Professional Documents
Culture Documents
OPPRESSION
Oppression is the exercise of authority or power in a burdensome, cruel, or
unjust manner.[1] It can also be defined as an act or instance of oppressing, the
state of being oppressed, and the feeling of being heavily burdened, mentally or
physically, by troubles, adverse conditions, and anxiety.
The Supreme Court in Daleant Carrington Investment (P) Ltd. v. P.K.
Prathapan[2], held that increase of share capital of a company for the sole
purpose of gaining control of the company, where the majority shareholder is
reduced to minority , would amount to oppression. The director holds a fiduciary
position and could not on his own issue shares to himself. In such cases the
oppressor would not be given an opportunity to buy put the oppressed.
control over the affairs of the company where CLB will have to grant relief under Sec 397.- Kumar
Exporters (P) Ltd v. Naini Oxygen and Acetylene Gas Ltd.
Failure to distribute the amount of compensation received on nationalization of business of company
among members, where requires to be distributed. Hindustan Co-op Insurance Society Ltd, In
re [15] - Here, the insurance business of the company was nationalized and compensation was
received. The directors did not call any AGM. After three years the board resolved to call a GM and
pass a resolution to continue the company and carry on other businesses authorized by memorandum
with compensation money received. Sec 39 of the Life Insurance Act envisaged distribution of
compensation to shareholders and dissolution of the company. The court held that the resolution and
persistent conduct of the respondent in the affairs of the company shows that they never intended to
distribute the compensation money amongst the shareholders, who were entitled thereto. This
conduct was held to be oppressive to the company and the applicants minority shareholding
company.
Other instances of oppression may include- issue of further shares benefiting a section of the
shareholders; registration of transfers in violation of articles; irregularity in allotment and transfer of
shares; denial of inspection of books to shareholder etc.
There is nothing to limit equity shareholdings only. Applicants may be partly or wholly preference
share holders too. Any member or members having obtained the consent in writing of requisite
number of members may apply. Right to apply is not confined to oppressed minority alone even
oppressed majority can apply.
Prevention of oppression
Section 397(1) of the Companies Act provides that any member of a company who complains that
the affair of the company are being conducted in a manner prejudicial to public interest or in a
manner oppressive to any member or members may apply to the Tribunal for an order thus to protect
his /her statutory rights.
Sub-section (2) of Section 397 lays down the circumstances under which the tribunal may grant
relief under Section 397, if it is of opinion that :(a)the companys affairs are being conducted in a manner prejudicial to public interest or in a manner
oppressive to any member or members ; and
(b) to wind up the company would be unfairly and prejudicial to such member or members , but that
otherwise the facts would justify the making of a winding up order on the ground that it was just and
equitable that the company should be wound.
The tribunal with the view to end the matters complained of, may make such order as it thinks fit.
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seeks remedy must come with clean hands. The members complaining must show fairness in their
conduct. For ex-Mere declaration of low dividend which does not affect the value of the shares of the
petitioner ,was neither oppression nor mismanagement in the eyes of law.[9]
5. Oppression and mismanagement should be specifically pleaded- It is settled law that , in case of
oppression a member has to specifically plead on five facts:a) what is the alleged act of oppression ;
b) who committed the act of oppression;
c) how it is oppressive;
d) whether it is in the affairs of the company;
e) and whether the company is a party to the commission of the act of oppression.[10]
MISMANAGEMENT
The present Company Act does provide the definition of the expression mismanagement. When the
affairs of the company are being conducted in a manner prejudicial to the interest of the company or
its members or against the public interest, it amounts to mismanagement.
Instances Of Mismanagement
A very clear illustration of mismanagement under Section 398 appears in Rajahmundary Electric
Corporation v. Nageshwara Rao [19] . Here, a petition was brought against a company by certain
shareholders on the ground of mismanagement by directors. Court found that vice-chairman grossly
mismanaged the affairs of the company and had drawn considerable amounts for his personal
purposes, the shareholders outside the group of chairman were powerless to set matters right. This
was held to be sufficient evidence of mismanagement. The court accordingly appointed two
administrators for management of company for period of 6 months vesting in them all the powers of
the directorate.
