But I am the product that was sold. I am the product that was sold.”
In a society, no human can live detached, each person is related to the other. Morality is all about the idea of relationship that is shared between persons, and we act immorally when we harm others. According to Emannuel Kant , a human being is end in himself, he cannot be used as a means to achieve the end, if a human is used as a means then the act is immoral. Any principle would be considered as moral when it can be applied universally. Hence if surrogacy harms those relationships which contribute to our flourishing as human persons then it must be considered morally wrong. In the whole idea of surrogacy, the surrogate mother is used as a means to achieve the end; that is the desire to bear the baby of the infertile couple which accordingly is the immoral act. Also, parents seek surrogacy as a means of strengthening their own relationship through carrying out the role of parents. If they do not, then it seems to me we return to the question of whether the child is seen as a means to an end.
Another problem is raised when the ovum and the sperm is both supplied by the parents, and the surrogate role is limited to the period of gestation, this relationship between the birth mother and the child cannot be viewed lightly, this relationship is important as the genetic relationship as argued by many feminists. If so, then the issue of parenthood is distorted. It is the importance of the various relationships involved in surrogacy and the harm which is done to the persons whose relationships are made so indefinite that is of moral importance here . Also, an important consideration is that the surrogate who is the third party between the relation of husband and wife constitutes the destructive element which erodes the intimacy which exists in an intimated, exclusive and committed relation.

Social issues
New reproductive technology claim to help human beings through creative interventions that reduce suffering and have the potential to transform the society. The commercialization of surrogacy however creates several social conflicts rather than resolving a few. It generates the family pressure on pure women to offer their wombs for a price. In the other part in the world the debate is focus on the ethics of surrogacy rather than on the economic advantage of any particular region. On the other hand the economic advantage is the main criteria behind going for surrogacy. Majority of the women becoming surrogates are extremely vulnerable due to poverty, lack of financial resources, low educational levels. For them the financial gain is the key factor. This makes their economic exploitation much easier for the agents for commissioning parents.
The surrogates often face the dilemma that being a surrogates is socially unacceptable when the frankly accept monetary consideration. So rather than tell their neighbors that they gave away their child, they tell them that the baby died.
As the surrogacy involves implantation of multiple fetuses, the unwanted fetus is aborted during the course of development. The misuse of PNDT in the process can eliminate the female fetus resulting into imbalance of sex ratio in the country.
There are cases where the surrogate mothers have refused to part with the baby. In other cases the commissioning parents have refused to accept the child with the deformity. Baby Manji’s case as there was divorce between the commissioning couple the problem arose as to the custody of the new born baby. In many cases, the caesarean delivery needs to be performed. For such surgery the consent of surrogate mother is to be obtained. Her refusal may imperil the life of the child. Confusion also exists where a surrogate mother fails to take standard care and precaution during pregnancy as a result of which harm is caused to the fetus. The high aspirations of the intending parents are ruined because of this.
Surrogacy can also affect the children’s perception of the values and integrity of their family. Secrecy and anonymity create a negative environment that affects human relations within and outside families. It also involves the issues of children’s right to information about the identity of their parents. Secrecy and anonymity are routed in the social value of the primacy of ‘blood relations’. The present practices push such children into a search of identity, a sense of shame and anger against their social parents an open
Cost involved in surrogacy: The relative costs involved in the surrogacy process are probably the largest incentive for foreigners to travel to India. A commissioning party can expect to pay $14,000 to $18,000 to a gestational surrogate in the United States Total costs for contracting with a surrogate mother in the United States fluctuates between $59,000 and $80,000. India’s current costs are markedly lower than American standards.
In the country where annual per capita income is $500, fees for surrogates are reported to range anywhere from $2,500 to $7,000 .
Hence, in the conclusion we would like to say that the people of poor country got the very lucrative business of earning easy money by loaning their organ, thus, when people are having an opportunity of becoming affluent, without hard labor, then the question arises, why people, would like to work and earn money, when they have an trouble-free source to earn it? The result would be disastrous, as we are giving a wind to an industry in which we are endorsing the hiring of wombs and we are measuring the baby in terms of money. Thus, question that comes in our mind does humans have enough power that now, they can now even encroach the internal organs of human body, as they have already impinged the nature (land, water, animals etc.) for the creation of money and economic boon. Does, there is no regulating authority which can ensure the limits of human conduct.
No doubt, surrogacy is the process, wherein, a woman can effortlessly earn a ransom amount of money, and can fulfill all her needs and desires. But, is it ethical, to do so? Prostitution, selling of organs, robbery, theft, gambling, smuggling and in various other acts, a person can make a lot of money, but does any government authority, legalize it? Also it is feared that if surrogate motherhood becomes a legal ‘business’ then soon educated working women will start hiring wombs to prevent a break in their career! To take an extreme scenario, baby ‘factories’ could spring up.
Every act cannot be counted in terms of money; the moral and ethical issues are involved and well thought-out while the commission of every act, then isn’t it is eccentric, that our legislature is ignoring moral and ethical aspects, while drafting the ART bill: which indirectly commercializes surrogacy. We aim that our legislature passes a law which caters the need of the public at large and which is beneficial for all. There should be no law, which degrades the status of any gender. At the end, a good law is the one, which apart from economical and financial issues caters the ethical and moral sides of the society also.
Conclusion
Commercial surrogacy i.e. buying and selling of the womb of the women’s body, is according to us, an immoral act, the legalizing of commercial surrogacy should not be promoted. Though this procedure is a very effortless method to make money, but its promotion and legalization would lead India to be one of the hubs of the foreign developed nations of surrogacy. Poor, destitute Indian women would become the means for bearing the baby, and exploitation by the rich, powerful infertile couple. In India, as of now, there is no need to legalize and promote commercial surrogacy, as the infertility rate of the country is not very, also, the country has lot more needs to cater, such as, paucity, malnutrition, a country which is itself so chronologically so poor, first require to improve the condition of its own citizens rather than to gratify the requirements of the infertile couple of the foreign countries and make a provision for its citizens for trouble-free source of earning money; which would affect the economy also.

Case analysis for the subject of Penology, Victiomology & Correctional Administrational

 Smt. Sashi Nayar v. Union of India and Ors.

                                                       CONSTITUTIONAL BENCH

 

The writ petition was filed in the Hon’ble supreme Court of India under Article 32 was entertained by a Division Bench headed by Justice K. N. Singh on 25.10.91 regarding one of the four submissions made by the counsel for the petitioner, Mr. Ravi. K Jain, that the execution of capital punishment by hanging is barbaric and dehumanising which should be substituted by some other decent and less painful method in executing. After allowing the petition the matter was referred to the Constitutional Bench constituting Justice K N Singh, Justice P B Sawant, Justice N M Kasliwal, Justice B P Jeevan Reddy and Justice G N Ray.

 

QUESTION OF LAW TO BE TAKEN INTO CONSIDERATION:

 

The case is in the form of a writ petition filed in the hon’ble Supreme Court of India under the Court’s writ jurisdiction under article 32 of the Indian Constitution. The moot question which is to be decided by the Supreme Court is that whether the mode of execution of death sentence by hanging is barbaric and dehumanising and whether it should be substituted by some other decent and less painful method in executing the sentence.

