AUTHORS:
1.ADITYA ABHANG, B.COM.,D.LL&L.W.,LL.B., ASSOCIATE AT KIRAN & BORA ADVOCATES, PARTNER AT LEGAL NURTURE
2. PRANITA DATE., M.A.CLINICAL PSYCHOLOGY, INTERN AND RESEARCH ASSISTANT AT DR.VASUDEO PARALIKAR CLINIC


The newspaper headline read, ‘My son had no reason to commit suicide.’ An IIT - H final year student jumped to death from his hostel building on the campus. He had very impressive scores, had command over various languages and was a very bright student; then the question remains “WHY?”

When we come across news articles revolving around suicide or hear discussions about the same, we wonder to ourselves what exactly would have made the person take up such a drastic step and conclude it to be an irrational decision. If the person is a part of the high income group, we mostly assume that the person was having all the luxuries,.ie. basically everything one would ever wish to have and it was the greed to gain more/emotional weakness that proved fatal.
Suicide leaves a trace of many questions and everyone tries to answer them by their own. But the answer that we are looking for here is not obvious as 1 + 1 = 2 but it is a lot more complex.

Statics reveal:
• More than 8,00,000 people die due to suicide each year worldwide.
• Suicide is the second leading cause of death in the world in the age group ranging from 15 to 29?years. Majority of the suicides (37.8%) in India are by those below the age of 30 years.
• The fact that 71% of suicides in India are by persons below the age of 44 years imposes a huge social, emotional and economic burden on society.
• A lot of suicide attempts are not even reported by families and individuals because of the fear of punishment by law, which makes it more difficult for the person to seek help and it creates stigma and fear around it.

What makes a person commit suicide?
The act of suicide has a wide range of causes like:
• stressful and disturbing life events
• physical and mental illness
• disturbed interpersonal relationships
• economic difficulties.
• suicide is not committed by a person because he/she is weak but the person has already been fighting for a very long time now.
• for the person in this mental state it seems less painful to injure himself/herself than go through all the emotional and psychological pain.
• for some injuring self makes them feel numb and the physical pain overpowers the non ending emotional ache or heartache.
• there are stages before a person reaches to committing suicide which are suicidal ideation and suicidal thoughts which can cause due to a lot of stressful situations in a person’s life.

Different approaches can theorize different causes of suicide. According to the psychodynamic perspective repressed emotions of the individual reside in the unconscious mind and they affect the individual’s behaviour. The behaviour of an individual reflects the repressed feelings, thoughts and desires that he or she has tried to bury deep down since childhood. Study reveals the adverse child experiences are psychological, physical, or sexual abuse including violence against the mother; or being around household members who were substance abusers, mentally ill or suicidal or have had criminal records. Adults with such adverse childhood experiences have a higher risk towards suffering depression and may attempt suicide. These past experiences reside in the subconscious and they may affect the behaviour of such persons unconsciously in adulthood. Early negative development of children can influence their negative thinking in the future during adulthood as in the case of individuals who suffer from disruptive and impulsive aggressive behavior.

According to the Behaviorist Approach one of the major reasons that leads an individual towards suicidal behavior is negative reinforcement. Person learns the behaviour that will help him avoid the aversive stimuli (Unwanted event or situation). A person suffering from depression or any mental illness is more likely to get involved in the path of attempting suicide because such a person thinks it is the best way to end sufferings. People who want to commit suicide have history of abnormality when it comes to their patterns of thought, emotional reaction and behavior.
One most important perspective is the Stress Diathesis Model in which life stressors causes a suicidal crisis in individuals who have pre-existing tendency that leads to aggressive and impulsive personality traits as well as pessimism.

Legal background:
I) Indian Penal Code and the Medical Health Care Act:
Section 309 IPC: Attempt to commit suicide —Whoever attempts to commit suicide and does any act towards the commission of such offence, shall he punished with simple imprisonment for a term which may extend to one year [or with fine, or with both].

So, basically a person who's attempt to suicide is proved to be unsuccessful viz. in case such a person survives the attempt to suicide, then such a person can be booked under section 309 of the Indian Penal Code, 1860.

