Contract management : what you need to know

By

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April 23, 2022

This article is written by Michael Shriney from the Sathyabama Institute of Science and Technology. This article defines contract management, its components, how it works, its advantages, how to become a contract manager, and the distinction between contract management and contract administration.

It has been published by Rachit Garg.

Table of Contents

Introduction

All sorts of businesses involved in the commercial industry require contract management. Contract management is used for managing the legal and financial aspects of contracts. It is a contract process that includes checking the financial aspects of the contract, implementing the agreement, enforcing the contract, and adding terms and conditions. Contract management is in charge of all contracts made throughout any form of business. They manage and direct almost every life span of contracts that engage in any type of business that leads to the company’s future or dissolution. It gives an effective organization with a strong structure and a long-term lifespan. The concept of contract management is enumerated in this article in a broad sense.

What is contract management

In commercial premises, contract management is critical. Contract management pertains to the control of business operations, the execution of initiatives, and the analysis of the company’s performance in order to expand business with minimal risk. All contracts that are part of the business, as well as day-to-day contracts, are handled by contract management. It creates legal documents to expand its client, vendor, or partnership ties. Their responsibilities include not only filling out paperwork but also engaging in all activities related to the contract, such as executing the contract, understanding it, dealing with any issues that arise from it, making any necessary changes, and terminating the contract. Contract management encompasses these responsibilities.

The contract manager is in charge of the contract management. He or she must be aware of the legal knowledge that is necessary for drafting a contract between two parties for their business to proceed. They even help in the stimulation of financial crises and the monitoring of financial stability in the aspect of the contract. They carry out a contract by negotiating the terms of the agreement between the parties, making changes, and finally executing the agreement with the consent of both parties. These contracts have a long-term interval that can be used to sue if any party violates the terms and conditions mentioned in the contract.

Phases of contract management

Contract management is divided into three phases: pre-execution, execution, and post-execution.

Pre-execution phase

Before the parties sign a contract, the pre-execution phase of contract management occurs. This comprises the request and the recommendation, in which the interested party requests a contract and gathers all of the details of goods and services required to create a contract, including delivery dates and all terms and conditions are to be mentioned. It also involves submitting a third-party agreement for evaluation. Collaboration and agreement negotiation is typically the longest and most expensive phase of the pre-execution process. The initial draft is reviewed by internal parties, and once accepted, it is sent to third-party reviewers. If necessary, modifications are made, and a final draft of the contract is authorized. It is ready to continue to the execution phase.

Execution phase

In order for a contract to be legally completed, both parties’ authorized representatives or signatories must physically or electronically sign the deal. This might happen in person or in a series. The signed contract must then be finalized and made accessible to appropriate departments, informing them of all commitments and duties that must be satisfied.

Post-execution phase

Contract management does not come to an end after the contract is signed. The contract manager must conduct numerous measures following the execution of the contract, including contract storage, reporting, renewal, or termination. The contract’s ultimate disposition occurs when all of the requirements and provisions have been met and the contract has reached its expiration date. The contract can be terminated or renewed and newly altered at this stage. Contract termination must be achieved and securely kept to avoid unwanted access and data theft.

Essentials of contract management

Parties: To begin a contract, there must be parties, which is a basic requirement for a contract. Customers, employees, employers, business partners, clients, and other persons involved in day-to-day business contracts can be included. They will establish a positive relationship with themselves by enacting a contract.
Subject matter: To begin drafting, the subject matter must be determined on what basis the contract is made. Before the contract is written, the parties must discuss the contract they are entering into and the issues they are dealing with.
Drafting of contract: The contract managers with legal knowledge, will draft a contract based on the subject matter that has been addressed by the parties. They address every part of the contract, including all terms and conditions as well as contract termination.
Negotiation: Following the contract’s drafting, it must be negotiated with the parties involved. In other words, the parties will analyze the agreements. They discuss the contract and decide on whether to accept it or make adjustments to it. If there is a change, the manager makes the necessary changes and resubmits the contract to them for approval.
Signature: Those who both sign the contract after obtaining the parties’ consent. It is considered a legal contract. They both begin the contract by agreeing to all of the terms and establishing a strong working connection.
Execution of a contract: After the parties’ consent, the contract is executed. In the course of business, the contract begins to play a role. The contract manager oversees that the contract is prevailing in a corrective manner by executing the contract. The parties are abiding by the contract to the absolute. If they don’t, contract management is responsible for informing the parties about the problem and directing the firm on the right path.
Renewing: When management forgets or ignores important information that should be included in the contract, the contract can be renewed. The contract will be updated at this time, with the same interested parties in the contract reviewing.
Duration: In business, a long-term contract lasts for a long time. The contract will stay in effect until the contract’s primary goal gets completed, i.e., the contract’s specified goal has been met. The contract’s term ends, and it’s time to part ways.
Termination of contract: Contract termination is also an important part of contract management. The contract can be cancelled for any reason specified in the contract. If one of the parties breaks the contract, or if the parties engage in dishonest or fraudulent behaviour, the contract will be terminated. This criterion must be found and sorted out by contract management.

Stages of contract management

Business objectives and goals must be recognized

In order to form a valid contract, the first and most important step is to recognize the company’s objectives and goals. This will guide in developing expectations for both parties, as well as an effective assessment of how the agreement will be able to achieve the company’s objectives.

Drafting a contract

After the company goals and objectives have been identified, the contract drafting step begins. For the drafting process, all supporting information and documents that are necessary must be needed. If the company holds any or getting help from a standardized template that is updated and complies with all regulatory/legal and organizational criteria. If there is any uncertainty in the writing, the business may suffer a loss.

Negotiating the contract with the involved parties

When the contract has been prepared, the stage of negotiating the contract with the involved parties begins. This process ensures that the parties’ expectations are satisfied, that the price structure is appropriate, that the terms and conditions with rights and obligations are properly specified, warranty provisions, renewals, and termination are all complied with, and so on. This step assures that all suggested changes in the negotiating process are executed and monitored. The negotiating process should be designed to include all contract parties, allowing them to interact openly and with mutual understanding. In this process, it has a long-term collaborative partnership for increased performance.

Finalizing and executing the contract

After the negotiating process is done, the contract is revised to include any necessary changes, and the contract is sent to the interested parties for approval. It is necessary for an organization to have a good flow of the approval process for various types of contracts to assure that consent from the parties is required to execute the contract. After the contract has been approved and finalized, all parties must begin executing the deal according to the contract specifications.

Managing contract obligations and audits

The contract management process does not end after the deal is executed. After the contract is executed, the contract management assures that all parties engaged in the deal are complying with the contract and that their performance, timings, and payments are made accurately. This monitoring will verify that the system performs well enough to satisfy the company’s needs. It’s also essential to monitor and audit all contracts on a regular basis in order to assess performance and discover any possible risks. Contract audits on a regular basis will help in the identification and implementation of risk mitigation methods.

Managing contract termination and renewals

As the contract stage approaches its end date, it is important to maintain track of any terminations or renewals. If the contract is not renewed, the firm will suffer losses, as well as long-term relationship development, revenue maximisation possibilities, and so on. It also implies that the company must implement a new procedure to meet the same contract demand.

How does contract management work

Contract management includes processes such as contract preparation, communication, signing, implementation, and modification.

Preparation

In the preparation of contract management, it functions as a beginning point to identify the subject matter on what the parties are entering into to support them, i.e., to select the subject matter for drafting a contract. The contract might be written out or typed up electronically. When written, it saves time, but when electronically written, it is more professional. The contract is being drafted in such a manner that it covers all aspects of that specific subject matter with the permission of the parties, allowing them to protect their partnership safely and securely on business premises.

Communication

After drafting the contract, the subsequent step is to communicate with the company’s partners. If there are any inconsistencies in the contract, the contract’s parties must be able to compare the variations of the contract and modify the modifications. The documentation must be written in accordance with all applicable legal specifications. It must be compared to other documents in order for any adjustments to be made to ensure a smooth flow between the parties following the execution of the contract. The parties must communicate and ensure that all terms and conditions are covered; if not, changes must be made to it.