 

FACTS OF THE CASE:

 

Narrating the facts of the case briefly, Raj Goapal Nayar, the petitioner’s husband was tried for offence under Section 302, IPC for having killed his father and step brother. The Sessions Judge by his judgment and order dated 24.4.1986 convicted Raj Gopal Nayar and awarded sentence of death. On appeal, the High Court confirmed the death penalty and dismissed Raj Gopal’s appeal against the order of the Sessions Judge. Raj Gopal thereafter filed a special leave petition before this Court challenging the judgment and order of the Sessions Judge and the High Court, but the special leave petition was also dismissed by this Court. Review petition filed by him was also dismissed. Consequently, his conviction and the sentence of death stood confirmed by all the courts. [1]

Thereupon, he filed mercy petitions before the Governor of Jammu & Kashmir and the President of India, but the same were rejected. ‘He challenged the order of the President of India rejecting the mercy petition before this Court by means of a writ petition under Article 32 of the Constitution, but the same was also dismissed. Another writ petition under Article 226 of the Constitution was filed before the Jammu & Kashmir High Court for quashing the sentence imposed on him but the same was also rejected. As the legal proceedings before the court failed, he was to be hanged on 26.10.1991. Smt. Shashi Nayar, the petitioner, thereupon filed the present petition under Article 32 of the Constitution before this Court challenging the validity of the capital punishment with a prayer for the quashing of the sentence awarded to Raj Gopal Nayar. The petition was entertained by a Division Bench on 25.10.1991 and the matter was referred to the Constitution Bench for consideration, and meanwhile the execution of the condemned prisoner was stayed.[2]

The division bench held that the capital punishment as provided by the law is to be awarded in rarest of the rare cases and the procedure established by law for awarding the death penalty is reason- able and does not in any way violate the mandate of Article 21 of the Constitution. The death penalty has a deterrent effect and it serve a social purpose, having regard to the social conditions in our country the stage was not ripe for taking a risk of abolishing it. A judicial notice can be taken of the fact that the law and order situation in the country has not only not improved since 1967[3]but has deteriorated over the years and is fast worsening today. The bench considered the present era as the most inopportune time to reconsider the law on the subject. The division bench allowed the appeal on the ground of mode of execution of death penalty and referred it to the constitutional bench. The case laws which were cited for the Court’s above mentioned reasoning were Jagmohan Singh v. State of U.P[4]and Bacchan Singh v. State of Punjab[5].

Judgment and reasoning of the Supreme Court: –

The constitutional bench dismissed the petition on the ground that hanging is the least painful and the most scientific mode of execution of death penalty. The case of Deena alias Deen Dayal & Ors. etc. etc., v. Union of India & Ors. etc. etc.[6], was mentioned by the judges in  which the method of execution of death penalty was discussed in detail. In this case, it was held that hanging by neck was a scientific and one of the least painful methods of execution of the death sentence. The Court did not find any justification for taking a different view. The counsel for the petitioner urged in front of the bench to reconsider the question of mode of execution of death sentence by hanging. Since the question of the mode of execution of capital punishment has already been considered in the above stated case, the court did not think of reconsidering it.

CONCLUSION

This case law is one of the landmark case laws when it comes upon discussing the mode of execution of death sentence by hanging or the methods of execution of death sentence’ death penalty. The judges were prudent enough to understand the requirement or need of having death penalty or capital punishment in the present legal system. The judgment delivered here determines the intellect of the jury deciding the case. The death penalty is the requirement of the day as per me and I think that we should not talk about abolishing it at this juncture of time when the law and order situation has worsened and the crime rate has increased rapidly which includes brutal crimes against humanity like terrorism and holocaust. The crimes against women have increased and there are cases like Ramsingh and Ors. V State[7], which require the existence of death penalty in our legal system or else the magnitude of punishment awarded in comparison to the rate of crimes will lead to questioning of entire criminal justice system.



[1] Infra 2

[2]These facts have been directly copied from www.manupatra.com. The Citations for the case of Smt. Sashi Nayar V Union of India are 1992 AIR 395 1991 SCR Supl. (2) 103 1992 SCC (1) 96 JT 1991 (4) 196 1991 SCALE (2)919

[3] The submission made by the counsel for the petitioner, , that in 1967, the Law Commission was of the opinion that the country should not take the risk of experimenting abolition of capital punishment. His contention was that since then the scenario has changed and improved.

[4] [1973] 1 SCC 20

[5]  [1979] 3 SCC 727

[6]  [1983] 4 SCC 645

[7] Celebrated/ infamous Delhi gang rape case, (December, 2012)

A need to impose Income Tax on the Babas

Author:Arti

In 2012, ‘Oh My God’ (OMG) movie portrays the issue of ‘religious fanaticism’ in India and revealing the extreme side of the religious belief and its consequences. The movie also brings out the dark truth of the Hindu Babas and their befooling of the illiterate Hindu devotees and looting them in the name of faith. Kudos to director Umesh Shukla and his entire cast and crew in dealing with this issue!

With the coming up of the movie, we have witnessed the fraud and scams of many Babas at the same year to name a few were Nirmal Baba, Sai Baba and now Asaram Bapu. They gather a darbar or samagams hatching a plot to cheat the poor who supposedly visit them to resolve their problems. So many devotees they have, so many speech they deliver and their so called ‘ashirwaads’ and baseless solutions to those innocent devotees and extracting money from them.

Alert to the true face of these Babas, many people has started complaining against them. In 2012, an FIR was lodged against Nirmala Baba for extorting thousands and thousands of money in a fraudulent way. He became the controversial Baba whose unaccountable money was seized and later was convicted under the Prevention of Money Laundering Act. Dated on May 12, 2012 in ZNews a victim to cheater Nirmal Baba complained that the latter cheated him of Rs 31, 000 by promising cure for his ailment, but he did not find any relief.

Even the self-styled godman, Asaram Bapu had a raid recently whose 10000 crore wealth is accumulated in the forms of bank accounts shares, debentures and government bonds. Thus, these Babas preaching faith are extracting huge amount of Fund without any possibilities of paying income tax. In this regard, Economic Matters Advocate should deal with it seriously.

Making money in the name of religion and fearing dates back to the early 18th Century where Jonathan Swift in his ‘A Tale of a Tub’ satirises the religion which changes its principles for the sake of gaining power and money. People in most parts of India willingly succumb to these useless Babas preaching nonsense. The Bible (chapter 23, verse 27) quotes Jesus by saying, “Woe to you, teachers of the law and Pharisees, you hypocrites! You are like whitewashed tombs, which look beautiful on the outside but on the inside is full of dead men’s bones and everything unclean.”

Babas are nothing but a bunch of fools loitering among a huge crowd of masses who apparently are not God loving people, but are God fearing people. Although they are being investigated and are getting arrested,  a noted Corruption Matters lawyer dealing with money laundering probes on this by saying, “Arrest is not a solution at all. The trusts they run are funded in the name of donation and they don’t need to pay Income Tax which is why these Babas are super rich. In order to stop such streamlined business of them, Income Tax Law should be imposed on them as soon as possible.”

Rights Of Students Under Right To Information Act 2005

Author : N.Manasa Reddy

INTRODUCTION :

Right to Information (RTI)  is the right of every citizen in India. Student is also a citizen of India. As  applicability of  RTI is vast, so the object of the paper is confined to students so that students could gain their entitled information and secure admissions in educational institutions of their choice.

