Postal Ballots – An “anathema” to Physical Meetings? – New Companies Act Perspective

By Rohini Das, Chief Executive Officer and Associate Trainee

In light of the vast array of amendments made to the Companies Act, 1956 (the “1956 Act”) and the bringing into force of certain provisions of the Companies Act, 2013 (the “2013 Act”), an important question was raised by Godrej Industries Limited in Company Summons for Direction No. 256 of 2014 (“Judgment”) before the Hon’ble Bombay High Court (the “Court”). The question being “whether a resolution for approval of a Scheme of Amalgamation can be passed by way of ‘postal ballot’ which includes electronic voting, in complete substitution of an actual physical meeting of equity shareholders”. 

Before we delve into the discussion about the points made out by the Court in this judgment, it is crucial to state the pivotal provision of the 2013 Act that is the subject of the judgment – i. e. Section 110 of the 2013 Act which is said to be in substitution of Section 192(A) of the 1956 Act. Section 110 of the 2013 Act mandates that every company transact certain business items notified by the Central Government by way of ‘postal ballot’ only (whereas, Section 2(65) of the same statute defines ‘postal ballot’ as ‘voting by post or through any electronic mode’); the Section also permits the use of ‘postal ballot’ in respect of transacting any other item excluding ordinary business and any business in respect of which directors or auditors have a right to be heard at any meeting in such manner as may be prescribed, instead of transacting such business at a general meeting; finally, the Section states that any resolution assented to by the requisite majority of shareholders by means of ‘postal ballot’ shall be deemed to have been duly passed at a general meeting convened in that behalf.

Certain important provisions of the 1956 Act, provisions of the 2013 Act, several circulars published by the Securities and Exchange Board of India (“SEBI”) and various Rules such as the Companies (Passing of Resolution by Postal Ballot) Rules, 2001, Postal Ballot Rules, 2001 and the Companies (Management & Administration) Rules, 2014 were referred to in the judgment and thus, hold important places in the ensuing discussion.

The contention leveled by the applicant’s counsel was that the 2013 Act clearly aims at doing away with the holding of physical meetings except in those limited circumstances required by the 2013 Act. It was further submitted that SEBI circular dated April 17, 2014 (CIR/CFD/POLICY CELL/2/2014) (the “Circular”) more or less, made voting by ‘postal ballot’ mandatory with respect to listed companies. However, these submissions seemed to be extreme propositions to Patel J. in light of some of the below mentioned reasons:

–       “The apparent legislative intent behind the provision of ‘postal ballot’ is more inclusiveness of shareholders in the voting process. The obvious drawbacks of a general meeting are the usual shortcomings related to physical presence of the individual such as travel time, opportunity cost and travel cost as well as availability of the person in question. However, one cannot easily overlook the overarching merits of a physical meeting of shareholders in corporate governance and decision making. Transparency and democracy are two extremely vital tenets of corporate governance which give shareholders the right to ‘use the vote as an expression of an informed decision’. In a general meeting, it becomes possible for a shareholder to seek justifications, demand clarifications, voice his concern, declare his support, as well as persuade others to assent or dissent regarding a particular item that is subject to voting. These rights of a shareholder are invaluable, inalienable and absolutely necessary for the democratic governance of a business entity and thus, cannot be defenestrated. Using a system of ‘postal ballot’ in complete substitution of a general meeting results in forfeiture of all these rights and thus, takes away the element of democracy in the functioning of the business entity”.