Signing

Following the final reading, the contract must be signed by the company’s partners. Before signing the deal, the contract must guarantee that all modifications have been made. By signing the contract, professionals provide permission for the contract to enter and begin to work on it. It can be signed in either writing or electronic form, as well as through fax. The signature implies that the parties agree to the requirements and terms of the contract and that no objection or issue can be raised once they sign it. The contract will be completed when the parties’ signatures are obtained; they both enter into a valid contract.

Implementation

Implementation is the process of carrying out a contract after it has been signed. It will include the time span. After the contract is implemented, the contract management monitors and reports to ensure that everything is running effectively and in accordance with the contract.

Modification

Renewing a contract if management has omitted any contract-related information. The modification procedure is used to change or exclude any criteria agreed upon by the parties. Written contracts are difficult to update or renew, but not in the case of electronic contracts, where modifications can be made quickly. It provides new potential for businesses by establishing new contracts.

What are the benefits of contract management

The benefits of contract management are as follows:

Determining organisational goals

Contract management assists in the determination of an organization’s goals, how the company operates, its intentions, expectations, how its goals are reached, and their revenue optimization. It encourages employees to become well-versed in the company’s operations. All contracts are managed by a single contract management team.

Improves techniques

Contract management helps in the transformation of a written contract to electronic procedures by utilizing software and tools to automate the contract process. They improve the techniques in an advanced way.

Identify the procedure

Procedures must be identified before a contract could be formed. The methods vary from one company to another. This helps in the observation of various organizations’ processes.

Allows for partnership

The legal department is responsible for contract management. It allows for effective coordination within the department. To avoid blunders and silly concerns, the department works diligently with legal and business knowledge to form a suitable contract into a full-fledged document. It is important to communicate with the team regularly to avoid future problems.

Standardized contract

A general contract format must be used as the contract template. The contract must be standardized but not in a strict manner. The parties to a contract must be able to understand it easily.

How can one become a contract manager

A legal degree is advantageous for becoming a contract manager. The contract manager must be knowledgeable in both legal and business matters. As a result, a law degree is advantageous for becoming a contract manager. There is no specific procedure for becoming a contract manager; however, if one wishes to work as a contract manager full-time, they must have experience with business contracts. They should make an excellent team with contract managers. Contract management courses are available at some schools. However, in most cases, a bachelor’s or master’s degree in business is sufficient to become a contract manager.

Skills required to become a contract manager

As a contract manager, he or she must be an all-arounder with a broad range of talents who interacts directly with several departments. He or she should have expertise in business, financial, legal, sales, sourcing, and procurement. Individuals with certain characteristics can excel in this position.

Technical skills

A contract manager must have a deep awareness of business and industry issues. Contract managers must be able to immediately enter new industries and gain knowledge of new goods or services during the contract review process. They must completely be in line with the expectations and beliefs of the organization.

Communication skills

The contract manager must be effective at communicating in order to negotiate conditions, lead the parties, and monitor processes. He or she must be influential and motivating. They must be able to communicate with everyone, from sales to executives at all levels. He or she must be able to deliver under high-pressure conditions. A good sense of humour is advantageous in this job.

Attention to detail

A contract should not be read like a story. When a person reads the contract, it must include all significant details in-depth, which must be checked by the contract manager. They must pay close attention, be patient, and completely analyze all legal documents from beginning to end, truly understanding the conditions of the agreement. They must be able to identify errors and undesirable phrases, which is a necessary talent.

Organizational skills

Contract managers are responsible not just for new contracts, but also for the renewal of current contracts. This will result in a high task that will increase year after year. They must discover contracts promptly, prepare ahead of important dates, and keep negotiation and execution operations on track.

Conflict resolution

Contract talks can last for months, if not years. When a huge sum of money is on the line, emotions may cause the best varied interested people to become engaged in the process. Contract managers must be emotionally intelligent as well as analytical and reasonable. They may also encounter internal pressure to complete the deal as soon as possible. They must make quick decisions while blending risk management and market speed.

Risk management

When there is a legal conflict in business, contract managers must go on defence first to defend the company. They must thoroughly understand the company’s risk and ensure that it is appropriately recorded in all legal papers. Whether it is connected to obtaining final permission, negotiating specific needs with the parties involved, or just recognising the seller’s reputation, contract managers must be capable of assessing the risk on behalf of the firm.

What is a contract management software

When it comes to manually handling contracts, contract management software is an electronic solution to the problem. All contract documents may be organised using this software. The software can establish contract signing and renewal on an easy-to-manage electronic calendar, and it can assist in tracking and allocating contract management resources. Integration with an automated contract management tool may save countless man-hours and automate numerous contract-management operations, resulting in increased value for a firm. It simplifies the monitoring of complicated contracts without depending primarily on documents. It may also be utilised, allowing workers in many places to view contracts in a single place.

Who uses a contract management software

This software will be mostly utilised in departments that deal directly with contract drafting, tracking, and signing. This is frequently delegated to the HR department, which is in charge of the associated employee with accounting. Managers who need to accomplish important functions can also be included in the software. Because it integrates with calendars and communication software, HR can employ the software suite’s heavy-lifting components while the remaining helps to bring in managers and staff who are needed for certain aspects of signing or negotiating.

Why is a contract management software important

Choosing contract management software that meets the requirements of an organisation may be a difficult and time-consuming job. In the long run, the software can be extremely effective, efficient, and productive. When contract management software automates the entire lifecycle of an organisation’s contract, the amount of time spent on strategic duties will be considerably reduced, as well the risk of human mistakes. Contract management software would also increase greater efficiency at all stages of contract management, resulting in shorter contract cycles. Contract management software will assist in centralising a repository for contracts in a cloud system while also allowing all relevant stakeholders more comfortable access to important contract information. Thus, locating, tracking, and assessing contracts will be as simple as a few mouse clicks.

Contract management software will also help to reduce contractual risks and increase performance. It will guarantee that all the important stakeholders receive essential alerts on time, particularly when it comes to contract renewals, payments, deadlines, and so on. Contracts are also linked to compliance management. Furthermore, contract management automation powered by artificial intelligence improves data analytics. Selecting contract management software that matches an organization’s needs may be a challenging and time-consuming task. The programme has the potential to be incredibly effective, efficient, and productive in the long term. Predictive capabilities allow organisations to gain important information from a contract management system and estimate costs and revenues.

Benefits of a contract management software

Standardize organisation’s contracts: Contractors can use a contract management software application to select templates from a library and clauses to maintain standard contract content and clauses across the company. Organisations may now put an end to NDAs that are circulated around the firm in six distinct forms.

Make monitoring and tracking contract changes easy: One advantage of this programme is that organisations don’t have to worry about which version they’re using. All text modifications, whether internal or external, are automatically idled and may be simply approved or refused.

Streamline the organisation’s contract approval process: This programme minimises and eliminates the need for the organisation to waste time determining who needs to evaluate a contract and then tracking that person down. The approval workflow ensures that the appropriate things are authorised and documented on time by the appropriate people.

Store all data of contracts in one place: Contract tracking is no longer a problem due to this software. A contract lifecycle management tool, in combination with a contract repository, provides a simple way to store contracts and related documents so that stakeholders may access them safely and quickly from anywhere in the world.

Set automated contract alerts: This software eliminates the fear of missing something important. Never miss an expiry date or a delivery due date again with the personalised alerts that show in the email.

Finding contracts faster: The contracts are free to access. There’s no need to waste time looking for suitable contracts. Contracts may be located by searching keywords or phrases, and contract attachments, such as insurance certificates, can also be found.

Taking advantage of E-signature of technology: his programme makes it simple to get an e-signature. It will just take a few minutes and will function exactly like a physical signature.

Simplify contract negotiation process: Contract modifications may now be sent back and forth between the organisation and the customer by email, rather than printing and scanning PDFs.

Integrate with organisations ERP: Manual data movement has come to an end. The contract management software may be used as a stand-alone application or as a plug-in to ERP to sync with major customers, vendors, and user lists.

Save time and money: Using this programme has taken up a limited amount of time. This programme eliminates the need to waste time manually completing operations that are now automated by this software.