IMPORTANCE OF INFORMATION:

In the present day public activity, information is an essential part and it helps in taking right decisions in right time. Securing information is a right of every citizen and providing information is a duty of every public official. “Information” is now a Fundamental Right as held in a Supreme Court case (  S.C. Technology and National Resources Policy  Vs Union of India 2007(11)scale75). Therefore, denial of information to any person by a public authority leads to infringement of Fundamental Right.

Information is useful to students  in many ways  like  information  relating to  cut off marks in admissions in educational institutions,  cut off marks in  competitive  exams etc. Under RTI Act , every student has a right to know the functioning of every Public Authority i.e. universities  and other educational institutions, which are also declared as Public Authorities[1].

WHAT IS PUBLIC AUTHORITY:

According to section 2(h), of RTI 2005, “public authority” means any authority or body institution of self-government established or constituted –

  1. By or under the constitution
  2. By any other law made by parliament
  3. By any other law made by state legislature
  4. by notification issued or order made by the appropriate government and included any –

–         body owned , controlled or substantially financed

–         non-government organization substantially financed directly or indirectly by funds provided by the appropriate governments

 

In several cases, High Courts in India have held that educational institutions also come under the definition of Public Authority. Under RTI Act , it is held that schools and colleges receiving grants from government are Public Authorities[2]. The government institutions and the authorities set up under the notification issued by the government in exercise of their executive power or owned or financed or controlled by the government are also come under the definition of Public Authority[3]. It means universities and other educational institutions are Public Authorities, therefore, every student is entitled to receive the information relating to his education.

WHAT IS INFORMATION :

According to section 2(f) , “information” means any material in form , including records , documents, memos, e-mails, opinions, advices, press releases, circulars, orders, log books, contracts, reports, papers, samples, models, data material held in any electronic form and information relating to any private body which can be accessed by a public authority under any law for the time being in force.

But all information cannot be given, there are some restrictions in providing information and there are some exemptions under RTI, under which Information cannot be given.

WHAT ARE THE EXEMPTIONS AND RESTRICTIONS :

Under section 8 of RTI Act, there  are certain exemptions given in RTI Act pertaining to national security , integrity , sovereignty , intellectual property  of country ,  and as regards students are concerned information relating to evaluation of marks in answer sheet was restricted, but  with a recent Supreme Court Judgement[4] that  evaluated answer books are open documents, the examining bodies will have to permit inspections sought by the examinees, with limited restrictions like those portions of answer books which contain information regarding the examinee  or which may disclose identity with reference to signature or initials shall be removed , covered or otherwise severed from the answer book under section 10 of RTI Act.

DYNAMICS- WORKING :

The main essence of RTI Act is to provide information within a specified time, failure to provide information to any citizen, in a specified time limit attracts penalties besides disciplinary action to any public official.

Under section 6 of RTI Act, any person who desires to obtain information shall make a request to the Central Public Information Officer CPIO) or the State Public Information Officer (SPIO) of the concerned public authority as the case may be. The Public Information Officer (PIO) should provide the required information within 30 days to the applicant if the applicant is not satisfied with the information given or if information is not furnished, then applicant may either file a complaint under section 18(1)[5] directly to the Information Commission or he may appeal to 1st Appellate authority under section 19(1)[6] for not receiving the information from PIO. If the applicant files an appeal under 19(1) and if he is not satisfied with the information given or if the information is not provided, then the applicant may within 90 days (from the date on which the decision should have been made or actually received) file 2nd appeal under section 19(3)[7] to the Information Commissioners. Then the Information Commission calls the case for hearing, and gives its decision depending upon the facts of the case.

Under Section 11 of the RTI Act provides procedure for disclosure of “third party information.” In case a student wants to seek information pertaining to know the marks secured by the topper ( third party) in entrance exam,  it is mandatory to give notice to third party  and only with the permission of third party, the information can be provided as  held in Arvind Kejriwal vs Central Public Information Officer (PIO)[8].

SUCCESS STORY[9]:

It is a story of student RTI activist  who has enforced attendance of school teacher. There’s a teacher in a remote village in  Tehri district of  Uttarakhand State   who was not attending the school regularly. A  student, Mahavir who heard a lecture on RTI,  became  RTI activist. He was vexed with the irregular attendance of the teacher and he filed an application under RTI requesting the officials of the Educational Department “to inform the number of days the teacher attended the school during the last 3 years.” The district officials enquired into the matter and it was  found that the teacher was not properly attending school. The District Educational Officer warned the teacher. Since then, teacher was regular in  attending the school. In this way RTI enforces attendance of the teacher and helps in academic excellence of  the  students.

CONCLUSION :

Like others, Students have the right to know the functioning of every public authority. They should make use of RTI Act in all their streams of life  and improve their career prospects in such a way that they contribute to the national development. Now civil societies and the Governments are also creating awareness campaigns on utility of RTI and rightful usage of RTI  which  paves the way for good governance of our country.



  1. karnataka H.C,AIR2006(NOC)145(Kant)
  2. Bombay H.C,AIR2011(NOC)Bom.137
  3. Karnataka H.C,AIR2006(NOC)145(Kant)
  4. Central Board of Secondary Education and Aur vs Aditya Bandopadhyary and ors.
  5. 18(1) :it is the duty Information Commission to receive and inquire into a complaint from any person.
  6. 19(1) :any person who does not receive the information within the time specified , then the person may appeal to an officer who is in senior rank to PIO.
  7. 19(3) : Second appeal shall lie within 90days from the date on which the decision should have actually made or actually received with the Information Commission.
  8. Arvind Kejriwal vs Central PIO and Aur(20011)105CLA67(delhi).
  9.  source  eenadu 12 october- annual report 2010 A.P.. Information Commission page 48

THE RIGHTS OF JOURNALIST

logoTHE RIGHTS OF JOURNALIST

Author: Tanya Raj

 

What is the extent of the right to gather news?

The question arises on a daily basis for journalists around the country.Reporters and photographers are told by police that they cannot enter a crime scene, are threatened with arrest for not moving where police order them to move, or are ordered out of a building or an area where a newsworthy event is taking place.

Unfortunately, courts have not been good at clarifying what the news gathering right entails. In a landmark case about the reporter’s right to keep sources confidential, Branzburg v. Hayes, the U.S. Supreme Court noted: “We do not question the significance of free speech, press, or assembly to the country’s welfare. Nor is it suggested that news gathering does not quality for First Amendment protection; without some protection for seeking out the news, freedom of the press could be eviscerated.” The Court introduced this defense of a free press simply to state that forcing reporters to testify about sources is not covered by this constitutional protection. And in the years since the 1972 Branzburg decision, the high court has never spelled out that protection.

In two subsequent cases involving media access to prisons — Pell v. ProcunierandSaxbe v. WashingtonPost — the Supreme Court declined to extend this access right any further. The majority of the court concluded that as long as restrictions treat the media and public equally, they raise no constitutional questions.

After the prison access cases, the Court later found in Richmond Newspapers Inc. v. Virginia that the public and media have a First Amendment right to attend criminal judicial proceedings, which reinforces the idea that newsgathering is constitutionally protected. And in Globe Newspaper Co. v. Superior Court, the Court noted that because the right to publish news depends on the ability of the media to gather information, restrictions on the right to gather news diminish the right to publish. But these standards have been so far limited to the realm of access to court records and proceedings, and, in fact, the high court has not extended the access right to civil proceedings.