Now, Section 115 (1) of the Mental Health Care Act, 2017 reads 'Notwithstanding anything contained in section 309 of the Indian Penal Code any person who attempts to commit suicide shall be presumed, unless proved otherwise, to have severe stress and shall not be tried and punished under the said Code'.

Whereas section 115 (2) reads as 'The Appropriate Government shall have a duty to provide care, treatment and rehabilitation to a person, having severe stress and who attempted to commit suicide, to reduce the risk of recurrence of attempt to commit suicide' thus making it mandatory for the the Government (State or Central) as the case may be to take the necessary care and provide necessary treatment to such a person.

Hence, section 115 (1) can be said to be restricting the arbitrary use of the section 309 of the Indian Penal Code, 1860.
However, this doesn't mean that section 309 of the IPC has been completely repealed. In a recent incidence that took place on 06.06.2020 where a young runaway couple allegedly attempted suicide at a police station located within a town in Bengaluru, after learning that the woman's parents were coming to take her home and they were booked under section 309.

II) Parliament and Parliamentarian's attempts to amend/omit section 309:

i) Private Member's Bill - Prakash Javadekar 22nd February, 2013

ii) Private Member's Bill - Husain Dalwai 11th March, 2016

iii) “Law Commission of India, in its 210th Report, had recommended that Section 309 (attempt to commit suicide) of IPC needs to to be effaced from the statute book. As law and order is a state subject, views of States/UTs were requested on the on the recommendations of the Law Commission. 18 states and 4 Union territory administrations have supported that Section 309 of the IPC may be deleted. Keeping in view the responses from the states/UTs, it has been decided to delete Section 309 of IPC from the statute book.” Minister of State for home Haribhai Parthibhai Chaudhary

III) Supreme Court:

In P. Rathiram v. Union of India , it was held that section 309 is a cruel and irrational provision. It violates Article 21. Attempted suicide has no baneful effect on Society

In Smt. Gian Kaur v. State of Punjab ,it was held that ‘right to life does not include right to die. Extinction of life is not included in protection of life. Thus, the provision penalising attempt to commit suicide does not violate Article 21.

In Aruna Shanbaug [6] judgment dated 07.03.2011, Justice Markandey Katju and Justice Gyan Sudha Misra observed “We are of the opinion that although Section 309, Indian Penal Code (attempt to commit suicide) has been held to be constitutionally valid in Gian Kaur's case, the time has come when it should be deleted by Parliament as it has become anachronistic. A person attempts suicide in a depression, and hence he needs help, rather than punishment. We therefore recommend to Parliament to consider the feasibility of deleting Section 309 from the Indian Penal Code.”

What effects will punishment have on such a person?
It would be very cruel act to punish a person who has attempted to commit suicide and would in turn subject such a person to sufferings who had already found life to be painful, unbearable and chances of being happy so minute that ending life seems easier for him. If such a person fails in his/her attempt to die, by punishing him/her, we are causing more torture and degradation that would be unreasonable and unjust. In fact, such a person needs more empathetic treatment and support. If a person has attempted suicide due to any stressful situation that he/she is not able to handle at the time and if he/she fails in the attempt, there are chances for his/her betterment with mental professional help but with punishment we are making it more difficult for him/her to make any improvement and it also makes his/her mental state more vulnerable. Punishing such a person will not only deepen his/her emotional and psychological wounds but will also end any chance of betterment and hope in him/her. Even for criminals we try for the reformation but punishing the person who tries to commit suicide will only increase his/her negative schemas about life and his/her distress. It is most likely, that after this punishment the person will be more traumatized and will again try to commit suicide. Hence, punishment is not at all the answer to this act and the person should be provided with proper care, treatment and rehabilitation as prescribed in the Mental Health Care Act, 2017.

REFERENCES
[1] https://www.deccanherald.com/city/bengaluru-crime/runaway-couple-attempts-suicide-at-police-station-847348.html
[2] https://rajyasabha.nic.in/business/Bull_No.aspx?number=50693
[3] https://rajyasabha.nic.in/business/Bull_No.aspx?number=55199
[4] 1994 AIR SC 1844
[5] 1996 AIR SCW 1336
[6] 2011 CRI. L. J. (Supp) 301

Disclaimer: This Article is merely for the academic discussion purposes. The opinions expressed herein are those of the contributors (which shall, for these purposes, include guests) in their personal capacity and do not, in any way or manner, reflect the views of the organisations that the contributors are presently associated with , or that have previously employed or retained the contributors. Nothing herein shall be deemed or construed to constitute legal or investment advice. Discussions on , or arising out of this, article between contributors and other person shall not create any attorney-client relationship.

