SC affirms complaint should not be returned for misjoinder of parties

SC affirms complaint should not be returned for misjoinder of parties

by | Aug 20, 2022 | Legal

SC affirms complaint should not be returned for misjoinder of parties

Supreme Court

The Supreme Court while setting aside the order of National Commission in the matter of Brahmaputra Biochem Private Limited Versus New India Assurance Company & Anr said, “If the National Consumer Disputes Redressal Commission (NCDRC) is of the opinion that the Surveyor was an unnecessary party or the pleadings are contradictory, it should have struck down the said party. The striking of surveyor from the array of parties would not make the complaint disjoined, as it was duty of the NCDRC to strike of an unnecessary party.”

Dr Prem Lata, Legal Head VOICE

Facts leading to appeal before the SC were that an order was passed by the National Consumer Disputes Redressal Commission on 27.09.2021 by which complaint was returned unadjudicated for the reason as said that surveyor was an unnecessary party in Insurance claim matter. Liberty was given to the claimant/appellant to file fresh complaint within 30 days. While granting liberty, it was directed to make the insurance company alone the sole opposite party for seeking redressal.

Observation by the NCDRC

The NCDRC returned the complaint with the Observations

“We agree that a complaint ought not to be defeated by reason of misjoinder of parties alone. In the present case however we find that the contents and articulation of the complaint is such that the insurance co. and its surveyor & loss assessor have been inextricably conjoined together. The material distinction that the complainant co. is a ‘consumer’ of the insurance co. alone, and not of its surveyor & loss assessor also, has been completely lost. The difference between the performance of service by the insurance co. and the role and responsibility of its surveyor & loss assessor has not been maintained. In the wake of such confounding overlappings, a mechanical deletion of the opposite party no. 2 surveyor & loss assessor from the array of the parties would make the complaint disjointed and askew, as may occasion to cause embarrassment to its adjudication on merit.”

From the above observation, it appears that the National Commission finds that complainant is not a consumer against surveyor & loss assessor because it is not complainant taking services from surveyor. He is an agent and service provider to the Insurance Company.

Findings of SC

SC bench comprising Justice Hemant Gupta and Justice V Ramasubramanian observed that the approach of NC is erroneous and said that if there was misjoinder of parties, the unnecessary parties should be deleted, instead of returning the complaint. The complaint cannot be returned unadjudicated with liberty to file fresh complaint as the issue of limitation will also arise. Once the period of limitation has expired, the appellant/complainant cannot file the second complaint.

Further, the surveyor was not impleaded to claim compensation but as a proper party in view of the allegations levelled against it. Surveyor was in fact the necessary party for the reasons that facts about claim were known to him only as assessor. As part of principles of natural justice, if there are allegations against the surveyor and the loss assessor, an opportunity should have been given to such person to rebut the allegations. It was also revealed by the advocate of complainant that the notices were issued to the surveyor on the last known address but the notice could not be served as the firm had shifted its office.

It is open to the appellant to serve the surveyor by substituted service in a newspaper and thereafter, the NCDRC could proceed and decide the matter on merits Consequently, SC set aside the order passed by the NCDRC dated 27.09.2021 and remit the matter for fresh decision in accordance with law.

Law laid down in earlier decided case on similar issue

A case of non-joinder of party decided by SC on the same lines in year 2004 also wherein SC did not agree with National Commission for dismissing the complaint for not making a doctor a party in medical negligence case against a hospital.

The legal question in that case was as to whether non-impleading the treating doctor as party could result in dismissal of the original petition for non-joinder of necessary party. Supreme Court in the above matter held that “An error of non-joinder of necessary to the party cannot result in dismissal of the original petition for non-joinder of party. The National Commission shall, in the disposal of any complaints or any proceedings before it, have the power of a civil court and can direct the parties to disclose the name and other particulars of treating doctor if not known to the complainant. So far as the law with regard to the non-joinder of necessary party under Code of Civil Procedure, Order 1 Rule 9 and Order 1 Rule 10 of the CPC no suit shall fail because of mis-joinder or non-joinder of parties. Even if after the direction given by the Commission the concerned doctor and the nursing staff who were looking after the deceased have not been impleaded as opposite parties, it cannot result in dismissal of the original petition as a whole.”

