Banking / Finance

Cash transaction of ₹2 Lakh? You may be liable to pay 100 percent penalty of the transaction amount to Income Tax

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In the last financial budget, the government has come up with the introduction of Section 269ST of the Income Tax Act, which states in detail that Section 269STprohibits any person to receive an amount of Rs.2 lakh or more in cash”:

(i) In aggregate from a person in a day, or
(ii) In a single transaction, or
(iii) In respect of transactions relating to one event or occasion from a person .

 

Few examples to understand the new tax amendment:

 

  1. Suppose, Mr. X sells furniture worth Rs 4,50,000 and makes three different bills of Rs 1,50,000 and gives one to each person & accepts cash in a day, at different times, the Section 269 ST (a) will get violated.

 

  1. Secondly, Mr. Y sells gold worth Rs5, 00,000 through a single bill to another person and receives cash of Rs 2, 50,000 on the first day and the remaining on the next day, then Section 269ST(B) gets violated.

 

  1. Thirdly, Mr. Z accepts an order for catering, flowers & light decoration, occasion venue rent in respect for the event of marriage from Mr. A. He accepts cash of Rs 1,00,000 for the purpose of catering; Rs 1,50,000 for decoration; Rs 1,50,000 for the venue booking, then also section 269 ST(c) gets violated, even if he accepts cash on different dates because all the three transaction is relating to occasion of A’s marriage.

 

Thus, we can understand that in all the three cases, section 269ST gets violated and penalty u/s 271DA is applicable.

 

Penalty for violating Section 269ST:

If any person violates the provisions of Section 269ST or accepts any payment in conflict with the provisions, then he shall be liable to pay a penalty of sum which is equivalent to the amount of receipt under Section 271DA.

 

But in case the person can prove that there was sufficient and bonafied reasons for the breach of the section, no penalty shall be imposed.

 

However, it is being said that a transaction amount which is equivalent to Rs2 Lakh or more is permitted while doing transaction only through the use of electronic clearing system (which includes debit/credit card/Net Banking/IMPS/UPI/NEFT/RTGS/BHIM) via bank or account payee cheque or demand draft. Nonetheless, it can be said that this is an initiative taken by the government, in order to promote and boost up the digital economy.

 

Exemptions to Section 269ST of the Income Tax Act: 

 

  • Though this section is not applicable to any receipt of amount by the government, any banking company, post office savings bank or co-operative bank, or any other person/receipts as may be notified.

 

  • Also, transactions referred to in section 269SS (attracted when we accept loan from any person) will be excluded from the scope of the new section 269ST.

 

Thus, we can say that from now onwards cash transactions must be done vigilantly. Accepting any amount which is more than Rs 2Lakhs, received in form of cash, can impose penalty. This is to make the citizens more concern that transaction of lump sum amount of money must be done by the mode of bank payments only. Now-a-days, income tax laws are getting more firm for the taxpayers so that unaccounted income can be taken count of. 

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Cash transaction of ₹2 Lakh? You may be liable to pay 100 percent penalty of the transaction amount to Income Tax
Banking / Finance

Cash transaction of ₹2 Lakh? You may be liable to pay 100 percent penalty of the transaction amount to Income Tax

image: The hindu business line. 

 

In the last financial budget, the government has come up with the introduction of Section 269ST of the Income Tax Act, which states in detail that Section 269STprohibits any person to receive an amount of Rs.2 lakh or more in cash”:

(i) In aggregate from a person in a day, or
(ii) In a single transaction, or
(iii) In respect of transactions relating to one event or occasion from a person .

 

Few examples to understand the new tax amendment:

 

  1. Suppose, Mr. X sells furniture worth Rs 4,50,000 and makes three different bills of Rs 1,50,000 and gives one to each person & accepts cash in a day, at different times, the Section 269 ST (a) will get violated.

 

  1. Secondly, Mr. Y sells gold worth Rs5, 00,000 through a single bill to another person and receives cash of Rs 2, 50,000 on the first day and the remaining on the next day, then Section 269ST(B) gets violated.

 

  1. Thirdly, Mr. Z accepts an order for catering, flowers & light decoration, occasion venue rent in respect for the event of marriage from Mr. A. He accepts cash of Rs 1,00,000 for the purpose of catering; Rs 1,50,000 for decoration; Rs 1,50,000 for the venue booking, then also section 269 ST(c) gets violated, even if he accepts cash on different dates because all the three transaction is relating to occasion of A’s marriage.

 

Thus, we can understand that in all the three cases, section 269ST gets violated and penalty u/s 271DA is applicable.

 

Penalty for violating Section 269ST:

If any person violates the provisions of Section 269ST or accepts any payment in conflict with the provisions, then he shall be liable to pay a penalty of sum which is equivalent to the amount of receipt under Section 271DA.

 

But in case the person can prove that there was sufficient and bonafied reasons for the breach of the section, no penalty shall be imposed.

