Protecting Identity and privacy of children under the Juvenile Justice(Care and Protection of Children Act, 2015)- Rehabilitative and reformative approach

The Juvenile Justice(Care and Protection of Children) Act, 2015[1] is a comprehensive law to provide measures for protecting and sheltering abandoned, surrendered and orphaned children, protecting children who are victims of crime and investigating and prosecuting children who are involved in offences.


The protections granted by the JJ Act, 2015 is derived from the United Nations Convention on the Rights of the Child to which India is a signatory. Articles 16[2] and 40[3] of the Convention enshrined the principles of privacy and confidentiality in all proceedings relating to children while the convention strongly focusses on rehabilitation of the children in the mainstream without any stigma.


The Juvenile Justice (Care and Protection of Children) Act, 2000 was enacted by India to conform with the obligations of India as a signatory to the United Nations Convention on the Rights of the Child which is also apparent from the preamble[4] of the legislation.


In the JJ Act, 2000, Section 21[5] provided for prohibition in publishing or revealing the name, address, school or other particulars & picture of juveniles in conflict with law (JCIL) or child in need of care and protection under act.


Section 19[6] of the JJ Act, 2000, provided for removal for disqualification attached to conviction, the intent being clear, any juvenile in conflict with law- whether convicted or not, should be permitted to be settled in the society; when the law does not treat the juvenile offender as a grown up adult; the other disqualifications which come in the way of rehabilitating the offender should be taken away by legislative action.


The scope and limitation of Section 19 of the JJ Act, 2000 can be understood from the pronouncements by various courts and tribunals specifically in matters relating to public employment.


The Bombay High Court in Kailas Sambhaji Lohakre Vs State of Maharashtra [7] had the opportunity to interpret and apply Section 19 of the Act. The Petitioner applied for joining the Indian Army and was successful. Upon verification of the character and antecedents, it was informed that the Petitioner was found guilty of the offences punishable under sections 324, 323, 504, 506 read with section 34 of the Indian Penal Code, 1860. The Army proceed to cancel his appointment on the ground of prior conviction.


The High Court in Kailas Sambhaji Lohakre(supra) while setting aside the order of removal held:


9. The Juvenile Justice (Care and Protection of Children) Act, 2015, (‘the Act of 2015’ for short) came into force on 1st January, 2016. Since the offences alleged against the petitioner were committed on 22-7-2010 and he has been dealt with by the Juvenile Justice Board on 15th January, 2011, he would be governed by the Act of 2002, which was in force at the relevant time. Even under the Act of 2015, there is an analogous provision in section 24 pertaining removal of disqualification attached to conviction of an offence of “a juvenile in conflict with law”, who is referred to as “a child in conflict with law” as per the Act of 2015.

10. As mentioned in the statement of objects and reasons of the Act of 2000, one of the objects is to rehabilitate the juvenile/child in conflict with law. The provisions of sub-section (1) of section 19 would provide the juvenile in conflict with law found guilty of an offence an opportunity to amend and regulate his delinquency. Removal of disqualification attached to a conviction of a juvenile in conflict with law would have the effect of opening the doors for him of a descent and disciplined civilized life. The order holding him guilty of an offence would not disqualify him from getting any job to which otherwise he would be legitimately entitled.

11. Sub-section (i) of section 19 of the Act of 2000 starts with a non-obstante clause i.e. “notwithstanding anything in any other law”. In the directive No. 33(d) it is mentioned that the candidate must submit an affidavit giving his personal details including the fact that he has not been ever convicted for any offence under law. The said clause cannot be used for disqualifying the petitioner for his enrolment in the Army on the ground that he was held guilty by the Juvenile Justice Board. Such disqualification has been specifically removed by the provisions of sub-section (1) of section 19 of the Act of 2000 and the non-obstante clause used therein would override directive No. 33(d) issued by respondent Nos. 3 and 4.,-Respondent No. 4, therefore, was not justified in cancelling the candidature of the petitioner for his enrolment in the Army on the ground that he was held guilty by the Juvenile Justice Board, Nanded. The letter dated 31st March, 2016, issued by respondent No. 4 cancelling candidature of the petitioner, in the above circumstances, is liable to be quashed and set aside. Respondent No. 4 will have to be directed to reconsider the candidature of the petitioner for enrolment into the Army on his own merits without being influenced by his conviction by the Juvenile Justice Board.

As seen from the above provision, it is for the Juvenile Justice Board to make an order directing that the relevant records of the conviction of the juvenile in conflict with law should be removed after expiry of the period of appeal. In the present case, besides the petitioner there are other accused persons involved in the offences alleged to have been committed on 22nd July, 2010. It is not known whether the trial against the co-accused of the petitioner has been conducted or not. The original record produced before the Juvenile Justice Board would be required to be produced before the Regular Criminal Court for conducting the trial against his co-accused. Therefore, it is necessary for the learned Principal Magistrate, Juvenile Justice Board, Nanded, to consider the question of removal of the concerned record of conviction of the petitioner and pass necessary orders keeping in mind the provisions of sub-section (2) of section 19 of the Act of 2000.



Similar reasoning has been followed by the CAT(Central Administrative Tribunal) in matters relating to recruitment to public employment in Satya Narayan Meena v. Union of India[8], Recruit Constable (Driver) Mukesh Kumar v. GNCT of Delhi[9] etc.


The Juvenile Justice Act, 2000 came to repealed and replaced by the Juvenile Justice Act, 2015 which retained the principles of Section 19 in Section 24 under the 2015 law while the Section 20 of the old act was replaced with Section 74 of the 2015 act.


What would be important to highlight here that a very vital additional was made to Section 74 which was acutely necessary; this was proviso to Section 74(1)[10] which mandated that the character certificate issued by the police would not include the past records of child in conflict with law. This would certainly assist in matters relating to further employment especially related to public employment with the Central & State Governments as well in armed forces and central police forces and police and other armed forces and would also obviate unnecessary litigation relating to non-disclosure of past juvenile criminal records by the candidates which would otherwise show up in the certificate issued by the local police.[11]


The provisions relating to non-disclosure of identity and removal/destruction of records provides with the necessary protection and confers privacy to the child in conflict with law and encourages rehabilitation of the child in conflict with law by permitting joining of the mainstream of the society. Such ameliorating provisions are indeed a welcome step in reformative, rehabilitative and protective statute such as the Juvenile Justice(Care and Protection of Children) Act, 2015.


  1. Repeals and replaces The Juvenile Justice (Care and Protection of Children) Act, 2000 w.e.f 15-01-2016

  2. Article 16

    1. No child shall be subjected to arbitrary or unlawful interference with his or her privacy, family, home or correspondence, nor to unlawful attacks on his or her honour and reputation. 

    2. The child has the right to the protection of the law against such interference or attacks.


  3. Article 40

    1. States Parties recognize the right of every child alleged as, accused of, or recognized as having infringed the penal law to be treated in a manner consistent with the promotion of the child’s sense of dignity and worth, which reinforces the child’s respect for the human rights and fundamental freedoms of others and which takes into account the child’s age and the desirability of promoting the child’s reintegration and the child’s assuming a constructive role in society. 

    2. To this end, and having regard to the relevant provisions of international instruments, States Parties shall, in particular, ensure that: 

    (a) No child shall be alleged as, be accused of, or recognized as having infringed the penal law by reason of acts or omissions that were not prohibited by national or international law at the time they were committed; 

    (b) Every child alleged as or accused of having infringed the penal law has at least the following guarantees: 

    (i) To be presumed innocent until proven guilty according to law; 

    (ii) To be informed promptly and directly of the charges against him or her, and, if appropriate, through his or her parents or legal guardians, and to have legal or other appropriate assistance in the preparation and presentation of his or her defence; 

    (iii) To have the matter determined without delay by a competent, independent and impartial authority or judicial body in a fair hearing according to law, in the presence of legal or other appropriate assistance and, unless it is considered not to be in the best interest of the child, in particular, taking into account his or her age or situation, his or her parents or legal guardians; 

    (iv) Not to be compelled to give testimony or to confess guilt; to examine or have examined adverse witnesses and to obtain the participation and examination of witnesses on his or her behalf under conditions of equality; 

    (v) If considered to have infringed the penal law, to have this decision and any measures imposed in consequence thereof reviewed by a higher competent, independent and impartial authority or judicial body according to law; 

    (vi) To have the free assistance of an interpreter if the child cannot understand or speak the language used; 

    (vii) To have his or her privacy fully respected at all stages of the proceedings. 

    3. States Parties shall seek to promote the establishment of laws, procedures, authorities and institutions specifically applicable to children alleged as, accused of, or recognized as having infringed the penal law, and, in particular: 

    (a) The establishment of a minimum age below which children shall be presumed not to have the capacity to infringe the penal law; 

    (b) Whenever appropriate and desirable, measures for dealing with such children without resorting to judicial proceedings, providing that human rights and legal safeguards are fully respected. 4. A variety of dispositions, such as care, guidance and supervision orders; counselling; probation; foster care; education and vocational training programmes and other alternatives to institutional care shall be available to ensure that children are dealt with in a manner appropriate to their well-being and proportionate both to their circumstances and the offence. 

    Article 41

    Nothing in the present Convention shall affect any provisions which are more conducive to the realization of the rights of the child and which may be contained in: 

    (a) The law of a State party; or 

    (b) International law in force for that State.



  4. An Act to consolidate and amend the law relating to juveniles in conflict with law and children in need of care and protection, by providing for proper care, protection and treatment by catering to their development needs, and by adopting a child-friendly approach in the adjudication and disposition of matters in the best interest of children and for their ultimate rehabilitation 1[and for matters connected therewith or incidental thereto.]

    Whereas the Constitution has, in several provisions, including clause (3) of article 15, clauses (e) and (f) of article 39, articles 45 and 47, impose on the State a primary responsibility of ensuring that all the needs of children are met and that their basic human rights are fully protected;

    And Whereas, the General Assembly of the United Nations has adopted the Convention on the Rights of the Child on the 20th November, 1989;

    And Whereas, the Convention on the Rights of the Child has prescribed a set of standards to be adhered to by all State parties in securing the best interests of the child;

    And Whereas, the Convention on the Rights of the Child emphasises social reintegration of child victims, to the extent possible, without resorting to judicial proceedings;

    And Whereas, the Government of India has ratified the Convention on the 11th December, 1992.

    And Whereas, it is expedient to re-enact the existing law relating to juveniles bearing in mind the standards prescribed in the Convention on the Rights of the Child, the United Nations Standard Minimum Rules for the Administration of Juvenile Justice, 1985 (the Beijing Rules), the United Nations Rules for the Protection of Juveniles Deprived of their Liberty (1990), and all other relevant international instruments.

    Be it enacted by Parliament in the Fifty-first Year of the Republic of India as follows:–



  5. 21. Prohibition of publication of name, etc., of juvenile in conflict with law or child in need of care and protection involved in any proceeding under the Act


    (1) No report in any newspaper, magazine, news-sheet or visual media of any inquiry regarding a juvenile in conflict with law or a child in need of care and protection under this Act shall disclose the name, address or school or any other particulars calculated to lead to the identification of the juvenile or child nor shall any picture of any such juvenile or child be published:


    Provided that for reasons to be recorded in writing, the authority holding the inquiry may permit such disclosure, if in its opinion such disclosure is in the interest of the juvenile or the child.


    (2) Any person who contravenes the provisions of sub-section (1), shall be liable to a penalty which may extend to twenty-five thousand rupees.



  6. 19 . Removal of disqualification attaching to conviction.-

    (1)Notwithstanding anything contained in any other law, a juvenile who has committed an offence and has been dealt with under the provisions of this Act shall not suffer disqualification, if any, attaching to a conviction of an offence under such law.

    (2) The Board shall make an order directing that the relevant records of such conviction shall be removed after the expiry of the period of appeal or a reasonable period as prescribed under the rules, as the case may be.

  7. 2016 SCC OnLine Bom 7355 : (2016) 6 Mah LJ 956 : (2017) 1 Bom CR 159 : (2017) 170 AIC 283


  8. 2007 SCC OnLine CAT 1502

  9. 2011 SCC OnLine CAT 1729

  10. Provided that for reasons to be recorded in writing, the Board or Committee, as the case may be, holding the inquiry may permit such disclosure, if in its opinion such disclosure is in the best interest of the child.

  11. Provisions do not apply to matters where matters are referred to Children’s Court for trial of the child as an adult.  

Class action complaints under the Consumer Protection Law in India

Class action complaints under the Consumer Protection Law in India


Class action claims are a unique and vital part of the civil dispute resolution ecosystem. A class action proceeding is initiated when a group of litigants bring a suit or other proceedings before a court/tribunal/forums on behalf of a larger group of persons.[1]


Class action cases contemplate commonality of facts and reliefs sought in the proceedings where all the members of the class have a common grievance and some of the persons in the said group initiate proceedings before courts in their representative capacity for other members of the class. Class action proceedings provide the courts/forums with an opportunity to adjudicate claims of similarly placed persons; a class action proceeding is advantageous as prevents initiation and adjudication of multiple proceedings in courts but also allows the adjudicating court to asses and award claims for all members of the class which in turn aids in reducing litigation, avoiding multiplicity and expediting the whole process.


While the Code of Civil Procedure, 1908 contemplates class proceedings under Order I Rule 8, CPC, the provision is infrequently invoked. Another recent enactment i.e. Companies Act, 2013 introduced Section 245 which provided the right to initiate class action proceedings before the National Company Law Tribunal to shareholders and depositors against the Company, its directors, auditors(auditing firms) and experts, advisors, consultants and other persons.


It would not be out of place to mention that class action proceedings can also be maintained in the form of Public Interest Litigation/social action litigation under Articles 32 and 226 for enforcement of fundamental rights enshrined in the Constitution of India before the Supreme Court and High Courts in India, it would be however important to highlight a crucial distinction between a PIL and ordinary class action proceeding i.e. lack of locus standi in PILs. In a PIL the Petitioner is not an aggrieved party and does not form part of the class it represents; however in a class action proceedings, the parties are required to possess necessary locus to maintain proceedings arising out of the same cause of action.