Difference between contract management and contract administration

	Contract Management	Contract Administration
1.	Contract management specialists, or managers, are in charge of the company’s contract after contract execution is completed.	Contract administration experts are in charge of the company’s contract administration, involved in contract planning and implementation.
2.	After the deal is signed, contract management takes care of everything as per the contract.	Before the deal is signed, contract administration takes care of everything in implementing a contract.
3.	Professionals examine to see if the terms and conditions of the contract are satisfied and corrective decisions are made.	Professionals examine to ensure that all details are correctly arranged, trustworthy partners are used, and all contract terms & conditions are met.
4.	It depends on contract administration.	It hands over the contract to manage once it has been administered and completed.
5.	It is a process of managing the contract after the contract has been signed.	It is a process of contract administration that serves as a beginning point in the creation and planning of the contract.
6.	It is a process after making a contract.	It is a starting point in making a contract.
7.	Its goal is to verify and manage the parties by ensuring that all terms and conditions are followed.	Its goal is to cover all aspects of the terms and conditions that the parties must obey.
8.	The subject matter is used in contract management to guide the parties on that subject matter.	The subject matter is established to form the contract, which aids the contract administration in drafting it.

Conclusion

As a result, contract management is a department with legal and business knowledge that is involved in contract drafting and execution. They also direct the parties and monitor their adherence to the contract. They sign the contract to acknowledge acceptance of the terms and conditions. The administration contract and the management contract are very similar, with a few exceptions. The administration draughts the contract, and the management executes it. The contract is created to protect the company’s parties. The contract is in effect for a long period of time. Contract managers only deal with contract-related issues.

References

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Taxation of digital assets in India

By

Sneha Mahawar

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April 23, 2022

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This article is written by Shephali Jha pursuing an Introduction to Practical Contract Drafting. This article has been edited by Ruchika Mohapatra (Associate, Lawsikho).

This article has been published by Sneha Mahawar.

Table of Contents

Introduction to digital assets

The highest number of crypto owners in the world is Indians. The NGO ‘NASSCOM’ in collaboration with cryptocurrency exchange platform ‘WazirX’ has reported a significant growth in the Crypto-Tech industry in India. The anticipation is that Indians will be investing around 241 million dollars in the Crypto market in the next 10 years. Consequentially, the Reserve Bank of India is all set to launch and adopt the Digital Currency or Digital Rupee. Selling and trading of digital assets/currency markets are open every day for 24 hours. A market that is extremely unstable and volatile. Yet, has become significantly popular and successful. The two of the biggest crypto have more worth than six of the biggest Indian stocks (combined). Every country has defined the scope of virtual digital assets. Therefore, in India, a cryptocurrency and NFT have been notified by the Central Govt. OTT platforms, mobile applications, e-commerce platforms, etc. subscriptions will not fall under the ambit of Virtual Digital Assets.

Classification of digital assets

The Financial Budget of 2022-2023 has been ambiguous of whether a virtual digital asset is a security, currency, or commodity whereas the West has been comprehensible on the same. Therefore, in the light of such perplexity, the virtual digital asset should be deemed as capital assets when the taxpayer has purchased them for investment purposes. Section 2(14) of the Income-tax Act explains that a capital asset is a property belonging to a person, irrespective of the connection of that property with his business or profession. This property can be of any kind and its scope has not been limited under this section.

Concluding it can be classified as:

– Capital Gains

– Business Income

– Other Sources (gifts etc.)

When virtual digital assets are transferred from one person to another for a short-term period or long-term period and there are gains or losses in such transactions then it shall be taxable as ‘Capital Gains’. To determine whether the income from the sale of assets is taxable or not under Business Income are is when the transactions of virtual digital assets are substantial and frequent. If the taxpayer has got digital assets of value exceeding 50,000 Rupees without any consideration or as a gift then it shall be taxed under gifts of Income Tax Act.

Taxation of digital assets in the USA

Cryptocurrency is regarded as a property and not currency. The tax depends on Short Term and Long-Term Capital Gains as well as income tax brackets.

Term of Capital Gains	Time Period	Taxation Rates
Short-term Capital Gains	Income on assets that are held for less than a year	10% to 37%
Long-term Capital Gains	Taxes on assets that are held for a period longer than a year.	0% to 20%

The Losses incurred from trading of such Virtual Digital Assets can be used to offset capital gains as well as deduct up to $3,000 off your normal income tax depending on the time period of possession of assets. Any additional losses can be carried forward to the next tax year.

Evolution of taxation on digital assets in India

Year	Event
2013	The Reserve Bank of India (RBI) cautioned the public against the use of virtual currencies. The bank sent a message to the users, holders, and traders of virtual currencies. The circular issued was regarding the potential financial, operational, legal, customer protection, and security-related risks involved in transactions via Virtual Digital Assets.
2017	RBI and the finance ministry warned that virtual currencies are not a legal tender. Public Interest Litigations (PILs) were filed in the Supreme Court seeking a ban on buying and selling of cryptocurrencies in India. Another PIL was filed asking for them to be regulated.
2019	The Government of India presented the bill ‘Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019’. The scope of the act was to impose a complete ban on all crypto-related activities including mining, buying, holding, selling, and dealing.
2020	The Supreme Court of India lifted the curb on cryptocurrency imposed by RBI. Therefore, banks and financial institutions were permitted to provide access to banking services to those involved in transactions in crypto assets.
2022	The Finance Bill, 2022 has proposed to amend Income Tax Act, 1961 and impose taxes on Virtual Digital Assets.

Implications of Budget 2022

In the Union Budget 2022, the Government of India has finally decided to regulate the transactions of Virtual Digital Assets. A list of provisions has been proposed which will be applicable from the assessment year 2023-24 in the Income-tax Act, 1961 to regulate investments in cryptocurrencies, NFTs or other virtual digital assets. On or after 01-04-2022 transactions with respect to Virtual Digital Assets shall be taxable.

Finance Bill, 2022 has proposed to insert a new clause (47A) to Section 2 of the Income Tax Act, 1961. The clause defines ‘Virtual Digital Assets’ as follows:

(47A) “Virtual Digital Assets” means ––

(a)

Any information or code or number or token
Which does fall under an Indian currency or foreign currency
Generated through cryptographic means or otherwise, by whatever name called.
Objective is to provide a digital representation of value exchanged with or without consideration
Involving promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment
This is not limited to investment scheme; and can be transferred, stored or traded electronically.

(b)

Non-fungible Token (NFT)
Or any other token of similar nature and properties
With whatever name it is referred to.

(c)

Central Government will be reserving the rights to add more technologies into Virtual Digital Assets
By notification in the Official Gazette.

Rate of taxation and explanation under various heads:

Section 115BBH will be inserted in the Income Tax Act, 1961 explaining the taxation on income from virtual digital assets.

Capital Gains

The income that arises from the transfer of virtual at certain time intervals can be taxed under the head of Capital Gains as follows:

Term of Capital Gains	Time Period	Taxation Rate
Short-term Capital Gains	If a virtual asset is held for less than 36 months from the date of purchase	30%
Long-term Capital Gains	If a virtual asset is held for more than 36 months from the date of purchase	30%

Explanation of Section 115BBH(2)(a) that provides that no deduction is allowed:

Expenditure attracted because of the transfer of a virtual digital asset
Allowance or set-off of any loss to the assessee
Under Chapter VI-A: Income Tax Returns cannot be filed.
Under Section 45F: Allows tax exemption on the long-term capital gains earned from selling a capital asset, other than a house property. Not applicable to Virtual Digital Assets.

Example: A sold a capital asset like shares, bonds, jewellery, gold, etc. and reinvest the sale proceeds towards the purchase or construction of a house property, the returns earned on the sale of the capital asset would be allowed as an exemption from tax under Section 54F.

Cost of improvement relating to a virtual digital asset;
Indexation of cost of acquisition of a virtual digital asset;

Although, Relief under Section 87A can be claimed. Tax Rebate to individual taxpayers if their total income is less than 5,00, 000. Surcharge Rates are also applicable in Capital Gains depending on the type of Taxpayer and Type of Capital Gain. The nature of income can be Long-term capital gain, Short-term Gains or any other income. The Type of Taxpayer can be Individual, HUF (Hindu Undivided Family), AOP (Associate of Persons), BOI (Body of Individuals), AJP (Artificial Judicial Persons), Firm/Local Authority, Firm/Local Authority, Domestic Company falling under Section 115BAA or 115BAB (Corporate Tax Reduction for Domestic Companies), Other Domestic Company, Foreign Company, Co-operative Society opting for section 115BAD, Other co-operative society.