 

However, it is being said that a transaction amount which is equivalent to Rs2 Lakh or more is permitted while doing transaction only through the use of electronic clearing system (which includes debit/credit card/Net Banking/IMPS/UPI/NEFT/RTGS/BHIM) via bank or account payee cheque or demand draft. Nonetheless, it can be said that this is an initiative taken by the government, in order to promote and boost up the digital economy.

 

Exemptions to Section 269ST of the Income Tax Act: 

 

  • Though this section is not applicable to any receipt of amount by the government, any banking company, post office savings bank or co-operative bank, or any other person/receipts as may be notified.

 

  • Also, transactions referred to in section 269SS (attracted when we accept loan from any person) will be excluded from the scope of the new section 269ST.

 

Thus, we can say that from now onwards cash transactions must be done vigilantly. Accepting any amount which is more than Rs 2Lakhs, received in form of cash, can impose penalty. This is to make the citizens more concern that transaction of lump sum amount of money must be done by the mode of bank payments only. Now-a-days, income tax laws are getting more firm for the taxpayers so that unaccounted income can be taken count of. 

Intestate Succession or Succession without a WILL: Things you should know
Wills / Trusts

Intestate Succession or Succession without a WILL: Things you should know

Intestate succession means a succession without a will. A will generally dictates how a person plans to transfer his assets or properties after his death to his/her heirs. A person dies intestate when he has not bequeathed his properties according to a will. Succession can either be testate or intestate. 

Meaning of Testate Succession

In some cases, a person leaves behind a Will, which specifies property distribution after their death. In such cases, the Will controls succession.

When succession takes place in this manner, it is known as testamentary succession. 

Meaning of Intestate Succession

In other cases, a person does not leave behind a will. In such cases, intestate succession law controls succession. Thus, the persons who become entitled to the deceased's properties are the deceased's, legal heirs. In India, the succession law applicable to a deceased's estate depends on their religion. Hindus, Muslims, Christians, Parsis, etc., have different succession laws. When succession takes place in this manner, it is known as intestate succession.  

Intestate Succession under Hindu Law

If the deceased is a Hindu, Hindu Succession law will govern the succession. The Hindu Law of Intestate Succession is in the Hindu Succession Act, 1956. 

Two Types of Property

Under Hindu Law, the property is of two types: 

  1. Joint Family Property: The Hindu Joint Family is an ancient social structure prevailing in Indian society. In Hindu Law, specific properties are considered Joint Family Property. Generally, all property inherited from one's father, paternal grandfather, and paternal great-grandfather are considered Joint Family Property. 

  2. Self-Acquired Property: All other properties are considered the Self-Acquired Property of the respective person. The most unambiguous indication of Self-Acquired Property is that it is acquired with the money of one's efforts.

This distinction is important because, depending on where you reside, different rules govern the succession of Joint Family Property and Self-Acquired Property. 

The succession of Joint Family Property

Depending on where you reside, you will be governed either by Dayabhaga Law or Mitakshara Law. Generally, Hindus living in West Bengal, Orissa, and parts of Assam, are governed by Mitakshara Law, and Mitakshara Law governs all other Hindus. Both of these refer to old schools of religious Hindu law that prevailed in these respective geographical regions. Once upon a time, these schools of law governed the substantial part of Hindu succession. Today, there are of minimal significance. Legally, its only importance in the present is determining the order of intestate succession.  

Section 6 of the Hindu Succession Act governs the Mitakshara Joint Family Property's succession. When a coparcener dies, their share in the Joint Family Property passes to the legal heirs according to the rules contained in this Section. The process is as follows: 

  1. You divide the whole joint family property amongst the deceased and their legal heirs. Usually, the deceased, their wife, their children (both sons and daughters), and their parents get equal shares.

  2. The share the deceased person receives becomes his self-acquired property. This share passes to the deceased's legal heirs according to the rules governing Self-Acquired Property's succession (see below).

The succession of Self-Acquired Property

The rules governing the succession of Self-Acquired Property of the deceased varies based on the gender of the deceased. However, the same rules apply to all Hindus regardless of whether Dayabhaga Law or Mitakshara Law governs them. 

For male Hindus, there are four categories of legal heirs: Class I heirs, Class II heirs, agnates, and cognates. The Schedule of the Hindu Succession Act, 1956 specifies Class I heirs and Class II heirs. An agnate is a person who is (i) neither a Class I heir nor a Class II heir, but (ii) is a descendant of the deceased through a pure male line. A cognate is a person who is (i) neither a Class I heir nor a Class II heir, but (ii) is a descendant of the deceased through a line consisting of both males and females. The order of intestate succession in self-acquired property is as follows:

  1. Class I Heirs: If any Class I heir[s] exist, they get the deceased's whole Self-Acquired Property. If more than one such heir exists, they both get equal shares. The deceased's wife, sons, daughters, and mother are notable Class I heirs. However, the father of the deceased is not a Class I heir. 