–       The Court in furtherance to rationalizing the foregoing view, also mentioned that Section 103 of the 2013 Act deals with quorum for meetings. While using ‘postal ballot’ as a total replacement of general meetings, it might be difficult to meet this statutory requirement. Although, the applicant’s counsel contended that the words, ‘Notwithstanding anything contained in this Act’ in Section 110 of the 2013 Act stand as a non-obstante clause which eliminates the need for any such quorum, the Court in  non-concurrence to the said view and opines that Schemes of Arrangement including Schemes of Amalgamation are often amended at meetings. The relevant sections pertaining to the same are Sections 391 and 394 of the 1956 Act and the corresponding sections in the 2013 Act are Sections 230 and 232. If ‘postal ballot’ would be the only medium of voting, it would mean that all schemes put to vote would either receive the assent or fail to receive the assent of the requisite number of shareholders without ever being amended, altered or varied. Moreover, as of date, Sections 230 and 232 of the 2013 Act are not in force. Hence, Section 110 of 2013 Act needs to be read with Sections 391 and 394 of the 1956 Act, and as the non-obstante clause of Section 110 of the 2013 Act restricts its overriding effect to the provisions of the 2013 Act only, it would not extend to Section 391 and 394 of the 1956 Act.

–       The SEBI Circular referred to by the applicant’s counsel itself upholds the rights of the shareholders to ‘participate in and to be sufficiently informed on decisions concerning fundamental corporate changes, the opportunity to participate effectively and vote in general shareholder meetings, the opportunity to ask questions to the board, to place items on the agenda of general meetings, and to propose resolutions, subject to reasonable limits’. In cases where ‘postal ballot’ is used as a complete substitution of a physical meeting, it is difficult to ascertain how the above mentioned rights can be given effect. Additionally, a clarification from the National Stock Exchange of India indicates that the said Circular is deferred till October 1, 2014. Hence, there is a dispute regarding whether the said Circular is in effect or not.

–       The Court in furtherance to the view and laying stress of the importance of debate and deliberation being too high in shareholders meetings, has also relied on the views taken by the relevant authorities in jurisdictions such as Australia, wherein, that even in a fully electronic meeting, the need for “reasonable opportunity to participate” in such meetings have been underscored.

–       The Court further pointed out that Section 110 of the 2013 Act pertains to meetings ‘called by the company’; however, meetings with respect to Schemes of Arrangement including Schemes of Amalgamation under Sections 391 and 394 of the 1956 Act and Sections 230 and 232 of the 2013 Act are not subject to being ‘called by the company’, rather they are ‘ordered by the court. Thus, prima facie, it appears that Section 110 of the 2013 Act would not apply to any Scheme matters including Schemes of Amalgamation. However, the court may in its direction permit or even require ‘postal ballot’ in addition to an actual physical meeting.

After hinting at the operation of all this uncertainty, the Court agreed with the recommendation of the amicus curie arguing against the applicantof considering a situation where the provision of ‘postal ballot’ could be in ‘addition to’ rather that in “replacement of’ a general meeting. In such circumstances, shareholders would have the option to either vote by ‘postal ballot’ or ‘electronically’ or ‘physically at a general meeting’. This would not only give the shareholders the option to attend a shareholders’ meeting and clarify any doubts which they may have before they vote, but it would also allow those unavailable shareholders with strong opinions to skip these meetings and vote through ‘postal ballot’. Thus, such a situation attains the goal of greater inclusiveness, meets the requirement of Section 103 of the 2013 Act pertaining to quorum at meetings, as well as preserves the irreplaceable rights of the shareholders to participation in an informed manner in the operation of the corporate entity.

The Court finally summed up by reiterating that provisions relating to mandatory voting by ‘postal ballot’ instead of physical meetings do not apply to court-convened meetings. The Court directed that at the latter meetings, provision must be made for ‘postal ballot’ and electronic voting in addition to an actual meeting. The Court also observed that on a prima-facie view that the elimination of all shareholder participation at an actual meeting is anathema to some of the most vital of shareholders’ rights, it is strongly recommended that till this issue is fully heard and decided, no authority or any company should insist upon such a postal-ballot-only meeting to the exclusion of an actual meeting. The Central Government represented by the Additional Solicitor General and SEBI were requested to appear before the Court in order for the Court to fully consider the effect, interpretation and implication of the provisions of the 2013 Act and the relevant SEBI circulars and notifications pertaining to the above discussion. Although the application for dispensing with an actual meeting and having one only by ‘postal ballot’ and ‘electronic voting’ was permitted by the Court, the Court ordered this judgment to be shown as pending till a final determination on the above outlined issues.