Some lower courts have granted the media special news gathering privileges in specific situations where the public does not have access. But most of these decisions fail to clearly define the scope and nature of these privileges.

So what does this mean as a practical matter to the average journalist? Courts will generally defer to police and other officials if they interfere with reporters in the name of managing an emergency scene or protecting the public, but should protect reporters from “arbitrary” interference with news gathering. But reporters should remember that they will never convince an officer on the scene that their First Amendment rights are being violated. Usually, the only remedy is an after-the-fact discussion with officials or a lawsuit.

This guide does not cover issues of liability that journalists may face for publishing information, such as lawsuits for libel or invasion of privacy. Instead, it looks at some of the common news gathering scenarios encountered by journalists and discusses the law that applies.

ANCIENT LAWS

logoANCIENT LAWS

Author: Tanya Raj

Introduction:-For man to be able to live in a society there must be laws that govern man. If these laws cease to exist, then there will be chaos. This concept of law has drawn the attention of different scholars over time, such as Plato, Aristotle, The Stoics, Aquinas, to mention but a few.

Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. Immanuel Kant says that this question cannot be answered from the empirical point of view, rather from the metaphysical arena. Kant says “like the wooden head in Phedrus fable, is a head that may be beautiful but alas! Has no brains”.

For Jeremy Bentham and his disciple Austin, say law is essentially a command backed by sanction or the threat of punishment, which implies that anybody who is able to issue a command and is able to back it up with the threat of punishment has, ipso facto, made a law!

Now, all these definitions lacked one thing and that is the essential feature of law. If we agree with Justice Holmes and say it is a sanction, then we begin to see law as prediction, a systematized prediction as to what would happen to a person (sanction) if he does a given thing that is forbidden. But sanction is only an appendage of law, hence the only feature of law is obligation; this obligation is gotten from natural law. This brings us to see that talking about legal philosophy with the exclusion of Aquinas would be disastrous, as we see the idea of natural law, which he formulated being in play here.

Aquinas is an important figure in the philosophy of law and cannot be left out; this would bring us to understanding his idea of natural law. Natural Law is a moral theory of jurisprudence, which maintains that law should be based on morality and ethics. Natural Law holds that the law is based on what’s “correct.” Natural Law is “discovered” by humans through the use of reason and choosing between good and evil. Therefore, Natural Law finds its power in discovering certain universal standards in morality and ethics.

It is worthy of note that Aquinas was not the first to approach this idea of natural law; this shows that this concept of natural law is as old as Western philosophy. The Sophists made a distinction between laws of the State and nature, but placed laws of nature on higher priority over laws of the State. They said laws of the State must conform to laws of nature. In other words the laws of nature are the ideal. The laws of the State make men do things that are unnatural. The laws of nature make no distinction between Greeks and barbarians rather the laws of the State would.

Plato was one of the founders of philosophy of law and natural law doctrine. For him, laws are only necessary when reason fails, for the law of reason is the ideal law. This clearly shows he is the originator of the natural law which sees the law of nature as law of reason. Plato condemns positive laws which are only used when men are weak; he says thus that if men are perfectly rational and ready to submit to the law of reason, there would be no need for positive laws.

Now, the idea of Aristotle follows from that of his master, Plato. He makes use of the law of reason. Teleologically, there is always some end to natural phenomena. By studying a thing we come to know what it is intended for by nature. Each being has its own proper end intended for it by nature. What Aristotle has in mind is to bring natural law to this idea. That is natural law is nothing else than this “intention” of nature of things expressed through the natural tendency of things.  And for the Stoics, their natural law was indifferent to the divine or natural source of the law.

 

CORPORATE GOVERNANCE – CHANGING DIMENSIONS

logoCORPORATE   GOVERNANCE –  CHANGING   DIMENSIONS

By  RoumitaDey.

(BA.LLB, Fourth  Year,Jogesh  ChandraChoudhuri  College of Law, Kolkata)

 

Abstract
Corporate Governance in India has seen a paradigm shift and has been posing new set of challenges to the top echelons of management in various organizations including organizations from the financial sector. The increasing stringencies and tighter regulatory mechanism have been the compelling reasons for the companies to have stronger focus and orientation on smooth implementation of the corporate governance code in India. The paradigm shift in the manner in which business is conducted across the world in the digital era, warrants a synchronization of the regulatory mechanisms to tackle frauds, and to safeguard the interests of various stakeholders[1]. A clear understanding of the various changing dimensions and perspectives optimally backed by the collective will power of the corporate world as well as the government will ensure the accomplishment of shareholders’ objectives by the various organizations.

Introduction

The term ‘corporate governance’ may be defined as ‘the activity of controlling a company’ (OUP, 2000). ‘Corporate governance deals with the ways in which the suppliers of finance to corporations assure themselves of getting a stream of return on their investments’ (Schleifer et al, 1997)[2]. Corporate Governance is one of the most often talked about topics in business, among the senior echelons of management as well as other stakeholders. Corporate Governance is defined as the compendium of the general set of customs, regulations, habits, and laws that determine to what end a firm should be run. The most challenging part about corporate governance is the lack of clear demarcation between the complex intersections of law, morality, and economic efficiency. Corporate Governance has gradually gained focus,prominence and importance in the curriculam of the leading business schools and has also become one of the hottest contemporary issue on which seminars, conferences and workshops are being organized across the globe to sensitize the various stakeholders about its impact, implications and ramifications on the various stakeholders of the society. It is usually not a distinct academic discipline, but has been integrated into management course of different institutions and universities in India and abroad[3].

The issues pertaining to Corporate Governance is considered to be significant in the light of the manifold issues and dimensions including issues of executive compensation, financial scandals, and shareholders’ activism etc.

Corporate governance is the integration of the various processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, management, and the board of directors. Other stakeholders include employees, customers, creditors, suppliers, regulators, and the community at large.

Corporate governance is a multi-faceted subject. An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem.There are yet other aspects to the corporate governance subject, such as the stakeholder view and the corporate governance models around the world.

Global Scenario

USA
Corporate governance practices in the United States are not regulated by any one particular statute but instead are affected by the governing instruments, the corporate law and the court decisions of each issuer’s state of incorporation, and, in the case of many publicly-owned issuers, by the U.S. federal securities laws and requirements of the national securities markets. Matters governed by state law include the voting rights accorded to shareholders, the functions of the board, and the ability of board members and executives to enter into transactions with the company. State corporation laws vary among the 50 states. However, because many corporations choose to incorporate in Delaware, Delaware law is a useful reference point for state corporate governance practices and is referred to throughout this response.

U.S. federal securities laws also affect corporate governance practices, primarily in the areas of disclosure and financial reporting, proxy voting, and the submission of shareholder proposals for consideration at shareholders’ meetings. In addition, the national securities markets impact corporate governance practices through their requirements applicable to issuers of securities traded on their markets. Subject to all of these different laws and regulations as applicable, corporations may establish their own governance practices in their corporate charters and bylaws.

There has been renewed interest in the corporate governance practices of modern corporations since 2001, particularly due to the high-profile collapses of a number of large U.S. firms such as Enron Corporation and MCI Inc. (formerly WorldCom). In 2002, the U.S. federal government passed the Sarbanes-Oxley Act, intending to restore public confidence in corporate governance.