The remedy to initiate class action cases was also incorporated in the Consumer Protection Act, 1986 through the Consumer Protection (Amendment) Act, 1993 which inserted specific provisions for initiating proceedings before the consumer forums by expanding the definition of ‘complainant’[2][3] under the 1986 act and inserted Section 2(1)(b)(iv) which stated “one or more consumers, where there are numerous consumers having the same interest;”


The amendment also provided for adoption of the provisions of Order I Rule 8 of the Code of Civil Procedure, 1908 in proceedings under the Consumer Protection Act, 1986 through introduction of Section 13(6)[4] [5]to the act thereby mandating the procedure provided in the Civil Procedure Code to be followed in cases of class action consumer claims.


With the introduction of the provisions for initiating class action proceedings, the law in respect of the practice and procedure in cases of class complaints also developed and evolved with time.


What is also important to highlight here is that that class complaints have primarily been initiated in the Real Estate[6] sector (specially relating to residential real estate disputes), which invariably brought the litigation before the National Consumer Dispute Redressal Commission[7] as the pecuniary limit of the National Commission was for reliefs valued at more than Rs. 1 Crore( Rupees Ten Million)[8].


Therefore the National Commission and the Supreme Court of India[9] had the occasion to examine, adjudicate and frame the law relating to class action complaints under the Consumer Protection Act, 1986.


One of the leading cases relating to interpretation of the law with respect of class action proceedings under Section 13 was adjudicated in Ambrish Kumar Shukla & Ors. V. Ferrous Infrastructure Pvt. Ltd[10] [11]. The full bench of the National Consumer Disputes Resolution Commission examined the scope, import and limitations of the Consumer Protection Act, 1986 in relation to class action complaints. The issues relating to class action complaints were referred to the larger bench in this matter and the Commission held that:


Issue No. (i)

 As held by the Hon’ble Supreme Court in Tamil Nadu Housing Board (supra), the interest of the persons on whose behalf the claim is brought must be common or they must have a common grievance which they seek to get addressed.  The defect or deficiency in the goods purchased, or the services hired or availed of by them should be the same for all the consumers on whose behalf or for whose benefit the complaint is filed.  Therefore, the oneness of the interest is akin to a common grievance against the same person.  If, for instance, a number of flats or plots in a project are sold by a builder / developer to a number of persons, he fails to deliver possession of the said flats/plots within the time frame promised by him, and a complaint is filed by one or more such persons, either seeking delivery of possession of flats / plots purchased by them and other purchasers in the said project, or refund of the money paid by them and the other purchasers to the developer / builder is sought, the grievance of such persons being common i.e. the failure of the builder / developer to deliver timely possession of the flats/plots sold to them, they would have same interest in the subject matter of the complaint and sufficient  community of interest to justify the adoption of the procedure prescribed in Order 1 Rule 8 of the Code of Civil Procedure, provided that the complaint is filed on behalf of or for the benefit of all the persons having a common grievance against the same developer / builder, and identical relief is sought for all such consumers. 

The primary object behind permitting a class action such as a complaint under Section 12(1)(c) of the Consumer Protection Act being to facilitate the decision of a consumer dispute in which a large number of consumers are interested, without recourse to each of them filing an individual complaint, it is necessary that such a complaint is filed on behalf of or for the benefit of all the persons having such a community of interest A complaint on behalf of only some of them therefore will not be maintainable.  If for instance, 100 flat buyers / plot buyers in a project have a common grievance against the Builder / Developer and a complaint under Section 12(1)(c) of the Consumer Protection Act is filed on behalf of or for the benefit of say 10 of them, the primary purpose behind permitting a class action will not be achieved, since the remaining 90 aggrieved persons will be compelled either to file individual complaints or to file complaints on behalf of or for the benefit of the different group of purchasers in the same project.  This, in our view, could not have been the Legislative intent.  The term ‘persons so interested’ and ‘persons having the same interest’ used in Section 12(1)(c) mean, the persons having a common grievance against the same service provider.   The use of the words “all consumers so interested’ and “on behalf of or for the benefit of all consumers so interested”, in Section 12(1)(c) leaves no doubt that such a complaint must necessarily be filed on behalf of or for the benefit of all the persons having a common grievance, seeking a common relief and consequently having a community of interest against the same service provider.

          Sub rule (2) of Rule 8 of Order I of the Code of Civil Procedure mandates the Court to give notice of the institution of the suit /complaint to all the persons “so interested”, meaning thereby to the persons having the same interest, i.e. a common grievance, on whose behalf or for whose benefit the complaint is instituted.  Notice can be either by way of personal service or where personal service is not reasonably practicable, by way of a public advertisement.  The aforesaid provision clearly envisages institution of a suit / complaint on behalf or for the benefit of not only those who approach the Court/Forum but also on behalf of or  for the benefit of the persons other than the plaintiffs / complainants, but having the same grievance.  Had the Legislative intent been to permit such a complaint only on behalf of the persons deciding to approach the Court/ Forum, there could be no occasion for requiring the service of notice in the aforesaid manner, since there can be no question of serving any notice on those who are already before the Court/Forum.

          Sub Rule (5) of Rule 8 of Order I enables the Court to substitute the name of any person having same interest in the suit as plaintiff where it finds that the person suing the suit is not proceeding with due diligence in the suit.  The aforesaid power given to the Court also indicates that a suit in terms of order 1 Rule 8 of the Code of Civil Procedure commonly termed as a class suit is intended on behalf or for the benefit of all the persons having a common grievance against the same party and seeking the same relief not on behalf of or for the benefit of only some of them.

12.    Issue No. (ii) and (iii)

          Section 21 of the Consumer Protection Act, to the extent it is relevant provides that this Commission shall have jurisdiction to entertain complaints where the value of the goods or services and compensation, if any, claimed exceeds Rs.1.00 crore.  Therefore, what has to be seen, for the purpose of determining the pecuniary jurisdiction, is the value of the goods or services and the amount of the compensation claimed in the complaint.  If the aggregate of (i) the value of the goods or services and (ii) the compensation claimed in the complaint exceeds Rs.1.00 crore, this Commission would have pecuniary jurisdiction to entertain the complaint.  Similarly, if the aggregate of the value of (i) the goods or services and (ii) compensation, if any, claimed in the complaint exceeds Rs.20.00 lacs but does not exceed Rs.1.00 Crore, the State Commission would have the pecuniary jurisdiction to entertain the complaint.  Since a complaint under Section 12(1)(c) of the Consumer Protection Act can be filed only where there are numerous consumers having the same interest and it has to be filed on behalf of or for the benefit of all the consumers so interested i.e. all of the numerous consumers having the same interest, it is the aggregate of the value of the goods purchased or services hired or availed of, by all those numerous consumers and the total compensation, if any, claimed for all those numerous consumers, which would determine the pecuniary jurisdiction of this Commission.  If the aggregate of the value of the goods purchased or the services hired or availed of by all the consumers having the same interest and the total compensation, if any, claimed for all of them comes to more than Rs.1.00 crore, the pecuniary jurisdiction would rest with this Commission alone.  The value of the goods purchased or the services hired or availed of and the quantum of compensation, if any, claimed in respect of the one individual consumer therefore, would be absolutely irrelevant for the purpose of determining the pecuniary jurisdiction in such a complaint.  In fact, this issue is no more res Integra in view of the decision of a Four-Members Bench of this Commission in Public Health Engineering Department Vs. Upbhokta Sanrakshan Samiti I (1992) CPJ 182 (NC).  In the above referred case, a complaint was preferred, seeking to recover compensation for alleged negligence on the part of the petitioner which had resulted in a large number of persons getting infected by Jaundice.  The names of 46 such persons were mentioned in the complaint but it was alleged that there were thousands of other sufferers who were similarly placed and that complaint was filed on behalf of all of them.  The complainant had sought compensation of Rs.20,000/- for every student victim, Rs.10,000/- for every general victim and Rs.1,00,000/- for the legal representatives of those who had died due to Jaundice.  The District Forum held that it had no pecuniary jurisdiction to adjudicate upon the complaint.  The State Commission took the view that the District Forum has to go by the value as specified for each consumer.  Rejecting the view taken by the State Commission, this Commission inter-alia held as under:

          “5.     In our opinion this proposition is clearly wrong since under the terms of Section 11 of the Act the pecuniary jurisdiction of the District Forum would depend upon the quantum of compensation claimed in the petition.  The view expressed by the State Commission is not based on a correct understanding or interpretation of Section 11.  On the plain words used in Section 11 of the Act, the aggregate quantum of compensation claimed in the petition will determine the question of jurisdiction and when the complaint is filed in a representative capacity on behalf of several persons, as in the present case, the total amount of compensation claimed by the representative body on behalf of all the persons whom it represents will govern the valuation of the complaint petition for purposes of jurisdiction”.

          6.      The quantum of compensation claimed in the petition being far in excess of Rs.1.00 lac the District Forum was perfectly right in holding that it had no jurisdiction to adjudicate upon the complaint.  The reversal of the said order by the State Commission was contrary to law”.

          Therefore, irrespective of the value of the goods purchased or the service hired and availed of by an individual purchaser / allottee and the compensation claimed in respect of an individual purchaser / allottee, this Commission would have the pecuniary jurisdiction to entertain the complaint if the aggregate of the value of the goods purchased or the services hired or availed of by the numerous consumers on whose behalf or for whose benefit the complaint is filed and the total compensation claimed for all of them exceeds Rs.1.00 crore.

Issue No. (iv) 

13.    As noted earlier, what is required for the applicability of Section 12(1)(c) of the Consumer Protection Act read with Order I Rule 8 of the Code of Civil Procedure is the sameness of the interest i.e. a common grievance of numerous persons which is sought to get redressed through a representative action.  Therefore, so long as the grievance of the consumers is common and identical relief is claimed for all of them, the cost, size, area of the flat / plot and the date of booking / allotment / purchase, would be wholly immaterial.  For instance, if a builder / developer has sold 100 flats in a project out of which 25 are three-bed room flats, 25 are two-bed room flats and 50 are one-bed room flats and he has failed to deliver timely possession of those flats, all the allottees irrespective of size of their respective flats / plots, the date of their respective purchase  and the cost agreed to be paid by them have a common grievance i.e. the failure of the builder/ developer to deliver possession of the flat / plot sold to them and a complaint filed for the benefit of or on behalf of all such consumers and claiming same relief for all of them, would be maintainable under Section 12(1)(c) of the Consumer Protection Act.  The relief claimed will be the same / identical if for instance, in a case of failure of the builder to deliver timely possession, refund, or possession or in the alternative refund with or without compensation is claimed for all of them.  Different reliefs for one or more of the consumers on whose behalf or for whose benefit the complaint is filed cannot be claimed in such a complaint. 

(emphasis supplied)

The Supreme Court of India thereafter also had the occasion to examine the correctness and applicability of Ambrish Kumar Shukla(supra) in context of the class action/class complaint proceedings while considering the case of Anjum Hussain and Ors. Vs. Intellicity Business Park Pvt. Ltd. and Ors.[12]. In Anjum Hussain (supra) the NCDRC had dismissed a class complaint on the ground that although the allottees had common grievance of delay on construction of a commercial project, however it was not shown as to how many of the allottees had booked the shops/commercial units solely for the  purpose of earning their livelihood by way of self-employment.


The NCDRC thus effectively negatived the option of class action/class complaint purely on the ground that some of the allottees may not be covered by the ambit of Consumer Protection Act, 1986[13] and would not be entitled to reliefs as claimed in the class complaint. This distinction between allottees of commercial offices in the case was erroneous in as much as mere allotment to “non-consumer” would not defeat or extinguish the right of “consumers” under the act to initiate class action complaints against the builder.


The Supreme Court quoting with approval the law laid down by the full bench of the NCDRC in Ambrish Kumar Shukla(supra) held that the essential test for the consumer forum while entertaining a class complaint is to consider the test of oneness of the interest is akin to a common grievance against the same person; once the test is satisfied in a class complaint, the matter ought to be adjudicated on merits and proceeded to revive the class complaint and remanded for adjudication on merits.


The Supreme Court as recently in February, 2020[14] had the occasion to examine the locus of an association to file a class action/class complaint. The question before the court was whether an association which was formed by virtue of any law or rule wherein the membership was mandatory and not voluntary could maintain a class complaint.

The court after examining the definition of complainant/consumer under the Consumer Protection Act, 1986 and also the scope of provisions relating to representative complaints concluded and held that since the definition of ‘complainant’ is restrictive and not exhaustive or inclusive, hence associations which are not ‘voluntary’ in nature cannot maintain a complaint under the Consumer Protection Act, 1986.


It would however be proper to clarify that Sobha Hibiscus Condominium(supra) does not take away the right of an involuntary association or any association which is formed by mandate of any law or rule or regulation from otherwise maintaining a consumer complaint as a definition of person, consumer and complainant expressly includes ‘every other association of persons’[15].


Lastly, for the sake of completeness, it would be important to highlight that the Consumer Protection Act, 1986 stood repealed and replaced with the Consumer Protection Act, 2019[16] which has retained the provisions for initiating class action complaints under the 2019 law. [17]



  2. Section 2(1)(b) of the Consumer protection act, 1986:



  4. Section 13(6) Where the complainant is a consumer referred to in sub-clause (iv) of clause (b) of sub-section (1) of section 2, the provisions of rule 8 of Order I of the First Schedule to the Code of Civil Procedure, 1908 shall apply subject to the modification that every reference therein to a suit or decree shall be construed as a reference to a complaint or the order of the District Forum thereon.








  8. Section 21 of the Consumer Protection Act, 1986:






  11. 2016 SCC OnLine NCDRC 1117


  12. MANU/SC/0750/2019: (2019) 6 SCC 519

  13. Section 2(1)(d) of the Consumer Protection Act, 1986 defines consumer and excludes purchasers of goods and receipt of services for “commercial purpose” the explanation of the sub clause excludes goods purchased or services availed for earning livelihood for purposes of self-employment.

  14. Sobha Hibiscus Condominium vs. Managing Director, Sobha Developers Ltd. and Ors. (14.02.2020 - SC) : MANU/SC/0178/2020

  15. Section 2(1)(m) of the Consumer Protection Act, 1986

  16. Notified in official gazette of the Government of India w.e.f 09-08-2019, the law has not come in force yet as no commencement date has been notified.

  17. Section 38, 49 and 59 of The Consumer Protection Act, 2019 referring to procedure before the District Consumer Forum, State Commission and National Commission respectively.