While the Judgment is an important indication on the interpretation of a specific issue as deliberated above, however, the Court has sought the intervention of the stake holders such as the Central Government and the SEBI to consider and deliberate on the highlighted issue. Perhaps this is Judgment is one of  many guidance that may come up time and again before the courts in India, more importantly in light of the teething issues faced upon introduction of new legislation.

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Powers of Review of the National Consumer Disputes Redressal Commission

By Rudrajyoti Nath Ray, Senior Associate

Consumer Tribunals are creatures of a statute and derive their power from the express provisions of that statute. It is now settled law that District Consumer Forums and State Commissions have no power to recall or review their own orders [(2011) 9 SCC 541]. There is no provision in the Consumer Protection Act, 1986 (“Act”) granting such power. By virtue of an amendment to Section 22 of the Act, however, the National Consumer Disputes Redressal Commission (“NCDRC”) has the power to review any order made by it, when there is an error apparent on the face of record. In exercise of the powers conferred by Section 30A of the Act, the NCDRC, with the previous approval of the Central Government, has made the following further regulations, amongst others, that form part of the Consumer Protection Regulations, 2005 (“Regulations”): ‘Regulation 14 (iii):  An application for review under sub-section (2) of Section 22 shall be filed to the National Commission, within 30 days from the days of the order or receipt or the order, as the case may be; ….. Regulation 15 (1): it shall set out clearly the grounds for review. (2) unless otherwise ordered by the National Commission, an application for review shall be disposed of by circulation without oral arguments, as far as practicable between the same members who have delivered the other sought to be reviewed. (emphasis supplied)’ In Surendra Mohan Arora v. HDFC Bank Ltd. and Others [Civil Appeal no. 4891 of 2014 arising out of Special Leave Petition (Civil) No. 14965 of 2013] (“Surendra Mohan”), it was adventurously argued that ‘Regulation 15 is contrary to the principle of audi alteram partem’ and thereby ‘ultra vires of Section 22 of the said Act’. It was further contended that Regulation 15 festers inequality between consumer-litigants some of whom are heard in open court while others are denied the privilege, at the discretion of the NCDRC. Regulation 15 was thus, sought to be struck down. The Hon’ble Supreme Court of India (“SC”) has held, however, that the Regulations have been passed in ‘accordance with law’; and that ‘no mischief has been done in framing the said Regulations’. What is striking, nonetheless, is that Hon’ble Justice Pinaki Chandra Ghose found ‘no substance’ at all in the aforesaid arguments advanced and noted too that the Appellant filed the Petition, ‘only to curtail the rights of the National Commission’. The question: ‘does orality in advocacy admit of an abbreviated appearance and a discretionary eclipse, even when it has been preceded by a sufficient oral session’ has been an important one and cannot be said to be without substance. It at least prompted a brilliantly worded, though flawed, judgment by Hon’ble Justice V.R. Krishna Iyer in P.N. Eswara Iyer v. The Registrar, Supreme Court of India (AIR 1980 SC 809), where similar Review Procedures of the SC were tested. In recent times, in January, 2014 the SC has also issued notice in M/s. Lakshminarayana Mining Company v. Supreme Court of India [Writ Petition No. 34 of 2014], which challenges the constitutional validity of Order XL Rule 3 of the Supreme Court Rules, 1996, relating to disposal of review petitions by circulation, without oral hearing. In such circumstances, a better engagement with the issue would certainly have been in order in Surendra Mohan.

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Now Introducing – One Person Company in India

By Anupam Prasad, Partner

Majority of the provisions and the related rules under the Companies Act, 2013 have now become effective and are operational. In addition to the various forms of companies that already existed under the Companies Act, 1956 (which will eventually be superseded by the Companies Act, 2013), the Companies Act, 2013 has introduced the concept of ‘One Person Company (“OPC“)’ in India.  Globally, there are numerous jurisdictions, such as the United Kingdom, Singapore, China and the USA that provide for an individual to form a single member company.