Where the managing directors of the Company continued in office after expiry of their terms,
without a meeting being held to re-appoint them prior to making fresh application to Central
Government under Sec 269, the continuation of office under these conditions was held to be
mismanagement.- Sishu Ranjan v. Bholanath Paper House [20]
Where bank account was operated by unauthorized person. Kuldip Singh Dhillon v. Paragon Utility
Financers Ltd. In this case, a certified copy of a resolution had been sent to the bank authorizing
certain persons to operate the account. No such resolution was found recorded in the minutes book;
rather the resolutions passed on the particular date and recorded in the minutes book; rather the
resolutions passed on the particular date and recorded in the minutes book were different.
Sale of assets at low price and without compliance with the Act- One of the estates of a tea and
rubber plantation company was sold by the direction at a low price to another tea plantation company
without complying with the requirements of sec 293(1) which demands approval by shareholders and
without giving adequate under Sec 173 and relevant information, giving delivery of possession
before general body meeting and accepting consideration in instalment. It was held that all these acts
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constituted mismanagement of affairs and sale was set aside. The Board of directors and the
purchasers were held liable for the companys losses and were required to submit an account of the
income of the estate from the date of delivery of possession to the date of its actual return to the
company- Malayalam Plantations Ltd., Re [21]
Violation of statutory provisions and those of articles- Transferring shares without first offering them
to the existing members in accordance with their rights under the articles, holding meetings without
sending notice to members; issue of shares for consideration other than cash not represented by
corresponding assets and burdening the company with additional rental by shifting the companys
office- Akbarali Kalveri v. Konkan Chemicals Ltd. [22]
Other instances include Gross neglect of interest of the company by sale of its only assets and total
inattention thereafter to the affairs of the company [23] ; Violation of conditions of companys
memorandum etc.
The famous Satyam fiasco is a very good example of mismanagement of funds of the company and
fraudulent accounting, where the Chairman of Satyam Computer Services- Ramalinga Raju in his
letter to the Board of Directors confessed to Indias biggest corporate fraud worth Rs 7,000 crore on
the company. [24]
Effect of Arbitration Clause [25] - Provisions in the Articles of Association of a company for
reference of disputes between Company and director, or between directors or between members
cannot oust the jurisdiction of the Court to try petition by member for winding up or petition against
oppression and mismanagement.
Partnership- The Supreme Court has laid down that a relief cannot be granted under S 397 and 398
on the analogy of principles applicable partnership and the application of this has to be confined to
rare cases for invoking the jurisdiction under S.433 for ordering winding up of small private
company. [26]
Banking- A banking company can be wound up only under Part III of Banking Regulation Act and
not under the just and equitable clause in Sec 433(f). Consequently no application is maintainable
under sec 397 in respect of banking company.
PREVENTION OF MISMANAGEMENT
Section 398(1) of the Companies act provides that any members of a company who complain:that the affairs of the company are being conducted in a manner prejudicial to public interest or in a
manner prejudicial to the interests of the company; or a material change has taken place in the
management or control of the company, whether by an alteration in its Board of directors, or
manager or in the ownership of the company's shares, or if it has no share capital, in its membership,
or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of
the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to
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the interests of the company; may apply to the Company Law Board for an order of relief provided
such members have a right so to apply as given below.
If, on any such application, the Company Law Board is of opinion that the affairs of the company are
being conducted as aforesaid or that by reason of any material change as aforesaid in the
management or control of the company, it is likely that the affairs of the company will be conducted
as aforesaid, the court may, with a view to bringing to an end or preventing the matters complained
of or apprehended, make such order as it thinks fit.
Right to Complain mismanagement1. The following members of a company shall have the right to apply as above:a) in the case of a company having a share capital, not less than one hundred members of the
company or not less than one tenth of the total number of its members, whichever is less, or any
member or members holding not less than one-tenth of the issued share capital of the company,
provided that the applicant or applicants have paid all calls and other sums due on their shares;
b) in the case of a company not having a share capital, not less than one-fifth of the total number of
its members.