Delhi High Court lays down the test to ascertain incidence of stamp duty on Release Deed/Relinquishment deed under Indian Stamp Act, 1899

Delhi High Court lays down the test to ascertain incidence of stamp duty on Release Deed/Relinquishment deed under Indian Stamp Act, 1899

[The firm's dispute resolution team has represented the petitioner in the matter, views expressed are personal of the author.]

The Indian Stamp Act in Delhi provides for fixed stamp duty on instruments of transfer which release/relinquish the share of the transferor in favour of another existing owner; the issues relating to imposition of fixed stamp duty under Article 55 and not conveyance under Article 23 of the Indian Stamp Act, 1899 (Delhi)(conveyance/gift/sale deed attracts ad valorem rates on the market value of the property and current rates of stamp duty can be accessed here.

In its recent judgment, [1]the Hon’ble High Court of Delhi had the occasion to interpret and apply the test to determine when an instrument can be considered as a release/relinquishment deed.

To understand the distinction between the classification of instruments for the purposes of imposing stamp duty, lets us first acquaint ourselves with the facts of the case.

The Petitioner and her son were the owners of the immovable property on the basis of the conveyance deed executed by the Delhi Development Authority (hereinafter called “DDA”) in favour of the Petitioner and her son. The son had executed a relinquishment deed/release deed releasing his one half share of the property in favour of the Petitioner and appeared before the Sub-Registrar, Delhi for registration of the instrument.

Upon presentation, the sub-registrar invoked the provisions of Section 33 of the Indian Stamp Act, 1899 and impounded the instrument/deed and referred the it to the Collector of Stamps(SDM, Delhi) under Section 38 of the Indian Stamp Act, 1899 for assessment of stamp duty on the ground that the relinquishment deed executed by co-owner son in favour of the Petitioner was a gift deed and hence the instrument was insufficiently stamped.

This order of sub-registrar was impugned before the Hon’ble High Court in a petition under Article 226 of the Constitution of India. The Hon’ble Court held inter alia the instrument is a deed of release/relinquishment and not conveyance/gift deed.

The Court referred and exhaustively analysed the precedents on the issue by various High Courts and concluded that renouncing claim in favour of another co-sharer in respect of the same property/land would constitute a release deed and not a gift deed.

The Court relied on the judgment of the full Bench of the Hon’ble High Court of Andhra Pradesh in “The Board of Revenue, Hyderabad v. Validity Ram Krishnaiah[2], the full bench fruitfully referred to the observations of the Hon’ble Supreme Court wherein it was observed that a release deed could only feed title, but could not transfer title and that renouncement must be in favour of a person who had already title to an estate, the effect of which was only to enlarge the right.

The court also had the benefit of the precedents of the Hon’ble Delhi High Court[3] wherein the Hon’ble Court held that it is not necessary that in order to qualify as a Relinquishment Deed the document must purport to relinquish the share of the relinquisher in favour of all the remaining co-owners of the property. Even if the relinquishment is in favour of one of the co-owners it would qualify as a Relinquishment Deed.

In a recent judgment[4], the Hon’ble High Court of Delhi observed that the releasee should also have a legal right in the property and the release deed would operate to enlarge that right. The Court further held that the share cannot be released in favour of one who has no rights in the property as a co-owner.

After careful perusal of all the judgments, the Hon’ble Court devised a test to determine when an instrument can be considered as a release/relinquishment deed. The constituents of the test are as follows:

1.True intent: The nomenclature used to describe the document or the language which the parties may choose to employ in framing the document, is not a decisive factor. What is decisive is the actual character of the transaction intended by the executant intention;
2.Determination of the nature of the document is not a pure question of law;
3.No effect on transaction: Where a co-owner renounced his right in a property in favour of the other co-owner, mere use of word like “consideration” and “transfer” would not affect the true character of the transaction;
4.Intention of release deed: Intention of Release Deed is the relinquishment of the right of the co-owner;
5.Co-Ownership: It need not be only through inheritance, but can also be through purchase;
6.Relinquishment of right: Where the relinquishment of the right by the co-owner is only in favour of one of the co-owners and not against all, the document would be one of Gift/Conveyance and not of “release”.

The Court applied the test laid down in the Judgement and held that the instrument in favour of the Petitioner was relinquishment/release deed and not gift/conveyance deed and further directed that the instrument be registered forthwith.

The judgement settles the vexed issue where relinquishment/release deed are impounded under the Indian Stamp Act, 1899 and referred for assessment of deficient stamp duty.

  1. Tripta Kaushik versus Sub Registrar VI-A Delhi & Anr. W.P.(C) 9193/2019: MANU/DE/1090/2020

  2. MANU/AP/0082/1973

  3. Srichand Badlani v. Govt. of NCT of Delhi and Ors., MANU/DE/4731/2013

  4. Hari Kapoor v. South Delhi Municipal Corporation, MANU/DE/3800/2019

Law governing winding up of Mutual Funds in India

The recent news[1] about winding up of mutual fund schemes by Franklin Templeton Mutual Fund during the present situation[2] led to nervousness amongst regular investors of mutual fund. While no doubt the Mutual Fund companies promptly issued press releases assuring the liquidity and standing of their schemes, it left the investors grappling with questions about the repercussions especially when the mutual funds are wound down and its outcome especially on their investments.


Consequently, this has also led to the questions being raised as to the legislative and regulatory framework which govern mutual funds and whether necessary measures for investor protection has been incorporated in the framework. The questions as to the powers and responsibilities of the Asset Management Companies, the Trustee Company as well as the Trust are also being raised.


In this context, it is pertinent to briefly highlight the regulatory framework which governs Mutual Funds. The SEBI (Mutual Funds) Regulations, 1996[3] (“Mutual Fund Regulations, 1996”) which was formulated by the Securities and Exchange Board of India constituted under the Securities and Exchange Board of India Act, 1992, the statutory regulator which governs the securities and capital markets in India is the regulatory scheme which govern complete life cycle of Mutual Funds.


The Mutual Fund market is segregated into various segments and sectors and is ordinarily classified depending on the nature and composition of the Mutual Fund and the scheme floated by the Mutual Fund Company in terms of Mutual Fund Regulations.


There is however one classification which is relevant to the issue in hand i.e. open ended schemes and close ended schemes. Close ended schemes are self-explanatory i.e. Mutual Fund scheme which have a sunset clause and the scheme stipulates an end date after which the Mutual Fund would be wound up without any further regulatory or investor action.


On the other hand an open ended Mutual Fund scheme, the Mutual Fund remains operational as long as Mutual Fund scheme is not wound up in terms of the Mutual Funds regulations. Being an ‘open-ended’ scheme there is no end date and the Mutual Fund remains operational unless the Mutual Fund is wound up by initiating steps under Chapter V of the regulations.


The winding up of an open ended Mutual Fund can be initiated under regulation 39 (2) of the Mutual Fund Regulations by either the decision of the Trustees or by the order of SEBI or by 75% of the unit holders passing a resolution for winding up of the scheme.


Regulation 41 prescribes the procedure which the Trustee is required to follow for winding up a Mutual Fund scheme. The Trustee is required to call for a meeting of the unit holders; a simple majority of the unitholders who are present and voting can authorize either the Trustee or any other person to wind up the scheme.


The regulation further empowers the trustee or other person to dispose-off the assets of the scheme and distribute the proceeds to the unitholders in proportion to the interest of the unitholders in the assets of the scheme.


The distribution of the proceeds of the scheme would be conducted after discharge of dues and liabilities of the scheme and also towards the expenses incurred in winding up the scheme.


After completion of the process, the trustee or other person empowered to wind up the scheme would report the outcome of the winding up process to SEBI as well as to the unitholders and only after the approval of the SEBI, the scheme would cease to exist.


The overall negative market and investor sentiment was compounded by the news of Franklin Templeton Mutual Fund winding up six of its “open-ended” debt funds, it is incumbent upon to the unitholders and SEBI to exercise its powers and maintain necessary oversight on the winding up process in the interest of unitholders and mutual fund industry as a whole.


  2. Spread of Novel Coronavirus(officially named as SARS-CoV-2) and disease COVID-19 as well as the lockdown as imposed by the Government of India under the Disaster Management Act, 2005 which was extended upto 17-05-2020 as per orders of the Ministry of Home Affairs with limited relaxations.



Indian Patent Law-Analysis of Working, Revocation and Compulsory Licence regime.

The Indian Patent Law regime is governed by the Patents Act, 1970 which had replaced the pre-independence patent law. Since patents are not conferred with common-law protections as in the case of Trademarks i.e. passing off of the marks of another prior user; therefore the rights and privileges on an invention and to the inventor flow only from the legislation. The Patents Act, 1970 in effect codifies the law in respect of registration, management, revocation and expiration of the patent.


Grant of patent on an invention confers a monopoly to the inventor/owner to exploit the patent for its gain, albeit for a limited time frame i.e. 20 years(date of filing/PCT filing). The idea of granting limited monopolistic protection was to assure innovators that the efforts(and investment) for inventing would be duly compensated and also by ensuring that inventions are brought out and be open to public at large. In turn the community would benefit from the innovation which otherwise would have not come in public domain since the inventor would have been fearful of exploitation of its innovation without any recourse. The law was formulated to ensure that the innovator had the fruits of its innovation.


Working of Patents


The law while recognizing the need to grant protection to the inventions by innovators also anticipated that merely granting recognition and protection to innovations would not be sufficient to ensure that the fruits of the innovation is sufficiently accessible by the public. Like every other owner of a property, the rights of a patentee includes the right to work the patent, licence and assign etc in order to ensure that the objectives of the statuary protection are fulfilled in letter and spirit.


The need for providing such safeguards was addressed by introducing provisions of Chapter XVI i.e. “Working of Patents, Compulsory Licences and Revocation” in the Patents Act, 1970.


Section 83 of the Patents Act, 1970 delineated the general expectations from the holder of patent rights to exploit the patent. The provision in no less express terms mandates that the holder of the patent is required to fully commercially exploit the patent and not to enjoy a monopoly. Interestingly Section 83(g) mandated that the patent was granted to ensure that the patented invention was available to be public at reasonably affordable prices.


Section 83 reads as:


83. General principles applicable to working of patented inventions.—Without prejudice to the other provisions contained in this Act, in exercising the powers conferred by this Chapter, regard shall be had to the following general considerations, namely;-


a)that patents are granted to encourage inventions and to secure that the inventions are worked in India on a commercial scale and to the fullest extent that is reasonably practicable without undue delay;
b)that they are not granted merely to enable patentees to enjoy a monopoly for the importation of the patented article;
c) that the protection and enforcement of patent rights contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations;
d) that patents granted do not impede protection of public health and nutrition and should act as instrument to promote public interest specially in sectors of vital importance for socio-economic and technological development of India;
e)that patents granted do not in any way prohibit Central Government in taking measures to protect public health;
f)that the patent right is not abused by the patentee or person deriving title or interest on patent from the patentee, and the patentee or a person deriving title or interest on patent from the patentee does not resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology; and
g)that patents are granted to make the benefit of the patented invention available at reasonably affordable prices to the public.


While Section 83 of the Patents Act, 1970 stipulates conditions on the patentee to exploit the patent, to see through that the objective is achieved, the law provides for a transparent system of checks and balances by stipulating that every holder of a patent has to provide an annual statement detailing the “extent to which the patented invention has been worked on a commercial scale in India.” under Section 146(2).


The provision of filing an annual statement, permits the public at large and especially interested parties to ascertain that the patented inventions have been worked as stipulated in the law. Being a public office, the filing becomes part of public record and can be accessed to ascertain the extent of working of the patented invention.


This aspect of regular reporting of the working of the patent is a precursor to any proceedings under Chapter XVI, this is premised on the logic that the Patentee has the complete details of the actual working of the patented invention and the data by the patentee can be laid as a foundation to test whether the conditions as stipulated under Section 83 has been fulfilled.


Compulsory Licence


Section 84 of the Patent Act, 1970 stipulates the conditions for grant of compulsory licence. Some of the salient features of the provision are:


A.The application for Compulsory licence can only be applied after completion of three years of grant of licence.
B.The application can be filed on the following grounds:


(a) that the reasonable requirements of the public with respect to the patented invention have not been satisfied, or

(b) that the patented invention is not available to the public at a reasonably affordable price, or

(c) that the patented invention is not worked in the territory of India.


C.The controller of the patents has to consider the following factors for grant of compulsory licence:
(i)the nature of the invention, the time which has elapsed since the sealing of the patent and the measures already taken by the patentee or any licensee to make full use of the invention;
(ii)the ability of the applicant to work the invention to the public advantage;
(iii)the capacity of the applicant to undertake the risk in providing capital and working the invention, if the application were granted;
(iv)as to whether the applicant has made efforts to obtain a licence from the patentee on reasonable terms and conditions and such efforts have not been successful within a reasonable period as the Controller may deem fit:
D.The conditions as to reasonable requirements of the public shall be deemed not to have been satisfied if:
a)if, by reason of the refusal of the patentee to grant a licence or licences on reasonable terms,—
(i)an existing trade or industry or the development thereof or the establishment of any new trade or industry in India or the trade or industry of any person or class of persons trading or manufacturing in India is prejudiced; or
(ii)the demand for the patented article has not been met to an adequate extent or on reasonable terms; or
a.a market for export of the patented article manufactured in India is not being supplied or developed; or
b.the establishment or development of commercial activities in India is prejudiced; or
b)if, by reason of conditions imposed by the patentee upon the grant of licences under the patent or upon the purchase, hire or use of the patented article or process, the manufacture, use or sale of materials not protected by the patent, or the establishment or development of any trade or industry in India, is prejudiced; or
c)if the patentee imposes a condition upon the grant of licences under the patent to provide exclusive grant back, prevention to challenges to the validity of patent or coercive package licensing; or
d)if the patented invention is not being worked in the territory of India on a commercial scale to an adequate extent or is not being so worked to the fullest extent that is reasonably practicable; or
e) if the working of the patented invention in the territory of India on a commercial scale is being prevented or hindered by the importation from abroad of the patented article by—

(i) the patentee or persons claiming under him or

(ii) persons directly or indirectly purchasing from him; or

(iii) other persons against whom the patentee is not taking or has not taken proceedings for infringement.