  2. Class II Heirs: If not a single Class I heir exists, the whole Self-Acquired Property of the deceased goes to the Class II heirs. The deceased's father, brothers, and sisters are notable Class II heirs. If the father is alive, he takes the whole property. If he isn't alive, then the brothers and sisters take the property in equal shares. 

  3. Agnates: If there are no Class I and Class II heirs, the deceased's agnates take the whole of the Self-Acquired Property. 

  4. Cognates: If there are no Class I and Class II heirs, the deceased's cognates take the whole of the Self-Acquired Property. 

A different set of rules applies to female Hindus. For female Hindus, the order of intestate succession for legal heirs is: (i) sons, daughters, and husband; (ii) heirs of the husband; (iii) parents; (iv) heirs of the father; and (vi) heirs of the mother. Each category is preferred to the later ones, in that order of preference. All heirs of the same class get equal shares of the property. 

Position of Illegitimate Children

The intestate succession of an illegitimate child is only through his mother. An illegitimate child's share in intestate succession is restricted to his mother and not his father.  

Gift Deed: All you should know.
Wills / Trusts

Gift Deed: All you should know.

You want to gift your near and dear ones some property? You can do so by drafting a gift deed! A gift deed is a legal instrument for transferring moveable and immoveable property. The transfer of property by a gift deed is voluntary and without any consideration. A gift is generally made based on love and affection, for example, the gift of ancestral property by a grandfather to grandchildren. Section 122 of the Transfer of Property Act, 1822 governs a gift deed. Under Section 117 of the Registration Act, it is compulsory to register the same if you gift an immovable property. 

How to Draft a Gift Deed?

A gift deed should include the following information: 

  • Date and place where you will execute the gift deed. 

  • Names of the donor and donee.

  • Address of the donor and donee. 

  • What is the relationship between them?

  • What is the property being gifted?

  • Signatures of two witnesses. 

  • Signatures of the donor and the donee. 

 

How to Draft a Gift Deed of Immovable Property?

A Gift Deed is mandatory for a gift of immovable property to be effective. It would help if you keep the following in mind while drafting a gift deed of immovable property:

  1. It should be in writing. 

  2. The donor must sign it. 

  3. Two independent witnesses should attest it. Hence, the witnesses must not be the donor, or the beneficiary, of the gift. 

  4. Stamp duty is payable on gifts of immovable property. The Gift Deed must be executed on stamp paper of the same value as the stamp duty payable. The exact stamp duty payable varies from state to state. It is usually 2-5% of the market value of the property. Some states offer stamp duty concessions for gifts to blood relatives. 

  5. Finally, the duly executed and stamped Gift Deed must be registered with the local Sub-Registrar of Assurances. Some states charge a registration fee, which varies from a few hundred to 1-2% of the property's market value. 

A good Gift Deed of Immovable Property should contain at least the following elements in its content: 

  1. You should describe the property you are gifting. Typically, a statement of the plot number, the locality/street, the local post office, the panchayat or urban authority, the block, the sub-district, the district, the state, and the PIN Code, will be sufficient to identify any property in India uniquely. 

  2. It may be prudent also to specify the boundaries and size of the property and the survey number of the property in the state's land records. These details can be obtained from the land records of the state in which the property is situated. 

  3. A statement of the nature of the donor's title over the property. How the donor acquired title over the property must be mentioned. The best practice is to identify the Deed by which the donor came to be the owner of the property by its registration number, year of execution, and the office where it was registered.   

  4. The fair-market value of the property should be explicitly mentioned. This is necessary to calculate the stamp duty payable on the gift. 

  5. An explicit statement that the transfer of the property has been made, for no consideration and freely and voluntarily. 

  6. A statement of acceptance by the beneficiary of the gift. This is essential because a gift doesn't take effect unless the beneficiary accepts it. 

How to Draft a Gift Deed of Movable Property

A Gift Deed is not mandatory for a gift of movable property. However, you can draft a Gift Deed for gifts of movable property too. If a Gift Deed is executed, it must be executed in exactly the same way as, the process for executing a Gift Deed of Immovable Property as explained above. 

A good Gift Deed of movable Property should contain at least the following elements in its content: 

  1.  Try to identify the property by some unique identification associated with it. For instance, a car can be uniquely identified by its motor vehicle registration details; the machinery can be uniquely identified by its invoice number and supplier details, etc. 

  2. A statement of the nature of the donor's title over the property. 

  3. Mention the fair market value of the property.

  4. An explicit statement that the transfer of the property has been made, for no consideration and freely and voluntarily. 

  5. A statement of acceptance by the beneficiary of the gift. A gift doesn't take effect unless the beneficiary accepts it. 

  6. Date, place, and time of execution.

How to Draft a Gift Deed of Money?