2. Where any share or shares are held by two or more persons jointly, they shall be counted only as
one number.
3. Where any members of a company, are entitled to make an application, any one or more of them
having obtained the consent in writing of the rest, may make the application on behalf and for the
benefit of all of them.
4. The Central Government may, if in its opinion circumstances exist which make it just and
equitable so to do, authorize any member or members of the company to apply to the Company
Law Board, notwithstanding that the above requirements for application are not fulfilled.
5.The Central Government may, before authorizing any member or members as aforesaid, require
such member or members to give security for such amount as the Central Government may deem
reasonable, for the payment of any costs which the Court dealing with the application may order
such member or members to pay to any other person or persons who are parties to the application.
6. If the managing director or any other director, or the manager, of a company or any other person,
who has not been impleaded as a respondent to any application applies to be added as a respondent
thereto, the Company Law Board may, if it is satisfied that there is sufficient cause for doing so,
direct that he may be added as a respondent accordingly.
Notice to be given to Central Government of application
The Company Law Board must give notice of every application made to it as above to the Central
government, and shall take into consideration the representations, if any, made to it by that
Government before passing a final order.
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the company who is in default, shall be punishable with fine which may extend to five thousand
rupees.
Consequences of termination or modification of certain agreements:
Where an order terminates, sets aside or modifies an agreement:the order shall not give rise to any claim whatever against the company by any person for damages or
for compensation for loss of office or in any respect, either in pursuance of the agreement or
otherwise; no managing or other director or manager whose agreement is so terminated or set aside,
shall for a period of five years from the date of the order terminating the agreement, without the
leave of the Company Law Board, be appointed, or act, as the managing or other director or manager
of the company. Any person who knowingly acts as a managing or other director or manager of a
company in contravention of the above provision, every director of the company, who is knowingly a
party to such contravention shall be punishable with imprisonment for a term which may extend to
one year, or with fine which may extend to five thousand rupees, or with both. The Company
Law Board will not grant leave for appointment as managing director or director or manager of the
company unless notice of the intention to apply for leave has been served on the Central Government
and that Government has been given an opportunity of being heard in the matter.
Powers of Central Government to prevent oppression or mismanagement:
The Central Government may appoint such number of persons as the Company Law Board may, by
order in writing, specify as being necessary to effectively safeguard the interests of the Company or
its shareholders or public interests, to act as directors thereof for such period not exceeding 3 years
on any one occasion[11] as it deems fit if theCompany Law Board:On a reference being made to it by the Central Government ; or on an application of not less than one
hundred members of the company or of members of the company holding not less than one-tenth of
the total voting power therein, is satisfied, after such inquiry as it deems fit to make, that it is
necessary to make the appointment or appointments in order to prevent the affairs of the company
being conducted either in a manner which is oppressive to any members of the company or in a
manner which is prejudicial to the interests of the company or to public interest.
However, in lieu of passing order as aforesaid, the Company Law Board may, if the company has not
availed itself of the option given to it of proportional representation to minority shareholders on the
Board of the company, direct the company to amend its articles in the manner provided section 265
and make fresh appointments of directors in pursuance of the articles as so amended within such time
as may be specified in that behalf by the Company LawBoard.
In case the Central Government passes such an order it may, if thinks fit, direct that until new
directors are appointed in pursuance of the order aforesaid, not more than two members of the
company specified by the Company law Board shall hold office as additional directors of the
company. The Central Government shall appoint such additional directors on such directions.
The person appointed as a director by the Central Government in accordance with the above
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provisions, need not hold any qualification shares or need to retire by rotation. However, his office as
director may be terminated at any time by the Central Government and another person appointed in
his place. No change in the constitution of the Board of Directors can take place after an additional
director is appointed by the Central Government in accordance with these provisions unless
approved by the Company Law Board. The Central Government in such cases may also issue such
directions to the company as it may consider necessary or appropriate in regard to its affairs.