The conditions as stipulated in Section 83 is further elaborated by this provision and lays down a clear and unambiguous test which the controller is required to apply. The principles as enunciated in Section 84 are required to be applied in the facts of each application for grant of compulsory licence which not only mandates to consider the working of the patented invention but also obligates the Controller to consider the capacity of the Applicant to effectively work the patented invention and also tests the bona fide of the applicant as it stipulates that the applicant is required to make effort to obtain a voluntary licence from the patentee.


Revocation of Patents


Chapter XII deals with Surrender and Revocation of patents which is distinct from revocation in this chapter as proceedings for revocation int his chapter assumes the patentability of the invention and is applicable only to a valid and subsisting patent(with other conditions as discussed herein after).


The powers of revocation under this chapter is based on the following conditions:


A.The application for revocation can be filed after completion of 2 years from the date of grant of Compulsory licence; and
B.The patented invention has not been worked in the territory of India; or
C.reasonable requirements of the public with respect to the patented invention has not been satisfied; or
D.or that the patented invention is not available to the public at a reasonably affordable price.


The chapter further in sections 86-90 and 92-93 provide for procedure and powers of the controller in proceedings related to compulsory licence and revocation.


Compulsory licences by Central Government:


Section 92 of the Patents Act, 1970 provides for a distinct and limited power to the Central Government to grant compulsory licence any time after the grant of patent, if:

(i)in circumstances of national emergency or
(ii)in circumstances of extreme urgency or
(iii)in case of public non-commercial use


The Central Government may issue a notification under this provision which will empower the controller to issue compulsory licences after following the proceedings as stipulated in the chapter. However in case of public health crises, relating to Acquired Immuno Deficiency Syndrome, Human Immuno Deficiency Virus, tuberculosis, malaria or other epidemics, the controller is empowered to issue licences without following the procedure under Section 87.


This aspect becomes relevant when we consider the current public health crisis and the rapid spread of COVID-19, the Central Government and the controller are not bound by the fetters of procedure and can summarily issue compulsory licence as and when situation demands for issuance of such licence.


Before concluding, I would like to discuss the first case of grant of compulsory licence in India. The brief facts of the case which led to grant of licence as recorded in order of IPAB in Bayer Corporation vs. Union of India & Ors in OA/35/2012/PT/MUM and subsequently by the Bombay High Court in Writ Petition No. 1323 of 2013 are:


(i)Bayer Corporation, the holder of patent of drug named “Sorafenib Tosylate” having brand name Nexavar. The drug was stated to be a palliative drug for patients suffering from Renal Cell carcinoma and Hepato-Cellular Carcinoma.
(ii)Natco Pharma limited filed an application for grant of Compulsory Licence on the grounds that i) it could not obtain voluntary licence despite efforts ii) the Applicant could offer the drug at a price of less than Rs.10,000/- per month of therapy as against the price of Rs.2,80,428/- per month by Bayer Corporation iii) Natco stated that Bayer had not with regard to the patented drug met the reasonable requirement of public nor was it reasonably priced nor was it worked in the territory of India.


While both Natco and Bayer raised multifarious pleas before the Controller, IPAB and High Court, I would like to focus on some of the aspects which in my opinion are the tests as laid out in chapter.


I.Efforts to obtain Voluntary Licence:


The Applicant of CL, Natco relied upon its communication with Bayer to establish its claim that the Natco had made enough efforts to obtain Voluntary Licence. To the contrary Bayer contended that the letter by Natco was merely notice or threat and not any effort to obtain voluntary licence. The IPAB considered the contents of the letter and held that Bayer did not convey that there was room for negotiation which would have established foundation for effort to negotiate the terms for voluntary licence.


The Bombay High Court (“High Court”) also examined the records of the communications between the parties, the Court observed and concluded:


“We have examined the correspondence between the Natco and the petitioner. It is on the basis of examination of evidence i.e. exchange of letters between the parties in the context of Section 84(6) of the Act that both the authorities concluded that effort was made by Natco to obtain for voluntary licence. This concurrent finding of fact was based on appreciation of evidence before the authorities. We also find that the petitioner's response dated 27 December 2010 to Natco's request for a Voluntary licence very clearly records its refusal to grant voluntary licence to the applicant. The so called window in the petitioner's response for Natco to approach is illusory as it is open only if the Natco had anything to add to the application already made.


Therefore, we find no reason to interfere with the findings of the authorities under the Act. We hold that the second condition precedent for consideration of application for compulsory licence namely an effort to obtain a voluntary licence has been satisfied by Natco. Therefore the consideration of the application by Natco for grant of Compulsory Licence to the Controller cannot be faulted nor the impugned order can be faulted on the above ground.”


II.Reasonable requirement of the public is not satisfied:


The first of the three test as stipulated in this chapter, the IPAB and High Court examined whether the requirement of the public is being satisfied or not.


The IPAB examined the sale records as derived from the records filed with Form 27 and concluded that the date of working of the Patentee and its Licencee can only be utilised to ascertain that the reasonable requirement of the public is being satisfied. There is another aspect which was examined and rejected by IPAB was the infringement by Cipla which Bayer had relied upon to claim that the patent was being worked upon to take care of requirement of the public.


This submission was also rejected by the High Court on the ground that the requirement of the public cannot be ascertained on the basis of any mathematical basis. The Court observed that the controller and the IPAB has considered the claims of the rival parties and had concluded on the basis of the material on record. The High Court also noted that there were approximately 8842 patients and the drugs were supplied only to 200 patients. The High Court held that the reasonable requirement would not be satisfied even of the numbers provided by the infringer i.e. Cipla is taken into consideration.


III.Non-availability at a reasonably affordable price:


The second test with respect to reasonably affordable price, the IPAB considered two fold submission 1. Bayer was providing drugs under Patient assistance program and Health insurance schemes and that the drugs were available for Rs. 2,80,000/- per month.


The IPAB held that the patient assistance programme would not be considered for ascertaining the access to the drugs by the patients. It further held that reduction of prices by the patentee would not frustrate the application for grant of compulsory licence.


IV.Patented invention is not worked in territory of India:


On the question of working, while both the IPAB and High Court referred and relied on the submissions of Natco that working in India would not only mean manufacturing in India and import of patented invention can also be considered working for the purposes of Patent Act, 1970. The courts kept this aspect open on the ground as the claims made in every case would vary from facts of such claim. It however laid down that working in India would mean working in Commercial Scale and not token working of the patented drug.


In an appeal against the order of the Bombay High Court, the Supreme Court had refused to grant leave.


While online search would reveal that there are other cases where the applications are either pending adjudication or have been withdrawn. In my opinion, the compulsory licence regime is at a nascent stage and would evolve with time. While every matter would turn on its facts, laying down a general body of case law would permit the Adjudicatory forums/Courts, industry, consumers and practitioners of Patent Law would have the benefit of such case law to formulate a guiding light to deal with every application and would permit the patentee to ensure that its intellectual property are worked and managed in accordance with Indian Laws.


Views are personal.

Should insider dealing be prohibited?

When persons deal in financial products having prior knowledge of price sensitive information which is not in the public domain, such trades are termed as Insider Dealing. These trades seem to a non participant, legally and morally incorrect as understood in colloquial understandings as a matter of ethics. However, if the moral high ground is set aside then the desirability of prohibiting insider dealing is debatable and remains unresolved.

Basically there are two schools of thought regarding insider dealing. One school debates the unfairness of such trades, while the other argues the economic efficiency generated by such trades. These divergent views are a subject of intense debate which this paper highlights. For the sake of clarity it is necessary to demarcate an insider who is responsible for insider trading. Insiders are persons regularly involved with the activities of the firm i.e. owners, directors and management, as also it’s lawyers, accountants and all other functionaries who routinely have information about the firm which is not in the public domain.

Besides the conventional insider trading, it can manifest itself in various forms. Two such forms involve brokers who decipher information derived from orders placed by clients, and resort to client precedence or front running. When the time priority is manipulated by brokers against client orders it is termed as client precedence, wherein the broker places orders on his own account before initiating his client’s order, thereby accruing maximum price advantage and executing his clients order at a comprised price. While in front-running, a broker on receiving a large client order, trades just before execution of the order expecting movement of price when the large order goes through. Another dealing in front-running is the broker on receipt of a large order takes a positions opposite to that of the client without informing him to square the trade off market at a profit. In spite of all the legal provisions that have been put in place to curb insider dealing, it is still questionable if such curbs are enough to protect outside investors.

Insider dealing was first taken cognizance of by the US. Courts promulgated the disclose or abstain rule and misappropriation theory under section 10(b) SEA 1934 thereby leading to rule 10b-5. Under powers of Exchange Act Section 14(e), Securities and Exchange Commission (SEC) enacted rule 14e-3 concerning tender offers. This research paper mainly deals with the policy debate on the prohibition of insider dealing and its effective implementation in different evolved markets.

Insiders in a general sense are people who during the course of their interaction within the company acquire information which is not available to outsiders. Insiders are also categorized in two types i.e. Primary insiders and Secondary insiders. (Article 2(1), Market Abuse Directive)
Though insider dealing is projected as an offence under Market Abuse Directive, but the
directive treats most cases as an objective offence; thereby opening the debate that insider trading is economically efficient.

This research paper first tries to explain the scope and definition of insider dealing and in the second part it explains the Continent wise approach to insider dealing in which it tries to compare the approach of certain jurisdictions. Further, in the third part it tries to reason out whether or not it should be prohibited. This paper discusses the policy debate on the prohibition mainly in the second and third part. Consequently, it seeks the effectiveness and alternatives to insider trading regulations concluding by analyzing the complete paper and the opinion as to whether its prohibition is in the interest of all parties concerned.

2) Scope and definition of Insider Dealing

The scope of insider dealing varies from country to country. In the US both the Securities Exchange Commission and the federal government have taken cognizance of insider dealing and have taken steps to curb this. Most countries now treat it as an offence and have put in place legislation to curb it with serious infringement penalties. Insider dealing is considered as a social taboo because of its immoral nature. However, it is not fathomable to comprehend if it would be comprehensively possible to curb this offence.

Defining the offence itself varies from country to country. Citing the example of US, US law makers have not given any fixed definition of insider dealing. Hence rules invoked against insider dealing make no mention of the word ‘Insider’ or ‘Insider Trading’ and inside information is defined as ‘material non public information’. Whereas Article 1(1) of Market Abuse Directive of the EU goes on to articulate ‘inside information’ precisely as any information of a specific nature, which has not been made public concerning directly or indirectly to all issuers of financial instruments, which if released to the public is likely to significantly impact the value of the concerned financial instrument or related derivative financial instruments.

Further Article 2 (1) lays down what constitutes insider dealing. Article 3(a) and 4 deals with primary or secondary insiders disclosing information to a third person subject to such information being passed on in the normal course of discharge of duties or as per Article 3(b) and 4 primary or secondary insiders recommending / inducing a person to deal in or dispose such inside information will be treated as insider dealings.

As per theories, the US has been the first to proscribe insider dealing. The collapse of the United States stock market in 1929, led to the enactment of the Securities Act of 1933 and the Securities Exchange Act of 1934 by the Congress. S.16(b) and s.10(b) of the 1934 Act tried to deal in all possible ways with the issue of insider trading. Wherein s.16(b) disallowed corporate people in the know to make short term profits from their own corporation stocks, however, an exception was in place for extraordinary circumstances. Application of this law was to safeguard insider trading by people most likely in the know of restricted information e.g. Directors / corporation honchos holding in excess of 10% of the stocks.
However, s.16(b) of Securities Exchange Act 1934 only restricts the insider trading on inside information, if he resorts to counter trades in the preceding six months or intends to make such trades in the future within the next six months. This stipulation of six months is seemingly inadequate and the period can be considered for enhancement to resolve this. This given period of six months acts as a major hurdle in the effectiveness of this rule as the insider can wait for six months in order to trade.

Also Rule 10b-5 which was brought in by the SEC under sec 10 of the 1934 Securities Exchange Act, set a requirement for the insiders with a fiduciary duty towards those with whom they would trade, to abstain from trading incase they had access to material information which had not been made public. The Congress and SEC have been very strict in the enforcement of Rule 10b-5 especially since 1980’s. The Congress allowed the SEC to increase the civil penalty by three times for the violators of Rule 10b-5 in 1984 by passing the Insider Trading Sanctions Act. It became common to send the culprits behind the bars after 1980’s. In 1988, the penalties touched the peak when the Insider Trading and Securities Fraud Enforcement Act announced $ 1 million as the maximum criminal penalty and an imprisonment of ten years.

However, due to the complexities involved with regard to insider trading, proving violations in insider trading under Rule 10b-5 (SEA 1934) is very difficult. The onus of conclusively showing that pertinent and non public information was used in trade by the insider lies with the SEC. To compound matters Rule 10b-5 puts no restriction on the corporate insider armed with pertinent inside information to defer trade or not to trade at all, putting the corporate insider in a relevantly better position than an outsider not having the relevant information. But as is the duty of all regulators SEC continues to pursue cases.

In spite of these rules, the insiders have not yet been completely hindered from making profits. This shows that there is something lacking in these rules. Moreover, in order to be punished under rule 10b-5 it is necessary that the information meets the standards of materiality in a strict sense. The main reason for rule 10b-5 not being effective enough is the materiality criteria. The meaning of materiality might differ circumstantially and may be different for different people. Moreover, it is possible that insiders trade on information which is not material but is not in the public domain and is enough to make profits.

Besides this the issues of disinformation also required to be largely curbed. Section 10(b) pegs the “material misstatement” clause which due to misinformation by office bearers of the firm may be directly responsible in affecting the stock prices of other companies. Section 10(b) holds people accountable to civil liability, who spread misinformation about one firm and make profit from the resultant variation in prices from other firms.

There are mainly three theories under which insider dealing is considered illegal. The first rule i.e., the disclose or abstain rule in which it was decided in the SEC v. Texas Gulf Sulphur Co. , that if a person had access to information which was not available to the general public, then he had two options. First is, revealing that information incase he wished to make use of it, or

second, refrain from trading in the securities of that company. However, this policy was later discarded by the Supreme Court of US, in the Chiarella v. United States and Dirks v. SEC in which it held that the liability of a person would arise only subject to an obligation to reveal ahead of trading. This rule unlike the rule in Texas Gulf Sulphur Co. brought about a vital change by enhancing the ambit of the offence from only insiders to certain outsiders who owed a fiduciary duty to the issuer. However, this also had its own limitations as the outsider would only be liable if, he obtained information which was not public, from the issuer and the issuer expects confidentiality from the person to whom the information is disclosed. The rule also gave rise to tippee liability, however, this also has it’s own limitations, i.e., the liability of a tippee only arises when there is a breach on the part of the tipper of a fiduciary duty due to revelation of information and the tippee has knowledge or there is basis for him to have knowledge of this fact.