Business income

When the transactions related to virtual digital assets are in considerable quantity and frequent, then it’s understood that the taxpayer is involved in trading such assets. Income generated from such form of transactions in the market after selling assets will be taxable under the head of ‘Business Income’. The gains shall be calculated without deduction of any expense or allowance shall be taxable at the flat rate of 30%. An additional surcharge and cess cost shall be added along with the taxation of Business Income gains which is varying according to the category of Taxpayer.

Other sources

The Finance Bill, 2022 includes virtual digital assets under of movable assets of the Income Tax Act, 1961. This has been covered under Section 56(2)(x) and the scope of the same is when any person receives any benefit (virtual digital asset) without consideration (as a gift) whose value exceeds Rs. 50,000 to or from an Individual/HUF. The deemed income under this provision shall be taxed if the following essentials are met in the course of the transaction.

Without consideration;
Inadequate consideration;

Such income shall not be taxed at 30% under Section 115BBH because it does not arise due to the transfer of a virtual digital asset. However, when the recipient further transfers such assets, the resultant gains shall be taxable under Section 115BBH. The taxation of gifting of Virtual Digital Assets shall be according to the taxation rates on gifts as notified by the Government of India annually.

Tax deduction at source in virtual digital assets

Insertion of Section 194S in Income Tax Act, 1961

Tax is required to be deducted under section 194S stating that any person responsible for paying any sum by way of consideration for the transfer of a virtual digital asset is required to deduct tax at source if the amount is payable to a resident person. Such Tax is deducted at the rate of 1% of the consideration. Surcharge and Health & Education Cess shall not be added. If the person making transaction does not furnish Permanent Account Number (PAN) then under 206AA(1)(iii) TDS shall be deducted at the rate of 20%. In circumstances where the consideration for transfer of Virtual Digital Assets can be as following:

Wholly in kind
In exchange for another Virtual Digital Asset
Partly in cash and kind but if the cash part is not sufficient for tax liability

Then, the person responsible for paying such consideration shall, before releasing the consideration, ensure that tax has been paid in respect of such consideration for the transfer of virtual digital assets. The provisions of sections 203A and 206AB will not apply to a specified person.

When and who are excluded from TDS

No tax shall be deducted under this provision in the following circumstances.

If the consideration aggregate value does not exceed Rs. 10,000 during the financial year by any person (other than a specified person).
If the consideration aggregate value does not exceed Rs. 50,000 during the financial year payable by the specified persons.

How will the losses incurred on virtual digital asset be taxed

Section 115BBH(2)(b) explains how the losses will be taxed can be explained as follows:

It prohibits to set-off losses from virtual digital assets as evaluated under Section 115BBH(1)(a) against income computed under any other provision of the Income Tax Act. For Example, short-term capital loss arising from the transfer of Bitcoin (cryptocurrency) cannot be set-off against short-term capital gains arising from the sale of listed shares.
No loss occurring from the transfer and transaction of Virtual Digital Assets is allowed to be carried forward in the succeeding assessment years.
Similarly, the long-term capital loss from the sale of NFTs cannot be set-off against the long-term capital gains from the sale of mutual funds.
The losses from one virtual digital asset will not be allowed to be set-off from the gains from another virtual digital asset. For example, short-term capital loss arising from the transfer of ApeCoin (cryptocurrency) cannot be set-off against short-term capital gains arising from the transfer of Bitcoin or an NFT.
Investors of Virtual Digital Assets will be required to evaluate taxation for every different Virtual Digital Asset.

Illustrative example

Example 1 (TDS of Virtual Digital Assets)

Mr. Ranbir Kapoor sells his Bitcoins for a Car. Following is an example of how the TDS will be deducted.

Date of Sale or Exchange	17.05.2022
Nature of Transaction	Car
Consideration	25,90,000
PAN of payee available	YES
Payer is a specified person	YES
TDS	1% of 25,90,000 = 25,900

TDS is not applicable, if the transaction was done before 01.04.2022.
TDS is not applicable, if the consideration is less than Rs. 10,000.
TDS is not applicable because the payer is a specified person, as well as the consideration, is less than Rs. 50,000.
Under Section 206AA of Income Tax Act, 1961, if PAN of the payee is not available then the rate of TDS is 20%.
If the consideration is not CASH like in the above example, then before releasing the consideration, the deductor shall ensure that tax has been deducted and paid in respect of such consideration.

Example 2 (Capital Gains from Cryptocurrency)

Ms. Alia Bhatt has purchased 60,000 Bitcoin (cryptocurrency) at Rs. 67 each on 10 August, 2017. The capital gains from the transfer Bitcoin made at different dates for different shall be computed as under:

Quantity	20,000	20,000	20,000
Date of selling	01-03-2022	01-04-2022	31-03-2023
Consideration	18,00,000	8,00,000	30,00,000
Brokerage	3,140	2,140	4,360
Net Profit or Loss	4,56,860	5,42,140 (loss)	16,55,640
Taxable Profit or Loss	2,79,789	5,40,000 (loss)	16,60,000
Tax Rate	20%	30%	30%

Conclusion, confusion and the future of digital assets in India

The Indian Government has not provided with any laws which be governing, regulating or prohibiting the transaction in Virtual Digital Assets. This is why an inference can be made that it is not illegal to transact cryptocurrencies or set up any cryptocurrency exchange in India. Although, Finance Act, 2022 have classified Virtual Digital Assets as Cryptocurrency and Non-Fungible Tokens and provided taxation rated of the same. They have also reserved the right to increase the scope of Virtual Digital Assets.

India is not the first country to impose taxes on Virtual Digital. Reserve Bank of India has informed that India’s first Central Bank Digital Currency (CBDC) project will be launching ‘The Digital Rupee’. This Digital Currency or the Digital form of rupee will be completely regulated by the Reserve Bank of India as well as remain the guarantor of the Digital Rupee. Although taxing Virtual Digital Assets does not make them legal as under the Income Tax Act, 1961 tax is levied even on illegal incomes and undisclosed incomes. Therefore, Indian Government will be levying taxes on income from Virtual Digital Assets from 1^st April, 2022.

References

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Unenforceable contracts : what you need to know

By

Rachit Garg

-

April 22, 2022

0

This article is written by Michael Shriney from the Sathyabama Institute of Science and Technology. This article analyses the unenforceability of a contract, its requirements, common mistakes, avoidable mistakes, and relevant case laws.

It has been published by Rachit Garg.

Table of Contents

Introduction

A contract is an agreement between two or more parties that is legally enforceable. An agreement is a promise made between two or more people to do or not do something. A contract is a mutual agreement that is normally formed by a party’s offer and acceptance. The courts stated that an enforceable contract needs one party to make an offer and the other party to accept it. A legally enforceable contract is one that is valid. There must be an offer, consideration, acceptance, and complete competent capability for a contract to be effective and legally binding. It ensures that a contract’s mandatory compliance can be enforced legally. It can be in both written or oral format which is enforceable in the court. The Indian Contract Act, of 1872, explains contracts from an Indian perspective. This article will give an introduction to the topic of unenforceable contracts. The term “unenforceable contract” refers to a contract that is either unlawful or invalid. A contract that is not approved by a court of law due to the fact that it is not lawful or contains inaccurate information is an unenforceable contract.

What is an enforceable and unenforceable contract

Enforceable contracts

An enforceable contract is one that is legally bound and enforceable in a court of law, as well as it is a valid contract that gives a remedy if the contract is not performed. A contract must have a set of conditions agreed upon by consenting parties with the ability to exchange for something and receive something in return it can be in the form of money, goods, acts, etc. in order to be enforceable. Consideration refers to the agreed-upon exchange. To agree on the terms and conditions, both parties must provide their consent.

There must be an offer, acceptance, and consideration for a contract to be enforceable.

Offer: One side must make a proposal to the other.

Acceptance: Both parties must agree to the terms and conditions set out in the contract. There must be a mutual agreement.

Consideration: All parties must agree on a fair exchange of compensation. It must be in writing and both parties must sign it.

For example, in an oral contract, if ‘A’ and ‘B’ are friends, ‘A’ buys ‘B’s’ car. In this situation, ‘A’ has agreed to purchase ‘B’s car. This is a legally binding contract.