Law laid down in the above case was

  • An error of non-joinder of necessary to the party cannot result in dismissal of the original petition for non-joinder of party.
  • The National Commission shall, in the disposal of any complaints or any proceedings before it, have the power of a civil court and can direct the parties to disclose the name and other particulars of treating doctor if not known to the complainant.
  • So far as the law with regard to the non-joinder of necessary party under Code of Civil Procedure, Order 1 Rule 9 and Order 1 Rule 10 of the CPC is concerned, no suit shall fail because of mis-joinder or non-joinder of parties. Even if the concerned doctor and the nursing staff who were looking after the deceased have not been impleaded as opposite parties, it cannot result in dismissal of the original petition as a whole.
  • Since the burden is on the hospital to prove not guilty, they can discharge the same by producing the treating doctor of the patient in defence to substantiate their allegation that there was no negligence.
  • If the hospital fails to discharge their duties through their doctors being employed on job basis or employed on contract basis, it is the hospital which has to justify and by not impleading a particular doctor will not absolve the hospital of their responsibilities.

Hence, we find that the Supreme court in both the situations whether in case of  non-joinder or misjoinder holds that Commissions must adjudicate the matter on merits and has freedom of choice to add or delete the unessential party from the array of parties but cannot refuse justice to parties.

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Plastic Straw Ban On: Fight against Pollution

Plastic Straw Ban On: Fight against Pollution

by | Aug 14, 2022 | Editorial

Plastic Straw Ban On: Fight against Pollution

No Plastic

The Central Government has banned 19 single-use plastic items from July 1, including straws. This ban has led to companies including Dabur India Ltd. and Parle Agro Pvt, racing to replace them with imported paper versions.

Of the 380 million tons of plastic produced each year, about half is for single-use items like packaging, cutlery and straws. At least 14 million tons of plastic gets swept into the oceans each year. In India, around 88,000 companies produce single-use plastic products and employ approximately 1 million people.

Plastic straws have become a prime target for many governments because for most people they are unnecessary. In India, like in many other countries, they have become very common. Even part of the packaging for a drink, such as a small beverage box, it requires a straw to puncture the container. As a result, many companies are seeking substitutes rather than remodelling the boxes.

With the ban coming into effect, FMCG Dabur, which sells juices under the Real brand, switched to imported paper straws and began attaching them to its low-cost Real juice packs in June. The Indian government also plans to extend the single-use plastic ban to include thicker plastic bags by the end of the year.

This ban has however brought about protests from many beverage companies. They have urged the government to extend the deadline to implement the ban on plastic straws by six months. Vendors also say this sudden change has created a shortage and some stocks of soft drinks boxes have run out.

However, the government is of the opinion that the industry has had time to prepare for the change. But the challenge for industry to meet the deadline has been complicated by the lack of domestic alternatives and the pandemic, which had badly snarled the supply chains, hence increasing competition among global buyers.

I hope you have loved reading about this topic, which indeed is a commendable step in our country’s fight against pollution. In the meantime, keep reading the articles we have brought you this month. We have FSSAI CEO’S article on Eat Right Challenge, a discussion on investment for your child’s future, Multi Sourced Edible Oil (MSEO) and many more. Do share your thoughts at info@consumer-voice.org.

Until then, happy reading!

Pallabi Boruah

Editor

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14 Investment Options for Your Child’s Better Future

14 Investment Options for Your Child’s Better Future

by | Aug 14, 2022 | Banking & Finance, Insurance

14 Investment Options for Your Child’s Better Future

ESOP
Parents want their children to be happy. They want them to be healthy. They want them to be successful in their life and have everything they desire. These desires are directly or indirectly connected to one thing- money. Today, we will tell you about that financial planning, by which you can achieve many goals for your children. To be honest, planning for your children’s financial future is not much different from long-term goals like buying a house or planning for retirement. Here we will tell you about this process.

                                                                                                                                  Subas Tiwari

Public Provident Fund (PPF)

The PPF account or Public Provident Fund scheme is one of the most popular long-term saving-cum-investment products, mainly due to its combination of safety, returns and tax savings. The PPF was first offered to the public in the year 1968 by the Finance Ministry’s National Savings Institute.  Since then it has emerged as a powerful tool to create long-term wealth for investors. Investors use the PPF as a tool to build a corpus for their retirement by putting aside sums of money regularly, over long periods of time (PPF has a 15-year maturity, and the facility to extend the tenure). With its attractive interest rates and tax benefits, the PPF is a big favorite with a small saver.

