Essays on Contemporary Legal Issues in India

1
About the Author
Kunal Basu attended prestigious schools in India, Australia and United States, the last
having been for his Grade-12 university preparatory diplomate. He has two Bachelor’s
degrees – one in English (Honors) from Delhi University, the other an LLB from
Amity University (NOIDA, India). Kunal published his first book of short stories for
young teens - Thrills, Chills and Frills, in 2012. He is an avid reader and writer with
keen interest in environmental law. Kunal’s legal essays have found a global audience
at www.slideshare.net/shantanu_leo, with some accounting for 10000-15000 views
each. He can be contacted at basu_kunal@hotmail.com.

2
Foreword
This compendium originated in legal research assignments that I authored, as part of
my academic curriculum, in Amity University (NOIDA) Law School from 2013-16. In
a way, this book is a continuum from my creative writing classes in my US high
school that had culminated in the publication of my first book – Thrills, Chills &
Frills. Surprisingly, a large number of these legal essays had over 15000 views each
on our web site at www.slideshare.net/shantanu_leo. My book is primarily intended
for law students and casual readers that have to wade through copious documents and
web pages but find it difficult to appreciate the often bewildering interpretations of
law on the same subject.
For me, the study of law, in addition to my English graduation degree program, has
not only honed my research and drafting skills but also my ability to understand and
appreciate the subtleties of law and locate oft hidden continuities in jurisprudence. In
the process of exploring complex questions of law, issues related to India’s society,
polity, economy, and environment oftentimes remained eye-openers for a novice like
me. Contemporary and evergreen themes like arbitrariness of the State, fundamental
rights, environmental conservation, women’s rights, clash over land between the State
and owners, the supremacy of the right to life, liberty and property, etc. stoked a
hitherto sustained spirit of inquiry in me.
These essays are therefore reflection of my limited understanding of some major
contemporary issues in Indian law and jurisprudence. I hope readers will find new
facets within the issues that I have conveyed in my essays and beyond. Such inquiry
would be the greatest reward for me in educating my fellow law students and other
readers whom these essays may interest.
Kunal Basu
Place: New Delhi
Date: May 31, 2016

3
Contents
1 Appeals in the Code of Civil Procedure, 1908 4
2 Law of Share Capital in India 12
3 Judicial Expansion of the Scope of Article 21 of the Constitution 30
4 Mediation & Conciliation: A Comparative Study 40
5 Comparative Study of the Principle of Severability 47
6 Breach of Contract in India 62
7 Law of Bailment in India 73
8 Constitutional Validity of S. 497 (Law of Adultery) 83
9 Comparative Study of Law of Death Penalty 93
10 Evolution of the Law of Defamation and its Practice in India 136
11 Criminal Proceedings and the Conception of a Fair Trial 150
12 Illegal Wildlife Trading in India 173
13 Overview of the Mutawalli in Islamic Law in India 180
14 Law of Motor Vehicle Insurance in India 188
15 Role of Debenture Trustees 198
16 Gender Jurisprudence in India 211
17 The Controversy over the Land Acquisition (2nd Amendment) Bill,
2015
222
18 Probative Value of Fingerprint Evidence 230
19 The International Anti-Money Laundering (AML) Regime: Lessons
for India
243
20 Legal Ethics & Cyber Crime 264
21 Judicial Interpretation of the Basic Structure of the Constitution of
India
272
22 Bibliography 282

4
Appeals in the Code of Civil Procedure, 1908
Introducing Appeals in the Civil Procedure Code, 1908
The expression ‘appeal’ has not been defined in the Code of Civil Procedure (CPC), 1908. It is an
application or petition to a higher Court for reconsideration of the decision of a lower court. An
appeal is a creature of statute and right to it is neither an inherent nor natural right. S. 9 confer on a
litigant, independently of any statute, the right to appeal a suit of civil nature in a court of law.
However, he has no right to appeal from appeal decree or order made against him, unless the right is
clearly conferred by statute. Under S. 96 CPC a litigant may appeal against an original decree. S. 100
give a litigant the right to appeal from an appellate decree in certain cases. S. 109 give him the right
to appeal to the Supreme Court in certain cases. S. 104 give him right to appeal from orders as
distinguished from decrees.
In Tirupati Balaji v. State of Bihar1
, the SC held that “Appeal implies……a superior forum shall
have jurisdiction to reverse, confirm, annul or kodify the decree or order of the forum appealed
against…..” Likewise, the Gujarat HC in Bhil Kanji Bhagwan v. Bhil Karsan Bijal2
, held that
“Appeal is a n application……for reconsideration of the decision of a lower authority…..” In
Kaleidoscope India Pvt. Ltd. v. Phoolan Devi3
, the Trial Court judge prohibited the exhibition of a
film both in India and abroad. The Sessions Judge permitted the exhibition of film in abroad.
Subsequently, a party who moved in appeal did not have locus standi. It was reversed by the division
bench of Delhi HC on the ground of absent locus standi. In State of Bombay v. Supreme General
Films and Exchange4
, it was held that right to appeal cannot be taken away, if available on the date
of institution of suit and subsequently law passed taking away right to appeal. In Delhi Cloth &
General Mills v. I T Commissioner 5
it was held that where right to appeal was created subsequently,
appeal shall not be available to a litigant if the suit were instituted prior to such creation of enabling
law.
Procedure for Appeals under CPC, 1908
S. 96-112 and Orders XLI-XLV deal with various categories of appeals as shown below:
 From original decrees: First appeal – S. 96-99A, 107 & Order XLI and Second
Appeal: S. 100-103, 107, 108 & Order XLII
 Appeals from orders: S. 104-108 & Order XLIII
 Appeals by indigent persons: Order XLIV
 Appeals to Supreme Court: S. 109, 112 & Order XLV
S. 96 allow that an appeal shall lie from a court of original jurisdiction to an appellate court.
However, first appeals must be against a decree and the appellant must have been adversely affected
by such decree, held by SC in in Lucknow Development Authority v Krishna Gopal Lahoti6
. The only
limitation is that under S. 96(2) an ex-parte appellant can be heard only on the merits of the case, as
1
AIR 2004 SC 2351
2
2003, 3 GLR 2080
3
AIR 1995 Delhi 316
4
AIR 1960 SC 980
5
AIR 1927 PC 242
6
AIR 2008 SC 399

5
held in Raijan Lal v. Rukhmani Devi7
. S. 96(3) provides that no appeal shall lie against a decree
passed with the consent of parties. Limitations include decree passed without consent of litigants, no
order recording compromise and where the appellant had no locus standi. However, in Aleemuddin v.
Haji Bashir Ahmad8
, the SC extended the definition of the right to appeal even to persons who were
‘aggrieved by a decree’ even though the said decree may not have been passed against him. S. 96(4)
restricts appeals from Small Causes courts to a minimum monetary value of Rs. 10,000, except for
questions of law.
S. 100 was amended in 1976 imposing drastic restriction on the High Court's jurisdiction in
entertaining a second appeal. Even prior to the 1976 amendment, the first appellate court was treated
as the final court of facts by the Privy Council. Under S. 100, an appeal to the High Court can lie
only if it involves substantial question of law, including an ex-parte decree. However, the HC
reserves the right to hear other substantive questions of law that may be raised in such proceeding. It
is thus clear that the power of HCs is restricted by other provisions of the CPC, notably with regard
to the restriction of hearing such appeals on law and NOT in fact. In Durga Choudhrain v. Jawahir
Singh Choudhri, the Privy Council held thus:
There is no jurisdiction to entertain a second appeal on the ground of an erroneous
finding of fact, however gross or inexcusable the error may seem to be.
The above was reiterated by Subba Rao, J. in Sinha Ramanuja Jeer v. Ranga Ramanuja Jeer9
. Thus
first and second appeals differ widely in their individual scopes. Appellants are also not permitted to
set up a new case or raise unevidenced issues, as upheld by the Privy Council in Wali Mohd. V.
Mohd. Baksh10
. In Deity Pattabhiramaswamy v. S. Hanymayya11
, Subba Rao, J. examined the
reasons for evolving the practice and strongly criticized the practice of the High Courts in disposing
of second appeals without any substantial question of law involved, observing:
…..notwithstanding such clear and authoritative pronouncements on the scope of the
provisions of S. 100, Civil Procedure Code, some learned Judges of the High Courts
are disposing of second appeals as if they were first appeals. This introduces, apart
from the fact that the High Court assumes and exercises a jurisdiction which it does
not possess, a gambling element in the litigation and confusion in the mind of the
litigant public.
In Dudh Nath Pandey v. Suresh Chandra Bhattasali12
the Supreme Court held that the High Court
cannot set aside findings of fact of the first appellate court and come to a different conclusion on
reappraisal of evidence while exercising jurisdiction under S. 100 CPC. In Annapoorani Ammal v. G.
Thangapalam13
, the Supreme Court held that a perusal of S. 100 clearly indicates that the High Court
had the jurisdiction to interfere only when a substantial question of law is involved and even then it
is expected that such a question shall be so framed although the court is not bound by that question
as the proviso indicates. In Kashibai v. Parwatibai14
, the Supreme Court observed as under:
"……….. the High Court seems to have ignored these (S. 100) provisions and
proposed to reappreciate the evidence and interfere with the findings of fact without
even formulating any question of law. It has been the consistent view of this Court
7
1979 All LJ 1237
8
1977 All 683
9
AIR 1961 SC 1720 at p. 1730
10
AIR 1930 PC 91
11
AIR 1959 SC 57
12
(1989) 3 SCC 287 at p. 292
13
(1995) 6 SCC 213
14
1995 SCC (6) 213, JT 1995 (7) 48