Power of the Tribunals to prevent change in Board of Directors :
Where a complaint is made to the Company Law Board by the managing director or any other
director or the manager of a company that, as a result of a change which has taken place or is likely
to take place in ownership or any shares held in the company, a change in the Board of directors is
likely to take place which (if allowed) would affect prejudicially the affairs of the company,
the Company Law Board may, if satisfied, after such inquiry as it thinks fit to make that it is just and
proper to do so, by order direct that no resolution passed or that may be passed or no action taken or
may be taken to effect a change in the Board of directors after the date of the complaint shall have
effect unless confirmed by the Company Law Board.
Any such order shall have effect notwithstanding anything to the contrary contained in any other
provision of this Act or in the memorandum or articles of the company, or in any agreement with, or
any resolution passed in general meeting by, or by the Board of directors or, the company.
The Company Law Board shall have power when any such complaint is received by it, to make an
interim order to the effect set out above, before making or completing the inquiry aforesaid. Nothing
contained above shall apply to a private company, unless it is a subsidiary of a public company.[12]
Powers of Inspectors [S.240]:
Where an inspector investigating the affairs of the company thinks it necessary to investigate the
affairs of another company in the same management or group , he is empowered to do so. However
as mentioned in section 239(2), he has to obtain prior approval of the Central Government for that
purpose.[13] Section 240 has been amended by the Amendment of 2000 .Sub-section (1) was
substituted. The new sub-section provides that it shall be the duty of all officers and other employees
and agents of the company and those of any other body corporate whose affairs are being
investigated under Section 239:
a) to preserve and to produce to an inspector or any other person authorized by him in this behalf
with the previous approval of the Central Government, all books and papers of or relating to the
other body corporate, which are in their custody or power; and
b) otherwise to give to the inspector, all assistance in connection with the investigation which they
are reasonable able to give.
For facilitating the task of the inspector it is the duty of all officers in charge of the management of
the company to produce to the inspector all books and papers of the company which are in the
custody and power and to give to the inspector all assistance in connection with the investigation
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which they are reasonably able to give.[14]The inspector may examine on oath any such person and
for this purpose require his personal attendance.[15]If a person required to appear or to produce
books, makes a default that is a punishable offence.[16]Where an inspector finds a person, whom he
has no power to examine on oath, ought to be so examined the inspector may do so with the previous
approval of the Central Government. Notes of any such examination are to be taken in writing and
signed by the person examined and may be used in evidence against him [17].A refusal to answer
any question is also punishable.
Conclusion
Oppression and mismanagement are part and parcel of business. During the course of business,
oppression of small/minority shareholders takes place by the majority shareholders who are in
control of the company. Similarly, mismanagement of business is not uncommon. When we talk of
mismanagement we mean mismanagement of resources. Mismanagement could mean siphoning of
funds, causing losses due to rash decision, not maintaining proper records, not calling requisite
meetings. Finer version of mismanagement could arise where the management does not act/react to a
business situation leading to downfall of business.
The concept of oppression and mismanagement is more relevant or common to family owned
concerns. The reasons are very obvious. Family owned concerns are owned by family members who
over time develop vested interest in business vested interest in their own heirs being the most
common - thereby leading to oppression of other family members. Here typically, the controlling
member of the family appropriates the family holdings by means of either a fresh issue or fraudulent
transfers in his favor or reconstitutes the board in such a manner as to alienate the other family
members. The result is the other family members get oppressed.
Secondly, the family owned concerns are not professional managed and their system of functioning
is usually personal. They lack probity and fair play. They generally do business in a manner where
they begin to benefit personally to the exclusion of other members. This leads to oppression of other
family members/mismanagement of companies.
In order to check all these discrepancies the need was felt to have any measure to prevent the
Oppression and mismanagement and thus under Chapter 6th of Part 6th of Companies Act , 1956
provides for the judicial as well as administrative remedies to check Oppression and
mismanagement. It is a powerful tool which provides such power that even a singer member can
approach Company Law Board if any of his right has been infringed or in order to prevent the
Oppression and mismanagement in the company.