Code on Corporate Governance

This Code supersedes and replaces the Combined Code issued by the Hampel Committee on Corporate Governance in June 1998. It derives from a review of the role and effectiveness of non-executive directors by Derek Higgs and a review of audit committees by a group led by Sir Robert Smith. The Financial Services Authority has said that it will replace the 1998 Code that is annexed to the Listing Rules with the revised Code and will seek to make consequential Rule changes. There will be consultation on the necessary Rule changes but not further consultation on the Code provisions themselves. It is intended that the new Code will apply for reporting years beginning on or after 1 November 2003. The Code contains main and supporting principles and provisions. The existing Listing Rules require listed companies to make a disclosure statement in two parts in relation to the Code. In the first part of the statement, the company has to report on how it applies the principles in the Code. In future this will need to cover both main and supporting principles. The form and content of this part of the statement are not prescribed, the intention being that companies should have a free hand to explain their governance policies in the light of the principles, including any special circumstances applying to them which have led to a particular approach. In the second part of the statement the company has either to confirm that it complies with the Code’s provisions or – where it does not – to provide an explanation. This ‘comply or explain’ approach has been in operation for over ten years and the flexibility it offers has been widely welcomed both by company boards and by investors. It is for shareholders and others to evaluate the company’s statement. While it is expected that listed companies will comply with the Code’s provisions most of the time, it is recognized that departure from the provisions of the Code may be justified in particular circumstances. Every company must review each provision carefully and give a considered explanation if it departs from the Code provisions.

UK Corporate Governance has influenced Corporate Governance regulation in the European Union and United States.A detailed analysis of several UK corporate governance reports, in particular[4]

  • the Cadbury Report on “Financial Aspects of Corporate Governance” (December 1992),
  • Rutteman Guidance (December 1994), Greenbury Report (July 1995),
  • Hamel Report on “Corporate Governance” (June 1998),
  • Turnbull Report on “Internal Control: Guidance for Directors on the Combined Code” (September 1999) and
  • Higgs Report on the “Review of the role and effectiveness of non-executive directors” (January 2003)

revealed that the UK has been able to influence US corporate governance regulation (Sarbanes-Oxley Act 2002 [SOA] on “Corporate Responsibility”, enacted by the Senate and House of Representatives of the United States of America).

Following recent financial reporting scandals, the requirement to implement standards for the EU capital market to enhance public trust in the audit function in the EU and the need to respond to SOA, the Commission prepared with the Winter report[5]. In September 2003 the Commission published the Communication (2003/236/02) on “Reinforcing the statutory audit in the EU” and in parallel an Action Plan on “Modernising Company Law and Enhancing Corporate Governance in the European Union”. The Directive (2006/43/EC) on “statutory audit of annual accounts and consolidated accounts, amending Council Directive 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC” was adopted by the European Parliament on the 28.9.2005.

The new modern regulatory audit framework will be applicable to non-EU audit firms performing audit work in relation to companies listed on the EU capital markets. To achieve recognition of the EU regulatory approaches to the protection of investors and other stakeholders, the Commission has had regulatory discussions in particular with the SEC but also with decision makers in US Congress and EU Finance Ministers.[6]

Corporate Governance: Global Financial Crisis

The OECD report analysed and submitted a detailed report on the impact of failures and weaknesses in corporate governance on the financial crisis, including risk management systems and executive salaries[7]. It concluded that the financial crisis can be to an important extent attributed to failures and weaknesses in corporate governance arrangements which did not serve their purpose to safeguard against excessive risk taking in a number of financial services companies. Accounting standards and regulatory requirements have also proved insufficient in some areas. Last but not the least, remuneration systems have in a number of cases not been closely related to the strategy and risk appetite of the company and its longer term interests.

Corporate Governance Lessons from the Financial Crisis

The financial crisis in USA can be to an important extent attributed to the various failures and weaknesses in corporate governance arrangements. Qualified board oversight and robust risk management is important. Corporate governance enhancements often followed failures that highlighted areas of particular concern. Understanding the market situation that confronted financial institutions is essential. Default rates on US sub prime mortgages began to rise as of 2006, and warnings were issued by a number of official institutions. By mid-2007 credit spreads began to increase and first significant downgrades were announced, while sub prime exposure was questioned. Financial institutions faced challenging competitive conditions but also an accommodating regulatory environment. While the post-2000 environment demanded the most out of corporate governance arrangements, evidence points to severe weaknesses. The remuneration of boards and senior management also remains a highly controversial and debatable issue in many countries

Corporate Governance in India

In India, the challenge is more in respect of promoter managed companies where balancing of their interest with that of minority shareholders is tough.

Corporate Governance in India: Regulatory landscape

Recent events in India have put the spotlight on corporate governance practices of Indian companies. A key aspect that is being debated in the corridors of India Inc. is whether we need major regulatory changes to improve corporate governance, or whether improved standards of corporate governance could be achieved through adoption of principle-based standards of conduct. India Inc. has generally been proactive in promulgating corporate governance regulations. In doing so, a good balance has been achieved i.e. headway has been made, in terms of helping ensure that regulations are not stifling our entrepreneurial initiatives. From a purely regulatory standpoint, India compares favorably with most other developing and Asian economies as far as its corporate governance rules are concerned.


Good corporate governance

Good corporate governance is characterized by a firm commitment and adoption of ethical practices by an organization across its entire value chain and in all of its dealings with a wide group of stakeholders encompassing employees, customers, vendors, regulators and shareholders (including the minority shareholders), in both good and bad times. To achieve this, certain checks and practices need to be whole-heartedly embraced.

 

Broadening Base for Application to Unlisted Companies and SMEs

The speakers at a recently concluded seminar on corporate governance were of the view that the existing corporate governance norms and structures are good and need no major overhaul, but some fine tuning may be required to make them applicable to unlisted and small and medium enterprises. The speakers also laid stress on the fact the growth and prosperity of a nation depends on the character of its people which in turn depends on the education and value systems inculcated in a person since his childhood.

Manoharan, who was appointed by the central government as a director of the scam-hit Satyam Computers and later its chairman to bring back the company from the brink, was speaking at the ‘Corporate Governance – The Way Forward’, seminar organised at Chennai in association with National Foundation for Corporate Governance. ‘The ramification of a corporate fraud is not restricted only to the jurisdiction where the fraud was committed,’ he said. Speaking about the Satyam Computer balance sheet, he said: ‘On the right side (asset side) nothing was left and on the left side (liabilities) nothing was right. But such frauds are few.’

SanthoshShetty, director, Governance, Risk and Compliance Services practice at KPMG, called for some changes in the corporate governance norms and for a credible disciplinary system. He also asked key advisors like auditors to be more accountable.

Issues in the implementation of the Corporate Governance Code

In one of the recently concluded conference on corporate governance, the moderator – Ganesh Ramamurthy, director, governance risk and compliance services, KPMG India, set the ball for the second session rolling, by establishing that while the corporate governance norms in India are at par with the best in the world, ensuring that these norms are always implemented is where the trouble comes in. Commenting on the difficulty of implementing these norms, Stephen Matthias, partner, Kochhar& Co said that it was important to have all the corporate governance codes together to ensure better implementation rather than have the implementation governed by multiple bodies. KPMG[8] India and various other leading consulting firms have done a pioneering work in the area of smooth implementation of the corporate governance code and have been providing consulting to the various organizations and have been instrumental in ironing out the issues and the bottlenecks in the implementation of the corporate governance code.