Why is the PPF so popular?

The PPF is popular because it is one of the safest investment products. i.e., the government of India guarantees your investments in the fund. The interest rate is set by the government every quarter. PPF scores over many other investment options mainly because your investment is tax exempt under section 80C of the Income Tax Act (ITA) and the returns from PPF are also not taxable.

Features of PPF accounts

  • You can invest a minimum of Rs. 500 and a maximum of Rs. 1, 50,000 in a financial year.
  • A PPF has a minimum tenure of 15 years. You can extend it in blocks of 5 years if you wish.
  • Any Indian citizen can open a PPF account.
  • You can take a loan on your PPF account between the 3rd and 5th year and make partial withdrawals after the 7th year for emergencies only.
  • You can open a PPF account with just Rs. 100 with any recognized You can make deposits every month or in a lump sum through cash, cheque, DD or online transfer.
  • The PPF accounts cannot be held jointly, though you can make a nomination.
  • You must compulsorily make a minimum deposit of Rs. 500 every year.
  • The government of India’s guarantee and unmatched tax benefits make a PPF account one of the safest, attractive and popular long-term investments available.

 Sukanya Samriddhi Yojana (SSY)

The SSY plan is specially designed to encourage you to save for your daughter. An SSY account can be opened any time after the birth of your daughter till she turns 10. Some features of the Sukanya Samriddhi Yojana are:
  • The account is opened in the name of the girl by her parents/legal guardians.
  • Multiple accounts for the same girl are prohibited.
  • The interest rate for SSY is 6.9% p.a. but is subject to change.
  • A family can have only two SSY accounts, which means one for each daughter. If the firstborns are twins/triplets, no additional account can be opened if the second birth results in a girl child. If the first birth results in triplets (girls) or second birth results in twin girls, then three accounts can be opened by the family.
  • The minimum investment amount is Rs. 1000; the maximum amount is Rs. 1, 50,000 annually.
  • The SSY account matures when the girl turns 21.
  • SSY scheme has the EEE (exempt, exempt, exempt) tax feature under Section 80C and offers risk-free fixed returns. EEE feature means that the initial investment is eligible for a tax deduction, returns are not taxed, and the maturity amount is also not taxed.

Post Office Term Deposit (POTD)

Another valuable option for your girl’s future planning is the Post Office Term Deposit. This post office saving scheme allows you to open an account in post offices across the country. The features are:
  • The lock-in period for the scheme is 5 years.
  • POTD can be transferred anywhere within the country.
  • Depending on the tenure you choose, a POTD offers interest between 5.5% and 6.7%. The rates are subject to change.
  • POTD can be opened for your child who is above 10 years.
  • The minimum deposit amount is Rs 1,000; there is no maximum limit.
  • Interest earned on this scheme is added to your total annual income in the year of receipt and is taxed as per the tax rate applicable to your slab. However, POTD with a 5-yr tenure is eligible for tax benefits under Section 80C of the Income Tax Act.

Post Office Recurring Deposit (PORD)

One of the post office savings schemes that allow saving small amounts every month is the PORD. You can save as little as Rs. 100 per month. Some features of the scheme are:
  • The interest rate is subject to change from time to time. Currently, a 5-yr PORD offers interest at 5.8% p.a. compounded quarterly.
  • The post office recurring deposit scheme has a medium-term length of 5 years and can be extended after that.
  • It can be opened for your daughter/s above the age of ten with you as the guardian.
  • The PORD scheme is a good option if you are looking at a disciplined way of investment. It is a risk-free investment backed by the government.

National Savings Certificate (NSC)

NSC is another popular post office savings scheme. Some of its features are:
  • Tenure is 5 years.
  • The minimum deposit is Rs. 1,000 with no maximum limit.
  • Currently, interest is paid at 5.9% p.a., which is subject to change with time.
  • Tax benefits under Section 80C, risk-free returns, and transferability are the chief advantages of NSCs.

Children Gift Mutual Fund

Designed for accumulating a sizable corpus for milestones in your daughter’s life, children’s mutual funds offer many advantages. The features are listed below:
  • Children’s Gift Funds are hybrid or balanced funds that invest in a combination of equity and debt instruments.
  • The funds are locked in till your child turns 18.
  • Children funds create long-term appreciations and allow you to invest in a combination of debt instruments and equity stocks as per your choice.

