B.COM.

Semester-II

Core Course
Paper : III Business Laws
Unit : I-V

SCHOOL OF OPEN LEARNING

University of Delhi

Department of Commerce
 Graduate Course

Core Course - 3
BUSINESS LAWS

Contents:
Unit I
Lesson 1: Indian Contract Act, 1872
Lesson 2: Discharge of Contracts
Lesson 3: Contingent Contract and Quasi Contract
Unit II
Lesson 1: Contracts of Indemnity and Guarantee, Bailment and Pledge Agency Indemnity
Unit III
Lesson 1: The Sale of Goods Act, 1930
Unit IV
Lesson 1: Meaning of Limited Liability Partnership
Lesson 2: Partners, their Relations and Liabilities in a LLP
Lesson 3: Financial Disclosure and Winding up of LLP
Unit V
Lesson 1: Information Technology Act 2000
Lesson 2: Attribution, Acknowledgement and Dispatch of Electronic Records and
Regulations of Certifying Authorities
Lesson 3: Digital Signature Certificates
Lesson 4: Penalties and Adjudication

Edited by:
Sh. K.B. Gupta

SCHOOL OF OPEN LEARNING

University of Delhi
5, Cavalry Lane, Delhi – 110007
 LESSON 1

INDIAN CONTRACT ACT, 1872

The Indian Contract Act came in to force on 1st September 1872. It was enacted mainly
with a view to ensure reasonable fulfillment of expectations created by the promise of the parties
and also enforcement of obligations prescribed by an agreement between the parties. The object of
the Act is also to introduce detmiteness in commercial transactions. It applies to the whole of the
country except the State of Jammu and Kashmir.
The Acts is neither retrospective nor exhaustive. It deals mostly with the general principles
embodying contracts. The Act does not cover the whole field of contract law. Besides the Contract Act,
there are various other laws regulating different types of agreements, e.g., the Transfer of Property Act
deals with agreements relating to transfer of immovable property; the Sale of Goods Act deals with
contracts of sale of goods; the partnership Act deals with partnership agreements, the Information
Technology Act deals with contracts made through electronic medium, etc. The present Contract Act
also does not affect particular customs and usages of trade, which are not inconsistent with any of the
provisions of law, for example, usages relating to Hundies as negotiable instruments. The Law of
Contract is different from other branches of law inasmuch as that the contracting parties are at liberty
to make rules and regulations about the enforcement of their rights and fulfillment of their duties.
Application of the English Law
In case, a particular matter is not covered by any section of the Contact Act or by any other law
in force in India, the courts may follow the principles of English Common Law, provided they are not
inconsistent with Indian conditions and circumstances.
Indian Contract Act applies only to those agreements which are valid and enforceable by law.
Further, the law of Contract is not the whole law of agreements nor is it the whole law of obligations.
An agreement which does not give rise to any legal obligations e.g. marriage, conveyance of gifts, etc.,
which are not enforceable by law as contracts. Obligation to maintain one's wife and children does not
arise out of contract. Agreements which result in the transfer or the destruction of rights are not covered
by the, Contract Act.
Meaning and Nature of Contract
A contract has been defined as follows: Salmond defines a contract as "an agreement creating and
defining obligations between the parties".
Sir William Anson observes, "A contract is an agreement enforceable at law made between two
or more persons, by which rights are acquired by one or more to acts or forbearances on the part of
other or others".
According to Sir Fedrick Pollack, "Every agreement and promise enforceable at law is a contract".
Sec 2(h) of the Indian Contract Act defines a contract as "An agreement enforceable at law".
These definitions resolve themselves into two distinct parts: First, there must be an agreement.
Secondly, such an agreement must be enforceable by law and an agreement to be enforceable must be
coupled with obligation.
Thus a contract requires:
(i) Two Parties : There must be two parties to constitute a contract. A contract can only be

1
 (6) VOID AGREEMENT

Void agreements are those agreements which are not enforced by law courts. Section 2(g) of the
Indian Contract Act defines a void agreement as, "an agreement not enforceable by law". Thus the
parties to the contract do not get any legal redress in the case of void agreements.
Void agreements arise due to the non-fulfillment of one or more conditions laid down by Section
10 of the Indian contract Act. Ths Section states as follows:
All agreements are contracts if they are made with free consent of parties competent to contract,
for a lawful, consideration and with a lawful object, and are not hereby expressly declared to be void.
Nothing herein contained shall affect any law in force in India, and not hereby expressly replealed,
by which any contract is required to be made in writing or in the presence of witness, or any law relating
to the registration of documents.
From the above, it is quite clear that non-fulfillment of any of these conditions by one of the parties
to a contract shall make an agreement void. These conditions being:-
1. Free consent of the parties;
2. Competency of the parties to contract;
3. Existence of a lawful consideration;
4. Existence of a lawful object;
5. Agreement being not included in the list of those specially declared to be void by the Indian
Contract Act by its Section 26, 27, 28, 29, 30, and 56;
6. Completion of certain formalities required by any other law of the country like transfer of
Property, Act, Company Act, etc.
Difference between a Void Agreement and a Void Contract
Most of the students do not make any distinction between the two terms. They treat them in one
and the same sense. But this is wrong. Agreement shall be called a contract only when it fulfills all the
conditions laid down by Section 10 of the Act.
The students can make a distinction between an agreement and a contract on the following basis:-
1. Definition: void agreement is defined by Section 2(g) viz., an agreement not enforceable by
law is void agreement. Void contract is defined by Section 2(j) viz., a contract which ceases to be
enforceable by law is a void contract since the time it ceases to be enforceable.
Thus it is very clear from the two definitions that a void agreement is void from the very beginning
and does not create any legal effect, while a void contract is not void from the beginning, it becomes
void at a subsequent stage due to the occurrence of an event or change in the original conditions. We
may illustrate this with the help of an example. A, an Indian, enters into a contract with B, a Pakistani
national, to supply woolen a carpets after three months. After some time war breaks out between India
and Pakistan. The contract in between A & B shall become void at the outbreak of war.
2. Rights: A void agreement does not create any legal right or obligation upon the parties to
the agreement. On the other hand, a void contract does create a right and an obligation upon the parties.
A party to the void contract is within his rights to get back the benefit which he had given to the other

43
 (b) A specific subject-matter assumed by the parties to exist or continue in existence is accidentally
destryoed or fails to be produced, or an event or set of things assumed as the foundation of the contract
does not happen or fails to exist, although performance of the contract according to its terms may be
literally possible.
In this second case, where the subject matter of the contract is destroyed by the act of God, the
parties to the contract shall not be able to perform the promise. Therefore, they are excused for non­
performance.
A music shall is taken on rent for several nights for arranging a series of concert. The hall is burnt
down before the date of the first concert. The contract shall be declared void on the ground of
supervening impossibility. A similar decision was given in Taylor Cadwell (1963, 3 B. & S. 826).
In the case of non-existence or non-occurence of a particular state of things also the contract shall
be discharged on the plea of supervening impossibility since the non-occurence or non-existence of a
particular state is on account of some act beyond the power of parties.
A agrees to marry B. Before the time fixed for such marriage B goes and mad. A shall not marry
B and he shall be relieved of his obligatioin. Here B's mental state has made the contract void.
Similarly, where a room in a hotel is taken for witnessing a procession on a particular date, and
the specific purpose, is made known the to the other party of the contract also, the change in the route
of the procession shall make the contract void. Krell v. Henry is an interesting case over the point.
Failure of the object of such nature is also termed as 'Frustration of the contract.'
(c) The promise was to perform something in person and the promisor dies or is disabled by
sickness or misadventure. Such cases are usually seen in the practical seen in the practical world. The
contract is to be performed by the promisor only and not by his agent or any third party since the
performance of the contract is based upon the personal skill or qualities. In such cases the contract shall
be declared void, if the promisor becomes sick or is disabled or even dies. The case of Robinson v
Davision (1871, L.R. 6 Ex. 269) is an important case over this point. A, an artist, entered into an
agreement to paint a picture for B in 15 days time. A fell ill and could not paint the picture and deliver
the same to B within the agreed time. Held A was discharged from his liability on account of Supervening
hnposibility.
(d) Outbreak of War. Alien enemy does not have capacity to contract and an enemy country
during the war, it shall not be enforceable on the ground of trading with an enemy. Where a contract
is made with a country and after some time due to war the country is declared an enemy country, the
contract shall be suspended till the war is over may be revived later on.
A, an Indian, entered into a contract with P of Lahore to supply some cloth. Before the performance
of the contract war broke out with the Pakistan. The contract was suspended till the war was over.
Is impossibility of performance an excuse? This is a very important quesiton. Ordinarily a person
is expected to perform his obligation, unless its performance becomes absolutely impossible due to any
of these causes stated above. To quote Scrutton L. "hnpossibility of performance is, as a rule, not an
excuse from performance."
A contract shall not be discharged on the ground of Impossibility under the following cases-
1. The promisor feels difficulty in performing it, due to some unexpected events or delays.
A entered into a contract with B to supply some goods to be brought by a ship via Suez Canal.
The canal was closed for traffic and the shipowner refused to bring the goods through the route of Cape

59
 LESSON 2

DISCHARGE OF CONTRACTS

A contracts is discharged when the obligations created by it come to an end. A contract may be
discharged in any ofthe following ways:
1. By agreement.
2. By performance ofthe contract.
3. By lapses oftime.
4. By operation oflaw.
5. By material alteration.
6. By subsequent impossibility ofthe performance.
7. By breach.
1. By Agreement Sec. (62-64)
The parties may agree to terminate the existence ofthe contract by any ofthe following ways:­
(a) By Novation (Sec. 62): Substitution ofa new contract in place ofthe old existing one is
known as 'inovation ofcontract'. New contract may be either between the same parties or between
different parties, the consideration being mutually the discharge ofthe old contract.
(i) Substitution ofa contract with new terms for an old contract between the same parties.
(ii) Substitution ofa new party for an old one, the contract remaining the same. Promisee will
now look to the third party for the performance ofthe contract. Original promisor is released
ofthe obligations under the old contract.
Examples
(i) A owes money to B under a contract. It is agreed between A, B and C that B shall
henceforth accept C as his debtor, instead ofA. The old debt ofA to B is at an end and
a new debt from C to B has been contracted.
(ii) A owes B 10,000 rupees. A enters into an arrangement with B, and gives B a mortgage of
his (A's) estate for 5,000 rupees in place ofthe debt of10,000 rupees. This is a new contract
and extinguishes the old.
(iii) A owes B 1,000 rupees under a contract. B owes C 1,000 rupees. B orders A to credit C
with 1,000 rupees in his books but C does not assent to the arrangement. B still owes C
1,000 rupees, and no new contract has been entered into.
Novation can take place only with the consent of all the parties. It cannot be compulsory.
(Appukuthan V. Athapa, 1966).
As a result ofnovation, old contract is completely discharged and law will not entertain any action
based upon the terms of the old contract.
(b) By rescission (Sec. 64) : Rescission means cancellation ofthe contract. A contract can be
rescinded by any ofthe following ways :-
(i) By mutual consent :- Parties may enter into a simple agreement to rescind the contract
before it's breach.
61
 LESSON 3

CONTINGENT CONTRACT AND QUASI CONTRACT

CONTINGENT CONTRACTS
According to the Contract Act a contingent contract is one whose performance us uncertain. The
performance of the contract which comes under this category depends on the happening or non­
happening ofcertain uncertain-events. On the other hand, an ordinary or absolute contract is such
where performance is certain or absolute in itselfand not dependent on the happening or non-happening
ofan event. A contingent contract is defined as a contract to do or not to do something, if some event,
collateral to such contract, does or does not happen (sec. 31).
Example- (A) A contracts to pay Rs. 50,000 if B's house is destroyed by five. This is a
contingent contract as the performance depends on the happening ofan event.
(B) A asks B to give loan to Mand promises that he (A) will repay the loan ifMdoes not return
it in time.
Characteristics of a Contingent Contract
A Contingent Contract must have three essential characteristics. There are:
(1) The performance ofthe contract depends on he happening or non-happening of a certain
event in future. This dependence on a probable future event distinguishes a contingent contract
from an ordinary contract.
(2) This event must be uncertain, that means happening or non-happening ofthe future event is
not certain, i.e., it may or may not happen. Ifthe event is hundred percent sure to happen,
and the contract in that case has to be performed any way, such a contract is not called a
contingent contract.
(3) The event must be collateral or incident to the contract.
Therefore, contracts ofindemnity, guarantee and insurance are the most common instances ofa
contingent contract.
Rules regarding contingent contracts
To enforce the performance ofa contingent contract the following rules have to be followed:
1. Where the performance of a contingent depends on the happening ofan uncertain future
event, it cannot be enforced till the event takes place. And if the happening of the event
becomes impossible, such contracts become void (sec. 32).
Example- A contracts to sell B a piece ofland ifhe (A) wins the legal case involving that piece
of land. A loses the case. The contract becomes void.
2. Where the performance ofa contingent contract depends on the non-happening ofa future
event, the contract can be enforced if the happening becomes impossible (sec. 33).
Example- A agrees to sell his house to B ifY dies. This contract cannot be enforced till Y is alive.
3. Ifthe contract is dependent on the manner in which a person will act at an unspecified time,
the event shall be considered to become impossible when such person does anything which
makes it impossible that he should so act within any definite time or otherwise than under
further contingencies (sec. 34).

74
 UNIT-II

CONTRACTS OF INDEMNITY ND GUARANTEE

BAILMENT AND PLEDGE AGENCY INDEMNITY

Definition:
A contract of indemnity is "a contract by which one party promises to save the other from the
loss caused to him by the conduct of the promise or himself, or by the conduct of a third party"
(Sec. 123).
Example : A contracts to indemnify B against consequences of any proceedings which C may
take against B in respect of a certain sum of 200 rupees. This is a contract of indemnity. A will be
termed as "Jdemnifier" and B as the "Jdemnity-holded".
Definition is not very exhaustive:
According to the definition given by Sec. 124 of the Contract Act, contract of indemnity includes
(i) only express promise to idemnify and (ii) cases where loss is caused by the conduct of the promisor
himself or by the conduct of any other person. It does not include (a) implied promise to indemnify and
(b) cases where the loss is caused by accident or by the conduct of the promises.
According to English law, a contract of indemnity is "a promise to save another harmless from
loss caused as a result of a transaction entered into at the instance of the promisor". It thus, includes
the loss caused by events or accidents also. The definition of a contract of indemnity as per Indian Law
is thus very restrictive. If it is strictly applied, even the contracts of insurance would fall outside the
purview of contract of indemnity. But Indian Courts apply the English definition to contracts of indemnity.
As was observed by Justice Chagla, "Sections 124 and 125 of the Contract Act are not exhaustive
of the law of indemnity and the courts here would apply the same principles that the courts in England
do". (Gajanan Moreshwar V. Moreshwar Madras, 1942 Bomb. 302).
Indian courts, in a large number of cases, have also observed that contracts of indemnity also
include implied promise to indemnify.
Example: A is the owner of an article. It is lost and found by B. B sends it to an auctioner for
selling it. The auctioner sells the article. A recovers damages from the auctioner for selling away his
article. The auctioner can recover the loss from B. There is an implied promise by B to save the
auctioner from any loss that may be cuased to him on account of any defect in B's authority to let the
article sold.
Commencement of Indemnifier's Liability
High Courts have differed in their judgements regarding commencement of indemnifier's liability.
According to High Courts of Calcutta, Madras, Allahabad and Patna indemnity holders when asked
to meet a liability, can compel the indemnifiers to put him (indemnity-holder) in a position to meet the
liability without waiting until he (indemnity-holder) has actually discharged it. High Courts of Bombay,
Lahore and Nagpur have, however, held that idemnifier can be made liable only when indemnity-holder
has incurred an actual loss, i.e., discharged the liability. The former view seems to be more correct
and is also in consonance with the English view "to indemnity does not merely mean to reimburse in
respect of moneys paid, but to save from loss in respect of liability against which the indemnity has been
given...if it be held that payment is a condition precedent to recovery, the contract may be of little value
to the person to be indemnified, who may be unable to meet the claim in the first instance." (Kennedy
L.J.) in Liverpool Insurance Co. case
84
 UNIT-III
THE SALE OF GOODS ACT 1930

FUNDAMENTAL CONCEPTS
1. Goods: Goods have been defined by Section 2, sub-section 7 of the Sale of Goods Act 1930
as "every kind of movable property, other than actionable claims and money; and includes stock and
shares, growing crops, grass and things attached to or forming part of land which are agreed to be
served before sale or under a contract of sale.
Therefore Goods as defined by this act has the following characteristics:
1. Every movable property is goods.
2. Money and actionable claims are not considered as goods. Money is defined as the current
coin of realm. But those coins which are no longer in circulation can become the subject
matter of a contract of sale as an article of curiosity.
3. Goods include stocks and share although in English raw stocks and shares are not covered
by the definition.
4. Goods also include growing crops and grass.
5. Anything which is attached to or forming part of the land (immovable property) can become
goods if it is separated from the immovable property. Therefore, unless something is separate
from immovable property, it cannot be called goods. But if separate valuation is put on
immovable property on the one hand, and the fixtures and fittings on the other, it is taken
as a proof that the intention of the parties was to separate the two. Similarly where two
parties enter into an agreement under which one of them was to cut certain trees in the
garden of the other party when their growth exceeded a certain specified limit, it was held
that the portion of the trees cut are goods but not the trees themselves. In same way mineral
beneath the surface of the earth are not goods but as soon as they are brought to the surface
they become goods.
KINDS OF GOODS
Broadly speaking goods are of the following three kinds.
(i) Existing goods : They are those goods which have actual existence at the time when the
contract of sale is made. Existing goods are again of the following kinds:-
(a) Unascertained goods : They are those goods which are not actually identified by the seller
but are described by description alone.
(b) Ascertained goods : Unascertained goods become ascertained when the seller decides
which particular goods he is going to sell. This word is used as synonymous with specific
goods but the difference between the two is that the ascertained goods may become
identified only after a contract of sale has been made.
(c) Specific goods : They have been defined by Section 2, Sub-section 14 as those goods
which are actually identified and agreed upon at the time a contract of sale is made.
Illustration : A person is the owner of a number of cars and enters into an agreement with
the other to sell any of them. This is a contract for unascertained goods which would become

110
 TRANSFER OF PROPERTY IN CONTRACTS OF SALE OF GOODS
The most important consequence of a contract of sale of goods is the transfer of property in the
goods from the seller to the buyer because risk always follows such a transfer of ownership and the
time of payment as well as the time of delivery of the goods is not an essential consequence of such
a contract.
The most important point regarding the transfer of ownership is that it can take place only in case
of ascertained and specific goods. According to Sec. 18 ''No transfer of property in the goods can take
place from the seller to the buyer unless and until they are ascertained".
lliustration: A sells 200 maunds of wheat out of a total of 618 maunds stored in a warehouse and
gives a delivery order to B, the purchaser, directing the warehouse men to deliver 200 maunds of wheat
to B. B lodges the delivery order with the warehouse men to no transfer of property takes place from
A to B so far as the quantity to be sold to him is concerned because the goods were unascertained.
For the consideration of the problem of transfer of property it can be divided in two broad
categories:
(a) Transfer of Property in Specific and Ascertained Goods
According to Sec. 19 where there is a contract of sale of specific or ascertained goods, the
property in them shall pass from the seller to the buyer when the parties have intended it to pass.
In order to find out the intention of parties in this regard, consideration is to be given to the terms
of the contract, conduct of the parties and circumstances of the case.
But if the parties fail to lay down their intentions regarding the transfer of property in the goods,
certain rules have been laid down for ascertaining the intention of the parties as to the time at which
the property in the goods is to pass to the buyer, which are contained from Sec. 20 to 24 and which
are the following:
1. When goods are in a deliverable state: According to Section 20 where there is an unconditional
contract for the sale of specific goods in a deliverable state the property in the good passes to the buyer
when the contract of sale is made and it is immaterial whether the time of payment of the price or the
time of delivery of the goods or both is postponed.
lliustration : Where there is a contract between A & B for the purchase of a specific quantity of
hemp stored on the premises of the seller A; price to be paid on 4th February and the delivery to be
given on 1st of May while the contract is being made on 20th January the property in the specific lot
of hemp shall be transferred from A to B on 20th January itself.
As goods under this rule are in such a state they can be immediately delivered to the buyer, there
remains nothing which can prevent a transfer of ownership. But if the parties in such cases themselves
decide that no transfer of property shall take place till the entire price is paid, or till the delivery of goods
has been given to the buyer, there would be no transfer of property in the goods inspite of the fact that
the goods are specific and in a deliverable state. As for example goods sold under hire purchase
agreement.
2. When goods are not in a deliverable state: According to Section 21 where there is a contract
for the sale of specific goods but the seller is bound to do something to the goods in order to put them
in a deliverable state, property in them shall not be transferred until such thing is done by the seller and
buyer has notice thereof.

120
 Unit-IV
LESSON -1

MEANING OF LIMITED LIABILITY PARTNERSHIP

Sumita Jain

STRUCTURE

1.1 State the meaning of Limited Liability Partnership;

1.2 Administrative Mechanism of LLP and Amendments in LLP Ac;

1.3 Features, Advantages and Disadvantages of LLP;

1.4 Meaning of LLP Agreement;

1.5 Difference between Limited Liability Partnership, Partnership and Joint Stock
Company;

1.6 State the procedure of Registration and Incorporation of LLP;

1.7 Concept of Registered office of LLP and procedure of change therein;

1.8 Procedure of changing the name and Registered office of LLP;

1.1 MEANING OF LIMITED LIABILITY PARTNERSHIP

Limited Liability Partnership (LLP) is a concept in which features of two types of

business entities combined namely Partnership and joint stock company. As we all
know major drawbacks of partnership is unlimited liability and main disadvantage of
company form of organization is excessive legal formalities and both disadvantages
overcome by Limited Liability Partnership form of business LLP combines the
advantages of both partnership and joint stock company or we can say LLP is much like
Private form of company.

Definition of Limited Liability Partnership - Section 2(1)(n)

Limited Liability Partnership means a partnership formed and registered under the
Limited Liability Partnership Act, 2008,

Various expert committees have recommended for legislation of LLP’s and these
are Abid Hussain Committee (1997), The Naresh Chandra Committee (2003) and Dr.
J.J. Irani committee (2005).
127
 Finally in year 2008 law of L.L.P. was formed and was notified in the official
gazette on 9th January, 2009 and it contains 81 sections and 4 schedules and finally came
into force on 31st March, 2009. Some provisions of that also made effective on 31st May,
2009. It extends to the whole of India and came into force with effect from 31-32-009.

1.2 ADMINISTRATION AND AMENDMENTS IN THE ACT

Administrative Mechanism of LLP Act

The regulatory functions and control of the Act is with the Central Government,
Registrar of Companies (ROC) has been assigned the administrative and supervisory
duties and functions by the Central Government. The Registrar of Companies is
appointed by the Central Government in each State and he shall act also as Registrar of
LLPs, who shall supervise and regulate the LLPs. Section 79 of the LLP Act has given
powers to the Central Government to make rules for carrying out the provisions of this
Act.

Amendments in LLP Act, 2008

The LLP Act amended several times to improve its viability. Recently LLP Act
amended on 15th November, 2016 and as a result of this amendment ‘Inability to pay
debts’ has been deleted from the compulsory winding up by the Tribunal. Another
amendment was done on 12 June 2018 and it amended a major requirement of obtaining
DPIN (Designated Partner Identification Number) by individual who want to become a
Designated Partner.

The LLP Act also amended rules 11 and 13 on 02 October 2018.Rule 11 state about
incorporation of LLP. New form FiLLiP (Form for incorporating LLP) needs to be filled
to be incorporated as a LLP.

1.3 FEATURES OF LLP

1. Body Corporate [Sec.3(1)]; LLP is to be treated like a body corporate which is

formed and incorporated under LLP Act 2008.

2. Liability (Limited). The partners of LLP would be liable to the extent of their
agreed contributions in the LLP but in some cases the liability of the partners can
be unlimited when the partner (s) found to have acted with an intention to defraud
creditors. Sometimes the liabilities of the LLP shall be met out of the property of
the LLP. [Sec.27(4)]

128
3. Separate Legal Entity [Sec.3(2)]: A LLP is a legal entity separated from its
partners. All assets and liabilities are assets and liabilities of LLP only. The
creditors of LLP cannot bring any action against the partners personally. Saloman
vs Saloman & Co. Ltd. support the concept fully.

4. Minimum Number of Partners: Minimum number of partners in a LLP must be

two and that same applicable to Designated Partners also. However there is no
limit on maximum number of partners.

5. LLP is an artificial person: A LLP is an artificial person. It is created by law and

comes to an end by law (legal process) only.

6. Perpetual Succession [Sec. 3(2)]; LLP enjoy benefits of perpetual succession. It

is created by a legal process so it comes to an end only by way of law. Any
changes in the partner’s status of a LLP shall not effects the existence, rights or
liabilities of the limited liability partnership.

7. Common Seal: However not mandatory but if LLP wants then it can have a
Common Seal.

8. Partners of a LLP; Any individual can become a partner in a LLP.

9. Applicability of Partnership Act 1932: No provision of Partnership Act 1932

applicable to LLP unless needed.

10. Managing the affairs of a LLP: Partners specifically Designated partners are
responsible for management of business if LLP.

11. Investigating the affairs of LLP: Central Government has the power to
investigate the affairs of a LLP

12. Conversion to LLP. A firm, Private Company or an Unlisted Public Company are
allowed to converted into LLP in accordance with the provisions of the LLP Act
2008 and Schedule II, III, IV respectively.

13. Conversion of LLP into Joint Stock Company; Under the Companies Act, 2013
it is allowed to an LLP to get registered as Company and as per the Companies
Act, 2017, upon registration as a company, LLP incorporated under LLP Act, 2008
shall have right to dissolved as accompany.

129
14. LLP Agreement: A LLP must have a LLP Agreement for describing rights
and duties of partners so in case of any disputes, can be resolved with the help
of agreement.

15. Accounts. Every LLP has to maintain annual accounts showing the financial
position of the LLP and they must have to be filed with the Registrar after being
audited, if required.

16. Taxation of LLP: The LLP Act, 2008 does not give any information regarding
taxation of LLP. Hence, the provisions of Income Tax Act, 1961, shall apply in
taxation matters.

17. Financial Year of a LLP: Financial year of a LLP commence from 1st April of a
year and ends on 31st March of a year but if LLP commence after 30th September
then the financial year comes to an end on 31st March of next year. For Example if
LLP starts its operation on 15 October 2018 then its financial year comes to an end
on 31st March 2020.

18. Winding up. An LLP may be wound up voluntarily or by the Tribunal or Court
under the Insolvency and Bankruptcy Code, 2016.

1.4 LIMITED LIABILITY PARTNERSHIP AGREEMENT

LLP agreement has been as defined under Section 2(1)(o) and its means any written
agreement between the partners of the LLP or between the LLP and its partners which
determiners the mutual rights and duties in relation to that LLP.

The LLP Agreement is very important to a LLP and its partners and it must be filed
with the Registrar within 30 days of the incorporation of an LLP. Any change in the
agreements is also to be filed within 30 days of the change. In absence of LLP
Agreement provisions of LLP Act, 2008 must be followed. LLP Agreement is not a
public document and it must be properly stamped.

Contents of LLP Agreement

 Name of LLP.
 Addresses of LLP registered Office.
 Name and address of partners and designated partners.
 Salary of partners
 Profit Sharing Ratio of partners
 Rights and duties of partners in LLP.
130
  Proposed Business of LLP.
 Rules relating to management of LLP.
 Any other matter relating to LLP

ADVANTAGES OF LLP
1. Separate Legal Entity. LLP is a legal entity distinct and separate from its partners.
It means that LLP can sue and be sued in its own name. It can own and hold or
dispose off property in its own name. Hence, LLP can do or undertake any act or
thing as a natural person may do or undertake.

2. Limited Liability. The liability of the LLP is limited to extent of its assets and the
liability of a partner is limited to his contribution in the LLP. Hence there is no
liability on the partners' personal assets.

3. Capital Requirement. For an LLP there is no legal requirement in regard to any

minimum capital.

4. Freedom of Operations. An LLP enjoys full freedom in the matter of conducting

its business and operations.

5. Number of Partners. There is no restriction as to the maximum number of partners

under LLP hence it is an opportunity for expansion or diversification of its
activities.

6. Responsibility for Compliances. A designated partner is made responsible for

various compliances and filing requirements of the LLP. Hence the other partners of
LLP are relieved of this pressure.

7. Flexibility. It provides flexibility without imposing detailed legal and procedural

requirements.

8. Taxation. LLP has to pay no surcharge, DDT (Dividend Distribution Tax) or

wealth tax so its a relaxation to the LLP on its income.

DISADVANTAGES OF LLP
1. Unlimited liability. There may be unlimited liability on the LLP or its partners in
same cases.

2. Time consuming. It takes more days to form an LLP as signatures of all the
partners are required for each and every document.

131
3. Assets contribution. The Cash or other assets contributed by a partner are not
returned to a continuing partner unless mentioned in LLP Agreement.

4. Transfer of ownership. Ownership rights are not transferable easily without

obtaining consent of all the partners of LLP.