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(i) calling for information from, undertaking inspection, conducting inquiries and audits of the
stock exchanges, intermediaries and SROs,
(j) performing such functions and exercising such powers under the SCRA as may be delegated
by the Central Government, (This was done in the interest of integrated regulation. Then all
the powers under the SCRA were exercisable by Central Government. Until SEBI stabilizes,
it was considered desirable that important powers are not transferred from Central
Government, but delegated to SEBI.)
(k) levying fees or other charges for carrying the above purposes,
(l) conducting research for the above purposes and
(m)performing such other functions as may be prescribed.
The Board was empowered to delegate any of its powers and functions under the Act (except
powers to make regulations) to any member, officer of the Board or any other person.
Securities Appellate Tribunal
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Regulation Act and enact a new legislation. A task force constituted for the purpose submitted its
report in 1994 recommending substantial changes in the existing Act.
ii. Significant developments have been taking place since 1993 such as substantial increase in foreign
exchange reserves, growth in foreign trade, rationalization of tariffs, current account
convertibility, liberalization of Indian investments abroad, increased access to external borrowings
by Indian corporate and participation of Foreign investors in the stock markets.
Accordingly, a bill to repeal and replace Foreign Exchange Regulation Act, 1973 was
introduced Lok Sabha on 04.08.1998. On reference to the standing committee modifications and
suggestions were submitted by the standing committee in its report. After incorporating
modifications and suggestions of the standing committee, the central government decided to
introduce the new law, the Foreign Exchange Management Bill and repeal the Foreign Exchange
Regulation Act, 1973
Salient Features of FEMA
FEMA extends to whole of India. It shall also apply to all branches, offices and agencies
outside India, owned or controlled by a person resident inIndia and also to any contravention there
under committed outside India by any person to whom the Act applies. Therefore joint ventures or
wholly owned subsidiaries, though outside India, but controlled from India are intended to be
covered by the Act. The new Act is meant to be user friendly with the object to facilitate external
trade and payments for promoting the orderly development of foreign exchange in India.
Under the new law, the emphasis for determining the residential status is on the actual
period of stay in India, whereas under FEMA, the emphasis was on the intention of the person.
Under the new law, it is not necessary that the person should be continuously and physically
present in India. It will be sufficient the total of stay in India is 182 days or more during the year.
The central government may from time to time give general or special directions to the
Reserve Bank and Reserve Bank shall comply with such directions. The central government may
by notification make rules to carry out the provisions of the Act. The Reserve Bank may by
notification make regulation to carry out the provisions of the Act and rules there under. Every
rule and regulation made under the Act shall as soon as after it is made, be laid before each house
of parliament. If any difficulty arises in giving effect ti the provisions of the Act, the central
government may by order, do anything not inconsistent with the provisions if the Act for the
purpose of removing the difficulty.
Suspension of operation of FEMA
If the central government is satisfied that circumstances have arisen rendering it necessary
that any permission granted or restriction imposed by the Act should cease to be granted or
imposed or if it considers necessary in public interest, the central government may by notification,
suspend or relax to such extent either indefinitely or for such period as notified, the operation of
all or any of the provisions of the Act.
Bar of legal proceedings
No suit, prosecution or other legal proceedings shall lie against the central government or
the Reserve Bank or any officer of the government or of the Reserve Bank or any person
exercising any power or discharging any functions or performing any duties under the Act for
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anything done in good faith or extended to be done under the Act or rule, regulation, notification,
direction or order made there under.
Repeal, Savings and Cognizance of offences
With the enactment of FEMA, FERA stands repealed and appellate board constituted
under FERA shall stand dissolved. No court and adjudicating officer shall take cognizance or
notice of an offence or any contravention under FEMA after the expiry of two years period from
1.6.2000. However, while FERA was in force all offences committed under FERA shall continue
to be governed by FERA as if FERA had not been repealed. Any appeal preferred to the Appellate
Board under FERA but not disposed off before the commencement of FEMA shall stand
transferred and shall be disposed off by the Appellate Tribunal constituted under FEMA. FEMA is
for regulation and management of foreign exchange through authorized person and provides for
penalty for contravention of the provisions. The object is for promoting orderly development and
maintenance of foreign exchange market in India.