Under the Companies Act, 2013 (“Act”) the OPC is defined as ‘a company which has only person as a member’. The rules regulating the OPC are provided in the Companies (Incorporation) Rules, 2014 (“Rules”). The Rules provide that only a natural person who is an Indian citizen and resident in India shall be eligible to incorporate an OPC and shall be a nominee for the sole member of a One Person Company.

The term ‘resident in India’ means a person who has stayed in India for a period of not less than one hundred and eighty two days during the immediately preceding one calendar year.  Therefore, an individual who is a non-resident in India cannot incorporate an OPC in India.

The Rules further provides that, no person shall be eligible to incorporate more than one OPC or become nominee in more one such company. The other restrictions that are applicable to an OPC are – an OPC cannot be incorporated to converted into a Section 8 companies, which are companies formed with charitable objects etc., under the Act.  Further, such companies cannot undertake Non-Banking Financial Investment activities including investment in securities of any body corporate.  Also, no such company can voluntarily convert into in any kind of company unless two years have expired from the date of incorporation of the OPC, except when the threshold limit, with respect to the paid up capital, is increased beyond Rs 5,000,000 (Five million) or its average annual turnover during the relevant period exceeds Rs 20,000,000 (Twenty million) (“Threshold”) .

The subscriber of memorandum of OPC shall indicate the name of another person, with its prior written consent in the prescribed form, who shall, in the event of the subscriber’s death or incapacity to contract, become the member of the company.  The written consent of such person shall also be filed with the Registrar at the time of incorporation along with the Memorandum and Articles. This person may withdraw his consent by giving notice to the sole member and to the OPC. It shall be the responsibility of the sole member to nominate another person within fifteen days from the date of receipt of the withdrawal by the person.

All OPC shall have the words ‘One Person Company’ in brackets below the name of the OPC, wherever it is printed or affixed.

In the event of default with the Rules the OPC or any officer of the OPC shall be punishable with fine which may extend to ten thousand rupees and with a further fine which may extend to one thousand rupees for every day after the first during which such contravention continues.

In the event, an OPC crosses the prescribed Threshold, it shall cease to be an OPC and within six months from the date of exceeding the Threshold, the OPC shall be required to convert into private company or a public company and comply with all regulations applicable to such companies and also accordingly alter the articles of association and memorandum of such company, as applicable.

OPC as a legal entity will be beneficial to entrepreneurs who have been looking for an option in between a sole proprietorship form of business and a private limited company form. OPC provides opportunities to entrepreneurs to limit their liability as opposed to functioning as a sole proprietor for whom the liability is unlimited. Further, operating as an OPC will help in procuring investments from investors which prefer dealing with registered entities or also procuring finance from financial institutes. Further, an OPC structure to a large extent provides operational flexibility when compared to a private limited company. For example, for an OPC, board meetings are required to be undertaken once every half year and annual general meetings are required to be conducted by way of maintaining minutes. Further, physical meeting is not required.

While the provisions under the Act with respect to OPC are effective as on date, there is no clarity with respect to the tax rates that are applicable to an OPC; restrictions, if any, with respect to the contracts that a Director of an OPC can enter into. Further, from the plain reading of the Rules, those need further clarification, for instance, restrictions on investment in securities of any body corporate. Does it mean that, subject to the Thresholds, an OPC cannot purchase / subscribe to shares of any company (not an OPC)?

Unlike the Companies Act, 1956, wherein the private limited companies had lesser compliance in comparison to the Act, OPC is a beneficial option for entrepreneurs as an alternate option.