5. Conversion to LLP. A firm, private company or unlisted public company cannot

convert to an LLP unless all partners or shareholders become the partners of LLP.

6. Liabilities of designated partner. LLP makes designated partners responsible for

compliance of the provisions of the Act and liable for all offences and penalties
thereby putting unnecessary pressure on designated partners.

7. Lack of secrecy. LLP is required to disclose its financial information hence the
secrecy of information is lost.

8. No access to public money. LLP has to function from contribution made by

partners hence it cannot raise money through public.

1.5 DIFFERENCE BETWEEN PARTNERSHIP, COMPANY AND LLP

The following are the points of difference between partnership, company and LLP:

Basic Partnership Company LLP

1. Regulating Act Governed by Governed by Governed by the
Partnership Act, Companies Act, Limited Liability
1932 2013 Partnership Act,
2008.
2. Creation Created by Created by Law Created by Law
Contract.
3. Separate Entity It is not a separate It is a separate legal It is a separate legal
legal entity. entity. entity.

4. Perpetual It does not have It has perpetual It has perpetual

succession perpetual succession and the succession and the
succession as it members may came partners may came
depends upon the and go. and go.
will of partners.

132
5. Management Managed by The affairs of the The business of
partners itself. company are LLP is managed by
managed by the the partners
Board of Directors. including
designated partners
as per requirements
of LLP agreement.
6. Liability Liability of Partners Liability is limited Liability is limited
are unlimited and and only to the to the extent of
can go to the extent of amount amount of
personal assets as not paid on shares contribution but can
well. held by extend if there is
shareholders. any fraud or
omission.
7. Common Seal There is no There is an option LLP may have a
commons seal. to use common seal common seal, it is
which denotes not mandatory
official signature of
a company.
8.Legal action in Partnership who are Joint stock company LLP can also sue
case of fraud registered can sue can sued and be and be sued by third
or be sued by third sued by third party. party.
party.
9. Number of Minimum 2 and Minimum 2 and Minimum 2 partners
members maximum 50. maximum 200 and there is no limit
members in case of for maximum
private company. number of partners.
Minimum 7
members is case of
public company and
maximum no limit.
Only one person is
required in case of
One Person
Company.
10. Registration Optional. Compulsory with Compulsory with
ROC. ROC.
11. Name Any name as per Name to contain Name to contain
choice. 'Limited in case of 'Limited Liability

133
 Public company and Partnership' or 'LLP'
'Private Limited' in as suffix.
case of Private
company.
12. Tax liability1 Partnership is taxed Income of company Income of LLP is
at a flat rate of 30% is taxed at flat rate taxed at flat rate of
plus Health and of 30% plus 30% plus Health
education cess. surcharge, Health and education cess
and education cess. and surcharge
where applicable.
13. Annual Return Annual return is not Annual return must In case of LLP
Filing mandatory to be be filed every year Annual return and
filed every year. and must disclose Statement of
every aspect in a Solvency must be
prescribed way. filed every year
with the registrar of
companies.
15. Audit of Partnership firms Companies are to If the turnover of
Accounts are required to have get their accounts LLP exceeds ` 40
their accounts audited annually. lakhs or
audited if the annual contribution
sales, turnover or exceeds ` 25 lakhs
gross receipts in any financial year
exceeds ` 1crore (in they have to get
case of business) their accounts
and Rs. 50 Lakhs audited.
(in case of
profession)
16. Dissolution By mutual consent, Voluntary or by Voluntary or by
insolvency and by order of Tribunal or order of Tribunal or
Court order. Court. Court.
17.Amount of Defaults in Default in payment
default for payments of debts of debts of ` 1 lakh
Insolvency of Rs.1,000 or more or more shall be a Not Applicable
shall be a ground ground for filling
Resolution
application for
insolvency
resolution

134
1.6 INCORPORATION OF LLP - SECTION 11

If a limited liability partnership wants to be incorporated, then two or more persons

associated for carrying on a lawful business with a view of making profit shall
subscribe their names to an incorporation document. However the process of
incorporation was tough and lengthier but with effects of. 02 October 2018 it had made
simpler by the Ministry of Corporate Affairs through the LLP (Second Amendment)
Rules, 2018. According to amended rules the incorporation process is as discussed
below:

Registration process of Limited Liability Partnership

The registration process of LLP is discussed below:

Step 1: Two or more persons come together to form a LLP.

Step 2: Deciding the partners and Designated partners of LLP

It must be noted that DPIN (Designated Partner Identification Number), DSC

(Digital Signature Certificate) now is no longer a requirement for incorporation of LLP

Step 3: Checking the availability of the name (Free name availability checking
facility is available on MCA portal)

(An application for reservation of name can also be made through form FiLLiP.)

Step 4: Filing of incorporation document along with requisite fees.

Step 5: Registrar examine the documents and find everything is in order then he
issue the Certificate of Incorporation.

Step 6: Filing of LLP Agreement

The above steps are discussed in detail below:

Step 1: Two or more persons join together to form a LLP

Step 2: Deciding the Partners and Designated Partners of LLP

135
After deciding the formation of LLP next step is to register the names of proposed
partners and proposed designated partners. Any individual who wants to become partner
can give their consent to become a partner. Every LLP must have two Designated
Partners. Out of which one Designated Partners must be a resident of India and both of
them must be individuals.

Step 3: Checking the Availability of the Name

Checking for availability of name of the LLP to be registered by filling Form 1

called RUN-LLP (i.e. Reserve Unique Name-LLP) for checking the availability of the
name. Any partner or designated partner in the proposed LLP may submit Form 1 with
requisite fee.

Details of two designated partners (minimum) of the proposed LLP, one of whom
must be resident in India, is required to be filled in the application for reservation of
name and also two names of proposed partners must be entered in the form.

It is also to be noted that an application for reservation of name can also be filled
through Form FiLLiP (If not made through RUN –LLP).

If registrar find everything in order in according to requirements in Form FiLLiP

then he will approve the registration and issue certificate of Incorporation. Once the
Form has been approved, the proposed LLP shall receive an email regarding the same
and the status of the form will get changed to approved.

But if registrar is not satisfied with the form filled or information given in the form
or form is incomplete, he shall tell to the applicant to remove defects and re-submit the
form within 15 days from the date of intimation.

Step 4: Filing of Incorporation Document and Statement

Once the name is reserved by the Registrar, Form 2 called FiLLiP (i.e. Form for
incorporation of Limited Liability Partnership) has to be filled in with prescribed fee
based on total monetary value of contribution of partners in proposed LLP. Earlier, i.e.
before 2nd October, 2018, Form 2 ("Incorporation Document and Subscriber's
Statement") had to be filled for this purpose. FiLLiP has two parts, namely, Part A:
INCORPORATION DOCUMENT and Part B: STATEMENT.

136
 Penalty

A partner who make false declaration and know that it is not true shall be
punishable with:

(a) Imprisonment (can go up to maximum two years).

(b) Fine minimum of Rs. 10,000 and maximum up to Rs.5,00,000.

Contents of the Incorporation Document (Section 11(2)]

The incorporation document of the LLP serves the same purpose as the
Memorandum of Association in respect of a Company.

The contents of the incorporation document are as follows:

(a) Name of LLP,

(b) Proposed business,

(c) Address of its registered office,

(d) Name address of each person who is to be designated partner on incorporation,

(e) Name and address of each person who wants to become partner in a LLP.

(f) Any other information concerning the proposed LLP as the rules may
prescribe.

Step 5: Certificate of Registration

Incorporation by Registration - Section 12

When all the requirements as mentioned above relating to incorporation document

have been complied with, the Registrar on being satisfied will keep the incorporation
document with itself and register the LLP within 14 days and give a certificate that the
limited liability partnership is incorporated with the name mentioned in the
incorporation document.

In Registrar office, Registrar maintain a Register in which the names of all LLP’s
are there and names of LLP’s entered in order of their registration. Every LLP so
registered shall be assigned a LLP identification number (LLPIN). The certificate issued

137
shall be conclusive evidence that the limited liability partnership is registered and now
known to be by the name specified.

Conclusiveness of Certificate of Incorporation - Section 12(4)

The LLP have been incorporated with the name mentioned on the Certificate of
Incorporation. Hence now an LLP can carry on business as a legal entity. The
incorporation certificate granted by the Registrar of Companies (ROC) on the
registration of an LLP the LLP Act shall be a conclusive evidence that all the
requirements of the Act with respect to registration and other matters related to it have
been duly complied with, bringing into existence an LLP which is duly registered under
the Act.

Step 6: Filing of LLP Agreement – After incorporation of LLP, a LLP Agreement

has to be filed with the registrar within 30 days of incorporation of LLP in Form -3.
Where there is no LLP Agreement provisions of Schedule I of the LLP Act shall be
applicable to LLP.

1.7 REGISTERED OFFICE OF LIMITED LIABILITY PARTNERSHIP -

SECTION 13

Registered Office [Sec. 13(1)]: Every limited liability partnership shall have a
registered office to which all communications and notices may be addressed and where
they shall be received.

Other Address in addition to Registered Address

If a LLP wants the he can make another address as his Registered Office address in
addition to previous one by following the process given in LLP agreement but if LLP
agreement is silent about the provision of additional address to registered office then
with the approval of all partners LLP can decide and declare additional address.
Registrar of LLP must informed about the other address within 30 days of finalization of
other address.

CHANGE OF REGISTERED OFFICE - SECTION – 13(3)

LLP may change its registered office from one place to another within the same
State or from one State to another State according to the procedure mentioned.

138
 According to the procedure mentioned in LLP
agreement and if nothing has been mentioned in
Notice of
agreement then with the consent of all the partners.
change of
registered
Change from office to be
If the change is from the jurisdiction of one Registrar
one place to given to ROC
to another Registrar within the State (e.g. Maharashtra
another in same State
and Tamil Nadu) then file a notice with ROC from
the same within 30 days
where LLP proposes to shift its registered office with
State of complying
a copy of such change to the ROC under whose
the requirement
jurisdiction the registered office is proposed to be
with requisite
shifted
free.

(Change from one State to another involves following procedure)

As per the manner laid LLP shall publish a general
down in the LLP notice at least 21 days
Agreement, if the before filing notice with
Agreement is silent then ROC in a daily newspaper
with the consent of ALL published in English and in
the partners. The LLP is principal language of the
also to obtain the consent of district in which the
secured creditors (if any) registered office of the LLP
for the change. is situated circulating the
notice of change of
registered office
File a notice with ROC
from the State where LLP
proposes to shift its
registered office with a
copy of such change to the
ROC of the State under
whose jurisdiction the
registered office is
proposed to be shifted.

Notice of change of registered office to be given to ROC within 30 days of

complying the requirement with requisite fee.

With the change of registered office, any conviction, ruling or judgement of any
Court initiated against the LLP for the alleged offences under the LLP Act shall be
stated in change of place of registered office and is to be filed with the ROC.

Penalty for Contravention [Sec.13(4)] If the Limited Liability Partnership does

not follow any of the provisions of this section, then the Limited Liability Partnership
and its every partner shall be punishable with fine which shall not be less than 2,000 and
which may extend to Rs. 25,000.

139
EFFECT OF REGISTRATION -SECTION 14

On registration, a limited liability partnership shall be capable of

(a) suing and being sued by others in its own name.

(b) acquiring, owing, holding or disposing off property whether movable or

immovable, tangible or intangible;

(c) having a common seal, if it decides to have one, and

Pre-incorporation contracts
Pre-incorporation contracts are not binding on LLP unless the LLP adopts them
after incorporation. Otherwise such a contract is binding on the person making it for
want of ratification by the LLP.

1.8 PROVISIONS RELATING TO NAME OF LLP AND CHANGES THEREIN -

SECTION 15

1. The name of every Limited Liability Partnership must end with the words
‘Limited Liability Partnership” or can use ‘LLP” in the name of LLP.

2. No LLP shall be registered by a name which in the opinion of the Central

Government is

(a) undesirable, or

(b) identical or too nearly resembles to the name of any other

 partnership firm or
 LLP, or
 body corporate, or
 registered trademark, or
 trademark the application of which is pending.

(c) When it uses words prohibited under the Emblems and Names
(Prevention of Improper use) Act, 1950 such as pictorial representation of
any national leader or symbol of any organization.

(d) When it uses words such as Insurance, Banking, Stock Exchange, Venture
Capital, Mutual Fund without approval.

140
The Word ‘BANK’ may be used in the name of a LLP when such entity produces ‘No
Objection Certificate’ from the RBI and if want to use word Stock Exchange then will
be allowed only when No Objection Certificate has been issued by SEBI (Securities and
Exchange Board of India).

RESERVATION OF NAME -SECTION 16

A LLP can apply to the Registrar of the state in whose state Registered Office of the
LLP is situated through its partners for reservation of name registered in RUN-LLP.

CHANGE OF NAME OF LLP-BY CENTRAL GOVERNMENT - SECTION 17

If Central Government has the opinion that the name with which LLP is registered
is:

(a) undesirable, or

(b) identical with or too many similarities in the name of any other LLP or body
corporate then Central Government may direct such LLP to change its name and
the LLP has to change it within 3 months after the date of direction by Central
Government or such longer period as Central Government may allow.

(c) Partners of LLP wants to change the name of LLP afterwards.

Penalty for improper use of words “Limited Liability Partnership” or LLP

(Sec.20). Any LLP which does not comply with above provision shall be punishable
with

(a) Fine which shall be not less than Rs. 10,000 but which may extend to Rs.
5,00,000 and

(b) Also Designated Partners are responsible for improper use and must be fined
with an amount minimum of Rs.10,000 and maximum of Rs. 1,00,000.

PROCEDURE FOR CHANGE OF NAME

To comply with the direction of Central Government the following procedure needs
to be followed

LLP may change its Notice of change of On being satisfied

name by following the Name shall be given ROC shall change

141
procedure laid down to the ROC within the name of LLP

in LLP Agreement, if 30 days of change and issue a

the agreement is silent along with requisite fresh Certificate of

then with consent of all fee Incorporation

partners

CHANGE OF NAME BY ROC ON REQUEST BY ANOTHER ENTITY –

SECTION 18

Any other entity having name similar to the name of limited liability partnership
which has been incorporated may apply to the ROC to give direction to the LLP to
change its name but such application for change name must be received by the ROC
within 24 months from the date of registration of the LLP

CHANGE OF NAME - VOLUNTARILY BY LLP - SECTION 19

Any LLP may change its name with the ROC by filing with him a notice of such
change in the form and manner and on payment of such fee as may be prescribed.

(For the change of name, LLP has to apply to the ROC as per provisions of Section
15 and 16 and the follow the procedure for change of name as mentioned earlier)

PUBLICATION OF NAME AND LIMITED LIABILITY - SECTION 21

(a) Every LLP shall ensure that its invoices, official correspondence and
publications bear the

• name,

• address of registered office and

• registration number of LLP, and

(b) A statement that it is registered with limited liability.

Penalty for Contravention Any Limited Liability Partnership which are not
following above provision shall be punishable with fine minimum of Rs. 2,000 but
which may extend to Rs. 25,000.

142
SUMMARY

Limited Liability Partnership (LLP) is a new concept combining the features of

partnership and joint stock company. As we all know major drawbacks of partnership is
unlimited liability and main disadvantage of company form of organization is excessive
legal formalities and both disadvantages overcome by Limited Liability Partnership
form of business. LLP combines the advantages of both partnership and joint stock
company or we can say LLP is much like Private form of company. it contains 81
sections and 4 schedules and finally came into force on 31st March, 2009.Some
provisions of that also made effective on 31st May, 2009. It extends to the whole of India
and came into force with effect from 31-32-009.

The regulatory functions and control of the Act is with the Central Government,
Registrar of Companies (ROC) has been assigned the administrative and supervisory
duties and functions by the Central Government. The Registrar of Companies is
appointed by the Central Government in each State and he shall act also as Registrar of
LLPs, who shall supervise and regulate the LLPs. The LLP agreement is of fundamental
importance to the LLP and its partners.

A Limited Liability Partnership who wants to be registered itself then the partners
who are carrying lawful business of LLP can apply for incorporation with the proper
documents and must follow all the requirements of incorporation. However the process
of incorporation was tough and lengthier but with effects of. 02 October 2018 it had
made simpler by the Ministry of Corporate Affairs. Every limited liability partnership
shall have a registered office to which all communications and notices may be addressed
and where they shall be received. LLP may change its registered office from one place
to another within the same State or from one State to another State as per the manner
laid down in act.

SELF ASSEMENT QUESTIONS

Short Question Answers

1. Define Limited Liability Partnership and its features.

(B.Com. (H), Delhi, 2011)

2. Explain the disadvantages of LLP form of business structure.

[B.Com (Hons) 2014]

143
3. Explain the advantages of Limited Liability Partnership. [B.Com 2013]

4. Distinguish between Company and Limited Liability Partnership.

5. Distinguish between Partnership. Company and Limited Liability Partnership.

[B.Com (Hons) 2017]

6. Can a limited liability partnership have any other address in addition to registered
address?

7. Any person can carry on business under any name having last words as “LLP"
without being incorporated as an LLP? Comment on the Statement.

[B.Com (Hons) 2016]

8. Discuss the contents of Incorporation document of a Limited Liability Partnership.

[B.Com (Hons) 2015]

9. ‘Incorporation Document’ is a public document while ‘Incorporation Agreement’ is

not a public document. Comment

[B.Com (Hons) 2011]

10. What are the various steps involved in the incorporation of Limited Liability
Partnership under LLP Act, 2008.

[B.Com (Hons) 2013]

Long Answer Questions

1. “An LLP is a legal person distinct from its members taken individually or
collectively.” Comment.

[B.Com(H), 2014, 2016)

2. Discuss the feature of separate legal entity and perpetual existence in relation to an
LLP. (B.Com. (H), Delhi, 2012)

3. “An LLP is a definite improvement over the partnership in the matter of promoting
entrepreneurship.” Discuss. (B.Com. (H), Delhi, 2012, 2016)

4. How can an LLP be incorporated and registered under LLP Act, 2008?

[B.Com. (H), Delhi, 2011]

144
5. Discuss the contents of incorporation document of an LLP.

[B.Com. (H), Delhi, 2011]

6. How is an LLP formed under the LLP Act, 2008? Enumerate the various documents
to be filed with the Registrar in this connection.

[B.Com. (H), Delhi, 2012]

7. Explain the rules regarding change of name of Limited Liability Partnership.

[B.Com. (H), Delhi, 2012, 2015]

8. "The validity of a Certificate of Incorporation cannot be disputed on any ground

whatsoever." Critically examine the statement. [B.Com(H), 2013]

9. State the process of formation of LLP. [B.Com(H), 2016]

10. State the provisions of LLP Act, 2008 relating to change in registered office of an
LLP. [B.Com(H), 2016]

145
 LESSON –2
PARTNERS, THEIR RELATIONS AND LIABILITIES IN A LLP

STRUCTURE

1.1 State the meaning of partner and who can become partner in an LLP
1.2 Their qualifications, disqualifications;
1.3 Maximum and Minimum Number of partners;
1.4 Designated Partners;
1.5 Liabilities of Designated Partners;
1.6 Cessation of partnership interest;
1.7 Registration of change in partners;
1.8 Partner as agent of LLP
1.9 Partner’s Liability;
1.10 Concept of Whistle Blowing;

1.1 WHO CAN BE PARTNERS OF LLP – SECTION-5

According to Section 2(1)(q), A Partner in a limited liability partnership means any
person who becomes a partner in it, in accordance with the limited liability partnership
agreement as per Sec.5 and it includes;
(a) Any individual, or
(b) A Body corporate including:
• Indian company
• Foreign company
• Indian LLP
• Foreign LLP
AND
Who can’t become partners of LLP
(a) Hindu Undivided Family (HUF)
(b) Any other body corporate notified by Central Government.
(c) A Partnership Firm formed under Indian Partnership Act ,1932

146
 1.2 QUALIFICATIONS TO BECOME A PARRNER IN A LLP
Who can become a partner in a LLP (Sec 22)
The following are eligible to become a partner in a LLP
There are two ways to become a partner in a LLP one is by following the conditions
given in LLP Agreement and another is by way of subscribing their names in
incorporation documents.
DISQUALIFICATION OF A PARTNER OF LLP - SECTION 5
An individual will disqualified to become a partner in a limited liability partnership
If:
(a) He has been found to be has of unsound mind and
(b) He is an undischarged insolvent.
(c) He has applied to be adjudicated as insolvent and his application is pending.

1.3 MINIMUM AND MAXIMUM NUMBER OF PARTNERS - SECTION 6

In a LLP minimum number of partner are two whereas there is no limit on maximum
number of partners. Partners may be
— 2 individuals, or
— one individual and a body corporate, or
— both the partners may be body corporate.

Reduction of number of partners below 2 - Section 6(2)

Section 6 also provides that If at any time, the number of partners of an LLP is
reduced below two and LLP carries business with such reduced numbers for more than
six months, then such partners shall be liable personally , if all the following conditions
are present.
(a) Number of partners is reduced below two.
(b) LLP carries business even after such reduction.
(c) Sole partner has knowledge of the above 2 facts.
(d) Business is carried on for more than six months with such reduction.
(e) LLP incurs obligation in the period after the expiry of six months.

147
 If that happens then present partners are liable personally for all the liabilities of
Limited Liability Partnership after reduction and may be pass through the compulsory
dissolution.

1.4 DESIGNATED PARTNERS - SECTION 7

According to Sec 2(1)(j) of the act, the term ‘Designated Partner” means any partner
designated as such according to Sec.7 of the Act.
Every LLP shall required to have at least 2 designated partners who are individuals
and at least one of them shall be resident in India.
Provided, If in a LLP all the partners are bodies corporate or in which one partner
individual and other are bodies corporate then at least 2 individuals who are partners of
such LLP or nominees of such bodies corporate being individual shall act as designated
partners.
Prior Consent to act as Designated Partner [Sec 7(3)]
A partner shall intimate his consent to become a designated partner to be L.L.P.
Manner of Appointment of Designated Partner
The designated partner can be appointed in the following ways.
(a) By mentioning their names in the incorporation documents.
(b) If incorporation document states that each of the partners from time to time is to
be designated partners then every such partner shall be a designated partner.
(c) Mentioning their names in Limited Liability Partnership Agreement as
Designated Partners and if wants to resign then same process should be
followed.
(d) To become a partner, an individual must give prior consent to act as designated
partner of limited liability partnership in form and manner prescribed. The
partner has to give the consent even if the incorporation document or LLP
agreement specifies the persons to be designated partners.
(e) Details of every designated partners must be filed with the Registrar providing
full information who gave their consent to become designated partners of LLP.
(f) Each partner shall be designated partner if no designated partner is appointed by
the incorporation document or by the LLP agreement or by the LLP.

148
Designated Partner Identification Number (DPIN) [Sec 7(6)] and DPIN Rule 10(1)
and 10(4)
Designated Partners Identification Number means an Identification Number (DPIN)
which the central government may allot to an individual, want to appointed as Designated
Partners in a Limited Liability Partnership. Those who wants to become a designated
partner in a liability partnership shall submit an application electronically to the Central
Government for allotment of DPIN in form and manner as prescribed with requisite fee.
Central Government shall decide on the approval or rejection of DPIN within 30 days
from receipt of such application and intimate the applicant.
Rule 10 of LLP Rules, 2009 suggest the conditions and procedures which have to be
fulfilled by an individual for obtaining Designated Partner Identification Number. (DPIN)
The DPIN is valid for lifetime.
Integration of Director’s Identification Number (DIN) and Designated Partner
Identification Number (DPIN) - If a person holds both DIN (Director Identification
Number) and DPIN, his DPIN shall stand cancelled and DIN shall be sufficient for being
appointed as Designated Partner under LLP.
DPIN allotted is valid for the lifetime of the applicant. It is a useful and smart way of
keeping a check on the people who are running LLPs and who have responsibility for
fulfilling the legal requirements of the LLP. In case of any misconduct or fraud by them it
becomes easy to identify and penalize them and it is easy to keep a record of such
misconduct by the concerned authorities.
With effect from 02 October, 2018, DPIN or DIN is no more pre requirement to get
for partners in LLP. Those who want to become Designated Partner in a LLP can get
DPIN through FiLLiP.
As per rule 10(1): “Every individual ,who intends to be appointed as a Designated
Partner of an existing Limited Liability Partnership, shall make an application
electronically in Form DIR -3 Under Companies Rules, 2014for obtaining DPIN and such
DPIN shall be sufficient for being appointed as Designated Partner under the Limited
Partnership Act, 2008.”
Disqualifications for a person to be designated partner
A person shall not be appointed as a designated partner of an LLP, if he
(a) declared as adjudged insolvent in preceding 5 years.
(b) Has not given payment to his creditors and become suspended in previous years
and also not making any part payment or any kind of compensation to them
(c) has been convicted by a court for any offence involving moral turpitude and
sentenced in respect thereof to imprisonment for not less than 6 months, or

149
 (d) has been convicted by a court for an offence involving section 30 of the Act
(Section 30 - If LLP or any of its partners carried on the business of LLP with a
view to defraud creditors or for fraudulent purpose it would be considered an
offence under the Act)
The Central Government may, by notification in the Official Gazette, removed the
disqualification incurred by any person by virtue of above clauses (a) or (b) either
generally or in relation to any limited liability partnership specified in the notification.

1.5 LIABILITIES OF DESIGNATED PARTNERS – SECTION 8

Unless otherwise provided, A designated partner shall be:
(a) Responsibility for Legal Compliance: Responsible for all the acts, matters and
things as are required to be done by the limited liability partnership in respect of
compliance of the provisions of the Act including filing of any document, return
or statement etc. according to the act and as may be specified in Limited
Liability Partnership Agreement: and
(b) Responsible for contravention of LLP: Designated Partners are also
responsible for any kind of breach of contract or any contravention made
by LLP and has to bear penalties therefore.

CHANGES IN DESIGNATED PARTNER–SECTION 9

(a) According to section 9(a) a limited liability partnership may appoint a
designated partner within 30 days of a vacancy arising for any reason: and
(b) If at any time if no designated partner is appointed or there is only one
designated partners then each partner shall be deemed to be a designated partner.

PARTNERS AND THEIR RELATIONS

Determined by LLP Agreement:
1) Section 23(1) of the act provides that the mutual rights and duties of the partner
inter se and those of the LLP and its partners shall be determined by the LLP
Agreement between the partners.
2) Pre –Incorporation Agreement between Subscribers must be ratified by the
partners.{Section 23(3)}
3) The agreement along with the changes made therein, if any, must be filed with the
registrar in such manner as prescribed {Sec.23(2)}

150
PUNISHMENT FOR CONTRAVENTION OF PROVISIONS OF
SECTION 7, 8 & 9
For contravention of provision under Section 7(1) (appointment of at least 2
individuals as designated partners), the partnership and every partner becomes
punishable with a fine which is not to be less than ` 10,000 but may extend to ` 5,00,000.
For contravention of Section 7(2), (4) and (5) (failure to inform ROC of appointments
and persons appointed being not qualified) and for contravention of Section 8 and 9
(failure of the designated partner to fulfil their responsibility and default in filling casual
vacancy), the fine is to be not less than ` 10,000 but may extend upto ` 1,00,000.

1.6 TERMINATION OF PARTNERSHIP INTEREST -SECTION 24

A partner may be terminated according to the terms given in partnership agreement
and in the absence of such agreement then partner can be removed by giving a notice of
30 days stating the reasons and with the consent of all other partners.
(The agreement may not be in writing the agreement may cover even an informal or
implied understanding between the partners, if the agreement specifies a time lesser than
30 days then such time shall be applicable).
Retirement of a partner
A partner of an LLP may retire upon happening of any event / circumstances as
mentioned in the LLP Agreement, which generally may be upon reaching a particular
age.
Removal / Expulsion of a partner
A partner of an LLP may be removed/expelled as per the LLP Agreement. If the
agreement is silent on this issue then Schedule I would be applicable to the LLP and
Schedule I says that majority of partners cannot expel a partner. In other words, consent
of all partners would be required to expel a partner.
A partner can be terminated in following methods:
1) On dissolution of LLP
2) On declaration of insolvent or as adjudged insolvent
3) On the death of a partner
4) On declaration of unsound mind of a partner

151
Obligations of a former partner
Where any person has terminated to be a partner (former partner) of a limited liability
partnership, he is under no obligation from the date of his termination But other partners
still have same responsibilities as a continuing partner and be responsible for all the work
done by LLP and treated as a responsible partner unless:
(a) the third person has notice that former partner has ceased to be so, or
(b) a notice of his ceasing to be a partner has been delivered to the ROC.
But if above mentioned conditions does not fulfilled then termination itself does not
discharge partner from his responsibilities towards to the other partners or to any other
third person while he was a partner. He can be discharged in such a situation only when.
(a) either LLP or other partners agree to absolve him by (LLP Agreement or
agreement with partners), or
(b) Third party agrees to release him, or

1.7 REGISTRATION OF CHANGES IN PARTNERS - SECTION 25

(1) Every partner has to inform the LLP of any change in his name or address within
a period of 15 days of such change.
(2) When a person becomes a partner, retires, is expelled or ceases to be So, the LLP
has to inform the Registrar within 30 days of the date, on which that happened.
(3) When there is a change in the name or address of a partner, such change is to be
filed with Registrar within 30 days of the change.
(4) Notice so filed shall be in form prescribed with requisite fee.
(5) If the notice relates to an incoming partner it should contain a statement by such
partner that he consents to be a partner.
(6) In case of notices filed by the partners themselves, ROC has to obtain a
confirmation to this effect from the LLP unless the LLP has also filed the notice.
If no confirmation comes from the LLP within 15 days, the Registrar has to
register the notices filed by the partner.
(7) In addition, whenever there is a change in partners either by removal, expulsion,
admission or cessation, it would result a change in the LLP Agreement. The
amended LLP Agreement is also to be filed with the Registrar within 30 days of
the amendment.
Penalty. If there is contravention of provision of filing the change of name and
address with ROC by any partner such partner shall be liable for a minimum fine of 2,000
but which may extend to 25,000.