No stamp duty is payable on a gift of money. A Gift Deed of Money is not required to be registered. If the parties wish to, then they can register it, but this is not mandatory. Hence, a Gift Deed of Money can very well be executed on plain paper and signed by the parties. You can also execute it by an exchange of letters between the parties containing a clear offer followed by an unconditional acceptance of that offer. 

A good Gift Deed of Immovable Property should contain at least the following elements in its content: 

  1. The amount of money being gifted

  2. Identify the money being gifted by the currency note numbers, cheque numbers, bank transfer numbers, etc.  

  3. An explicit statement that the transfer has been made for no consideration. 

Documents Required for Registration of Gift Deed

  1. The duly executed, and stamped, Gift Deed must be presented to the office of the local Sub-Registrar of Assurances for registration. 

  2. Some states may require the advocate, or registered deed-writer, who drafted the Gift Deed to affix a declaration, and their registration number, on the Deed. 

  3. A true certified copy of the Gift Deed. This copy will be retained by the registering authority. The Registration Rules of the state in which the Deed is being registered will specify the procedure for making a true certified copy of the Deed. 

  4. Proof of payment of the registration fees payable, if any. 

  5. Identity, and Address, Proofs of all the parties and the attesting witnesses. 

What is the Difference Between A Gift Deed and a Property Sale?

Once a property is transferred to you as a gift, you are its owner. The gifted property can be sold. But, a gift deed is different from a property sale. A property sale involves the payment of some money for the transfer of property. A gift deed is voluntary and without any payment of money. Hence, once you have validly registered the gift deed and are the property owner, you can sell the gifted property for consideration. 

Drafting a gift deed for an immovable property may involve many legal implications, such as tax considerations. Prefer hiring a lawyer to draft a gift deed for immovable property. 

Testamentary Succession: Will it fair and square
Wills / Trusts

Testamentary Succession: Will it fair and square

It is hard to cope up when a loved one passes away, even harder when the deceased is the head of the family. Some plan for succession and create a Will while they are alive. However, many don’t foresee the need and leave it to chance. In such situations, it is tough for the rest of the family members to decide how the property Will be divided amongst and transferred to heirs. Who gets what, when and how remains some uncomfortable questions?

Testamentary Succession is the possible answer. This post shares insights on what does it mean, frequently used terms related to Testamentary succession under The Indian Succession Act 1925, characteristics of a valid Will, importance of having a Will and how Hindu Law governs Testamentary succession.

 

What is the meaning of Testamentary succession?

In simple terms, it is defined as the succession of property by a WILL or TESTAMENT as per applicable rules of law. As per Hindu Law, any male or female can make a Will to transfer his or her property or assets to anyone. The Will is treated as valid and enforceable by law. 

An important point to note here is that the transfer of property happens as per provisions mentioned in the Will and not as per the inheritance law. However, if the Will is invalid or illegal then the transfer or devolution of property happens as per the law of inheritance. Alternatively, Testamentary succession is also referred to as right of inheritance.

 

Common Terms related to Testamentary Succession under Hindu Law

It is important to understand the frequently used terms that might sound complicated but are easy to interpret. They are:

  • Will – A legal declaration created by a person expressing clear intention or wish with regards to how his or her property and assets Will be transferred after death.

  • Testator – A person who creates his or her Will.

  • Executor – A person appointed by the Testator for executing the Will.

  • Administrator – A person appointed by the Court for executing the Will.

  • Attestation of Will – It is the process of signing the Will by two witnesses to verify the signatures of the executant.

  • Codicil – A legal document made by Testator and signed by two witnesses for making minor changes in the Will that has already been executed.

  • Probate – It is a documentary evidence of the appointment of the Executor and establishes the validity of the Will.

  • Letter of Administration – A certificate granted by the Court for appointing an Administrator of the Will.

 

Important Characteristics of a valid Will

A Testator must consider the following essential characteristics while creating his or her Will:

  • It is a written document expressing the testator's clear intentions or desire with respect to transfer of his or her assets or property.

  • It can be created by any person of age 18 years or above who is capable of entering into an agreement.

  • A person influenced by alcohol or fear or affected by illness or fraud cannot make a Will.

  • The Indian Succession Act, 1925 does not prescribe any specific format of writing a Will.

  • Minor unintentional errors in a Will – error in name spellings or details of property – does not alter the true intention of the testator.

  • The Testator should sign the Will which should be countersigned by two witnesses. In cases where the testator cannot sign, thumb impressions of the testator should be taken.

  • The signature of the testator should appear at the bottom of the page or at the end of the contents of the Will.

  • The witnesses to the Will should not be the beneficiaries themselves.

  • A Will comes into force only after the death of the testator.

  • And finally, it is not mandatory to make the Will document on a stamp paper and register it. The testator can also write it on a plain paper.

 

Why is having a Will important?