6
that there is no jurisdiction to entertain a second appeal on the ground of erroneous
finding of fact, based on appreciation of the relevant evidence."
In Dnyanoba Bhaurao Shemade v. Maroti Bhaurao Marnor15
it was held that the question whether a
finding of fact is against the weight of evidence does not project a question of law, much less a
substantial question of law.
What is a Substantial Question of Law?
The test to determine whether a question was a substantial question of law or not, was laid down by a
Constitution Bench of the SC in Chunilal V. Mehta and Sons Ltd. v. Century Spg. and Mfg. Co.
Ltd.16
while determining the said expression occurring in Article 133(1) of the Constitution of India.
The Supreme Court laid down the test as follows17
:
The proper test for determining whether a question of law raised in the case is
substantial would, in our opinion, be whether it is of general public importance or
whether it directly and substantially affects the rights of the parties and if so whether
it is either an open question in the sense that it is not finally settled by this Court or by
the Privy Council or by the Federal Court or is not free from difficulty or calls for
discussion of alternative views. If the question is settled by the highest court or the
general principles to be applied in determining the question are well settled and there
is a mere question of applying those principles or that the plea raised is palpably
absurd, the question would not be a substantial question of law."
In MSV. Raja v. Seeni Thevar18
it was held by the Supreme Court that the formulation of a
substantial question of law may be inferred from the kind of questions actually considered and
decided by the High Court in second appeal, even though the substantial questions of law were not
specifically and separately formulated. The observations made by the Court in this regard are as
follows:
We are unable to accept the argument of the learned Senior Counsel for the
appellants that the impugned judgment cannot be sustained as no substantial question
of law was formulated as required under S. 100 CPC. In para 22 of the judgment the
High Court has dealt with substantial questions of law. Whether a finding recorded by
both the courts below with no evidence to support it was itself considered as a
substantial question of law by the High Court. It is further stated that the other
questions considered and dealt with by the learned Judge were also substantial
questions of law. Having regard to the questions that were considered and decided by
the High Court, it cannot be said that substantial questions of law did not arise for
consideration and they were not formulated. Maybe, substantial questions of law were
not specifically and separately formulated. In this view, we do not find any merit in
the argument of the learned counsel in this regard.
15
1962 Supp (3) SCR 549
16
1962 Supp (3) SCR 549
17
(2001) 6 SCC 652
18
(2001) 6 SCC 652

7
Can the High Court in second appeal interfere with the judgment of the first
appellate court on the ground that the first appellate court had not come to close
grips with the reasoning of the trial court?
This issue was answered in the negative by the Supreme Court in V. Ramachandra Ayyar v.
Ramalingam Chettiar19
In this case, the Supreme Court distinguished the Privy Council's decision in
Rani Hemanta Kumari Debi v. Maharaja Jagadindra Nath Roy Bahadur20
wherein the Privy Council
observed that it is better that the appellate court whenever it reverses the judgment of the lower court,
comes into close quarters with the judgment of the lower court and meets the reasoning therein. This
decision was distinguished on the ground that the said observations were made in an appeal from the
judgment of a High Court rendered in first appeal. In S.V.R. Mudaliar v. Rajabu F. Buhari21
a two-
Judge Bench followed the Privy Council decision in Rani Hemanta Kumari Debi case without
noticing Ramachandra Ayyar case. In Arumugham v. Sundarambal22
, the Supreme Court overruled
S.V.R. Mudaliar case and affirmed Ramachandra Ayyar case and held that it is open to the first
appellate court to consider the evidence adduced by the parties and give its own reasons for
accepting the evidence on one side or rejecting the evidence on the other side. It was held that it was
not permissible for the second appellate court to interfere with such findings of the first appellate
court only on the ground that the first appellate court had not come to grips with the reasoning given
by the trial court. The above discussion leads to the following conclusions:
 S. 100 impliedly declares that the first appellate court is the final court of facts and
the High Court has no jurisdiction to interfere with the finding of facts reached by
the first appellate court, however gross the error may seem to be.
 The High Court is not a second court of first appeal under S. 100 CPC.
 Since an appeal is a creature of a statute, the High Court should satisfy itself about
the presence of the substantial question of law before admitting the second appeal.
S. 100 do not provide an absolute and automatic right of appeal.
 A question of law, to be substantial, must satisfy the test laid down by the
Supreme Court in Chunilal Mehta case.
 If a second appeal is allowed without framing a substantial question of law, the
same is liable to be set aside straight away without remanding back to the High
Court since an appellant in a second appeal cannot take advantage of his own
wrong by not fulfilling the mandatory requirement laid down in sub-S. (3) of S.
100.
 In view of sub-S. (4) of S. 100 substantial question or questions of law must be
expressly and specifically formulated by the High Court and the contrary view
taken in M.S.V. Raja case is not correct.
 It is not permissible for the High Court to interfere with findings of the first
appellate court only on the ground that the first appellate court had not come to
close grips with the reasoning given by the trial court.
19
16 MLJ 272 : 10 CWN 630 (PC)
20
(1995) 4 SCC 15
21
(1999) 4 SCC 350
22
AIR 1999 SC 2216

8
Classifying Substantial & non-Substantial Issues
Since S. 100 is critical to the process of appeals in HCs, it would be useful to classify some instances
of substantial questions of law as follows:
 Construction of document
 Perverse finding of fact
 Interpretation of contract
 Jurisdiction of originating court
 Conflict of judicial opinion
 Admissibility of evidence
Similarly, NOT substantial questions are as follows:
 Mere appreciation of facts and documents (Kondiba Dagadu Kadam v. Savitribai
Sopangujar & Ors.23
)
 Purely academic, the answer to which would have no bearing on any actual right
or liberty or if leads to no solution (CIT v. Anusuya Devi24
)
 If question has already been decided ina higher court or Privy Council, its mere
wrong application to facts (Kondiba Dagadu Kadam v. Savitribai Sopangujar &
Ors.)
 Concurrent findings of fact by lower courts (Hari Singh v. Kanhaiya Lal25
)
 A question that arises incidentally or collaterally without bearing on the final
outcome (State Bank of India v. SN Goyal26
)
Limitations on Second Appeal
In order to minimize delay in finality of decisions, S. 100-A provides that no further appeal would lie
against the decision of a single judge in second appeal. Thus further appeal to a Division Bench of a
HC against the decision of a single judge in appeals is barred under S. 96, 100 & 104 of CPC.
Likewise, S. 102 raises the minimum monetary value of a suit to Rs. 25,000 (Jagdish Chandra v.
Arvind Singh27
). S. 103 empowers a HC to determine issues of fact, either not determined by the
lower appellate court and/or the court of first appeal or wrongly determined by such courts, upheld
by SC in Municipal Committee, Hoshiarpur v. Punjab State Electricity Board28
.
In sum, the following are essential to constitute appellate jurisdiction:
 The existence of the relation of superior and inferior court and
 Power of the superior court to review the decision of the inferior (Shiv Shakti v.
Swaraj Developers29
).
In Jagdish Singh v. Madhury Devi30
, the SC held that an appeal is a continuation of suit. While an
appellate court can reappraise, appreciate and review the entire evidence, oral and documentary, it is
23
AIR 1999 SC 2213
24
AIR 1968 SC 779
25
AIR 1999 SC 3325
26
AIR 2008 SC 2594
27
AIR 20903, All 1129
28
(2010) 13 SCC 216
29
AIR 2003 SC 2434

9
expected to bear in mind findings recorded by trial courts on the basis of evidence. Further, in
Arundhati v. Iramna31
, the SC held that when triable issue is involved in an appeal, the first appellate
court must examine facts and law and order accordingly (also Waheed Khan v. Gyani Bai32
). Mere
upholding the judgment of a trial court defeats the very purpose of appeal.
Powers of Appellate Courts
S. 107 and Rules 23-33 of Order XLI deal with the power of an appellate court while hearing appeals
from original decree. Subject to such conditions and limitations as may be prescribed, an appellate
court has the power to determine a case finally, remand a case, frame issues and refer them for trial
and take additional evidence, or require such evidence to be taken, as discussed in the succeeding
paragraphs.
S. 107 (1)(a), Order 41, Rules 24 & 33: Determine a case finally
However, this is a general rule and an order of remand should be made only in rare and exceptional
circumstances (Sunder Singh v. Narain Singh33
). Further, this rules does not enable the appellate
court to declare a right in favor of one party where no issue has been framed on the point and the
right has not been set up in the lower court (Official Trustee v. Krishna34
). However, where both
parties have adduced evidence on a point raised in appeal, the court can record a finding under this
rule even though no issue has been framed on it (Bhairab Chandra v. Ranadhir Chandra35
). Whether
the evidence on record is sufficient or not to decide the matter finally depends upon the facts of each
case (Sardar Begum v. Jagdish Chand Bhandari36
).
S. 107(1)(b), Order XLI, Rule 23: Remand a case
This means to send back a case for another round of litigation to the lower court if it has disposed of
the suit upon a preliminary point and the decree is reversed in appeal. A point is said to be a
preliminary one if the decision thereon disposes of the whole suit and there is no need to determine
other points, e.g. a suit barred by limitation where the plaintiff is estopped from proving his case.
However, Rule 23 restrains an appellate court from remanding a case because the judgment of the
lower court is not satisfactory unless there is reason to believe that the lower court had erred in
misreading or ignoring evidence or evidence was not conclusive (Sundar Singh v. Narain Singh37
).
Further, under Rule 23-A the appellate court can take cognizance of events subsequent to the trial
court’s verdict provided:
 Such event is brought promptly to the court’s notice;
 Such notice should be consistent with rules of procedure of the court and allow the
respondents to explain the events
 Subsequent events must have a material bearing on the right to relief of any party;
30
AIR 2008 SC 2296
31
(2008) 3 SCC 181
32
AIR 2005 MP 232
33
AIR 1966 SC 1977
34
(1886) ILR 12 Cal 239
35
(1988) 1 SCC 383
36
AIR 1967 Del 61
37
1969 SCD 900