Equity Mutual Funds

Everybody often goes gung-ho with equity mutual funds to generate wealth for children. However, this has some risks. The problem is one is not sure at the time of redemption or when your child needs the money, how the markets would be. For example, if you want to redeem all your units in 2030 to meet a child’s need, you are not sure if the markets would be buoyant at that time. However, many equity mutual funds have beaten returns from even bank deposits and have given sizeable returns. So, if you are a long term investor, these tend to give you returns like no other. If you are planning to save money for your children’s education or other such plans, look no further then equity mutual funds. The income distributed by equity mutual funds would now be subject to tax, so your overall returns could reduce.  So, one as to be really careful before choosing equity mutual funds.  Be warned that these are risky and there is no certainty that at the time you want to redeem the markets would be high.

Debt Mutual Funds

Some debt mutual funds offer better returns than bank deposits. They are also more tax efficient than bank deposits, which makes them a better choice. However, you need to opt for the safe child plans more than anything else. Go for them if you are planning a very long term investment, given the fact that they give better returns in the more long term. Again, you may need some professional advice here, given the fact that some of these schemes could be a little risky. Go for debt mutual funds that are heavily tilted towards AAA securities. This would provide you some respite in case markets fall. Gilt edged funds, which invest most of the money in government security may also be good a bet.  Returns from debt mutual funds would largely be in line with interest rates in the economy, which are now offering between 7.5 to 8 per cent.

Systematic Investment Plan (SIP)

A systematic investment plan offers you an option to invest the desired amount every month in a mutual fund of your choice to save for your child’s future. The features of a SIP are:
  • Each month a predefined amount is deducted from your account towards the investment.
  • You can invest in different SIPs simultaneously.
  • Can start with as lows as Rs 500 per month.
  • Depending on your goals, you could invest in equity, debt, or mixed funds.
  • SIPs offer advantages like the power of compounding, and rupee cost averaging and better returns in the long run when compared to a recurring deposit.

Gold ETFs

Gold has been traditionally a preferred choice for investing for girls. In current times, instead of investing in physical gold, you can invest in gold ETFs.
  • Gold ETF, just like a mutual fund, can be bought online.
  • One gold ETF unit is equal to one gram of gold.
  • Gold ETFs are open-ended; you can enter and exit as per your choice.
  • Unlike investing in physical gold, investing in Gold ETF does not come with safety and storage hassles. You can invest small amounts too in Gold ETFs. They help in diversifying your portfolio.

Unit Linked Insurance Plans (ULIP)

ULIPs combine life insurance with investment. A part of the premium paid goes towards insurance; the remaining is invested in equity. Child ULIPs offer triple benefits
  • If the parent dies, the family receives a regular monthly payout for paying the child’s fee. For all you parents who have ambitious young children with stars in their eyes, here are a few options that can help you save for their bright future.
  • They also receive death benefits for meeting daily expenses.
  • The insurer pays future premiums.
  • Continuity in investment when the parent is not there is the main advantage of this option.

Money Back Policy

As the name suggests, a money back policy is a policy which gives money back at regular intervals. This money back is paid during the plan tenure and is a percentage of the Sum Assured. Money back payouts are called Survival Benefits. These benefits are paid during the plan tenure and on maturity, the remaining Sum Assured is paid along with vested bonuses. However, if the insured dies during the plan tenure, the full Sum Assured is paid irrespective of the Survival Benefits already paid. This is what makes the plan unique. Some of the salient features of the Money Back Policy are:
  • The Survival Benefits are calculated as a percentage of the sum assured.
  • Survival Benefits are paid at regular intervals during the plan tenure. There is a fixed interval when the benefits would be paid. Every plan has a different payout structure. Similarly, the percentage of Sum Assured paid as Survival Benefits is also not fixed and varies between different plans.
  • If the plan matures, the remaining portion of the Sum Assured (actual Sum Assured less the Survival Benefits already paid) is paid as maturity benefit. However, in case of death, the entire Sum Assured is paid irrespective of the money-back benefits already paid.
  • Money back plans usually come as participating plans where bonuses are added. The accrued bonus is then paid on maturity or on death.
  • Riders are also available under many money back plans. Rider benefits are paid as a lump sum only when the contingency covered by the rider occurs during the plan tenure.