Adjudicating Authority (Sec. 16)
Appointment. For the purpose of adjudication, the Central Government may appoint officers of the
Central Government as the Adjudicating Authorities. The appointment shall be made by an order
published in the official Gazette, for holding an enquiry in the manner prescribed after giving the
person alleged to have committed contravention, against whom a complaint has been made
(referred to as the said person) a reasonable opportunity of being heard for the purpose of
imposing any penalty, if levied, it may direct the said person to furnish a bond or guarantee for
such amount [Sec. 16(1)]
Jurisdiction. The Central Government shall, while appointing the Adjudicating Authorities,
also specify in the order published in the official Gazette their respective jurisdiction [Sec. 16(2)].
Procedure of inquiry. The Adjudicating Authority shall hold an enquiry only upon a complaint in
writing made by an officer authorized by a general or special order by the Central Government
[Sec. 16(3)]. The said person may appear either or person or take the assistance of a legal
practitioner or a chartered accountant of his choice for presenting his case before the Adjudicating
Authority [Sec. 16(4)]
Powers of Adjudicating Authority. The Adjudicating Authority shall have the same powers a civil
court which are conferred on the Appellate tribunal under sec. 28(2) anda) All proceedings before I shall be deemed to be judicial proceedings within the meanings of secs.
193 and 228 of the Indian Penal Code, 1860;
b) Shall be deemed to be a civil court for the purposes of Secs. 345 and 346 of the code of Criminal
Procedure, 1973.
Appeal to Special Director (Appeals) (Sec. 17)
Appointment. The central government shall, by notification, appoint one or more Special
Directors (Appeals) to hear appeals against the orders of the Adjudicating Authorities. It should
also specify in the said notification the matter and places in relation to which the Director
(Appeals) may exercise jurisdiction [Sec. 17(1)].
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Appeal. Any person aggrieved by an order made by the Adjudicating Authority (being an Assistant
Director of Enforcement or a Deputy Director of Enforcement) may prefer an appeal to the special
Director (Appeals) [Sec. 17(2)]. The appeal shall be filed within 45 days from the date on which
the copy of the order made by the Adjudicating Authority is received [Sec. 17(3)].
On receipt of an appeal, the Special Director (Appeals) may pass such order thereon as h thinks fit
confirming, modifying or setting aside the order appealed against. But before he passes any such
order he shall give the parties to the appeal an opportunity of being heard [Sec. 17 (4)]. The
opportunity of being heard is an offshoot of the requirement of compliance of the principles of
natural justice.
Again, the order refusing the permission must be supported by valid reasons. If the order of
refusal does not give any reason or contains reasons which are not valid or the reasons have no
rational nexus to the object, or the reasons are colored by policy or expediency, the applicant will
be entitled for the judicial relief [ Appejay Pvt. Ltd. V. Union of India,(1979) 49 Comp. Cas. 602
(call.)].
Copy of the order to be sent to the parties and the Adjudicating Authority. The Special Director
(Appeals) shall send a copy of every order made by him to the parties to appeal and to the
concerned Adjudicating Authority [Sec. 17(5)].
Establishment of Appellate Tribunal (Sec. 18)
The Central Government shall, by notification, establish an Appellate Tribunal to be known as the
Appellate Tribunal for the Foreign Exchange to hear appeals against the orders of the adjudicating
authorities and the Special Director (Appeals) under this Act.
Appeal to Appellate Tribunal (Sec. 19)
The Central Government or any person aggrieved by an order made by an Adjudicating Authority
or the Special Director (Appeals) may prefer an appeal to the Appellate Tribunal. The person
appealing against the order of the Adjudicating Authority or the Special Director (Appeals)
levying any penalty, shall while filing the appeal, deposit the amount of such penalty with such
authority as may be notified by the Central Government. Where in any particular case, the
Appellate tribunal is of a opinion that the deposit of such penalty would cause undue hardship to
such person, it may dispense with such deposit [Sec. 19(1)].