152
 If there is contravention by LLP of filing of notices to Registrar then each designated
partner shall be punishable with a minimum fine of 2,000 but which may extend to
*25,000

1.8 PARTNER AS AGENT OF LLP-SECTION 26

Every partner of a limited liability partnership is for the business of the limited
liability partnership, play the role of a agent of the LLP but not of other partners. It means
that a partner shall bind the LLP by its acts and not the other partners.
Since a partner is an agent of the LLP, he is employed to do any act and represent
LLP in dealing with third person and the agent can bind the principal only if he acts
within the scope of his authority and the scope of agent's authority is determined by
express, implied, apparent authority and authority in emergency.
Express The partner has been given express authority
authority by LLP to act on behalf of LLP with the third
persons. Then LLP is liable for all such acts of
partner.
Implied If a partner has express authority being an
authority agent of the limited liability partnership to do a
particular act then he has implied authority
also to do all acts & things which are
incidental to the achievement of the main
Authority of an purpose then LLP is liable for all such acts.
Agent/Partner Apparent A partner can also bind the LLP by acts done
authority within his apparent authority provide the third
party acts bonafide. It is authority which is in
excess of his actual authority
Authority in If a partner exceeds his authority to protect
Emergency LLP from losses in an emergency as a man of
ordinary prudence would do in his own case
then LLP is liable for all such acts of the
partner.

1.9 EXTENT OF LIABILITY OF LLP - SECTION 27

To fix the liability of LLP for acts done by its partners the following conditions must
exist:
(a) The act or omission by the partner must be wrongful.

153
 (b) The act or omission must be in the course of LLP's business.
(c) The act or omission must be with the LLP's authority and
(d) The wrongful act or omission must result in the partner's liability to some other
person
If the act or omission takes place outside the LLP's business or is unrelated to the
business of the LLP it would not result in any liability for the LLP.
Limits of LLP liability
1) LLP is not liable: LLP’s partners liability is limited to acts done within the scope and
not made responsible for the acts done outside the limits and same with the partner in
a dealing with third party if:
(a) The partners has no authority to act on behalf of Limited Liability Partnership
for doing something particular.
(b) The third party is not aware that the partner has no authority or does not know or
does not believe him to be a partner of LLP.
2) LLP is liable—The LLP is liable for acts of its partners if
(a) The wrongful act or omission is done in the course of business of the LLP, or
(b) The wrongful act or omission is done with the authority of the LLP.
3) Liability in case of holding out (Section 29)—LLP when receives credit or any
financial benefit by a third person due to wrong representation made by another
person then LLP is liable to the extent of the credit received by it or any financial
benefit derived there on.
4) Unlimited liability (Section 30)—If any event is carried out by the LLP or any of its
partners with an intent to defraud creditors of the LLP or any other person or for any
fraudulent purpose, then the liability of the LLP shall be unlimited for all such debts
unless it is proved that LLP has no knowledge of it or the act is carried out without
authority of LLP.
5) LLP's liability towards property—The liabilities of the LLP shall be met out the
property of the LLP only.
6) Liability for compensation (Section 30)— LLP shall be liable to pay compensation
to any person who has suffered any loss or damage by reason of wrongful conduct of
LLP in carrying on the business of LLP. If such conduct is committed without
knowledge of LLP without any authority by LLP, LLP shall not be liable.

154
EXTENT OF LIABILITY OF PARTNERS OF LLP - SECTION 28
The liability of partners of LLP for their acts is discussed below:
1) Partner is not liable—“A partner is not personally liable for an obligation of
the LLP arising in contract or otherwise by reason solely of the fact that he is a
partner of the LLP.”
2) Partner not liable for acts of other partners—A partner is not personally
liable for the wrongful act or omission of any other partner of the LLP.
3) Partners liable—A partner is liable for his wrongful act or omission without
any authority (express or implied) from the LLP.
4) Liability by holding out (Section 29)—“If a Person by his words or conduct
represents himself to be a partner is a limited liability partnership, such a person
is liable to any person who has on such representation given credit to the LLP.”
5) Liability of deceased partner (Section 29)—“Where after a partner's death
LLP continues the use of the name of the deceased partner, the continued use of
the name of the deceased partner shall not itself make his legal representatives or
his estate liable for any act of the LLP done after his death.”
6) Unlimited liability (Section 30)—“If any event is carried out by any of its
partners with an intent to defraud creditors of the LLP or any other person or for
any fraudulent purpose the liability of the partners who acted with such intent
shall be unlimited (extending to their personal assets) for the debt of the LLP.”
7) Liability for compensation (Section 30)—“The partner shall be liable to pay
compensation to any person who has suffered any loss or damage by reason of
wrongful conduct of the partner.”
8) Penalty (Section 30)—“When there is unlimited liability for a partner under
section 30 then besides the unlimited liability for the debts of the LLP, the
partner shall be punishable with imprisonment for a term which may extend to 2
years and with fine which shall not be less than ₨ 50,000 but which may extend
to ₨ 35,00,000.”

LIABILITY BY HOLDING OUT - SECTION 29(1)

“A person by his words (spoken or written) or conduct represents himself to be a
partner in a limited liability partnership, although he is not a partner, then such a person is
liable to any person who has an such representation given credit to the LLP.”
To fix the liability on the person holding out, the following conditions must be
satisfied:

155
 (a) He by himself or having knowledge that others to be represented as a partner in
a LLP.
(b) Such representation has reached another person who has given credit to the LLP
and
(c) Credit has been given on the faith of such representation.
LLP is liable to the extent of the credit received by it or any financial benefit
deprived there on.
Where after a partner's death LLP continues the use of the name of the deceased
partner, the continued use of the name of the deceased partner shall not itself make his
legal representatives or his estate liable for any act of the LLP done after his death.

UNLIMITED LIABILITY IN CASE OF FRAUD - SECTION 30

1. “Liability of LLP and Partners—If any event is carried out by a limited
liability partnership or any of its partners with an intent to defraud creditors of
the limited liability partnership or any other person or for any fraudulent purpose
the liability of the LLP and guilty partners shall be unlimited for all or any of the
debts of the LLP.”
2. Penalty—“Every person guilty for such acts shall be punishable with
(a) imprisonment for a term which may extend to 2 years and
(b) fine which shall not be less than ` 50,000 but which may extend to
` 5,00,000.”
3. Compensation—“Limited liability partnership or a partner(s) or a designated
partner(s) shall be liable to pay compensation to any person who has suffered
any loss or damage by reason of such conduct. LLP shall not be liable if the
partner or designated partner has acted fraudulently without knowledge of the
LLP (whether LLP is in knowledge of such act or not can be inferred from the
course of the conduct also).’
4. Liability extends to partner in knowledge—The above provision is applicable
to that partner also who has become aware of the element of fraud or the
fraudulent purpose in the carrying of the LLP's business but who is not involved
in it but he also does not take any corrective action.

1.10 WHISTLE BLOWING - SECTION 31

“The act of providing information by a partner or employee of limited liability
partnership which alerts the concerned authorities to any wrongful acts committed or

156
being committed, which involves violation of any laws or rules is called whistle Blowing
and the person who provides such information is called whistle Blower.”

The legal position of the whistle blower under Section 31 is discussed

below:
According to Section 31 the court or tribunal may reduce the penalty levied against
any partner or employee of an LLP on a condition that such partner or employee has
provide useful information during the investigation of LLP for finding out the offences
and finding out the main culprit. No such partner or employee threatened, discharged,
demoted ,harassed or in other way discriminated against the terms and conditions of his
LLP or employment merely because of his providing useful information to the court or
tribunal. A whistle blower who helps in the conviction of the guilty will thus be
protected. Such protection shall not be available to partner or employee if such
information is provided by a third party like supplier of goods & services.

Form of contributions -Section 32

A partner may make contribution to the LLP in many forms. The provision related to
contributions is discussed below.
Partner’s contribution in the form of money or property towards the capital of a LLP
is just like contribution of share capital in a joint stock company formed under companies
act 2013.Total contribution of capital forms the security for the creditors of the LLP same
as in case of company’s share capital is the security belt for the shareholders.
As such in case of company reduction of share capital is guarded by companies act
and further requires permission of concerned authorities same like in case of LLP, LLP
act also provides safety for preservation and maintenance of LLP’s capital.
Partner’s contribution towards LLP’s capital may include Tangible, intangible assets
and some other benefits including promissory notes any contracts for services performed.
Rule 23 of LLP act provides that where the contributions is in gorm of tangible or
intangible ,movable or immovable property or other benefits contributed by way of
contract of services shall be valued by a practicing Chartered Accountant or Cost
Accountant or by an approved valuer appointed by Central Government.

Obligation to Contribute - Section 33

1. As per LLP Agreement—“The obligation of a partner to contribute money or
other property, other benefit or perform services for the LLP is to be as per the
LLP Agreement. (But partners can modify this agreement, in regard to form and
computation of value of obligation which is to be registered with ROC)”

157
 2. Obligation to creditor— “A creditor of an LLP, who extends credit to the LLP
or extends credit to the LLP in reliance of an original obligation described in the
LLP Agreement, can enforce such original obligation on the LLP and its partner
even if there is modification in contribution by a partner later and creditor has no
notice of such modification at the time of extending the credit then he can
enforce original obligation to his knowledge.”
3. Original obligation—“ It does not necessarily refer to the obligation mentioned
in the LLP Agreement, it any means the obligation for contribution by a partner
as on the date when the third party has extended credit to the LLP)”

Withdrawal of Contribution
The Act is silent as to whether a partner can withdraw his contribution from the LLP.
The withdrawal of contribution by a partner would depend upon the LLP Agreement. But
in case of termination or death or retirement of a partner from LLP, if agreement is silent,
then former partner is entitled to receive his share in the LLP and shall be entitled to
receive from the LLP
(a) His share in capital of LLP.
(b) also his share in accumulated gains of the LLP, after deducting all losses and that
shall be in the prescribed profit sharing ratio on the date of his termination.

SUMMARY
Limited Liability Partnership is a combination of advantages of two main form of
business organization i.e. Partnership and Joint Stock Company, with an objective of
carrying a legal business and making profits thereof. The mutual rights and duties of the
partners and those of the LLP and its partner are governed by the LLP agreement and in
the absence of any agreement the mutual rights and liabilities shall be as provided for
under Schedule I to the act. The Limited Liability Partnership shall indemnify each
partner in respect of payments made and personal liabilities incurred by him.
Management of a LLP is done by Partners and Designated Partners.
Whistle Blowing is an act of providing information by a partner or employee of Limited
Liability Partnership which alerts the concerned authorities to any wrongful acts
committed ,which involves violation of any laws or rules is called ‘Whistle Blower’ and
the person who do such acts is called ‘Whistle Blower’. LLP Act has given sufficient
protection to the Whistle Blower.

158
SELF ASSEMENT QUESTIONS

Short Answer questions

1. Who can be appointed as designated partner in an LLP ?
B.Com. (H), Delhi 2011, 2014)
2. How can a person become a partner of an Limited Liability Partnership ?
3. Define Designated Partner.
4. State the liability of the LLP for the wrongful act of partner.
B.Com. (H), Delhi 2012, 2014)
5. State the Maximum and Minimum numbers of partners.
6. Discuss the Qualification and Disqualifications of partners in Limited Liability
Partnership.
7. Define Whistle Blowing and its effects on LLP.
B.Com. (H), Delhi 2012, 2015)
8. Every partner of an LLP is an agent of the LLP only and not of other partners.
Explain.

Long Answer Questions

1. How can a person become a partner of an LLP? What are the qualifications for
becoming a partner in an LLP? [B.Com. (H), Delhi 2011)
2. Discuss the provisions regarding appointment and eligibility condition for a
designated partner under the LLP Act, 2008 [B.Com. (H), Delhi 2012]
3. State the liability of the LLP for the wrongful act of partner.
[B.Com. (H), Delhi 2012]
4. The partners of LLP have no liability for the acts done an behalf of LLP ? Do you
agree?
5. ‘A partner or LLP shall never be liable to an unlimited extent for the debts of LLP.’
Critically examine the statement. [B.Com. (H), Delhi, 2015)
6. State the provisions related to whistle blowing in case of LLP. [B.Com(H), 2013,
2015)
7. The partners of LLP have no liability for the acts done an behalf of LLP? Do you
agree?

159
8. What do you understand by the term 'holding out'? What is the liability of LLP in
such a situation?
9. ‘A partner or LLP shall never be liable to an unlimited extent for the debts of LLP.’
Critically examine the statement. [B.Com. (H), Delhi, 2015)
10. Write a short note on
(a) Contributions
(b) Whistle blowing.
11. State the provisions related to whistle blowing in case of LLP.
[B.Com(H), 2013, 2015)
12. The responsibility for carrying out the legal obligation as laid down by the LLP Act
shall be solely of the designated partners. [B.Com(H), 2016)
13. Every partner of an LLP is an agent of the LLP only and not of other partners.
[B.Com(H), 2016)
14. Who can become partner in an LLP? What are the disqualifications for becoming a
partner? How can a person become a partner of an LLP?
[B.Com(H), 2016]

160
 LESSON – 3
FINANCIAL DISCLOSURE AND WINDING UP OF L.L.P

STRUCTURE

1.1 State the meaning of Financial Disclosure of LLP;

1.2 Describe the concept of Taxation of LLP and the rules regarding it;

1.3 Discuss the provisions of conversion of Partnership, Company into LLP;

1.4 Discuss the effects of conversion

1.5 State the meaning of Winding up of Limited Liability Partnership;

1.6 Meaning, effects and procedure of Voluntary Winding Up.

1.7 Meaning, effects and procedure of Compulsory Winding Up

1.8 Meaning of Liquidator and its functions

1.9 Concept of Insolvency and Bankruptcy Code;

1.10 Meaning and procedure of Voluntary Winding up of LLP;

1.1 MEANING OF FINANCIAL DISCLOSURES OF LLP

The LLP Act requires every LLP to maintain books of accounts on a regular basis. In
order to ensure transparency ,the act also make it mandatory for an LLP to make proper
disclosure of prescribed books of accounts such as Statement of accounts and Solvency
and also make it compulsory to get accounts audited and file annual returns every year.
Maintenance of books of account [sec. 34]
Obligation to maintain proper books (Sec. 34(1)]. Every LLP has required to
maintain books of accounts.
Form and Content. Rule 24 (2) of LLP Rules, 2009 provides that the books of
account shall contain:
(a) Details of all receipt and payment of money by LLP and also the sources of
receipt and payment.

161
 (b) A record of the assets and liabilities of LLP;
(c) Proper records of inventories, work in progress, finished goods, cost record to
know about the cost of goods.
Apart from the above mentioned matters, any other matter may be included in the
books of account which the partners may decide.
Period of Preservation. The books of account of every LLP relating to a period of
not less than eight years immediately preceding the current year must be preserved at
registered office
Statement of account and solvency
Obligation to prepare Statement of account and solvency [Sec. 34(3)]. “Every
LLP is required to prepare Statement of Account and Solvency' every year and to file the
same with the registrar of companies (ROC).”
Time Period for Preparation. The statement of account and solvency is required to
prepare within a period of 6 months from the end of Financial Year (FY). In case the
financial year ends on 31st March 2012, the LLP must prepare its annual statement by
30th September, 2012.
Time Period for Filing. Once the statement is prepared, a copy of it has to be filed
with the registrar, within a period of thirty days from the end of six months from the end
of financial year along with applicable fees. In case the financial year ends on 31st March
2012, such statement be filed within a period of 60 days.
Form and Contents: A statement of account and solvency must be filed in Form 8.
The statement is divided into two parts:
Part A. Statement of Solvency
Part B. Statement of Account
The first part contains a affirmation and declaration by the designated partners the
they have made full enquiry into the affairs of the LLP and sure about the position of
solvency of LLP the weather the LLP would be able to pay its debts in full in the normal
course of its business or not.
Part B present a detailed summary of financial position of the LLP It consists of two
statements (i) a Statement of Assets and Liabilties and (ii) Statement of Income and
Expenditure.
Auditing of accounts of LLP [Sec. 34(4)]
Section 34 lays down that “the accounts of a LLP shall be audited in accordance with
such rules as may be prescribed. However, the Central Government may, by notification

162
in the official Gazette, exempt any class or classes of LLPs from the aforementioned
requirement”.
Audit not Mandatory. According to Rule 24(8) of the LLP Rules “a LLP whose
turnover does not exceed, in any financial year, ₨. 40 lakhs on contribution does not
exceed ₨ 25 lakhs, is exempted from getting its accounts audited. The turnover limit has
been raised from ₨ 40 lakhs to ₨ 60 lakhs by the Finance Act, 2010. But such LLPs
who are exempted from mandatory audit may also get their accounts audited as per the
LLP Rules, 2009.”
Annual return (Sec. 35)
The second important document to be filed with the registrar every year by an LLP is an
Annual Return. Every LLP is required to file an Annual return duly authenticated with the
registrar of Companies within sixty days of closure of its financial year.
The annual return shall be filed in a prescribed form i.e. Form no.11 annexed to LLP
rules, 2009 Briefly stated it contains following information:
1. The name and address of registered office of LLP (including other address if
decided by the partners under Section 13(2), for service of documents).
2. Date of closure of financial year.
3. Details of business classification (trade/profession/service).
4. Principal business activities of the LLP.
5. The summary of partners and designated partners and DPIN of designated
partners.
6. Number of individual(s) as partners and number of bodies corporate as partners.
7. Obligation of the partners to contribute
8. Particulars of penalties imposed on the LLP/partners/designated partners.
9. Particulars of compounding of offences.
10. Certificate to be signed by designated partner.
Other legal compliances relating to financial disclosures
1. Penalty for Non-Compliances under Section 34 or Under Section 35. “In
case any LLP fails to comply with the provisions stated under Section 34 or 35,
such LLP shall be punishable with fine which shall not be less than ₨ 25,000
but which may extend to ₨ 5,00,000 and every designated partner of such LLP
shall be punishable with fine which shall not be less than ₨10,000 but which
may extend to ₨1,00,000”

163
 2. Inspection of Documents (Sec. 36]
(i) The incorporation document, statement of account and solvency and annual
return filed by each LLP with the registrar shall be available for inspection
by any person.
(ii) In case a person wants to obtain a copy or extract of any of aforementioned
documents to be certified by the registrar, he will have to pay ₨5 per page
or fractional thereof.
3. Penalty for false statement [Sec. 37). Any LLP fails to comply with the
provisions of filing the Annual return in the prescribed form on or before due
date shall be punishable with fine ranging from twenty five thousand to five laks
rupees. In addition If in any return, statement or other document for the purposes
of any of the provisions of this Act, any person makes a statement :
(a) which is false in any material particular, knowing it to be false; or
(b) which omits any materials fact knowing it to be material,
He shall be punishable with imprisonment for a term which may extend to 2
years and shall also be liable to fine which may extend to ₨ 25,00,000 but which shall
not be less than ₨ 1,00,000.

1.2 TAXATION OF LLP

The union budget 2009 which is announced on July 6, 2009 has given the guidelines
for taxation of LLP in India.
LLP Treated at Par with General Partnerships. The new provisions do not treat
the LLP as separate entity but treat it at par with the general partnership.
Eligibility (Sec. 184]
For an LLP to be assessed as firm, the following conditions are to be satisfied:
1. There must be LLP written LLP agreement.
2. The profit /loss shares of partners must be very clearly specified in the LLP
agreement/deed.
3. An LLP agreement copy (certified properly) must accompany with the return of
income of LLP of the previous year in which the partnership was formed must be
submitted to Income Tax Authority.
4. If constitution of LLP changes or profit sharing ratio changes in last year then a
certified copy of revised LLP agreement shall be submitted along with Annual
return of income.

164
TAXATION TREATMENT OF LLP
1. Rate of Tax for Assessment Year 2019-201. “Flat Tax Rate of 30% plus
Education Cess(EC) @ 2% plus Secondary and Higher Education Cess
(SHES)@ 1% will be payable by LLP [Effective tax of 30.9%). No surcharge
will be applicable. LLPs tax payment is lower than that of companies, which are
required to pay @ 33.99% tax on profits.”
2. Partner's Liability to Pay Tax. Every partner of a LLP is jointly and severally
liable for the taxes to be paid by LLP (subject to the conditions stated under Sec.
167) for the period during which he is a partner.
3. Intangible Contribution. It shall be taxable only at the time of transfer,
cessation and winding up of LLP.
4. Filing and Signing of ITR. In LIP 'designated partner' is responsible for the
legal compliances of LLP therefore, it is his duty to sign the ITR of LLP unless
any unavoidable reasons are there.
5. Alternate Minimum Tax (AMT). In order to save revenue on account of
companies converting to LLPs, Finance Act, 2011 has introduced a new Chapter
XII-BA under the Income-tax Act,1961 which provides for levy of Alternate
Minimum Tax. It provides that if regular income tax payable by a LLP for a
particular financial year is less than the corresponding alternate minimum tax
computed on its adjusted total income, then such alternate minimum tax shall be
deemed to be the income tax liability of such LLP. LLP is liable to AMT @
18.5% plus an education cess of 3% on the adjusted total income of Limited
Liability Partnerships (The effective rate of AMT including cess is 19.0596).
Excess amount paid over normal income tax payable u/s 115JC is allowed to
be carried forward for a period upto 10 assessment years. In the given
example, AMT credit to be carried forward would be ` 62,500 (`92,500 -
`30,000) which is allowed to be set off for a period upto 10 assessment years.
6. Benefits of Presumptive Taxation not Available to LLP. According to IT Act,
1961 LLPs are not eligible for presumptive taxation i.e., they are not entitled to
avail benefits of Sec. 44AD.
7. No Capital Gain on Conversion. No capital gain provided on conversion of
(i) Partnership firms into LLP (ii) company into LLP provided prescribed
conditions are complied with.

1
For Assessment Year 2019-20, the cesses (Primary Education Cess and the Secondary and Higher
Education Cess @ 3% have been replaced by the new cess namely Health and Education cess @ 4%.

165
 8. Submission of Audit Report. LLPs are also required to submit audit report
under section 115JC(3) on a before the due date of filing of ITR certifying the
total income as well as Alternate Minimum Tax (AMT).
9. Not Liable for Dividend Distribution Tax (DDT). If a company declares or
distributes dividends, it is required to pay additional income tax @ 15%. LLP is
not liable for dividend distribution tax as there is no such form of dividends
payable [Sec. 115-0).
10. Surcharge. LLP is liable to pay surcharge @ 12% of Income Tax if net income
exceeds ` 1 crore. In case surcharge is levied, EC and SHEC will be computed
on the combined amount of Income Tax plus Surcharge.
11. Due Date for Filing ITR. According to Explanation 2 of Section 139(1) of the
Income-tax Act, an LLP is required to file an Income Tax Return:
(i) on or before July 31, if accounts are not to be audited;
(ii) on or before September 30, if accounts are to be audited.
12. Mode of LLP Tax Payment. LLP tax payment can be made in physical mode
through designated banks or through e-payment mode. LLPs that are required to
get its accounts audited are required to pay tax through e-payment mode only.
To pay tax at designated banks, Challan ITNS 280 must be provided with the
tax payment.

1.3 CONVERSION FROM PARTNERSHIP FIRM INTO LLP [SEC. 55]

The LLP Act, 2008 has provide provisions for the conversion of a private limited
company, a partnership, and a joint stock company (Unlisted) into LLP.(Sec 55-58)
A partnership firm have the right to convert itself into LLP by following the
provisions of Chapter X of the Act and the Second Schedule.
Meaning of Conversion. The conversion of the partnership firm into LLP means the
transfer of the property, whether tangible or intangible, assets, interests, rights, privileges,
liabilities, obligations and whole of the undertaking of the partnership firm to the LLP as
a going concern.
Eligibility for conversion of partnership firm into LLP
A partnership firm may apply to ROC for its conversion into a LLP provided all the
partners of the converting partnership firm become the partners of proposed LLP. No
other person is allowed to become the partner during the process of conversion.

166
Procedure for conversion
The following steps are required to be taken for conversion of the partnership firm
into LLP:
1. Deciding the partners and the designated partners.

2. Checking the name availability of LLP from ROC.

3. Getting LLP agreement and incorporation document drafted and printed.
4. Filing of conversion application.
5. Obtaining certificate of registration from the ROC.
6. Informing the Registrar of Firms about conversion.
Filing of Conversion Application [Rule 38(1)]. Partners of the LLP are required to
submit conversion application in e-form 17 (Part A). The conversion application must be
accompanied by:
(i) Incorporation document and subscription statement (Sec. II]
(ii) A statement by all of its partners in Form 17 (Part B) containing:
 Name and registration No. (if any) of the firm,
 Date of registration (if registered).
(iii) A statement in the prescribed form made by a person prescribed under the Act as
to compliance of all requirements of the Act in respect of incorporation.
(iv) Assets and liabilities statement of LLP duly certified by C.A. (Chartered
Accountant) as true and correct and must be submitted within thirty days from the
application.
(v) Consent of creditors that they agree for conversion must also be attached.
(vi) The clearance, approval or permission for the conversion into LLP from the
concerned body/authority, if required.
(vii) Other attachments such as details of ITR(s) filed, particulars of pending
proceedings (if any), refusal letter by ROC (if applied earlier).
(viii) Prescribed filing and registration fees.
All the required e-forms will be digitally signed by the designated partner and
shall be certified by an advocate/CS/CA/Cost Accountant in practice engaged in the
formation of LLP.

167
 Obtaining Certificate of Registration from ROC [Rule 38(2)]
(i) Issue of certificate by ROC. On receipt and then scrutinization of the
above mentioned documents if the Registrar is satisfied that all formalities
and filing have been complied with, he shall register the documents and
issue a certificate in form 19 (annexed to LLP Rules, 2009) stating that the
LLP is registered with the name and from the date specified in the
certificate. The certificate of registration shall be the conclusive evidence
of the conversion of LLP.
(ii) Power of ROC to Refuse Conversion. The Registrar has the power to
refuse the conversion in case he is not satisfied with details of the
information filed as required by the Act.
(iii) Appeal to the Tribunal in Case of Refusal. “In case the Registrar has
refused the registration of conversion, the applicant may apply to tribunal
within 60 days from the date of receipt of such intimation of refusal.”
7. Informing the Registrar of Firms About Conversion [Rule 38(3)] After
partnership firm gets converted and registered, then the partnership firm has
to inform to the registrar of firms about the conversion and also give the full
details of conversion in form 14.
Penalty in Case of Delay Under Section 69. LLP is liable to pay fee of ` 100 per
day.
Effects of registration of conversion of partnership into LLP (SEC. 58]
On and from the date of registration of conversion the effects of registration of
conversion shall be as follows:
1. Existence of LLP. A LLP must be registered with the name mentioned din
documents.
2. Automatic Transfer and Vesting of Assets and Liabilities in LLP. After
partnership gets converted into LLP, all the assets, liabilities, property obligation
of firms and whole business of partnership automatically gets transferred to LLP.
3. Dissolution of converting entity. The partnership firm after conversion deemed
to be dissolved and its name will be removed from the records of the registrar of
firms.
CONVERSION FROM PRIVATE COMPANY INTO LLP [SEC. 56]
A private company may convert itself into a limited liability partnership in
accordance with the provisions of Chapter X of the Act and the Third Schedule (by filling
e-form 18).

168
Procedure for Conversion
The following steps are required to be taken for conversion of the private company
into LLP:
1. Deciding the partners and the designated partners.
2. Checking the name availability of LLP from ROC.
3. Getting LLP agreement and incorporation document drafted and printed
4. Filing of conversion application.
5 Obtaining certificate of registration.
6 Informing the Registrar of Companies about conversion.
5. Filing of Conversion Application (Rule 39). After taking the above mentioned
steps an application is to be made in e-form 18 (Part A) (annexed to LLP Rules, 2009)
The conversion application must be accompanied by:
(i) Incorporation document and subscription statement [Sec. 11]
(ii) A statement by all of its shareholders in Form 18 (Part B) containing:
 Name and registration number of the company; and
 Date of registration of the company.
(iii) A statement in the prescribed form made by a person prescribed under the Act as
to compliance of all requirements of the Act in respect of incorporation.
(iv) Assets and liabilities statement which is duly certified by C.A of a private
company as true and correct and must be submitted within thirty days of
application.
(v) List of all creditors along with their consent to the conversion.
(vi) The clearance, approval or permission for the conversion into from the
concerned body/authority, if required.
(vii) Other attachments such as details of ITR(s) filed, particulars of pending
proceedings (if any), refusal letter by ROC (if applied earlier).
(viii) Prescribed filing and registration fees.
required e-forms will be digitally signed by the designated partner
All the required e-form will be digitally signed by the designated partner and shall be
certified by an advocate/CS/CA/Cost Accountant in practice engaged in the formation of
LLP.