Each person wishes that his legal heirs stay a part of the cohesive family even after his or her death and that there are no fights over property matters. After all, fair division of property is a sensitive matter. In today’s times, if it is done properly, it can make long lasting relationships and if done otherwise, it breaks relations forever.

 

It is for this purpose, making a fair Will comes very handy. The testator must clearly document his or her desires with respect to the assets that his legal heirs would carry out after his or her death. The Will must clearly state how the testator's property Will be transferred, to whom it Will be transferred, how much share of property Will be transferred to different heirs and so on.

 

Generally, a very common question arises here as to what happens if a person dies without leaving a Will behind? In such cases, the division and transfer of property happens by way of law. This is called intestate succession.

Which law governs Testamentary Succession?

In India, Testamentary succession is governed by The Indian Succession Act 1925 including the intestate succession. Most importantly, this law extends to the whole of India but is only applicable to the Wills and codicils of Hindus, Sikhs, Buddhists and Jains by religion.

Also, for Hindus, the intestate succession and all its exceptions are codified in the Hindu Succession Act, 1956. It does not apply to Muslims, Christians, Parsis and Jews. For example, Muslims are allowed to dispose their property and assets according to Muslim Law.

Conclusion

It is always advisable to write a well thought and a fair Will. In case of any ambiguity or in the absence of a Will, there is a possibility that the legal heirs of the deceased would engage in unwanted ugly legal battles for claiming their rightful share.

Legal Experts at LegalKart can help draft a Will that best suits your requirement. 

Pensioner can file case from the place where he belonged to or was receiving pension: Supreme Court
Labour & Employment

Pensioner can file case from the place where he belonged to or was receiving pension: Supreme Court

Case No.: CIVIL APPEAL NO.3630 of 2020 (arising out of SLP (C) No.18375/2018)

Referred Acts in the Judgement:

  • Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948
  • The Coal Mines Pension Scheme, 1988
  • The Coal Mines Family Pension Scheme, 1971
  • The Code of Civil Procedure, 1908
  • The Constitution of India, 1950

Facts of the Case:

The case related to a retired employee Mr.B.N.Mishra (Appellant), who was an employee at Coal India Limited till 2005. Mr.Mishra withdrew his pension for eight (08) years. After which, Coal India Limited stopped providing his pension in the year 2013 stating that Mr.Mishra did not opt for the Coal Mines Family Pension Scheme, 1988. In addition to this, Mr.Mishra was asked to refund a sum of Rs.8 Lakhs which was drawn by him previously.

 

Key happenings in the matter Chronologically:

1.Patna High Court (08.02.2013)

The said stoppage of pension and refund was challenged by Wife (Shanti Mishra) of Late Mr.Mishra at Patna High Court by way of Writ Petition No.13955/2006. The said Writ Petition was dismissed by the High Court on the ground of lack of territorial jurisdiction. The Applicant could either file in West Bengal (where the pension authority was located) or Jharkhand.

 

2. High Court of Jharkhand (2014)

The above dismissal was challenged by the Wife by way of another Writ Petition No.4930/2013 before High Court of Jharkhand. High Court dismissed the Writ Petition 2014 due to lack of territorial jurisdiction.

 

3. Supreme Court: (2020)

After the said dismissal, Wife appealed the Supreme Court wherein the Hon’ble Court made the following observations that:

  1. The Mr.Mishra was residing at Darbhanga, Bihar after his retirement and he received his pension at the same place for over eight (08) years;
  2. The Writ Petition filed at High Court of Jharkhand was filed under correct territorial jurisdiction and High Court was wrong in dismissing the Writ Petition;
  3. Wife of Late Mr.Mishra is a widow and is living her life without any pension support.

In the light of above observations, Supreme Court granted provisional pension to the Wife and held that if a part of cause of action arises at a certain place then a Writ Petition is maintainable in that place under Article 226(2) of the Constitution of India. For the said purpose, Hon’ble Court referred cases such as Kusum Ingots & Alloys Ltd. Vs. Union of India and Anr., [(2004) 6 SCC 254] and Nawal Kishore Sharma Vs. Union of India and Ors., [(2014) 9 SCC 329].

Read the Judgement here:

https://main.sci.gov.in/supremecourt/2018/25048/25048_2018_34_1501_24598_Judgement_05-Nov-2020.pdf

Termination of Service, Layoffs and Retrenchments - Legal Viewpoint
Labour & Employment

Termination of Service, Layoffs and Retrenchments - Legal Viewpoint

This article contemplates and articulates the broad legalities and operational standpoint on Termination of employees from Service, Lay-off, and Retrenchment so as to allow the business management to make well-informed decisions weighing legalities against business objectives. Law provides broad-level directives and guidelines which companies shall have to oblige and comply with, without compromising the interests of the subject matter of the Act (welfare of workforce). Employment and Labour laws are a cumbersomely clumsy, yet comprehensive compendium of labour Acts applicable to deal with the law relating to employment and labour aspects. The common objective of all is to provide safeguard and protection to varied kinds of the workforce, be it an employee, workman, contract employee, etc., working in varied lines of business at different levels from daily wager to contract labour and all kinds of employees in between. Apparently, although different laws govern varied kinds of the workforce, these laws have effectively achieved the main objective of providing protection to a varied workforce. In a basic sense, this law governs the relationship between the employer-employee, covering the workforce in varied spectrums. 