Appeal to b filed within 45 days. Every appeal under Sec. 19(1) shall be filed within a period of 45
days from the date on which a copy of the order made by the Adjudicating Authority or the
Special Director (Appeals) is received by the aggrieved person or by the Central Government.
However, the Appellate Tribunal may entertain an appeal after the expiry of the said period of 45
days if it is satisfied that there was sufficient cause for not filing it within that period [Sec. 19(2)].
Orders by the Appellate Tribunal. On receipt of an appeal under Sec. 19(1), the Appellate Tribunal
may, after giving the parties to the appeal an opportunities of being heard, pass such orders
thereon as it think fit, confirming, modifying and setting aside the order appealed against [Sec.
19(3)]. It shall send a copy of every order made by it to the parties to the appeal and to the
concerned Adjudicating Authority or the Special Director (Appeals) [Sec.19 (4)].
Expeditious Disposal of Appeal. The appeal filed before the Appellate Tribunal under Sec. 19 (1)
shall be dealt with by it as expeditiously as possible and endeavor shall be made by it to dispose of
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the appeal finally within 180 days from the date of receipt of the appeal. Where the appeal could
not be disposed of within the period of 180 days, the Appellate Tribunal shall record its reasons in
writing for not disposing of the appeal within the said period [Sec. 19 (5)].
Requisition of records of the proceedings. The Appellate Tribunal may, for the purpose of the
examining the legality, propriety or corrections of any order made by the Adjudicating Authority
under Sec. 16, call for the records of such proceedings and make such order in the case as it thinks
fit. The record may be called for by the Appellate Tribunal on its own motion or otherwise [Sec.
19(6)].
Composition of Appellate Tribunal (Sec. 20)
Composition. The Appellate Tribunal shall consist of a Chairperson and such number of Members
as the Central Government may deem fit [Sec. 20(1)].
Jurisdiction.
a) The jurisdiction of the Appellate Tribunal may be exercised by Benches thereof.
b) A Bench may be constituted by the Chairperson with one or more Members as the chairperson may
deem fit.
c) The benches of the Appellate Tribunal shall ordinarily sit at New Delhi. These may also sit at such
other places as the Central Government may, in consultation with the chairperson, notify.
d) The Central Government shall notify the areas in relation to which each bench of the appellate
tribunal may exercise jurisdiction [Sec. 20(2)].
Transfer of the Members. The Chairperson may transfer a Member from one Bench to another
Bench [Sec. 20(3)].
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help a company to become more flexible by transforming fixed into variable costs.[9] A variable cost
structure helps a company responding to changes in required capacity and does not require a
company to invest in assets, thereby making the company more flexible.[10]
Another way in which BPO contributes to a companys flexibility is that a company is able to focus
on its core competencies, without being burdened by the demands of bureaucratic restraints.[11] Key
employees are herewith released from performing non-core or administrative processes and can
invest more time and energy in building the firms core businesses.[12] The key lies in knowing which
of the main value drivers to focus on customer intimacy, product leadership, or operational
excellence. Focusing more on one of these drivers may help a company create a competitive edge.[13]
A third way in which BPO increases organizational flexibility is by increasing the speed of business
processes. Supply chain management with the effective use of supply chain partners and business
process outsourcing increases the speed of several business processes, such as the throughput in the
case of a manufacturing company.[14]
Finally, flexibility is seen as a stage in the organizational life cycle: A company can maintain growth
goals while avoiding standard business bottlenecks.[15] BPO therefore allows firms to retain their
entrepreneurial speed and agility, which they would otherwise sacrifice in order to become efficient
as they expanded. It avoids a premature internal transition from its informal entrepreneurial phase to
a more bureaucratic mode of operation.[16]
A company may be able to grow at a faster pace as it will be less constrained by large capital
expenditures for people or equipment that may take years to amortize, may become outdated or turn
out to be a poor match for the company over time.