Fixed Deposit

Fixed deposits are the vanilla ice cream of the investment world. You can open an FD for your child in any bank or NBFC. The features of FDs are:
  • FD investment can be started with just Rs 1,000.
  • Generally, the term varies from a few months to 10 years.
  • Flexibility to get interest payout at maturity, monthly, quarterly, and annually.
  • Benefits of investing in FDs include flexibility, safety, and liquidity.

Kisan Vikas Patra

Kisan Vikas Patra, popularly known as KVP, is a small savings scheme that is offered in the form of certificates in Indian Post Offices. This savings plan is a fixed-rate savings plan that aims to increase your money once a set length of time has passed that is during 124 months (10 years and 4 months). The account can be opened by any adult or on behalf of a minor. Moreover, a minor who is above the age of 10 can have an account in his own name. Three individuals together can open a joint account too.

Interest rate

Interest rate for the quarter ending June 30, 2022 is 6.9 % which is compounded annually.

How much investment can be made?

There is no upper limit and the minimum is Rs. 1000 in multiples of Rs. 100. One can open any number of accounts.

KVP can be pledged and transferred

KVP can be pledged or transferred as security by submitting a regulated application form, along with a pledgee’s acceptance letter.

Transfer/pledging can be made to the following authorities.

  • The President of India/Governor of the State.
  • RBI/Scheduled Bank/Co-operative Society/Co-operative Bank.
  • Corporation (public/private)/Govt. Company/Local Authority.
  • Housing finance company.

KVP premature closure

KVP may be closed before maturity at any time if the following requirements are met: –
  • When a single account, or any or all of the account holders in a joint account, passes away.
  • On forfeiture by a pledgee being a Gazette officer.
  • When ordered by court.
  • After 2 years and 6 months from the date of deposit.
  • Transfer of account from one person to another person

Tax benefits

The scheme is not eligible for tax deductions under Section 80C of the Internal Revenue Code, and the returns are fully taxable. Nonetheless, withdrawals after the maturity period are exempt from TDS (Tax Deducted at Source). To transfer from one person to another person, the following are the criteria according to Post Office:
  1. On the death of account holder to nominee/legal heirs.
  2. On the death of account holder to joint holder(s).
  • On order by the court.
On pledging of account to the specified authority.

Tips you must consider while making an investment for your children

  1. The early you start with savings and investments, the more time you will have to build a corpus for them. Your savings will also get sufficient time to grow. The emergency corpus is important for any medical and non-medical emergency. It should have funds equal to nine to one-year household expenses. This fund will be very useful in case of job loss, medical emergencies. You can rely on this fund without disturbing your other investments.
  2. During this whole process, discipline is very important. You need to have patience while investing for long-term goals. A sustained approach and meticulous planning are very important while building a corpus. In order to attain consistency with your investment, you can opt for a systematic investment plan (SIP).
  3. Open savings account for your kids, to teach them the basics of banking and money. Once he or she turns 10 or above, your child can operate his or her account, explain to them the basics of bank deposits and withdrawals.
  4. Besides taking care of your child’s material comfort, invest in their health and wellbeing. It may be noted that the immunity of children is lower as compared to adults and they are more susceptible to diseases. There are some health insurance especially designed for kids which offers a host of benefits such as lower premiums, tax benefits, discounts, add-on covers, etc. They also offer a number of plans for kids, covering every stage of their growth, with tailor-made plans for a particular stage.
  5. Always review your investment portfolio from time to time. And if some fund is not performing well, do not hesitate to replace it with a good performing fund. Ideally, rebalance your portfolio every six to nine months. Time to time, our needs and requirements change and keeping that in mind rejig your portfolio. 

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Chocolates: Are they Good or Bad for Health?

Chocolates: Are they Good or Bad for Health?

by | Aug 13, 2022 | Guest Column

Chocolates: Are they Good or Bad for Health?

Chocolates

Chocolates are either critiqued to have negative impact on health or are portrayed by the marketers to have health benefits especially dark chocolates. The truth is that the composition of every chocolate is different from the other one, and this along with the amount of chocolate plays a role in determining if it’s healthy for you or not. In this article, we attempt to list out some factors to understand about this in detail.