169
Obtaining Certificate of Registration from ROC
(i) (Issue of certificate by ROC. On receipt and then scrutinization of the above
mentioned documents if the Registrar is satisfied that all formalities and filing
have been complied with, he shall register the documents and issue a certificate
in Form 19 (Annexed to LLP Rules, 2009) stating that the LLP is registered
with the name and from the date specified in the certificate. The certificate of
registration shall be the conclusion evidence of the conversion of LLP.
(ii) Power of ROC to Refuse Conversion. The Registrar has the power to refuse
the conversion in case he is not satisfied with details of the information filed as
required by the Act.
(iii) Appeal to the Tribunal in Case of Refusal: If registrar refuse for conversion,
then the firm can’t go to tribunal within sixty days of such refusal
7. Informing the Registrar of Companies about Conversion
After converted into LLP the converted firm has to inform registrar of companies
with whom it was earlier registered about the conversion under a period of fifteen days
from the date of registration in Form 14 with full details.
Penalty in case of Delay. LLP is liable to pay fee of ` 100 for every day of such
delay in informing the ROC under section 69.
Effects of registration of conversion of private company into LLP [sec. 58]
On and from the date of registration of conversion the effects of registration of
conversion shall be as follows:
1. Existence of LLP. LLP has to registered itself with the name with which it was
registered.
2. Automatic Transfer and Vesting of Assets and Liabilities in LLP. After
partnership gets converted into LLP, all the assets, liabilities, property obligation
of private company and whole business of private company automatically gets
transferred to LLP.
3. Dissolution of converting entity. Name of private company which got
converted has to be removed from the register of companies and treated it as
dissolved.

CONVERSION FROM UNLISTED PUBLIC COMPANY INTO LLP [SEC. 57]

An unlisted company may convert itself into a limited liability partnership in
accordance with the provisions of Chapter X of the Act and the Fourth Schedule by filling
E Form 18

170
 Meaning of Listed Company. It means a listed company as defined in the Securities
Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 issued by
the SEBI under Section 11 of the SEBI Act, 1992. “Unlisted Public Company” means a
company which is not a listed company.
Meaning of Conversion. After getting converted an unlisted public company into
LLP all the assets, liabilities, property rights, obligations of company must be transferred
to LLP
Eligibility for Conversion
An unlisted public company can apply for conversion to Registrar;
(a) there is no security interest in its assets subsisting or in force at the time of
application; and
(b) All the shareholders of private company will become the partners of LLP after
gets converted into LLP.
On compliance of all the formalities relating to conversion, the company, its
shareholders, the LLP and all the partners of the LLP shall be bound by the provisions of
the Fourth Schedule.
Procedure for Conversion
The following steps are required to be taken for conversion of the unlisted company
into LLP:
1. Deciding the partners and the designated partners.
2. Checking the name availability of LLP from ROC.
3. Drafting LLP agreement and incorporation document drafted and printed.
4. Filing of conversion application.
5 Obtaining certificate of registration from the ROC.
6. Informing the Registrar of Companies about conversion.
5. Filing of Conversion Application (Rule 40). After taking the above mentioned
steps an application is to be made in e-form 18 (Part A) The conversion application
must be accompanied by:
(i) Incorporation document and subscription statement (Sec. 11]
(ii) A statement by all of its shareholders in Form 18 (Part B) containing:
 Name and registration number of the company; and
 Date of registration of company.

171
 (iii) A statement in the prescribed form made by a person prescribed under the Act
as to compliance of all requirements of the Act in respect of incorporation.
(iv) Statement of Assets and liabilities of private company must be certified by
C.A.as true and correct and must be filed within thirty days of application.
(v) Consent for conversion by all creditors of public company which is converted
(vi) The clearance, approval or permission for the conversion into LLP from the
concerned body/authority, if required.
(vii) Other attachments such as details of ITR(s) filed, particulars of pending
proceedings (if any), refusal letter by ROC (if applied earlier).
(viii) Prescribed filing and registration fees.
All the required e-forms will be digitally signed by the designated partner and shall
be certified by an advocate/CS/CA/Cost Accountant in practice engaged in the formation
of LLP.
Obtaining Certificate of Registration from ROC
(i) Issue of certificate by ROC. On receipt and then scrutinization of the above
mentioned documents if the registrar is satisfied that all formalities and filing
have been complied with, he shall register the documents and issue a certificate
in Form 19 (annexed to LLP Rules 2009) stating that the LLP is registered with
the name and from the date specified in the certificate. The certificate of
registration shall be the conclusion evidence of the conversion of LLP.
(ii) Power of ROC to Refuse Conversion. The Registrar has the power to refuse
the conversion in case he is not satisfied with details of the information filed as
required by the Act.
(iii) Appeal to the Tribunal in case of Refusal. After getting refused by registrar
for conversion the company can go to tribunal under a period of sixty days from
the date of refusal.
7. Informing the Registrar of Companies about Conversion
The LLP after getting converted should inform the registrar under which it was
registered earlier under a period of fifteen days from the date of registration of LLP with
full details of conversion in form 14
Penalty in case of Delay. LLP is liable to pay fee of ` 100 for every day of such
delay in informing the ROC under Sec. 69.

172
1.4 EFFECTS OF REGISTRATION OF CONVERSION (SEC. 58]
On and from the date of registration of conversion the effects of registration of
conversion shall be as follows:
1. Existence of LLP. LLP must known by name with which it gets registered
2. Automatic Transfer and Vesting of Assets and Liabilities in LLP. After
partnership gets converted into LLP, all the assets, liabilities, property obligation
of private company and whole business of private company automatically gets
transferred to LLP.
3. Dissolution of converting entity. The unlisted public company shall deemed to
be dissolved and its name will be removed from the register of companies
maintained by the Registrar of Companies.
1.5 WINDING UP OF LLP
LLP is an artificial person created by legal process and its existence also comes to an
end by a legal process of winding – up.

MEANING OF WINDING- UP
Winding up of an LLP is a process TO BRING about an end to the life of an LLP the
process of winding up involves the realization of the assets, payments of the liabilities
and distribution of surplus among the partners of the LLP by the Liquidator.

MODES OF WINDING UP OF LLP (SEC.63]

Limited Liability Partnership may be wound up in the following ways:
I. Voluntary Winding up
II. Insolvency and Bankruptcy Code (IBC), 2016: Though this code provides steps
for restructuring and revival of Corporate Debtor (LLP) yet under certain
circumstances NCLT can pass order for liquidation of LLP. Therefore, it is
included under the modes of winding up.
III. Compulsory winding up by the Tribunal.

1.6. VOLUNTARY WINDING UP (AS PER REGULATIONS 2017 W.E.F.

APRIL 2017)
Chapter V of Part II of the Insolvency and Bankruptcy Code (IBC), 2016
provides for the various provisions for liquidation of corporate persons. According to sec.
59(1) of the code, a corporate person who intends to liquidate itself voluntarily and meets

173
the conditions and procedural requirements as prescribed by IBBI may initiate voluntary
liquidation procedure under the provisions of Chapter V of Part II of the IBC, 2016.
The various provisions of Secs. 35-53 of the Chapter III and Chapter IV shall apply
to voluntary liquidation proceedings for corporate persons with such modifications as
may be required. It further provides that if the affairs of the corporate persons have been
completely wound up and its assets completely liquidated, the liquidator is required to
make an application to Adjudicating Authority, i.e, NCLT for dissolution of such
corporate person.

STEPS INVOLVED IN THE PROCESS OF VOLUNTARY LIQUIDATION

OF LLP
1. Commencement of Liquidation
(a) Obtaining declaration of solvency (DOS) [Sec. 59(3) of the Code]. “A
declaration of solvency duly verified by an affidavit has to be obtained from
majority of designated partners of corporate person.”
(b) Declaration to be accompanied with documents [Sec. 59(3) of the Code]. Dos
shall be accompanied by:
(i) audited financial statements and record of business operations of the
corporate person for the previous two years or for the period since its
incorporation, whichever is later.
(ii) a report of the valuation of assets of the corporate person, if any, prepared
by a registered valuer.
(c) Passing of resolution [Sec. 59(3) (c) of the Code). A resolution shall be passed
by majority of the partners of corporate person for voluntary liquidation and
appointing an insolvency professional to act as liquidator within 4 weeks of
obtaining the declaration.
(d) Approval of voluntary winding up by the creditors [Proviso to Sec. 59(3) of
the Code]. In case the LLP owes debt to any person, the creditors representing
2/3rd in value of the debt of the corporate person shall approve the resolution
passed under Sec. 59(3)(c) of the Code within 7 days of such resolution.
(e) Notification to the Registrar and IBBI. The corporate person shall notify the
Registrar and IBBI about the resolution to liquidate itself within 7 days of such
resolution or the subsequent approval by the creditors, as the case may be.
(f) Commencement of liquidation proceedings. The liquidation proceedings of
corporate person shall be deemed to have commenced from the date of passing
of the resolution, subject to the creditors' approval.

174
Effect of Liquidation
 Carrying on of Business. The corporate person shall cease to carry on its business
from the liquidation commencement date except if required for the beneficial
winding up of its business.
 Continuance of its Existence. The corporate person shall continue to exist until it
is dissolved.
2. Appointment and Remuneration of Liquidator.
(i) An insolvency professional to be appointed as liquidator should satisfy the
eligibility conditions laid down under Regulation 6.
(ii) The resolution passed under regulation 3(2)(c) or under section 59(3)(c), as the
case may be, shall contain the terms and conditions of the appointment of the
liquidator, including the remuneration payable to him.
(iii) The remuneration payable to the liquidator shall form part of the liquidation
cost.
Reporting. The liquidator shall prepare and submit—
(a) Preliminary Report;
(b) Annual Status Report;
(c) Minutes of consultations with stakeholders; and
(d) Final Report
in the manner specified under the Regulations.
3. Public Announcement by the Liquidator (Regulation 14 of the Voluntary
Liquidation Regulation).
(i) Form and time of announcement. The liquidator shall make a public
announcement in Form A of Schedule I within 5 days of his appointment.
(ii) Contents of announcement. The announcement shall invite the stake holders to
submit their claims due to the corporate person within 30 days from the
liquidation commencement date.
(iii) Mode of publishing of announcement. The announcement shall be published:
(a) In one English and one regional language newspaper with wide circulation
at the location of the registered office and principal office, if any, of the
corporate person;
(b) On the website, if any, of the corporate person; and
(c) On the website, if any, designated by IBBI for this purpose.

175
4. Verification of Claims.
Chapter V of VL Regulations provides for the manner of submission of claims by
creditors including workmen and employees and secured creditors), determination of
amount of claims, foreign currency claims, verification of claims etc.
According to Section 40 of the Code, The liquidator shall verify the claims
submitted within 30 days from the last date for receipt of claims and may either admit
or reject the claim, wholly or partially, as the case may be.
5. Realization of Assets.
(i) Manner of sale. It may be noted that VL Regulations allow the liquidator to
value and sell the assets of the corporate person in the manner and mode
approved by the corporate person.
(ii) Recovery of monies due: The liquidator shall make an effort to recover and
realize all assets and dues to the corporate person in a time-bound manner
keeping in mind the interest of the stakeholders.
(iii) Realization of unpaid capital contribution. The liquidator shall realize the
unpaid capital contribution from the partners who have not yet paid.
6. Deposit and Distribution of Proceeds of Liquidation (Regulation 35 of Liquidation
Regulation).
The liquidator shall open a bank account in the name of the corporate person
followed by the words ‘in voluntary liquidation' in a scheduled bank and deposit all
monies received on behalf of corporate person.
The liquidator shall distribute the proceeds from realization within 6 months from
the receipt of the amount to the stakeholders. The proceeds shall be distributed after
deducting the liquidation cost there from.
7. Completion of Liquidation and Preparation of Final Report (Regulations 37 and
38 of Liquidation Regulation).
The liquidator shall endeavour to wind up the affairs of the corporate person within
12 months from the voluntary liquidation commencement date. In the event of
voluntary liquidation continuing for more than 12 months, the liquidator shall
present a 'Status report' indicating progress in liquidation.
On completion of the liquidation process, the liquidator shall prepare the final report
which shall consist of audited accounts of liquidation, receipts. and payments pertaining
to liquidation etc.
8. Submission of Final Report (Regulation 38 of Liquidation Regulation).
The liquidator shall submit the final report to the Registrar and IBBI.

176
9. Passing of Order by NCLT [Section 59(7) and (8) of the Code].
Where the affairs of the corporate person have been completely wound up, and its
assets completely liquidated, the liquidator shall make an application to the NCLT for the
dissolution of corporate person. If the NCLT is satisfied with the application, it shall pass
an order that the corporate person shall be dissolved from the date of order and the
corporate person shall be dissolved accordingly.
10. Filing of Order with ROC.
The order of NCLT must be filed under a period of fourteen days of the receipt of the
order with the registrar

1.7 COMPLULSORY WINDING UP BY THE TRIBUNAL (NCLT)

According to Sec. 64 of the Act, A LLP may be wound up compulsorily by the
tribunal in the following circumstance:
(a) Petition by LLP. If the LLP decides that the LLP be wound up by the tribunal.
(b) Number of Partners below Statutory Minimum. If the number of partners
reduced below the minimum limits for more than six months
(c) Inability to Pay its Debts2. If a LLP is unable to pay its debts, it shall be wound
up by the tribunal according to rule 25 of the LLP (Winding up and Dissolution)
Rules, 2012. A LLP shall be unable to pay its debts in the following 3 cases:
(i) If a LLP owes an amount exceeding ` 1,00,000 to a creditor and fails to
pay such amount within a period of 21 days after the receipt of the
demand made by the creditor or his assignee.
(ii) If it is proved to the satisfaction of the Tribunal that LLP is unable to pay
its debts and in order to determine the inability of the LLP to pay its debts,
the Tribunal shall take into account the contingent and prospective
liabilities of the LLP.
(d) LLP acting against the National Interest. If the LLP has acted against the
interests of the sovereignty and integrity of India, the security of the state or
public order.
(e) Default in filing statement of account of solvency or AR with ROC. If the
LLP has made a default in filing SAS or AR for any 5 consecutive financial
year(s).

2
Sec. 64(c) has been repealed by the Act 31 of 2016 w.e.f. 15th November, 2016.

177
 (f) Just and Equitable. If the Tribunal is of the opinion that it is just and equitable
that the LLP be wound up. For example, Dead lock in management, loss of
substratum i.e., LLP has failed to achieve its object, Bubble LLP i.e., LLP
without real business or property.

STEPS IN THE COMPULSORY WINDING UP

1. Filing of petition to the Tribunal and the same should be issued to the LLP.
2. Waiting for the court hearing on the petition.
3. Getting the order from the Tribunal for winding up.
4. Convening a meeting of creditors and other relevant parties.
5. Appointment of liquidator.
6. Realization of all assets and their distribution among the creditors.
7. Defining role of liquidator.
8. LLP will be dissolved under the supervision of the assigned liquidator.
In both the cases of winding up process, whether voluntary or compulsory, a
liquidator is appointed for winding up the affairs of the LLP. The final dissolution order is
passed by the Tribunal. Winding up is a long process spread over a period of 7-8 months.

1.8 LIQUIDATOR
The liquidator is an officer who conducts the liquidation proceedings, ie., all the
assets of the business unit are realized and distributed amongst the creditors most fairly
and surplus if any, is distributed between the owners of the business unit.
Provisional Liquidator. After receiving the winding up petition but before passing
the winding up order, the court may appoint the 'provisional liquidator'. Such person shall
have the same powers as 'liquidator' unless the Tribunal limits and restricts his powers
and duties by the order appointing him or by a subsequent order. When the winding up
order is made, the 'provisional liquidator' shall become the 'Liquidator' of LLP.
Duties of Liquidator
The liquidator in a winding up by the Tribunal shall perform all or any of the
following duties:
(i) to carry on the business of the LLP as may be necessary for the beneficial
winding up of the LLP;
(ii) to do all acts and to execute all deeds, receipts and other documents and for that
purpose, to use the LLP's seal, if any;

178
 (iii) to take custody of property, assets, books of account and other documents;
(iv) to sell the immovable and movable property including intangible assets by
public auction or inviting bids or tenders or private contracts with power to
transfer such property to any person or body corporate, or to realize any debts;
(v) to inspect the records and returns of the LLP on the files of the registrar or any
other authority;
(vi) to draw, accept, make and endorse negotiable instruments on behalf of the LLP;
(vii) to make all necessary communications in his official name for obtaining
payment of any money due from a partner or his estate;
(viii)to apply to the Tribunal for such orders or directions as may be necessary for the
winding up of the LLP;
(ix) to make necessary security arrangements to protect the property and assets of the
LLP taken into his custody, in consultation with secured creditors or after giving
them notice;
(x) to appoint valuers including Chartered Surveyors or CAs to assess the value of
the LLP's assets within 15 days after taking them into custody in consultation
with secured creditors or after giving them notice;
(xi) to carry out investigation into the affairs of the LLP relating to fraudulent
conduct or other wrong doings and submit report on such investigation to the
Tribunal;
(xii) to give an advertisement for the sale of the assets of the LLP within 15 days
from the date of receipt of valuation report;
(xiii) to apply to the Tribunal for an order directing any person to submit and verify
the statement of affairs by the LLP;
(xiv) to invite claims from the creditors, examine the proof and prepare and submit the
list of creditors and partners; and
(xv) to maintain a separate bank account for each LLP under his charge for
depositing the sale proceeds of the assets and recovery of the debts of each LLP;
(xvi) to do all such other acts and things as may be necessary for the winding up of the
LLP and distribution of its assets.
It may be noted that the performance of all the above mentioned duties is subject to
the control of the Tribunal. Any creditor or partner may apply to the Tribunal with respect
to performance of any of these duties.

179
SUMMARY
Every LLP has required to maintained books of accounts. Statement of accounts
means statement of account and solvency and that must be filed in Form 8. The statement
is divided into two parts:
Part A. Statement of Solvency Part B. Statement of Account Section 34 lays down
that the accounts maintained of a LLP shall be audited in accordance with such rules as
may be prescribed. Every LLP must file an annual return with the registrar within 60 days
of closure of its financial year (30th May) in Form 11 with the prescribed fees. A
penalty of ₨ 100 per day is applicable for late filing of returns.
It is announced on July 6, 2009 has given the guidelines for taxation of LLP in
India. The new provisions do not treat the LLP as separate entity but treat it at par with
the general partnership for taxation purposes. Flat Tax Rate of 30% plus Education
Cess(EC) @ 2% plus Secondary and Higher Education Cess (SHES)@ 1% will be
payable by LLP [Effective tax of 30.9%). No surcharge will be applicable. LLPs tax
payment is lower than that of companies, which are required to pay @ 33.99% tax on
profits. In order to save revenue on account of companies converting to LLPs, Finance
Act, 2011 has introduced a new Chapter XII-BA under the Income-tax Act,1961 which
provides for levy of Alternate Minimum Tax.
The LLP Act, 2008 has provide provisions for the conversion of a private limited
company, a partnership, and a joint stock company (Unlisted ) into LLP.(Sec 55-
58)A partnership firm, private limited company and a joint stock company can be
converted into LLP in accordance with the provisions of Chapter X of the Act and the
Second Schedule (by filling Form 17)The conversion of the partnership firm into LLP
means the automatic transfer of the property, whether tangible or intangible, assets,
interests, rights, privileges, liabilities, obligations and whole of the undertaking of the
partnership firm to the LLP as a going concern.
LLP is an artificial person created by legal process and its existence also comes to an
end by a legal process of winding up. It is a process to wind up all the affairs of a
company and where all the assets are disposed of by the liquidator to meet the liabilities
of the LLP and if there is any profit, is distributed among the partners of LLP.
Limited Liability Partnership may be wound up in the following ways:
1) Voluntary Winding up2), Insolvency and Bankruptcy Code (IBC), 2016: Though
this code provides steps for restructuring and revival of Corporate Debtor (LLP)
yet under certain circumstances NCLT can pass order for liquidation of LLP.
Therefore, it is included under the modes of winding up,3) Compulsory winding
up by the Tribunal.

180
SELF ASSEMENT QUESTIONS

Short Answers Questions

Q.1 Explain the winding up of an LLP.
Q.2 Write a short note on “Declaration of solvency”.
(B.Com. (H), Delhi, 2011)
Q.3 Who may file a petition to the Tribunal in case of compulsory winding up?
Q.4 In which cases LLP is deemed to be unable to pay its debts?
Q.5 Explain the requirements as regards to maintenance of accounts.
Q.6 Explain the procedure of conversion of a partnership into LLP.
Q.7 Write a short note on Annual Returns of LLP
Q.8. Describe the powers of Auditors of an LLP.

Long Answers Questions

Q.1 Explain the winding up of an LLP. Discuss the various grounds under which a LLP
can be wound up by the Court.
Q.2 Which are the various steps involved in the process of voluntary winding up of a
LLP
(B.Com. (H), Delhi, 2018)
Q.3 In which cases LLP is deemed to be unable to pay its debts?
Q.4 Explain the duties of a liquidator under LLP Act, 2008.
(B.Com. (H), Delhi, 2016)
Q.5 Write a short note on “Declaration of solvency”.
(B.Com.(H), Delhi, 2011, 2016)
Q.6 Who may file a petition to the Tribunal in case of compulsory winding up? Discuss
the powers of Court/Tribunal on hearing such petition.
Q.7 “The Tribunal can wind up the LLP on just and equitable grounds.” Explain.
(B.Com. (H), Delhi, 2017, 2018)
Q.8 Distinguish between a winding and dissolution of LLP.
(B.Com. (H), Delhi, 2017)
Q.9 ‘The statement of Account and Solvency is one of the most important disclosures
made by a LLP annually.” Comment.
(B.Com. (H), Delhi, 2018)

181
Q.10 State the procedure of conversion of partnership into LLP.
(B.Com. (H), Delhi, 2015)
Q.11 Discuss the provisions of third schedule (annexed to the LLP Act, 2008) for
conversion from private company into limited liability partnership.
(B.Com. (H), Delhi, 2017)
Q12 Discuss the provisions of fourth schedule (annexed to the LLP Act, 2008) for
conversion from unlisted public company into limited liability partnership.

182
 UNIT-V
LESSON 1
---------------------------------------------------------------------------------------------------------------------

INFORMATION TECHNOLOGY ACT 2000

Structure

1.1 Introduction
1.2 Objectives
1.3 Definitions
1.4 Digital Signature
1.5 Electronic Governance
1.6 Attributes, acknowledgement and dispatch of electronic records
1.7 Summary
1.8 Exercise

---------------------------------------------------------------------------------------------------------------------

1.1 Introduction

---------------------------------------------------------------------------------------------------------------------

The Parliament of India enacted an act called the Information Technology Act, 2000, which
received the assent of the President of India on 09/06/ 2000( 6 th June,2000).
It is the first Cyber Law in India. This Act is based on the resolution adopted by the General
Assembly of United Nations on 30th January 1997 regarding the Model Law on Electronic
Commerce earlier adopted by the United National Commission on International Trade Law
(UNCITRAL). See figure 1

Figure 1: Information Technology Act,2000

183
The aforesaid resolution of the General Assembly recommends that all states give favorable
consideration to the Model Law on Electronic Commerce when they enact or revise their laws in
view of the need for uniformity of the law applicable to alternatives to paper-based methods of
communication and storage of information.
---------------------------------------------------------------------------------------------------------------------

1.2 Objectives

---------------------------------------------------------------------------------------------------------------------

After the study of this chapter student will able to learn the following

 Various definitions used in the act some of them are namely as Access, Addressee ,

adjudicating officer, Security procedure, Subscriber etc.

 Authentication of electronic records

 The overview of various components of IT Act 2000

 The contents of Digital Signature

 The Duties of subscribers

 Legal recognition of electronic records-

 Legal recognition of digital signatures

 Use of electronic record and digital signatures in Government and its agencies-

---------------------------------------------------------------------------------------------------------------------

1.3 Definitions
---------------------------------------------------------------------------------------------------------------------

Section 2 of the Act, 2000, gives defining of various terms used in the Act, unless the context
otherwise requires. These definitions given under different clauses of Section 2(1) are as
follows:
 ‘Access’, with the grammatical variations and cognate expressions, means gaining
entry into, instructing or communicating with the logical, arithmetical or memory
function resources of a computer, computer system or computer network;
 ‘Addressee’ means a person who is intended by the originator to receive the
electronic record but does nto include any intermediary;

184
 ‘Adjudicating officer’ means an adjudicating officer appointed under sub-section (1)
of Section 46;
 ‘Affixing digital signature’ with its grammatical variations and cognate expressions
means adoption of any methodology or procedure by a person for the purpose of
authenticating an electronic record by means of digital signature;
 ‘Appropriate Government’ means as respects any matter-
 Enumerated in List II of the 7th Schedule to the Constitution;
 Relating to any State Law enacted under List III of the 7th schedule to the
Constitution, the State Government and in any other case, the Central
Government;
 ‘Asymmetric crypto System’ means a system of a secure key pair consisting of a
private key for creating a digital signature and a public key to verify the digital
signature;
 ‘Certifying Authority’ means a person who has been granted a license to issue a
Digital Signature Certificate under Section 24;
 ‘Certification practice statement’ means a statement issued by a Certifying
Authority to specify the practices that the Certifying Authority employs in issuing
Digital Signature Certificates;
 ‘Computer’ means any electronic, magnetic optical or other high-speed data
processing device or system which performs logical arithmetic and memory functions
by manipulations of electronic, magnetic or optical impulses, and includes all input,
processing, storage, computer software or communication facilities which are
connected or related to the computer in a computer system or computer network;
 ‘Computer network’ means the interconnection of one or more computes through-
 The use of satellite, microwave, terrestrial line or other communication media;
and
 Terminal or complex consisting of two or more interconnected computers whether
or not the interconnection is continuously maintained;
 ‘Computer resource’ means computer, computer system, computer network, data,
computer data base or software;
 ‘Computer system’ means a device or collection of devices, including input and
output support devices and excluding calculators which are not programmable and
capable of being used in conjunction with external files which contain computer
programmes, electronic instructions, input data and output data that performs logic,
arithmetic, data storage and retrieval, communication control and other functions;
 ‘Controller’ means the Controller of Certifying Authorities appointed under sub-
section (1) of section 17;
 ‘Cyber Appellate Tribunal’ means the Cyber Regulations Appellate Tribunal
established under sub-section (1) of section 48;
 ‘Data’ means a representation of information, knowledge, facts, concepts or
instructions which are being prepared or have been prepared in a formalized manner,
and is intended to be processed, is being processed or has been processed in a

185
 computer system or computer network, and may be in any form (including computer
printouts magnetic or optical storage media, punched cards, punched tapes) or stored
internally in the memory of the computer.
 ‘Digital signature’ means authentication of any electronic record by a subscriber by
means of an electronic method or procedure in accordance with the provisions of
section 3;
 ‘Digital Signature Certificate’ means a Digital Signature Certificate issued under
sub-section (4) of section 35;
 ‘Electronic form’ with reference to information, means any information generated
sent, received or stored in media, magnetic, optical, computer memory, micro film,
computer generated micro fiche or similar device;
 ‘Electronic Gazette’ means the Official Gazette published in the electronic form;
 ‘Electronic record’ means data, record or data generated, image or sound stored,
received or sent in an electronic form or micro film or computer generated micro
fiche;
 ‘Function’ in relation to a computer, includes logic, control, arithmetical process,
deletion, storage and retrieval and communication or telecommunication from or
within a computer;
 ‘Information’ includes data, text, images, sound, vice, codes, computer programmes,
software and data bases or micro film or computer generated micro fiche;
 ‘Intermediary’ with respect to any particular electronic message, means any persons
who on behalf of another person receives, stores or transmits that message or provides
any service with respect to that message;
 ‘Key pair’ in an asymmetric crypto system, means a private key and its
mathematically related public key, which are so related that the public key can verify
a digital signature created by the private key;
 ‘Law’ includes any Act of Parliament or of a State Legislature, Ordinances
promulgated by the President or a Governor, as the case may be, Regulations made by
the President under Article 240, Bills enacted as President’s Act under sub- clauses
(a) of clause (1) of Article 357 of the Constitution and includes rules, regulations, by-
laws and orders issued or made there under;
 ‘License’ means a license granted to a Certifying Authority under Section 24;
 ‘Originator’ means a person who sends, generates, stores or transmits any electronic
message; or causes any electronic message to be sent, generated, stored or transmitted
to any other person but does not include an intermediary;
 ‘Prescribed’ means prescribed by rules made under this Act;
 ‘Private key’ means the key of a key pair used to verify a digital signature and listed
in the Digital Signature Certificate;
 ‘Public key’ means the key of a key pair used to verify a digital signature and listed
in the Digital Signature Certificates;
 ‘Secure system’ means computer hardware, software, and procedure that-
i) Are reasonably secure from unauthorized access and misuse;
186
 ii) Provide a reasonable level of reliability and correct operation;
iii) Are reasonably suited to performing the intended functions; and
iv) Adhere to generally accepted security procedures;
 ‘Security procedure’ means the security procedure prescribed under Section 16 by
the Central Government;
 ‘Subscriber’ means a person in whose name the Digital Signature Certificate is
issued;
 ‘Verify’ in relation to a digital signature, electronic record or public key, with its
grammatical variations and cognate expressions, means to determine whether-
i) The initial electronic record was affixed with the digital signature by the
use of private key corresponding to the public key of the subscriber;
ii) The initial electronic record is retained in act has been altered since such
electronic record was so affixed with the digital signature.
Exercise 1
Check your progress

1. Definition of Addressee
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

2. Define Subscriber
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

3. Private key and Public Key

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------

1.4 Digital Signature

---------------------------------------------------------------------------------------------------------------------

The Information Technology Act, 2000, recognizes the use of digital signature to authenticate
electronic records. As such, digital signatures fulfill all statutory requirements associated with
acceptance of handwritten signature. it is a block of data at the end of an electronic message that

187
identifies the signor of an electronic message and also confirms that the said signor approved the
content of that electronic message.
Thus, internet contracts are authenticated by digital signature technology and become binding on
the parties. The expression ‘digital signature’ means authentication of any electronic record by a
subscriber by means of an electronic method or procedure in accordance with the provisions of
Section 3 [Section 2(1) (p)].
Authentication of electronic records -Any subscriber may authenticate an electronic record by
affixing his digital signature. The authentication of the electronic record shall be effected by the
use of asymmetric crypto system and hash function which envelop and transform the initial
electronic record into another electronic record.
Explanation- For the purposes of this sub-section, ‘hash function’ means an algorithm
mapping or translation of one subsequence of bits into another, generally smaller, set known as
‘harsh result’ such that an electronic record yields the same hash result every time the algorithm
is executed with the same electronic record as its input making it computationally infeasible-
(a) To derive or reconstruct the original electronic record from the hash result
produced by the algorithm;
(b) That two electronic records can produce the same hash result using the algorithm.
Any person by the use of a public key of the subscriber can verify the electronic record. The
private key and the public key are unique to the subscriber and constitute a functioning key pair
(Section 3).
In order to be called legally binding, all electronic communications or transactions must meet the
following fundamental requirements:
(a) Authenticity of the sender to enable the recipient to determine who really sent the
message;
(b) Message’ integrity, the recipient must also be able to determine whether or not the
message received has been modified en route or is incomplete; and
(c) Non-repudiation, the ability to ensure that the sender cannot falsely deny sending
the message, nor falsely deny the contents of the message.
It led to the acceptance of cryptography, a data encryption technique, which provided just that
kind of data protection. Section 3 advocates the use of ‘asymmetric cryto system’ where an
asymmetric key pair consisting of a public and a private key is used to encrypt and decrypt the
message respectively. Private Key is kept confidential and to be used by the subscriber to create
the digital signature, whereas the public key is more widely known and is used by a relying party
to verify the digital signature and is listed in the digital signature certificate. See fig 2

188
 Figure 2: digital signature suing public and private keys
Section 2 (1) of IT Act, 2000 defines the various terms used above in the following words:
(a) Affixing digital signature- It means adoption of any methodology or procedure
by a person for the purpose of authenticating an electronic record by means of
digital signature [Section 2(1) (d)].
(b) Asymmetric crypto system- It means a system of a secure key pair consisting of
a private key for creating a digital signature and a public key to verify the digital
signature [Section 2 (1) (f)].
(c) Electronic record- It means data, record or data generated, image or sound
stored, received or sent in an electric form or micro-film or computer generated
micro-fiche [Section 2(1) (t)].
(d) Key pair- In an asymmetric crypto system, ‘key pair’ means a private key and its
mathematically related public key, which are so related that the public key can
verify a digital signature created by the private key [Section 2 (1) (x)].
(e) Private key- It means the key of a key pair used to create a digital signature
[Section 2(1) (zc)].
(f) Public Key- It means the key of a key pair used to verify a digital signature and
listed in a Digital Signature Certificate [Section 2(1) (zd)].
(g) Subscriber- It means person in whose name the Digital Signature Certificate is
issued [Section 2(1) (zg)].
(h) Verify-Verify in relation to a digital signature, electronic record or public key,
which its grammatical variations and cognate expressions, means to determine
whether-

189
 (i) The initial electronic record was affixed with the digital signature by the use of
private key corresponding to the public key of the subscriber;
(j) The initial electronic record is retained inact or has been altered since such
electronic record was so affixed with the digital signature [Section 2(1) (zh)].

