27 Jun 2010

Company not established under Companies Act: Supreme Court

In a recently reported decision the Supreme Court has made an interesting observation that companies are not established under the Companies Act, 1956 and also the incorporated company does not owe its existence to the provisions of the Companies Act. The Supreme Court, examining whether a private company was covered under the provisions of the law relating to equal opportunity for persons with disabilities, observed that a company did not owe its existence to a law but was instead created by an act of parties who complied with the requirements of the Companies Act to dismiss the challenge. 

The Bench inter alia observed as under;

6. Let us examine the meaning of the crucial word ‘establishment’ used in sub-section (1) of section 47 of the Act. The definition of the word ‘establishment’ in section 2(k), when analyzed, shows that it is an exhaustive definition, and covers the following categories of employers:
(i) a corporation established by or under a Central, Provincial, or State Act;
(ii) an authority or a body owned or controlled or aided by the Government;
(iii) a local authority;
(iv) a Government company as defined in Section 617 of the Companies Act, 1956; and
(v) Departments of a Government. 
It is not in dispute that the employers in these two cases are companies incorporated under the Companies Act, 1956 which do not fall under categories (ii) to (v) specified in Section 2(k) of the Act. 
7. The employee contends that a company incorporated under the Companies Act is a Corporation falling under the first category enumerated in section 2(k), that is ‘Corporation established by or under a Central, Provincial or State Act’, on the following reasoning : that a corporation refers to a company; that Companies Act is a Central Act; and that therefore a company incorporated and registered under the Companies Act is a Corporation established under a Central Act. He contends that the use of the words “by or under” is crucial. According to him, ‘a corporation established by an Act’ would refer to a corporation brought into existence by an Act; and a ‘corporation established under an Act’ would refer to a company incorporated under the Companies Act. On the other hand, the employer contends that the term ‘Corporation established by or under a Central, Provincial or State Act’ refers to a statutory Corporation which is brought into existence by a statute, or under a statute and does not include a company which is registered under the Companies Act. It is submitted that Companies Act merely facilitates and lays down the procedure for incorporation of a company which, when incorporated, will be governed by the provisions of the said Act and therefore, a company registered under the Companies Act, is not a corporation established under an Act.
8. The words “a Corporation established by or under a Central, Provincial or State Act” is a standard term used in several enactments to denote a statutory corporation established or brought into existence by or under statute. For example, it is used in sub-clause (b) of Clause Twelfth of Section 21 of the Indian Penal Code (‘IPC’ for short) and Section 2(c)(iii) of the Prevention of Corruption Act, 1988 (‘PC Act’ for short). Both these statutes provide that a person in the service of a ‘Corporation established by or under a Central, Provincial or State Act’ is a public servant. The Prevention of Damage to Public Property Act, 1984 defines ‘public property’ as meaning any property owned by, or in the possession of, or under the control of (i) the Central Government (ii) any state government; or (iii) any local authority; or (iv) any corporation established by, or under, a Central, Provincial or State Act; or (v) any company as defined in Section 617 of the Companies Act, 1956; or (vi) any institution, concern or undertaking which the Central Government may, by notification in the Official Gazette, specify in that behalf provided that the Central Government shall not specify any institution, concern or undertaking under that sub-clause unless such institution, concern or undertaking is financed wholly or substantially by funds provided directly or indirectly by the Central Government or by one or more State Governments, or partly by the Central Government and partly by one or more State Governments. Thus the term is always used to denote certain categories of authorities which are ‘State’ as contrasted from non-statutory companies which do not fall under the ambit of ‘State’.
9. The meaning of the term came up for consideration in S. S. Dhanoa vs. Municipal Corporation, Delhi and Ors. - 1981 (3) SCC 431 with reference to section 21 of IPC. This Court held: 
“Clause Twelfth does not use the words "body corporate", and the question is whether the expression "corporation" contained therein, taken in collocation of the words "established by or under a Central, Provincial or State Act" would bring within its sweep a cooperative society. Indubitably, the Cooperative Store Limited is not a corporation established by a Central or State Act. The crux of the matter is whether the word 'under' occurring in Clause Twelfth of Section 21 of the Indian Penal Code makes a difference. Does the mere act of incorporation of a body or society under a Central or a State Act make it a corporation within the meaning of Clause Twelfth of Section 21. In our opinion, the expression 'corporation' must, in the context, mean a corporation created by the Legislature and not a body or society brought into existence by an act of a group of individuals. A cooperative society is, therefore, not a corporation established by or under an Act of the Central or State Legislature
A corporation is an artificial being created by law having a legal entity entirely separate and distinct from the individuals who compose it with the capacity of continuous existence and succession, notwithstanding changes in its membership. …….. The term 'corporation' is, therefore, wide enough to include private corporations. But, in the context of Clause Twelfth of Section 21 of the Indian Penal Code, the expression 'corporation' must be given a narrow legal connotation.
Corporation, in its widest sense, may mean any association of individuals entitled to act as an individual. But that certainly is not the sense in which it is used here. Corporation established by or under an Act of Legislature can only mean a body corporate which owes its existence, and not merely its corporate status, to the Act. For example, a Municipality, a Zilla Parishad or a Gram Panchayat owes its existence and status to an Act of Legislature. On the other hand, an association of persons constituting themselves into a Company under the Companies Act or a Society under the Societies Registration Act owes its existence not to the Act of Legislature but to acts of parties though, it may owe its status as a body corporate to an Act of Legislature. There is a distinction between a corporation established by or under an Act and a body incorporated under an Act. The distinction was brought out by this Court in Sukhdev Singh and Ors. v. Bhagatram Sardar Singh Raghuvanshi & Ors - (1975) 1 SCC 421. It was observed :
A company incorporated under the Companies Act is not created by the Companies Act but comes into existence in accordance with the provisions of the Act. There is thus a well-marked distinction between a body created by a statute and a body which, after coming into existence, is governed in accordance with the provisions of a statute.”
In Executive Committee of Vaish Degree College v. Lakshmi Narain - 1976 (2) SCC 58, this Court explained the position further: 
“In other words the position seems to be that the institution concerned must owe its very existence to a statute which would be the fountainhead of its powers. The question in such case to be asked is, if there is no statute, would the institution have any legal existence. If the answer is in the negative, then undoubtedly it is a statutory body, but if the institution has a separate existence of its own without any reference to the statute concerned but is merely governed by the statutory provisions it cannot be said to be a statutory body.”
10. A ‘company’ is not ‘established’ under the Companies Act. An incorporated company does not ‘owe’ its existence to the Companies Act. An incorporated company is formed by the act of any seven or more persons (or two or more persons for a private company) associated for any lawful purpose subscribing their names to a Memorandum of Association and by complying with the requirements of the Companies Act in respect of registration. Therefore, a ‘company’ is incorporated and registered under the Companies Act and not established under the Companies Act. Per contra, the Companies Act itself establishes the National Company Law Tribunal and National Company Law Appellate Tribunal, and those two statutory authorities owe their existence to the Companies Act.
11. Where the definition of ‘establishment’ uses the term ‘a corporation established by or under an Act’, the emphasis should be on the word ‘established’ in addition to the words ‘by or under’. The word ‘established’ refers to coming into existence by virtue of an enactment. It does not refer to a company, which, when it comes into existence, is governed in accordance with the provisions of the Companies Act. But then, what is the difference between ‘established by a central Act’ and ‘established under a central Act’? The difference is best explained by some illustrations. A corporation is established by an Act, where the Act itself establishes the corporation. For example, Section 3 of State Bank of India Act, 1955 provides that a Bank to be called the State Bank of India shall be constituted to carry on the business of banking. Section 3 of Life Insurance Corporation Act, 1956 provides that with effect from such date as the Central Government may by notification in the Official Gazette appoint, there shall be established a corporation called the Life Insurance Corporation of India. State Bank of India and Life Insurance Corporation of India are two examples of corporations established by “a Central Act”. We may next refer to the State Financial Corporation Act, 1951 which provides for establishment of various Financial Corporations under that Act. Section 3 of that Act relates to establishment of State Financial Corporations and provides that the State Government may, by notification in the Official Gazette establish a Financial Corporation for the State under such name as may be specified in the notification and such Financial Corporation shall be a body corporate by the name notified. Thus, a State Financial Corporation is established under a central Act. Therefore, when the words “by and under an Act” are preceded by the words “established”, it is clear that the reference is to a corporation established, that it is brought into existence, by an Act or under an Act. In short, the term refers to a statutory corporation as contrasted from a non-statutory corporation incorporated or registered under the Companies Act.
12. There is indication in the definition of ‘establishment’ itself, which clearly establishes that all companies incorporated under the Companies Act are not establishments. The enumeration of establishments in the definition of ‘establishment’ specifically includes “a Government Company as defined in Section 617 of the Companies Act, 1956”. This shows that the legislature, took pains to include in the definition of ‘establishment’ only one category of companies incorporated under the Companies Act, that is the ‘Government Companies’ as defined in Section 617 of the Companies Act. If, as contended by the employee, all Companies incorporated under the Companies Act are to be considered as ‘establishments’ for the purposes of Section 2(k), the definition would have simply and clearly stated that ‘a company incorporated or registered under the Companies Act, 1956’ which would have included a Government company defined under Section 617 of the Companies Act, 1956. The inclusion of only a specific category of companies incorporated under the Companies Act, 1956 within the definition of ‘establishment’ necessarily and impliedly excludes all other types of companies registered under the Companies Act, 1956, from the definition of ‘establishment’. It is clear that the legislative intent was to apply section 47 of the Act only to such establishments as were specifically defined as ‘establishment’ under section 2(k) of the Act and not to other establishments. The legislative intent was to define ‘establishment’ so as to be synonymous with the definition of ‘State’ under Article 12 of the Constitution of India. Private employers, whether individuals, partnerships, proprietary concerns or companies (other than Government companies) are clearly excluded from the ‘establishments’ to which section 47 of the Act will apply.