                                                                                                                                Richa Pande

Chocolate is made from cacao beans also known as cocoa beans. The beans are roasted and pressed to release the fat known as Theobroma oil or cocoa butter. The solids are separated and made into cocoa powder. Both cocoa butter and cocoa powder/ nibs are known to have a range of health benefits. For instance, cocoa butter is rich in vitamin E, polyphenols, and a combination of saturated and unsaturated fatty acids. Cocoa powder too is rich in polyphenols which have strong antioxidant and anti-inflammatory effects. Flavanols in cocoa powder have been proven to improve blood flow to brain tissues, and thus could be helpful prevention of age-related brain degeneration, such as in Alzheimer’s disease. Evidence also suggest that eating flavanol-rich dark chocolate improves insulin sensitivity, has cancer protective impacts, and is good for skin health. Consuming chocolate have also been interlinked with release of  endorphins in our body which are help relieve pain, reduce stress and improve your sense of well-being.

These two cocoa components (both cocoa butter and cocoa nibs/powder) are mixed with several other ingredients and different chocolate formulation are prepared. These are some of the common types available in the market-

  • Dark Chocolates- Dark chocolate is made combining cocoa liquor, cocoa butter and sugar. Emulsifier is added to bind all products. Sometimes Vanilla or any other essence is added to impart it a distinct flavour. The percentage of Cocoa in dark chocolates can range from 50-90%. They are generally bittersweet as the percentage of sugar added is very less.
  • Milk Chocolates– Milk chocolates are the most popular variation of chocolates available in the market. They contain only 10-40% cocoa along with sugar and milk. They are much sweeter in taste as compared to dark chocolates as the content of cocoa is less and sugar is high.
  • White Chocolates- They do not contain cocoa powder but have cocoa butter in them. Technically, at least 20% cocoa butter is a must for white chocolates. Milk and milk solids are also an essential ingredient of milk chocolates. Sometimes, Vanilla essence is also added to them to enhance the flavour. It is sweeter than other chocolates, and mostly has high sugar content.
  • Unsweetened chocolates- They have no added sugar in them. If you want to consume chocolate for its benefits, this is probably the best choice. But it is bitter in taste, and it is used majorly for baking purpose.
  • Sugar Free Chocolates- These chocolates are made from cocoa but instead of sugar, Maltitol is added to these chocolates. Maltitol is sugar alcohol which is caloric in nature but has less calories than sugar. It is known to have laxative properties, and thus it must be taken in limited amounts. Its glycaemic index is 35, which is much lower than that of regular table sugar, which is 65.

Nutrition Composition of different type of Chocolates

Per 100 g Calories Total Fats Saturated fats Added Sugar Protein Ingredients

Brand 1

Milk Chocolate

 545 Kcal 31.4 19 g 43 g 8.2 g Sugar, Cocoa Butter, Milk Solids, Cocoa Solids, Permitted Emulsifiers (E322, E476). Contains Added Flavours (Artificial Flavouring Substances – Vanilla, Cocoa And Condensed Milk).

Brand 2

Milk Chocolate

 530kcal 30.5g 18.5g 56.0g 7.5g Sugar, Milk Solids (22%), Cocoa Butter, Cocoa Solids, Emulsifiers (442, 476). CONTAINS ADDED FLAVOUR (NATURAL, NATURE IDENTICAL AND ARTIFICIAL (ETHYL VANILLIN) FLAVOURING SUBSTANCES). Allergen Information: Contains Milk, manufactured on equipment that also processes products containing tree nuts and wheat.

Brand 1

Dark Chocolate

99 % Cocoa

 587 Kcal 42.3 26 g 0g 15.1 Cocoa Solids, Permitted Emulsifiers (E322, E476)

Brand 2 Dark Chocolate

55 % Cocoa

 557 Kcal 33.7 g 20g 43g 6g Sugar, Cocoa Solids, Cocoa Butter, Permitted Emulsifiers (E322, E476). Contains Added Flavours (Artificial Flavouring Substances – Cocoa And Vanilla).

Brand 1 Sugar free Chocolate

(55% COCOA)

 475 Kcal 33.7 g 20g 0g 6g Maltitol, Cocoa Solids, Cocoa Butter, Permitted Emulsifiers (E322, E476). Contains Added Flavours (Artificial Flavouring Substances – Cocoa And Vanilla).