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Case Updates under the Arbitration and Conciliation Act, 1996

By Rudrajyoti Nath Ray, Senior Associate

1. By virtue of Section 32(2)(c) of the Arbitration and Conciliation Act, 1996 (“Act”), arbitral proceedings do stand terminated by an order of the arbitral tribunal that finds the continuation of proceedings to have become impossible. Such an order of the arbitral tribunal, however, cannot be corrected/modified by a High Court under Article 226 of 227 of the Constitution of India, 1950.

The Hon’ble Supreme Court of India, in the recent matter of Lalitkumar v. Sanghavi (D) v. Dharamdas V. Sanghavi  [Civil Appeal No. 3148 of 2014 arising out of Special Leave Petition (Civil) No. 4267 of 2013] (“Lalitkumar”), has reasoned that the question of whether the mandate of the arbitrator has stood legally terminated or not, by virtue of an order under Section 32(2)(c) of the Act, should only be called in question before a Court, under Section 14(2), as a “controversy that has remained concerning whether the arbitrator has become de jure or de facto unable to perform his functions or has failed to act with undue delay”.

2. In another judgment, the Hon’ble Supreme Court of India has clarified an important point concerning tenancy laws in West Bengal and arbitrations. Section 6 of the West Bengal Premises Tenancy Act, 1997 (“Tenancy Act”) reads as, “Protection of tenant against eviction – (1) Notwithstanding anything to the contrary contained in any other law for the time being in force or in any contract, no order or decree for the recovery of possession of any premises shall be made by the Civil Judge having jurisdiction in favour of the landlords against the tenant, except on a suit being instituted by such landlord or one more of the following grounds: …” Nonetheless, landlords and tenants, in West Bengal, often have a clause in the tenancy agreement that makes provision for an arbitration of disputes.

In Ranjit Kumar Bose v. Ananya Chowdhury[Civil Appeal No. 3334 of 2014 arising out of SLP (Civil) No. 15165 of 2010] the landlords had filed a Title Suit against the tenants before a Civil Judge. The tenant moved an application in the suit, under Section 8 of the Act, stating that the tenancy agreement has an arbitration clause and therefore all disputes must be referred to arbitration. The Civil Judge dismissed the Section 8 Application. The High Court, in turn, however, held that it “has no other alternative but to refer the disputes to the arbitrators to be appointed by the parties as per the arbitration agreement”.

The Hon’ble Supreme Court of India has now clarified that the words “notwithstanding anything in any contract”, in Section 6 of the Tenancy Act, overrides the arbitration clause in the tenancy agreement; that Section 6 clearly bars arbitration in a dispute relating to recovery of possession of premises by the landlord from the tenant; that by virtue of Section 2 (3) of the Act – Section 8 cannot help overcome the statutory bar to arbitration as imposed by Section 6 of the Tenancy Act, that provides that disputes shall be decided only by a Civil Judge in a suit notwithstanding a provision in the contract to the contrary.

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A Legally Enforceable Debt u/s. 138 of the Negotiable Instruments Act, 1881

By Rudrajyoti Nath Ray, Senior Associate

A person is deemed to have committed an offence, within the meaning of Section 138 of the Negotiable Instruments Act, 1881 (“Act”) when any cheque drawn by him, on an account maintained by him with a banker, for payment of any amount of money to another person, in whole or partial discharge of a legally enforceable debt or other liability, is returned by the bank unpaid for insufficiency of funds etc. The Hon’ble Supreme Court of India (“SC”) has considered an interesting question, in this regard, in the recent matter of M/s. Indus Airways Pvt. Ltd. & Ors. vs. M/s. Magnum Aviation Pvt. Ltd. & Anr.[Criminal Appeal No. 830 of 2014 arising out of SLP (CRL.) No.9752 of 2010] (“Indus Airways”): “whether post-dated cheques issued as an advance payment in respect of purchase orders could be considered in discharge of a legally enforceable debt or other liability, and, if so, whether the dishonour of such cheques amounts to an offence under Section 138 of Act”?