24 Jun 2010

Delhi, Haryana not implementing schemes for women properly: High Court

In a recent decision, Justice S. Murlidhar of Delhi High Court has declared that the administration of various scheme for the benefit of underprivileged women and children is being undertaken within Delhi and the State of Haryana in the correct perspective. The High Court concluded that the same was violation of the directions of the Supreme Court and also against the fundamental rights of the petitioners.  

The High Court was dealing with writ petitions pointing out deficiencies in the implementation of a cluster of schemes, funded by the Government of India, which are meant to reduce infant and maternal mortality namely the Janani Suraksha Yojana (JSY), the Integrated Child Development Scheme (ICDS), the National Maternity Benefit Scheme (NMBS), the Antyodaya Anna Yojana (AAY) and the National Family Benefit Scheme (NFBS). 

The High Court took note of and examined the intent behind the formulation and working of these schemes in particular which in brief can be noted as under;
  • The Janani Suraksha Yojana (JSY) is a safe motherhood intervention scheme under the National Rural Health Mission ('NRHM') implemented with the objective of reducing maternal and neo-natal mortality by promoting institutional delivery among the poor pregnant women.
  • The National Maternity Benefit Scheme (NMBS) basically talks of providing cash assistance of Rs.500 to pregnant women.
  • The objectives of the Integrated Child Development Services (ICDS) Scheme, which was launched in 1975, are: 1. to improve the nutritional and health status of children in the age-group 0-6 years; 2. to lay the foundation for proper psychological, physical and social development of the child; 3. to reduce the incidence of mortality, morbidity, malnutrition and school dropout; 4. to achieve effective co-ordination of policy and implementation amongst the various departments to promote child development; and 5. to enhance the capability of the mother to look after the normal health and nutritional needs of the child through proper nutrition and health education.
  • A central feature of the Antyodaya Anna Yojana (AAY) is the provision of rations up to 35 kgs which would include grains and nutritional supplements.
  • The National Rural Health Mission (NRHM) was launched on 12th April 2005, throughout the country, with an objective to reduce the Maternal Mortality Rate, the Infant Mortality Rate and the Total Fertility Rate.
Examining the factual scenario relating to the implementation of the schemes by the two governments and finding them short of the desired mandate, the High Court issued the following directions as corrective measures;

63. There are certain general directions which also become necessary to be issued. It is made clear that these directions are only to further effectuate the mandatory orders already issued by the Supreme Court from time to time in W.P. (C) No. 196 of 2001 relevant portions of which have already been extracted hereinbefore. These directions are necessary to ensure that the benefits under the various schemes are not denied to the beneficiaries and that assistance is provided promptly at the nearest point where it can be accessed. 
64. The health departments of the GNCTD and the State of Haryana will devise formats of registers to be maintained by Medical Officers who are supervising the work of ANMs and the ASHAs. Each ASHA will maintain a proper log of all her visits and have a checklist of the various benefits to be given in terms of the service guarantees of NRHM including ante natal care, essential and emergency obstructive services, referral services, post natal care, child health, family planning and contraception. Each of the visits by an ASHA to a woman during pregnancy and thereafter will be countersigned by an ANM and periodically at least once in 10 days be checked also by the MO. 
65. Every ASHA/ANM will report to the MO if any beneficiary is declining the assistance provided or refusing to take medicines or is reluctant to go in for institutional delivery. The MO will then either undertake a personal visit to the woman concerned or issue necessary instructions for further counseling such woman and make a special note thereof in her record. At the District level and thereafter at the State level there must be a periodical review of the performances of the ASHAs and ANMs, district wise. It must be ensured that the cash assistance under the various schemes including the JSY and NMBS is promptly provided to each beneficiary.
66. A review be undertaken of the issuance of AAY card in terms of the orders of the Supreme Court. It should be ensured that every eligible person/family/child is granted the benefit under the AAY.
67. Likewise, there should be a constant review and monitoring under the ICDS as well. This will involve setting up of the Aanganwadi Centers in terms of the directions by these two states for themselves. 
68. Ideally special cells have to be set up within the health departments of the Central and State Government for monitoring the implementation of the schemes on a regular basis. 
69. The Government of India on its part will immediately issue a corrective to the earlier instructions issued in October 2006 in relation to the JSY as well as instructions relating to the cash assistance under the NMBS so that it is not denied to any woman irrespective of the number of live births or age. There shall be strict compliance of the orders of the Supreme Court in this regard

Indian Railway Welfare Organisation covered under RTI: High Court

In a recent decision the Delhi High Court has declared that 'Indian Railway Welfare Organisation' is a public authority and thus covered within the ambit of the Right to Information Act, 2005. The Organisation had argued that it was "a society registered under the Societies Registration Act of 1860" with its principal objective being "to promote and provide dwelling units all over India to serving and retired railway personnel and their widows on a no profit no loss basis" and since it received "no grant from the Railway Board or the Central Government", it was not a public authority.