This decision of involving involved outsiders within the ambit of insider trading, dilutes the opportunities to identify the insiders as well as makes it difficult to pinpoint the involved outsiders.

As a reaction by the SEC to the Chiarella case, came rule 14e-3. It proscribed the letting out of secret information related to tender offer by insiders of the bidder and target companies to any person who is capable of trading on that information thereby infringing the rule.

However, this rule also has its limitation. Research has shown that though under rule 14e-3 a person is proscribed from using information that is not in the public domain, which may be accessed by a person initiating a business deal with a firm from purchasing stock of such a firm with whom he has entered into an agreement. However, this does not disqualify or hamper a person from trading in stocks of subsidiaries of the firm whose information is not in the public domain. This implies that the information that is under wraps of dealing with a firm though disallows purchasing stocks from that firm does not prohibit a person from purchasing stocks of other firms in the same industry. This is despite the fact that it may be evident to predict the outcome of the impact of the dealings of the firm with whom an agreement has been entered into. Therefore, the logic that supports Rule 14e-3 may support the logic reaching out to the stocks dealt with within the same industry. Hence, an insider working in the same industry might have knowledge of other firms, but as per this rule there is nothing to prohibit them from trading on the stocks of those other firms.

Chief Justice Burger used the idea of misappropriation to give a theory based on insider dealing liability. This theory was brought into practice by the Supreme Court in the case of O’Hagan v US , it was clarified in this case that misappropriation theory is a part of Rule 10(b)-5, the criteria for which are, the employment of a misleading device, violation of a fiduciary responsibility, using of important, non pubic information in order to trade on a security, and the defendant’s determination.

While deciding on the case, the first and foremost argument given by the Court was the protection of investor confidence which would be possible by proscribing insider dealing.
The second argument as quoted in the Court’s words was
“A company’s confidential information . . .qualifies as property to which the company has a right of exclusive use. The undisclosed misappropriation of such information in violation of a fiduciary duty . . . constitutes fraud akin to embezzlement – the fraudulent appropriation to one’s own use of the money or goods entrusted to one’s care by another.”

It is evident from the above facts that even though the rules against insider trading have not been as effective as they should have been, but the approach of the US towards it has been very strict. It has been considered a serious offence in the US and 1980 onwards a more stringent approach has been adopted.
The US though looks at insider trading through a broader perspective, and civil penalties can be imposed by the SEC, hence, unlike the EU, the standards of proving the offence are not very

high. However, it is the concept of fiduciary duty which makes it difficult to completely control insider dealing.

The first to make extensive progress in order to prohibit insider dealing outside the United States was the European Community Directive which was adopted on November 13, 1989, known as the EC Directive. Scandals of 1980’s in Europe that involved the Guinness Brewing Group, made it highly important to prohibit insider trading throughout Europe. The Directive has been greatly influenced by the US Laws. The 2003 Directive came after the 1989 Directive. Unlike the US law, the 2003 Directive clearly defines “insider” and “insider dealing”.
The 2003 Directive not only defines the insiders but also those who use illegal means to attain information. As to taking cognizance of the offence, the Directive adopts a flexible approach, by allowing insider trading to be punished either as a crime or civil wrong or even both.
However, the member states have had their own political and cultural issues and it took time to get the legislation in writing.
However, the basic difference between the United States prohibition of insider trading and prohibition under the EC directive is that in order to be liable under the EC directive, the insider dealer does not need to have been in violation of a fiduciary duty. Moreover, the standards of proving the crime are much higher in UK due to the criteria of “precise nature”.

However, there may be drawbacks in the legislation, but the strictness in the rules against this particular offence proves that the approach of both these countries has been positive enough to lessen or completely prohibit this offence.

Since India is the largest democracy in the world, this research paper considers it relevant to discuss the state of insider dealing with regard to India. Insider trading in India was unchecked till 1970. That is to say after the founding of the Bombay Stock Exchange in 1875, insider trading remained unchecked for almost 100 years. The ill effects of insider trading became apparent with time. Several committees made recommendations in order to control this practice. Ultimately, the Securities and Exchange Board of India (SEBI) Regulations 1992 managed to restrain insider dealing to an extent. The liability of a person if convicted under this offence arises under s.24 and s. 15G of the SEBI Act 1992. The laws on insider trading had been made more stringent during February 2002. The definition of insiders was broadened.
However, at present in a country like India in which there are too many loopholes in the statute it is very difficult to curb this offence. But the initiative taken itself is in the right direction and shows the positive will of the state to curb insider trading.
Malaysia gave the investors an upper hand by allowing them privately to take action against the insider dealers.
Japanese law seeks intrusive clarity and has laid down specifics that may be triggers for initiation of insider trading, e.g. allotment of securities by the management, capital reduction, stock splits, changes in dividend distribution, mergers, dissolutions, changes in marketing strategies, natural calamities, damages to the corporation, sales or purchase of the whole or part

of the business, changes in the shareholding pattern, actual profit or loss, events listed by the Cabinet Ordinance or changes in the assets or business strategies which effect future investment decisions involving the management. The impact of these information and permutation- combination of these inside information may vary. The Japanese law appears to be more meticulous and clear about what it actually wants to include in the offence.

This paper traverses across various regions and in its study deduces that different countries have enacted different laws and also have different takes in enforcement of the insider trading laws. But most seem to agree that there is a requirement to curb this practice as, in the foreseeable future it would be ultimately good for the economy.
The question “Should insider dealing be prohibited?” is of primary importance and also the main subject of this research paper. There are advocates supporting both, prohibition and deregulation of insider trading. Since the fountainhead of majority of laws is the US law, this research paper primarily discusses the US law, though insider trading is neither defined including all parameters nor are there clear regulations by the federal rules. The most prominent argument against insider dealing mentions the unfairness of it ethically which may resultantly frighten away investors who contribute to the liquidity of the stock market. But in the absence of a clear definition of insider trading, enforcement of the regulations becomes a difficult task.

Moreover, the majority rule says that there is no such responsibility for the corporate insiders towards the shareholders. In the case of Carpenter v. Danforth which is among one of the initial cases to deal with insider trading, it was held by the appellate division that the director’s duty which was owed to the corporation was not owed to the shareholders by reason of his holding shares.

This research paper giving all due respect to the decision of the court argues that while conceding the fundamental duty of the directors towards the corporation also has to be accountable to the share holders who are in effect owners of the corporation. Shareholders will enhance/ continue their investments only if the corporation dealings are transparent and their investments bring them higher returns.

A point of view supporting insider trading justifies that it is acknowledged as a type of compensation for the corporate sector work force which can be kept at a subdued salary thereby benefiting the shareholders eventually. On the company value enhancement, academicians profess that it encourages innovations, due to the sheer quantum of rewards to be reaped, from creating products which add value and result in steep increment in the stock. However, strong the argument is, it does not explain the unfair act of keeping the general public from material corporate information and reaping the financial gains on their own at the shareholder’s cost. It also does not justify the issue of insiders getting into dicey business for quick profits. Besides, due to acute competition there is no check on the managerial compensation, there by profits from insider trading augment the high managerial compensation rather than substitute lower compensations as envisioned.

The compensation argument is one of the most common arguments which the proponents of insider dealing argue, however, they tend to forget the fact that, not only is insider dealing an ethically wrong instrument to compensate the management but the management is usually given higher salaries on the basis of their skills, experience and performance, the judgment for which is, in principle, made by the shareholders. If measures such as insider dealing are used to compensate the management, the shareholders inevitably lose to the insiders of a firm because of lack of the information, which, these insiders use to great advantage of their own.

Moreover, this cannot be a valid argument in support of insider dealing because the insider not only includes the management and executives but other secondary insiders such as lawyers, accountants as well, for whom this cannot be a valid justification.

The fact that insider trading lacks a legal definition in place and the reliance by Americans on numerous anti-fraud provisions gives a base to the proponents of insider dealing to argue on the ground that regulating insider dealing might prove to be unfair to those traders who do not indulge in insider trading in it’s strict sense but their dealings are such that are borderline on insider trading. However, this is not of much importance. The reason being that it is necessary to prove the intention of fraud.

Critics of stringent insider trading regulations point out that securities analyst play a major role in assessment of companies and this would stifle their basis of analysis because of the absence of inputs from the company officials. However, the empirical evidence shows that the analysts in the United States make their assessments within the ambit of permitted law. Moreover, in a country like the US which has been highly cautious after the fall of ENRON, and the Sarbanes-Oxley Act which came in response to the Enron case, it is very difficult for the securities analyst to make any unfair or fake assessments.

There are also arguments on the basis that there is no sufferer of the so-called crime, “insider trading” and moreover, it would be highly expensive to impose restrictions on insider trading. To enforce the restrictions against an offence like this is highly expensive as well as time consuming and whether directly or indirectly the cost is borne by the shareholders ultimately.

The parity of information is yet another reason given by the proponents for prohibiting insider dealing. However, the US Supreme Court rejected this argument contending that a truly efficient market is one in which the information possessed by all investors is not equal. Moreover, the Court argued that a different level of possession of information encourages the investors to be more competitive and do more research thereby, improving market efficiency.

With all due respect to the Supreme Court this research paper argues that competitiveness in the market place brings out the best and is a source of greater efficiency, but this is only true when the competition is healthy. In insider dealing, a person is privy to information by virtue of his being in that particular position. The question of research, competency and efficiency do not arise here because it amounts to possession of relevant information that might negate research about the future prospects of the company.

Legal, financial and institutional data researched across 33 countries show that if insider trading laws are strictly implemented in the stock markets, such markets have greater liquidity and the ownership of equity is dispersed making the stock prices more transparent.

According to Carlton and Fischel, one of the benefits of insider trading is that it allows the stock prices to find its own legitimate level due to the inputs and settle to the firm’s proper value earliest. However, insiders do not trade for the benefit of others. While on the other hand insider trading stigma may curb insiders their initiative to release relevant information in the market resulting the stock prices not having factored in the information and being less informative.(Kraakman, 1991). Also insider trading may act as a deterrent by reducing incentives to outside informed traders from researching and finding out relevant information about the firm thereby making the stock less informative. by: (1) Possibility of sabotage by insiders (Morck, Yeung, and Yu, 2000); or by (2) Stemming the flow of stock information after reducing competitors. (Fishman and Hagerty, 1992)

Though insider trading, if allowed to go on unchecked will lead to a different set of problems and open an avenue for higher cost of doing business. When insiders trade it is invertible that brokers and other market makers consistently lose money, to cover this additional cost they enhance their bid-ask value. This way they cover the higher cost and shift the onus of this enhanced cost to investors outside whom they deal with, resulting in creating “insider trading tax.” Enhanced ownership may be a direct fall out of insider trading even if such trades are considered beneficial. Due to the large holdings it can be assumed that monitoring is professionally carried out and better (see, e.g., Bhide, 1993). With these large holdings (undiversified) the vulnerability factor is required to be offset through compensation. One such means is by allowing insider trading (Bhide, 1993; Demsetz, 1986). Enhanced valuation through insider trading encourages investors to hold large blocks of shares, however if insider trading is legally forbidden it is likely to discourage investors investing in large blocks of shares. (Bhide, 1993; Demsetz, 1986). Various countries have different perspectives of pattern of share holdings, wherein countries promoting widespread equity ownership have put in place necessary regulations to prohibit insider trading.

Insider trading regulations are not totally independent. They are influenced by various regulations among which is included the pattern of equity ownership.

Research has further shown that if there are no regulations for insider trading then the small shareholders are at loss, as the large investors such as the institutional investors who have better resources and are by all means more powerful, join hands with the controlling authorities of the company in order to safeguard their interests.

Some academicians argue that it is true that the insider dealers make striking profits from the inside information that they have access to, however, it is believed that these insiders are able to make these profits because of the information they have and not because of any kind of deception. However this argument cannot be given credit as having access to information by virtue of being in a particular position and using it for the same transaction in which the other shareholders also participate, without disclosing that information to them, is itself a form of deception.

Moreover, regulations are to deter insiders from trading stocks of their own company but the regulations are silent about such trading of stocks of other companies. Though the actual beneficiary of the insider dealing regulations are not clear. Small shareholders and general public do not greatly benefit from these regulations but it is usually the institutional investors, brokers, security analysts, floor traders. Moreover the regulators i.e. SEC gets more visibility and power which is accompanied with prestige and a larger budget. (Bainbridge 2002).

The arguments as those given above by the proponents of insider trading are not consistent. Insider trading has to be regulated, this must have a rationale, only because there is nothing to stop the offenders from trading on the stock of other companies does not mean that the insiders should not be prohibited from trading on the stocks of their companies, the information of which they have easy access to on a quid pro quid basis. Moreover, even if the beneficiaries of the regulations are institutional investor or brokers it stands to reason. This is what makes the market efficient and competitive in its true sense, as these large investors may have more access to resources and may be more powerful but benefit purely on the basis of their research. Providing a level playing field to market professionals, small share holders and insiders by regulating insider trading will check volatility in the market.