Digital signature means authentication of any electronic record by a subscriber by means

of an electronic method or procedure in accordance with the provisions of section 3; and Digital
Signature Certificate means a Digital Signature Certificate issued under sub-section (4) of
section 35.The use of digital signature for online / offline / email based transactions. The
preamble of the information Technology Act, 2000, states: ‘An Act to provide legal recognition
for transactions carried out by means of electronic data interchange and other means of electronic
communication commonly referred to as “electronic commerce” which involve the use of
alternatives to paper-based methods of communication and storage of information to facilitate
electronic filling of documents with the Government agencies. The ‘Statement of Objects and
Reasons” appended to the Information Technology Bill, 1999, explains the rationale behind the
Act. It would be worthwhile here to take note of the excerpts from the said statement given
below:
‘New communication systems and digital technology have made dramatic changes in the way we
live. A revolution is occurring in the way people transact business. Businesses and consumers
are increasingly using computers to create transit and store information in the electronic form
instead of traditional paper documents. Information stored in electronic form has many
advantages. It is cheaper, easier to store, retrieve and speedier to communicate. Although
people are aware of these advantages, they are reluctant to conduct business or conclude any
transaction in the electronic form due to lack of appropriate legal framework. The two principal
hurdles which stand in the way of facilitating electronic commerce and electronic governance are
the requirements as to writing and signature for legal recognition. At present, many legal
provisions assume the existence of paper based records and documents and records which should
bear signatures. The Law of Evidence is traditional based upon paper based records and oral
testimony. Since electronic commerce eliminates the need for paper based transactions, hence to
facilitate e-commerce, the need for legal changes has become an urgent necessity. International
trade through the medium of e-commerce is growing rapidly in the past few years and many
countries have switched over from traditional paper based commerce to e-commerce.
There is a need for bringing in suitable amendments in the existing laws in our country to
facilitate e-commerce. It is, therefore, proposed to provide for legal recognition of electronic
records and digital signatures. The will enable the conclusion of contracts and the creation of
rights and obligations through the electronic medium. It is also proposed to provide for a
regulatory regime to supervise the Certifying Authorities issuing Digital Signature Certificates.
To prevent the possible misuse arising out of transactions and other dealings concluded over the
electronic medium, it is also proposed to create civil and criminal liabilities for contravention of
the provisions of the proposed legislation.

190
With a view to facilitate Electronic Governance, it is proposed to provide for the use and
acceptance of electronic records and digital signatures in the Government offices and its
agencies. This will make the citizens interaction with the Government offices hassle free.
The Objectives of the Information Technology Act seeks to achieve the following objectives:
(i) To provide legal recognition for transactions carried out by means of electronic date
interchange and other means of electronic communication, commonly referred to as
‘electronic commerce’;
(ii) To facilitate the growth of e-commerce and e-governance;
(iii) To provide equal treatment to users of paper-based documentation vis-a-vis electronic
records;
(iv) To place digital signature at par with paper signature and provide a comprehensive
approach for determining the authenticity integrity of electronic signature;
(v) To provide for a suitable regulatory regime to supervise the functioning of the
Certifying Authorities issuing Digital Signature Certificates;
(vi) To recognize electronic storage of documents or records as valid where law requires
maintenance of paper records;
(vii) To provide penalties and punishment for information technology contraventions and
offences;
(viii) To establish the Cyber Regulations Appellate Tribunal to hear appeals against the
orders of Controller or Adjudication Officers;
(ix) To make amendments in several legislations such as Indian Penal Code, Indian
Evidence Act, etc. so as to bring them at par with the needs of the IT Act, 2000.
Exercise 2
1. Definition of Digital Signature
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

2. Define objectives of IT Act, 2000

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

3. Define Electronic commerce

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

191
---------------------------------------------------------------------------------------------------------------------

1.4 Electronic Governance

---------------------------------------------------------------------------------------------------------------------

With a view to facilitate Electronic Governance, the Information Technology Act, 2000,
provides for the use and acceptance of electronic records and digital signatures in the
government offices and its agencies. The idea is to facilitate efficient government- citizen
interface by giving due legal recognition to e-governance. Fig 3 see

Fig 3: E Governance : using computer

This will make the citizens interaction with governmental offices hassle free. The IT Act, 2000,
contains the following provisions to facilitate e-governance:
1. Legal recognition of electronic records- Where any law provides that information or
any other matter shall be in writing or in the typewritten or printed form, then, such
requirements shall be in writing or in the typewriting or printed form, then, such
requirements shall be in deemed to have been satisfied if such information or matter is-
(a) Rendered or made available in an electronic form; and
(b) Accessible so as to be usable for a subsequent reference (Section 4).

2. Legal recognition of digital signatures-Where any law provides that information or any
other matter shall be authenticated by affixing the signature or any document shall be
singed or bear the signature of any person, then, such requirement shall be deemed to
have been satisfied, if such information or matter is authenticated by means of digital
signature affixed in such manner as may be prescribed by the Central Government
(Section 5).

3. Use of electronic record and digital signatures in Government and its agencies-
Where any law provides for-

192
(a) The filling of any form, application or any other document with any office, authority,
body or agency owned or controlled by the appropriate Government in a particular
manner;
(b) The issue or grant of any license, permit, sanction or approval by whatever name called
in a particular manner;
(c) The receipt or payment of money in a particular manner, then such requirement shall be
deemed to have been satisfied if such filling, issue, grant, receipt or payment, as the case
may be, is effected by means of such electronic form as may be prescribed by the
appropriate Government. The appropriate Government may, by rules, prescribe-

4. Retention of electronic records- Where any law provides that documents, records or
information shall be deemed to have been satisfied if such documents, records or
information are retained in the electronic form, if-
a) The information contained therein remains accessible so as to be usable for a subsequent
reference;
b) The electronic record is retained in the format in which it was originally generated, sent
or received or in a format which can be demonstrated to represent accurately the
information originally generated, sent or received;
c) The details which will facilitate the identification of the origin, destination, date and time
of dispatch or receipt of such electronic record, are available in the electronic record.
However, the above rules does not apply to any information which is automatically
generated solely for the purpose of enabling an electronic record to be dispatched or
received (Section 7).
5. Publication of rule, regulation, etc., in Electronic Gazette-Where any law provides
that any rule, regulation, order, bye-laws, notification or any other matter shall be
published in the Official Gazette, then, such requirement shall be deemed to have been
satisfied if such rule, regulation, order, by-law, notification or any other matter is
published in the Official Gazette or Electronic Gazette.
Where any rule, regulation, order, by-laws, notification or any other matter is published
in the Official Gazette, the date of publication shall be deemed to e the date of the
Gazette which was first published in any form (Section 8).
6. No right to insist that document should be accepted in electronic form-Section 6,7
and 8 shall not confer a right upon any person to insist that any Ministry or Department
of the Central Government or the State Government or any authority or body established
by or under any law or controlled or funded by the Central or State Government should
accept, issue, create, retain and preserve any document in the form of electronic records
or effect any monetary transaction in the electronic form. The paper-based exchanges
continue to be valid and binding (Section 9).
7. Power to make rules by Central Government in respect of digital signature- The
Central Government may, for the purposes of this Act, by rules, prescribe-
(a) The type of digital signature;

193
 (b) The manner and format in which the digital signature shall be affixed;
(c) The manner or procedure which facilitates identification of the person affixing the digital
signature;
(d) Control processes and procedures to ensure adequate integrity, security and confidentially
of electronic records of payments; and
(e) Any other matte which is necessary to give legal effect to digital signature (Section 10).

Electronic Governance consists of various sections. There are 4 Schedules with Electronic
Governance, issue of digital signature certificates and regulation of Certifying Authorities.
Some of the key definitions used in Electronic Governance
‘Electronic Gazette’ means the Official Gazette published in the electronic form;
‘Electronic record’ means data, record or data generated, image or sound stored, received or
sent in an electronic form or micro film or computer generated micro fiche;
‘Function’ in relation to a computer, includes logic, control, arithmetical process, deletion,
storage and retrieval and communication or telecommunication from or within a computer;
‘Information’ includes data, text, images, sound, vice, codes, computer programmes, software
and data bases or micro film or computer generated micro fiche;
‘Law’ includes any Act of Parliament or of a State Legislature, Ordinances promulgated by the
President or a Governor, as the case may be, Regulations made by the President under Article
240, Bills enacted as President’s Act under sub- clauses (a) of clause (1) of Article 357 of the
Constitution and includes rules, regulations, by-laws and orders issued or made there under;
Exceptions: The provisions of the IT Act, 2000, shall not be applicable to-
(a) A Negotiable Instrument (other than a cheque) as defined in Section 13 of the
Negotiable Instrument Act, 1881;
(b) A power of attorney under the Powers of Attorney Act, 1882;
(c) A trust under the Indian Trusts Act, 1882;
(d) A ‘will’ under the Indian Succession Act, 1925, including any other testamentary
disposition by whatever name called;
(e) Any contract for the sale or conveyance of immovable property or any interest in such
property;
(f) Any such class of documents or transactions as may be notified by the Central
Government in the Official Gazette [Section 1 (4)].

Exercise 3
1. Definition of electronic Governance
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

194
2. Define electronic record and electronic gazette
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

3. Explain the use of electronic record and digital signatures

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------

1. 6 Summary
---------------------------------------------------------------------------------------------------------------------

The Information Technology Act, 2000, which received the assent of the President of
India on 09/06/ 2000( 6th June,2000). It is the first Cyber Law in India. This Act is based on the
resolution adopted by the General Assembly of United Nations on 30 th January 1997 regarding
the Model Law on Electronic Commerce earlier adopted by the United National Commission on
International Trade Law (UNCITRAL). The aforesaid resolution of the General Assembly
recommends that all states give favorable consideration to the Model Law on Electronic
Commerce when they enact or revise their laws in view of the need for uniformity of the law
applicable to alternatives to paper-based methods of communication and storage of information.
‘Access’, with the grammatical variations and cognate expressions, means gaining entry into,
instructing or communicating with the logical, arithmetical or memory function resources of a
computer, computer system or computer network;
‘Addressee’ means a person who is intended by the originator to receive the electronic record
but does nto include any intermediary;
‘Adjudicating officer’ means an adjudicating officer appointed under sub-section (1) of Section
46;
‘Affixing digital signature’ with its grammatical variations and cognate expressions means
adoption of any methodology or procedure by a person for the purpose of authenticating an
electronic record by means of digital signature;
‘Appropriate Government’ means as respects any matter- Enumerated in List II of the 7th
Schedule to the Constitution; Relating to any State Law enacted under List III of the 7 th schedule
to the Constitution, the State Government and in any other case, the Central Government;
In order to be called legally binding, all electronic communications or transactions must meet the
following fundamental requirements: Authenticity of the sender to enable the recipient to
determine who really sent the message; Message’ integrity, the recipient must also be able to
determine whether or not the message received has been modified en route or is incomplete;

195
Non-repudiation, the ability to ensure that the sender cannot falsely deny sending the message,
nor falsely deny the contents of the message.
It led to the acceptance of cryptography, a data encryption technique, which provided just that
kind of data protection. Section 3 advocates the use of ‘asymmetric cryto system’ where an
asymmetric key pair consisting of a public and a private key is used to encrypt and decrypt the
message respectively. Private Key is kept confidential and to be used by the subscriber to create
the digital signature, whereas the public key is more widely known and is used by a relying party
to verify the digital signature and is listed in the digital signature certificate.

---------------------------------------------------------------------------------------------------------------------

1. 6 Exercise
---------------------------------------------------------------------------------------------------------------------

Check your knowledge of this chapter

1. Fill in the blanks

(i) the General Assembly of United Nations on 30th January 1997 regarding the Model Law on
Electronic Commerce earlier adopted by ………………………………………………………

(ii) …………………….. means a representation of information, knowledge, facts, concepts or

instructions which are being prepared or have been prepared in a formalized manner, and is
intended to be processed, is being processed or has been processed in a computer system or
computer network, and may be in any form (including computer printouts magnetic or optical
storage media, punched cards, punched tapes) or stored internally in the memory of the
computer.

(iii) with its grammatical variations and cognate expressions means adoption of any methodology
or procedure by a person for the purpose of authenticating an electronic record by means of
……………………………

(iv) Law includes any Act of Parliament or of a State Legislature, Ordinances promulgated by
the President or a Governor, as the case may be, Regulations made by the President under
Article 240, Bills enacted as ………………………….. under sub- clauses (a) of clause (1) of
Article 357 of the Constitution and includes rules, regulations, by-laws and orders issued or
made there under.

Ans. (i) United National Commission on International Trade Law (ii) data means (iii) Digital
Signature (iv) President’s Act

196
2. State the following True or False please tick

(i) Power to make rules by Central Government in respect of digital signature- The Central
Government may, for the purposes of this Act, by rules is not prescribe -
a) The type of digital signature ( )
b) The manner and format in which the digital signature shall be affixed; ( )
c) The manner or procedure which facilitates identification of the person affixing the digital
signature; ( )
d) Control processes and procedures to ensure adequate integrity, security and confidentially
of electronic records of payments ( )
e) Any other matte which is necessary to give legal effect to constitution ( )

(ii) Retention of electronic records- Where any law provides that documents, records or
information shall be deemed to have been satisfied if such documents, records or information are
not retained in the electronic form, if-
a) The information contained therein remains accessible so as to be usable for a subsequent
reference ( )
b) The electronic record is retained in the format in which it was duplicated generated, sent
or received or in a format which can be demonstrated to represent accurately the
information originally generated, sent or received ( )
c) The details which will facilitate the identification of the origin, destination, date and time
of dispatch or receipt of such electronic record, are available in the electronic record. ( )

3. In order to be called not legally binding, all electronic communications or transactions must
meet the following fundamental requirements:
(a) Authenticity of the sender to enable the recipient to determine who really sent the
message. ( )
(b) Message’ integrity, the recipient must also be able to determine whether or not the
message received has been modified en route or is incomplete. ( )
(c) Non-repudiation, the ability to ensure that the sender cannot falsely deny sending
the message, nor falsely deny the contents of the message. ( )
(d) Electronic records are available in the electronic form ( )

4. Tick one of them as it is not one of the Objectives of the Information Technology Act seeks to
achieve the following objectives:
(a) To provide legal recognition for transactions carried out by means of electronic
date interchange and other means of electronic communication, commonly
referred to as ‘electronic commerce’. ( )

197
 (b) No growth of e-commerce and e-governance. ( )
(c) To provide equal treatment to users of paper-based documentation vis-a-vis
electronic records. ( )
(d) To place digital signature at par with paper signature and provide a
comprehensive approach for determining the authenticity integrity of electronic
signature. ( )

Ans (i) e (ii) b (iii) d (iv)b

3. Mix and Match the following (A) with (B)

(A) (B)
(a) in an asymmetric crypto Law
system, means a private key
and its mathematically related
public key, which are so
related that the public key can
verify a digital signature
created by the private key;
(b) includes any Act of Key pair
Parliament or of a State
Legislature, Ordinances
promulgated by the President
or a Governor, as the case
may be, Regulations made by
the President under Article
240, Bills enacted as
President’s Act under sub-
clauses (a) of clause (1) of
Article 357 of the Constitution
and includes rules,
regulations, by-laws and
orders issued or made there
under;
(c) means a license granted to a Originator
Certifying Authority under
Section 24;
(d) means a person who sends, License
generates, stores or transmits
any electronic message; or

198
 causes any electronic message
to be sent, generated, stored or
transmitted to any other
person but does not include an
intermediary;

Ans (i) b (ii) a (iii) d (iv) c

4. Discuss the following in the form of short answers

1. State the objectives of Information Technology Act, 2000.
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

2. Comment on Certifying Authority

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

3. Comment on Certification practice statement

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

4. Describe Asymmetric crypto system.

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

199
 LESSON 2

---------------------------------------------------------------------------------------------------------------------
ATTRIBUTION, ACKNOWLEDGEMENT AND DISPATCH OF ELECTRONIC RECORDS AND
REGULATIONS OF CERTIFYING AUTHORITIES

---------------------------------------------------------------------------------------------------------------------

Structure

2.1 Introduction
2.2 Objectives
2.3 Attributes, acknowledgement and dispatch of electronic records
2.4 Regulations of Certifying authorities
2.5 Summary
2.6 Exercise

---------------------------------------------------------------------------------------------------------------------

2.1 Introduction

---------------------------------------------------------------------------------------------------------------------

An electronic record shall be attributed the originator if it was sent by the originator himself.
Where the originator has not stipulated that the electronic record shall be binding only on receipt
of such acknowledgement, and the acknowledgement has not been received by the originator
within the time specified or agreed or within a reasonable time, then, the originator may give
notice to the addressee stating that no acknowledgement has been received by him and
specifying a reasonable time by which the acknowledgement must be received by him. If no
acknowledgement is received within the aforesaid time limit he may after giving notice to the
addressee, treat the electronic record as though it has never been sent.
---------------------------------------------------------------------------------------------------------------------

2.2 Objectives

---------------------------------------------------------------------------------------------------------------------

After the study of this chapter student will able to learn the following

 Attribution of electronic records

 Acknowledgment of Receipt

 Dispatch of electronic records

200
  Secure Electronic Records

 Regulation of certifying authorities

 Controller of Certifying authorities

---------------------------------------------------------------------------------------------------------------------

2.3 ATTRIBUTION, ACKNOWLEDGEMENT AND DESPATCH OF ELECTRONIC

RECORDS
---------------------------------------------------------------------------------------------------------------------

Attribution of electronic records- An electronic record shall be attributed the originator if it

was sent-
(a) By the originator himself;
(b) By a person who had the authority to act on behalf of the originator in respect of that
electronic record; or
(c) By an information system programmed by or any behalf of the originator to operate
automatically (Section 11).

Acknowledgement of receipt- Where the originator has not agreed with the addressee
That the acknowledgement of receipt of electronic record be given in a particular form or by
a particular method, an acknowledgement may be given by-
(a) Any communication by the addressee, automated or otherwise; or
(b) Any conduct of the addresses, sufficient to indicate to the originator that the electronic
record has been received.
Where the originator has stipulated that the electronic record shall be binding only on
receipt of an acknowledgement of such electronic record by him, then, unless
acknowledgement has been so received, the electronic record shall be deemed to have
been never sent by the originator.
Where the originator has not stipulated that the electronic record shall be binding only on
receipt of such acknowledgement, and the acknowledgement has not been received by the
originator within the time specified or agreed or within a reasonable time, then, the
originator may give notice to the addressee stating that no acknowledgement has been
received by him and specifying a reasonable time by which the acknowledgement must
be received by him. If no acknowledgement is received within the aforesaid time limit he

201
 may after giving notice to the addressee, treat the electronic record as though it has never
been sent (Section 12).
Time and place of dispatch and receipt of electronic record. The dispatch of an electronic
record occurs when it enters a computer resource outside the control of the originator.
The time of receipt of an electronic record shall be determined as follows, namely;
(a) If the addressee has designated a computer resource for the purpose of receiving
electronic records-
(i) Receipt occurs at the time when the electronic record enters the designated
computer resource; or
(ii) If the electronic record is sent to a computer resource of the addressee that is not the
designated computer resource, receipt occurs at the time when the electronic record
is retrieved by the addressee;
(b) If the addressee has not designated a computer resource along with specified timings, if
any, receipt occurs when the electronic record enters the computer resources of the
addressee.
An electronic record is deemed to be dispatched at the place where the originator has his
place of business, and is deemed to be received at the place where the addressee has his place
of business.
However, the originator and the addressee are free to make an agreement to the contrary.
For the purpose of this section-
(a) If the originator or the addressee has more than one place of business, the principal place
of business, shall be the place of business;
(b) If the originator or the addressee does not have a place of business, his usual place of
residence shall be deemed to be the place of business;
(c) ‘usual place of residence’ , in relation to a body corporate; means the place where it is
registered (Section 13).

2.3.1 Secure Electronic Records and Secure Digital Signatures

Secure electronic record- Where any security procedure has been applied to an electronic
record at a specific point of time, then such record shall be deemed to be a secure electronic
record from such point of time to the time of verification.
Secure Digital Signature- If, by application of a security procedure, agreed to by the parties
concerned, it can be verified that a digital signature, at the time it was affixed, was-
(a) Unique to the subscriber affixing it;
(b) Capable of identifying such subscriber;

202
 (c) Created in a manner or using a means under the exclusive control of the subscriber and is
linked to the electronic record to which it related in such a manner that if the electronic
record was altered the digital signature would be invalidated.
Then such digital signature shall be deemed to be a secure digital signature (Section 15).
Security procedure- The Central Government shall, for the purposes of this Act, prescribed
the security procedure having regard to commercial circumstances prevailing at the time
when the procedure was used, including-
(a) The nature of the transaction;
(b) The level of sophistication of the parties with reference to their technological capacity;
(c) The volume of similar transactions engaged in by other parties;
(d) The availability of alternatives offered to but rejected by any party;
(e) The cost of alternative procedures; and
(f) The procedures in general use for similar types of transactions or communications
(Section 16).