The High Court, dismissing the writ petition filed by the Organisation against the order of the Central Information Commission, inter alia observed as under;
14. As regards the control of IRWO, this Court finds that the key posts in the IRWO are held by officials of the Railway Board although in an ex officio capacity. It is not denied that the Chairman of the Railway Board is the patron of the Indian Railways and the Member(Staff), Railway Board is the Chairman of IRWO in ex officio capacity; that the Executive Directors of Establishment, Finance and Land Management are all members of the governing body; that the Managing Director of the IRWO is appointed by nomination by the Chairman, Railway Board and the Director (Technical), IRWO is by nomination by the Member (Staff) of Railway Board and is also a member of the governing body. The Director (Finance), IRWO is nominated by the Member (Staff) Railway Board. Four co-opted members are nominated/approved by the Chairman Railway Board. The IRWO Grievance Committee which is a permanent body is chaired by the Adviser, Land & Amenities, Railway Board. The above factors point to the control of the IRWO by the Ministry of Railways.
15. At this juncture it must be observed that the submission that the control has to be 'deep and pervasive' is based on the decisions rendered by the courts in the context of Article 12 of the Constitution. In the first place, the question whether IRWO is “state” is not relevant for answering the question whether it is a public authority for the purposes of the RTI Act. The definition of 'public authority' under Section 2 (1) (h) RTI Act does not talk of 'deep and pervasive' control. It is enough if it is shown that the authority is 'controlled' by the central government. The composition of the Governing Body of IRWO and the manner of appointments of key personnel of the IRWO as noticed hereinbefore bears testimony to the control that the central government through the Ministry of Railways and Railway Board has over IRWO.

23 Jun 2010

Equal pay for Equal Work: The law revisited

We have had an occasion to pen a paper on the concept and law relating to 'equal pay for equal work' as provided for under the Directive Principles of State Policy under Part IV of the Constitution of India in one of our papers on SSRN. However have gone through this recent decision we felt compelled to run this post revisited the law on the issue. In this recent decision the Supreme Court inter alia had the occasion to examine the growth and development of the law on the issue. 

The decision inter alia observes as under;