The SC has reasoned that one of the condition precedents for attracting the penalty prescribed under Section 138 is that, “there should be a legally enforceable debt or other liability subsisting on the date of drawal of the cheque.” If the cheque is issued in advance payment for the purchase of goods and in all eventualities the purchase order is not carried to its “logical conclusion”, because of cancellation; non-delivery of goods; or otherwise, the “cheque cannot be held to have been drawn for an existing debt or liability.” This is a fine example ofretrospective reasoning by the SC where the “nature of something is reasoned out retrospectively from the perspective of where it ends up rather than prospectively from the perspective of where it was headed”.

It is my understanding therefore, that if I order for goods and issue a cheque for an advance payment, in pursuance of such a condition in the purchase order contract, and subsequently cancel the contract, before any delivery, and direct the relevant bank to stop payment on the cheque, which remains un-presented, though I may be liable to make good to the seller the losses I have occasioned to it by breaching the contract, there shall be no criminal liability assessed off me as and when that cheque, for which I have stopped payment, is presented to the bank nevertheless, by the seller, for encashment or in a deep rooted contemplation of filing a criminal case against me under the Act.

In Indus Airways, notably, the appellant-purchasers had issued two post-dated cheques. The said cheques were issued by way of advance payment for certain purchase orders. The purchase orders were later cancelled and the respondent-sellers were informed of the same. It was requested that the post-dated cheques be returned. The respondent-sellers nonetheless presented the cheques to the concerned bank. Obviously, stop payment instructions had already been issued on those cheques. The ‘post-dated cheques’ were returned unpaid – prompting the present litigation.

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Transgender – A New Gender

By Rohini Das, Chief Executive Officer and Associate Trainee

By a landmark ruling on April 15, 2014, the Supreme Court of India (“SC”) granted legal recognition to transgender people. The apex court, in its ground-breaking judgment delivered by a Division Bench of Justices K.S. Radhakrishnan and A. K. Sikri (the “Bench”) in a Public Interest Litigation (“PIL”) filed by National Legal Services Society Authority (“NALSA”) seeking the recognition of ‘Transgender’ as a third gender, held that Articles 14, 15 and 21 of the Indian Constitution (“Constitution”) do not exclude transgender persons from their ambit and take into account rights of ‘Hijras’ as well.

NALSA was represented by Senior Advocate Raju Ramachandran and Advocate on Record, Anitha Shenoy, whereas, Additional Solicitor General Rakesh Khanna appeared for the Union Government. Senior Advocate Anand Grover appeared on behalf of an individual intervenor. The contentions tabled in the PIL included the notion that the fundamental rights guaranteed under Articles 14, 15, 16 and 21 of the Constitution were violated by the non-recognition of ‘transgender’ as a separate legal category. NALSA argued successfully that transgender people, similar to males and females, should have the right to express their gender identity freely. The plea requested the SC to pass appropriate orders towards ‘transgender’ being recognised as a third category in providing various facilities such as passport, driving license, election card, medical treatment, admission to institutions and ration card.

This landmark judgment comes in only a few months after the SC restored the law criminalizing homosexual intercourse in a ruling that outraged the entire gay population of the country. Last December, India’s highest court had reinstated a ban on gay sex. This ruling was highly criticised as dragging the country back to the 19th century. However, the ruling that came in this Tuesday recognizing ‘transgender’ as a separate gender made India the first country to do so.

Eunuchs have faced discrimination, ostracism, hate crimes, detestation, harassment, abuse, animosity, and lack of opportunity in almost all spheres of life for centuries in India, a traditionally conservative country. They have always been considered far from ‘equal’ to the other two genders in a country whose Constitution is based on facets such as Equality, Liberty, Justice and Fraternity. The iconic judgment delivered by the SC is a leap in itself towards the attainment of these goals of our Constitution. It is respectfully submitted that transgender people are also entitled to basic amenities of life such as food, clothing, right to education, shelter, medical facilities and right to employment. It is not only inhumane to deprive these people of their basic human rights, but it is also prehistoric and ancient for a country such as India to not recognise them as equals. The step taken by the highest court of the land can be said to be towards removing these antediluvian factors prevalent in the Indian society and is highly liberating and creditworthy.