 

Striking a balance between transparency and cost of disclosure

As the opening session on a series of discussions on corporate governance, it was only appropriate that it that focus on the most effective framework needed for organizational decision making. KMPG CEO Russell Parera said that what was needed was a culture that encouraged debate and dissent, something one doesn’t always see on Indian boards as people tend to belong to the same inner circle.
Following up on that, Zia Mody, managing partner, AZB Partners added that if a person was on the board of a company as an independent director, he or she was expected to ask awkward questions, which rarely was the case. “However, that in itself cannot help prevent a fraud as directors could be given wrong information,” she added. Of course, it takes a lot more than just having standards in place. It’s also about how these are implemented. It would, for instance, be almost pointless to have a whistleblower policy in place, and link it directly with the CFO. The panel agreed that it was best to give authority to an independent director or board member when it came to matters of compliance and governance.
Lakshminarayana KR, chief strategy officer, Wipro added that a lot also depended on how much time the board members had, to devote to each company on whose board they served, and the amount of access provided by the company to the mid and lower level of employees so that directors could truly get a sense of what was happening. Joseph Massey, MD & CEO of the Multi Commodity Exchange had a relevant point to make. “Corporate governance has to be treated as a normal part of life when running a company-it’s just one more add-on[9].
The focus should be on running the business, corporate governance just gets inculcated,” he said. While shareholder activism in India has still to take off, this is partly also because companies are shielded from the reputational risk that class action lawsuits bring with them. Parera mentioned that as companies would increasingly grow aware of this, shareholder activism too would rise in a healthy way. As the session ended, all the panellists agreed that there was no such thing as too much disclosure and while no one wanted more regulation in the wake of the Satyam scandal, what was needed was better implementation of existing regulations.

Role of Audit Committee in Corporate Governance

The members of board of directors of a company i.e. directors exercise the power vested in a company either directly or through managers appointed by them. (GOWER 1997)[10]. The boards of directors delegate their responsibilities by appointing managers in specialized areas to shoulder their burden as the overall responsibilities cannot be shouldered by few people at the top echelons of management.
One among such tasks is the preparation of financial statements and annual accounts which is a mandatory task. This is an important task from the perspective of the prospective investors as well because the annual report of the company is an indicator of the financial health of the company. Since the annual report represents the financial health of a company, the management of a company might be tempted to present a rosy picture of the same by modifying the numbers and thus avoiding incisive questions by the board as to its performance. In view of this possibility provision for compulsory audit of the annual accounts has been made. The auditors are, based upon the information which they gather from the company; expected to ascertain whether the annual accounts of a company present a ‘true and fair view’ of the company’s financial position or not. However, there have been instances of accounting and audit failure which led to several brainstorming sessions by the regulators who suggested different modes of ensuring that such scandals become events of the past. Instances of such failures like those in the cases of Maxwell, BCCI and Polypeck in the United Kingdom led to the appointment of Cadbury Committee on Financial Aspects of Corporate Governance (Cadbury 2003).

 

Conclusion and Recommendations
India has made significant achievement in the area of corporate governance and is yet to go a long way in ensuring good corporate governance in line with the leading economies of the globe. Indian companies are focusing on good corporate governance so as to accomplish the shot term and long term corporate plans simultaneously ensuring the overall interests of the various stakeholders. The good governance helps an organization in attracting the best talents in various domain areas, as well as in motivating and retaining the talent thereby facilitating the overall process of talent management which acts as a backbone or the engine of any organization. Good corporate governance facilitates the management of visualizing, analyzing and managing the various types of risk so as to ensure a secure and prosperous operating environment to improve the operational performance and productivity.



[1]Cadbury A. (2003), Corporate Governance and Chairmanship – A Personal View (New Delhi: Oxford University Press, 2003) (95).

[2]Schleifer A. and Vishny R. in J.R. Macey (1997), ‘Institutional Investors and Corporate Monitoring: A Demand-side perspective’ 18 (7/8) Managerial and Decision Economics (Nov-Dec, 1997) at 602 as cited on http://www.jstor.org. 5 Gower, Principles of Modern Company Law (P.L. Davies)

 [3]ICAI-NFCG National Seminar on corporate governance in Orissa, 20, Dec. 2009.

[4]http://en.wikipedia.org/wiki/Corporate_governance

[5]http://www.fsa.gov.uk/pubs/ukla/lr_comcode2003.pdf

[6]http://en.wikipedia.org/wiki/UK_Corporate_Governance

[7]Kirkpatrik, G. (2009), “The Corporate Governance Lessons from the financial crisis”, Financial Market Trends, OECD, 2009

[8]KPMG Report (2009), The state of corporate governance in India, – A Poll, Audit Committee Institute.

[9]Sustaining Investor Confidence: CD seminar on corporate governance, 29 May 2009, ET Bureau

[10]Gower, (1997), Principles of Modern Company Law (P.L. Davies ed., 6thedn., London: Sweet & Maxwell Ltd., 1997) (598).

 

DOCTRINE OF ULTRA VIRES-EFFECTS AND EXCEPTIONS

logoDOCTRINE OF ULTRA VIRES-EFFECTS AND EXCEPTIONS

(Author : Advocate Geetika Jain)

CONCEPT

 The object clause of the Memorandum of the company contains the object for which the company is formed. An act of the company must not be beyond the objects clause, otherwise it will be ultravires and, therefore, void and cannot be ratified even if all the members wish to ratify it. This is called the doctrine of ultra vires, which has been firmly established in the case of Ashtray RailwayCarriage and Iron Company Ltd v. Riche. Thus the expression ultra vires means an act beyond the powers. Here the expression ultra vires is used to indicate an act of the company which is beyond the powers conferred on the company by the objects clause of its memorandum. An ultra vires act is void andcannot be ratified even if all the directors wish to ratify it. Sometimes the expression ultra vires is used to describe the situation when the directors of a company have exceeded the powers delegated to them. Where a company exceeds its power as conferred on it by the objects clause of its memorandum, it is not bound by it because it lacks legal capacity to incur responsibility for the action, but when the directors of a company have exceeded the powers delegated to them. This use must be avoided for it is apt to cause confusion between two entirely distinct legal principles. Consequently, here we restrict the meaning of ultra vires objects clause of the company’s memorandum.

Basic principles included the following:

  1. An ultra vires transaction cannot be ratified by all the shareholders, even if they wish it to be ratified.
  2. The doctrine of estoppel usually precluded reliance on the defense of ultra vires where the transaction was fully performed by one party
  3. A fortiori, a transaction which was fully performed by both parties could not be attacked.
  4. If the contract was fully executory, the defense of ultra vires might be raised by either party.
  5. If the contract was partially performed, and the performance was held to be insufficient to bring the doctrine of estoppel into play, a suit for quasi contract for recovery of benefits conferred was available.
  6. If an agent of the corporation committed a tort within the scope of his or her employment, the corporation could not defend on the ground the act was ultra vires.