10
S. 107(1) (c), Order XLI, Rules 25 & 26: Frame issues and refer them for trial
The appellate court has the power to frame issues where the lower court has omitted to frame an
issue, try an issue or determine any question of fact that may be essential to the right decision of the
suit upon its merits. Upon receiving such an order, it is incumbent upon the lower court to try the suit
again and return it to the appellate court.
Rule 28-29 & order XLI: Taking additional evidence
At the same time, an appellate court should not admit additional evidence; instead adhere to the
evidence adduced before the trial court (Municipal Corporation of Greater Bombay v. Lala
Pancham38
). Therefore this power should be exercised on sound judicial principles and in the interest
of justice (Jaipur Development Authority v. Kailashwati39
). However, additional evidence does not
imply evidence over and above that produced by the parties in the lower court. Such evidence may
be admitted under the following circumstances:
 Where the lower court refused to admit relevant evidence (Rule 27(1)(a)) or
 When the party was not able to produce evidence or was not aware that it existed
or
 Evidence is required to pronounce any judgment or for any other substantial issue
(Rule 27(1)(b)). In Mahabir Singh v. Naresh Chandra40
, the SC defined such
situation as one in which the appellate court “….finds itself unable to pronounce
judgment owing to a lacuna or defect in the evidence as it stands. Similarly, in K.
Venkatramiah v. A. Setharama Reddy41
the SC ordered liberal view of such
evidence to determine a substantial issue.
However, Rule 27(2) & Order XLI provide that courts shall record reasons for admitting
additional evidence. Failure to do so while not being actionable would be treated as a serious defect.
Rule 28-29 & Order XLI enable the appellate court, the lower court from where the appeal was
preferred or any other subordinate court to gather such evidence in behalf of the appellate court. In
Gill & Co. v. Bimla Kumari Jolly, the SC held that the discretion given to appellate courts to receive
and admit additional evidence is not arbitrary but a judicial one circumscribed by the limitations
specified in Rule 27 itself. In Parsotim Thakur v. Lal Mohar Thakur42
, the Privy Council had held
that:
The provisions of S. 107 as elucidated by Order XLI, Rule 27 are clearly not intended
to allow a litigant who has been unsuccessful in the lower court to patch up the weak
pans of the case and fill up omissions in the Court of Appeal…………..additional
evidence can be admitted and it must be the Court that requires it.”
In Shivajirao Nilangekar Patil v. Dr. Mahesh Madhav Gosavi & Ors.43
The plaintiff sought
to admit certain reports published in India Today, sundry other magazines and some
affidavits. The SC’s observed that there was no ground for such evidence to have been
collected before the petition was filed.
38
AIR 1965 SC 1008
39
AIR 1997 SC 3243
40
AIR 2001 SC 134
41
AIR 1963 SC 1526
42
AIR 1931 PC 143
43
AIR 1987 SC 294

11
Author’s Opinion
The first impression that a law student like me obtains from the complexities of the civil appeals
system enshrined in the CPC is one that perhaps has an overmuch of layers of appeals. Multiple
layers not only enhance the cost of litigation, particularly for the indigent, but also cause substantial
delays in final decisions for which India has gained dubious repute. They may also introduce
irrelevant evidence that may breed more injustice than justice since courts are hard pressed for time
and adequate number of judges. Therefor there appears to be an urgent need to closely scrutinize
cases in court registries before admission, punish often frivolous litigation and establish a separate
stream for dealing with cases in appeal.

12
Share Capital in India
Introduction
A company’s share capital is defined under S. 2(84) of the amended Companies Act (18/2013).
Capital refers to the amount invested in the company so that it can carry on its activities. In a
company capital refers to "share capital". The capital clause in the Memorandum of Association must
state the amount of capital with which company is registered giving details of number of shares and
the type of shares of the company. A company cannot issue share capital in excess of the limit
specified in the Capital clause without altering the capital clause of the Memorandum.
Types of Share Capital
Under S. 43 of the Companies Act (2013), there are mainly two types of shares that a private (as well
as public) company can hold. They are (a) equity shares with voting /differential rights (as to
dividend/voting), and (b) preferential shares. But regarding the concept of share capital, there exist,
two basic types of share capital. They are as follows:
I. Authorised Share Capital(ASC)
II. Issued Share Capital(ISC)
Authorised Share Capital (ASC)
Nominal, authorised or registered capital means the sum mentioned in the capital clause of
Memorandum of Association. It is the maximum amount which the company raise by issuing the
shares and on which the registration fee is paid. This limit cannot be exceeded unless the
Memorandum of Association is altered. It is the maximum amount of share capital stated in a
company's memorandum which the company is, for the time being, authorized to raise. As the
memorandum is registered with the Registrar it is also called the 'Registered' capital. Again, as the
actual issued capital of the company is usually different (i.e. less) from the authorized capital, it is
also known as 'Nominal' capital. The concept of authorised share capital was determined in a very
recent case, Re Areva T and D India Ltd vs. Unknown.”44
Part of the share capital is also left for the
shareholders in the form of “issued share capital.” 45
For example, let us assume that a specific particular public limited company ABC (Ltd) was
registered and subsequently incorporated with(and by) the Registrar of Companies (by way of Form
INC-2 and INC-7) under S. 32(1) (a) of the Companies Act (1956), after having met all the requisite
formalities. It is having an authorized share capital of Rs. Ten Lakh (10,000,000). Now, an
advertisement has been issued by the company to the general public, calling for Rs. 20 per share.
However, at time of actual issuance of such shares, the company issued only 50,000 of those shares
(as opposed to the actual total amount of 10,000,000 authorized capital that it has) to the public-at-
large.
Generally, stamp duty needs to be paid in case of issuance of any kind of authorised share capital.
Stamp duty refers to a type of tax usually payable on legal documents at the time of transfer of
certain assets or property. However, the Delhi High Court, quite recently, through S. Muralidhar J.
44
2007 (4) CHN 678, 2007 137 Comp Case 834 Cal, 2008 2 Comp. LJ 32 Cal, 2008 81 SCL 140 Cal
2
SNDP Yogam vs. Unknown(1969) at para 14(Buckley on the Companies Acts, pp. 153, Ed. XIII)

13
ruled in the landmark case of “S.E. Investments Ltd vs. Union of India”1
(WPC 2393/2010) that no
stamp duty may be levied on any increased amount of any authorised share capital amount. This case
is an important landmark judgement as it refutes the legal principle that states that for the law to
recognise such transfer of property as being valid, a certain tax must be payable on such legal
document.
Issued Share Capital (ISC)
Issued capital means that part of the authorised capital which has been offered for subscription to
members and includes shares allotted to members for consideration in kind also. It refers to those
sets of authorised share capital which are actually sold and held jointly by all the shareholders of a
particular company. This is regardless of whether such shareholder will come under the concept of
being an insider, institutional investor or members of the general public. An insider is not really a
party who is located inside of the company, but a person who sells the company’s interior business
information to rival companies for illegal consideration. This concept of “insider trading” was found
in landmark cases such as Hindustan Lever Ltd v. SEBI46
, Rakesh Agarwal vs. SEBI47
, “Samir C.
Arora vs SEBI48
, etc. On the contrary, an insider is a person related to the company in some way or
the other who owns more than 10% of the company’s total shares. Such insider is usually in the form
of the director at the senior-most levels (though not necessarily). Similarly institutional investors are
those persons who pool in large amounts of money and invest such amounts in securities and other
types of property, e.g. Life Insurance Corporation, IDBI and General Insurance Corporation. SEBI
fined an employee of Wipro Technologies for insider trading49
. Likewise, SAT-Mumbai upheld a Rs.
11 crore ($1.83 million) penalty imposed on a unit of Reliance Industries Ltd (RELI. NS)50
.
Procedure for issuance of ISCs
Subscribed capital means that part of the issued capital at nominal or face value which has been
subscribed or taken up by purchaser of shares in the company and which has been allotted. It means
the nominal value of that part of the authorized capital which is allotted for cash or for consideration
other than cash and includes the shares subscribed by the signatories to the memorandum. It may be
noted that the term 'Issued Capital' is often defined as "the nominal value of that part of the
authorized capital which is offered for subscription to the public." In Blue Star Ltd.51
case, the
Bombay High Court held that although the respondents (viz. Blue Star Pvt. Ltd.) were not satisfied
by the valuation summary calculated and arrived at, yet that was not really a satisfactory ground for
rejecting a valuation amount arrived at by ICAI (Institute of Chartered Accountants of India). The
phrase 'offered for subscription to the public' has been dropped and other necessary modifications
have been made in the customary definition to meet the following objections:
a. that, the customary definition which connotes only the nominal value of shares offered for
subscription to the public does not provide any useful information to an analyser of a
company's Balance Sheet. What is important to him is the nominal value of shares actually
allotted by the company because it is this amount which can be taken as the ultimate fund out
46
1998 SCL 311
47
2004 49 SCL 351 SAT
48
2005 59 SCL 96 (SAT-Mumbai)
49
Wipro executive fined Rs 5 lakh in insider trading case available on Mar 22, 2015, at
http://zeenews.india.com/business/news/companies/wipro-executive-fined-rs-5-lakh-in-insider-trading-case_106050.html
50
Tribunal upholds insider trading penalty on RIL unit extracted on Mar 22, 2015 from
http://in.reuters.com/article/2014/06/30/india-reliance-indu-idINKBN0F50RR20140630
51
2000 2 Bom.CR 525