Unenforceable contracts

An unenforceable contract is one that is not legally binding and cannot be enforced in a court, as well as it’s not unlawful and has no remedies. When legal conditions are not satisfied, a contract might be declared unenforceable. For example, if ‘A’ and ‘B’ made an oral agreement to kill ‘C’ for a certain sum of money, the agreement itself is illegal and unlawful. This is an example of an unenforceable contract. When a contract is declared unenforceable, the court may order one party to act or pay the other for failing to comply with the contract’s requirements. A contract can be rendered unenforceable for a variety of reasons, including the signing of the contract, the contents of the agreement, or events that occur after the contract is signed. When there is a lack of ability, duress or undue influence, deception or mistakes, or public policy, a contract will be deemed unenforceable.

What mistakes make a contract unenforceable

Lack of capacity, duress or undue influence, deception, nondisclosure, unconscionability, public policy, error, and impossibility are all characteristics of unenforceable contracts. These mistakes are further examined in-depth as follows:

Lack of capacity

All contracting parties must be mentally stable in order to enter into an agreement. Lack of capacity is defined as a person under the age of 18 who is intoxicated by drugs or alcohol or who does not understand what they are doing when they engage in a contract. The contract will not be enforced by law if there is a lack of capacity in it.

For example, if ‘A’ is inebriated and unable to comprehend what is going on around him and enters into a contract, the deal is void and unenforceable by law. Even if he does not complete the contract, he will not be punished and will be let free.

Three types of capacity

When an individual enters into a contract, there are three forms of lack of capacity that are unenforceable by law: minor, a person with an unsound mind, and persons disqualified by law.

Minor

When a person is under the age of 18, he is referred to as a minor in legal terms. In other words, a person who has not reached the age of majority is incapable of entering into a contract. A minor’s contract can be void ab initio, which indicates that the contract must be invalid from the very beginning.

A person with an unsound mind

When a person is affected by a mental disorder, or
When a person is intoxicated, or
When a person is insane or stupid.

When these unsound-minded people enter into a contract, it is unenforceable by law. The individual’s mental illness must be proven in a court of law.

A person disqualified by law

Contracts between those who are legally prohibited from doing so, such as convicts, insolvents, and others, are not legally enforceable.

Duress/Coercion

A contract must be signed voluntarily without any force or violence. Duress happens when one party uses force to compel the other to enter into a contract. The court will not consider an unenforceable contract to constitute a lawsuit if there is duress involved. For example, if ‘A’ is forced to sign an illegal contract by ‘B’ who threatens him with a pistol, the contract is unenforceable because it’s obtained by duress.

Undue influence

When using one’s position and authority to execute a contract. For example, when a company’s owner uses his position and forces the employees to sign a contract that solely benefits the owner then, this is an example of undue influence. When there is undue influence, the contract becomes enforceable.

Misrepresentation

When one party makes a false statement of a material fact that impacts the other party’s decision to enter into the contract, there is a misrepresentation in a contract. The affected party must prove to the court that the facts in the contract are false and that the contract is unenforceable. Not all misrepresentations are frauds, but all frauds are misrepresentations.

Fraud

Fraud is described as an act committed with the intention of hurting someone by depriving them of their legal rights. When a fraud is brought before a court of law, the fraudster has the option of proving himself by speaking the truth or lying. If it is proven that he engaged in fraudulent behaviour in the contract, the deal will be void. The court does not favour someone who employs fraud to persuade the other party to sign a contract.

Nondisclosure

In a general contract, all statements and declarations are taken into account, especially the most relevant ones. If certain significant statements are omitted, the contract will be unenforceable under the law. When parties to a contract omit important statements during discussions before signing the contract, this is known as nondisclosure.

Unconscionability

Unconscionability refers to a contract term, something underlying in the contract or anything that causes the party to be shocked. These unconscionable contracts cannot be enforced simply. When unconscionability is present, the court will examine and consider the following factors:

whether one party has immensely unequal bargaining power,
whether one party had difficulty understanding the terms of the contract due to language or literacy issues, and
whether the use of terms is inappropriate and therefore unfair.

If the court finds the contract to be unconscionable, it will not be enforced. It can only enforce the agreements if they modify or remove the unconscionable terms.

Illegal contract

An illegal contract is one that violates the law or public policy. For example, if a contract is established to buy and sell illicit substances that are unenforceable under the law, then parties to the contract will be forced to break the law. The goal of illegal contracts and public policies which are made unenforceable is to safeguard society’s world in general.

Mistake

To a certain degree, all errors do not declare a contract invalid. Mistakes can be unilateral or mutual. A unilateral mistake is made by one party in the contract, or a mutual mistake is made by both parties in the contract; both scenarios are not legally enforceable. Under these circumstances, only significant errors must be examined in an agreement, which must be noticed and affected in its development or execution in a meaningful way.

Impossibility

When a contract is formed, it is made enforceable and lawful; but, when the contract is performed, it is difficult to carry out, resulting in the contract becoming unenforceable. Impossibility happens when one party is at fault, which normally does not result in a contract.

Unwritten contract

In general, contracts need not be in writing, however, some contracts must be in writing in order to be enforceable. When a different circumstance happens, this is necessary. Contracts for the sale or transfer of land, as well as contracts that cannot be performed within one year, must be in writing. This safeguards parties against fraud and misrepresentation. If the contract is made orally, It can be proven in court, but it’s difficult since the party who claims that a contract has been created has the burden of proof. As a result, it’s hard to prove, and if parties can’t prove it, the contract is unenforceable. The written agreement does not need to be demonstrated orally.

How to avoid unenforceable contracts and agreements

Ensure that a contract accomplishes whatever the parties think it does

A common mistake that leads to an unenforceable contract is that the contract’s terms do not fulfil the criteria that one of the parties thought were added after the parties signed it. It’s natural to believe that everything that is spoken orally might be included in the written agreement. As a result, the parties must communicate with the attorney about the business agreement’s objective and ask the parties to examine the wording of the contract draft. The attorney will be able to clarify the contractual situation and verify that the contract is fair.

Include a paragraph regarding dispute resolution

The parties must prepare for the worst and hope for the best. A dispute resolution clause in a contract must be included which specifies how the parties will try to resolve any disagreements or misunderstandings before going to the courts. A dispute resolution clause might direct a disagreement to independent mediation or arbitration to settle a disagreement in a fair and mutually agreed on manner, avoiding litigation. If alternative dispute resolution is not an option to the solution for the type of party agreement, they can approach the court of the local jurisdiction.

The contracting parties must proactively evaluate the contract

The contracting parties must appoint a lawyer to prepare the contract, and the contracting parties must check the contract once it has been drafted to ensure that all terms and conditions clauses have been inserted. The parties must sign the contract after they have reviewed it.

Case laws

Couturier v. Hastie, (1856)

Facts of the case

In this case, the parties were the vendor and buyer of a cargo of corn that was carried from the Mediterranean to England. The shipment of grain perished and was disposed of without the parties’ knowledge before the parties entered into the contract for sale. When the parties discover their error, the question of legality arises.

Issues involved in the case

Whether the sale contract is valid or not?

Judgement of the Court

The House of Lords of the United Kingdom held that the contract was unlawful from the start since both parties had made the identical error and had no physical ability to fulfil the contract. As a result, because there was no corn to be contracted, the contract is unenforceable.

Balfour v. Balfour (1919)

Facts of the case

In this case, In Ceylon, the defendant works as a public servant. When he moved to England, he told his wife that he would transfer her 30 pounds every month. However, he did not send the money. The plaintiff filed a lawsuit against her spouse over the matter.

Issues involved in the case

Whether Mr. Balfour has entered into any form of contract with his wife and whether it is a valid contract between a husband and wife which is enforceable in a court of law.

Judgement of the Court

It was determined that the lawsuit is unenforceable since it does not result in serious action. The Court of Appeal (Civil Division) held that a court cannot take into account the domestic agreements between husband and wife made in the daily course of life. So the suit was dismissed by the Court.

Lalman Shukla v. Gowri Dutt (1957)

Facts of the case

According to the facts of the case, the defendant’s nephew was missing and the defendant was unable to find him. He sent his servant (Plaintiff) to look after him. While the servant was searching for the defendant’s nephew, the defendant announced a cash reward if anyone found his nephew. The servant found his nephew and brought him back to his home. After six months of this incident, the defendant fired his servant from the job. In the incident of the servant’s removal, the plaintiff demanded the money, which the defendant refused to give him. The plaintiff files a suit against the respondent.