65. The Equal Remuneration Act, 1976 and in particular its preamble declares the Act to provide for payment of equal remuneration and prevention of any kind of discrimination on the ground of sex or otherwise in the matter of employment. The Equal Remuneration Act, 1976 extends to the whole of India by virtue of Section 1(2) and there cannot be different pay scales for different employees carrying out exactly same work. Section 4(3) states that “where, in an establishment or employment, the rates of remuneration payable before the commencement of this Act for men and women workers for the same work or work of a similar nature are different only on the ground of sex, then the higher (in cases where there are only two rates), or, as the case may be, the highest (in cases where there are more than two rates), of such rates shall be the rate at which remuneration shall be payable, on and from such commencement, to such men and women workers.” 
66. In view of the above constitutional principles and Directive Principles of State Policy under the Constitution and the statutory and mandatory provisions of overriding Equal Remuneration Act, 1976, the following principles are evolved for fixing the governmental pay policy, whether executive or legislative on the recommendation of the Pay Commissions, Pay Committees by Executive Governments, which are broadly stated as under:-
(1) The governmental pay policy, whether executive or legislative, cannot run contrary to constitutional principles of constitutional law;
(2) The governmental pay policy, whether executive or legislative, cannot run contrary to the overriding provisions of Equal Remuneration Act, 1976.
xxx xxx xxx
(12) The governmental pay policy must conform to the overriding statutory command under Sections 13 and 14 read with Section 1(2) of the Equal Remuneration Act, 1976, which supports for uniformity between the pay policy of the State Governments and the Central Government in the whole of India and such uniformity in the pay policy of the State Governments and the Central Government in the whole of India has already found further support from the Judgment of this Court in the case of Randhir Singh v. Union of India & Others (1982) 1 SCC 618. I must hasten to say that where all things are equal that is, where all relevant considerations are same, persons holding identical posts may not be treated differentially of their pay.
67. As early as in 1952, in a celebrated case decided by this court in State of West Bengal v. Anwar Ali Sarkar v. (1952) SCR 284, this court laid down that in order to pass the test, two conditions must be fulfilled, namely, that the classification must be founded on an intelligible differentia which distinguishes those that are grouped together from others and that said differentia must have a rational relation to the object sought to be achieved by the Act. The differentia which is the basis of the classification and the object of the Act are distinct things and what is necessary is that there must be a nexus between them. 
68. In 1959, in a celebrated case of Shri Ram Krishna Dalmia v. Shri Justice S. R. Tendolkar & Others (1959) 1 SCR 279 at p.296, this Court observed as under:
“………It is now well established that while article 14 forbids class legislation, it does not forbid reasonable classification for the purposes of legislation. In order, however, to pass the test of permissible classification two conditions must be fulfilled, namely, (i) that the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group and, (ii) that differentia must have a rational relation to the object sought to be achieved by the statute in question………”
69. In The State of Jammu & Kashmir v. Triloki Nath Khosa and Ors. (1974) 1 SCC 19, this court observed as under:-
“……..Discrimination is the essence of classification and does violence to the constitutional guarantee of equality only if it rests on an unreasonable basis…...”
70. In Indira Nehru Gandhi (supra), the court observed as under:-
“This Court, at least since the days of Anwar Ali Sarkar's case, has consistently taken the view that the classification must be founded on an intelligible differentia which distinguishes those who are grouped together from those who are left out and that the differentia must have a rational relation to the object sought to be achieved by the particular law. The first test may be assumed to be satisfied since there is no gainsaying that in our system of Government, the Prime Minister occupies a unique position. But what is the nexus of that uniqueness with the law which provides that the election of the Prime Minister and the Speaker to the Parliament will be above all laws, that the election will be governed by no norms or standards applicable to all others who contest that election and that a election declared to be void by a High Court judgment shall be deemed to be valid, the judgment and its findings being themselves required to be deemed to be void? Such is not the doctrine of classification and no facet of that doctrine can support the favoured treatment accorded by the 39th Amendment to two high personages. It is the common man's sense of justice which sustains democracies and there is a fear that the 39th Amendment, by its impugned part, may outrage that sense of justice. Different rules may apply to different conditions and classes of men and even a single individual may, by his uniqueness, form a class by himself. But in the absence of a differentia reasonably related to the object of the law, justice must be administered with an even hand to all.
71. In Maneka Gandhi v. Union of India & Anr. (1978) 1 SCC 248 it was observed as follows:
“….Equality is a dynamic concept with many aspects and dimensions and it cannot be imprisoned within traditional and doctrinaire limits…. Article 14 strikes at arbitrariness in state action and ensures fairness and quality of treatment. The principle of reasonableness, which legally as well as philosophically, is an essential element of equality or non-arbitrariness pervades Article 14 like a brooding omnipresence.”
72. In Randhir Singh (supra), it was held as under:
“8. ……..Article 39(d) of the Constitution proclaims “equal pay for equal work for both men and women” as a directive principle of State Policy. “Equal pay for equal work for both men and women” means equal pay for equal work for everyone and as between the sexes. Directive principles, as has been pointed out in some of the judgments of this Court have to be read into the fundamental rights as a matter of interpretation. Article 14 of the Constitution enjoins the State not to deny any person equality before the law or the equal protection of the laws and Article 16 declares that there shall be equality of opportunity for all citizens in matters relating to employment or appointment to any office under the State………Construing Articles 14 and 16 in the light of the Preamble and Article 39(d) we are of the view that the principle 'Equal pay for Equal work' is 'deducible from those Article and may be properly applied to cases of unequal scales of pay based on no classification or irrational classification though these drawing the different scales of pay do identical work under the same employer.”
73. In Surinder Singh & Anr. v. Engineer-in-Chief, CPWD & Others (1986) 1 SCC 639 it was observed that the Central Government like all organs of State is committed to the Directive Principles of State Policy and Article 39 enshrines the principle of equal pay for equal work. 
74. In Mackinnon Mackenzie & Co. Ltd. v. Audrey D’ Costa & Another (1987) 2 SCC 469 it was observed that the term “same work” or “work of similar nature” under Section 2(h) of the Act that “whether a particular work is same or similar in nature as another work can be determined on the three considerations. In deciding whether the work is same or broadly similar, the authority should take broad view; next in ascertaining whether any differences are of practical importance, the authority should take an equally broad approach for the very concept of similar work implies differences in detail, but these should not defeat a claim for equality on trivial grounds. It should look at the duties actually performed, not those theoretically possible. In making comparison the authority should look at the duties generally performed by men and women.” 
75. In Bhagwan Dass & Others v. State of Haryana & Others (1987) 4 SCC 634 this court held that the mode of selection and period of appointment is irrelevant and immaterial for the applicability of equal pay for equal work once it is shown that the nature of duties and functions discharged and work done is similar. 
76. In Inder Singh & Others v. Vyas Muni Mishra & Others 1987 (Supp) SCC 257 this court also held the view that when two groups of persons are in the same or similar posts performing same kind of work, either in the same or in the different departments, the court may in suitable cases, direct equal pay by way of removing unreasonable discrimination and treating the two groups, similarly situated, equally.
77. In Haryana State Adhyapak Sangh & Others v. State of Haryana & Ors. (1988) 4 SCC 571 this court enforced the principle of equal pay for equal work for Aided School teachers at par with government school teachers and held that the teachers of Aided Schools must be paid same pay scale and dearness allowance as teachers of the government schools.
78. In U.P. Rajya Sahakari Bhoomi Vikas Bank Ltd. v. Workmen 1989 Supp (2) SCC 424, this court observed as under:-
“The Tribunal’s finding that both the groups were doing the same type of work has rightly not been challenged by the employer Bank as it is a pure finding of fact. If irrespective of classification of junior and senior groups, the same work was done by both, the principle of equal pay for equal work is definitely attracted and on the finding of fact the Tribunal was justified in applying the principle to give the same benefit to those who had been left out.”
79. In the case of Sita Devi & Others v. State of Haryana & Others (1996) 10 SCC 1 this court held: “The doctrine of “equal pay for equal work” is recognized by this Court as a facet of the equality clause contained in Article 14 of the Constitution.”
80. In Sube Singh & Ors. v. State of Haryana & Ors. (2001) 7 SCC 545 (para 10), this court observed as under:- 
“….whether the classification is reasonable having an intelligible differentia and a rational basis germane to the purpose, the classification has to be held arbitrary and discriminatory”.
81. In John Vallamattom & Another v. Union of India (2003) 6 SCC 611, the constitutionality of Section 118 of the Indian Succession Act, 1925 was challenged. Section 118 was declared unconstitutional and violative of Article 14 of the Constitution. In that case, this court observed thus:- 
“Although Indian Christians form a class by themselves but there is no justifiable reason to hold that the classification made is either based on intelligible differentia or the same has any nexus with the object sought to be achieved. The underlying purpose of the impugned provision having adequately been taken care of by Section 51, the purport and object of that provision must be held to be non-existent.” 
82. In State of Mizoram & Another. v. Mizoram Engineering Service Association & Another (2004) 6 SCC 218 while dealing with case of this nature, this court observed as under:-
“The fact that the revised pay scale was being allowed to Mr Robula in tune with the recommendations of the Fourth Central Pay Commission, shows that the State Government had duly accepted the recommendations of the Fourth Central Pay Commission. Having done so, it cannot be permitted to discriminate between individuals and not allow the same to the rest.”
In this case, this Court clearly stated that the State cannot be permitted to discriminate similarly placed persons. 
83. This court in Union of India v. Dineshan K.K. (2008) 1 SCC 586 at page 591 (para 12) observed as under:- 
“The principle of “equal pay for equal work” has been considered, explained and applied in a catena of decisions of this Court. The doctrine of “equal pay for equal work” was originally propounded as part of the directive principles of the State policy in Article 39(d) of the Constitution. In Randhir Singh v. Union of India a Bench of three learned Judges of this Court had observed that principle of equal pay for equal work is not a mere demagogic slogan but a constitutional goal, capable of being attained through constitutional remedies and held that this principle had to be read under Articles 14 and 16 of the Constitution. This decision was affirmed by a Constitution Bench of this Court in D.S. Nakara v. Union of India. Thus, having regard to the constitutional mandate of equality and inhibition against discrimination in Articles 14 and 16, in service jurisprudence, the doctrine of “equal pay for equal work” has assumed status of a fundamental right.” 
84. The principle underlying the guarantee of Article 14 is not that the same rules of law should be applicable to all persons within the Indian territory or that the same remedies should be made available to them irrespective of differences of circumstances. It only means that all persons similarly circumstanced shall be treated alike both in privileges conferred and liabilities imposed.
85. The law can make and set apart the classes according to the needs and exigencies of the society and as suggested by experience. It can recognize even degree of evil, but the classification should never be arbitrary, artificial or evasive.
86. The classification must not be arbitrary but must be rational, that is to say, it should be based on some qualities or characteristics which are to be found in all the persons grouped together and not in others who are left out but those qualities or characteristics must have a reasonable relation to the object of the legislation. In order to pass the test, two conditions must be fulfilled, namely, (1) that the classification must be founded on an intelligible differentia which distinguishes those that are grouped together from others and (2) that differentia must have a rational relation to the object sought to be achieved by the Act.

22 Jun 2010

ULIP Ordinance: The legal dimensions analysed

We had promised our readers in our last update that we would be penning our thoughts on the legal dimensions of the ULIP ordinance as soon as we got our hands on it. Now that we have with us the legal text of the Securities and Insurance Laws (Amendment and Validation) Ordinance, 2010 promulgated by the President of India, furthering the quest of analyzing the legal perspectives as we always do on this blog, we carry forward that task on the the Ordinance No. 3 of 2010. In as much as on this blog we had analysed extensive the origin and the issued involved in the tussle between SEBI and IRDA on ULIPS in our earlier post we would desist from undertaking the exercise again except as and when required when we specifically cover that in this post.  

Ordinances understood

First and foremost, for the benefit of our readers, 'what is an Ordinance'. Legally speaking, in terms of Article 79 of the Constitution, the Parliament comprises of not just the two Houses (i.e. the Council of States or the Rajya Sabha and the House of People or the Lok Sabha) but also the President of India. These three institutions are the legislative organ of the Union. Thus the responsibilities of legislating for the country lies with these three collectively. Ordinarily it is the two houses which take up this task in as much as bills are presented before them, discussed/debate, voted and approved and upon the assent of the President, these bills become enactments or the law. However this does not imply that the President is devoid of such legislative powers. 

In order to deal with contingencies which arises in the event when the Houses of Parliament are not in session and the situation requires for a Parliamentary law, the Constitution confers power on the President to act on his own volition where in terms of Article 123 of the Constitution the President can promulgate an Ordinance. The Constitutional provision stipulates that "if at any time, except when both Houses of Parliament are in session, the President is satisfied that circumstances exist which render it necessary for him to take immediate action, he may promulgate such Ordinances as the circumstances may appear to him to require". Thus the absolute prerogative vests with the President in this regard. There are, however, two notes points to be covered in this regard.