 

The government has been working to enact uniform labour code to condense varied employment legislations at central and state levels to bring in comprehensive legislation to simplify compliances for employers and thereby achieve better workforce protection.

 

The definitions of lay-offs and retrenchment are specifically covered under the Industrial Disputes Act, 1947. However, while determining the termination of service of employee it is pertinent to delve into the spectrum of Labour and Employment Acts and regulations which are prevalent in India in order to take statutorily compliant decisions taking into account the business objectives of the company.

 

 

INDUSTRIAL DISPUTES ACT, 1947 - (The ID Act)

The law relating to lay-offs and retrenchment is specifically expounded under Chapter VA (Entitled, Layoff and Retrenchment) and Chapter VB (Concerning, Special provisions relating to Lay-Off, Retrenchment, and Closure in Certain Establishment) of the Industrial Disputes Act, 1947. These two chapters in ID Act elaborately delineates provisions relating to Lay-offs and Retrenchment.

 

It is imperative to understand the applicability of the Act, since the objective, purpose and applicability of every act are different, and so contemplating and analyzing the applicability of relevant law to the issue in hand is the key to arriving at a targeted solution. The ID Act is applicable to a certain class of workmen as defined under Section 2(s) of the Act. “Workman” means

 

"Any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied, and for the purposes of any proceeding under this Act in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of, that dispute, or whose dismissal, discharge or retrenchment has led to that dispute”

 

Further, notably, there are certain exclusions to the definition of a workman, and according to the Act, Workman who is,

(i) in a managerial or administrative capacity; or

 

(ii) employed in a supervisory capacity, draws wages exceeding ten thousand rupees per mensem, or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature, are express exclusions to the definition.

 

As such, this Act does not become applicable to the sizable spectrum of employees working in various organizations or companies either due to their nature of work or earning being at a higher scale.

 

This Act has provided lucid definition to the words “lay-offs” and “retrenchments” under Section 2(kkk) and Section 2(oo) of the Act and the extract thereof is below.

 

"Lay-Off (with its grammatical variations and cognate expressions) means the failure, refusal or inability of an employer on account of shortage of coal, power or raw materials or the accumulation of stocks or the breakdown of machinery [or natural calamity or for any other connected reason] to give employment to a workman whose name is borne on the muster rolls of his industrial establishment and who has not been retrenched."

 

Explanation: Every workman whose name is borne on the muster rolls of the industrial establishment and who presents himself for work at the establishment at the time appointed for the purpose during normal working hours on any day and is not given employment by the employer within two hours of his so presenting himself shall be deemed to have been laid-off for that day within the meaning of this clause:

 

Provided that if the workman, instead of being given employment at the commencement of any shift for any day is asked to present himself for the purpose during the second half of the shift for the day and is given employment then, he shall be deemed to have been laid- off only for one-half of that day 

 

Provided further that if he is not given any such employment even after so presenting himself, he shall not be deemed to have been laid-off for the second half of the shift for the day and shall be entitled to full basic wages and dearness allowance for that part of the day.

 

Retrenchment means the termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action, but does not include-

(a) voluntary retirement of the workman; or

 

(b) retirement  of the workman on reaching the age of superannuation if the contract of employment between the employer and  the workman concerned contains a stipulation in that behalf; or

 

(c) termination of the service of the workman as a result of the non-renewal of the contract of employment between the employer and the workman concerned on its expiry or of such contract being terminated under a stipulation in that behalf contained therein; or

 

(d) termination of the service of a workman on the ground of continued ill-health"

 

 

The law relating to lay-off and retrenchment is effectively applicable for the workman in industrial establishment, as defined under the Act, and effectively, the scope and validity of these provisions to said workman are categorically restricted to certain persons employed in an industry subjected to exclusions as delineated under the definition of the workman. 

 

Bare reading of the Act clearly indicates that employees working in companies with salaries higher than the limit applicable for the workman, or who are in managerial or administrative capacity does not fall within the ambit of the scope of the said Act. Given the exclusions, the scope and applicability of the Industrial Disputes Act are limited to the workman as defined under the said Act.

 

 

THE SHOPS AND ESTABLISHMENT ACT, 1988 (The SE Act)

 

The SE Act regulates the law relating to the regulation of employment and conditions of service of workers employed in shops and establishments for matters connected therewith and incidental thereto. This is a state enacted law and every state enacts its own Act. This Act has vast applicability as the words” commercial establishment” and “shops” have wide applicability covering businesses and organizations in varied sectors and industries.