It is important that most of the negative impacts attributed to chocolate is because of its high sugar content such as acne, diabetes, obesity, hypercholesterolemia, heart disease, etc. Additionally, chocolates decrease oesophageal sphincter pressure which causes acid reflux and heartburn. It is always recommended to pick a chocolate that has low sugar content, and high amounts of cocoa in it. Always pick chocolates after thoroughly going through the ingredient list and the nutritive values.

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Employees Stock Option Plan (ESOP)

Employees Stock Option Plan (ESOP)

by | Aug 13, 2022 | Banking & Finance

Employees Stock Option Plan (ESOP)

ESOP

Many companies give an opportunity to their employees, especially senior staff, to buy their shares under a special procedure. This process is called Employees Stock Option Plan (ESOP). Under this process, the company in a way gives its employees the right to buy their shares. The employee can buy shares of the company by exercising the right granted under this process, though there is no compulsion.

Subas Tiwari

Why is ESOP Given?

The right acquired under ESOP is called Stock Options. Under this, the staff can get the company’s shares for free or at a concessional rate. Startup companies use ESOP more. The reason for this is that while starting a business, they do not have the money to pay more salaries to their employees. Therefore, they give stock options to their staff in the form of compensation packages. Second, the purpose of ESOP is also to keep the employees connected with the company. In such a situation, the company gives such stock option to its employees, which can be used to buy shares in the future.

What is the Process of Stock Options?

If the company gives an opportunity to the employees to buy shares in the future under the stock option, then the date on which the employee becomes entitled to buy the shares is called the vesting date. For example, suppose a company gives 1000 options to its employees on March 31, 2022. Under this, the employee exercises his right to buy shares in several stages. On completion of one year of service, he can exercise the 20% option. At the end of the second year, he can exercise the 30% option. The rest of the option can be exercised by him on completion of the third year.

How Does the Company Benefit from ESOP?

Generally, in ESOP, the company’s share price is pre-determined. This is much less than the market value of the stock. In this way, by buying shares at a lower price, the employee becomes a shareholder of the company. This maintains his loyalty to the company.

He also becomes a partner in the growth of the company. This is beneficial for the company, as the growth of a company depends on the productivity of its employees. Infosys was the first IT Company in India to issue ESOP to its employees. They gave stock options to all their employees, big or small. Many of their small employees have also become millionaires due to this.

Understanding the Vesting Date and Grant Price

Under the ESOP schemes, the stock option is free when it is given to an employee. The terms and conditions on which employee can exercise his rights are spelt in the ESOP scheme. The option given to the employee can be exercised after a certain lock in period, which is generally more than one year.

The right to exercise the option may get vested in the employee in the next future date/s. The dates on which the employee becomes entitled to exercise the right to acquire the shares is called as “vesting date.” The rights may vest fully or partially over the vesting period. For example, an employee is given 1000 options on 31st March, 2016 which can be exercised in phases like 20% on completion of one year, 30% on completion of second year and the balance on completion of the third year from the date of such grant. So, in the instant case, the vesting dates for 200 options is 1st April, 2017, for 300 shares it is 31st March 2018, and for balance 500 shares it is 31st March 2019. The plan may stipulate same or different grant price or exercise price for such vesting. The grant price or the price at which the employee can buy the share from the company is generally fixed and is generally substantially lower than the prevailing market price of the shares in case the shares are listed.

Since the employee is given just an option without any obligation attached to it, it is not mandatory for the employee to exercise the option. The employee may decide to exercise the option or may decide to let the option lapse in case the prevailing price of the shares is lower than the exercise price. The employee is given a time period during which he has to exercise the option, failing which the vested rights may lapse. The date on which the employees exercise their option to buy the shares is known as ‘exercise date’.

There are no cash outflows or taxation implications when the options are granted as well as when the options are vested in the employee.

When to Exercise Options

It is not necessary for an employee to exercise the option once it vests with him. The employee can exercise the right within the stipulated time period. When the employee should exercise the option is a very important question from the financial and taxation angle as well. Once the employee exercises the option, he has to pay for the shares at the price predetermined and thus causing cash outflow. In case the shares are not listed on a stock exchange, the same cannot be liquidated and thus the money gets locked till the shares get listed or the promoters offer you an exit option. Moreover, there is taxation implication if you delay your exercise date because the holding period for capital gain purpose will start from the exercise date. So, the decision has to be taken after having considered cash flow and taxation implications of such decision.