14
of which the creditors are to be paid, even though the actual paid up capital for the time being
may be less than this amount. Moreover, the term Issued Capital literally means that part of
share capital which has been actually issued or allotted by the company
b. That, if shares offered for subscription to the public are taken as 'Issued Capital', a private
company which cannot make offer to the public can never have 'Issued Capital';
c. That, the following types of allotments of shares cannot be treated as shares offered for
subscription to the public: -
i. Shares issued to the: (1) subscribers to the memorandum, (2) friends and relatives of
the directors, and (3) vendors for consideration other than cash.
ii. shares reserved and allotted to the: (i) employees of the company, and, (ii) specialized
institutions like Life Insurance Corporation of India, Unit Trust of India and Industrial
Finance Corporation of India.
iii. The 'Rights Issue' and the 'Bonus Issue.'
These allotments, therefore, cannot be included under 'Issued Capital' as traditionally defined. It
means the paid up value of that part of the authorized capital which is allotted for cash or for
consideration other than cash and includes the shares subscribed by the signatories to the
memorandum. Thus, in a company where shares are fully paid up, the 'Subscribed Capital' would be
equal to the 'Issued Capital.' The 'Subscribed Capital' sub-heading is of significance only if the shares
are partly paid up or certain 'calls' on shares are unpaid or some shares have been forfeited for non-
payment of the 'call money'. In any of these situations the 'Issued Capital' denotes the nominal value
of shares actually allotted and the 'Subscribed Capital denotes the paid up capital of the company. It
is under the above heads that the Companies Act requires the share capital of a company to be
exhibited in its Balance Sheet.
However, some other terms relating to share capital are in prevalence, as such it will be proper to
deal with them in brief here.
Called up capital
It is that part of the allotted share capital which has been called up by the company. It means the total
amount of called up capital on the shares issued and subscribed by the shareholders on capital
account, i.e. if the face value of a share is Rs. 10/- but the company requires only Rs. 2/- at present, it
may call only Rs. 2/- now and the balance Rs.8/- at a later date. Rs. 2/- is the called up share capital
and Rs. 8/- is the uncalled share capital.
Uncalled Capital
It is that part of the allotted share capital which has not been called up by the company. S. 50 of the
Act permits a company to accept unpaid share capital, although not called up, in whole or in part.
However, such member shall not be entitled to any voting rights in respect of the amount paid by
him under sub-S. (1) until that amount has been called up.
Paid up capital
It is equal to called up capital minus calls in arrears. It means the total amount of called up share
capital which is actually paid to the company by the members.

15
Reserve capital
It is that part of uncalled capital which has been reserved by the company to be called in the event of
its winding up.
Deferred Share Capital
This is also a type of contingent share capital. However it is different from reserve share capital in
the sense that recourse to such capital will occur when a company goes bankrupt and has exhausted
all sources of liquidation of its assets. The term liquidation of assets means that when any business
has been wound up under S. 304 Companies Act (2013), then whatever the assets that such company
had accumulated during its existence are sold in toto. Also, all proceeds (money incurred by the
company during its existence) and arrears (money owed to creditors) shall be divided and distributed
amongst such creditors in total. However, it is also sometimes true that even after the creditors have
been paid their dues/all arrears have been paid, there could exist a certain leftover sum of share
capital. In such circumstances, after all the creditors are paid their due, whatever is the (monetary)
residue amount of the remainder assets of such company shall be distributed amongst the primary
asset shareholders staking claim to such assets. Only after such primary assets are distributed
amongst the principal shareholders of such company, if there is any residuary amount left, it will go
to the minority shareholders of the company. Minority shareholders (as defined under Foss vs.
Harbottle52
are those shareholders who do not actually take a real participatory role in the
administration and running of the company, but nonetheless exist as shareholders of the company.
In India, there is the concept of par value of shares. Par value of shares means the face value of the
shares. A share under the Companies act, can either of Rs10 or Rs100 or any other value which may
be the fixed by the Memorandum of Association of the company. When the shares are issued at the
price which is higher than the par value say, for example Par value is Rs10 and it is issued at Rs. 15
then Rs. 5 is the premium amount i.e, Rs.10 is the par value of the shares and Rs. 5 is the premium.
Similarly when a share is issued at an amount lower than the par value, say Rs. 8, in that case Rs. 2 is
discount on shares and Rs.10 will be par value.
In Vodafone India Services (Pvt.) Ltd vs. UOI53
the petitioner (viz. Vodafone) requested for certain
funds to be allotted for its telecommunication services project (TVP). On August 28th
, 2008, the
petitioner issued about two lakh shares at the face value of Rs. 10/share value to its holding
company. As a result the petitioner received about Rs. 246. 38 crores from its parent company upon
issuance of such shares. However the respondents (viz. Assistant Officer & Transfer Pricing Officer)
held that the figure (as released by Vodafone) was totally wrong; i.e. it should have released the total
sum of Rs. 54000 (approximately), as opposed to the sum it allegedly issued(i.e. 2,000,000 shares).
Also the respondents (i.e. Income Tax Officer et al) contended that under the statutory provisions of
the Income Tax Act (1961), introduction of share capital in India was prohibited under the law.
Basically, the whole fact-in-issue related to the non-applicability of the provisions of Chapter X of
the IT Act (1961).This Chapter specifically deals with the non-applicability of certain statutory
provisions relating to avoidance of payment of tax. The Bombay High Court, in its verdict held that
because the issuance of such shares by the petitioners (viz. Vodafone) to its non-resident holding
company had not initiated any cause of action so as to earn income under a foreign international
treaty, the provisions of Chapter X of the Act could not be made applicable to them.
In every issued share capital we have two other further sub-categories of existing share capital. They
are:
52
1843 2 HARE 461
53
WP 871/2014

16
(a) Shares outstanding
(b) Treasury shares
Shares outstanding
These shares refer to a company’s total stock held together by all its members and shareholders.
Such shares are generally portrayed on a company’s balance sheet. The number of outstanding shares
is usually used to calculate the company’s market capitalization and total earnings per share (EPS)
and cash flow per share (CFPS). Also because a company’s shares are not rigid but flexible to
change, that is why it is called outstanding shares Companies typically issue shares when they raise
capital through an equity financing, or upon exercising employee stock options. Outstanding shares
will decrease if the company buys back its shares under a share repurchase program. The number of
shares outstanding will double if a company undertakes a 2-for-1 stock split, or will be halved if it
undertakes a 1-for-2 share consolidation. Stock splits are usually undertaken to bring the share price
of a company within the buying range of retail investors; the doubling in the number of outstanding
shares also improves liquidity. Conversely, a company will generally embark on a share
consolidation to bring its share price into the minimum range necessary to satisfy exchange listing
requirements. While the lower number of outstanding shares may hamper liquidity, it could also
deter short sellers since it will be more difficult to borrow shares for short sales.
Treasury shares
Treasury shares usually refer to those types of shares that a company keeps as a reserve/spare for
itself and are never made public. Such shares can be procured either during a repurchase or buyback
from the principal shareholders. Repurchase occurs when a company buys back its own shares from
the market place, thus reducing the total number of outstanding shares. Outstanding shares refers to
all kinds of stock that are held by all its shareholders simul. There are no dividends or voting rights
present in these types of shares. In a sense, we can say that treasury shares are also known as
“reserve” “spare” or “extra” shares to be used by the company during an exigency when all other
financial reserves earned by it (including financial coffers) go empty( e.g. in cases of bankruptcy)
Specific Types of shares
S. 44 of the Companies Act, 2013 states that the shares or debentures or other interest of any member
in a company shall be movable property transferable in the manner provided by the articles of the
company. Shares in the company may be similar i.e. they may carry the same rights and liabilities
and confer on their holders the same rights, liabilities and duties. There are two types of shares under
Indian Company Law:
Equity shares
It means that part of the share capital of the company which are not preference shares.
Preference Shares
It means shares which fulfil the following two conditions. Therefore, a share which is does not fulfil
both these conditions is an equity share. It carries Preferential rights in respect of Dividend at fixed
amount or at fixed rate i.e. dividend payable is payable on fixed figure or percent and this dividend
must paid before the holders of the equity shares can be paid dividend. It also carries preferential
right in regard to payment of capital on winding up or otherwise. It means the amount paid on
preference share must be paid back to preference shareholders before anything in paid to the equity

17
shareholders. In other words, preference share capital has priority both in repayment of dividend as
well as capital. S. 80 of the Act (2013) permits a company to issue preference shares which are liable
to be redeemed within a period not exceeding twenty years from the date of their issue as per
prescribed conditions for infrastructure projects, subject to the redemption of certain percentage on
an annual basis at the option of such preferential shareholders. S. 80 also lays down the rules for
preference shares as follow:
Provided that –
a. no such shares shall be redeemed except out of profits of the company which
would otherwise be available for dividend or out of the proceeds of a fresh issue of
shares made for the purposes of the redemption ;
b. no such shares shall be redeemed unless they are fully paid ;
c. the premium, if any, payable on redemption shall have been provided for out of the
profits of the company or out of the company's security premium account before the
shares are redeemed
d. where any such shares are redeemed otherwise than out of the proceeds of a fresh
issue, there shall, out of profits which would otherwise have been available for
dividend, be transferred to a reserve fund, to be called the capital redemption reserve
account, a sum equal to the nominal amount of the shares redeemed ; and the
provisions of this Act relating to the reduction of the share capital of a company shall,
except as provided in this S., apply as if the capital redemption reserve account were
paid-up share capital of the company.
(2) Subject to the provisions of this S., the redemption of preference shares thereunder
may be effected on such terms and in such manner as may be Provided by the articles
of the company.
(3) The redemption of preference shares under this S. by a company shall not be taken
as reducing the amount of its authorized share capital.
(4) Where in pursuance of this S., a company has redeemed or is about to redeem any
preference shares, it shall have power to issue shares up to the nominal amount of the
shares redeemed or to be redeemed as if those shares had never been issued ; and
accordingly the share capital of the company shall not, for the purpose of calculating
the fees payable under S. 611, be deemed to be increased by the issue of shares in
pursuance of this sub-S. :
Provided that, where new shares are issued before the redemption of the old shares,
the new shares shall not, so far as relates to stamp duty, be deemed to have been
issued in pursuance of this sub-Section unless the old shares are redeemed within one
month after the issue of the new shares.
(5) The capital redemption reserve account may, notwithstanding anything in this S.,
be applied by the company, in paying up unissued shares of the company to be issued
to members of the company as fully paid bonus shares.
(5A) notwithstanding anything contained in this Act, no company limited by shares
shall, after the commencement of the Companies (Amendment) Act, 1996, issue any
preference share which is irredeemable or is redeemable after the expiry of a period of
twenty years from the date of its issue.