Academicians Scott (1980), Herzel and Katz(1987), point out that insiders use information belonging to their organization for their personal gain.
Researchers have contested that insiders benefit at the expense of outsiders when inside information is the basis of initiating a trade, but outsiders trading their shares would have initiated the trades anyway and would have traded at a worse price (Manne 1970). That is to say if an insider is selling stock, he is doing so as his inside information informs him that the stock prices are likely to fall. As a consequence of selling pressure the stock prices fall, however a buyer of the stock in the market picks up the stock at a lower price consequent to the fall, thereby getting a better price for the stock he had set out to buy. As is evident that someone in the market has to bear the burden of the loss due to the insider trading, but such losses are generally spread out across buyers and sellers and cannot be easily traced. (Wang and Steinberg 1996 ). But insiders selling resulting in marginal fall in prices, goads the buyers on the margin to buy who actually loose, as well as the stock holders who sold at a lower price or persons who could not sell as there was no demand. In the instant case it is argued that transfer of wealth takes place from an outsider to an insider, the stock prices falling down erodes the valuation of the company thereby raising the cost of capital (Mendelson 1969). Insider trading rarely affects long term investors as opposed to short term speculators as the trades had been calculated and initiated for the long term projected value. (Manne 1966).
Some academicians such as Manove (1989) have argued that due to insider trading selling pressure, the stock prices may be depressed thereby depreciating the value of the firm. But Manne 1996 points out agency problem may be actually reduced due to insider trading. Also Harold Demsetz concluded that shareholders who hold large chunks of controlling stocks instead of diversified portfolios need to be compensated for the risk, this can be taken care of by allowing them access to valuable trading information. Bhattacharya further argues that outsiders also may benefit from insider trading. Though, even if law ensures a level playing field and information is available to all participants, it is not necessary that they arrive at the same conclusion after analysis. In all probability different analysts would arrive at different conclusions and trades initiated will be as per varied opinions of the best analysis of the information available.
Analysis and interpretation is directly proportional to the competence of the analyzer, however analysis is secondary. Firstly it is mandatory to follow the source of information. Information per say cannot be the same with all interested parties as market players compete and research credible information and have to at times wade through misinformation. However, this source of information seeking and analysis takes an unfair preponderance if the information is available to a select few to act upon, by virtue of their position giving them easy access to important information, denied to others.

Manager’s incentives compensating them through insider trading can hurt the corporate performance, as in the zeal to garner insider trading profits through substantial price swings, managers may engage in risky projects and expose the company to undue risk. Insider trading also tends to make managers complacent not exercising themselves to their full potential as they are able to generate profits even faced with bad news. Besides these managers exploit inside information by hoarding and trading this information before revealing it, thereby interfering with the natural flow of information within the firm which may be counter productive.

As a natural consequence the innovators who create valuable information are the ones who actually profit from the information and this can go unchecked as it is not possible to ensure otherwise. The real innovators of the firm would prefer to hoard information to enable them to monopolize on the insider trading profits, but the fact that this is discouraged, would possibly allow other insiders to take advantage of this without any contribution from them. The inability to hold back information by the true innovators of the firm to take maximum advantage of insider trading, acts as a deterrent as it ultimately reduces their initiative, as their advantage from insider trading is diluted , thereby ultimately adversely affecting corporate performance due to lack of incentive. Conversely curbing free flow of information within the firm and having access by a select few could jeopardize organizational efficiency of the firm

The problem of free riding is age old. However, this research paper suggests that there should be a body in place to decide on certain information which can be kept confidential by the innovators, just like certain official information which cannot be made public, other than that there should be an equal distribution of information to one and all.

5) Effectiveness of insider dealing regulations
According to one academician “enforcement by any means of insider trading restrictions is a bankrupt idea because enforcement attempts are to curb an incurable element of human nature.”

So far there is no established empirical research as to the effectiveness of insider trading regulations. However, the importance of regulating insider trading is evident from the fact that 87 countries out of the 103 countries which had stock markets by the end of 1998 had established laws against insider trading (Bhattacharya and Daouk 2002).

Academicians suggest that sometimes where government regulations are not very effective, there can be private negotiations between the company and the employees as to whether insider trading should be permitted or proscribed. Though these regulations are perplexing. Technology has also been one of the reasons for increase in insider dealing. With the advent of the internet, insider trading has become easier and possibly another category called ‘hackers’ can be added on to the list of insiders. However, Securities Exchange Commission of United States (SEC), has been clear about this and stated, “liability provisions of the federal securities laws apply equally to electronic and paper-based media.”

Though with technological advancement, online trading is the order of the day and insider trading may be simplified, it must be realized that tracing such trades has also become simpler for the regulators to enforce the laws of the land.

The first to study the effect of regulations on insider trading was Jaffe. His study was based on three case laws. He has observed the effect of their decisions on the amount of insider trading. The three cases on which he makes his observation are Cady, Roberts 1961; Texas Gulf Sulphur condemnation, 1961; and the decision of Texas Gulf Sulphur in 1966. Jaffe’s observation based

on the decision of these cases showed that it was difficult to bring to a close that there was any impact of insider trading regulation on the quantum of trade or the profits accrued.

However, other academicians pointed out that during the period of these three cases SEC was not serious and its main objective was not insider trading. It has been researched by Dooley (1980) that in the period from 1966-1980, the numbers of cases brought by the SEC were very few, most of which resorted to out of court settlement. However, strict enforcement of insider trading regulations in 1980’s, coupled with sanctions resulted in behavioral changes in insider outlook to insider trading.

Haddock and Macey (1987) mention the progress made by SEC From January 1982 to August 1986 wherein seventy nine 10b-5 cases were processed averaging 17.2 cases which was more than a six times escalation. Cases against corporate insiders rose from 49 percent to 80 percent in the 1980s which generally tells us the period from which impact of the regulatory changes started taking effect and consequently trading behavioral changes of insiders started to show effect.

It has been observed that there has been good progress with time as regards the effectiveness of insider trading regulations and also insider trading behavioral changes have started to bear fruit.

However, the difficulty in proving the offence in order to enforce the law is evident from an apt statement made by the SEC staff “Insider Trading is an extraordinary crime to prove. The underlying act of buying or selling securities is, of course, perfectly legal activity. It is only what is in the mind of the trader that can make his legal activity a prohibited act of insider trading.” (SEC 1998).

Insider Trading Sanctions Act (ITSA) in 1984 strengthened the hands of the SEC by allowing a steep increase in the penalties for infringement of securities laws including Rule 10b-5. This in effect has shown a decline in insider trading before impending tender offers, merger bids as well as earning announcements.

This research paper observes that, as more and more research tackles this issue of insider trade, the laws can be fine tuned and loopholes plugged as new facets will come to the fore and existing laws can be amended as well as new laws promulgated to curb insider trading as much as reasonably possible.

Arturo Bris correctly summarizes the effect of insider trading laws stating that if the laws of a country are ineffective or not enforced it would be prudent to not have laws at all. The assumption is that laws not enforced allow the insider trader to secure greater profits if he chooses to disregard the law. This higher profit is consequential to the fact that in countries where laws against insider trading exist, less people are inclined to initiate a trade on inside information but wait for public announcements, so the few who choose to break the law are recipients of higher profits. Hence it is evident that profitability from insider trading is enhanced, which is a direct result of countries not enforcing their laws of insider trading whereby instead of curbing insider trading they are at risk of allowing it to go unchecked. Moreover, the fact that those who choose to break the law are absolutely prepared to get into dicey business and receive large profits has been quite evident from the insider dealing scandals that took place following Ivan Boesky and Dennis Levine.

However, it is a known fact that there is nothing to stop those who do not believe in the law. But for small investors whose only support is the law, it is very necessary to have regulations in order to prevent their confidence from being shattered.

Research shows that one of the countries which rarely implements its laws against insider dealing is India and the laws are merely a piece of legislation. Arturo Bris in his work has proved that the profitability from insider trading is high in India and there is hardly any deterrence by penalty. However, on the other hand, US profits from insider trading are subdued. The reason is not only their enforcement of insider trading laws, but also their broadminded markets, transparency and the fact that financial information spreads speedily in the US.

On the other hand, evidence shows that though Britain has tough criminal prohibitions of insider trading they are not as effective as US. Since in the UK the cases are largely civil actions and the defendants seek to settle without going to trial, as mostly big scandals are dealt in criminal prosecutions. Under the Japanese law, only officers of the listed company and shareholders having 10 % or more shares of the company are covered. Maximum penalty imposable by the courts is return of the trading profits to the share holders and that too has been imposed once.

All these suggest that effectiveness of these regulations depends from country to country based on their will of enforcement and the outlook with regards to the degree of severity of this offence in that country as well as the influence of other factors, i.e. social, economic, political or cultural.

It is evident that laws pertaining to insider dealing are grossly inadequate but mostly act as a deterrent. Detection of offence and offenders indulging in it is also a complex process. Strict imposition of regulations to curb insider dealing besides being impractical would also not prove to be cost effective. Moreover, the makers of law are unsure of the fact that whether it is such a big offence, or to quote simply, even if it is an offence at all, other than the ‘immorality and unfairness factor”. It is true that business should be on the basis of fair principles, but it is also true that the market is not only about “morality”. It is about making use of the right information at the right time. However, having an unfair informational advantage over other market participants by virtue of being primary or secondary insiders does not give a level playing field to all participants but is also against the business ethics. Hence, this research paper suggests that there should be a mid way so as to curb insider dealing while keeping in mind other factors.

Wittman, Carlton and Fischel, attach great importance to Coase’s analysis that, benefits of insider trading depends on the value attached to the information is more valuable to the manager of the firm or the investors of the firm. The maximum valuing user should have the property right of the information which is required to be worked out by both parties to ensure maximum value is accrued out of the information available. If the analogy of banning insider trading is justified it can be assumed that property right of information in the hands of the firm’s investors will benefit both the firm’s insiders and investors. However, the allocation of property right in information, to the maximum valuing user is not a physical negotiation process between insiders and investors. Investors need to be aware of the likelihood of insider trading and if a maximum value allocation is reached then both the managers’ compensation as well as the share prices will be higher.

This research paper suggests that there should be an autonomous monitoring agency to monitor the transactions of insiders. The members of the agency should be independent nominees of the investors. For the sake of transparency, a modality should be worked out wherein insiders are required to declare their financial gains pertaining to trades from their own and their associated firms. This would be a confidence building measure for investors knowing fully well that their representatives are monitoring insider transactions. However, it is easier said than done, hence, the paper recognizes the requirement of a detailed feasibility of implementing has to be worked out.

Professor Brudney reflects on the principle that dictates the disclosure or refrain rule. He summarizes that, if, information parity is not available to all parties regardless of their source, such transactions must not be permitted. The principle given by Professor Brudney is a good way to prohibit the insiders from trading on insider information, as it gives clear limitation to using this information by a select few.

If implemented “Pre trading Disclosure” rule under which a corporate insider makes public his order to the broker before he places such order, is a cost effective way to rationalize profits of corporate insider trading. The information being in the public domain all parties including dealers, market makers, public investors would have the information to weigh this against other parameters available with them and arrive at a price they are willing to buy or sell. This will restrict corporate insider’s capability as a group to reap gains from insider trading, also this pre-disclosure will give the desired results at a nominal cost to the Government.

Insider trading is an act indulged in by select knowledgeable few for higher profits. As the participation by investors in the stock markets is with the aim of garnering higher returns, insider dealing will always have supporters as well as critics. However, for the sake of propriety and giving a level playing field to all participants, as well as stability against volatility in the stock market, it is necessary to regulate greed. A stock market will be vibrant and act as a barometer of the health of the economy only if the participation is all-encompassing. This is only possible if there is investor confidence in the market across the investor spectrum.

As has been observed in this research paper, the main grounds of prohibiting insider dealing are based on the fact that it is immoral and unfair. Policies relating to prohibition of insider dealing have been a subject of debate since long. The academicians on either extremes of the debate have given their opinions on the subject of prohibiting insider dealings. However, this research paper deduces, if insider dealing is left completely unregulated it would be against business ethics and
unfair to the small shareholders, who seen as a group bring in substantial wealth, investing their savings for higher returns.

In discussing the ills of insider dealing as is derived in various research , it is deduced that stock markets thrive with participation from all quarters, from the smallest individual investors to large investors, whose combined buying and selling activities create the demand and supply of stocks which ultimately drives the stock market and determines the price of stocks. An act of insider trading on inside information results in higher profits for the insider at the cost of outsiders. Insider dealing if prevalent and unchecked discourages and frightens away small investors / outsiders, which is against the grain of a healthy stock market.

Justifications by supporters of insider trading mention that, the inside information would be public at some point of time or that insider trading makes the market more efficient as the price of the information gets built in the stock price thereby reflecting its true value or that inside

information in the hands of large investors caters for better monitoring of the firm, is no good. This paper opines that proper checks and regulations to curb insider dealing, results in confidence building for all traders, it encourages research by professionals and large investors to dig for information thereby exposing short-comings in the firms, contributing to greater efficiency. It also provides a level playing field to all investors thereby encouraging hectic trade in the stocks and in matured stock markets like the US, ensures transparency and speedy flow of financial information across the markets.

However, it would be naïve to suggest that the insider dealing regulations promulgated in different countries are not influenced by the political, social and economic environment, consequently influencing their effectiveness. Hence the degree of strictness of implementation varies from country to country. But to have laws promulgated and not to implement them efficiently puts the uninformed outside trader in a no win situation, suggesting that it is better in these cases not to have laws at all. Though not having laws will force the small investors out of the markets, as laws however weakly enforced are their only protection.

This paper concludes on the ‘policy debate on prohibition of insider dealing’ based on the various extracts of research by academicians, that prohibiting insider dealing has a definite ring of justice, ethics and market maturity.

Aldave, B.B. (1988). The Insider Trading: The Securities Fraud Enforcement Act of 1988: An Analysis and Appraisal. Albany Law Review, [online] 52(16), pp.893,895. Available from: <>
[accessed 18 June 2011].

Alexander, R.C.H. (2007). Insider Dealing and Money Laundering in the EU: Law and Regulation. [e-book]. Hampshire: Ashgate Publishing Limited. Available from: [accessed 3 August 2011].

Anon. (n/d). An Overview Of The Insider Trading Regulations In India. [online]. Available from: <> [accessed 6 August 2011].

Anon. (2008). Insider Trading And its Legal Mechanism. [online]. Available from: <>
[accessed 10 July 2011].

Anon. (1998). Nanny Discovers Abusive Squeezes, The Daily Telegraph, 30 July, p.27 as given in Newkirk,T.C. and Robertson, M.A. (1998). Insider Trading-A U.S. Perspective. 16th International Symposium on Economic Crime. Jesus College, Cambridge. 19th September 2003. Available from:
<> [accessed 2 august 2011].

Avgouleas. E. (2011). The EU Regulation of Market Abuse, LAWS 70082 LAW. The University of Manchester, unpublished.

Avgouleas,E. (2005). The Mechanics and Regulation of Market Abuse: A Legal and Ecnomic Analysis. Oxford: Oxford University Press.