...

Author: Harshvardhan Patil (B.E,PGDIPR,LL.B,LL.M)


I. INTRODUCTION

A company, in the course of conduct of its business, enters into various transactions with different parties, including its related parties. Companies also carry on their activities through its subsidiary companies. Accordingly, related party relationships are a normal feature of business. In the interest of good corporate governance, companies should maintain an arm’s length relationship in all transactions.

Transactions with related parties need not always be disadvantageous. The concern arises only when there is abuse of a related party transaction on account of conflict of interest and non-arm’s length dealings which are profitable to the related parties but which may affect the shareholders in a negative way. Therefore, transparency in such transactions is essential in the interest of stakeholders and good corporate governance.

Who is Related Party ?

a. A related party is a party related to a company in any other way other than by the companies' own transactions. It means that a special relationship persists between the parties even before the transaction takes place. Section 2(76)of the Companies Act, 2013 defines a related party with reference to a company, to mean:

b. director or a key managerial person or their relatives or

c. a firm, private company in which the partner, director/ manager or his relative is a partner or

d. a private company or a public company in which a director or manager is a director and holds along with his relatives, more than 2% of its paid-up share capital.

The definition also includes anybody corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager and any person on whose advice, directions or instructions a director or manager is accustomed to act as related party transactions. The provisions of related party transactions are applicable to private and public companies.

An illustration to Related party:

A parent has a control over the Subsidiary A and B , and the parent also has a significant amount of influential shares in Associate 1 and 2. Subsidiary B has control over C and Subsidiary C has influence over Associate 3.

1. For parent disclosure, the Subsidiary A, B ,C and Associate 1,2,3 are Related Parties.

2. All Subsidiaries are related to each other however the associates will not be related party of each other, but for the consolidated disclosure financial statements the associates will be considered in one group.

What are Related Party Transactions?
Related Party Transactions are transactions that a company does with parties related to it. An Related Party Transaction is an arrangement between two companies which share a preexisting business relationship. So considering the above illustration, the Subsidiary A buys goods & services from, subsidiary B, this transaction will be considered as Related Party Transaction.

The Reason why related party transaction are strict is because, there is an attached risk that the related party may be favored with terms that could harm the interests of the company's shareholders.

For example, considering the above illustration, if Company Subsidiary A rents office premises from Subsidiary C, and Subsidiary A pays higher than market rent, it benefits Subsidiary C, but harms shareholder Subsidiary A. Having said that, such transactions, have been used by corporations across the globe, especially in cases where the business interests of Board members overlap with that of companies in which they have a stake.

Related party transactions mean contracts or arrangements between a company and its related parties with respect to transactions covered in Section 188 of the Act. The expression ‘contract or arrangement’ has different connotations under the Act. While ‘contract’ envisages a written /formal binding document, ‘arrangement’ may be with or without a written document.

What is Arm’s Length Transaction?
For the marketplace to work, everyone has to be playing by the same rules. That means, no special deals, both parties are at arm's length. Here's how an arm's length business transaction works. An arms-length transaction is a way of looking at transactions between parties who are closely related, either family relationships or business relationships (like a company and a subsidiary).

Hence to be a valid transaction, the two related parties must be at arm's length . An arm's length price takes the personal relationship out of the equation. It's the price that a willing buyer and willing seller would freely agree to if they were not related. Making sure a transaction is at arm's length is vital in determining the price of some asset, the price must be based on the fair market value. The fair market value of a property is the market price, what an informed and unpressured buyer would pay to an informed unpressured seller, based solely on the value of the asset.

If the transactions are conducted and carried out in a fair, justiciable manner without any trace of influence of the parties' relation upon itself it is known as a transaction at arm's length. It means transactions which are not biased by the relation of the parties and conducted as if with an unrelated party. Such transactions have been exempted from compliance with Section 188 of the Act.