Issues involved in the case

Whether the plaintiff is entitled to get the said cash reward?

Judgement of the Court

The Allahabad High Court ruled that it is unenforceable since the offer of reward was not made to the offeree. The Court dismissed the case.

Conclusion

An unenforceable contract is one that is valid for all practical purposes until its validity is challenged or questioned, and that cannot be enforced owing to some technical fault. It can be enforced in the future once the technical flaw has been removed or rectified. For example, if a contract is unenforceable due to a lack of registration, it becomes enforceable after registration. Another example: if a contract is made orally to buy land, it is unenforceable in court; yet, if the contract is done in writing, it is enforceable in court.

When a contract is found to be unenforceable, the court does not require one party to pay the other for failing to fulfil the contract’s terms. For example, suppose Ambi agrees to sell 500 kgs of cement to Bala for 30,000/- for building construction. Ambi signs a contract with Bala. Throughout the night, Ambi kept cement in his godown. The cement was damaged as a result of severe rain. This contract is now null and void, and it cannot be enforced against another party.

References

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

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Section 27 of Indian Contract Act, 1872

By

Sneha Mahawar

-

April 22, 2022

0

This article is written by Michael Shriney from the Sathyabama Institute of Science and Technology. This article discusses Section 27 of Indian Contract Act of 1872, including its history, statutory exceptions, nature, scope, and case laws. This article focuses on the restraint of trade as mentioned under Section 27.

This article has been published by Sneha Mahawar.

Table of Contents

Introduction

An agreement that prevents two or more parties from engaging in a lawful trade or business profession is declared void by the court. The court rules that preventing one or more people from engaging in certain lawful business is unfair and violates a person’s fundamental right and freedom to select the type of profession in which he wishes to engage. It is restricting one’s interest in business, hence the court decided that the restraint of trade agreement is unreasonable and void.

For example, suppose ‘Shankar’ runs a lawful business in the middle of a town. Shankar was the first person in his community to open a Chinese restaurant. ‘Mani’ opened another Chinese restaurant directly across the street from Shankar’s. If Shankar stops Mani from operating his restaurant because Shankar started it first, this is known as a restraint of trade, which the court considers unlawful since it is unreasonable and unfair to the other business. Under Section 27 of the Indian Contract Act of 1872, this trade constraint is addressed.

Background of Section 27 of the Indian Contract Act, 1872

The Section on restraint of trade was derived from David D. Field’s Draft Code for New York, which was based on the ancient English concept of restraint of trade. While interpreting Section 27, the Indian High Courts decided that both the criteria of ‘reasonable’ and the “principle of restraint” were not relevant to the case covered by this Section, unless they come under particular exceptions. The law commission’s first draft of legislation did not include any trade restraints.

However, during the enactments, only Section 27 of the Indian Contract Act of 1872 was introduced. The primary goal of this Section is to safeguard Indian trade. Though the Law Commission’s original draft ignored the subject of trade restraint, it has inserted it in the Indian Contract Act through Section 27 after considering the complexities between market freedom and contract freedom.

The objective of destroying legally these trade restraint agreements is to improve market competition since the dominance of contract freedom adds to discouraging competitive agreements that restrict competition from utilising unique deals within the contract limitations. In its thirteenth report, the law commission suggested that the statute be amended to enable limits and so all contracts in restraint of trade, whether general or partial, that were appropriate in the interests of the parties and the public. However, no action was made in response to the above-mentioned suggestions.

What is the purpose of Section 27 of the Indian Contract Act, 1872

The aim of Section 27 of the Indian Contract Act, 1872 is that any agreement that restricts commerce or business is unlawful. An agreement that prevents or restricts one person from engaging in trade, business, or lawful profession of any type is void, according to the clause. As a result, a void agreement is one in which a person refrains from engaging in a certain business of his interest that is unfavourable to the other parties. Every law must be structured in accordance with the dependence of the Indian Constitution, and trade restraint is also allowed under Par t XIII of the Indian Constitution. The freedom of trade, business, and exchange is recognised under Articles 301 to 307 of the Constitution. It ensures that every Indian citizen has the ability to choose any legal profession, business, or trade.

Under Section 27 of the Indian Contract Act, 1872, there are exceptions that are considered valid contracts. However, Act 9 of 1932 repeals exceptions 2 and 3 but exception 1 is regarded as a valid contract, that is as follows:

Exception 1 : Saving of agreement not to carry on the business of which goodwill is sold

When one party (seller) sells the goodwill of a business to another party (buyer), the buyer agrees to refrain from carrying on the same business within specified local limits as long as the buyer purchases the title of goodwill from the seller, who is giving an offer not to carry on a similar business within certain limits. This criteria makes the court appear reasonable owing to the nature of the company.

Public Policy underlying Section 27 of Indian Contract Act, 1872

Every person should be free to engage in his or her profession, i.e., occupation, and to conduct his or her business (i.e., buying and selling products and services) and trade in any specified area of activity, according to public policy. This liberty is important for society’s economic development. It encourages both competition and industry. Agreements that restrict this liberty are against public policy and are thus null and void. This is also an exception to the rule in this case. If ‘A’ sells his business to ‘B,’ for example, ‘B’ may tell ‘A’ that he would not engage in the same business in the same town as ‘B.’ Such a contract limits his business independence, which is fair. Public policy is implemented by Section 27 and it gives effect to the exception.

Exceptions 2,3 have been repealed, but Sections 1 1 (2) and 55 of the Partnership Act of 1932 have been added to replace them. The Indian Constitution guarantees freedom of trade, profession, and business under Article 19 (1)(g). An agreement that deals with trade freedom is found unlawful since it is a trade restriction agreement that is also contradictory to public policy. Under Article 19 (6) of the Indian Constitution, reasonable restrictions on freedom of trade are enforced. The goal of public policy is to promote trade while avoiding monopolies.

Scope of Section 27 of the Indian Contract Act, 1872

The Section is broad in scope, declaring all contracts in restraint of trade unlawful, pro tanto (to that extent or for so much) unless the exception is met. The Section establishes a very strong rule that disproves restraints, both general and partial, and prevents the exception of specific local limits. Agreements in restraint of trade, in broad terms, are those in which one or both parties limit their ability to work or carry on their profession or company in some way. Such agreements are frequently criticised since they are in contradiction with the public interest and are unjust in that they limit human freedom unnecessarily. Every commitment connected to commercial activities, in certain ways, acts as a trade restraint since it limits the promisor’s future responsibility. The restraint is “unreasonably destructive to a genuinely competing private economy.” Lord Birkenhead has set up two criteria for determining whether an agreement is a trade restraint. They are as follows:

Whether it is reasonable in the view of the parties.
Whether it is consistent with the public’s intention.

Case laws with respect to Section 27 of the Indian Contract Act, 1872

Superintendence Company of India Private Limited v. Krishan Murgai (1979)

Facts of the case

This article presents a case study of trade restraint. A contract of employment stated that the employee would not work for any of his employer’s opponents in Delhi or start a nearly equivalent business in Delhi for two years after the respondent’s employment ended. On the terms and conditions of the contract, the respondent worked for the appellant’s firm as the branch manager of the New Delhi office. After seven years, the respondent’s employment came to an end. In Delhi, the respondent started his own firm, which is identical to the former appellant’s business. Now, the appellant has sued in this matter, demanding damages of Rs. 55,000 for violating the employment contract.

Issues involved in the case

Whether the agreement was valid and enforceable against the respondent?

Judgement of the Court

Restraint on trade after an employment contract has ended was found to be void and unenforceable in this case. The agreement was declared invalid and unenforceable against the respondent.

Madhub Chunder Poramanik v. Rajcoomar Doss and Others (1874)

Facts of the case

The plaintiff and defendant, in this case, were both running the same business in Calucatta’s same locality. Since the defendant had experienced a loss, he suggested the plaintiff close his firm in exchange for a particular sum of money. The plaintiff filed a lawsuit against the defendant after the defendant failed to pay the agreed-upon sum.

Issues involved in the case

Whether the agreement here is in the form of trade restraint?

Judgement of the Court

The plaintiff’s claim was rejected by the High Court of Calcutta because the agreement is in the form of trade restraint. This lawsuit is a turning point for fair competition protection. The concept of trade restraint was established in India as a result of this decision. It clarified all doubts and ambiguity around this concept.

Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. (1874)

Facts of the case

Nordenfelt, the defendant, was a Swedish national at the time of the lawsuit. The defendant’s business is dealing with quick-firing guns. He sold his firm to the plaintiff for Euros 2,87,500. He enters into a restrictive covenant as follows:

For the next 25 years, the defendant would not engage in any similar activity within an unlimited geographical region, such as the manufacture of quick-firing firearms, unless it was for the company’s benefit. In other words, he is prohibited from engaging in any identical activity for the next 25 years unless it is on behalf of an organisation.
He should not engage in any business that is in any way competitive with the plaintiff’s company.

Later, Nordenfelt reached a deal with another gun manufacturer. The appellants stated that trade restraint is maintained and that it is reasonable to be held.

Issues involved in the case

Whether the defendant was obliged by the above trade constraint requirements?
Whether such restraints were void or valid?

Judgement of the Court

The House of Lords was convened to hear the case. The Court found the first clause of the covenant to be reasonable because the defendant sold the company for a large sum of money and the order was issued. However, the second condition preventing the defendant from engaging in any other rival company is unjust and unreasonable.

Principles laid down

The principles established in this case are:

Any trade restraints that are against public policy are void unless there are specific grounds that are recognized by law.
Restraints on trade may only be excused if they are fair: in the interest of the contracting parties; and in the interest of the general public.
Restraints on trade can be declared valid if they are proven to be reasonable to the contracting parties and the general public.

Statutory exceptions to Section 27 of the Indian Contract Act, 1872

Restraint of commerce is generally invalid, although it is allowed under certain statutory exceptions. They are:

Sale of goodwill
The Partnership Act, 1932
Trade combinations
Service contracts

Sale of goodwill

A company’s goodwill is a non-tangible asset. It’s a company’s name and reputation. This exemption allows a buyer of a company’s goodwill to show that the seller of the goodwill is subject to certain restrictions. When a person sells the goodwill of his business to another party on the condition that the person will not enter another identical business, this is a restraint of trade on the seller’s part that is valid for the buyer’s interest in buying the goodwill for which he has paid a particular sum. When a firm does not sell its goodwill but instead enters into a deal that violates public policy, the agreement is null and void. The scope of the law is limited to the meaning of Section 27.

As a result, the goodwill will:

The only function for as long as the buyer obtains the title from him and runs a business for the rest of his life, or
It will work until the term expires, it does not prevail under these circumstances, and the agreement becomes void if restraint of trade is present in it.

The Partnership Act, 1932

Partnership businesses are an exception that was added to the Partnership Act of 1932. Under Sections 11, 36, 54, and 55 of the Act, such exclusions can be found.

Sustainability of company or organisation

Section 11(2) of the Partnership Act of 1932, when partners agree to share joint rights and responsibilities with mutual consent. When the agreement prevents the partners from starting their own firm, the agreement remains in effect valid as long as they remain business partners.

The partnership has come to an end

To safeguard the interests of other partners, Section 36 of the Act states that when a partner leaves a firm after his accounts are paid, he must agree not to carry on a similar business for a given amount of time or within specific territorial limits.

Dissolution of the firm

Section 56 of the Act deals with the agreement to be valid when, at the time of dissolution, some of the partners begin an agreement with the other partners not to do the same business for a certain length of time or within specific territorial limitations.

Sale of goodwill

The Act’s Section 55(3) deals with validating trade restraints on the sale of goodwill. Any partner could sell a firm’s goodwill to make a deal with the buyer that such partner will not undertake any similar business to that of the firm for a fixed time or within specified jurisdiction, despite that at all contained in Section 27 of the Indian Contract Act, 1872. Such a contract is enforceable if the limitations enforced are reasonable.

Trade combinations

A valid restraint of trade agreement is formed when dealers or manufacturers in almost the same company join an organisation to regulate business or fix pricing. The main purpose of such an agreement is to prohibit them from competing by creating a minimum procedure, managing product and service supply, aggregating firm profits, and distributing them according to the traders’ agreement. It is considered in the public interest when two or more people make a formal agreement to control their own trade. It is a legally binding contract.

Service contracts

If there are any reasonable restraints on the employee for the advantage of the company’s freedom of trade in a service agreement, in the context of the employer and employee relationship. In this case, the agreement between the employee and the employer is not null and void. Such limits are imposed on the employee throughout the employment time and not after the job period has expired.

Protection of trade secrets and confidential information

The employer maintains trade secrets and business contacts that should be protected under an employment contract. In the event of restraints in employment contracts, it is required to prove that the employee has made a contract with a customer or has knowledge of the employer’s trade secrets. After deciding his employment, an employer may lawfully suspend his employee from choosing any job where the employee is likely to use the information or trade secrets acquired by him.

Solus agreement

There will be agreements in place where one party will only deal with the products of a specific manufacturer or producer and will not deal with anybody else. Such contracts are known as solus or exclusive dealing agreements. For example, a buyer of a certain commodity may decide to buy all of his necessities from a single producer, or vice versa. The goal of the parties determines the legality of such agreements. Such an agreement is lawful if it is reasonable for the advantage of the parties to the agreement; however, such an agreement is void if it tries to force unfair restrictions on the other party in order to monopoly trade.

Conclusion

Thus, the article concludes that an agreement with the restraint of trade or business-related matters is generally void. If there is a trade restraint, the court will formally declare the agreement void. As the court sees it, the agreement is unreasonable, unfair, and violates the individual’s right to choose any profession, trade, or business. This trade limitation is designed to promote healthy competition among individuals. But there are some exceptions, such as those related to the sale of goodwill or public policy interest, or for the sake of partnership restrictions on trade for their benefit, employer and employee restrictions are considered to be valid agreements. The court declares that if any of the above exceptional circumstances occur, the agreement is lawfully regarded as valid, reasonable, and fair.

References

Lectures on Contracts -I by Dr. Rega Surya Rao.
https://www.scconline.com/blog/post/2021/03/20/agreement/
https://lawcorner.in/agreement-in-restraint-of-trade-section-27-of-indian-contract-act/

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

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Essential clauses of a license agreement : non-transferable and non-exclusive license

By

Sneha Mahawar

-

April 22, 2022

0

This article is written by Senjyoti Howlader pursuing a Certificate Course in Advanced Commercial Contract Drafting, Negotiation & Dispute Resolution. This article has been edited by Ruchika Mohapatra (Associate, Lawsikho).

This article has been published by Sneha Mahawar.

Introduction

A licencing agreement is an agreement between parties, i.e., the licensor and the licensee, wherein the licensor grants the licensee the right to certain rights, e.g., brand name, trademark, patented technology, or the ability to produce and sell goods owned by the licensor. These agreements are commonly used by the licensor to commercially exploit their intellectual property. In this article, we will explore licensing agreements, their advantages and disadvantages, types, and essential clauses of a license. Our main focus will be on the non-transferable and non-exclusive clauses of a license.

What is a license agreement

In a typical licensing agreement, the licensor agrees to provide the licensee with intellectual property rights such as the licensor’s technology, brand name, or product creation know-how. In exchange for the licensor’s intellectual property, the licensee typically pays an upfront fee and/or a royalty fee to the licensor. A royalty fee is an ongoing fee paid for the right of use of the licensor’s intellectual property.

Benefits of a licensing agreement

The guidelines, rules, and stipulations that govern the use of the licensor’s brand, patent, or trademark are explicitly laid out in licensing agreements. Both the licensor and the licensee understand exactly what is expected of them. This includes when and how much payment is due, any additional royalties due as a result of the relationship, the type of agreement, the length of time the licensee is allowed to use the property, copyright issues, and the contract’s expiration date.
Setting up a contract saves time, money, and hassle. For example, if someone decides to use a trademark without first obtaining a license, the property owner may sue them, resulting in legal fights, court bills, and lost time.
Contracts give licensors a higher degree of control over their intellectual property and give them access to new markets. A licensor can, for example, control how their property is sold. It also allows them to reach new markets via the licensee rather than having to establish a shop there themselves.