It is high time that the country is liberated from its archaic and traditional beliefs which have no legal or moral base. The object should mainly be to transform the thought process of the society as a whole with respect to the status of transgender people and to make every effort to assimilate them into the mainstream of the Indian social fabric. The move by SC seeks to improve the conditions of the mass of downtrodden, neglected and exploited part of the country’s population and endow them with dignity, self-respect and access to the various facilities that are available to the other two genders.

It was held by the apex court that one’s right to identity with respect to his gender was a feature of the basic principle of dignity and transgender people, thus, had a right to choose their gender based on self-identification of their sex. Eunuchs not only have a right to choose their gender but they also have a right to freely express the same and a right against exploitation based on their chosen gender. The Bench directed the Central and State governments to identify ‘transgender’ as a neutral third gender and to treat them as ‘socially and economically backward’. The SC also directed the governments to frame various social welfare and educational schemes for their protection and advancement, and to implement policies for the safeguard of their rights. This is a welcome move as this class of people has been discriminated against for centuries and does need a helping hand to rise to the same footing or socio-economic status as that of the other two genders. A great move ahead!

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The Agricultural Biosecurity Bill, 2013

By Ronak Chawla, Associate

Background

The Agricultural Biosecurity Bill, 2013 (the “Bill”) had been introduced in the Lok Sabha on March 11, 2013. Before going into the breakdown of the Bill, we must understand the meaning of the term ‘biosecurity’. Section 2 (f) of the Bill defines biosecurity as follows:

“Biosecurity” means protection from the adverse effect which any organism has or may have on –

1) an organism excluding human organism; or

2) other organisms such as plants, animals, terrestrial or aquatic; or

3) the environment or part of environment; or

4) agricultural activities, fishing or pearling activities, or commercial activities relating to them which are being carried on, or intended to be carried on in the whole of the country or any part thereof;

Simply put, ‘biosecurity’ can be defined as a set of preventive measures which have been designed with the purpose of reducing the threat of transmission of infectious diseases in crops and livestock, quarantined pests, invasive alien species and living modified organisms. The object of biosecurity can be seen as the protection of humans, plants, animals as well as the environment from adverse effects of disease causing organisms.

At present in India, biosecurity and matters related thereto are governed by different legislations namely, the Destructive Insects and Pests Act, 1914, the Livestock Incorporation Act, 1898 and the Prevention and Control of Infectious and Contagious Diseases in Animals Act, 2009. However, there has been a call for an integrated legislation which covers plant, animal and marine health with regard to biosecurity matters and the Bill seeks to meet this need.

Object

A Bill to provide for establishment of an Authority for prevention, control, eradication and management of pests and diseases of plants and animals and unwanted organisms for ensuring agricultural biosecurity and to meet international obligations of India for facilitating imports and exports of plants, plant products, animals, animal products, aquatic organisms and regulation of agriculturally important micro organisms and for matters connected therewith or incidental thereto.

The Bill seeks to safeguard the country’s agricultural biosecurity by regulating the movements of plants and animals into, from and within the country. It is abundantly evident that while the bigger picture of the Bill is welfare, economic implications are part and parcel of the Bill.

The Bill, if enacted, would replace the legislations, as described above, which are currently in operation. The authority which has been proposed under the Bill is expected to, inter alia, promote research and prevent pests and diseases under the International Plant Protection Convention and the Office International des Epizooties.   

Brief features of the Bill

The object of the Bill asserts that it shall cover four aspects – plant health, animal health, living aquatic resources, and agriculturally important micro organisms. The Bill broadly features the following:

1) Plant and animal quarantine services integration.

2) An authority being established, as observed from the object of the Bill, for the prevention, control, eradication and management of pests and diseases of plants and animals and unwanted organisms for ensuring agricultural bio-security.