Exercise 1
1. Define Attribution of electronic records.
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

2. Explain Acknowledgement of receipt.

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

3. What is Secure Digital Signature? Comment.

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------

2.4 REGULATION OF CERTIFYING AUTHORITIES

---------------------------------------------------------------------------------------------------------------------

Internet is an open system of communication, which has its own set of problems. These
problems relate to integrity, confidentiality and authentication of communication channels and
processes. Therefore, it is essential to ensure that the system works under the watchful eye of a

203
reliable authority. The Information Technology Act, 2000, provides detailed provisions for the
appointment of ‘Controller of Certifying Authorities’ by the Central Government. The act also
provides for issuing license to a ‘Certifying Authority’ by the Controller. On one hand, the
certifying authority has to issue a digital signature certificate to the subscriber and on the other
identify and authenticate the subscriber’s information contained in the said certificate for the
benefit of the relying party.
2.4.1. CONTROLLER OF CERTIFYING AUTHORITIES
The Information Technology Act, 2000, empowers the Central Government to appoint the
Controller of Certifying Authorities and other officers. The main provisions of the Act are given
below:-
1. Appointment of Controller and other officers- The Central Government may appoint a
Controller of Certifying Authorities for the purpose of this Act and may also appoint such
number of Deputy Controller and Assistant Controllers as it deems fit.
The Controller shall discharge his functions under this Act subject to the general control
and directions of the Central Government.
The Deputy Controllers and Assistant Controllers shall perform the functions assigned to
them by the Controller under the general superintendence and control of the Controller.
The qualifications, experience and terms and conditions of service of Controller, Deputy
Controllers and Assistant Controllers shall be such as may be prescribed by the Central
Government (Section 170).
2. Functions of Controller- The controller may perform all or any of the following
functions, namely-
(a) Exercising supervision over the activities of the Certifying Authorities;
(b) Certifying public key of the Certifying Authorities;
(c) Laying down the standards to be maintained by the Certifying Authorities;
(d) Specifying the qualifications and experience which employees of the Certifying
Authority should possess;
(e) Specifying the conditions subject to which the Certifying Authorities shall
conduct their business;
(f) Specifying the contents of written, printed or visual materials and advertisements
that may be distributed or used in respect of a Digital Signature Certificate and the
public key;
(g) Specifying the form and content of a Digital Signature Certificate and the key;
(h) Specifying the form and manner in which accounts shall be maintained by the
Certifying Authorities;
(i) Specifying the terms and conditions subject to which auditors may be appointed
and the remuneration to be paid to them;

204
 (j) Facilitating the establishment of any electronic system by a Certifying Authority
either solely or jointly with other Certifying Authorities and regulation of such
systems;
(k) Specifying the manner in which the Certifying Authorities shall conduct their
dealings with the subscribers;
(l) Resolving any conflict of interests between the Certifying Authorities and the
subscribers;
(m) Laying down the duties of the Certifying Authorities;
(n) Maintaining a database containing the disclosure record of every Certifying
Authority containing such particulars as may be specified by regulations, which
shall be accessible to public (Section 18).
3. Recognition of foreign Certifying Authorities- (i) The Controller may, with the
previous approval of the Central Government, recognize any foreign Certifying Authority
as a Certifying Authority for the purposes of this Act; (ii) where any Certifying Authority
is recognized, the Digital Signature Certificate issued by such Certifying Authority shall
be valid for the purposes of this Act; (iii) The controller may, for reasons to be recorded
in writing, revoke such recognition (Section 19).
4. Controller to act as repository- The Controller shall be the repository of all Digital
Signature Certificates issued under this Act. The Controller shall (a) make use of
hardware, software and procedures that are secure from intrusion and misuse; (b) observe
such other standards as may be prescribed by the Central Government, to ensure that the
secrecy and security of the digital signatures are assured.
The Controller shall maintain a computerized data base of all public keys in such a
manner that such data base and the public keys are available to any member of the public
(Section 20).
5. Grant of license to Certifying Authorities to issue Digital Signature Certificates-
Any person makes an application to the Controller for a license to issue Digital Signature
Certificates.
No license shall be issued unless the applicant fulfills such requirements with respect to
qualification, expertise, manpower, financial resources and other infrastructure facilities,
which are necessary to issue Digital Signature Certificates as may be prescribed by the
Central Government.
A license granted under this section shall-
(a) Be valid for such period as may be prescribed by the Central Government.
(b) Not be transferable or heritable;
(c) Be subject to such terms and conditions as may be specified by the regulations (Section
21).
6. Application for license- Every application for issue of a license shall be in such form as
may be prescribed by the Central Government.
Every application for issue of a license shall be accompanied by-

205
 (a) A certification practice statement;
(b) A statement including the procedures with respect to identification of the application;
(c) Payment of such fees, not exceeding twenty-five thousands rupees as may be prescribed
by the Central Government;
(d) Such other documents, as may be prescribed by the Central Government (Section 22).
7. Renewal of license- An application for renewal of a license shall be-
(a) In such form;
(b) Accompanied by such fees, not exceeding five thousand rupees, as may be prescribed by
the Central Government and shall be made not less than 45-days before the date of expiry
of the period of validity of the license (Section 23).
8. Procedure for grand or rejection of license-The Controller may, after considering
the documents accompanying the application and such other factors, as he deems fit,
grant the license or reject the application. However, not application shall be rejected
unless the applicant has been given a reasonable opportunity of presenting his case
(Section 240.
9. Suspension of license- The Controller may, if he is satisfied after making such
inquiry, as he may think fit, that a certifying Authority has-
(a) Made a statement in, or in relation to, the application for the issue or renewal of the
license, which is incorrect or false in material particulars;
(b) Failed to comply with the terms and conditions subject to which the license was granted;
(c) Failed to maintain the standard specified by the Central Government;
(d) Contravened any provisions of this Act, rule, regulation or order made there under;
Revoke the license- However; no license shall be revoked unless the Certifying
Authority has been given a reasonable opportunity of showing cause against the proposed
revocation.
The Controller may, if he has reasonably cause to believe that there is any ground for
revoking a license, by order, suspend such license pending the completion of any enquiry
ordered by him. However, no license shall be suspended for a period exceeding 10-day
unless the Certifying Authority has been given a reasonable opportunity of showing cause
against the proposed suspension. No Certifying Authority whose license has been
suspended shall issue any Digital Signature Certificate during such suspension (Section
25).
10. Notice of suspension or revoking of license- Where the license of the Certifying
Authority is suspended or revoked, the Controller shall publish notice of such
suspension or revocation, as the case may be, in the data base maintained by him
(Section 26).
11. Powers of Controller- The Controller of Certifying Authorities has the following
powers:

206
 (i) Power of delegate- The Controller may, in writing, authorize the Deputy Controller,
Assistant Controller or any other officer to exercise any of the powers of the
Controller under this Chapter (Section 27).
(ii) Power to investigate contraventions- The Controller or any other officer authorized
by him in this behalf shall take up for investigation any contravention of the
provisions of this Act, rules of regulations made there under.
The Controller or any officer authorized by him in this behalf shall exercise the like
powers which are conferred on Income-tax authorities under chapter XII of the
Income-tax Act, 1961 (Section 28).
(iii) Access to computers and data- The Controller or any person authorized by him shall,
if he has reasonable cause to suspect that any contravention of the provisions of this
Act, rules or regulations made there under has been committed, have access to any
computer system, any apparatus, data or any other material connected with such
system, for the purpose of searching or causing a search to be made for obtaining any
information or data contained in or available to such computer system.
The Controller or any person authorized by him may, by order, direct any person in-
charge of, or otherwise concerned with the operation of, the computer system, data
apparatus or material, to provide him with such reasonable technical and other
assistance as he may consider necessary (Section 29).
(iv) Power to get directions- The Controller may direct a Certifying Authority or any
employee of such Authority to take such measures or cease carrying on certain
activities if these are necessary to ensure compliance with the provisions of the Act
(Section 68).
(v) Directions to decrypt information-The Controller is the sole statutory authority to
direct any agency of the Government to intercept any information transmitted through
computer if it is necessary in the interest of the sovereignty and integrity of India, the
security of the state, friendly relations with other states or public order, etc. (Section
69).
(vi) Power to make regulations-The Controller is empowered to make regulations to
carry out the purposes of the Act in consultation with Cyber Regulations Advisory
Committee and with the prior approval of the Central Government. These regulations
may relate to the database to be maintained by Certifying Authorities, recognitions of
foreign Certifying Authorities, grant of license to Certifying Authorities, standards to
be observed by Certifying Authorities, etc.
(vii) Powers under Income Tax Act, 1961- The Controller or any officer authorized by
him shall exercise the lie powers which are conferred on Income Tax Authorities
under Chapter XII of the Income-Tax Act, 1961.

CERTIFYING AUTHORITIES
Certifying Authorities means a person who has been granted a license by the Controller to issue a
Digital Signature Certificate [Section 2(10 (g)].

207
A Digital Signature Certificate not only confirms the identity of the subscriber but also certified
other relevant information like the subscribers’ public key and the bona fides of the issuer of the
authority. The Certifying Authority has a role in verifying and identifying the person seeking a
certificate, certifying that a public key is associated with him. The role of Certifying Authority is
quite crucial as it creates a binding relationship between the subscriber and the relying party.
Duties of Certifying Authority
1. Certifying Authority to follow certain procedures- Every Certifying Authority shall-
(a) make use of hardware, software, and procedures that are secure from intrusion and
misuse;
(b) provide a reasonable level of reliability in its services which are reasonably suited to the
performance of intended functions;
(c) adhere to security procedures to ensure that the secrecy and privacy of the digital
signatures are assured; and
(d) Observe such other standards as may be specified by regulations (Section 30).
2. Certifying Authority to ensure compliance of the Act, etc.- Every Certifying Authority
shall ensure that every person employed or otherwise engaged by it complies, in the
course of his employment or engagement, with the provisions of this Act, rules regulations
or orders made there under (Section 31).
3. Display of license- Every Certifying Authority shall display its license at a conspicuous
place of the premises in which it carries on its business (Section 32).
4. Surrender of license- Every Certifying Authority whose license is suspended or revoked
shall immediately after such suspension or revocation, surrender the license to the
Controller.
Where any Certifying Authority fails to surrender a license, the person in whose favour a
license is issued, shall be guilty of an offence and shall be published with imprisonment
which may extend up to 6 months or a fine which may extend up to 10,000 rupees or with
both (Section 33).
5. Disclosure- Every Certifying Authority shall disclose in the manner specified by
regulations-
(a) Its Digital Signature Certificate which contains the public key corresponding to the
private key used by that Certifying Authority to digitally sign another Digital Signature
Certificate;
(b) any certificate practice statement relevant thereto;
(c) notice of the revocation or suspension of its Certifying Authority Certificate, if nay; and
(d) Any other fact that materially and adversely affects either the reliability of a Digital
Signature Certificate, which that Authority has issued, or the Authority’s ability to
perform its services.
Where, in the opinion of the Certifying Authority, any event has occurred or any situation has
arisen which may materially and adversely affect the integrity of its computer system or the

208
conditions subject to which a Digital Signature Certificate was granted, then, the Certifying
Authority shall-
(a) Use reasonable efforts to notify any person who is likely to be affected by that
occurrence; or
(b) Act in accordance with the procedure specified in its certification practice
statement to deal with such event or situation (Section 34).
Exercise 2

1. “The Central Government to appoint the Controller of Certifying Authorities”. Comment on

the above statement.
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

2. Define Certifying Authorities.

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

3. Recognition of foreign Certifying Authorities? Comment.

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------

2.4 Summary

---------------------------------------------------------------------------------------------------------------------

The Information Technology Act, 2000, provides detailed provisions for the appointment of
‘Controller of Certifying Authorities’ by the Central Government. The act also provides for
issuing license to a ‘Certifying Authority’ by the Controller. On one hand, the certifying
authority has to issue a digital signature certificate to the subscriber and on the other identify and
authenticate the subscriber’s information contained in the said certificate for the benefit of the
relying party. Appointment of Controller and other officers, Functions of Controller, Recognition

209
of foreign Certifying Authorities, Controller to act as repository, Grant of license to Certifying
and Authorities to issue Digital Signature Certificates.

The main provisions of the Act are Appointment of Controller and other officers, Functions of
Controller, Recognition of foreign Certifying Authorities , Controller to act as repository, Grant
of license to Certifying Authorities to issue Digital Signature Certificates, Application for
license, Renewal of license, Procedure for grand or rejection of license, Suspension of license.
Where, in the opinion of the Certifying Authority, any event has occurred or any situation has
arisen which may materially and adversely affect the integrity of its computer system or the
conditions subject to which a Digital Signature Certificate was granted, then, the Certifying
Authority shall use reasonable efforts to notify any person who is likely to be affected by that
occurrence; or Act in accordance with the procedure specified in its certification practice
statement to deal with such event or situation according to the section.
---------------------------------------------------------------------------------------------------------------------

2.6 Exercise

After reading the chapter you can check your progress

1. Fill in the blanks

(a) An electronic record shall be attributed the originator if it was sent by the originator himself
or by a person who had the authority to act on behalf of the originator in respect of that
electronic record; or by an ………………………..by or any behalf of the originator to
operate automatically (Section 11).

(b) Where the originator has not agreed with the addressee that ………………….the receipt of
electronic record be given in a particular form or by a particular method, an
acknowledgement may be given by any communication by the addressee, automated or
otherwise; or any conduct of the addresses, sufficient to indicate to the originator that the
electronic record has been received.

(c) A ……………………….not only confirms the identity of the subscriber but also certified
other relevant information like the subscribers’ public key and the bona fides of the issuer of
the authority.

(d) In the opinion of the ………………….. any event has occurred or any situation has arisen
which may materially and adversely affect the integrity of its computer system.

Ans.(a) Information system programmed (b) acknowledgement of (c) Digital Signature

Certificate (d) Certifying Authority

210
2. State the following statements are true or false make on the correct answer
1. Every Certifying Authority shall not disclose in the manner specified by regulations-
(a) It is Digital Signature Certificate which contains the public key corresponding to the
private key used by that Certifying Authority to digitally sign another Digital Signature
Certificate. ( )
(b) Any paper which as no relevant thereto ( )
(c) Notice of the revocation or suspension of its Certifying Authority Certificate, if any;
and ( )
(d) Any other fact that materially and adversely affects either the reliability of a Digital
Signature Certificate, which that Authority has issued, or the Authority’s ability to
perform its services. ( )

2. Not a Duties of Certifying Authority

(a) Make use of hardware, software, and procedures that are secure from intrusion and
misuse; ( )
(b) Provide a reasonable level of reliability in its services which are reasonably suited to
the performance of intended functions; ( )
(c) No secrecy and privacy of the digital signatures are assured; and ( )
(d) Observe such other standards as may be specified by regulations (Section 30). ( )

3. The Central Government shall, for the purposes of this Act, prescribed the security
procedure having regard to commercial circumstances prevailing at the time when the
procedure was used, including’
(a) The nature of the transaction. ( )
(b) The level of sophistication of the parties with reference to their technological
capacity. ( )
(c) The volume of similar transactions engaged in by other parties. ( )
(d) The availability of alternatives offered to but accepted by any party; ( )
4. A license granted under this section shall have
(a) Be valid for such period as may be prescribed by the Central Government.
(b) Be transferable or heritable.
(c) Not Be subject to such terms and conditions as may be specified by the regulations
(Section 21).

(d) ii, (b) iv (c) iii , (d) i

Test Questions

211
1. Explain the law as regards attribution, acknowledgement, dispatch and receipt of electronic
records.
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

2. Explain the duties of certifying authorities.

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

3. Describe the regulations of certifying authorities

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

4. What are the Functions of Controller

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

212
 LESSON–3

---------------------------------------------------------------------------------------------------------------------

DIGITAL SIGNATURE CERTIFICATES

Structure

3.1 Introduction
3.2 Objectives
3.3 Digital signatures certificates
3.4 Revocation of Digital Signature Certificate
3.5 Duties of subscribers
3.6 Summary
3.7 Exercise

---------------------------------------------------------------------------------------------------------------------

3.1 Introduction

---------------------------------------------------------------------------------------------------------------------

A Digital Signature Certificate is an electronic document which uses a digital signature to bind
together a public key with identity information such as the name of a person or an organization,
their address, and so forth. The certificate can be used to verify that a public key belongs to the
individual. Digital certificates are the digital equivalent or electronic format of physical or paper
certificates. There are three different classes of digital Certificates according to uses.

---------------------------------------------------------------------------------------------------------------------

3.2 Objectives

---------------------------------------------------------------------------------------------------------------------

After the study of this chapter student will able to learn the following

 Classes of Digital Signature Certificates

 Types of Digital Signature Certificates
 Certifying Authority to issue Digital Signature Certificate
 Representations upon issuance of Digital Signature Certificate
 Representations upon issuance of Digital Signature Certificate
 Suspension of Digital Signature Certificate
 Revocation of Digital Signature Certificate

213
  Duties of Subscribers

______________________________________________________________________________
3.3 Digital Signatures Certificates

______________________________________________________________________________
Certificates serve as identity of an individual for a certain purpose, e.g. a driver's license
identifies someone who can legally drive in a particular country. Likewise, a Digital Signature
Certificate (DSC) can be presented electronically to prove your identity or your right to access
information or services on the Internet. See figure 3.1

Fig 3.1 digital Signature

A Digital Signature Certificate is an electronic document which uses a digital signature to bind to
gather a public key with identity information such as the name of a person or an organization,
their address, and so forth. The certificate can be used to verify that a public key belongs to the
individual. Digital certificates are the digital equivalent (i.e. electronic format) of physical or
paper certificates. Examples of physical certificates are driver's licenses, passports or
membership cards.
A Digital Signature Certificate is an important instrument of trust identifying the subscribers
over the networks. It not only confirms the identity of trust identifying the subscribers but also
certifies other relevant information like the subscriber’s public key and the bona fides of the
issuer of the certificate. By certifying that a particular public key actually belongs to a specified
person, it makes digital signature conclusive.

214
Duties of Subscribers
Section 41 to 43 of the Information Technology Act, 2000, lay down the following duties of
subscribers who have obtained the Digital Signature Certificates from a Certifying Authority.
Generating Key Pair- Where any Digital Signature Certificate, the public key of which
corresponds to the private key of that subscriber which is to be listed in the Digital Signature
Certificate has been accepted by a subscriber, the subscriber shall generate the key pair by
applying the security procedure (Section 40).
Acceptance of Digital Signature Certificate- A subscriber shall be deemed to have accepted a
Digital Signature Certificate if he publishes or authorizes the publication of a Digital Signature
Certificate-
(a) to one or more persons;
(b) in a repository; or
Otherwise, demonstrates his approval of the Digital Signature Certificate in any manner.
By accepting a Digital Signature Certificate the subscriber certifies to all who reasonably rely on
the information contained in the Digital Signature Certificate that-
(a) The subscriber holds the private key corresponding to the public key listed in the Digital
Signature Certificate and is entitled to hold the same;
(b) All representations made by the subscriber to the Certifying Authority and all material
relevant to the information contained in the Digital Signature Certifying are true;
(c) All information in the Digital Signature Certificate that is within the knowledge of the
subscriber is true.
Control of private key- 1) every subscriber shall exercise reasonable care to retain control of
the private key corresponding to the public key listed in his Digital Signature Certificate and take
all steps to prevent its disclosure. 2) if the private key corresponding to the public key listed in
the Digital Signature Certificate has been compromised, then, the subscriber shall communicate
the same without any delay to the Certifying Authority in such manner as may be specified by
the regulations.
The subscriber shall be liable till he has informed the Certifying Authority that the private key
has been compromised (Section 42).

3.3.2 Classes of Digital Signature Certificates

Digital signatures certificates can be classified in various classes subject to depending upon the
requirement of assurance level and usage of DSC the following are the classes:
Class Description
I These certificates shall be issued to individuals/private subscribers. These
certificates will confirm that user’s name (or alias) and E-mail address form an
unambiguous subject within the Certifying Authorities database.

215
 This level provides a basic level of assurance relevant to environments where
there are risks and consequences of data compromise, but they are not
considered to be of major significance. This may include access to private
information where the likelihood of malicious access is not high. It is assumed
at this security level users are not likely to be malicious.
II These certificates will be issued for both business personnel and private
individuals use. These certificates will confirm that the information in the
application provided by the subscriber does not conflict with the information in
well- recognized consumer databases.
This level is relevant to environments where risks and consequences of data
compromise are moderate. This may include transactions having substantial
monetary value or risk of fraud, or involving access to private information
where the likelihood of malicious access is substantial.
III These certificates will be issued to individuals as well as organizations. As
these are high assurance certificates, primarily intended for e- commerce
applications, they shall be issued to individuals only on their personal
(physical) appearance before the Certifying Authorities.
This level is relevant to environments where threats to data are high or the
consequences of the failure of security services are high. This may include
very high value transactions or high levels of fraud risk.

3.3.3 Types of Digital Signature Certificates

The following table provides an overview of the different types of Digital Signature Certificates.
Type Description
Individual Digital Individual Certificates serve to identify a person. It follows that the
Signature Certificates contents of this type of certificate include the full name and personal
( Signing Certificates) particulars of an individual. These certificates can be used for signing
electronic documents and emails and implementing enhanced access
control mechanisms for sensitive or valuable information.
Server Certificates Server Certificates identify a server (computer). Hence, instead of a
name of a person, server certificates contain the host name e.g.
"https://nsdg.gov.in/ " or the IP address. Server certificates are used for
to ensure secure communication of data over the network.
Encryption Encryption Certificates are used to encrypt the message. The
Certificates Encryption Certificates use the Public Key of the recipient to encrypt
the data so as to ensure data confidentiality during transmission of the
message. Separate certificates for signatures and for encryption are
available from different CAs.

216
3.3.4. Certifying Authority to issue Digital Signature Certificate (Sec. 35)

Any person may make an application to the Certifying Authority for the issue of a Digital
Signature Certificate in such form as may be prescribed by the Central Government.

a) Every such application shall be accompanied by such fee not exceeding twenty-five
thousand rupees as may be prescribed by the Central Government, to be paid to the
Certifying Authority:
Provided that while prescribing fees under sub-section (2) different fees may be
prescribed for different classes of applicants'.
b) Every such application shall be accompanied by a certification practice statement or
where there is no such statement, a statement containing such particulars, as may be
specified by regulations.
c) On receipt of an application under sub-section (1), the Certifying Authority may, after
consideration of the certification practice statement or the other statement under sub-
section (3) and after making such enquiries as it may deem fit, grant the Digital Signature
Certificate or for reasons to be recorded in writing, reject the application:
However, that no Digital Signature Certificate shall be granted unless the Certifying Authority is
satisfied that :
i) The applicant holds the private key corresponding to the public key to be listed in the
Digital Signature Certificate.
ii) The applicant holds a private key, which is capable of creating a digital signature.
iii) The public key to be listed in the certificate can be used to verify a digital signature
affixed by the private key held by the applicant:

3.3.5. Representations upon issuance of Digital Signature Certificate (Sec. 36)

A Certifying Authority while issuing a Digital Signature Certificate shall certify that, the
information contained in it is accurate and that:
a) It has complied with the provisions of this Act and the rules and regulations made there
under.
b) It has published the Digital Signature Certificate or otherwise made it available to such
person relying on it and the subscriber has accepted it.
c) The subscriber holds the private key corresponding to the public key, listed in the Digital
Signature Certificate.
d) The subscriber's public key and private key constitute a functioning key pair.
e) The information contained in the Digital Signature Certificate is accurate, and
f) It has no knowledge of any material fact, which if it had been included in the Digital
Signature Certificate would adversely affect the reliability of the representations made in
clauses (a) to (d).

217
3.3.6. Suspension of Digital Signature Certificate (Sec. 37)
The certifying authority which has issued a digital signature certificate may suspend such
digital signature certificate:
a) on receipt of a request to that effect from -
i) the subscriber listed in toe Digital Signature Certificate, or
ii) any person duly authorized to act on behalf of that subscriber
b) if it is of opinion that the Digital Signature Certificate should be suspended in public
interest.
A Digital Signature Certificate shall not be suspended for a period exceeding fifteen days unless
the subscriber has been given an opportunity of being heard in the matter. On suspension of a
Digital Signature Certificate under this section, the Certifying Authority shall communicate the
same to the subscriber.

Exercise 3
1. Explain various types of digital Certificates.
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

2. Describe Certifying Authority to issue Digital Signature Certificate.

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

3. Describe Suspension of Digital Signature Certificate.

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------

3.4. Revocation of Digital Signature Certificate (Sec. 38)

---------------------------------------------------------------------------------------------------------------------

A Certifying Authority may revoke a Digital Signature Certificate issued by it:

a) Where the subscriber or any other person authorized by him makes a request to that
effect, or
b) upon the death of the subscriber, or

218
 c) Upon the dissolution of the firm or winding up of the company where the subscriber is a
firm or a company.
A Certifying Authority may revoke a Digital Signature Certificate which has been issued by it at
any time, if it is of opinion that:
i) A material fact represented in the Digital Signature Certificate is false or has been
concealed.
ii) A requirement for issuance of the Digital Signature Certificate was not satisfied.
iii) The Certifying Authority's private key or security system was compromised in a
manner materially affecting the Digital Signature Certificate's reliability.
iv) The subscriber has been declared insolvent or dead or where a subscriber is a firm
or a company, which has been dissolved, wound-up or otherwise ceased to exist.
A Digital Signature Certificate shall not be revoked unless the subscriber has been given an
opportunity of being heard in the matter.
Exercise 3
1. Describe Revoke of digital Signatures
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

2. Explain “Material fact represented in digital signature certificate is false”.

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

3. Describe the powers of certifying Authorities.

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

______________________________________________________________________________
3.5 Duties of Subscribers

______________________________________________________________________________
The IT Act, 2000 specifically stipulates that any subscriber may authenticate an electronic record
by affixing his digital signature. It further states that any person can verify an electronic record
by use of a public key of the subscriber. This act lays down the following duties of the
subscribers who have obtained the Digital signature Certificate from some certifying authority:

219
Generating key pair (Sec. 40): Where any Digital Signature Certificate, the public key of which
corresponds to the private key of that subscriber which is to be listed in the Digital Signature
Certificate has been accepted by a subscriber, then the subscriber shall generate that key pair by
applying the security procedure. This implies that the subscriber, i.e. the person, who is to be
issued the digital signature certificate, has to generate an appropriate private key which matches
the public key being allotted to him or her.
Duties of subscriber of Electronic Signature Certificate (Sec. 40A): In respect of Electronic
Signature Certificate the subscriber shall perform such duties as may be prescribed.
Acceptance of Digital Signature Certificate (Sec. 41): A subscriber shall be deemed to have
accepted a Digital Signature Certificate if he publishes or authorizes the publication of a Digital
Signature Certificate:
a) To one or more persons;
b) In a repository, or otherwise demonstrates his approval of the Digital Signature
Certificate in any manner.
By accepting a Digital Signature Certificate the subscriber certifies to all who reasonably rely on
the information contained in the Digital Signature Certificate that:
i) The subscriber holds the private key corresponding to the public key listed in the
Digital Signature Certificate and is entitled to hold the same;
ii) All representations made by the subscriber to the Certifying Authority and all material
relevant to the information contained in the Digital Signature Certificate are true;
iii) All information in the Digital Signature Certificate that is within the knowledge of the
subscriber is true.
Control of private key (Sec. 42): Every subscriber shall exercise reasonable care to retain
control of the private key corresponding to the public key listed in his Digital Signature
Certificate and take all steps to prevent its disclosure. If the private key corresponding to the
public key listed in the Digital Signature Certificate has been compromised, then, the subscriber
shall communicate the same without any delay to the Certifying Authority in such manner as
may be specified by the regulations.
For the removal of doubts, it is hereby declared that the subscriber shall be liable till he has
informed the Certifying Authority that the private key has been com promised.

Salient features of Information Technology (Amendment) Act, 2008

The Information Technology Act, 2008 has been signed by the President of India on February,
2009. A review of the amendments indicates that there are several provisions relating to data
protection and privacy as well as provisions to curb terrorism using the electronic and dgital
medium that have been introduced into the new Act. Some the Salient features of the Act are as
follows:

220
 The term digital signature has been replaced with electronic signature to make the act
more technology neutral.
 A new section has been inserted to define communication device to mean cell phones,
personal digital assistance or combination of both or any other device used to
communicate, send or transmit any text video, audio or image.
 A new section has been added to define cyber café as any facility from where the access
to the internet is offered by any person in the ordinary course of business to the members
of the public.
 A new definition has been inserted for intermediary. Intermediary with respect to any
particular electronic records, means any person who on behalf of another person receives,
stores or transmits that record or provides any service with respect to that record or
provides any service with respect to that recorded and includes telecom service providers,
internet service providers, web-hosting service providers, search engines, online payment
sites, online-auction sites, online market places and cyber cafes, but does not include a
body corporate referred to in section 43A.
 A new section 10A has been inserted to the effect that contracts concluded electronically
shall not be deemed to be unenforceable solely on the ground that electronic form or
means was used.
 The damages of Rs. One crore (approximately USD 200000) prescribed under section 43
of the earlier Act for damage to computer, computer system etc has been deleted and
relevant parts of the sections have been substituted by the words, he shall be liable to pay
damages by way of compensation to the persons so affected.
 A new section 43A has been inserted to protect sensitive personal data or information
possessed, dealt or handled by a body corporate in a computer resource which such body
corporate owns, controls or operates. If such body corporate is negligent in implementing
and maintaining reasonable security practices and procedures and thereby causes
wrongful loss or wrongful gain to any person, it shall be liable to pay damages by way of
compensation to the person so affected.
 A host of new sections have been added to section 66 as sections 66A to 66F prescribing
punishment for offenses such as obscene electronic message transmission, identity theft,
cheating by impersonation using computer resource violation of privacy and cyber
terrorism.
 Section 67 of the old act is amended to reduce the term of imprisonment the for
publishing or transmitting absence material in electronic form to three years.
 In view of the increasing threat of terrorism in the country, the new amendments include
an amended section 69 giving power to the state to issue directions for interception or
monitoring of decryption of any information through any computer resource.
 Sect 69A and B grant powers to the state to issue directions for blocking for public access
of any information through any computer resource and to authorize to monitor and collect
traffic data or information through any computer resource for cyber security.

221
  Section 79 of the old Act which exempted intermediaries has been modified to the effect
that an intermediary shall not be liable for any third party information data or
communication link made available or hosted by him if (a) the function of the
intermediary is limited to providing access to a communication system over which
information made available by third parties is transmitted or select the receiver hosted (b)
the intermediary does not initiate the transmission or select the receiver of the
transmission and select or modify the information contained in the transmission (c) the
intermediary observes due diligence while discharging his duties.
 Section 79 will not apply to an intermediary if the intermediary has conspired or abetted
or aided or induces whether by threats or promise or otherwise in the commission of the
unlawful act or upon receiving actual knowledge or on being notified that any
information, data or communication link residing in or connected to a computer resource
controlled by it is being used to commit an unlawful act, the intermediary fails to
expeditiously remove or disable access to that material on that resource without vitiating
the evidence in any manner.
 A proviso has been added to section 81 which states that the provisions of the act shall
have overriding effect. The Proviso states that noting contained in the act shall restrict
any person from exercising any right conferred under the copyright act, 1957.

Exercise 4
1. Describe Generating key pair.
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

2. Explain the term “Acceptance of Digital Signature Certificate”

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

3. Describe Information Technology Act 2008

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

222
______________________________________________________________________________
3.6 Summary

______________________________________________________________________________
The certificate can be used to verify that a public key belongs to the individual. Digital
certificates are the digital equivalent (i.e. electronic format) of physical or paper certificates.
Examples of physical certificates are driver's licenses, passports or membership cards.
a basic level of assurance relevant to environments where there are risks and consequences of
data compromise, but they are not considered to be of major significance. This may include
access to private information where the likelihood of malicious access is not high. It is assumed
at this security level users are not likely to be malicious.
Level two is relevant to environments where risks and consequences of data compromise are
moderate. This may include transactions having substantial monetary value or risk of fraud, or
involving access to private information where the likelihood of malicious access is substantial.
Level is relevant to environments where threats to data are high or the consequences of the
failure of security services are high. This may include very high value transactions or high levels
of fraud risk.
However, that no Digital Signature Certificate shall be granted unless the Certifying Authority is
satisfied that the applicant holds the private key corresponding to the public key to be listed in
the Digital Signature Certificate. The applicant holds a private key, which is capable of creating
a digital signature. The public key to be listed in the certificate can be used to verify a digital
signature affixed by the private key held by the applicant.
Duties of subscriber of Electronic Signature Certificate (Sec. 40A): In respect of Electronic
Signature Certificate the subscriber shall perform such duties as may be prescribed.
Acceptance of Digital Signature Certificate (Sec. 41): A subscriber shall be deemed to have
accepted a Digital Signature Certificate if he publishes or authorizes the publication of a Digital
Signature Certificate to one or more persons, In a repository, or otherwise demonstrates his
approval of the Digital Signature Certificate in any manner.

______________________________________________________________________________
3.7 Exercise

______________________________________________________________________________
Check your process
Exercise 1

(i) Certificates serve as identity of an individual for a certain purpose, e.g. a

……………………….identifies someone who can legally drive in a particular

223
 country. Likewise, a Digital Signature Certificate (DSC) can be presented
electronically to prove your identity or your right to access information or services on
the Internet.