18
(6) If a company fails to comply with the provisions of this S., the company, and
every officer of the company who is in default, shall be punishable with fine which
may extend to ten thousand rupees.
Types of Preference Shares
Cumulative or Non-cumulative
A non-cumulative or simple preference shares gives right to fixed percentage dividend of profit of
each year. In case no dividend thereon is declared in any year because of absence of profit, the
holders of preference shares get nothing nor can they claim unpaid dividend in the subsequent year
or years in respect of that year. Cumulative preference shares however give the right to the
preference shareholders to demand the unpaid dividend in any year during the subsequent year or
years when the profits are available for distribution. In this case dividends which are not paid in any
year are accumulated and are paid out when the profits are available.
Redeemable and Non- Redeemable
Redeemable Preference shares are preference shares which have to be repaid by the company after
the term of which for which the preference shares have been issued. Irredeemable preference shares
mean preference shares need not repaid by the company except on winding up of the company.
However, a company cannot issue irredeemable preference shares. In fact, a company limited by
shares cannot issue preference shares which are redeemable after more than 10 years from the date of
issue. In other words the maximum tenure of preference shares is 10 years. If a company is unable to
redeem any preference shares within the specified period, it may, with consent of the Company Law
Board, issue further redeemable preference shares equal to redeem the old preference shares
including dividend thereon. A company can issue the preference shares which from the very
beginning are redeemable on a fixed date or after certain period of time not exceeding 10 years,
provided it comprises of following conditions:
a. It must be authorized by the articles of association to make such an issue
b. The shares will be only redeemable if they are fully paid up
c. The shares may be redeemed out of profits of the company which otherwise
would be available for dividends or out of proceeds of new issue of shares made
for the purpose of redeem shares. If there is premium payable on redemption it
must have provided out of profits or out of shares premium account before the
shares are redeemed. When shares are redeemed out of profits a sum equal to
nominal amount of shares redeemed is to be transferred out of profits to the capital
redemption reserve account. This amount should then be utilized for the purpose
of redemption of redeemable preference shares.
d. This reserve can be used to issue of fully paid bonus shares to the members of the
company.
Participating Preference Share
Participating Preference shares are entitled to a preferential dividend at a fixed rate with the right to
participate further in the profits either along with or after payment of certain rate of dividend on
equity shares. A non-participating share is one which does not such right to participate in the profits
of the company after the dividend and capital have been paid to the preference shareholders.

19
Alteration of capital
S. 61 of the Act deals with the power of limited company to alter its share capital. It permits a
limited company having a share capital to, if so authorized by its articles, alter its memorandum in its
general meeting to:
i. increase its authorized share capital by such amount as it thinks expedient;
ii. consolidate and divide all or any of its share capital into shares of a larger amount
than its existing shares provided that no consolidation and division which results
in changes in the voting percentage of shareholders shall take effect unless it is
approved by the Tribunal on an application made in the prescribed manner;
iii. convert all or any of its fully paid-up shares into stock, and reconvert that stock
into fully paid-up shares of any denomination;
iv. sub-divide its shares, or any of them, into shares of smaller amount than is fixed
by the memorandum, so, however, that in the sub-division the proportion between
the amount paid and the amount, if any, unpaid on each reduced share shall be the
same as it was in the case of the share from which the reduced share is derived;
v. Cancel shares which, at the date of the passing of the resolution in that behalf,
have not been taken or agreed to be taken by any person, and diminish the amount
of its share capital by the amount of the shares so cancelled.
However, the cancellation of shares under sub-S. (1) shall not be deemed to be a reduction of
share capital. A company limited by shares can alter the capital clause of its Memorandum in any
of the following ways provided that such alteration is authorized by the articles of association of
the company:
a. Increase in share capital by such amount as it thinks expedient by issuing new
shares. Consolidate and divide all or any of its share capital into shares of larger
amount than its existing shares. e.g. if the company has 100 shares of Rs.10 each
(aggregating to Rs. 1000) it may consolidate those shares into 10 shares of Rs100
each.
b. Convert all or any of its fully paid shares into stock and re-convert stock into fully
paid shares of any denomination.
c. Subdivide shares or any of shares into smaller amounts fixed by the Memorandum
so that in subdivision the proportion between the amount paid and the amount if
any unpaid on each reduced shares shall be same as it was in case of from which
the reduced share is derived.
d. Cancel shares which have been not been taken or agreed to be taken by any person
and diminish the amount of share capital by the amount of the shares so cancelled.
e. The alteration of the capital of the company in any of the manner specified above
can be done by passing a resolution at the general meeting of the company and
does not require any confirmation by the court.
In Nanalal Zaveri vs. Bombay Life Assurance Co.54
, the central question of law was whether the
further issuance of shares was in direct contravention of S. 105(C) of the Indian Companies Act or
not. The Supreme Court held that under this particular S., equitable distribution of shares was
permissible. There was no actual conclusive proof to suggest that the plaintiffs (viz. Nanalal Zaveri)
had actually been wronged due to the alleged “mal distribution” of shares but were instead too
preliminary alarmed. There was no actual illegality or deliberate wrong-doing ex parte the Directors.
54
AIR 1950 SC

20
The plaintiffs had contra rushed to the Court prematurely. Hence the dismissal of the lawsuit was
validated and warranted by law.
Conversion of shares into stocks
Conversion of fully paid shares into stock may likewise be affected by the ordinary resolution of the
company in the general meeting. Notice of the conversion must be given to the Registrar within 30
days of the conversion. The stock may be converted into fully paid shares following the same
procedure and notice given to the Registrar in Form no 5. In this connection, the following
provisions are important:
a. Only fully paid shares can be converted into stocks. Direct issue of stock to
members is not lawful and cannot be done.
b. The difference between shares and stock is that shares are transferable only in
complete units so that transfer of half or any portion of share is not possible
whereas stock is expressed in terms of any amount money and is transferable in
any money fractions.
c. Articles may give the Board of Directors authority to fix minimum amount of
stock transferable.
d. Since stock is not divided into different units it is not required to be numbered.
Shares on the other hand must be numbered.
Reduction of share capital with sanction of the Court
A company limited by the shares or a company limited by guarantee and having share capital can if
authorised by its articles, by special resolution and subject to confirmation by the court on petition
reduce its share capital. It may effect reduction of its share capital in any of following circumstances:
Where the company is overcapitalized
It may extinguish or reduce the liability of member in respect of uncalled or unpaid capital. For
example, where shares are of Rs. 100 each with Rs. 60 paid up, the company may reduce them to Rs.
60 fully paid and thus release the shareholder from the liability on uncalled capital of Rs. 40/-. Pay
off or return part of the unpaid capital not wanted for the purpose of the company. For example,
where the shares are fully paid of Rs100 they may be reduced Rs40 each and Rs. 60 may be paid
back to the shareholders. Pay off part of the paid up share capital on the footing that it may be called
up again. If shares are of Rs.100 each the company may pay off Rs. 25 per share on condition that
when desired the company may call it again without extinguishing the liability of shareholders to pay
the uncalled share capital. Where the company has suffered loss of capital, it can write off or cancel
the share capital which has been lost or is unrepresented by available assets.
Where the company has passed a resolution for reducing the share capital, it must, by petition, apply
to the court in the prescribed form to the court for an order confirming the reduction. Where the
proposed reduction of share capital involves the either diminution of liabilities in respect of unpaid
share capital or the payment to any shareholder of any paid-up share capital or in any other case if
the court so directs, the following provisions shall have effect. Every creditor of the company who on
the date fixed by the court is entitled to debt from or any claim against the company shall be entitled
to object to the reduction. The Court shall settle a list of creditors so entitled to object and for that
purpose shall ascertain as far as possible without requiring an application from any of the creditors,
the names of creditors and the nature and amount of debt or claims and publish notices fixing the day
or days within which creditors not entered in the list are to be entered if they so desire. Where a

21
creditor entered on the list whose debt or claim is not discharged or has not been determined does not
consent to the reduction, the court may, if it thinks fit, dispense with the consent of the creditors if
the company secures payment of this debt or claim by appropriating the following amounts as the
court may direct:
a. The company admits the full amount claim or debt or though not admitting it is
willing to provide for it, then the full amount of debt or claim If the company does
not admit and is not willing to provide for the full amount of debt or claim or if
the amount is contingent or not ascertained, then amount fixed by the court after
due enquiry.
b. Where the proposed reduction of share capital involves either diminution of any
liability in respect of the unpaid share capital or payment of any shareholder of
any paid share capital, the Court may, having regard to any special circumstances
of the case as it thinks proper so to do, direct that the above provisions shall not
apply to any class or classes of creditors.
c. If the court is satisfied with respect to every creditor of the company entitled to
object to reduction that either his consent to the reduction has been obtained or his
that debt or claim has been discharged or has been determined or has been
secured, make an order confirming the reduction on such terms and conditions as
it thinks fit. Where the court makes such an order, it may, if for any special
reasons thinks fit and proper to do so, make an order directing that the company
shall during such period commencing on and any time after the date of the order
as is specified in the order add to its name as the last words the words "&
Reduced" and make an order requiring the company to publish the same along
with the reasons for the reduction or such other information in regard thereto as
the court may think expedient with view to giving proper information to the public
and if the court thinks fit the causes which led to reduction.
d. Where the company is ordered to add to its name the words "& Reduced" those
words shall until the expiry of period specified in the order shall be deemed to be
part of the name of the company. The registrar, on the production to him, of an
order of the court confirming the reduction of the share capital of the company
and on delivering to him the certified copy of the order and of minutes approved
by the court showing with respect to the share capital of the company as altered by
the order register the reduction of share capital. On registration of order and
minutes, the reduction of share capital shall take effect. Notice of the registration
shall be published in such manner as the court may direct.
Reduction of capital without the sanction of the court
Reduction of capital can take place without the sanction of the court in the following cases:
Buy back of shares in accordance to the provisions of S. 77A and 77B
A company may if authorised by its articles forfeit shares for non-payment of calls by the
shareholders. Such proceedings amount to reduction of capital but the act does not require court
sanction for this purpose. Valid surrender of the shares - A company may accept the surrender of
shares Cancellation of capital - A company may cancel the shares which has not been taken up or
agreed to be taken by the person and diminish the amount of its share capital. Purchase of shares of
member by the company under S. 402B. The Company Law Board may, on application made under
S. 397 or S. 398, order the purchase of shares or interest of any member of the company by the