To govern such related party transactions and to protect the shareholders, various statutes have tried to address and regulate related party transactions by way of disclosures and pre and post transaction compliance.
1. Section 188 of companies Act,2013

2. Regulation 23 read with Part A of Schedule V of SEBI LODR 2015

3. The Companies(Meeting of Board and its Powers) Rules,2014

II. SECTION 188: RELATED PARTY TRANSACTIONS

Related party transactions mean contracts or arrangements between a company and its related parties with respect to transactions covered in Section 188 of the Act. The expression ‘contract or arrangement’ has different connotations under the Act. While ‘contract’ envisages a written / formal binding document, ‘arrangement’ may be with or without a written document.

The Act has not prohibited Related party transactions as a whole but instead lays down safety measures that need to be followed while dealing with related party transactions. Such Related party transactions are regulated by certain conditions as provided in Section 188 of the Act, by the means of which they are to be disclosed to the Board and shareholders for them to ratify. Section 188 of the Act also states that if the transactions fall within the meaning of Section 188, then these need to be disclosed in the Board Report to the shareholders along with a justification in support of the transactions.

Section 188 includes within its ambit any contract or arrangement with a related party with respect to following transactions and threshold limits, for related party transactions which require approval by Special resolution, under Section 188 of the Act:
a) sale, purchase or supply of any goods or materials;

b) selling or otherwise disposing of, or buying, property of any kind;

c) leasing of property of any kind;

d) availing or rendering of any services

e) appointment of any agent for purchase or sale of goods, materials, services or property;

f) such related party's appointment to any office or place of profit in the company, its subsidiary company or associate company; and

g) underwriting the subscription of any securities or derivatives thereof,

No member of the related party can vote in a special resolution to approve any contract or arrangement which may be entered into by the company. If these conditions are satisfied, then the transactions can be proceeded with. Companies adopt policies whereby they prepare standard operating procedures to deal with related parties to be in
compliance with the regulations.

Transactions that are on an arm’s length basis – a transaction when conducted as if they were unrelated, so that there is no conflict of interest, do not fall under the ambit of Section 188 and require no Board or shareholder ratifications.

Liability for Non Compliance:
• Agreements voidable: Where any contract or arrangement is entered into by a director or any other employee, without the consent of the Board or approval by a special resolution in the general meeting and if it is not ratified by the Board or by the shareholders within three months from the date on which such contract is made, then such contract or arrangement shall be voidable at the option of the Board.

• Indemnification: If such a contract or arrangement is with a related party to any director, or is authorized by any other director, the directors concerned shall indemnify the company against any loss incurred by it.

• The company can also proceed against such director or any other employee who had entered into such contract or arrangement in contravention of the provisions of this section for recovery of any loss sustained by it as a result of such contract or arrangement.

• Penalties for a director or any other employee in violation of the provisions of Section 188 (5)(i) of the Act:
i. Listed company: Punishment of imprisonment for a term upto 1 year or with fine from Rs. 25,000 upto Rs. 5 lakhs or both.
ii. Other companies: fine of Rs. 25,000 upto Rs. 5 lakhs .

III. SEBI LODR REGULATION

SEBI notified two main objectives of the LODR firstly , to align clauses of the listing agreement with Companies Act, 2013 and secondly to consolidate the conditions under different securities listing agreements in one single regulation Listing of securities with stock exchange is a matter of great importance for companies and investors, because this provides the liquidity to the securities in the market. Any company offering its shares to the public for subscription is required to be listed on the stock exchange and has to comply with the listing requirements prescribed by the Stock Exchange. A company seeking listing of their securities on the Stock Exchange is required to enter into a formal listing agreement with the Stock Exchange.

In order to enable investors to make well-informed investment decisions, timely, adequate and accurate disclosure of information on an ongoing basis is essential. Also, there is a need of uniformity in disclosures made by listed entities to ensure compliance in letter and spirit.

The provisions of Regulation 23 of the Listing Regulations are only applicable to a listed company.

Regulation 23 : Related Party Transaction
“The company shall formulate a policy on Materiality(significance) of the related party transactions and dealing.

Explanation.- A transaction with a related party shall be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds ten percent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity.”