(ii) …………………………….can be classified in various classes subject to depending

upon the requirement of assurance level and usage of DSC.

(iii) However, that no Digital Signature Certificate shall be granted unless the Certifying
Authority is satisfied that the applicant holds the private key corresponding to the
………………………to be listed in the Digital Signature Certificate.

(iv) Any Digital Signature Certificate, the public key of which corresponds to the private
key of that subscriber which is to be listed in the Digital Signature Certificate has
been accepted by a subscriber, and then the subscriber shall generate that key pair by
applying the security procedure. This implies that the subscriber, i.e. the person, who
is to be issued the digital signature certificate, has to generate an appropriate
………………….which matches the public key being allotted to him or her.

Ans.
(i) Driver's license (ii) Digital signatures certificates (iii) public key (iv) private key

Exercise 2
Please tick the right option in the following:

1. Any person may make an application to the Certifying Authority for the issue of a Digital
Signature Certificate in such form as may not be prescribed by the Central Government.
(i) Every such application shall be accompanied by such fee not exceeding twenty-five
thousand rupees as may be prescribed by the Central Government, to be paid to the
Certifying Authority: Provided that while prescribing fees under sub-section (2) different
fees may be prescribed for different classes of applicants'. ( )
(ii) Every such application shall be accompanied by a certification practice statement or
where there is no such statement, a statement containing such particulars, as may be
specified by regulations. ( )
(iii) On receipt of an application under sub-section (1), the Certifying Authority may, after
consideration of the certification practice statement or the other statement under sub-

224
 section (3) and after making such enquiries as it may deem fit, grant the Digital Signature
Certificate or for reasons to be recorded in writing, reject the application: ( )
(iv) On the request of the Authority ( )

2. A Certifying Authority while issuing a Digital Signature Certificate shall certify that, the
information contained in it is accurate and that:
(i) It has not complied with the provisions of this Act and the rules and regulations made there
under. ( )
(ii) It has not published the Digital Signature Certificate or otherwise made it available to
such person relying on it and the subscriber has accepted it. ( )
(iii) The subscriber holds the private key corresponding to the public key, listed in the Digital
Signature Certificate. ( )
(iv) The subscriber's no public key and private key constitute a functioning key pair. ( )
(v) The information contained in the Digital Signature Certificate is accurate, and ( )

3. A Certifying Authority may not revoke a Digital Signature Certificate which has been issued
by it at any time, if it is of opinion that:
i) A material fact represented in the Digital Signature Certificate is false or has been concealed.
( )
ii) No private and public key ( )
iii) A requirement for issuance of the Digital Signature Certificate was not satisfied. ( )
iv) The Certifying Authority's private key or security system was compromised in a manner
materially affecting the Digital Signature Certificate's reliability. ( )
v) The subscriber has been declared insolvent or dead or where a subscriber is a firm or a
company, which has been dissolved, wound-up or otherwise ceased to exist. ( )

4. By accepting a Digital Signature Certificate the subscriber certifies to all who reasonably rely
on the information contained in the Digital Signature Certificate that which statement is
false:
i) The subscriber holds the private key corresponding to the public key listed in the Digital
Signature Certificate and is entitled to hold the same;
ii) All representations made by the subscriber to the Certifying Authority and all material
relevant to the information contained in the Digital Signature Certificate are true;
iii) All information in the Digital Signature Certificate that is within the knowledge of the
subscriber is false.

Ans (1) IV (2) V (3) II (4) III

225
Exercise 3:
Mix and Match (A) with (B) :
(A) (B)
(i) Individual Certificates serve to identify a person. It Server Certificates
follows that the contents of this type of certificate include
the full name and personal particulars of an individual.
These certificates can be used for signing electronic
documents and emails and implementing enhanced access
control mechanisms for sensitive or valuable information.

(ii) Server Certificates identify a server (computer). Hence, Individual Digital

instead of a name of a person, server certificates contain Signature Certificates
the host name e.g. "https://nsdg.gov.in/ " or the IP
address. Server certificates are used for to ensure secure
communication of data over the network.
(iii) Encryption Certificates are used to encrypt the message. Digital Signature
The Encryption Certificates use the Public Key of the
recipient to encrypt the data so as to ensure data
confidentiality during transmission of the message.
Separate certificates for signatures and for encryption are
available from different CAs.
(iv) A Certificate shall not be suspended for a period Encryption Certificates
exceeding fifteen days unless the subscriber has been
given an opportunity of being heard in the matter.

Answer 1.(ii) 2. (i) 3. (iv) 4. (iii)

Exercise 4
Test Questions
1. Explain the Term Digital Signature with suitable example.
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

2. Explain the duties of subscribers.

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

226
3. Describe Digital Signature certificate

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

4. Explain the control of private key.

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

227
 LESSON 4

---------------------------------------------------------------------------------------------------------------------

PENALITIES AND ADJUDICATION

Structure

4.1 Introduction
4.2 Objectives
4.3 Penalties and adjudication
4.4 Appellate Tribunal
4.5 Offences
4.6 Summary
4.7 Exercise

---------------------------------------------------------------------------------------------------------------------

4.1 Introduction

---------------------------------------------------------------------------------------------------------------------

The Act penalty is imposed by way of damages to be paid as compensation to the affected party
for damage caused to any item or unauthorized access and other types of mischief. See Fig 4.1

Fig 4.1 showing Act and penalty

For adjudicating of the dispute under the Information Technology Act, Section 46 was enacted
which has given the power for adjudication of the crimes. The power has been given to the
Secretary, Information Technology and he has power to adjudge the quantum of compensation.

228
---------------------------------------------------------------------------------------------------------------------

4.2 Objectives

---------------------------------------------------------------------------------------------------------------------

After the study of this chapter student will able to learn the following

 Penalties and Adjudication

 Penalty for failure to furnish information, return
 Residuary Penalty
 Adjudication - Appointment of Adjudicating Officer
 Penalty for breach of Confidentiality and Privacy
 Right to legal representation
 Civil court not to have jurisdiction
 Appeal to High court
 Composition of Cyber Appellate Tribunal
 Appeal to Cyber Appellate Tribunal

______________________________________________________________________________
4.3 Penalties and Adjudication

______________________________________________________________________________

Under the Act penalty is imposed by way of damages to be paid as compensation to the affected
party for damage caused to any computer, computer network etc. by introduction of computer
virus, unauthorized access and other types of mischief.
For adjudicating of the dispute under the Information Technology Act, Section 46 was enacted
which has given the power for adjudication of the crimes. The power has been given to the
Secretary, Information Technology and he has power to adjudge the quantum of compensation.
4.3.1. Penalty for damage to computer, computer system etc. (Sec. 43)
If any person indulges in any of the following acts, without permission of the owner or any other
person who is in charge of a computer, computer system or computer network, he shall be liable
to pay damages by way of compensation to the person so affected:
(a) Accesses or secures access to such computer, computer system or computer network;
(b) Downloads, copies or extracts any data, computer date-base or information from such
computer, computer system or computer network including information or data held or stored in
any removable storage medium;

229
(c) Introduces or causes to be introduced any computer contaminant or computer virus into any
computer, computer system or computer network;
(d) damages or causes to be damaged any computer, computer system or computer network, data
computer data base or any other programmes residing in such computer, computer system or
computer network;
(e) Disrupts or causes disruption of any computer, computer system or computer network;
(f) Denies or causes the denial of access to any person authorized to access any computer,
computer system or computer network by any means;
(g) Provides any assistance to any person to facilitate access to a computer, computer system or
computer network in contravention of the provisions of this Act. Rules or Regulations made
hereunder;
(h) Charges the services availed of by a person to the account of another person by tampering
with or manipulating any computer, computer system or computer network. He shall be liable to
pay damages by way of compensation not exceeding one crore rupees to the person so affected.
Explanation: For the purposes of this section
i) computer contaminant‖- means any set of computer instructions that are designed:
a) to modify, destroy, record, transmit data or programme residing within a computer
system or computer network;
b) by any means to usurp the normal operation of the computer, computer system or
computer network;
ii) Computer data-base‖ - means a representation of information knowledge, facts, concepts
or instructions in text, image, audio/video that are being prepared or have been prepared or have
been prepared in a formalized manner or have been produced by a computer, computer system or
system or computer network and are intended for use in a computer, computer system or
computer network.
(iii) Computer virus - means any computer instruction; information, data or programme that
destroys, damages degrades or adversely affects the performance of a computer.
(iv) damage‖- means to destroy, alter, delete, add, modify or rearrange any computer resource
by any means.
v) Computer source code- means the listing of programmes, computer commands, design and
layout and progrmme analysis of computer resource in any form.
4.3.2. Penalty for failure to furnish information, return, etc. (Sec. 44)
If any person who is required under this Act or any rules or regulations made there under to:
a) Furnish any document, return or report to the Controller of the Certifying Authority fails
to furnish the same, he shall be liable to a penalty not exceeding one lakh and fifty
thousand rupees for each such failure;

230
b) File any return or furnish any information, books or other documents within the time
specified therefore in the regulations fails to file return or furnish the same within the
time specified therefore in the regulations, he shall be liable to a penalty not exceeding
five thousand rupees for every day during which such failure continues;
c) Maintain books of account or records fails to maintain the same, he shall be liable to a
penalty not exceeding ten thousand rupees for every day during which the failure
continues.
4.3.3. Residuary Penalty (Sec. 45)
Whoever contravenes any rules or regulations made under this Act, for the contravention
of which no penalty has been separately provided, shall be liable to pay a compensation not
exceeding twenty five thousand rupees to the person affected by such contravention or a penalty
not exceeding twenty five thousand rupees.

4.3.4.Adjudication - Appointment of Adjudicating Officer (Sec. 46)

For the purpose of adjudging under this Chapter whether any person has committed a
contravention of any of the provisions of this Act or of any rule, regulation, direction or order
made hereunder the Central Government shall, subject to the provisions of Sub-section
(3),appoint any officer not below the rank of a Director to the Government of India or an
equivalent officer of a State Government to be an adjudicating officer or holding an inquiry in
the manner prescribed by the Central Government.
The adjudicating officer shall, after giving the person referred to in Sub-section (1) a reasonable
opportunity for making representation in the matter and if, on such inquiry, he is satisfied that the
person that the person has committed the contravention, he may impose such penalty or award
such compensation as he thinks fit in accordance with the provisions of that section.
No person shall be appointed as an adjudicating officer unless he possesses such experience in
the field of Information Technology and legal or judicial experience as may be prescribed by the
Central Government.
Where more than one adjudicating officer are appointed, the Central Government shall specify
by order the matters and places with respect to which such officers shall exercise their
jurisdiction.

4.3.5. Powers:
Every adjudicating officer shall have the powers of a civil court which are conferred on the
Cyber Appellate Tribunal under Sub Section (2) of Section 58:
i) All proceedings before it shall be deemed to be judicial proceedings within the
meaning of Sections 193 and 228 of the Indian Penal Code (45 of 1860)
ii) Shall be deemed to be a civil court for the purposes of Sections 345 and 346 of the
Code of Criminal Procedure, 1973 (2 of 1974).

231
[Section 46 of the Act grants the Central Government the power to appoint an adjudicating
officer to hold an enquiry to adjudge, upon complaints being filed before that adjudicating
officer, contraventions of the Act. The adjudicating officer may be of the Central Government or
of the State Government [see section 46(1) of the Act], must have field experience with
information technology and law [see section 46(3) of the Act] and exercises jurisdiction over
claims for damages up to `5,00,00,000 [see section 46(1A) of the Act]. For the purpose of
adjudication, the officer is vested with certain powers of a civil court [see section 46(5) of the
Act] and must follow basic principles of natural justice while conducting adjudications [see
section 46(2) of the Act]. Hence, the adjudicating officer appointed under section 46 is a quasi-
judicial authority.
In addition, the quasi-judicial adjudicating officer may impose penalties, thereby vesting him
with some of the powers of a criminal court [see section 46(2) of the Act], and award
compensation, the quantum of which is to be determined after taking into account factors
including unfair advantage, loss and repeat offences [see section 47 of the Act]. The adjudicating
officer may impose penalties for any of the offences described in section 43, section 44 and
section 45 of the Act; and, further, may award compensation for losses suffered as a result of
contraventions of section 43 and section 43A. The text of these sections is reproduced in the
Schedule below. Further law as to the appointment of the adjudicating officer and the procedure
attendant on all adjudications was made by Information Technology (Qualification and
Experience of Adjudicating Officers and the Manner of Holding Enquiry) Rules, 2003.
It is clear that the adjudicating officer is vested with significant judicial powers, including the
power to enforce certain criminal penalties, and is an important quasi-judicial authority.]

Factors to be taken into account by the adjudicating officer (Sec. 47)

While adjudging the quantum of compensation under this Chapter, the adjudicating officer shall
have due regard to the following factors, namely:
a) The amount of gain of unfair advantage, wherever quantifiable, made as a result of
the default;
b) The amount of loss caused to any person as a result of the default;
c) The repetitive nature of the default.
d) 24. Penalty for Misrepresentation (Sec. 71)
e) Whoever makes any misrepresentation to, or suppresses any material fact from, the
Controller or the Certifying Authority for obtaining any license or 86[Electronic
Signature] Certificate, as the case may be, shall be punished with imprisonment for a
term which may extend to two years, or with fine which may extend to one lakh
rupees, or with both.
f) Penalty for breach of Confidentiality and Privacy (Sec.72)
g) Any person who, in pursuant of any of the powers conferred under this Act, rules or
regulations made there under, has secured access to any electronic record, book,
register, correspondence, information, document or other material without the consent
of the person concerned discloses such electronic record, book, register,
correspondence, information, document or other material to any other person shall be
punished with imprisonment for a term which may extend to two years, or with fine
which may extend to one lakh rupees, or with both.
232
 h) Punishment for disclosure of Information in breach of Lawful Contract (Sec. 72A)
i) Any person including an intermediary who, while providing services under the terms
of lawful contract, has secured access to any material containing personal information
about another person, with the intent to cause or knowing that he is likely to cause
wrongful loss or wrongful gain discloses, without the consent of the person
concerned, or in breach of a lawful contract, such material to any other person, shall
be punished with imprisonment for a term which may extend to three years, or with
fine which may extend to five lakh rupees, or with both.
j) Penalty for Publishing Electronic Signature Certificate false in Certain Particulars
(Sec. 73)
k) No person shall publish Electronic Signature Certificate or otherwise make it
available to any other person with the knowledge that:
l) a) the Certifying Authority listed in the certificate has not issued it; or
m) b) the subscriber listed in the certificate has not accepted it; or
n) (c) the certificate has been revoked or suspended,
o) However, if the publication is for the purpose of verifying a 90[electronic signature]
created prior to such suspension or revocation. Any person who contravenes the
provisions of sub-section (1) shall be punished with imprisonment for a term which
may extend to two years, or with fine which may extend to one lakh rupees, or with
both.
p) Publication for Fraudulent Purpose (Sec. 74)
q) Whoever knowingly creates publishes or otherwise makes available a 91[Electronic
Signature] Certificate for any fraudulent or unlawful purpose shall be punished with
imprisonment for a term which may extend to two years, or with fine which may
extend to one lakh rupees, or with both.
Exercise 1
1. Adjudication - Appointment of Adjudicating Officer. Comment
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

2. Explain the Penalty for Publishing Electronic Signature Certificate false in Certain
Particulars
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

233
3. Describe the Publication for Fraudulent Purpose

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

______________________________________________________________________________

4.4 Appellate Tribunal

______________________________________________________________________________

The IT Act, 2000 deals with the establishment of one or more Appellate Tribunals to be known
as Cyber Appellate Tribunal to exercise jurisdiction, powers and authority as conferred under the
act.

2.1 Establishment of Cyber Appellate Tribunal section 48

i. The central Government shall, by notification, establish one or more appellate tribunal to
be known as the cyber regulations appellate tribunal.
ii. The Central Government shall also specify, in the notification referred to in sub-section
(1), the matters and places in relation to which the Cyber Appellate Tribunal may
exercise jurisdiction.

4.4.1. Composition of Cyber Appellate Tribunal (Sec. 49)

i) The Cyber Appellate Tribunal shall consist of a Chairperson and such number of
other Members, as the Central Government may, by notification in the Official
Gazette, appoint:

Provided that the person appointed as the Presiding Officer of the Cyber
Appellate Tribunal under the provisions of this Act immediately before the
commencement of the Information Technology (Amendment) Act, 2008 shall be deemed
to have been appointed as the Chairperson of the said Cyber Appellate Tribunal under the
provisions of this Act as amended by the Information Technology (Amendment) Act,
2008.

ii) The selection of Chairperson and Members of the Cyber Appellate Tribunal shall be
made by the Central Government in consultation with the Chief Justice of India.
iii) Subject to the provisions of this Act
a) The jurisdiction, powers and authority of the Cyber Appellate Tribunal may be
exercised by the Benches thereof;
b) A Bench may be constituted by the Chairperson of the Cyber Appellate
Tribunal with one or two Members of such Tribunal as the Chairperson may deem
fit;

234
 c) The Benches of the Cyber Appellate Tribunal shall sit at New Delhi and at such
other places as the Central Government may, in consultation with the Chairperson
of the Cyber Appellate Tribunal, by notification in the Official Gazette, specify;
d) The Central Government shall, by notification in the Official Gazette, specify
the areas in relation to which each Bench of the Cyber Appellate Tribunal may
exercise its jurisdiction.

IV) Notwithstanding anything contained in sub-section (3), the Chairperson of the Cyber
Appellate Tribunal may transfer a Member of such Tribunal from one Bench to another
Bench.

V) If at any stage of the hearing of any case or matter it appears to the Chairperson or a
Member of the Cyber Appellate Tribunal that the case or matter is of such a nature that it
ought to be heard by a Bench consisting of more Members, the case or matter may be
transferred by the Chairperson to such Bench as the Chairperson may deem fit

4.4.2. Qualifications for appointment as Chairperson and Member of the Cyber Appellate
Tribunal (Section 50)
1) A person shall not be qualified for appointment as a Chairperson of the Cyber
Appellate Tribunal unless he is, or has been, or is qualified to be, a Judge of a High
Court.
2) The Members of the Cyber Appellate Tribunal, except the Judicial Member to be
appointed under sub-section (3), shall be appointed by the Central Government from
amongst persons, having special knowledge of, and professional experience in,
information technology, telecommunication, industry, management or consumer affairs:
Provided that a person shall not be appointed as a Member, unless he is, or has been, in
the service of the Central Government or a State Government, and has held the post of
Additional Secretary to the Government of India or any equivalent post in the Central
Government or State Government for a period of not less than one years or Joint
Secretary to the Government of India or any equivalent post in the Central Government
or State Government for a period of not less than seven years.
3) The Judicial Members of the Cyber Appellate Tribunal shall be appointed by the
Central Government from amongst persons who is or has been a member of the Indian
Legal Service and has held the post of Additional Secretary for a period of not less than
one year or Grade I post of that Service for a period of not less than five years.

4.4.3. Term of office, conditions of service, etc., of Chairperson and Members (Sec. 51)
1) The Chairperson or Member of the Cyber Appellate Tribunal shall hold office for
a term of five years from the date on which he enters upon his office or until he
attains the age of sixty-five years, whichever is earlier.
2) Before appointing any person as the Chairperson or Member of the Cyber
Appellate Tribunal, the Central Government shall satisfy itself that the person
does not have any such financial or other interest as is likely to affect prejudicially
his functions as such Chairperson or Member.

235
 3) An officer of the Central Government or State Government on his selection as the
Chairperson or Member of the Cyber Appellate Tribunal, as the case may be,
shall have to retire from service before joining as such Chairperson or Member. S.
52. Salary, allowances and other terms and conditions of service of Chairperson
and Members.—The salary and allowances payable to, and the other terms and
conditions of service including pension, gratuity and other retirement benefits of,
the Chairperson or a Member of the Cyber Appellate Tribunal shall be such as
may be pre- scribed.

4.4.4. Salary, allowances and other terms and conditions of service of Chairperson and
Members (Sec. 52)
The salary and allowances payable to, and the other terms and conditions of service including
pension, gratuity and other retirement benefits of, the Chairperson or a Member of the Cyber
Appellate Tribunal shall be such as may be pre- scribed.

4.4.6. Powers of superintendence, direction, etc. (Sec. 52A)

The Chairperson of the Cyber Appellate Tribunal shall have powers of general superintendence
and directions in the conduct of the affairs of that Tribunal and he shall, in addition to presiding
over the meetings of the Tribunal, exercise and discharge such powers and functions of the
Tribunal as may be prescribed.

4.4.7. Distribution of business among Benches (Sec. 52B)

Where Benches are constituted, the Chairperson of the Cyber Appellate Tribunal may, by order,
distribute the business of that Tribunal amongst the Benches and also the matters to be dealt with
the each Bench.

4.4.8. Power of Chairperson to transfer cases (Sec. 52C)

On the application of any of the parties and after notice to the parties, and after hearing such of
them as he may deem proper to be heard, or suo motu without such notice, the Chairperson of the
Cyber Appellate Tribunal may transfer any case pending before one Bench, for disposal to any
other Bench.

4.4.9. Decision by majority (Sec. 52D)

If the Members of a Bench consisting of two Members differ in opinion on any point, they shall
state the point or points on which they differ, and make a reference to the Chairperson of the
Cyber Appellate Tribunal who shall hear the point or points himself and such point or points
shall be decided ac- cording to the opinion of the majority of the Members who have heard the
case, including those who first heard it.

236
4.4.10. Filling up of vacancies (Sec.53)
If, for reason other than temporary absence, any vacancy occurs in the office of the Chairperson
or Member as the case may be of a Cyber Appellate Tribunal, then the Central Government shall
appoint another person in accordance with the provisions of this Act to fill the vacancy and the
proceedings may be continued before the Cyber Appellate Tribunal from the stage at which the
vacancy is filled.

4.4.11. Resignation [Sec 54(1)]

Chairperson or the member of a Cyber Appellate Tribunal may, by notice in writing under his
hand addressed to the Central Government, resign his office: Provided that the said Chairperson
or the member] shall, unless he is permitted by the Central Government to relinquish his office
sooner, continue to hold office until the expiry of three months from the date of receipt of such
notice or until a person duly appointed as his successor enters upon his office or until the expiry
of his term of office, whichever is the earliest.

4.4.12. Removal [Sec. 54 (2)(3)]

The Chairman or the Member of Cyber Appellate Tribunal shall not be re- moved from his office
except by an order by the Central Government on the ground of proved misbehaviour or
incapacity after an inquiry made by a Judge of the Supreme Court in which the Presiding Officer
concerned has been informed of the charges against him and given a reasonable opportunity of
being heard in respect of these charges. The Central Government may, by rules, regulate the
procedure for the investigation of misbehavior or incapacity of the aforesaid Chairperson or the
member.

4.4.13. Orders constituting Appellate Tribunal to be final and not to invalidate its
proceedings (Sec 55)
No order of the Central Government appointing any person as the Chairperson or the member of
a Cyber Appellate Tribunal shall be called in question in any manner and no act or proceeding
before a Cyber Appellate Tribunal shall be called in question in any manner on the ground
merely of any defect in the constitution of a Cyber Appellate Tribunal.

4.4.14. Appeal to Cyber Appellate Tribunal (Sec 57)

Any person aggrieved by an order made by an adjudicating officer under this Act may prefer an
appeal to a Cyber Tribunal having jurisdiction in the matter. No appeal shall lie to the Cyber
Appellate Tribunal from an order made by an adjudicating officer with the consent of the parties.

4.4.15. Period: every appeal shall be filed within a period of forty-five days from the date on
which a copy of the order made by the controller or the adjudicating officer is received by the
person aggrieved and it shall be in such form and be accompanied by such fee as may be
prescribed: Provided that the Cyber Appellate Tribunal may entertain an appeal after the expiry

237
of the said period of forty-five days if it is satisfied that there was sufficient cause for not filing it
within that period.

4.4.16. Order by Tribunal: On receipt of an appeal under sub-section, the Cyber Appellate
Tribunal may, after giving the parties to the appeal, an opportunity of being heard, pass such
orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.
The Cyber Appellate Tribunal shall send a copy of every order made by it to the parties to the
appeal and to the concerned controller or adjudicating officer.
The appeal filed before the Cyber Appellate Tribunal under sub-section (1) shall be dealt with by
it as expeditiously as possible and Endeavour shall be made by it to dispose of the appeal finally
within six months from the date of receipt of the appeal.

4.4.17. Powers of the Cyber Appellate Tribunal (Sec. 58)

The Cyber Appellate Tribunal shall not be bound by the procedure laid down by the Code of
Civil Procedure, 1908 (5 of 1908) but shall be guided by the principles of natural justice and,
subject to the other provisions of this Act and of any rules, the Cyber Appellate Tribunal shall
have powers to regulate its own procedure including the place at which it shall have its sittings.
The Cyber Appellate Tribunal shall have, for the purposes of discharging its functions under this
Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of
1908), while trying a suit, in respect of the following matters, namely:
a) Summoning and enforcing the attendance of any person and examining
him on oath;
b) Requiring the discovery and production of documents or other electronic
records;
c) Receiving evidence on affidavits;
(d) Issuing commissions for the examination of witnesses or documents;
e) Reviewing its decisions; (f) dismissing an application for default or
deciding it ex parte;
g) Any other matter which may be prescribed.

Every proceeding before the Cyber Appellate Tribunal shall be deemed to be a judicial
proceeding within the meaning of sections 193 and 228, and for the purposes of section 196 of
the Indian Penal Code and the Cyber Appellate Tribunal shall be deemed to be a civil court for
the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of
1974).

4.4.18. Right to legal representation (Sec.59)

The appellant may either appear in person or authorize one or more legal practitioners or any of
its officers to present his or its case before the Cyber Appellate Tribunal.

238
4.4.19. Civil court not to have jurisdiction (Sec. 61)
No court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which
an adjudicating officer appointed under this Act or the Cyber Appellate Tribunal constituted
under this Act is empowered by or under this Act to determine and no injunction shall be granted
by any court or other authority in respect of any action taken or to be taken in pursuance of any
power conferred by or under this Act.
4.4.20. Appeal to High court (Sec.62)
Any person aggrieved by any decision or order of the Cyber Appellate Tribunal may file an
appeal to the High Court within sixty days from the date of communication of the decision or
order of the Cyber Appellate Tribunal to him on any question of fact or law arising out of such
order: Provided that the High Court may, if it is satisfied that the appellant was prevented by
sufficient cause from filing the appeal within the said period, allow it to be filed within a further
period not exceeding sixty days.

4.4.21. Compounding of contraventions (Sec.63)

Any contravention under this Act may, either before or after the institution of adjudication
proceedings, be compounded by the Controller or such other officer as may be specially
authorized by him in this behalf or by the adjudicating officer, as the case may be, subject to
such conditions as the Controller or such other officer or the adjudicating officer may specify:
Provided that such sum shall not, in any case, exceed the maximum amount of the penalty which
may be imposed under this Act for the contravention so compounded. (2) Nothing in sub-section
(1) shall apply to a person who commits the same or similar contravention within a period of
three years from the date on which the first contravention, committed by him, was compounded.
Explanation: For the purposes of this sub-section, any second or subsequent
contravention committed after the expiry of a period of three years from the date on
which the contravention was previously compounded shall be deemed to be a first
contravention.

4.4.22. Recovery of Penalty (Sec. 64)

Penalty imposed or compensation awarded under this Act, if it is not paid, shall be recovered as
an arrear of land revenue and the license or the certificate, as the case may be, shall be suspended
till the penalty is paid.
Exercise 3
1. Composition of Cyber Appellate Tribunal
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

239
2. Acceptance of Digital Signature Certificate
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

3. Recovery of Penalty
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------

4.6 Offenses

The Information technology Act provides civil and criminal penalties for the violation of its
provision. Sections 43 to 47 dealing with civil penalty have already been discussed under
heading “Penalties and adjudication”. Sections 65 to 76 dealing with criminal penalty are
discussed here under. In all cases severe penalty is provided which is criminal in nature.

4.6.1. Tampering with Computer Source Documents (Sec.65)

Any individual knowingly or intentionally conceals, destroys or alters or intentionally or
knowingly causes another to conceal, destroy or alter any computer source code used for a
computer, computer programme, computer system or computer network, when the computer
source code is required to be kept or maintained by law for the time being in force, shall be
punishable with imprisonment up to three years, or with fine which may extend up to two lakh
rupees, or with both.
Explanation: For the purposes of this section, “computer source code” means the listing
of programmes, computer Commands, design and layout and programme analysis of
computer resource in any form.

4.6.2. Computer Related Offences (Sec.66)

If any person, dishonestly or fraudulently, does any act referred to in section 43, he shall be
punishable with imprisonment for a term which may extend to three years or with fine which
may extend to five lakh rupees or with both.
Explanation—For the purpose of this section:
a) the word “dishonesty” shall have the meaning assigned to it in section 24 of the
Indian Penal Code
b) the word “fraudulently” shall have the meaning assigned to it in section 25 of
the Indian Penal Code (45 of 1860).