3) An aim to fulfill India’s international responsibilities which would facilitate the import and export of plants, plant products, animals, animal products, aquatic organisms and regulation of agriculturally important micro-organisms.

4) Prevention and control of pest infestation or infection which includes declaration of an area as a ‘controlled area’ for the purpose and measures required to control such infestation or infection.

5) Provisions related to inspections, taking samples, entry and search of premises, checking of conveyances to ensure compliance of phytosanitary and sanitary measures and also seizure, treatment and disposal of plants, animals and their products to prevent spread of pests by designated officers.

6) The ability to declare a bio-security emergency in the event of outbreak of organisms threatening the bio-security including actions and procedures to deal with such a situation.

7) Elimination of animals or plants, including their products and other objects if they are in violation of this Bill.

The Authority

The authority proposed to be established through this Bill is the Agricultural Biosecurity Authority of India (“ABAI”)whichwould be based at Faridabad. ABAI will be headed by a Director General and twenty other members who are experts in fields of plant and animal protection. The Director General and the expert members shall be appointed by the Central Government. In order to implement the Bill, ABAI will appoint designated officers who will have powers such as search, seizure, stop distribution and order treatment of plant and animal diseases.

Important Functions of ABAI

1) Regulate import and export of plants, animals and products related to them.

2) Prevent, to the extent possible, introduction of quarantine pests from outside India.

3) Implement post quarantine measures.

4) Undertake surveillance of pests and diseases which relate to plants and animals.

5) Issue directions to any person who imports or exports anything covered by the Bill.

Important Powers of ABAI

1) It can issue guidelines or notifications and permits in relation to import of plants, animals, or their products.

2) It can issue sanitary or phytosanitary certificates for export of plants, animals, or their products. However, such a certificate will be needed only if the destination country requires such a certificate.

3) An officer may require an owner to remove a product from India within 30 days, if it was imported in contravention of the Act. If the owner fails to do so, the officer may seize the product and destroy it.

4) It can award a reasonable compensation to a person for loss or damage to non-infested plants, animals or related products incurred by him as a result of any sanitary or phytosanitary measures.

5) It can recommend to the Central Government to declare a biosecurity emergency in an area of an outbreak, distribution or spreading of a pest or an organism which has potential to cause a significant loss to biosecurity. During such an emergency, the Central Government may give directions to ABAI for managing or eradicating organisms due to which the emergency is declared.

6) It can notify a scheme, for the management or eradication of an organism with the prior approval of the Central Government.

Agricultural Biosecurity Fund

Through the Bill, an Agricultural Biosecurity Fund is to be established, in which the money received by ABAI for any purpose established in the Bill will be credited and utilised. ABAI may, with the prior consent of the Central Government, borrow funds from any source by issuing bonds and debentures to discharge its functions.

Standing Committee recommendations

The Standing Committee examining the Bill has made the following recommendations:

1) ABAI should have at least one representative from states in each region of the country.

2) ABAI should not have the power to recover costs from State Governments for measures taken in the event that the said state has failed to take those measures in a controlled area. Allowing ABAI to recover costs from State Governments would deter State Governments from reporting outbreaks to ABAI in the first place.

3) Under the Bill, civil courts do not have jurisdiction on matters which fall under the umbrella of ABAI or the Central Government. This could amount to being unconstitutional in nature and the Bill should be amended to allow civil courts to intervene on all matters of ABAI.

Conclusion

Several countries around the world have established such biosecurity systems which are similar in nature to the system proposed under the Bill, a good number of which have a national authority which regulates imports, exports, quarantine and inter-state movement of plants and animals. The Bill seeks to establish the ABAI which will serve as the national organisation for international collaboration. The Bill aims at increasing the capacity to protect human health and agricultural production and equip the country to meet India’s obligations under various conventions related to trade and sanitary agreements in food and agricultural products such as the International Plant Paris Convention.

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