Regulation 23 of the Listing Regulations mandates prior approval of the Audit Committee for all related party transactions. (Audit committee as mentioned in Schedule II of LODR 2015) However, Regulation 23 permits the Audit Committee to grant omnibus approval for related party transactions proposed to be entered into by the company subject, such transactions will be reviewed by the audit committee in quarterly basis and the approval will be granted for a term of not more than 1 year.

Further, Regulation 23 requires that all material related party transactions shall require approval of the shareholders through a resolution and no related party shall vote to approve such resolution whether the entity is a related party to the particular transaction or not. Such approval is required irrespective of whether the transaction is in the ordinary course of business or whether the same is on arm’s length basis. For the purpose of this regulation, all entities falling under the definition of related parties shall abstain from voting irrespective of whether the entity is a party to the particular transaction or not.

Liability for Non Compliance:
If the company is found in violation of the provisions of LODR the AA, In exercise of powers under Section 11, 11A, 11B , 19 of the SEBI Act, 1992 read with Section 9, 21, 23 of the Securities Contracts (Regulation) Act, 1956 and read with regulation 98 SEBI LODR. For the Noncompliance with certain provisions of the SEBI LODR and the Standard Operating Procedure, SEBI will impose fines as mentioned and in accordance with the Circular dated 30/11/201513

IV. THE COMPANIES(MEETING OF BOARD AND ITS POWERS) RULES,2014

1. Rule 6 Committees of board: constitution of the audit committee by the directors and company.

2. Rule 6A Omnibus Approval for related party transactions annual basis. The Ministry of Corporate Affairs has prescribed the rules for omnibus approval of related party transactions. Under Rule 6A, all related party transactions shall require approval of the Audit Committee and the Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the company. The Audit Committee shall, after obtaining approval of the Board of Directors, specify the criteria for making the omnibus approval which shall include the following, namely:-

• maximum value of the transactions, in aggregate, which can be allowed under the omnibus route in a year;

• the maximum value per transaction which can be allowed;

• extent and manner of disclosures to be made to the Audit Committee at the time of seeking omnibus approval;

• review, at such intervals as the Audit Committee may deem fit, related party transaction entered into by the company pursuant to each of the omnibus approval made;

• transactions which cannot be subject to the omnibus approval by the Audit Committee.

The criteria for omnibus approval can be either specified by the Board or can be a part of the policy for related party transactions of the Company. The Audit Committee shall consider (a) repetitiveness of the transactions (in past or in future) and (b) justification for the need of omnibus approval, while specifying the criteria for making omnibus approval. The Audit Committee shall satisfy itself on the need for omnibus approval for transactions of repetitive nature and that such approval is in the interest of the company. The omnibus approval shall contain or indicate the following: -
• name of the related parties;

• nature and duration of the transaction;

• maximum amount of transaction that can be entered into;

• the indicative base price or current contracted price and the formula for variation in the price, if any;

3.Rule 15(1) : Contract or Arrangement With a Related Party :

A company shall enter into any contract or arrangement with a related party subject to the following conditions, namely:-

(1) The agenda of the Board meeting at which the resolution is proposed to be moved shall disclose-

(a) the name of the related party and nature of relationship;

(b) the nature, duration of the contract and particulars of the contract or arrangement;

(c) the material terms of the contract or arrangement including the value, if any;

(d) any advance paid or received for the contract or arrangement, if any;

(e) the manner of determining the pricing and other commercial terms, both included as part of contract and not considered as part of the contract;

(f) whether all factors relevant to the contract have been considered, if not, the details of factors not considered with the rationale for not considering those factors; and

(g) any other information relevant or important for the Board to take a decision on the proposed transaction.

Rule 15(2) Where any director is interested in any contract or arrangement with a related party, such director shall not be present at the meeting during discussions on the subject matter of the resolution relating to such contract .

Rule 15(3)specifies the threshold limits for transactions beyond which RPTs would require shareholders' approval. On November 18, 2019 the Companies (Meetings of Board and its Powers) amended certain threshold limits prescribed by the Rules.