240
4.6.3. Punishment for sending offensive messages through communication service, etc. (Sec.
66A)
Any person who sends, by means of a computer resource or a communication device:
a) any information that is grossly offensive or has meaning character, or
b) any information which he knows to be false, but for the purpose of causing annoyance,
inconvenience, danger, obstruction, insult, injury, criminal intimidation hatred or ill will,
persistently by making use of such computer resource or a communication device; or
c) any electronic mail or electronic mail massage for the purpose of causing annoyance or
inconvenience or to deceive or to mislead the addressee or recipient about the origin of
such massage, shall be punishable with imprisonment for a term which may extend to
three years and with fine.
Explanation: For the purposes of this section, terms “electronic mail” and “electronic
mail message” means a message or information created to transmitted or received on a
computer, computer system, computer resource or communication device including
attachments in text, image, audio, video and any other electronic record, which may be
transmitted with the message.

4.6.4. Punishment for dishonestly receiving stolen computer resource or communication

device (Sec. 66B)
If anyone dishonestly receives or retains any stolen computer resource or communication
device knowing or having reason to believe the same to be stolen computer resource or
communication device, shall be punished with imprisonment of either description for a term
which may extend to three years or with fine which may extend to rupees one lakh or with both.

4.6.5. Punishment for Identity Theft (Sec. 66C)

Whoever, fraudulently or dishonestly make use of the electronic signature, password or
any other unique identification feature of any other person, shall be punished with imprisonment
of either description for a term which may extend to three years and shall also be liable to fine
which may extend to rupees one lakh.

4.6.6. Punishment for Cheating by Personalization by using Computer Resource (Sec. 66D)
Whoever, by means of any communication device or computer resource cheats by
personalization, shall be punished with imprisonment of either description for a term which may
extend to three years and shall also be liable to fine which may extend to one lakh rupees.

4.6.7. Punishment for Violation of Privacy (Sec. 66E)

Whosoever, intentionally or knowingly captures, publishes or transmits the image of a
private area of any person without his or her consent, under circumstances violating the privacy
of that person, shall be punished with imprisonment which may extend to three years or with fine
not exceeding two lakh rupees, or with both.
Explanation.—For the purposes of this section

241
 a) “Transmit” means to electronically send a visual image with the internet that it be
viewed by a person or persons;
b) “Capture”, with respect to an image, means to videotape, photograph, film or record by
any means;
c) “Private area” means the naked or undergarment clad genitals, public area, buttocks or
female breast;
d) “Publishes” means reproduction in the printed or electronic form and making it
available for public; Information Technology Act, 2000 www.iltb.net/resourses
e) “Under circumstances violating privacy” means circumstances in which a person can
have a reasonable expectation that
i) he or she could disrobe in privacy, without being concerned that an image of his
private area was being captured; or
ii) any part of his or her private area would not be visible to the public regardless
of whether that person is in a public or private place.

4.6.8. Punishment for cyber terrorism (Sec. 66F)

1) Whosoever -
A) With intent to threaten the unity, integrity, security or sovereignty of India or to
strike terror in the people or any section of the people by
i) Denying or cause the denial of access to any person authorised to access
computer resource; or
ii) Attempting to penetrate or access a computer resource without
authorization or exceeding authorized access; or
iii) Introducing or causing to introduce any computer contaminant, and by
means of such conduct causes or is likely to cause death or injuries to
persons or damage to or destruction of property or disputes or knowing
that it is likely to cause damage or disruption of supplies or services
essential to the life of the community or adversely affect the critical
information infra- structure specified under section 70; or

B) knowingly or intentionally penetrates or accesses a computer resource without

authorization or exceeding authorized access, and by means of such conduct
obtains access to information, data or computer database that is re- stricted for
reasons of the security of the state or foreign relations; or any re- stricted
information, data or computer database, with reasons to believe that such
information, data or computer database so obtained may be used to cause or likely
to cause injury to the interests of the sovereignty and integrity of India, the
security of the State, friendly relations with foreign States, public order, decency
or morality, or in relation to contempt of court, defamation or incitement to an
offence, or to the advantage of any foreign nation, group of individuals or
otherwise, commits the offence of cyber terrorism.
2) Whoever commits or conspires to commit cyber terrorism shall be punishable with

242
 imprisonment which may extend to imprisonment for life.

4.6.9. Punishment for Publishing or Transmitting Obscene Material in Electronic form

(Sec. 67)

Whoever publishes or transmits or causes to be published or transmitted in the electronic form,

any material which is lascivious or appeals to the prurient interest or if its effect is such as to
tend to deprave and corrupt persons who are likely, having regard to all relevant circumstances,
to read, see or hear the matter contained or embodied in it, shall be punished on first conviction
with imprisonment of either description for a term which may extend to three years and with fine
which may extend to five lakh rupees and in the event of a second or subsequent conviction with
imprisonment of either description for a term which may extend to five years and also with fine
which may extend to ten lakh rupees.

4.6.10. Punishment for Publishing or Transmitting of Material Containing Sexually

Explicit Act, etc., in Electronic form (Sec. 67A)
Whoever publishes or transmits or causes to be published or transmitted in the electronic form
any material which contains sexually explicit act or conduct shall be punished on first conviction
with imprisonment of either description for a term which may extend to five years and with fine
which may extend to ten lakh rupees and in the event of second or subsequent conviction with
imprisonment of either description for a term which may extend to seven years and also with fine
which may extend to ten lakh rupees.
4.6.11. Punishment for publishing or transmitting of material depicting children in sexually
explicit act, etc., in electronic form (Sec. 67B)
Whoever—
a) Publishes or transmits or causes to be published or transmitted material in any
electronic form which depicts children engaged in sexually explicit act or
conduct; or
b) Creates text or digital images, collects, seeks, browses, downloads, advertises,
promotes, exchanges or distributes material in any electronic form depicting
children in obscene or indecent or sexually explicit manner; or
c) Cultivates, entices or induces children to online relationship which one or more
children for and on sexually explicit act or in a manner that may offend a
reasonable adult on the computer resource; or
d) Facilitates abusing children online; or
e) Records in any electronic form own abuse or that of others pertaining to sexually
explicit act with children,
shall be punished on first conviction with imprisonment of either description for a term which
may extend to five year and with fine which may extend to ten lakh rupees and in the event of
second or subsequent conviction with imprisonment of either description for a term which may
extend to seven years and also with fine which may extend to ten lakh rupees;

243
However, the provisions of section 67, section 67A and this section does not extend to any book,
pamphlet, paper, writing, drawing, painting representation or figure in electronic form
i) The publication of which is proved to be justified as being for the public
good on the ground that such book, pamphlet, paper, writing, drawing,
painting representation or figure is in the interest of science, literature, art
or learning or other objects of general concern; or
ii) which is kept or used for bona fide heritage or religious purpose.
Explanation—For the purpose of this section, “children” means a person
who has not completed the age of 18 years.
4.6.12. Preservation and retention of information by intermediaries (Sec. 67C)
1) Intermediary shall preserve and retain such information as may be specified for such
duration and in such manner and format as the Central Government may prescribed.
2) Any intermediary who intentionally or knowingly contravenes the provisions of sub-
section (1) shall be punished with an imprisonment for a term which may extend to three
years and shall also be liable to fine.

4.6.13. Power of the Controller to give Directions (Sec. 68)

The Controller may, by order, direct a Certifying Authority or any employee of such Authority to
take such measures or cease carrying on such activities as specified in the order if those are
necessary to ensure compliance with the provisions of this Act, rules or any regulations made
there under. Any person who intentionally or knowingly fails to comply with any order under
sub-section (1) shall be guilty of an offence and shall be liable on conviction to imprisonment for
a term not exceeding two years or a fine not exceeding one lakh rupees or with both.] 69 82[S.
69.

4.6.14. Power of the Govt. to issue necessary direction for Cyber Security (Sec. 69, 69A and
69B)
In view of the increasing threat of terrorism in the country, sec. 69, as substituted by the
information technology (Amendment) act, 2008, empowers the central govt. or a state govt., as
the case may be, to issue directions for interception for or monitoring or decryption of any
information through any computer resource. Further, sec. 69A and 69B inserted by the said
Amendment Act, grant power to the Government to issue direction for blocking for public access
of any information through any computer resource and to authorized to monitor and collect
traffic data or information through any computer resource for cyber security.

4.6.15. Securing Unauthorized Access to Protected system (Sec. 70)

The appropriate Government may, by notification in the Official Gazette, declare that any
computer resource which directly or indirectly affects the facility of Critical Information
Infrastructure, to be a protected system. For the purposes of this section, “Critical Information
Infrastructure” means the computer resource, the incapacitation or destruction of which, shall
have debilitating impact on national security, economy, public health or safety. The appropriate
Government may, by order in writing, authorise the persons who are authorised to access
protected systems.

244
Any person who secures access or attempts to secure access to a protected system in
contravention of the provisions of this section shall be punished with imprisonment of either
description for a term which may extend to ten years and shall also be liable to fine. The Central
Government shall prescribe the information security practices and procedures for such protected
system.

4.6.16. National Nodal Agency (Sec. 70A)

1) The Central Government may, by notification published in the Official Gazette, designate
any organisation of the Government as the national nodal agency in respect of Critical
Information Infrastructure Protection.
2) The national nodal agency designated under sub-section (1) shall be responsible for all
measures including Research and Development relating to protection of Critical
Information Infrastructure.
3) The manner of performing functions and duties of the agency referred to in sub- section
(1) shall be such as may be prescribed.

4.6.17. Indian Computer Emergency Response Team to serve as national agency for
incident Response (Sec.70B)
1) The Central Government shall, by notification in the Official Gazette, appoint an agency
of the Government to be called the Indian Computer Emergency Response Team.
2) The Central Government shall provide the agency referred to in sub-section (1) with a
Director-General and such other officers and employees as may be prescribed.
3) The salary and allowances and terms and conditions of the Director-General and other
officers and employees shall be such as may be prescribed.
4) The Indian Computer Emergency Response Team shall serve as the national agency for
performing the following functions in the area of cyber security
a) Collection, analysis and dissemination of information on cyber incidents;
b) Forecast and alerts of cyber security incidents;
c) Emergency measures for handling cyber security incidents;
d) Coordination of cyber incidents response activities;
e) Issue guidelines, advisors, vulnerability notes and whitepapers relating to information
security practices, procedures, prevention, and response and reporting of cyber incidents;
f) Such other functions relating to cyber security as may be prescribed.
5) The manner of performing functions and duties of the agency referred to above shall be
such as may be prescribed.
6) For carrying out the provisions of sub-section (4), the agency referred to in sub- section
(1) may call for information and give direction to the service providers, intermediaries,
data centers, body corporate and any other person.

245
7) Any service provider intermediaries, data centers, body corporate or person who fails to
provide the information called for the comply with the direction under sub- section (6),
shall be punishable with imprisonment for a term which may be extend to one year with
fine which may extend to one lakh rupees or with both.
8) No court shall take cognizance of any offence under this section, except on a complaint
made by an officer authorized in this behalf by the agency referred to in sub- section (1).

4.6.18. Act to Apply for Offences or Contravention Committed Outside India (Sec. 75)
The provisions of this Act shall apply also to any offence or contravention committed
outside India by any person irrespective of his nationality. This Act shall apply to an offence or
contravention committed outside India by any person if the act or conduct constituting the
offence or contravention involves a computer, computer system or computer network located in
India.

4.6.19. Confiscation (Sec. 76)

Any computer, computer system, floppies, compact disks, tape drives or any other
accessories related thereto, in respect of which any provision of this Act, rules, orders or
regulations made there under has been or is being contravened, shall be liable to confiscation.
However, where it is established to the satisfaction of the court adjudicating the confiscation that
the person in whose possession, power or control of any such computer, computer system,
floppies, compact disks, tape drives or any other accessories relating thereto is found is not
responsible for the contravention of the provisions of this Act, rules, orders or regulations made
there under, the court may, instead of making an order for confiscation of such computer,
computer system, floppies, compact disks, tape drives or any other accessories related thereto,
make such other order authorized by this Act against the person contravening of the provisions
of this Act, rules, orders or regulations made there under as it may think fit.

4.6.20. Compensation Penalties or Confiscation not to interfere with other Punishment

(Sec. 77)
Any compensation awarded, penalty imposed or confiscation made under this Act shall
prevent the award of compensation or imposition of any other penalty or punishment under any
other law for the time being in force.

4.6.21. Compounding of offences (Sec. 77A)

1) A court of competent jurisdiction may compound offences, other than offences for
which the punishment for life or imprisonment for a term exceeding three years
has been provided, under this Act:
However, the court shall not compound such offences where the accused is, by
reason of his previous conviction, liable to either enhance punishment or to a
punishment of a different kind: Provided further that the court shall not compound
any offence where such offence affects the socio economic conditions of the

246
 country or has been committed against a child below the age of 18 years or a
woman.
2) The person accused of an offence under this Act may file an application for com-
pounding in the court in which offence is pending for trial and the provisions of
section 265B and 265C of the Code of Criminal Procedure, 1973 shall apply.

4.6.22. Power to Investigate Offences (Sec.78)

Not with standing anything contained in the Code of Criminal Procedure, a police officer
not below the rank of Inspector shall investigate any offence under this Act.

4.6.23. Exemption from Liability of Intermediary in Certain Cases (Sec. 79)

An intermediary shall not be liable for any third party information, data, or
communication link made available or hosted by him.
a) The function of the intermediary is limited to providing access to a
communication system over which information made available by third parties is
transmitted or temporarily stored or hosted; or
b) The intermediary does not:
(i) initiate the transmission,
(ii) Select the receiver of the transmission, and
(iii) Select or modify the information contained in the transmission;
(c) The intermediary observes due diligence while discharging his duties under this
Act and also observes such other guidelines as the Central Government may
prescribe in this behalf.
However, in many cases intermediary shall be liable if:

a) The intermediary has conspired or abetted or aided or induced, whether by threats

or promise or otherwise in the commission of the unlawful act;

b) upon receiving actual knowledge, or on being notified by the appropriate

Government or its agency that any information, data or communication link
residing in or connected to a computer resource controlled by the intermediary is
being used to commit the unlawful act, the intermediary fails to expeditiously
remove or disable access to that material on that resource without vitiating the
evidence in any manner.
Explanation—For the purpose of this section, the expression “third party information” means
any information dealt with by an intermediary in his capacity as an intermediary.

247
Exercise 3
1. Generating key pair
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

2. Acceptance of Digital Signature Certificate

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

3. Describe Control of Private Key

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------

4.7 Cyber Laws

Cyber law is a new phenomenon having emerged much after the onset of Internet. Internet grew
in a completely unplanned and unregulated manner. Even the inventors of Internet could not
have really anticipated the scope and far reaching consequences of cyberspace. The growth rate
of cyberspace has been enormous. Internet is growing rapidly and with the population of
Internet doubling roughly every 100 days, Cyberspace is becoming the new preferred
environment of the world.
With the spontaneous and almost phenomenal growth of cyberspace, new and ticklish issues
relating to various legal aspects of cyberspace began cropping up. In response to the absolutely
complex and newly emerging legal issues relating to cyberspace, CYBER LAW or the law of
Internet came into being. The growth of Cyberspace has resulted in the development of a new
and highly specialized branch of law called CYBER LAWS-LAWS OF THE INTERNET AND
THE WORLD WIDE WEB.

248
Definition
Cyber law is a term which refers to all the legal and regulatory aspects of Internet and the World
Wide Web. Anything concerned with or related to, or emanating from, any legal aspects or
issues concerning any activity of citizens and others, in Cyberspace comes within the ambit of
Cyber law.
Aims of Cyber Law
(a) To facilitate electronic communications by means of reliable electronic records;
(b) To facilitate and promote electronic commerce, to eliminate barriers to electronic
commerce resulting from uncertainties over writing and signature requirements,
and to promote the development of the legal and business infrastructure necessary
to implement secure electronic commerce;
(c) To facilitate the electronic filing of documents with government agencies and
statutory corporations, and to promote efficient delivery of government services
by means of electronic records;
(d) To minimize the incidence of forged electronic records, intentional and
unintentional alterations of records, and fraud in electronic commerce and other
electronic transactions;
(e) To promote public confidence in the integrity and reliability of electronic records,
electronic signatures and electronic commerce;
(f) To establish uniform rules and standards regarding the authentication and
integrity of electronic records; and
(g) To create a legal infrastructure for the use of digital signature.
Cyber laws in India
In May 2000, both the Houses of the Indian Parliament passed the Information Technology Bill.
The Bill received the assent of the President in August 2000 and came to be known as the
Information Technology Act, 2000. Cyber laws are contained in the IT Act, 2000. it was
enacted on 7th June 2000 and was notified in the official gazette on 17 th October,2000. It is
applicable to whole of India.
Contracting and Contract Enforcement Contract: A legally binding contract requires a few
basic elements: offer, acceptance and consideration. When the CONTRACTING is performed
electronically then these requirements are difficult to establish. There are various acts and laws
are made for the contracting and contract enforcement. Some of them are listed below:
Uniform Electronic Transactions Act
 It provides the means to effectuate transactions accomplished through an electronic
medium.
 It seeks to extend existing provisions for contract law to cyber law by establishing
uniform and consistent definitions to electronic records, digital signatures, and other
electronic communications.
 It is comprehensive law regarding business conduct.

249
Uniform Commercial Code (UCC)
 It provides a government code that supports existing and future electronic technologies in
the exchange of goods or of services related to exchange of goods
 It provides clear language to address issues of offer and acceptance required for
formatting of a contract
Shrink-wrap agreements (or box top licenses)
 The user is bound to the license by opening the package even though he or she has not
used the product or even read the agreement.
 This has been a point of contention for some time.
 The court felt that more information would provide more benefit to the consumer given
the limited space available on the exterior of the package
Click-wrap contracts
 The software vendor offers to sell or license the use of the software according to the
terms accompanying the software
 The software vendor offers to sell or license the use of software according to the terms
accompanying the software. The buyer agrees to be bound by the terms based on certain
conduct.
Salient Provision of Cyber Laws
The IT Act, 2000 attempts to change outdated laws and provides ways to deal with cyber crimes.
We need such laws so that people can perform purchase transactions over the Net through credit
cards without fear of misuse. The Act offers the much-needed legal framework so that
information is not denied legal effect, validity or enforceability, solely on the ground that it is in
the form of electronic records.
In view of the growth in transactions and communications carried out through electronic records,
the Act seeks to empower government departments to accept filing, creating and retention of
official documents in the digital format. The Act has also proposed a legal framework for the
authentication and origin of electronic records/communications through digital signature.
From the perspective of e-commerce in India, the IT Act, 2000 ad its provisions contain
many positive aspects. Firstly, the implications of these provisions for the e-businesses would be
that email would now be a valid and legal form of communication in our country that can be duly
produced and approved in a court of law.
 Companies shall now be able to carry out electronic commerce using the legal
infrastructure provided by the Act.
 Digital signatures have been given legal validity and sanction in the Act.
 The Act throws open the doors for the entry of corporate companies in the business of
being Certifying Authorities for issuing Digital Signature Certificates.
 The Act now allows Government to issue notification on the web thus heralding e-
governance.

250
  The Act enables the companies to file any form, application or any other document with
any office, authority, body or agency owned or controlled by the appropriate Government
in electronic form by means of such electronic form as may be prescribed by the
appropriate Government.
 The IT Act also addresses the important issues of security, which are so critical to the
success of electronic transactions. The Act has given a legal definition to the concept of
secure digital signatures that would be required to have been passed through a system of
a security procedure, as stipulated by the Government at a later date.
 Under the IT Act, 2000, it shall now be possible for corporate to have a statutory remedy
in case if anyone breaks into their computer systems or network and causes damages or
copies data. The remedy provided by the Act is in the form of monetary damages, not
exceeding Rs. 1 crore.

INFORMATION TECHNOLOGY (IT) ACT, 2000

The Information Technology (IT) Act, 2000 aims to provide a legal and regulatory
framework for Promotion of e-Commerce and e-Governance. It was enacted o 7 th June, 2000
and was notified in the official gazette on 17th October, 2000. It is applicable to whole of India.

Major provisions contained in the IT Act, 2000 are:

 Extends to the whole of India.
 Electronic contracts will be legally valid
 Legal recognition of digital signatures
 Digital signature to be effected by use of asymmetric crypto system and hash function
 Security procedure for electronic records and digital signature
 Appointment of Certifying Authorities and Controller of Certifying Authorities, including
recognition of foreign Certifying Authorities
 Controller to act as repository of all digital signature certificates
 Certifying authorities to get License to issue digital signature certificates
 Various types of computer crimes defined and stringent penalties provided under the Act
 Appointment of Adjudicating Officer for holding inquiries under the Act
 Establishment of Cyber Appellate Tribunal under the Act
 Appeal from order of Adjudicating Officer to Cyber Appellate Tribunal and not to any
Civil Court
 Appeal form order of Cyber Appellate Tribunal to High Court
 Act to apply for offences or contraventions committed outside India
 Network service providers not to be liable in certain cases

251
  Power of police officers and other officers to enter into any public place and search and
arrest without warrant
 Constitution of Cyber Regulation Advisory Committee who will advice the Central
Government and Controller
The IT Act enables:
 Legal recognition to Electronic Transaction/Record
 Facilitate Electronic Communication by means of reliable electronic record
 Acceptance of contract expressed by electronic means
 Facilitate Electronic Commerce and Electronic Data interchange’
 Electronic Governance
 Facilitate electronic filing of documents
 Retention of documents in electronic form
 Where the law requires the signature, digital signature satisfy the requirement
 Uniformity of rules, regulations and standards regarding the authentication and integrity
of electronic records or documents
 Publication of official gazette in the electronic form
 Interception of any message transmitted in the electroic or encrypted form
 Prevent Computer Crime, forged electronic records, international alteration of electronic
records fraud, forgery or falsification in Electronic Commerce and electronic transaction.
Authentication of the electronic records in IT Act, 2000:
Section 3(2) of the IT Act, 2000 has provided that “The authentication of the electronic record
shall be effected by the use of asymmetric crypto system and hash function which envelop and
transform the initial electronic record into another electronic record.”
Explanation: For the purposes of this sub-section, “hash function” means an algorithm mapping
or translation of one sequence of bits into another, generally smaller, set known as “hash result”
such that an electronic record yields the same hash result every time the algorithm is executed
with the same electronic record as its input making it computationally infeasible-
 to derive or reconstruct the original electronic record from the hash result produced by
the algorithm;
 that two electronic records can produce the same hash result using the algorithm.
Civil offences stipulated by IT Act, 2000 are:
Section 43 and Section 44 of the IT Act prescribes the civil offences which covers:
 Copy or extract any data, database
 Unauthorized access & downloading files
 Introduction of virus
 Damage to computer System and Computer Network

252
  Disruption of Computer, computer network
 Denial to authorized person to access computer
 Providing assistance to any person to facilitate unauthorized access to a computer
 Charging the service availed by a person to an account of another person by tampering
and manipulation of other computer
 Failure to furnish information, return etc. to the Controller by certifying authorities
Criminal offences stipulated by IT Act, 2000:
Chapter XI (Section 65 to 75) of the IT Act prescribes the civil offences which covers:
 Tampering with computer system documents (i.e. listing of programs)
 Hacking with computer system
 Electronic forgery i.e. affixing of false digital signature, making false electronic record
 Electronic forgery for the purpose of cheating
 Electronic forgery for the purpose of harming reputation
 Using a genuine a forged electronic record
 Publication of digital signature certificate for fraudulent purpose
 Offences and contravention by companies
 Unauthorized access to protected system
 Confiscation of computer, network, etc.
 Publication of information which is obscene in electronic form
 Misrepresentation or suppressing of material face for obtaining
 Breach of confidentiality and Privacy
 Publishing false Digital Signature Certificate
We would be studying about few of these offences in detail in the next section.
Other provisions/Acts that are not covered under the IT are:
 Negotiable instrument
 Power of Attorney
 Trust
 Will
 Any contract for the sale or the conveyance of immovable property or any interest in such
property
JURISPRUDENCE OF INDIAN CYBER LAW
The primary source of cyber law in India is the Information Technology Act, 2000 (IT Act)
which came into force on 17 October, 2000.

253
Exercise 3
1. What is Cyber Law? Explain in brief
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

2. Aims of Cyber Law.

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

3. Describe Cyber Laws in India.

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

4.8 Summary

---------------------------------------------------------------------------------------------------------------------

Under the Act penalty is imposed by way of damages to be paid as compensation to the
affected party for damage caused to any computer, computer network etc. by introduction of
computer virus, unauthorized access and other types of mischief.
The adjudicating officer shall, after giving the person referred to in Sub-section (1) a
reasonable opportunity for making representation in the matter and if, on such inquiry, he is
satisfied that the person that the person has committed the contravention, he may impose such
penalty or award such compensation as he thinks fit in accordance with the provisions of that
section.
The Information technology Act provides civil and criminal penalties for the violation of
its provision. Sections 43 to 47 dealing with civil penalty have already been discussed under
heading “Penalties and adjudication”.
Not with standing anything contained in the Code of Criminal Procedure, a police officer
not below the rank of Inspector shall investigate any offence under this Act.

254
 Penalty imposed or compensation awarded under this Act, if it is not paid, shall be
recovered as an arrear of land revenue and the license or the certificate, as the case may be, shall
be suspended till the penalty is paid.

---------------------------------------------------------------------------------------------------------------------

4.9 Exercise

---------------------------------------------------------------------------------------------------------------------

Test your knowledge of the lesson

Activity 4.1

1. Put (√) sign on the following which section of IT Act, 2000 is supporting the

Establishment of Cyber Appellate Tribunal:

i) Section 48 ( )

ii) Section 49 ( )

iii) Section 50 ( )

iv) Section 51 ( )

2. Tampering with Computer Source Documents (Sec.65), maximum punishment may be:
which option is true mark (√) sign.

i) Five years imprisonment ( )

ii) Three years imprisonment, or two lacs fine, or both ( )

iii) Five years imprisonment, or two lacs fine, or both ( )

iv) One years imprisonment ( )

255
 3. The Cyber Appellate Tribunal shall have, for the purposes of discharging its functions
under this Act, the same powers as are vested in a civil court under the Code of Civil
Procedure, 1908 (5 of 1908), while trying a suit, in respect of the following matters, name
which is not belongs to this act.
(i) Summoning and enforcing the attendance of any person and examining him on oath.
( )
(ii) requiring the discovery and production of documents or other electronic records( )
(iii) Receiving evidence on affidavits ( )
(iv) No issue commissions for the examination of witnesses or documents ( )

4. Punishment for cyber terrorism (Sec. 66F). With intent to threaten the unity, integrity,
security or sovereignty of India or to strike terror in the people or any section of the
people by the following is relates. Tick one which does not relates.
(i) Denying or cause the denial of access to any person unauthorised to access computer
resource. ( )
(ii) Attempting to penetrate or access a computer resource without authorization or
exceeding authorized access. ( )
(iii) Introducing or causing to introduce any computer contaminant, and by means of such
conduct causes or is likely to cause death or injuries to persons or damage to or
destruction of property or disputes or knowing that it is likely to cause damage or
disruption of supplies or services essential to the life of the community or adversely
affect the critical information infrastructure specified under section 70. ( )

Ans: 1 (i), 2 (ii), 3(iv), 4(i)

Activity 4.2

The following tables have been cited specific relations which one is suiting best each other,

match A with B and make a proper pair.

(A) (B)

i) Penalty for damage to computer a) Sec. 44

ii) Penalty for failure to furnish b) Sec. 46

information

iii) Residuary penalty c) Sec. 45

iv) Power to adjudicate d) Sec. 43

256
Ans: i – (d), ii – (a), iii- (c), iv – (b)

Activity 4.3

Test your knowledge of the lesson

1. Under the Act penalty is imposed by way of damages to be paid as compensation to the
affected party for damage caused to any computer, computer network etc. by introduction
of computer virus………………… and other types of mischief.

2. For the purpose of adjudging under this Chapter whether any person has committed a
contravention of any of the provisions of this Act or of any rule, regulation, direction or
order made hereunder the ………………….shall, subject to the provisions of Sub-
section.

3. The IT Act, 2000 deals with the establishment of one or more Appellate Tribunals to be
known as ……………………………………to exercise jurisdiction, powers and
authority as conferred under the act.

4. The Cyber Appellate Tribunal shall not be bound by the procedure laid down by the Code
of Civil Procedure, 1908 (5 of 1908) but shall be guided by the principles of natural
justice and, subject to the other provisions of this Act and of any rules, the Cyber
Appellate Tribunal shall have powers to including the place at which it shall have its
sittings.

5. If any person, dishonestly or fraudulently, does any act referred to in section 43, he shall
be punishable with imprisonment for a term which may extend to three years or with fine
which may ………………………………or with both.

Ans: 1. Unauthorized access 2. Central Government 3. Cyber Appellate Tribunal 4. Regulate

its own procedure 5. Extend to five lakh rupees

257
Activity 4.4

Test your knowledge of the lesson

1. Explain the terms Penalties and Adjudication

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

2. What is Appellate Tribunal

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

3. Describe the Composition of Cyber Appellate Tribunal

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

4. What is Offenses? Explain in brief.

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

258
5. Discuss the provisions of IT Act, 2000 relating to appointment, term of office, salary,

resignation and removal of the Chairperson of the Cyber Appellate Tribunal.

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

259