First, the President performs a different role when issuing an ordinance than in the capacity of giving assent to this bill. While the satisfaction of the President to give assent to the bills presented to him after due passage by the Parliament is the personal satisfaction of the President, the role is different in regard to promulgation of Ordinance. The President while issuing an Ordinance is bound by the advice of the Cabinet led by the Prime Minister in this regard. We have already examined the law in regard to the President being bound by the advice of the Council of Ministers in our earlier post and therefore will abstain from speaking more on this.

Second, the power of promulgation of Ordinance, as held by the Supreme Court, while is an extraordinary power vested with the President, nonetheless is not beyond the purview of judicial review and the Constitutional Bench of the Supreme Court in A.K. Roy v. Union of India [AIR 1982 SC 710] declares that the judiciary can scrutinize the validity of the Ordinance issuing process. 

Having noted this, it is also important to remember that the life of an Ordinance can at the maximum be six weeks after the Parliament is in session. Therefore the Ordinance must be followed by a bill and enacted into an Act within six weeks of the re-sitting of the Parliament after the issuance of the Ordinance. If the Government fails to ensure the same, the Ordinance lapses. With this background now let us examine in greater detail the impact of the recent Ordinance.

Understanding the Ordinance dated 18.06.2010

A whole-time member of SEBI had issued an Order on 9th April, 2010 concluding that Unit-Linked-Insurance-Products (ULIPs) "offered by the said entities are a combination of investment and insurance and, therefore, the investment components are in the nature of mutual funds which can only be offered/launched after obtaining registration from SEBI". For this reason, and the companies having issued ULIPs without registration with SEBI, directed those companies "not to issue any offer document, advertisement, brochure soliciting money from investors or raise money from investors by way of new and/or additional subscription for any product (including ULIPs) having an investment component in the nature of mutual funds, till they obtain the requisite certificate of registration from SEBI". The order was made in terms of the SEBI Act, 1992 whereunder the SEBI Member was of the view that he had the jurisdiction to decide so despite the objections of IRDA to this regard. This is the very first issue sought to be addressed by the Ordinance. 

This issue, however is not a simple one. First the respective powers and jurisdictions of the various market regulators involved required to be defined and that too in a manner that their jurisdiction is defined exclusive to each other, otherwise the issue of the same subject-matter being sought to be regulated by the two or more regulators would arise again. In this regard the Ordinance seems to have introduced a new feature namely the "Joint Mechanism" wherein under the issues relating to the jurisdiction between the regulators, being not just SEBI and IRDA but also including RBI, PFRDA, such issues are (instead of each regulator taking action in exercise of its powers) to be raised and reconciled by the Joint Committee which shall comprise of the Minister of Finance, Government of India and Secretary to his Ministry besides the Chairman of the respective regulatory bodies. Thus the jurisdictional issues shall now be addressed at an administrative level rather than through the exercise of quasi-judicial powers. 

In this context it is crucial to note that the Ordinance provides that "the decision of the Joint Committee shall be binding on the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority and the Pension Fund Regulatory and Development Authority". Thus the decision of an administrative body has been given statutory force. In as much as this provision is being inserted into an existing law (namely the RBI Act) and also that it has been clothed in a non-obstante clause, it shall override any other contrary provision under any other law, it would now not be open to the regulators to go ahead and act contrary to the Ministry's instructions. Thus its not just for SEBI or IRDA but the Government has gone ahead to ensure that no such jurisdictional tussles do not take place in full public view in future.

The second and more immediate change made in the Ordinance is the extension of the jurisdiction of IRDA as contrary to what was sought to be argued by SEBI as falling within its own ambit. Even earlier there was no doubt that the jurisdiction in respect of 'life insurance' products was exclusive to IRDA. Now the definition of 'life insurance products' has been extended to  "include any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides a component of investment and a component of insurance issued by an insurer" while simultaneously excluding them from within the definition of 'securities' such that SEBI shall not be able to bring them within its fold. 

On another interesting note, the Ordinance has been backdated i.e. even though it has received the Presidential assent on 18th June, 2010, retrospective effect has been given to the Ordinance from 9th April, 2010 which significantly is the same date on which the SEBI passed the critical order. Further, in order to wriggle out the insurance companies from the order of SEBI, the validation provision in Section 6 of the Ordinance overcomes the SEBI order by declaring that the "any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, issued or purported to have been issued at any time before the 9th day of April, 2010, shall be deemed and always deemed to have been validly issued and shall not be called in question in any court of law or other authority solely on the ground that it was issued without a certificate of registration under any law for the time being in force or without following any procedure under any law for the time being in force, by an insurer or any other person". 

Having understood the Ordinance, let us now examine the validity of the Ordinance.

Examining the validity of the Ordinance

Having had a look at the Ordinance, one must say that it is indeed an almost flawless piece of legislation in as much as it leaves little scope for challenge. By amending the provisions of the law under which the respective regulators have been established and by clothing the Joint Committee as a statutory body, its institution can hardly be challenged as being contrary to the statutory provisions of other laws or seeking to undermine the laws in force in India. By the amendment carried out by this Ordinance, the Joint Committee and the Joint Mechanism have come on equal footing as any of the regulators and given the provision of its decision being binding on all regulators, the decision of the Joint Committee are legally binding on all regulators. Its decisions would undoubtedly still be within the purview of judicial review (in terms of the constitutional powers vested in the High Courts and the Supreme Court) but then the grounds of challenge being very limited therein, the Joint Mechanism feature seems to be an efficient and legally sustainable mechanism for resolution of jurisdictional issues between the regulators. 

As far as the need for issuance of Ordinance is concerned, the scope of judicial review is already very limited. Nonetheless given the fact that crores of rupees of the innocent investors was at stake, the market was behaving erratically given the contradictory orders being passed by two regulators and the fact that each day of business loss is not only costing the insurance companies in the lime-lights but also the investors and more importantly the Government's business, one can only call the decision behind issuance of Ordinance as prudent such that an appropriate law can be enacted by the Parliament thus giving permanence to the provisions sought to be introduced by the Parliament. 

An effective restraint on the power of the President to issue the Ordinance is that the subject-matter on which the Ordinance has been passed must be one on which the Parliament can make laws. This takes us to the Schedule VII of the Constitution which delineates the power between the Parliament and State Legislatures. A bare perusal of the three lists in the said Schedule would quickly reveal that the Parliament indeed has the power to make laws on the issue in as much as legislative subjects such as 'banking', 'insurance', 'stock exchanges and futures markets', 'reserve bank of India' vest with the Parliament, which in any case is entrusted with the legislative function in respect of all residuary subjects as well. 

As far as the backdating of the Ordinance is concerned, it is well settled in the Indian jurisprudence that if a legislative body has the power to make law, it has the power to make law with retrospective effect. Thus if the Ordinance is successfully defended as being within the realm of the powers vested in the Parliament and thus exercisable by the President, the challenge to the Ordinance only on the ground of backdating would not be able to further the cause of the challenge. 

In as much as legislative overruling of the SEBI order is concerned, the law in regard to the validity of 'validation statutes' states that if the law-makers change the very basis on which the decision had been rendered, then the overruling of the judicial dictum and subsequent validation of the new law is permissible. Through such means the law-makers can not only validate an action contrary to an order of a quasi-judicial body but also overturn the decision of the Supreme Court and the Indian constitutional jurisprudence is replete with such instances. Thus the only aspect to be examined is whether the very basis on which the SEBI passed the order in eroded away or not. The answer to this is clear. 