Case Laws for non-compliance of Related party transaction regulations :

1. In the matter of R.T Exports Ltd

In this case a decision of related party transaction was taken by the promoters of RTEL in an EGM for a purchase of land, of which SEBI found the transaction to be Material related transaction, and found it to be in violation of Regulation 23(4) and 23(7) of LODR, and Section 188 of the Co. Act. Considering the facts of the case SEBI fined 5 Lakhs to each promoter.

2. ENRON CASE IN USA
In the infamous Enron scandal of 2001, Enron used related-party transactions with "special purpose entities" to help conceal billions of dollars in debt from failed business ventures and investments. The related parties misled the board of directors, their audit committee, employees, and the public. The most important Point in this case was that the LOSSES were parked in Shell companies which were not disclosed.

These fraudulent related-party transactions led to Enron's bankruptcy, prison sentences for its executives, lost pensions and savings of employees and shareholders, and the ruin and closure of Arthur Andersen, Enron's auditor, which was found guilty of federal crimes and SEC violations.

From this disaster, however, came the Sarbanes-Oxley Act of 2002, which established new and expanded existing requirements for U.S. public-company boards, management, and public accounting firms, including specific rules that limit conflicts of interest arising from related party transactions. This Sarbanes-Oxley Act of 2002, gave the foundation to the Indian Companies Act 2013.

V. CONCLUSION

To conclude, it is imperative that the Central Government engages with the industry bodies and representatives to bring suitable legislative changes with eagerness, so as to ensure greater probity in corporate governance and protection of shareholders' interests. The current government is doing the best in every field to take the country at a better stage and for that changes in statutes are needed and which has helped India to rank 63 in Ease of doing Business. However, there are certain concerns which may need some light in future with respect to related party transactions:
1. What are the criteria and parameters to satisfy arm’s length transaction by the audit committee with respect to pricing?

2. The extent and meaning of “ ordinary course of business “ under section 188(4) of the Company Act, 2013?

3. Considering the Companies Amendment Bill 2020(Introduced in lok sabha) the decriminalization of Section 188 of the Company Act, 2013 will bring long term benefits to the investors and stakeholders of the company, however the act will turn into a toothless tiger.

REFERENCES

1.Section 2(76) of Companies Act 2013 available at http://ebook.mca.gov.in/Default.aspx?page=main
2.Section 188 of the companies act,2013 available at http://ebook.mca.gov.in/Default.aspx?page=main
3.Section 188 of the companies act,2013 available at http://ebook.mca.gov.in/Default.aspx?page=main
4 Regulation 23 of SEBI LODR 2015 available at https://www.sebi.gov.in/legal/regulations/sep-2015/securities-andexchange-board-of-india-listing-obligations-and-disclosure-requirements-regulations-2015-last-amended-on-april17-2020-_37269.html
5 Chapter XII The Companies (Meetings of Board and its Powers) Rules, 2014, available at http://ebook.mca.gov.in/Default.aspx?page=rules
6.ibid
7.ibid
8.ibid
9.ibid
10 ibid
11 ibid
12 ibid
13SEBI SOP Circular dated 30/11/2015 available at https://www.sebi.gov.in/legal/circulars/nov-2015/noncompliance-with-certain-provisions-of-listing-regulations-and-standard-operating-procedure-for-suspension-andrevocation-of-trading-of-specified-securities_31139.html
14 Chapter XII The Companies (Meetings of Board and its Powers) Rules, 2014, available at
http://ebook.mca.gov.in/Default.aspx?page=rules
15 ibid
16 ibid
17. In the Matter of R.T Exports, (Adjudication Order No. Order/SS/VS/2019-20/4515-4521, dated 18/09/2019)
available at https://www.sebi.gov.in/enforcement/orders/sep-2019/adjudication-order-in-respect-of-7-entities-inthe-matter-of-r-t-exports-limited_44287.html

Disclaimer: This Article is merely for the academic discussion purposes. The opinions expressed herein are those of the contributors (which shall, for these purposes, include guests) in their personal capacity and do not, in any way or manner, reflect the views of the organisations that the contributors are presently associated with , or that have previously employed or retained the contributors. Nothing herein shall be deemed or construed to constitute legal or investment advice. Discussions on , or arising out of this, article between contributors and other person shall not create any attorney-client relationship.

...