Ayres, I. And Bankman, J. (2001). Substitutes for Insider Trading. [online]. Available from: <>
[accessed 6 July 2011].

Bainbridge,S.M. (2000). Inside Trading:An Overview. [online]. Available from:
<> [accessed 12 July 2011].

Baltic, C.V. (1992). The Next Step in Insider Trading Regulation: International Cooperative Efforts in the Global Securities Market. Law and Policy in International Business, [online] 23(1), P.167. Available from: <> [accessed 20 July 2011].

Barnes, P. (2009). Stock market efficiency, insider dealing and market abuse. [e-book]. Surrey: Gower Publishing Ltd. Available from: <> [accessed 29 July 2011].

Beny, L.N. (2005). Do Insider Trading Laws Matter? Some Preliminary Comparative Evidence. American Law and Economics Review, [online] 7(1), pp.144-83. Available from: <>
[accessed 21 July 2011].

Beny,L.N. (2004). Insider Trading Laws and Stock Markets Around the World:
An Empirical Contribution to the Theoretical Law and Economics Debate. [online]. Available from: < > [accessed 4 July 2011].

Bhattacharya,U. and Daouk, H.(2002). The World Price of Insider Trading, Journal of Finance, LVII (1). pp.75-108. Available from: <> [accessed 27 July 2011].

Brazier, G. (1996). Insider Dealing: Law and Regulation. [e-book]. London: Cavendish Publishing Ltd. Available from: [accessed 4 August 2011].

Bris,A. (2005). Do Insider Trading Laws Work? European Financial Management, 11(3), pp.267-312.
Brudney, V. (1979). Insiders, Outsiders, and Informational Advantages under the Federal Securities Laws. Harvard Law Review, [online] 93(2), pp.322-376. Available from: <> [accessed 24 July 2011].
Butler, H.N. (1989). Can the SEC Change?. Corporate Board, [online] 10(56), p.6. Available from: <> [accessed 15 July 2011].

Connor, M.A.O. (1989). Towards a More Efficient Deterrence of Insider Trading: The Repeal of Section 16(b). Fordham Law Review, [online] 58(3). pp.309-381. Available from: <>
[accessed 4 August 2011].

Council Directive 2003/6, art. 2(1)(a-d), 2003 O.J. (L 96) 16, 21 (EC) in Engle, E. (2010). Insider Trading in U.S. and EU Law: A Comparison. European Business Law Review, [online] vol.26, pp.465-490. Available from:
<> [accessed 5 August 2011].

Cox, J.D.(1986). Insider Trading and Contracting: A Critical Response to the Chicago School. Duke Law Journal, [online] 1986(4), pp.628-659. Available from: < > [accessed 24 July 2011].

Cumming,D., Johan,S. and Li.D. (2009). Exchange Trading Rules and Stock Market Liquidity. [online]. Available from: <> [accessed 26 July 2011].

Dalley,P.J. (1998). From horse trading to insider trading: the historical antecedents of the insider trading debate. William & Mary Law Review, [online] vol.39, pp. 1289-1353. Available from:
< > [accessed 2 August 2011].

Davies. P. (2008). Principles of Modern Company Law. 8th ed. London: Sweet and Maxwell Ltd.

Demsetz, H. (1986). Corporate Control, Insider Trading and Rates of Return. The American Economic Review, [online] 76(2), pp.313-316. Available from: <> [accessed 3 July 2011].
Diamond, E. (1992). Outside Investors: A New Breed of Insider Traders. Fordham Law Review, [online] 60(6), pp. 319-347. Available at: < > [accessed 29 July 2011].
Dolgopolov, S. (2008). Insider Trading. [online]. Available from: <> [accessed 19 July 2011].
Easterbook, F.H. (1981). Insider Trading, Secret Agents, Evidentiary Privileges, and the Production of Information. The Supreme Court Review, [online] vol.1981, pp.309-365. Available from:
<> [accessed 3 July 2011].

Engle,E. (2010). Insider Trading in U.S. and EU Law: A Comparison. European Business Law Review, [online] vol.26, pp.465-490. Available from: <>
[accessed 5 August 2011].

Fisch, J.E. (1991). Start Making Sense: An Analysis and Proposal for Insider Trading Regulation. Georgia Law Review, [online] vol.26, p.179. Available from: <> [accessed 29 July 2011].

Fornaiser, R. (1989). The Directive on Insider Dealing. Fordham International Law Journal, [online] 13(2), pp.149-183. Available from: <> [accessed 22 July 2011].

Fried, J. (1997-98). Reducing the profitability of Corporate Insider Trading through Pretrading Disclosure. S. Cal.L. Rev., [online] vol.71, pp. 303-392. Available from: < > [accessed 28 July 2011].

Gevurtz, F.A. (2002). The Globalization of Insider Trading Prohibitions. [online]. Available from: <> [accessed 14 July 2011].

Gilson, R.J. and Kraakman, R.H. (1984). The Mechanics of Market Efficiency. Virginia Law Review, [online] 70(4), pp.622-26. Available from: <> [accessed 28 July 2011].

Haddock, D. (n/d). Insider Trading. [online]. Available from: <>
[accessed 15 June 2011].

Hannigan, B. (1994). Insider Dealing. 2nd ed. London: Sweet and Maxwell.

Haft, R.J. (1982). The Effect of Insider Trading Rules on the Internal Efficiency of the Large Corporation. Michigan Law Review, [online] 80(5), pp.1051-1071). Available from: <> [accessed 3 July 2011].

Huang, H.H. (2007). Substitute Trading and the Effectiveness of Insider Trading Regulations. [online]. Available from: <> [accessed 12 July 2011].

Jaffe, J.F. (1974). The Effect of Regulation Changes on Insider Trading. The Bell Journal of Economics and Management Science, [online] 5(1), pp.93-121. Available from: <>
[accessed 25 July 2011].

King,M. and Roell,A. (1988). Insider Trading. Economic Policy, 3(6), pp.163-193.

Lacy, J.D. (2002). The reform of United Kingdom company law. London: Cavendish Publishing Ltd.

Langevoort, D.C (1992). Theories, Assumptions, and Securities Regulation: Market Efficiency Revisited. University of Pennsylvania Law Review, [online] 140(3), pp.851-920. Available from:
<> [accessed 18 July 2011].

Li, D. and Zhang.Y. (2010). Internal Control Effectiveness and Insider Trading. [online]. Available from: <> [accessed 26 July 2011].

Luberti, F.P. (1983). An Outsider looks at Insider Trading: Chiarella, Dirks and the duty to disclose non-public information. Fordham Urban Law Journal, [online] 12(4), pp.777-806. Available from: <> [accessed 6 August 2011].

Manne, H.G. (2005). Insider Trading: Hayek, Virtual Markets, and the Dog that Did Not Bark. Journal of Corporation Law, [online] 31(1), pp.167-185. Available from: <>
[accessed 23 July 2011].

Maug, E. (2002). Insider trading legislation and corporate governance. European Economic Review, [online] 46(9), pp.1569-1597. Available from: <>
[accessed 4 July 2011].

Miller, M. (n/d). The Inside: Parasite or Legitimate Profit-Maker? [online]. Available from:
<> [accessed 26 July 2011].

Newkirk,T.C. and Robertson, M.A. (1998). Insider Trading-A U.S. Perspective. 16th International Symposium on Economic Crime. Jesus College, Cambridge. 19th September 2003. Available from:
<> [accessed 2 august 2011].

Padilla, A. (n/d). The Regulation of Inside Trading as an Agency Problem. [online]. Available from:
<> [accessed 25 July 2011].

Pettet, Ben. (2005). Company Law. 2nd ed. Essex: Pearson Education Ltd.

Prentice, R.A. (1999). The Internet and its Challenges for the Future of Insider Trading Regulation. Harvard Journal of Law and Technology, [online] 12(2), pp.265-360. Available from:
<> [accessed 25 July 2011].

Rider,B. and Alexander,K. (2009). Market Abuse and Insider Dealing. 2nd ed. Sussex: Tottel publishing.
Sternberg, E. (2000). Insider Trading. [online]. Available at:
< > [accessed 24 July 2011].

Swanson, C.B. (2003). Insider Trading Madness: Rule 10b5-1 and the Death of Scienter. Kanas Law Review, [online] vol.52, p.147. Available from: <> [accessed 3 July 2011].

Swanson, C.B. (1997). Reinventing Insider Trading: The Supreme Court Misappropriates the Misappropriation theory. Wake forest L.Rev., [online] vol.32, 1157,1167-68. Available from:
< > [accessed 31 July 2011].

Wittman, D.A., Carlton. D.W. And Fischel, D.R. (2004). Economic Analysis of the Law. [e-book]. Published online: Blackwell Publishing Ltd. Available from: <> [accessed 26 July 2011].

List of cases

Carpenter v.Danforth 19 Abb. Pr. 225 (N.Y. Sup. Ct. 1865), rev’d, 52 Barb. 581 N.Y. App. Div. 1868.

Chiarella v. United States 445 US 222 (1980).

O’Hagan v. US 521 US 642 (1997).

SEC v. Stevens 91 Civ. 1869 (S.D.N.Y. March 19, 1991), Litig. Rel. No. 12813.

SEC v. Texas Gulf Sulphur Co. 401 F 2d 833

Section 24(2) Of The LARR Act, 2013- Quietus On The Interpretation

It is known that with the coming into effect of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act,2013 (“LARR Act, 2013”) on 01/01/2014, came a controversial provision, i.e., Section 24(2) of the LARR Act, 2013. As per the said provision, if the Award was passed 5 years prior to coming into effect of the New Act and either compensation was not paid or physical possession of the Land was not taken, then the acquisition would be deemed to have been lapsed.


It is notable that the 1894 law was a pre-constitution and pre-independence legislation enacted by the British for serving its own purpose i.e. to be able to appropriate properties of natives quickly and without any judicial or legal recourse to the landowner/occupant to challenge the acquisition. The compensation amount under the Old Act,1894 was also a meagre amount. The expropriatory and exploitative legislation, finally came to be repealed and replaced by the New Act,2013 i.e., The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation & Resettlement Act, 2013.

The Hon’ble Supreme Court firstly considered the interpretation of Section 24(2) in its first Judgment in Pune Municipal Corporation & Anr. vs. Harakchand Misrimal Solanki & Ors. (2014) 3 SCC 183, wherein the Court interpreted and clarified the meaning of the word “paid” used in the definition.


Further, another the significant difference is the use of the prefix “physical” before possession in the definition of Section 24(2) of the New Act, 2013. While the term physical possession has been explained by the Hon’ble Supreme Court in various Judgments starting from Banda Development Authority v. Moti Lal Agarwal(2011)5 SCC 394, although it did not find mention in the Land Acquisition Act, 1894.


The Hon’ble Supreme Court thereafter had the occasion to analyse the provisions of LARR Act, 2013 in the matter of Indore Development Authority v Shailendra (dead) through Lrs. &Ors.2018 SCC Online SC 100 declared Pune Municipal Corporation (supra) to be per incuriam.


The Hon’ble Supreme Court in State Of Haryana And Ors.vs M/S G.D. Goenka Tourism Corporation Limited & Anr SLP(C)(CC) No. 8453/2017 directed:


“Taking all this into consideration, we are of the opinion that it would be appropriate if in the interim and pending a final decision on making a reference (if at all) to a larger Bench, the High Courts be requested not to deal with any cases relating to the interpretation of or concerning Section 24 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013…”


The Constitution Bench of the Hon’ble Supreme Court rendered it’s judgment on Indore Development Authority vs. Manoharlal & Ors. SLP (C) Nos. 9036-9038 of 2016 and analysed and explained the interpretation of Section 24 of the LARR Act bringing a quietus to the matter by settling down the scope and interpretation of the provision.


The Judgment has clarified the meaning of ‘dead and stale claims and concluded case’. This was imperative in view of the fact that there was much confusion as to what would be construed as barred and stale claims considering the fact that if the land owners had been litigating over the years under the Old Act,1894 and had ultimately succeeded, it would only be in rare circumstances that when acquisition had been quashed under the Old Act, the landowner would come forward to voluntarily offer his land and get compensation under the LARR Act,2013. The other category of cases would be of landowners, who were never offered or paid compensation, however did not choose to come forward challenging the acquisition under the Old Act. By virtue of the coming into effect of the New Act and a fresh right accruing in favour of the landowners, some of them chose to come forward seeking declaration for lapsing or compensation under the LARR Act, 2013.This led to multiple litigations across the various High Courts in the country which led to explosion of claims.


In some Judgments by the Hon’ble High Court of Delhi, such cases have been declared to be barred by delay and laches. The Constitution Bench has clarified as under:


“…359. We are of the considered opinion that Section 24 cannot be used to revive dead and stale claims and concluded cases. They cannot be inquired into within the purview of Section 24 of the Act of 2013. The provisions of Section 24 do not invalidate the judgments and orders of the Court, where rights and claims have been lost and negatived. There is no revival of the barred claims by operation of law. Thus, stale and dead claims cannot be permitted to be canvassed on the pretext of enactment of Section 24…”


It appears from a bare reading that stale and barred claims would mean to be claims which have been lost and been negatived in earlier Judgments passed by the Courts.


The significant interpretation which has been brought about by the Constitution Bench is in fact that the word “or” used in Section 24(2) would now mean to be read as “and” or “nor”, which would mean that for the deemed lapsing to happen under the provision of Section 24(2), the Award should be passed 5 years prior to coming into effect of the New Act and further, the possession of the land should not have been taken nor the compensation should have been paid.The proviso provided is to be treated as part of Section 24(2) and not part of Section 24(1)(b) which therefore, also brought in additional stipulations which have to be mandatorily applied to test whether the claim of the landowner is governed by Section 24(2) of the LARR Act,2013.


The other critical aspect which was raised and answered in favour of land owners was the consequence of non-deposit of compensation before the reference Court as well as the interpretation of tender and paid in context of payment of compensation to landowners.


The Constitution Bench analysed and concluded that the consequence of non-deposit of compensation would lead to the proviso where it has been provided in case, the compensation has not been deposited with respect to majority of land holdings then all beneficiaries (landowners) as on the date of notification for land acquisition under Section 4 of the Act of 1894 shall be entitled to compensation in accordance with the provisions of the Act of 2013.