The whole-time member of SEBI took into account the provisions of the SEBI Act, Securities Contract Regulation Act and the IRDA Act, all three of which stand amended to the effect that ULIPs and other similar insurance products are not covered within the definition of 'securities' but are instead a part and parcel of 'life insurance' products, then deleting the very basis on which the SEBI order was passed. Further the aspect of having given retrospective operation to the Ordinance implies that legally it would be presumed that the amended provisions as introduced by the Ordinance were in place at all times and thus the very basis (i.e. the statutory provisions) which were examined by the SEBI to find giving jurisdiction to SEBI over ULIPs never existed and thus the SEBI order is now without legal basis looking elsewhere for its sustainence. 

As far as the propriety of the Governmental action in issuing the Ordinance, considering the matter was sub-judice and that the Government had already filed its affidavit before the Supreme Court, again that is a ground on which we as commentators are not in a position to reflect but it is the Court itself which can take a view on the propriety. Technically speaking, sub-judice or not, the power to legislative cannot be curbed for any reason. Such incidents are again frequent in Indian legal diaspora and very rarely such instances have been called into question on such ground of propriety. Further, in as much as the courts are equipped to take judicial notice of facts subsequent to the origin of the litigation, the Supreme Court may well decline to exercise its jurisdiction of going into the merits of the matter in the wake of the Ordinance for it is equally well settled that the Courts in India do not decide over matters which have been rendered academic.

We may also leave it to our readers and lawyers who make like to take up this matter that it may well be a case that the amendment called into question may be challenged on the ground that the definition of 'life insurance' products, as amended by the Ordinance, does not quiet fit well with the introduction of ULIPs into the definition. However how and with what effectiveness such a ground may be sustained is for experts in Insurance to bring out the incompatibility and press thereon.  

However, in as much as the effect of SEBI order is in question, the law to this regard is well settled. We already wrote about it earlier and would be pleased to reiterate that any order, howsoever illegal, incorrect or without jurisdiction would be alive and kicking unless set aside in a matter known to law. Thus it would require a pronouncement from a competent court setting aside the SEBI order and unless such happens, the order would be legally binding. It is a different matter, however, that given the factual aspect relating to the introduction of the Ordinance and the legal aspect of the changes brought therein, very less remains to be said and done in compliance with the said order except wait for a formal pronouncement to that effect, in the wake of the Ordinance. 

We are slightly disappointed in which the issue has been given a burial in as much as we had been expecting fire-works in the Supreme Court when this matter was being argued. But better have a simpler solution rather than prolong the agony of the innocent investors. We will, as usual, in any case keep our readers posted of the subsequent developments. It would also be worthwhile to note that how quickly Parliament adopts the Ordinance for one may recall that it is only six weeks that the Ordinance has got to be approved for fade away into oblivion.

Inquiry necessary before termination of service: High Court

Deciding against a prominent newspaper and in favour of the employee whose services had been terminated without service of notice and conduct of inquiry for alleged misconduct, the Delhi High Court in a recent decision stated that conduct of inquiry was essential before an employee's services could be terminated on grounds of misconduct. The case of the employee in this case had been that he was on leave for family reasons and could not attend the work thereafter in view of medical reasons and even before he could join after recovery his services had been terminated. The High Court ruled in his favour directing the employer to reinstate the employee with back-wages and dismissed its petition with costs. 

The High Court inter alia observed as under;

10. I find the Division Bench of this Court in Shakuntala’s Export House (P) Ltd Vs. Secretary (Labour) MANU/DE/0541/2005 to have held that abandonment amounts to misconduct which requires proper inquiry. The judgment of the Single Judge of this Court upheld by the Division Bench is reported as 117 (2005) DLT 479. To the same effect is another judgment of this Court in MCD Vs. Begh Raj 117(2005) DLT 438 laying down that if the workman had abandoned employment, that would be a ground for holding an enquiry and passing an appropriate order and that having not been done, the action of MCD could not have been sustained. The Supreme Court also in D.K. Yadav Vs J.M.A. Industries Ltd (1993) 3 SCC 259 has held that even where the standing orders of the employer provide for dismissing the workman from service for unexplained absence, the same has to be read with the principles of natural justice and without conducting domestic inquiry and without giving an opportunity of being heard, termination of service on the said ground cannot be effected. The same view was reiterated in Lakshmi Precision Screws Ltd. Vs. Ram Bahagat AIR 2002 SC 2914 (in this judgment Sakattar Singh mentioned below was distinguished). Recently, in V.C. Banaras Hindu University Vs. Shrikant AIR 2006 SC 2304 it was held that although laying down a provision providing for deemed abandonment from service may be permissible in law, it is not disputed that that an action taken thereunder must be fair and reasonable so as to satisfy the requirements of Article 14 of Constitution of India; if the action is found to be illogical in nature, the same cannot be sustained. I may however notice that in Punjab & Sind Bank Vs. Sakattar Singh MANU/SC/0733/2000 it was held that no inquiry may be conducted where the standing orders of the Bank provided a procedure for treating such absentee employee to have deemed to have voluntarily retired after a particular period of unauthorized absence. To the same effect is the recent dicta in The Regional Manager, Central Bank of India Vs. Vijay Krishna Neema AIR 2009 SC 2200. However, the Standing Orders of the Banks/ Bipartite Agreement between the Banks and their employees provide for a procedure for deeming an absenting employee to have voluntarily retired and which procedure inter alia entails issuance of notice and giving opportunity to show cause to the absenting employee and hence comply with the requirement of natural justice. The Standing Orders relied on by the petitioner neither provide for any such procedure nor has any such procedure been complied with. 
14. It would thus be clear that the counsel for the petitioner has not been able to make any dent on the legal position aforesaid qua abandonment. Clause 9 (3) of the Model Standing Orders relied by the petitioner and as set out in the writ petition is as under:
“If the workman remains absent beyond the period of leave originally granted or subsequently extended, he shall loose his lien on his appointment unless he (a) returns within 8 days of the expiry of the leave and (b) and explains to the satisfaction of the [employer or the officer specified in this behalf by the employer] his inability to return before the expiry of his leave.”
I find that the Division Bench of the Bombay High Court in Rambhuwal Thakar Prasad Vs. Phoenix Mills MANU/MH/0059/1974 has interpreted standing order in identical term as requiring that before effect is given to the inference of relinquishment of service, an opportunity is to be given to the employee to offer an explanation and only if the said explanation is not found satisfactory by the management, is the employee to be deemed to have terminated his contract of service. Another Single Judge of the Bombay High Court in Infomedia India Ltd. Vs. Suhas Shripad Gadre MANU/MH/0480/2006 has on review of case law and in relation to newspaper establishment held that the contention of automatic loss of lien upon the failure of the employee to report for work within a period of eight days of expiry of leave cannot be accepted and that before the employer seeks to take action for asserting that consequence, there has to be due compliance of principles of natural justice, not necessarily a full fledged departmental enquiry but an opportunity to enable an employee to furnish any explanation he may have explaining his absence without leave. No such opportunity has been given in the present case.
15. The award thus insofar as holding that the respondent no.1 had not abandoned his employment and / or that the termination of service by the petitioner on the ground of abandonment without conducting any enquiry is bad does not call for any interference.