Although the above-mentioned arguments favour the view that BPO increases the flexibility of
organizations, management needs to be careful with the implementation of it as there are issues,
which work against these advantages. Among problems, which arise in practice are: A failure to meet
service levels, unclear contractual issues, changing requirements and unforeseen charges, and a
dependence on the BPO which reduces flexibility. Consequently, these challenges need to be
considered before a company decides to engage in business process outsourcing.[17]
A further issue is that in many cases there is little that differentiates the BPO providers other than
size. They often provide similar services, have similar geographic footprints, leverage similar
technology stacks, and have similar Quality Improvement approaches.
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Direct Contract This is the most straight forward means of establishing contact. The firm
needing legal services directly approaches the legal process outsourcing vendor.
Managed Outsourcing This is a case where the firm establishes contact with a legal process
outsourcing vendor and retains a traditional law firm to coordinate the vendor's activities and to
ensure quality control.
Required Outsourcing This form of outsourcing occurs when the firm mandates a certain
level of outsourcing in the legal process, either to reduce costs or to fulfill statutory
requirements.
Multi-sourcing This involves segregating the work assigned to LPO providers in order to
reduce risk and take advantage of each provider's strengths. This approach is helpful in cases
where expertise is required on matters of jurisdiction and merits. Having more than one provider
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"on deck" also allows a service recipient to obtain more favorable pricing. On the other hand,
multi-sourcing can be more complicated than other approaches. Successfully managing multiple,
competing providers requires strong and effective governance procedures.[14]
Reasons
Among the leading proponents of this process have been corporate clients concerned with rising
legal expenses. The legal departments of corporations began using the services of such providers.
Soon these corporations began to pressure their legal representatives to outsource certain legal
processes to cut costs.[15]
Cost saving is the biggest attraction for the western firms that outsource their legal work. Indias
legal services are widely considered affordable, efficient, and above all, skilled. For a legal job
outsourced in India, the U.S. firm pays hardly one-fourth or one-fifth of what it has to pay in the U.S.
for the same work.[16]
Advantages
Most firms and corporations outsource primarily to save cash, and this is considered the biggest
advantage for legal outsourcing. While an attorney in major legal markets such as the US may charge
from $150 to $500 per hour when performing rote services, legal process outsourcing firms generally
charge a small fraction of that price. It has attracted major corporations to outsource specific work
outside their legal departments. Many destinations for outsourcing have benefited from the upsurge
in bankruptcies and litigations that have occurred in the wake of the Global Financial Crisis.[17][18] As
reported in the ABA Journal, "[t]he market for outsourced legal work is booming in India. While
lawyers there are doing a lot of routine work, they are also handling some interesting legal matters,
including work for the makers of movies and television shows."[19] As stated in USA Today, "'[y]ou
could call it "Outsourcing 2.0" or maybe even "3.0." Now firms are increasingly trying to leverage
expertise,' says Saikat Chaudhuri, an assistant professor in the business school at the University of
Pennsylvania. Legal Outsourcing is 'growing very, very quickly
Criticisms
One of the major concerns with outsourcing is the potential for breaches of client confidentiality. In
legal process outsourcing the issue of client confidentiality assumes utmost importance.
The attorneyclient privilege is a doctrine that says anything conveyed between an attorney and his
client shall be treated with utmost confidentiality and is exempted from disclosure even in a court of
law. However, when either party discloses confidential information to a third party or the opposite
party, the privilege is deemed to be waived. During the early years of legal process outsourcing,
many law firms hesitated to outsource their work.[23] Critics and opponents state that, since
communication is being sent to a country other than United States, the confidentiality is broken;
hence, the attorney client privilege has been waived. However, American Bar Association clarified
this in 2008, clearing the way for the development of legal process outsourcing.
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Another criticism is that people performing legal work may not be bound to necessary ethical
standards.[25] The process of Legal Outsourcing has come in conflict with the Model Code of
Conduct issued by the American Bar Association.[26]However, there have been ethics opinions from
various local bar associations (New York,[27] San Diego[28]) and recently the American Bar
Association[29] that discuss ethical legal outsourcing and how to achieve it.
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