Hence, I would argue that the onus would be on the State to demonstrate that the compensation qua majority land owners has been deposited. However, the land owners approaching the Court would have to also demonstrate how the landowner was the beneficiary as on the date of Notification under Section 4 of the Old Act,1894. This in effect would preclude all claimants who lay their claim basis alleged transfers of title from the recorded owners who may have acquired title through General Power of Attorney/Agreement to Sell etc.


Further, the Constitution Bench has clarified:


“…In exceptional cases, when in fact, the payment has not been made, but possession has been taken, the remedy lies elsewhere if the case is not covered by the proviso. It is the Court to consider it independently not under section 24(2) of the Act of 2013…”


Thus, if the State is able to demonstrate that compensation qua majority land owners has been deposited, then the case would not be construed to be within the purview of Section 24(2) of the New Act, 2013 even though the owner of the land holding in question was not paid compensation. Therefore, the effect thereof would be that the personal claim of a land owner would only arise if majority of the landowners have not been paid. The legislative intent of adding such a proviso was to ensure that if majority landowners have received compensation then the acquisition proceedings would not be held up due to claims by minority land holders.


Further, the Hon’ble Supreme Court in Indore Development (supra) has clarified the meaning of possession:


“…7. The mode of taking possession under the Act of 1894 and as contemplated under Section 24(2) is by drawing of inquest report/memorandum. Once award has been passed on taking possession under Section 16 of the Act of 1894, the land vests in State there is no divesting provided under Section 24(2) of the Act of 2013, as once possession has been taken there is no lapse under Section 24(2)…”


The Hon’ble Supreme Court has finally held:


“…362. Resultantly, the decision rendered in Pune Municipal Corporation &Anr. (supra) is hereby overruled and all other decisions in which Pune Municipal Corporation (supra) has been followed, are also overruled. The decision in Shree Balaji Nagar Residential Association (supra) cannot be said to be laying down good law, is overruled and other decisions following the same are also overruled. In Indore Development Authority v. Shailendra (Dead) through L.Rs. and Ors., (supra), the aspect with respect to the proviso to Section 24(2) and whether ‘or’ has to be read as ‘nor’ or as ‘and’ was not placed for consideration. Therefore, that decision too cannot prevail, in the light of the discussion in the present judgment….”


While bringing a quietus to the core issue with a detailed Judgment, one issue would require further analysis as to the effect of the Judgement on decided matters, pointedly those in which even the Review Petitions filed in the Hon’ble Supreme Court have been decided

The article also featured on Live Law:

The Negotiable Instruments (Amendment) Ordinance, 2015 – Avoidable Confusion

s. Lately, there has been a lot of confusion on what the Territorial Jurisdiction would be in cases of complaints u/s 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as the NI Act, 1881). With matters being transferred to different Courts after the Judgment of the Hon’ble Supreme Court in Dasrath Rupsingh Rathod vs. State of Maharashtra &Anr.(Crl. Appeal No. 2287 of 2009), there has been lot of confusion as to what the jurisdiction would be in cases covered u/s 138 of the NI Act, 1881.

Section 142 of the Negotiable Instrument Act, reads as under:

“142 Cognizance of offences. —Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974)—

(a)  no court shall take cognizance of any offence punishable under section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque;

(b)  such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to section 138:  24  [Provided that the cognizance of a complaint may be taken by the Court after the prescribed period, if the complainant satisfies the Court that he had sufficient cause for not making a complaint within such period.]

(c)  no Court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under section 138.”

Prior of the Dasrath Rupsingh Rathod(supra), the question of Territorial Jurisdiction was considered by the Hon’ble Supreme Court in K. Bhaskaran vs. SankaranVaidhyanBalan&Anr. AIR 1999 SC   3762  wherein the Hon’ble Supreme Court after duly considering Sections 177, 178 & 179 of the Criminal Procedure Code, held that the Territorial Jurisdiction in cases of Section 138 of the NI Act, could be made out on 5 considerations, which are as follows:

  • Drawing of the cheque
  • Presentation of the cheque to the bank
  • Returning the cheque unpaid by the drawee bank
  • Giving notice in writing to the Drawer of the Cheque demanding payment of the cheque amount
  • Failure of the drawer to make payment within 15 days of receipt of the Notice

Thereafter, the Hon’ble Supreme Court in the case of Dasrath Rupsingh Rathod(supra) changed the concept of Territorial Jurisdiction for dishonor of cheques and limited it only to those Courts, within whose local jurisdiction the offence was committed, i.e., where the cheque is dishonored by the bank on which it is drawn. However, the only rider was for those cases where, post the summoning and appearance of the alleged accused, the recording of evidence had commenced as envisaged in Section 145(2) of the NI Act, 1881.

This was done by the Hon’ble Supreme Court because as per the Hon’ble Supreme Court in Dasrath Rupsingh Rathod(supra), the wide jurisdiction for filing complaints as per the interpretation of the Judgment in the case of K. Bhaskaran (supra) was being used as an arm twisting tactic in the hands of the Complainant and against the accused, thereby not affording the accused a fair opportunity and causing the accused undue harassment, which in the opinion of the Hon’ble Supreme Court could never have been the intent of the Judgment in the case of K. Bhaskaran (supra).

Fairly so, however, what was not foreseen was the amount of confusion that it would cause and the amount of inconvenience of the complainant since firstly the intent was to ensure that the persons who write the cheque honor the same which is important in ensuring smooth business transactions and to facilitate trade and commerce.

Post the Judgment of the Hon’ble Supreme Court, in compliance of the Judgment complaints were returned by Courts to be presented before Courts with appropriate jurisdiction, thereby causing unnecessary trouble to the complainants.

Recently, an Ordinance has been enacted, ‘The Negotiable Instruments (Amendment) Ordinance, 2015‘(hereinafter referred to as ‘The Ordinance’) inter aliado away with the confusion on jurisdiction, wherein an amendment has been made to Section 142 of the NI Act, 1881. Relevant portion of the Ordinance is as under:

“3. In the principal Act, section 142 shall be numbered as sub-section (1) thereof and aftersub-section (1) as so numbered, the following sub-section shall be inserted, namely:— “(2) The offence under section 138 shall be inquired into and tried only by a court within whose local jurisdiction,— (a) if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account, is situated; or

(b) if the cheque is presented for payment by the payee or holder in due course otherwise through an account, the branch of the drawee bank where the drawer maintains the account, is situated.

Explanation.—For the purposes of clause (a), where a cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have been delivered to the branch of the bank in which the payee or holder in due course, as the case may be, maintains the account.”.

  1. In the principal Act, after section 142, the following section shall be inserted, namely: — ”142A. (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 or any judgment, decree, order or directions of any court, all cases arising out of section 138 which were pending in any court, whether filed before it, or transferred to it, before the commencement of the Negotiable Instruments (Amendment) Ordinance, 2015 shall be transferred to the court having jurisdiction under sub-section (2) of section 142 as if that sub-section had been in force at all material times.

(2) Notwithstanding anything contained in sub-section (2) of section 142 or sub-section (1), where the payee or the holder in due course, as the case may be, has filed a complaint against the drawer of a cheque in the court having jurisdiction under sub-section(2) of section 142 or the case has been transferred to that court under sub-section (1), and such complaint is pending in that court, all subsequent complaints arising out of section 138 against the same drawer shall be filed before the same court irrespective of whether those cheques were delivered for collection or presented for payment within the territorial jurisdiction of that court.

(3) If, on the date of the commencement of the Negotiable Instruments (Amendment) Ordinance, 2015, more than one prosecution filed by the same payee or holder in due course, as the case may be, against the same drawer of cheques is pending before different courts, upon the said fact having been brought to the notice of the court, such court shall transfer the case to the court having jurisdiction under sub-section (2) of section 142 before which the first case was filed and is pending, as if that sub-section had been in force at all material times.”

The language being clear and unambiguous, leaves no for room of doubt, ordinarily the court which will have Jurisdiction where the account is maintained by payee or holder in course i.e. complainant.

The intent of the Ordinance seems to be noble; however what the ordinance does is, that it again causes confusion and inconvenience since the complaints filed irrespective of the stage of the proceeding would be returned by the court to be refiled in the court having Jurisdiction in accordance with the Ordinance. What the Government could have done to avoid another round of confusion, chaos and delay would have been to make the enactment expressly prospective and give much needed relief to the litigants.

Suicide Note and the Consequential Menace

What is suicide?

The definition given by the Oxford Dictionary is ‘the action of killing oneself intentionally‘.1

This would mean when someone kills themselves with knowledge that the act would either cause them bodily harm or would die. For an act done intentionally how can anybody else be held responsible. This directly brings into question the validity of suicide notes, written by a person committing suicide (a person who is not in the right frame of mind as per research). When a person commits suicide it begins the gruesome process of investigation against the person named in the Suicide Note who, in certain cases, probably may not have known even what his/her fault was.

What is the state of mind of a person committing suicide?

A website of the U.S. national Library of medicine states, “Suicide and suicidal behaviors usually occur in people with one or more of the following:

People who try to commit suicide are often trying to get away from a life situation that seems impossible to deal with. Many who make a suicide attempt are seeking relief from:

  • Feeling ashamed, guilty, or like a burden to others
  • Feeling like a victim
  • Feelings of rejection, loss, or loneliness

Suicidal behaviors may occur when there is a situation or event that the person finds overwhelming, such as:

In India the data published by NCRB for the year 2012 which discussed the causes of Suicide and came to the following conclusion:

‘Family problems’ and ‘illness’, accounting for 25.6% and 20.8% respectively, were the major causes of suicides among the specified causes. ‘Drug abuse/addiction’ (3.3%), ‘love affairs’ (3.2%), ‘bankruptcy or sudden change in economic status’ (2.0%), ‘poverty’ (1.9%) and ‘dowry dispute’ (1.6%) were the other causes of suicides. Suicides due to ‘drug abuse/ addiction’, has shown an increasing trend while ‘failure in examination’,

‘fall in social reputation’, ‘physical abuse’ and ‘property dispute’, have shown a decreasing trend during last 3 years. However, suicides due to ‘bankruptcy or sudden change in economic status’, ‘suspected/illicit relation’, ‘cancellation/non settlement of marriage’, ‘barrenness/impotency’, ‘dowry dispute’, ‘divorce’, ‘family problem’, ‘illegitimate pregnancy’, ‘love affairs’, ‘poverty’, ‘professional/career problem’ and ‘unemployment’ have shown a mixed trend during this period.

The above stated research clearly elucidates that the person is unlikely in a normal state of mind to ever commit or attempt to commit suicide. It has been observed that a person would not take such a drastic step of killing himself/herself without any underlying medical/mental/societal/familial cause.

Also at times when certain people go through stress from all sides for example, work life stress, stress in relationship, other problems in life, they may tend to hold one person responsible for the condition and commit suicide, which is absolutely unfair on the person named, this also reflects on the person’s incapacity to give a valid dying declaration.


The question which arises is can a suicide note be termed to be a valid Dying declaration for the Police/Investigating Authorities to act upon. The element of admissibility of such a dying declaration was considered by the Hon’ble Supreme Court of India in Sharad Birdhi Chand Sarda vs State Of Maharashtra2

“2:1. The Indian law on the question of the nature and scope of dying declaration has made a distinct departure from the English law where only the statement which directly relate to the cause of death are admissible. The second part of cl.(1) of s.32, viz, “the circumstances of the transaction which resulted in his death, in cases in which the cause of that person’s death comes into question” is not to be found in the English Law. [107F-G]

2:2. From a review of the various authorities of the Courts and the clear language of s.32(1) of Evidence Act, the following propositions emerge: [108F]

(1) Section 32 is an exception to the rule of hearsay and makes admissible the statement of a person who dies. whether the death is a homicide or a suicide, provided the statement relates to the cause of death, or relates to circumstances leading to the death. In this respect, Indian Evidence Act, in view of the peculiar conditions of our society and the diverse nature and character of our people, has thought it necessary to widen the sphere of s.32 to avoid injustice. [108G-H]…”

One of the vital conditions for acceptability of dying declaration is a sound mental condition of the person writing or dictating a dying declaration. It has been held by the Hon’ble Supreme Court in Laxmi v. Om Prakash & Ors., AIR 2001 SC 2383,” that if the court finds that the capacity of the maker of the statement to narrate the facts was impaired, or if the court entertains grave doubts regarding whether the deceased was in a fit physical and mental state to make such a statement, then the court may, in the absence of corroborating evidence lending assurance to the contents of the declaration, refuse to act upon it’ .3

However, if research is believed a person who intentionally kills himself, ie., commits suicide he/she is not of sound mental condition. Hence, how can a person’s note who is not of sound mental health be treated as dying declaration under the Indian Evidence Act, when the major pre requisite of admissibility of dying declaration is ‘the person making the dying declaration be in fit mental condition’.

What constitutes abetment to suicide?

Before understanding what constitutes abetment to suicide, it is important to understand Section 306 of the Indian Penal Code.

Abetment of suicide- If any person commits suicide, whoever abets the commission of such suicide, shall be punished with imprisonment of either description for a term which may extend to ten years, and shall also be liable to fine.”

It is also important to note that abetment to suicide is a cognizable, non bailable and non compoundable offence. This means that the person named in the Suicide Note is implicated in a manner which leaves him/her with no other alternative than to be harassed by the Police/Investigating Authorities or else suffer pre charge/pre trial incarceration. Also there is a possibility of opening up floodgates of corruption by the Investigating officer who may try to make money in the guise of investigation.

While proper investigation and participation in investigation by persons who may be suspected to be involved(including the person named in a suicide note) is crucial in the investigative process, considering the circumstances and reasons leading to such suicides, the persons named should not unnecessarily go through incarceration, it is suggested that the same can be taken care of by amending the current provisions of abetment and making the offence bailable instead of non-bailable and thereby not only facilitating smoother investigation but also reducing the burden on courts and prevent unnecessary harassment or running for Anticipatory Bail.

It is further suggested that investigation of a suicide case be conducted with the mandatory assistance of a qualified forensic psychologist which would ensure that the right cause of suicide (with and without the aid of Suicide note) is detected at the earliest.


1984 AIR 1622

3  Referred in State Of M.P vs Dal Singh & Ors on 21 May, 2013 CRIMINAL APPEAL NO. 2303 of 2009

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.