20 Jun 2010

Schizophrenia and the law relating to Insanity

In a recently reported decision the Delhi High Court has revisited the law relating to the defense of insanity under criminal law and the status of a schizophrenic patient in this regard. Referring to the time-tested McNaughten test (as propounded by the House of Lords in R. v. Daniel Mc Naughten) on the law of insanity and the medico-legal position of a person suffering from schizophrenic, a Division Bench of the High Court declared that it was essential for the accused to have been suffering from insanity at the time when crime was committed and a general averment as to the patient being insane was not sufficient. 

The Division Bench of the High Court examined the position of law in the following terms;

26. We are noticing that whenever a defence of insanity is set up, members of the legal fraternity remain satisfied by attempting to prove that the accused was schizophrenic. Is that enough?
27. The defence of insanity is recognized in India by virtue of Section 84 of the Indian Penal Code which reads as under:-
“Sec.84: Nothing is an offence which is done by a person who at the time of doing it, by reason of unsoundness of mind, is incapable of knowing the nature of the act, or that he is doing what is either wrong or contrary to law.”
28. A bare reading of Section 84 IPC reveals that the mental status of the accused has to be considered at the time of the doing of the act complained of. Thus, it would be useless evidence to simply prove that the accused suffered from schizophrenia or any other psychiatric or psychological disorder.
29. The second facet which emerges from a bare reading of Section 84 IPC is the proof of the fact that by reason of unsoundness of mind, at the time of commission of the offending act, the offender was either incapable of knowing the nature of the act or was incapable of knowing that what he is doing is wrong or contrary to law.
30. It is apparent that there is a distinction between medical insanity and legal insanity. From a doctor‟s point of view a patient of schizophrenia would be treated as a mentally sick person. But for the purposes of Section 84 IPC such a person would escape being classified as a normal person and to be treated insane vis-à-vis the offence only on proof of the cognitive faculties being impaired at the relevant time i.e. at the time the crime was committed.
31. Now, cognitive faculties can be impaired due to a psychological reason or an imbalance directly affecting the brain. In the latter situation would be idiots and lunatics. If proved to be an idiot or a lunatic, where the disability of the brain is permanent, no further proof of the mental condition at the relevant time would be needed to discharge the onus which law places on the defence i.e. it is for the defence to prove the plea of insanity, for the reason an idiot or a lunatic is permanently mentally disabled and 24 hours a day, for the entire 365 days of the year would not be in a position to know the nature of his act as also the quality thereof.
32. The problem arises where insanity is taken up as a defence and sought to be proved not with reference to the accused being a lunatic or an idiot but suffering from a psychiatric or a psychological disability.
33. To put it in laymen's language, idiocy and/or lunacy may be called permanent insanity and a psychiatric or psychological disability which may be called temporary insanity.
34. Historical evolution of the law pertaining to the defence of insanity at a criminal trial is usually traced by the legal fraternity to the celebrated decision reported as 1843 Revised Reports, Vol.59: 8ER 718 (HL) R vs. Daniel Mc Naughten. The defence of insanity in said case was set up on the evidence that the accused suffered from an insane delusion that the Prime Minister Sir Robert Peel had injured him. Mistaking the deceased for Sir Robert Peel, the accused killed him by shooting him. The jury returned the verdict of not guilty on the ground of insanity. The question of law pertaining to insanity was referred to the House of Lords. Five questions were posed to the House of Lords, as enunciated below:-
1. What is the law respecting alleged crimes committed by persons afflicted with insane delusion, in respect of one or more particular subjects or persons: as, for instance, where at the time of the commission of the alleged crime, the accused knew he was acting contrary to law, but did the act complained of with a view, under the influence of insane delusion, of redressing or revenging some supposed grievance or injury, or of producing some supposed public benefit?
2. What are the proper questions to be submitted to the jury, when a person alleged to be afflicted with insane delusion respecting one or more particular subjects or persons, is charged with the commission of a crime (murder, for example), and insanity is set up as a defence?
3. In what terms ought the question. to be left to the jury, as to the prisoner's state of mind at the time when the act was committed?
4. If a person under an insane delusion, as to existing facts, commits an offence in consequence thereof, is he thereby excused?
5. Can a medical man conversant with the disease of insanity, who never saw the prisoner previously to the trial, but who was present during the whole trial and the examination of all the witnesses, be asked his opinion as to the state of the prisoner's mind at the time of the commission of the alleged crime, or his opinion whether the prisoner was conscious at the time of doing the act, that he was acting. contrary to law, or whether he was labouring under any and what delusion at the time
35. Lord Chief Justice Tindal expressed opinion upon the above said terms of reference as follows:-
Opinion upon Question 1 “..In answer to which question, assuming that your Lordships' inquiries are confined to those persons who, labour under such partial delusions only, and are not in other respects insane, we are of opinion that, notwithstanding the party accused did the act complained of with a view, under the influence of insane delusion, of redressing or revenging some supposed grievance or injury, or of producing some public benefit, he is nevertheless punishable according to the nature of the crime committed, if he knew at the time of committing such crime that he was acting contrary to law; by which expression we understand your Lordships to mean the law of the land.…”

Opinion upon Question 2 and 3 "…These two questions appear to us to be more conveniently answered together, we have to submit our opinion to be, that the jurors ought to be told in all cases that every man is to be presumed to be sane, and to possess a sufficient degree of reason to be responsible for his crimes,until the contrary be proved to their satisfaction; and that to establish a defence on the ground of insanity, it must be clearly proved that, at the time of the committing of the act, the party accused was labouring under such a defect of reason, from disease of the mind, as not to know the nature and quality of the act he was doing; or, if he did know it, that he did not know he was doing what was wrong. The mode of putting the latter part of the question to the jury on these occasions has generally been, whether the accused at the time of doing the act knew the difference between, right and wrong: which mode, though rarely; if ever, leading to any mistake with the jury, is not, as we conceive, so accurate when put. generally and in the abstract, as when put with reference to the party's knowledge of right and wrong in respect to the very act with which he is charged. If the question were to be put as to the knowledge of the accused solely and exclusively with reference to the law of the land, it might tend to confound the jury, by inducing them to believe that an actual knowledge of the law of the land was essential in order to lead to a conviction; whereas the law is administered upon the principle that every one must be taken conclusively to know it, without proof that he does know it. If the accused was conscious that the act was one which he ought not to do, and if that act was at the same time contrary to the law of the land, he is punishable; and the usual course therefore has been to leave the question to the jury, whether the party accused had a sufficient degree of reason to know that he was doing an act that was wrong: and this course we think is correct, accompanied with such observations and explanations as the circumstances of each particular case may require.…”