 

ORIGIN AND DEVELOPMENT

Doctrine of ultra vires has been developed to protect the investors and creditors of the company. The doctrine of ultra vires could not be established firmly until 1875 when the Directors, &C., of the Ashbury Railway Carriage and Iron Company (Limited) v Hector Riche, (1874-75) L.R. 7 H.L. 653 was decided by the House of Lords. A company called “The Ashbury Railway Carriage and Iron Company,” was incorporated under the Companies Act, 1862. Its objects, as stated in the Memorandum of Association, were “to make, and sell, or lend on hire, railway carriages and waggons, and all kinds of railway plant, fittings, machinery, and rolling-stock; to carry on the business of mechanical engineers and general contractors ; to purchase, lease, work, and sell mines, minerals, land, and buildings; to purchase and sell, as merchants, timber, coal, metals, or other materials, and to buy and sell any such materials on commission or as agents.” The directors agreed to purchase a concession for making a railway in a foreign country, and afterwards (on account of difficulties existing by the law of that country), agreed to assign the concession to a Société Anonyme formed in that country, which société was to supply the materials for the construction of the railway, and to receive periodical payments from the English company.

The objects of this company, as stated in the Memorandum of Association, were to supply and sell the materials required to construct railways, but not to undertake their construction. The contract here was to construct a railway. That was contrary to the memorandum of association; what was done by the directors in entering into that contract was therefore in direct contravention of the provisions of the Company Act, 1862

It was held that this contract, being of a nature not included in the Memorandum of Association, was ultra vires not only of the directors but of the whole company, so that even the subsequent assent of the whole body of shareholders would have no power to ratify it. The shareholders might have passed a resolution sanctioning the release, or altering the terms in the articles of association upon which releases might be granted. If they had sanctioned what had been done without the formality of a resolution, that would have been perfectly sufficient. Thus, the contract entered into by the company was not a voidable contract merely, but being in violation of the prohibition contained in the Companies Act , was absolutely void. It is exactly in the same condition as if no contract at all had been made, and therefore a ratification of it is not possible. If there had been an actual ratification, it could not have given life to a contract which had no existence in itself; but at the utmost it would have amounted to a sanction by the shareholders to the act of the directors, which, if given before the contract was entered into, would not have made it valid, as it does not relate to an object within the scope of the memorandum of association.

Later on, in the case of Attorney General v. Great Eastern Railway Co.4, this doctrine was made clearer. In this case the House of Lords affirmed the principle laid down in Ashbury RailwayCarriage and Iron Company Ltd v. Riche5 but held that the doctrine of ultra vires “ought to be reasonable, and not unreasonable understood and applied and whatever may fairly be regarded as incidental to, or consequential upon, those things which the legislature has authorized, ought not to be held, by judicial construction, to be ultra vires.”

The doctrine of ultra vires was recognised in Indian the case of Jahangir R. Mod i v. ShamjiLadhaand has been well established and explained by the Supreme Court in the case of A. LakshmanaswamiMudaliarv. Life Insurance Corporation Of India. Even in India it has been held that the company has power to carry out the objects as set out in theobjects clause of its memorandum, and also everything, which is reasonably necessary to carry out those objects. For example, a company which has been authorized by its memorandum to purchaseland had implied authority to let it and if necessary, to sell it.However it has been made clear bythe Supreme Court that the company has, no doubt, the power to carry out the objects stated in theobjects clause of its memorandum and also what is conclusive to or incidental to those objects, but it has no power to travel beyond the objects or to do any act which has not a reasonable proximate connection with the object or object which would only bring an indirect or remote benefit to the company.

 To ascertain whether a particular act is ultra vires or not, the main purpose must first be ascertained, then special powers for effecting that purpose must be looked for, if the act is neither within the main purpose nor the special powers expressly given by the statute, the inquiry should be made whether the act is incidental to or consequential upon. An act is not ultra vires if it is found:

(a) Within the main purpose, or

(b) Within the special powers expressly given by the statute to effectuate the main purpose, or

(c) Neither within the main purpose nor the special powers expressly given by the statute but incidental to or consequential upon the main purpose and a thing reasonably done for

effectuating the main purpose.

The doctrine of ultra vires played an important role in the development of corporate powers. Though largely obsolete in modern private corporation law, the doctrine remains in full force for government entities. An ultra vires act is one beyond the purposes or powers of a corporation. The earliest legal view was that such acts were void. Under this approach a corporation was formed only for limited purposes and could do only what it was authorized to do in its corporate charter.

This early view proved unworkable and unfair. It permitted a corporation to accept the benefits of a contract and then refuse to perform its obligations on the ground that the contract was ultra vires. The doctrine also impaired the security of title to property in fully executed transactions in which a corporation participated. Therefore, the courts adopted the view that such acts were voidable rather than void and that the facts should dictate whether a corporate act should have effect.

Over time a body of principles developed that prevented the application of the ultra vires doctrine. These principles included the ability of shareholders to ratify an ultra vires transaction; the application of the doctrine of estoppel, which prevented the defense of ultra vires when the transaction was fully performed by one party; and the prohibition against asserting ultra vires when both parties had fully performed the contract. The law also held that if an agent of a corporation committed a tort within the scope of the agent’s employment, the corporation could not defend on the ground that the act was ultra vires.

Despite these principles the ultra vires doctrine was applied inconsistently and erratically. Accordingly, modern corporation law has sought to remove the possibility that ultra vires acts may occur. Most importantly, multiple purposes clauses and general clauses that permit corporations to engage in any lawful business are now included in the articles of incorporation. In addition, purposes clauses can now be easily amended if the corporation seeks to do business in new areas. For example, under traditional ultra vires doctrine, a corporation that had as its purpose the manufacturing of shoes could not, under its charter, manufacture motorcycles. Under modern corporate law, the purposes clause would either be so general as to allow the corporation to go into the motorcycle business, or the corporation would amend its purposes clause to reflect the new venture.

State laws in almost every jurisdiction have also sharply reduced the importance of the ultra vires doctrine. For example, section 3.04(a) of the Revised Model Business Corporation Act, drafted in 1984, states that “the validity of corporate action may not be challenged on the ground that the corporation lacks or lacked power to act.” There are three exceptions to this prohibition: it may be asserted by the corporation or its shareholders against the present or former officers or directors of the corporation for exceeding their authority, by the attorney general of the state in a proceeding to dissolve the corporation or to enjoin it from the transaction of unauthorized business, or by shareholders against the corporation to enjoin the commission of an ultra vires act or the ultra vires transfer of real or personal property.

Government entities created by a state are public corporations governed by municipal charters and other statutorily imposed grants of power. These grants of authority are analogous to a private corporation’s articles of incorporation. Historically, the ultra vires concept has been used to construe the powers of a government entity narrowly. Failure to observe the statutory limits has been characterized as ultra vires.

In the case of a private business entity, the act of an employee who is not authorized to act on the entity’s behalf may, nevertheless, bind the entity contractually if such an employee would normally be expected to have that authority. With a government entity, however, to prevent a contract from being voided as ultra vires, it is normally necessary to prove that the employee actually had authority to act. Where a government employee exceeds her authority, the government entity may seek to rescind the contract based on an ultra vires claim.

 

EFFECT OF ULTRA VIRES TRANSACTIONS

A contract beyond the objects clause of the company’s memorandum is an ultra vires contract and cannot be enforced by or against the company as was decided in the cases of In Re, Jon Beaufore (London) Ltd ., (1953) Ch. 131, In S. Sivashanmugham And Others v. Butterfly Marketing PrivateLtd., (2001) 105 Comp. Cas Mad 763,

A borrowing beyond the power of the company (i.e. beyond the objects clause of the memorandum of the company) is called ultra vires borrowing.