ESOP and its Tax Implications

Tax implications when exercising the option

The taxation of ESOP has a typical structure. It is taxed in two stages. First stage is when the employee exercises the option to buy the shares at the exercise price. The second stage is when the shares are ultimately sold.

Let us first discuss the first stage. As and when the options under the ESOPs are exercised, the difference between the exercise price and the value of the security is treated as perquisite in the hand of the employee. The employer is required to deduct tax at source on the employee exercising the option, treating the same as perquisite. The value of the shares allotted to the employee shall be the average of market price (average of highest and lowest price) on the date the option is exercised in case the shares are listed on any stock exchange in India. In case the shares are not listed, the fair market value of the same shall be as per the valuation certificate obtained from merchant banker. The certificate of valuation of shares should not be older than 180 days from the date of exercise of the option. Even if the shares are listed outside India, the company will have to obtain the certificate from the Merchant Banker as such shares are treated as unlisted shares for ESOP purposes.

Tax implications when the shares acquired under ESOP are disposed off

Now let us understand the second leg of the taxation of the ESOP shares, i.e. when the employee actually sells the shares. The incidence of sale will attract capital gains tax. The gains can be either long term or short term, depending on the period for which the employee has held the shares. The holding period requirement is different for listed shares as well as for unlisted shares. Listed shares shall become long term if held for more than one year. Unlisted shares become long term after three years. The period of three years has been proposed to be reduced to two years in the current budget.

The rate at which the short term or long term gains shall be taxed will depend on whether the shares have been traded on the platform of stock exchange on which the Security Transaction Tax has been paid. In case shares are traded through a broker, the long term capital gains are taxed under Section 112A at 10% over Rs 1 lakh of capital gains. However, such short-term capital gains shall be taxed at a flat rate of 15% under Section 111A.

However, in case the shares are not sold through the platform of the stock exchange, the long term capital gains shall be calculated after applying the indexation to the original cost of purchase. Indexed gains so calculated shall be taxed at a flat rate of 20% plus applicable surcharge and education cess. You have the option to pay tax @ 10% on capital gains without applying indexation benefits. Such short-term capital gains are be treated like any other income and added to other income and taxed at the slab rate applicable.

For the purpose of computing the capital gains, the fair market value as on the date of exercise is taken into account for the purpose of perquisites of the options. It is treated as the cost of acquisition and not the price actually paid by the employee.

The tax implications would be different in case the ESOPs are allotted to a person who is not an employee either by the holding or subsidiary company or the any non-executive director or any other eligible person. The question of it being taxed as perquisite does not arise when the option is exercised by such persons. However, the capital gains tax will have to be paid as and when such shares are sold.

Taxation of Foreign ESOPs

In case the ESOPs are granted by foreign companies to the Indian resident, the same would be taxable in India. Moreover, the taxation provisions of the country of the company which grants the option as well as the double taxation avoidance agreement shall have to be looked into for understanding the exact tax implication. Moreover, concessional tax on long term capital gains under Section 112A or concessional rate of 15% tax on short term capital gain in respect of such shares would not be available as these shares would not be sold on Indian stock exchanges as these are not likely to be listed in India.

Sourced from : Financial Express

When should you sell the Shares?

The decision to sell the shares acquired under ESOP is like any other investment decision. You need to take into account the capital gains implication as well as the need for liquidity for arriving at the decision. Moreover, whether and when to sell will also depend on the future prospects of the company. It may also happen that the shares which you have acquired under ESOP are not listed. So, in such a situation, you cannot sell the shares until the shares are listed or the promoters offer you an exit, which may not be at very attractive terms. In such a situation, it will make sense for you to wait a little till the shares are listed on a stock exchange.

Should you accept ESOPs in lieu of cash as part of salary?

An old saying goes, “One bird in hand is better than two in bush.” Common sense would demand that one should opt for cash in lieu of ESOPs, but here such a comparison may not be so easy to make because generally the projected price of shares under the ESOP plan may be significantly higher than the cash component being offered. Moreover, the option to choose cash in lieu of the ESOP may not always be available.

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