22
company. These provisions come in force when a prescribed number of members make a complaint
to the CLB for mismanagement or oppression of the minority shareholders in the company.
Redemption of redeemable preference shares. Where redeemable preference shares are redeemed, it
actually amounts to reduction of the capital. However, this does not require the sanction of the court.
Buy-back of shares
Buy back of its own shares by a company is reduction of share capital. It is a process which enables a
company to go back to the holders of its shares and offer to purchase from them the shares that they
hold. If the company has got excess amounts of unneeded share capital that is really not required by
it, then such company can alter its Memorandum of Association(MOA) by authorising itself to
reduce such share capital and subsequent shares itaque. This was the principle of law as held by the
Apex Court in the case of Cosmo Steel (Pvt) Ltd. vs. Jairam Das Gupta & Ors55
case. There are three
main reasons why a company may opt for buy back:
a. To improve shareholder value, since with fewer shares earning per share of the
remaining shares will increase.
b. As a defence mechanism against hostile take-overs since there are fewer shares
available for the hostile acquirer to acquire.
c. Public Signalling of the Management’s Policy.
A company may also purchase its own shares or other specified securities from its
Free Reserves via the following:
a. Securities premium account
b. Proceeds of any shares or other specified securities
No buy-back of any kind of shares or other specified securities can be made out of the earlier
proceeds of an earlier issue of the same kind of shares or same kind of other specified securities. No
company can purchase its own shares or other specified securities unless:
a. the buy-back is authorized by its articles
b. a special resolution has been passed in general meeting of the company
authorizing the buy-back
c. the buy-back is of less than twenty five per cent of the total paid-up capital and
free reserves of the company
d. the buy-back of equity shares in any financial year shall not exceed twenty five
per cent of its total paid-up equity capital in that financial year the ratio of the debt
owned by the company is not more than twice the capital and its free reserves
after such buy-back. However, the Central Government may prescribe a higher
ratio of the debt than that specified under this clause for a class or classes of
companies.
e. all the shares or other specified securities for buy-back are fully paid-up
f. the buy-back of the shares or other specified securities listed on any recognized
stock exchange is in accordance with the regulations made by the Securities and
Exchange Board of India in this behalf
g. The buy-back in respect of shares or other specified securities other than those
specified in clause (g) is in accordance with the guidelines as may be prescribed.
55
1978 SCR 2 422

23
The notice of the meeting at which special resolution is proposed to be passed shall be accompanied
by an explanatory statement stating a full and complete disclosure of all material facts the necessity
for the buy-back the class of security intended to be purchased under the buy-back the amount to be
invested under the buy-back and the time limit for completion of buy-back. Every buy-back must be
completed within twelve months from the date of passing the special resolution. The buy-back may
be from:
a. existing security holders on a proportionate basis;
b. open market or from odd lots, that is to say, where the lot of securities of a listed
public company whose shares are listed on a recognized stock exchange is smaller
than such marketable lot as may be specified by the stock exchange
c. Purchasing the securities issued to employees of the company pursuant to a
scheme of stock option or sweat equity.
Where a company has passed a special resolution to buy-back its own shares or other securities under
this S., it shall, before making such buy-back, file with the Registrar and the Securities and Exchange
Board of India a declaration of solvency in the form as may be prescribed and verified by an affidavit
to the effect that the Board has made a full inquiry into the affairs of the company as a result of
which they have formed an opinion that it is capable of meeting its liabilities and will not be
rendered insolvent within a period of one year of the date of declaration adopted by the Board, and
signed by at least two directors of the company, one of whom shall be the managing director, if any.
Such a declaration of solvency need not be filed with the Securities and Exchange Board of India by
a company whose shares are not listed on any recognized stock exchange. Where a company buys
back its own securities, it shall extinguish and physically destroy the securities so bought back within
seven days of the last date of completion of buy-back.
Where a company completes a buy-back of its shares or, other specified securities under this S., it
shall not make further issue of the same kind of shares or other specified securities within a period of
twenty four months except by way of bonus issue or in the discharge of subsisting obligations such
as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or
debentures into equity shares. Where a company buys back its securities under this S. it shall
maintain a register of the securities so bought, the consideration paid for the securities bought-back,
the date of cancellation of securities, the date of extinguishing and physically destroying of securities
and such other particulars as may be prescribed. A company shall, after the completion of the buy-
back under this S., file with the Registrar and the Securities and Exchange Board of India, a return
containing such particulars relating to the buy-back within thirty days of such completion as may be
prescribed. However such return need not be filed with the Securities and Exchange Board of India
by a company whose shares are not listed on any recognized stock exchange. If a company defaults
in complying with the provisions of this S. or any rules or any regulations, the company or any
officer of the company who is in default shall be punishable with imprisonment for a term which
may extend to two years, or with fine which may extend to fifty thousand rupees, or with both. For
the purposes of buy back, "specified securities" includes employees' stock option or other securities
as may be notified by the Central Government from time to time. Where a company purchases its
own shares out of free reserves, then a sum equal to the nominal value of the share so purchased shall
be transferred to the capital redemption reserve account and details of such transfer shall be disclosed
in the balance sheet."
In Nanalal Zaveri vs. Bombay Life Assurance Co6
(1950), the central question of law was whether
the further issuance of shares was in direct contravention of S. 105(C) of the Indian Companies Act
or not. The Supreme Court held that under this particular S., equitable distribution of shares was
permissible. There was no actual conclusive proof to suggest that the plaintiffs (viz. Nanalal Zaveri)

24
had actually been wronged due to the alleged “mal distribution” of shares but were instead too
preliminary alarmed. There was no actual illegality or deliberate wrong-doing ex parte the Directors.
The plaintiffs had contra rushed to the Court prematurely. Hence the dismissal of the lawsuit was
validated and warranted by law.
The concept of “redeemable shares” was decided by the Company Law Board through Ramanathan
A. J in the case of British India Corporation56
. The central facts-in-issue in this case revolved around
the issuance of certain cumulative redeemable shares instead of the total 81000 irredeemable shares.
In his judgement delivered, the learned judge (Single Bench) held that due to heavy losses incurred
by the company, it (viz. the company) could not exercise its discretionary powers of issuance of such
preference shares. So it had no other option but to issue the said redeemable preference shares
(Mandatory option ex parte qua company).
No company shall directly or indirectly purchase its own shares or other specified securities:
a. through any subsidiary company including its own subsidiary companies
b. through any investment company or group of investment companies
c. If there is a default by the company in repayment of deposit or interest payable
thereon, redemption of debentures, or preference shares or payment of dividend to
any shareholder or repayment of any term loan or interest payable thereon to any
financial institution or bank, is subsisting.
d. No Company can, directly or indirectly, purchase its own shares or other specified
securities in case such company has not filed its annual returns with the Registrar
of Companies, or has not paid the dividends declared by it within 42 days from the
date of declaration or has not prepared its annual accounts in the prescribed
manner.
Under the 1956 Act, companies could do multiple buy-backs of shares in the same financial year
except in certain specific facts where there was a cooling off period of one year. However, now the
2013 Act requires a mandatory one-year time period between any types of buy-back, even if the buy-
back was achieved through a scheme approved by an Indian court. The 2013 Act also stipulates that
a buy-back is not possible if the company has made any default in the repayment of deposits or
interest, or redemption of debentures, or preference shares, or payment of dividend, or in the
repayment of a term loan to a bank or financial institution. However, the buy-back may be possible if
the defect is remedied, and a three-year time period has elapsed. The earlier common practice of a
back-to-back shareholder-approved buy-back following a board mandated buy-back is no longer
possible under the 2013 Act.
Variation of shareholders rights
The rights, duties and liabilities of all shareholders are clearly defined at the time of issue of the
shares. Once the rights of shareholders are fixed, they cannot be altered unless the provisions of the
Companies Act for this purpose are complied with. The rights attached to the shares of any class can
be varied only with the consent in writing of shareholders holding not less than 75 % of the issued
shares of that class or with the sanction of special resolution passed at a separate meeting of the
holders of issued shares of that class. However, the following conditions also must be complied with:
a. The variation of rights is allowed by the Memorandum or Articles of Association
of the Company.
56
1994 79 Comp Cas 688 CLB