However, the courts have developed certain principles in the interest of justice to protect such lenders. Thus, even in a case of ultra vires borrowing, the lender may be allowed by the courts the following reliefs:

(1) Injunction — if the money lent to the company has not been spent the lender can get the injunction to prevent the company from parting with it.

(2) Tracing— the lender can recover his money so long as it is found in the hands of the company in its original form.

(3) Subrogation—if the borrowed money is applied in paying off lawful debts of the company, the lender can claim a right of subrogation and consequently, he will stand in the shoes of thecreditor who has paid off with his money and can sue the company to the extent the money advanced by him has been so applied but this subrogation does not give the lender the same priority that the original creditor may have or had over the other creditors of the company.

 

EXCEPTIONS TO THE DOCTRINE OF ULTRA VIRES

 There are, however, certain exceptions to this doctrine, which are as follows:

1. An act, which is intra vires the company but outside the authority of the directors may be ratified by the shareholders in proper form.20

2. An act which is intra vires the company but done in an irregular manner, may be validated by the consent of the shareholders. The law, however, does not require that the consent of all the shareholders should be obtained at the same place and in the same meeting.

3. If the company has acquired any property through an investment, which is ultra vires, the company’s right over such a property shall still be secured.

4. While applying doctrine of ultra vires, the effects which are incidental or consequential to the act shall not be invalid unless they are expressly prohibited by the Company’s Act.

5. There are certain acts under the company law, which though not expressly stated in the memorandum, are deemed impliedly within the authority of the company and therefore they are not deemed ultra vires. For example, a business company can raise its capital by borrowing.

6. If an act of the company is ultra vires the articles of association, the company can alter its articles in order to validate the act.

 

CASE NOTES:

Eley v The Positive Government Security Life Assurance Company, Limited, (1875-76) L.R. 1 Ex. D. 88

It was held that the articles of association were a matter between the shareholders inter se, or the shareholders and the directors, and did not create any contract between the plaintiff and the company and article is either a stipulation which would bind the members, or else a mandate to the directors. In either case it is a matter between the directors and shareholders, and not between them and the plaintiff.

 

The Directors, &C., of the Ashbury Railway Carriage and Iron Company (Limited) v Hector Riche, (1874-75) L.R. 7 H.L. 653.

The objects of this company, as stated in the Memorandum of Association, were to supply and sell the materials required to construct railways, but not to undertake their construction. The contract here was to construct a railway. That was contrary to the memorandum of association; what was done by the directors in entering into that contract was therefore in direct contravention of the provisions of the Company Act, 1862

It was held that this contract, being of a nature not included in the Memorandum of Association, was ultra vires not only of the directors but of the whole company, so that even the subsequent assent of the whole body of shareholders would have no power to ratify it. The shareholders might have passed a resolution sanctioning the release, or altering the terms in the articles of association upon which releases might be granted. If they had sanctioned what had been done without the formality of a resolution, that would have been perfectly sufficient. Thus, the contract entered into by the company was not a voidable contract merely, but being in violation of the prohibition contained in the Companies Act , was absolutely void. It is exactly in the same condition as if no contract at all had been made, and therefore a ratification of it is not possible. If there had been an actual ratification, it could not have given life to a contract which had no existence in itself; but at the utmost it would have amounted to a sanction by the shareholders to the act of the directors, which, if given before the contract was entered into, would not have made it valid, as it does not relate to an object within the scope of the memorandum of association.

Shuttleworth v Cox Brothers and Company (Maidenhead), Limited, and Others, [1927] 2 K.B. 9

It was held that

  •  the contract, if any, between the plaintiff and the company contained in the articles in their original form was subject   to the statutory power of alteration and
  •  if the alteration was bona fide for the benefit of the company it was valid and there was no breach of that contract;
  •   there was no ground for saying that the alteration could not reasonably be considered for the benefit of the company;
  •   there being no evidence of bad faith, there was no ground for questioning the decision of the shareholders that the alteration was for the benefit of the company; and,
  •  the plaintiff was not entitled to the relief claimed.

In Re New British Iron Company, [1898] 1 Ch. 324

It was held that the article is not in itself a contract between the company and the directors; it is only part of the contract constituted by the articles of association between the members of the company inter se. But where on the footing of that article the directors are employed by the company and accept office the terms of art. 62 are embodied in and form part of the contract between the company and the directors. Under the article as thus embodied the directors obtain a contractual right to an annual sum of 1000l as remuneration. It was held also that although these provisions in the articles were only part of the contract between the shareholders inter se, the provisions were, on the directors being employed and accepting office on the footing of them, embodied in the contract between the company and the directors; that the remuneration was not due to the directors in their character of members, but under the contract so embodying the provisions; and that, in the winding-up of the company, the directors were entitled to rank as ordinary creditors in respect of the remuneration due to them at the commencement of the winding-up.

Rayfield v Hands and Others, [1957 R. No. 603.]

Field-Davis Ltd. was a private company carrying on business as builders and contractors, incorporated in 1941 under the Companies Act, 1929 , as a company limited by shares, having a share capital of £4,000, divided into 4,000 ordinary shares of £1 each, of which 2,900 fully-paid shares had been issued. The plaintiff, Frank Leslie Rayfield, was the registered holder of 725 of those shares, and the defendants, Gordon Wyndham Hands, Alfred William Scales and Donald Davies were at all material times the sole directors of the company. The plaintiff was a shareholder in a company. Article 11 of the articles of association of the company required to inform the directors of his intention to transfer shares in the company, and which provided that the directors “will take the said shares equally between them at a fair value.” In accordance with this the plaintiff so notified the directors, who contended that they need not take and pay for the plaintiff’s shares, on the ground that the articles imposed no such liability upon them.

The plaintiff’s claimed for the determination of the fair value of his shares, and for an order that the directors should purchase such shares at a fair value. It was found that the true construction of the articles required the directors to purchase the plaintiff’s shares at a fair price. Article 11 is concerned with the relationship between the plaintiff as a member and the defendants, not as directors, but as members of the company.

Guinness v Land Corporation of Ireland,(1883) L.R. 22 Ch. D. 349

The Land Corporation of Ireland, Limited , was incorporated under the Companies Act on the 12th of July, 1882, as a company limited by shares. By the memorandum of association of a company limited by shares it was stated that the objects of the company were, the cultivation of lands in Ireland , and other similar purposes there specified, and to do all such other things as the company might deem incidental or conducive to the attainment of any of those objects.

The 8th clause of the articles of association, provided that the capital produced by the issue of B shares shall, so far as is necessary, be applied in making good to the holders of A shares the preferential dividend of £5 per cent., which they are to receive on the amounts paid up on their shares. This action was brought by one of the B shareholders on behalf of himself and the others, to restrain the directors from issuing any A shares on the footing of their being entitled to the benefit of that article, and to restrain the directors from applying in accordance with it the capital arising from the B shares.

It was held that the application of the B capital provided for by the articles is not an application of capital to carrying on the business of the company, but is providing an inducement to people to take shares and subscribe capital to carry on the business and that article 8 was invalid, as it purported to make the B capital applicable to purposes not within the objects of the company as defined by the memorandum of association, and in a way not incidental or conducive to the attainment of those objects, and that the directors must be restrained from acting upon it. The articles of association of a company cannot, except in the cases provided for by sect. 12 of the Companies Act, 1862 , modify the memorandum of association in any of the particulars required by the Act to be stated in the memorandum.