Opinion on Question 4 "...The answer must of course depend on the nature of the delusion: but, making the same assumption as we did before, namely, that he labours under such partial delusion only, and is not in other respects insane, we think he must be considered in the same situation as to responsibility as if the facts with respect to which the delusion exists were real. For example, if under the influence of his delusion he supposes another man to be in the act of attempting to take away his life, and he kills that man, as he supposes, in self-defence, he would be exempt from punishment. If his delusion was that the deceased had inflicted a serious injury to his character and fortune, and he killed him in revenge for such supposed injury, he would be liable to punishment…” Opinion on Question5 “..In answer thereto, we state to your Lordships, that we think the medical man, under the circumstances supposed, cannot in strictness be asked his opinion in the terms above stated, because each of those questions involves the determination of the truth of the facts deposed to, which it is for the jury to decide, and the questions are not mere questions upon a matter of science, in which case such evidence is admissible. But where the facts are admitted or not disputed, and the question becomes substantially one of science only, it may be convenient to allow the question to be put in that general form, though the same cannot be insisted on as a matter of right…”
36. The law afore-noted has come to be known as the McNaughten's Principles. Pithily stated, a person laboring under a delusion or a psychological or a psychiatric ailment would not be entitled to be acquitted on the ground of insanity unless it is established that at the time when the crime was committed he was suffering the delusion, psychological or psychiatric condition and was incapable of knowing the nature of his act or that he was not knowing that what he was doing was wrong or contrary to law.
37. In this connection uncontrollable or irresistible impulses have to be factored and distinction drawn with precision for the reason a person acting under an uncontrollable or irresistible impulse would not be entitled to the defence of insanity.
38. It would be virtually impossible to lead direct evidence of what was the exact mental condition of the accused at the time of the commission of the crime. Thus, law permits evidence to be led where from the trier of the facts can form an opinion regarding the mental status of the accused at the time when the crime was committed. Thus, evidence which can be led can be characterized as of „inferential insanity‟. This evidence, common sense tells us would be the immediately preceding and immediately succeeding conduct of the accused as also the contemporaneous conduct of the accused.
39. Thus, with reference to the past medical evidence or the medical history of the accused as the backdrop, the duty of the Court is to evaluate the conduct of the accused before, at the time of and soon after the crime and then return a finding of fact, whether the accused was of such unsound mind that by reason of unsoundness he was incapable of knowing the nature of the act done or incapable of knowing that the act was wrong or contrary to law.
40. Under Section 45 of the Evidence Act an opinion of an expert on a matter of science, technical or special knowledge is admissible evidence to guide the trier of the fact to understand the scientifically recognized principles with reference whereto a question of fact has to be determined. Thus, where a plea of insanity has been set up as a defence, the trier of the facts may seek the assistance of an expert but the decision cannot be delegated to the expert and has to be by the trier of the facts i.e. the Court.
41. In England the general practice adopted is to examine an expert after appraising the expert the conduct of the accused, before, at the time of or soon after the crime was committed as spoken of by the witnesses and elicit the expert opinion of the medical expert who should be required to clearly bring out the principles applied by him on basis whereof the opinion has been rendered as also to establish that the said principles have been recognized by the experts in the field. Thereafter, it is the duty of the trier of the fact to return a finding of fact pertaining to the consciousness of the accused of the bearing of the act of the accused on those affected by it.
42. Many a times if the crime is committed without a motive and in a grotesque manner, at the first blush, without applying the mind, one tends to rush to the conclusion that no sane person could do the act and hence a post haste conclusion is arrived at that the act has to be of an insane person. This is not the approach warranted in law.
43. Pertaining to motive or the lack thereof as quoted in a passage appearing at page 22 of Vol.9 of Halsbury's Laws of England, 2nd Edn.
The mere fact that an act or omission is without apparent motive is not by itself sufficient to establish insanity. But if there is other evidence of insanity, such a fact may be of importance as helping to prove insanity.
44. Thus, absence of motive in the commission of a crime is merely one out of the many factors to be taken note of while returning an opinion.
45. In the decisions reported as AIR 1964 SC 1563 Dahyabhai Chagganbhai Thakker vs. State of Gujarat and AIR 1972 SC 2443 Sheralli W. Mohammed vs. State of Maharashtra, merely because of the grotesque and diabolical nature of the crime it could not be inferred that the accused was insane; there being no other evidence of insanity for the reason there are hundreds and thousands of reasons why people do things which they ought not to do.
46. Thus, a fair trial would require that if there is available proof before the Judge that the accused was suffering from a psychiatric or psychological disorder i.e. there was a history of insanity, it is the duty of the Court to require the investigator to subject the accused to a medical examination and place the evidence before the Court as observed in the decision reported as AIR 2009 SC 97 Sidhapal Kamala Yadav vs. State of Maharashtra.
47. A fact has to be treated as proved when after considering the matters before it, the Court either believes it to exist or considers its existence so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that it exists.
48. Thus, the Court would have to fall back applying the test of a prudent man, with the help of expert evidence if any, after weighing the quality of the acts of the accused, soon before, at the time of or after the crime, to return a verdict as a prudent person whether the same have reached the proof of the accused being insane at the time of the commission of the crime.
49. The past is always helpful to seek guidance as to how men of prudence i.e. Judges in the past returned verdicts either way.
50. In the decision reported as 1993(1) Crimes 430 (Orissa) Raghu Pradhan v. State of Orissa the immediately previous conduct of the accused i.e. quarrelling with mother and throwing brickbats at her, along with the subsequent conduct of rushing to the police station confessing the incident and producing the knife and also the fact that the crime was committed in broad daylight was held to be a sufficient indicator of the infirm mental condition of the accused at the time of commission of the offence. In light of the past mental history of the accused in the form of medical reports by 2 doctors confirming the accused to be mentally unsound, it was held that the plea of insanity was successfully established.
51. In the decision reported as AIR 1969 SC 15 Jai Lal v. Delhi Administration despite having a medical history of insanity proved by evidence in court, the court convicted the accused based on his subsequent conduct viz. his act of concealing the weapon, bolting the door to prevent arrest and absconding thereafter as the said acts were held by the court to be a display of consciousness of the guilt.
52. In the decision reported as AIR 1960 Ker. 24 Unniri Kanan v. State the statements of relatives of accused, deposing accused to be insane, along with the facts that no attempt was made by the accused to conceal his crime or escape i.e. when the police arrived they found the accused sitting quietly by the side of the house with his hands and clothes smeared with blood and a complete absence of motive or provocation along with the manner in which the murder was committed (nature and multiplicity of weapons and duration of attack) were held to be indicative of the fact that the accused was insane.
53. In the decision reported as (1960)1 MLJ 333 In re: Parvati Anmal despite the fact that it was proved that the accused was suffering from depression, her suicidal act of jumping in the well along with her two children was held to be outside the ambit of Sec.84 as it was held that the facts show her mental consciousness towards the act. 
54. In the decision reported as AIR 2002 SC 3399 Shrikant Anandrao Bhosale Vs. State of Maharashtra there was past evidence of the accused suffering from Paranoid Schizophrenia since 1992. The conduct of the accused who killed his wife in day light and made no attempt to hide or run away from the scene of crime was held indicative of a mind not knowing the consequences of its acts.
55. In the decision reported as AIR 1968 Delhi 177 Shanti Devi Vs. The State the conduct of the accused in sitting next to the dead body of his child and crying and on seeing the people leaving the child and sitting on a cot and throwing the razor i.e. the weapon of offence under the cot was held indicative to be evidencing an unsound mind.
56. In the decision reported as AIR 1949 Cal. 182 Ashiruddin Ahmed Vs. The King the conduct of the accused who had told his maternal uncle that in a dream he was commanded by somebody in paradise to sacrifice his son and his taking the son to a mosque and killing him by thrusting a knife in the throat i.e. an act of sacrifice (kurbani) was held to be indicative of the accused acting under delusion and hence insane.
57. In the decision reported as AIR 1961 SC 998 State of Madhya Pradesh Vs. Ahmadullah, inspite of evidence of the accused being in a disturbed state of mind in the evening of the date of occurrence and having not taken food for 2 prior days was held no evidence of insanity when the crime was committed in view of evidence that the accused bore ill will towards the deceased. The manner of crime showed a mind in concert with the body. The accused took a torch in the night and stealthily scaled the wall of the house of the deceased.