25
b. In absence of such provision in the Memorandum or Articles of company, such
variation must not be prohibited by the terms of issue of shares of that class.
Rights of Dissenting Shareholders
The rights of the shareholders who did not consent to or vote for variation of their rights are
protected by the Companies Act. If the rights of any class of the shareholders are varied, the holders
of not less than 10 per cent of the shares of that class, being persons who did not consent to or vote in
favour of resolution for variation of their rights can apply to the court to have the variation cancelled.
Where such application is made to the court, such variation will not be given effect unless and until it
is confirmed by the court.
Voting Rights of the Members
S. 47 of the Companies Act, 2013 deals with voting rights. Every member of a public company
limited by shares holding equity shares will have votes in proportion to his share in paid up equity
capital of the company. Generally, preference shareholders do not have any voting rights. However,
they can vote on matters directly relating to the rights attached to the preference share capital. Any
resolution for winding up of the company or for the reduction or repayment of the share capital shall
be deemed to affect directly the rights attached to preference shares. Where the preference shares are
cumulative (in respect of dividend) and the dividend thereon has remained unpaid for an aggregate
period of two years before date of any meeting of the company, the preference shareholders will
have right to vote on any resolution. In case of non-cumulative preference shares, preference
shareholders have right to vote on every resolution if dividend due on their capital remains unpaid,
either in respect of period of not less than two years ending with the expiry of the financial year
immediately preceding the commencement of the meeting or in respect of aggregate period of not
less than three years comprised in six years ending with the expiry of concerned financial year.
Every equity shareholder has a right to vote at a general meeting. No company can prohibit any
member from exercising his voting right any ground including the ground that he has not held his
shares for a minimum period before he becomes eligible to vote. However, a member’s voting rights
can be revoked if that member does not make payment of calls or other sums due against him or
where the company has exercised the right of lien on his shares.
Further Capital Rights Issue of Shares
S. 23 of the Companies Act, 2013 deals with Public offer and private placement. A public company
may issue securities to public through prospectus (herein referred to as "public offer") by complying
with the provisions of this Part; or (b) through private placement by complying with the provisions of
Part II of this Chapter; or (c) through a rights issue or a bonus issue in accordance with the
provisions of this Act and in case of a listed company or a company which intends to get its
securities listed also with the provisions of the Securities and Exchange Board of India Act, 1992 and
the rules and regulations made thereunder. A private company may issue securities by way of rights
issue or bonus issue in accordance with the provisions of this Act; or through private placement by
complying with the provisions of Part II of this Chapter.
S. 62 of the Act deals with further issue of share capital. Where at any time, a company having a
share capital proposes to increase its subscribed capital by the issue of further shares, such shares
shall be offered to persons who, at the date of the offer, are holders of equity shares of the company
in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares by
sending a letter of offer subject to the following conditions, viz.

26
i. the offer shall be made by notice specifying the number of shares offered and
limiting a time not being less than fifteen days and not exceeding thirty days from
the date of the offer within which the offer, if not accepted, shall be deemed to
have been declined
ii. unless the articles of the company otherwise provide, the offer aforesaid shall be
deemed to include a right exercisable by the person concerned to renounce the
shares offered to him or any of them in favor of any other person; and the notice
referred to in clause (i) shall contain a statement of this right after the expiry of the
time specified in the notice aforesaid, or on receipt of earlier intimation from the
person to whom such notice is given that he declines to accept the shares offered,
the Board of Directors may dispose of them in such manner which is not dis-
advantageous to the shareholders and the company;
iii. to employees under a scheme of employees stock option, subject to special
resolution passed by company and subject to such conditions as may be
prescribed; or
iv. to any persons, if it is authorized by a special resolution, whether or not those
persons include the persons referred to in clause (a) or clause (b), either for cash
or for a consideration other than cash, if the price of such shares is determined by
the valuation report of a registered valuer subject to such conditions as may be
prescribed.
v. The price at which the preferential shares are to be offered are governed by the
SEBI guidelines in case of listed companies. Such shares cannot be issued at a
price which is less than the higher of the following:
a. The average of the weekly highs and lows of the closing prices of the shares on
the stock exchange during 6 months preceding the date of issue
b. The average of the weekly highs and lows of the closing prices of the shares on
the stock exchange during 2 weeks preceding the date of issue
The above provisions of preferential allotment do not apply to conversion of loans or debentures in
equity shares provided the terms of the loan or terms of issue of debentures give an option to convert
such loans or debentures into shares of the company. Such terms and conditions must be approved
before the issue of debenture or raising of the loan by the Central Government or must be in
conformity with the rules made by the Government for this purpose. The proposal must be approved
by the special resolution passed by Company at the general meeting before the issue of debentures or
raising of the loan. For this purpose the Central Government has framed the Public Companies
(Terms of issue of debentures and raising of loans with option to convert such debentures or loan
into equity shares) Rules, 1977. The following is the broad gist of these rules.
The debenture or loan is raised or issued either through private subscription or through issue
of the prospectus to the public. The financial institutions specified for this purpose either underwrite
or subscribe to the whole or part of the issue of debentures or sanction the raising of loan. Having
regard to financial position of the company, the terms of issue of debentures or terms of loan (e.g.
rate of interest payable on debenture and loan the capital of the company, its liabilities and its profits
during immediately preceding five years and the current market price of shares of the company), the
conversion must be either at par and or at premium not exceeding 25 percent of the face value of the
shares. The provisions of rights and preferential issue do not apply in the following cases:
a. Increase in share capital by a private company
b. Increase in share capital by a deemed public company

27
Issue of shares at discount
S. 53 prohibits companies from issuing shares at a discount. The clause provides that a company
cannot issue shares at discount other than as Sweat equity shares. Issuance of shares on discount with
the approval of the central government has been omitted. The penalty provision has been enhanced.
Any share issued by a company at a discounted price shall be void. Where a company contravenes
the provisions of this S., the company shall be punishable with fine which shall not be less than one
lakh rupees but which may extend to five lakh rupees and every officer who is in default shall be
punishable with imprisonment for a term which may extend to six months or with fine which shall
not be less than one lakh rupees but which may extend to five lakh rupees, or with both.
Issue of shares at premium
A company may issue shares at a premium i.e. at a value above its par value. The following
conditions must be satisfied in connection with the issue of shares at a premium:
a. The amount of premium must be transferred to an account to be called share
premium account.
b. The provisions of this Act relating to the reduction of share capital of the company
will apply as if the share account premium account were paid up share capital of
the company.
Share premium account can be used only for the following purposes:
a. In issuing fully paid bonus shares to members
b. In Writing off preliminary expenses of the company
c. In writing off public issue expenses such as underwriting commission,
advertisement expenses, etc.
d. In providing for the premium payable paid on redemption of any redeemable
preference shares or debentures. In buying back its shares
Issue of bonus shares
S. 63 of the Act deals with issue of bonus shares. A company may issue fully paid-up bonus shares to
its members, in any manner whatsoever, out of:
i. its free reserves;
ii. the securities premium account; or
iii. the capital redemption reserve account
Provided that no issue of bonus shares shall be made by capitalizing reserves created by the
revaluation of assets. No company shall capitalize its profits or reserves for the purpose of issuing
fully paid-up bonus shares under sub-S. (1), unless:
a. it is authorized by its articles;
b. it has, on the recommendation of the Board, been authorized in the general
meeting of the company;
c. it has not defaulted in payment of interest or principal in respect of fixed deposits
or debt securities issued by it;

28
d. it has not defaulted in respect of the payment of statutory dues of the employees,
such as, contribution to provident fund, gratuity and bonus;
e. the partly paid-up shares, if any outstanding on the date of allotment, are made
fully paid-up;
f. It complies with such conditions as may be prescribed.
Bonus shares shall not be issued in lieu of dividend.
Sweat Equity and Employee Stock Options
Sweat Equity Shares mean equity shares issued by the company to its directors and / or employees at
a discount or for consideration other than cash for providing know how or making available the
rights in the nature of intellectual property rights or value additions. S. 54 of the Act deals with issue
of sweat equity shares subject to the following conditions:
a. the issue is authorized by a special resolution passed by the company;
b. the resolution specifies the number of shares, the current market price,
c. consideration, if any, and the class or classes of directors or employees to whom
such equity shares are to be issued;
d. not less than one year has, at the date of such issue, elapsed since the date on
which the company had commenced business; and
e. Where the equity shares of the company are listed on a recognized stock
exchange, the sweat equity shares are issued in accordance with the regulations
made by the Securities and Exchange Board in this behalf and if they are not so
listed, the sweat equity shares are issued in accordance with such rules as may be
prescribed.
Share Certificate
S. 46 of the Companies Act, 2013 deals with issue of share certificates while S. 447 provides for
punishment for company officials for any malfeasance in this regard. A share certificate is a
document issued by the company stating that the person named therein is the registered holder of
specified number of shares of a certain class and they are paid up to the amount specified in the share
certificate. The share certificate must bear the common seal of the company and also must be
stamped under the relevant stamp act. One or more directors must sign it. It should state the name as
well as occupation of the holder and number of shares, their distinctive number and the amount paid
up. Every company making allotment of shares must deliver the share certificate of all shareholders
within three months of allotment. In case of transfer of shares, the share certificate must be ready for
delivery within two months after the shares are lodged with the company for transfer. If default is
made in complying with the above provisions, the company and every officer of company who is in
default is liable to punishment by way of fine which may extent to Rs500 for every day of default.
The allottee must give notice to the company reminding of its obligation and even then, if default is
not made good within 10 days of the notice, the allottee may apply to the Company Law Board for
direction to the company to issue such share certificate in accordance with the Act. Application for
this purpose must be made with the concerned regional bench of the Company Law Board by way of
petition. The petition should be accompanied by the following documents:
a. Copy of the letter of allotment issued by the company
b. Documentary evidence for the allotment of the shares or debentures for transfer
c. Copy of the notice served on the company requiring to make good the default
d. Any other correspondence

29
e. Affidavit verifying the petition
f. Bank draft evidencing payment of application fee
g. Memorandum of appearance with the copy of resolution of the board for the
executive
h. Vakalatnama as the case may be
Sub-S. (3) of S. 46 of the Companies Act, 2013 and rule 5(2) of the Companies (Share Capital and
Debentures) Rules 2014] prescribe the form for share certificate. A Shareholder must keep his share
certificate in safe custody or in case of shares which are traded in demat mode, with the depository.
The company may renew or issue a duplicate certificate if such certificate is proved to have been lost
or destroyed or having being defaced or mutilated or torn or is surrendered to the company.
However, if the company, with the intention to defraud issues duplicate certificate, the company
shall be punishable with the fine up to Rs. 10000 and every officer of the company who is in default
with imprisonment up to 6 months or fine up to Rs. 10000 or both. Once a share certificate is issued
by the company, the name of the person in whose favour it has been issued becomes the registered
shareholder. Nobody can then deny the fact of his being the registered shareholder of the company.
Similarly, if the certificate states that on each of shares a certain amount has been paid up, nobody
can deny the fact that such amount has been paid up.
Conclusion
The Companies Act, 2013 has made major changes in the way share capital is governed. It has taken
into account the fullest interest of shareholders and imposed many limitations on issues such as buy
back of shares, issue of preference shares, etc. However, it is yet too early to pronounce any
judgment on its efficacy.