 

As per the Act, the term Commercial Establishment means “an establishment which carries on any trade, business, profession or any work in connection with or incidental or ancillary to any such trade, business or profession or which is a clerical department of a factory or an industrial undertaking or which is a commercial or trading or banking or insurance establishment and includes an establishment under the management and control of a co-operative society, an establishment of a factory or an industrial undertaking which falls outside the scope of the Factories Act, 1948, (Central Act 63 of 1948), and such other establishment as the Government may, by notification declare to be a commercial establishment for the purposes of this Act but does not include a shop.”. The meaning of word Shops means “any premises where any trade or business is carried on or where services are rendered to customers and includes a shop run by a Co-operative Society, an office, a storeroom, godown, warehouse or workplace, whether in the same premises or otherwise, used in connection with such trade or business and such other establishments as the Government may, by notification, declare to be a shop for the purposes of this Act, but does not include a commercial establishment”. 

 

It is important to understand the sect of employees who are governed by the said Act, and the definition of Employee under the SE Act means “A person wholly or principally employed in, and in connection with, any establishment and includes an apprentice and any clerical or other staff of a factory or industrial establishment who fall outside the scope of the Factories Act, 1948; (Central Act, 63 of 1948).”, and the said definitions had certain stipulated exclusions. This definition widely encompasses employees in organized as well as unorganized sectors which relatively include higher income groups.

 

Contextually, understanding the exemptions to the Act is equally important to apply the relevant labour Act righteously to any given situation. Under the said Act, Section 79 deals with exemptions to the applicability of the Act, and the exemptions delineated under the Act are “employees in any establishment in a position of management and having control over the affairs of the establishment, whose average monthly wages exceed sixteen hundred rupees”. 

 

In “T. Prem Sagar vs The Standard Vacuum Oil Company Madras and Others”, the apex court had laid down certain tests to ascertain whether an employee is in a position of management and extract of the judgment is provided below. 

 

So, in order to determine whether a person is in a position of management or not, the factors to be considered are whether the person had the power to operate on the  Bank account, whether he could make payments to third parties and enter into agreements with them on behalf of the employer, whether he was entitled to represent the employer to the world at large in regard to the dealings of the employer with strangers, whether he had the authority to supervise the work of the clerks employed in the establishment, whether he had control and charge of the correspondence, whether he could make commitments on behalf of the employer, whether he could grant leave to the members of the staff and hold disciplinary proceedings against them and whether he had the power to appoint members of the staff or punish them. The salary drawn by an employee may have no significance and may not be material though it may be treated theoretically as a relevant factor.”

 

The apex court had emphasized the applicability of the tests laid out under the said judgment that they should be considered against the facts of the case, particularly taking into account the nature and scope of work of the employee in the broader perspective of his/her work functions and responsibilities. 

 

In accordance with provisions of the SE Act, in case any employee falls within the purview of the SE Act, the employer shall have to strictly comply with obligations of serving of notice period or alternatively pay wages in lieu thereof to employees in case employee is terminated of services of employment.   

 

 

LAW APPLICABLE FOR MANAGERS AND SUPERVISORS

 

Considering the limited construct of the word “Workman” under the Industrial Disputes Act, the applicability and enforceability of ID Act are limited (as aforementioned). Now the majority of Multinational Companies, Start-ups, Information Technology and IT-Enabled Services (ITES), and industrial establishments have the manpower of varied spectrum of employees, operating at different levels. No single Act may be applicable to all kinds of manpower, and so it is important to delve into various labour and employment Acts that are prevailing. 

 

Further, from the preceding analysis, it is evident that lay-off and retrenchment of workman would be dealt as per the provisions of the Industrial Disputes Act, and the Shops and Establishment Act stipulates provisions concerning termination of services of employees. However, the applicability of the Act would differ on a case-to-case basis depending on the nature of the job, income, nature of work, exemptions provided under the Act, etc., and therefore, application of relevant labour and employment Act is critical.

 

Nevertheless, it is important to note that the Shops and Establishment Act does not apply to the employees in any establishment in a position of management and having control over the affairs of the establishment, whose average monthly wages exceed sixteen hundred rupees. However, employees falling under the purview of the SE Act would be governed with regard to matters of Wages, Conditions for termination of services appeals, suspension, and terminal benefits, under Chapter VIII of the said Act.

