This article is written by Kapil Nikam, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho.com. Here he discusses “Major Difference Between Representation and Warranties”.
Representations and warranties are important clauses in the contract. These terms are using interchangeably. It is important to analyze some provisions relating to differences between representations and warranties. Before analyzing legal provisions concerning representations and warranties we will go through one contract to understand the difference between representations and warranties and thereafter we will see legal scheme under the Indian law regarding representations and warranties. For example, we are looking at Major differences between representation and warranties in a contract; effect of non – compliance ” the contractor represents and warrants that..” due to the aforesaid clause most people feel that representations and warranties are similar. However, there are cardinal differences between representations and warranties. We will discuss in present article major differences between representations and warranties.
Most of the contracts representations and warranties clauses start with a sentence stating that “The Contractor Represents and warrants that……”. For example, we are going to analyze standard representation and warranties clause in National Highway Authorities of India’s Concession Agreement, this Concession Agreement which is available on NHAIs website readers can glance it from the said website. We are reproducing representation and warranties clauses as under:
Representations and Warranties of Concessionaire:
- It is duly organized and validly existing under the laws of India.
- It has the full power of and authority to execute, deliver and perform its obligations under this Agreement and carry out the transactions contemplated hereby
- It has financial standing and capacity to undertake the Project in accordance with the terms of the Agreement.
- This agreement constitutes it’s legal, valid and binding obligation, enforceable against it in accordance with the terms hereof, and its obligations under this Agreement will be legally valid, binding and enforceable obligations against it in accordance with the terms hereof
- It is subject to the laws of India, and hereby expressly and irrevocably waives any immunity in any jurisdiction in respect of this Agreement or matters arising thereunder including any obligation, liability or responsibility,
- The information furnished in the Bid and as updated on ur before the date of this Agreement is true and accurate in all respects as on the date of this Agreement;
- There are no actions, suits or investigations pending or, to its knowledge threatened against it at law or in equity before any court
- It shall at no time undertake or permit any change in ownership except in accordance with the provisions of clause 5.3 and that the Consortium not less than 51 per cent of its issued and paid-up Equity as on the date of this Agreement and that each member of the Consortium whose technical and financial capacity was evaluated for or qualifications and shortlisting in respond to the Request for Qualification shall hold at least 26 per cent of Equity during the Construction Period and two years thereafter along with its associates.
Provided further that any such requests made under Clause 7.1 (k) and/or Art 48, at the Option of the Authority, may be required to be accompanied by a suitable no objection letter from lenders.
Aforesaid are the representations and warranties clause, in the said clause, all representations and warranties are together therefore, the layman may quite confused that there is no difference between representation and warranties. However, the legal position is different representations and warranties are different. We will see the difference between representation and warranties.
If we see the representation and warranties of NHAI point no. 1, 2, 4 and 5 are similar to the Concessionaires representation and warranties as mentioned hereinabove. However, there are separate representations and warranties such as NHAI represents that they shall have 50 per cent Right of Way available on the Appointed Date. No litigations are pending against them which are materially affect on the Project, these representations are very crucial on the part of Concessionaire since without the availability of Right of Way Concessionaire can not smoothly start the construction activities on the Project. In the event of misrepresentation, the Concessionaire can seek a legal remedy before the appropriate forum.
Difference between Representations and Warranties:
Representations are the assertion of fact true on the date of execution of the contract, it is for inducement for another party to enter into contracts. A warranty is the promise of indemnity if representation is false it is inaccurate and if the warranty is false it is breached. Representation and warranties have different meanings and different contexts but in some agreements, remedies are the same for both. In Indian Contract Act representation has not been defined however, misrepresentations have been explained under S. 18 of the Indian Contract Act.
Earlier there are very few case laws so that aggrieved party could not get damages based on misrepresentation. When anyone positively asserts something is true and based on said positive assertion other parties make a contract, positive assertion means a certain statement of fact and another party belives on the said statement of fact, sometimes misrepresentation be made, innocently fraudulently or carelessly also. Misrepresentation may be implied also or sometimes depend upon the conduct of the party. The effect of representation made before the contract is very crucial in every contract.
In India, the law pertaining to representation and misrepresentation has not developed properly. However, in case of breach of representations suffering party can sue for damages under the provisions of Section 19 of the Indian Contract Act. Recently, there are some judgments wherein the aggrieved party got remedies under the provisions of Section 19 of the Indian Contract Act. However, it is subject to evidence adduced before the Arbitration Tribunal or Court.
Warranty is defined in the Sales of Goods Act as stipulation collateral to the main purpose of the contract, the breach of which gives rise to claim for damages but not right to reject the goods and treat the contract as repudiated. The Hon’ble Madras High Court in the matter of All India General Insurance Company Vs S.P. Maheshwari stated that warranties are representation which is made the basis of the contract whereas representation is not strictly speaking a part of the contract or the essence of it, but rather something preliminary and like an inducement to it.
Recently, the Hon’ble Delhi High Court in the matter of National Highway Authority of India Vs Pune Solapur Road Development Corporation Ltd (O.M.P. (COMM) 128/2018 & I.A. No. 3857/2018 confirmed the award passed by the Arbitral Tribunal in favour of the Respondent, the Arbitral Tribunal on relying on the breach of representations and warranties clause give damages to the Respondent holding that the Petitioner had represented and warranted that it has full power and authority to deliver and perform its obligations under the Agreement and carry out the transaction contemplated therein. Under Clause 7.2 (g) the Petitioner had warranted that it had complied with the applicable laws in all material aspects. Similarly, under clause 7. 2(j) it had warranted that the Petitioner has a good and valid right to the site and has power and authority to grant a license in respect thereof to the Concessionaire. In huge Public-Private Partnership Project representation clauses need to draft carefully in view of its financial implication. Also, representation and warranties clauses in the agreement such as Share Purchase Agreement, Loan Agreements, Conveyance Deed, agreement to sale, leases relating to commercial properties are very crucial.
We have in detail discussed the representation clauses and warranties also. Now, we will discuss warranties in the Indian context. Warranties are nothing but it is the stipulation, collateral to the main purpose of the contract and the breach of which gives right to claim of damages but not to right to reject the good. However, this definition in terms of Sales of Good Act, 1930. In merges transactions, the representations and warranties clauses are very crucial.
In every merger transaction, buyer and seller want specific representation and warranties to protect their interest. The buyer wants general representation and warranties and the seller wants to dilute the same to avoid potential litigation. The role of legal consultant for drafting and vetting representation and warranties clauses are very important and one needs to carefully draft said clauses. Due diligence exercise during the acquisition transactions is very important to draft representation and warranties carefully.
In this article, we have seen the meaning of representation and warranties, we have also seen what is the difference between representation and warranties. Though, the representation and warranties have not been defined in the Indian Contract Act. However, over the period jurisprudence pertaining to representation and warranties have been evolved. The term representation is absent in the Indian Contract Act but the misrepresentation has been defined and discussed in various case laws. To avail remedy, one needs to understand the difference between representation and warranties. Representation and warranties are protective clauses that are very useful for both parties to culminate in any type of transaction. This article is brief about the differences between representation and warranties, for better understanding, it is advisable to read legal provisions carefully.
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