30
Judicial Expansion of the Scope of Article 21 of the Constitution
Introduction
Black's Law Dictionary defines judicial activism as a "philosophy of judicial decision-making
whereby judges allow their personal views about public policy, among other factors, to guide their
decisions." Former CJI AM Ahmadi, said, “In recent years, as the incumbents of Parliament have
become less representative of the will of the people, there has been a growing sense of public
frustration with the democratic process.” This is the reason why the (Supreme) Court had to expand
its jurisdiction by, at times, issuing novel directions to the executive.” Indeed, Soli J Sorabjee said
“judicial activism has contributed to the protection of fundamental human rights.” This paper
analyzes judicial activism of the Apex Court in its role as the defender of the Constitution and the
people of India.
Constitutional Provisions
Unlike in the US, judicial review in India was provided for expressly in Art. 13 of the Constitution.
Art. 13(1) states that all laws in force in the territory of India immediately before the commencement
of the Constitution, in so far as they are inconsistent with the provisions containing the fundamental
rights, shall to the extent of such inconsistency, be void. Art. 31(2) prohibits the State from enacting
any law that takes away the fundamental rights of citizens and renders void any law that is repugnant
to this principle. In order to adjudicate whether a statute is inconsistent with a fundamental right, the
Court has evolved formulae tailored to different sets of situations.
Art. 245 of the Constitution invests the Parliament with the power to make laws subject to the
provisions of the Constitution. Art. 368 provides the Parliament with a special type of power, i.e., to
amend constitutional provisions. This power can be exercised through a two-thirds majority in both
Houses of Parliament and, in some cases, with the additional consent of half the number of State
legislatures. The Article remains silent, however, upon the exact nature, scope and limitations (if
any) of the amending power.
The Basic Structure: Origin of the debate
The theory of basic structure has a background rooted in the right to property. The constitution-
makers in their enthusiasm to guarantee fundamental rights to the people incorporated provisions
similar to S. 299 of the Government of India Act, 1935, in Art. 31 conferred the right to property in
an unqualified manner. Originally, the Constitution guaranteed a citizen, the fundamental right to
acquire hold and dispose of property under Art. 19f. Under Art. 31 he could not be deprived of his
property unless it was acquired by the State, under a law that determined the amount of
compensation he ought to receive against such an acquisition. Property owned by an individual or a
firm could be acquired by the State only for public purposes and upon payment of compensation
determined by the law. Art. 31 has been modified six times - beginning with the 1st
Amendment in
1951 -progressively curtailing this fundamental right.
Parliament added the Ninth Schedule to the Constitution through the very first amendment in 1951 as
a means of immunizing certain laws against judicial review on the ground that they violated the
fundamental rights of citizens. This protective umbrella covered more than 250 laws passed by state
legislatures with the aim of regulating the size of land holdings and abolishing various tenancy
systems.

31
Finally in 1978, Art. 19f was omitted and Art. 31 repealed by the 44th
Amendment. Instead Art.
300A was introduced in Part XII making the right to property only a legal right. This provision
implies that the executive arm of the government could not interfere with the citizen's right to
property. However, Parliament and state legislatures had the power to make laws affecting the
citizens' right to property.
Preserving the Basic Structure
Shankari Prasad & Sajjan Singh Cases
The question whether fundamental rights can be amended under Art. 368 came for consideration in
the Supreme Court in Shankari Prasad57
case. In this case there was a conflict between Art. 13 and
368. The argument against the validity of the 1st
Amendment was that Art. 13 prohibited enactment
of a law infringing or abrogating the Fundamental Rights, which the word “law” in Art. 13 would
include any law; even a law amending the Constitution and therefore, the validity of such a law could
be judged and scrutinized with reference to the Fundamental Rights which it could not infringe. The
Court held that the term “law” in the Art. 13 referred to ‘legislative’ law and did not encompass
constitutional amendments in it. It was held that the Fundamental Rights are not immune from
constitutional amendment under the Art. 368 of the Constitution. The same view was held by the
Court in the Sajjan Singh case58
where the validity of the Constitution (17th
Amendment) Act, 1954,
was questioned as it affected the right to property.
However in this case two dissenting Judges, Hidayatullah and Mudholkar, raised their doubts on
whether the rights of people should become a plaything in the hands of the majority. Hidayatullah, J.,
observed, “the constitution gives so many assurances in Part III that it would be difficult to think that
they were play-things of a special majority.” Mudholkar J. observed that the framers may have
intended to give permanency to certain “basic features” such as the three organs of the State,
separation of powers etc. He also questioned whether a change in the basic features of the
Constitution could be defined as an “amendment” within the meaning of Art. 368, or whether it
would amount to rewriting the Constitution itself. Gajendragadkar C.J., speaking for himself and two
others, upheld Shankari Prasad. However, many expressed doubts about the verdict.
The Golak Nath Case
In the Golak Nath case59
, the validity of the 17th
Amendment which inserted certain acts in Ninth
Schedule was again challenged. J. Subba Rao put forth a new interpretation of Art. 368 and said that
it merely laid down the amending procedure. The amending power (constituent power) of Parliament
arose from other provisions contained in the Constitution (Arts. 245, 246, 248) which gave it the
power to make laws (plenary legislative power). Thus, the apex court held that the amending power
and legislative powers of Parliament were essentially the same. Therefore, any amendment of the
Constitution must be deemed law as understood in Art. 13 (2). The judges stated that the
fundamental rights were so sacrosanct and transcendental in importance that they could not be
restricted even if such a move were to receive unanimous approval of both houses of Parliament.
They observed that a Constituent Assembly might be summoned by Parliament for the purpose of
amending the fundamental rights if necessary. In other words, the apex court held that some features
of the Constitution lay at its core and required much more than the usual procedures to change them.
However the five minority judges upheld the power of parliament to amend Fundamental Rights.
They reasoned that the Constitution would become disabled and static if no such powers were
57
Sankari Prasad Singh v. Union of India, AIR 1951SC 458
58
Sajjan Singh v. State of Rajasthan, (1965) 1 SCR 933: AIR 1965 SC 845
59
1967 AIR 1643, 1967 SCR (2) 762

32
conceded to the Parliament. The far reaching consequences of the Golaknath case lead to the 24th
and
the 25th
Amendment of the constitution.
The Keshavananda Bharati Case
The Court recognized the basic structure concept for the first time in the historic Kesavananda
Bharati case60
in 1973 which has been acclaimed an “epoch-making decision”. The majority of 7
Judges out of 13 “struck a bridle path by holding that in the exercise of the power conferred by Art.
368, the Parliament cannot amend the Constitution so as to damage or destroy the basic structure of
the Constitution.”
The Apex Court declared that Art. 368 did not enable parliament to alter the basic structure or
framework of the Constitution and parliament could not use its amending powers under Art. 368 to
'damage', 'emasculate ', 'destroy', 'abrogate', 'change’ or 'alter' the 'basic structure ' or framework of
the constitution. In this seminal case Sikri, CJ., mentioned the following as the “basic foundation
and structure” of the Constitution, viz. supremacy of the Constitution, separation of powers between
the legislature, the executive and the judiciary, republican and democratic form of government,
secular character of the Constitution and Federal character of the constitution. The other Judges
mentioned in addition to this 3 more basic features, viz. dignity of the individual secured by the
various Fundamental Rights and the mandate to build a welfare state contained in the directive
principles, unity and integrity of the nation, and preservation of the Parliamentary system.
Golaknath had made all fundamental rights as non-amendable. However in Kesavananda this rigidity
was made a bit more flexible by making only the fundamental rights enshrined under the basic
structure to be non-amendable. The reason for this was that making all rights non-amendable would
make the constitution static and hamper the progress of the country. Thus only the fundamental
rights that were a part of the basic structure were immune from amendment. It was left for the courts
to decide which right was considered as a part of the basic feature. The basic philosophy underlying
the doctrine of non amendability of the basic features of the constitution, evolved by the majority in
Kesavananda has been aptly explained by Hedge and Mukherjee, JJ., as follows:
“Our Constitution is not a mere political document………a constitution like ours
contains certain features which are so essential that they cannot be changed or
destroyed.”
The minority view delivered by AN Ray, MH Beg, KK Mathew and SN Dwivedi, JJ. also agreed
that Golaknath had been decided wrongly. They upheld the validity of all three amendments
challenged before the court. Ray, J. held that all parts of the Constitution were essential and no
distinction could be made between its essential and non-essential parts. All of them agreed that
Parliament could make fundamental changes in the Constitution by exercising its power under Art.
368. Therefore the Doctrine of Basic Structure was well established after this case.
The Indira Gandhi Case
The matter of the Doctrine of basic Structure again came up in the Supreme Court in Indira Nehru
Gandhi v. Raj Narain61
. In this case, for the first time, the 39th constitutional amendment was
challenged with reference to an electoral law designed to ensure free and fair elections which lay at
the basis of a democratic parliamentary form of government. Counsel for Raj Narain, the political
opponent challenging Mrs. Gandhi's election, argued that the amendment was against the basic
structure of the Constitution as it affected the conduct of free and fair elections and the power of
judicial review. Counsel also argued that Parliament was not competent to use its constituent power
60
Supra Note (ii)
61
Indira Nehru Gandhi v. Raj Narain, AIR 1975 SCC 2299

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