 

Particularly, where Act is applicable to employees Section 47 of the Telangana Shops and Establishment Act stipulates conditions for terminating the services of an employee, payment of service compensation for termination, retirement, resignation, disablement, etc., and payment of subsistence allowance for the period of suspension. Pursuant to the said provision, “no employer shall, without a reasonable cause terminate the service of an employee who has been in his employment continuously for a period of not less than six months without giving such employee at least one month notice in writing or wages in lieu thereof and in respect of an employee who has been in his employment continuously for a period of not less than one year, a service compensation amounting to fifteen days average wages for each year of continuous employment”. While the said provision under the Act is illustrative, the above extract of the Section highlights that serving of notice period is mandatory for termination, retirement, resignation, disablement etc.,. Therefore, the companies will have to consider the mandatory notice period and service compensation guidelines illustrated under the said provision.

 

It is imperative to also take into account that evidently, hordes of the workforce falls to the exemptions of the Industrial Disputes Act and the Shops and Establishment Act, 1988, as a result of an employee being in the position of management or extensive salary packages, etc., In such a scenario, the governing document will be the Employment Agreement and applicable company policies, as the may be agreed between employer and employee. 

 

 

EMPLOYMENT AGREEMENT

 

The law prescribes the compliance framework and guidelines for companies to adhere to and comply with. However, companies may set-up pragmatic and workable workforce management and operational framework keeping in compliance with the applicable legal framework. In the event of any doubt, apropos the minimum compliance standards and framework, it is prudent to delve into the Acts and legal precedents before taking any decision. 

 

Ideally, the Employment Agreement should strike a balance between the applicable legal framework and interests of the company

 

The employment agreement is an important document, as it legally binds and governs the relationship between employer and employee. So, if the employment agreement had legally enforceable provisions in line with applicable laws, then the employer's decisions in regard to termination of an employee from service will be governed by the provisions of this Employment Agreement.   

 

 

GALVANIZING EFFECT OF COVID-19

 

In the wake of the outbreak of the novel COVID-19 pandemic and declaration of WHO that it is global health pandemic, the governments across global have taken unprecedented measures and many countries including India have locked down their nations restricting trade and commerce. Indisputability, lockdown measures although it helped nations to minimize the damage or loss of lives to a greater effect, yet this pandemic leads to the onset of economic crisis and market meltdown creating an adverse ripple effect across the global economies. The restrictions imposed by governments resulted in impacting the businesses in all areas ranging from exports/imports, transport, logistics, productivity, investment, etc.,. In other words, the market is in standstill mode with uncertainties leering from all corners of the world. With unpredicted and unprecedented meltdown, it is becoming difficult to ascertain the future. 

 

The companies started experiencing less revenues and cash crunches due to steep plunge in the business operations, and virtually the businesses are preparing for a market meltdown by taking expeditious remedial steps. The major cost for any company is Human Resources and second, technological advancement. With clampdown of global operations, projects ramp down is underway and eventually, the companies would enter into cost-cutting mode and may result in laying-off and retrenchment of an employee in order to sustain the crisis.

 

In case companies are taking steps of lay-offs, retrenchment, and termination of services, then it would be prudent of Companies to follow legalities and be compliant so as to avoid the influx of litigation that may arise as a result of illegal termination of employment. Simple measures will mitigate future litigation expenses. 

 

 

CONCLUSION

 

Employer-employee or Employer-workman relationship is regulated by various labour and employment laws. However, in the context of lay-offs, retrenchment, and termination of services of an employee, predominantly, two Acts, namely the Industrial disputes Act and the state relevant Shops and Establishment Act governs and stipulates the law and procedures pertaining thereto. The ID Act governs the relationship between workman-employer and the SE Act of employee-employer. However, there is a class of employees who do not fall within the ambit of both acts due to depending facts such as remuneration, type of employment, nature of work, etc. Therefore, there is no straight forward formula for determining the applicability of provisions and so it is important to delve into applicable law and precedents so as to get a legal solution. 

 

Companies as a practice enter into an employment agreement and bind their employees to comply with various company policies (such as leave policy, maternity policy, etc.). However, execution of employment agreement does not absolve the obligations of the company to comply with applicable Act and regulations, and it is imperative that employment agreement should be drafted and amended from time-to-time in strict compliance with applicable amending regulations. Employment Agreement which is not in line with applicable law may fall to the ground in the eyes of the law. From a high-level perspective, the employment agreement and company policies applicable to its employees play a vital role in streamlining the management of human resources, without compromising on legalities surrounding thereto. As such, companies should audit the human resources portfolio and accordingly implement an effective employment agreement that works both statutorily and organizationally.  This employment agreement will govern the procedure of lay-offs, retrenchment, and/or termination of services, in case the ID Act and the SE Act are not applicable to particular class of workforce.

 

 

Authored by: RAMYA KUNAPAREDDY

Corporate and Litigation Lawyer, Hyderabad

 

Disclaimer: The content of this article is solely the author’s personal analysis and interpretation. In case you wish to act upon the basis of the content of this article, please seek legal advice. The author shall not be responsible for any loss you may incur as a result of your actions relying upon this content. The content herein is the copyright of the author and is informational and shall not be used for commercial purposes other than for personal reading.