Advantages and disadvantages of a licensing agreement

One of the disadvantages of having a licensing agreement is the possibility of entering into a deal with the wrong party. In some circumstances, licensors may be so eager to enter a market that they neglect to conduct due diligence. As a result, a licensor may be trapped in a long-term contract with a corporation whose values conflict with its own. The licensee is subject to the same rule, especially if it believes a new product or brand would do well in a particular area without conducting market research.
Both parties face the possibility of losing their brand strength and/or reputation. For example, if one company makes a marketing blunder or becomes embroiled in a controversy, the other party may be put in jeopardy as well. This means that both the licensor and the licensee must operate efficiently.
Entering into a deal boosts the licensor’s competition. Despite the fact that the licensee is acting on behalf of the licensor, it is in direct rivalry with their business partner. The licensee suffers as well. Because relying on someone else’s product means cutting back on the licensee’s own research and development.

Different types of licenses

Licenses are classified into three types: a. non-exclusive licenses, b. exclusive licenses, and c. non-transferable licenses.

Non-Exclusive Licence

The Licensor retains the right to use the licensed property as well as the right to issue further licenses to third parties under a non-exclusive license. As a result, the licensee must expect to compete in the use of the licensed property with both the licensor and other licensees. This is the most common sort of license given to rivals in a given business. These licenses frequently include a “most favoured” provision, which states that if the licensor later licenses another party on more favourable terms, he must also extend these terms to the earlier licensees.

Exclusive licenses

They’re frequently used when the licensee would have to spend a lot of money, time, and effort to exploit the licensed property. If and when commercial success is achieved, exclusivity assures that there will be no competition. Because the licensor has relinquished the right to use the licensed property, the licensor must insist on some type of performance assurance. This assurance is usually in the form of a minimum royalty or a mechanism for the licensor to cancel or convert the license. Occasionally, exclusivity is awarded for only a few years; in other circumstances, exclusivity may be granted for as long as the licensee adheres to the agreement’s minimum royalty conditions.

Non-transferable licenses

Those licenses that aren’t transferable to a purchaser because of their conditions or the law. The Licensee is the exclusive owner of the rights granted to the Licensee under this Agreement. The licensee is not permitted to sublicense, assign, or otherwise transfer or distribute its rights under this agreement. Other acts or omissions that constitute a substantial breach of this agreement, as well as AB’s remedies or causes of action for the same, are not limited. Except by will or under the rules of succession and distribution, the licensee may not transfer this option. This option may not be transferred, assigned, pledged, hypothecated, or disposed of in any manner, whether by operation of law or otherwise, and may only be used by the grantee or his guardian or legal representative during the grantee’s lifetime.

Essential clauses of the license agreement

Every license agreement should contain a framework that provides support for other clauses or systems of clauses in the license agreement.

Term

This defines the period for which the license is granted.

Exclusivity and right of transfer/sub-license

It is important to mention whether the license is an exclusive license or a non-exclusive license. For software products, it is unusual to provide an exclusive license. If you are licensing the right to use another type of IP, such as a training course, an exclusive license might make more sense. Allowing the licensee to sell sub-licenses is another issue to consider.

License fee

This mentions the payment for licensing. The amount, type (fixed, lumpsum, percentage of profit, etc.), and mode of payment, if payments are due, are mentioned in this clause. Royalties can be calculated on a number of factors, such as the following:

the quantity of products sold; or
Profit is generated due to licensed IP.

Geographical limitations

This clause sets out whether the licensee will be restricted to a certain geographical location.

Quality control

This clause mentions the right of the Licensor to monitor and set standards for quality control and hence sets the standards to be followed and maintained by the Licensee during production.

Intellectual Property Rights (IPRs)

This clause specifies who owns the IPRs and states whether the licensee is permitted to modify the licensed IP and whether the licensee is permitted to copy or reproduce the IP.

Advertising and promotional materials

A licensor will frequently want approval rights for all marketing, training, and advertising materials. the licensee wants freedom of action and does not want the licensor, who may not be well versed in marketing or local conditions, to have veto power.

Most licensors want full protection

Most licensors want full protection, including insurance coverage, for the activities of the licensees. Most licensees want product liability carried by the licensor. Such provisions are mentioned in this clause.

Governing law and dispute resolution

This clause clarifies the law that will govern the agreement and any disputes that may arise due to the agreement.

Taxes and liabilities

It is equally important to mention who is responsible for what taxes that may accrue. Normally, the licensor wants to have no involvement in sales or employment activities and wants to be held harmless from all such liabilities, but to achieve that, careful attention must be paid to the structure created in the agreement since some jurisdictions may impose pseudo employment taxation in certain licence arrangements and, of course, local business licenses must be paid and kept up-to-date by the licensee.

Conclusion

If the agreement is appropriately drafted with a clear understanding of the parties’ goals and responsibilities, licensing a product or service can be a great way to generate solid revenue flow. A license’s scope is usually limited so that the licensor can focus on select markets or collaborate with many licensees. Before starting a relationship, it’s critical to consider not only solid legal guidance but also good tax advice and market knowledge. It can be a means for an inventor or developer of a product or service to reduce their involvement in marketing and supplying the service or product while still earning a good living if done properly.

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Liberal and strict construction of penal statutes

By

Rachit Garg

-

April 21, 2022

0

This article is written by Michael Shriney from the Sathyabama Institute of Science and Technology. This article discusses liberal and strict construction of penal statutes with important case laws, the distinction between strict and liberal construction of statutes, and how strict and liberal interpretations of penal statutes are construed.

It has been published by Rachit Garg.

Table of Contents

Introduction

The interpretation of statutes is restrained to courts of law. Courts have developed a large and complicated set of rules to guide individuals in construing or interpreting laws. The majority of interpreting laws are contained in the books of interpretation of statutes, and it is helpful to the drafter to maintain these interpreting laws in consideration during drafting Acts. For example, when interpreting Canadian laws, the interpretation of statutes must strictly follow every Canadian Act that is remedial to its Act and acquire reasonable, broad, and liberal construction to ensure the achievement of the Act’s purpose, which defines the Act’s original objective, meaning, and character. It is the responsibility of the court to give effect to an Act in order to obtain its actual meaning, while the process of rules or principles is formed to interpret which is restricted to courts.

Interpretation is the process of finding the legal meaning of any legislation that means more than construction. The finding of the meaning of a parliamentary Act or a provision of a parliamentary Act is referred to as interpretation. The extraction of grammatical meaning is a major focus of construction.

“Strict construction” refers to the interpretation which is made strictly, that assures each word in legislation must be interpreted by letter and that the interpretation should never go beyond the statute. A close or narrow reading of interpretation is known as a strict construction. In this approach, courts must follow the literal rule. The term “liberal construction” relates to interpretation that is applied freely with the goal of ensuring the purpose or advancing the aims of the legislation. In this construction, the courts will choose between the golden rule and the mischief rule.

What is a liberal construction of statute

The term “liberal construction” refers to the ability of the Bench to interpret different factors while determining the meaning of a word or document. According to this interpretation, the author most likely meant what the reader believes. The interpretation must be made liberally with the goal of promoting or discovering the state’s objective. In the event of welfare laws, equivocal terms or ambiguous language, and hindering statutes, liberal construction is used.

Liberal construction may also refer to beneficial or benevolent legislation, such as the Employer’s State Insurance Act,1948 and the Contract Labour Act,1970. This construction is governed by the golden rule and the mischief rule, which are referred to by judges. The Consumer Protection Act, 1986 is a valuable method of law that protects the interests of consumers. It ought to be interpreted liberally. A provision in legislation offering incentives for boosting growth and development should be liberally read such that the actual purpose of such encouragement is not hindered.

The mischief rule is applied when a statute is ambiguous but does not invent imaginary ambiguities. When the legislation is plain and clear, this criterion does not apply. The mischief rule established an entirely different approach to the interpretation of statutes. It is also referred to as a functional, purposeful, logical, and social engineering norm of interpretation. It is a vital tool for legislative interpretation of statutes, but the intent or goal of the legislation is not always plain or transparent, or it seems different to various observers. The whole impact is undeniably one of the most flexible interpretations of statutes.

“The golden rule is that the words of a statute must prima facie be given their ordinary meaning,” according to Viscount Simon L.C. It is argued that “unless it can be proven that the legal context in which the words are employed needs a different interpretation, the natural and usual meaning of words shall not be deviated from”. When interpreting with an exemption clause, the words must be given a liberal interpretation, with no abuse to the language. It should be noted, however, that illogical interpretation outcomes should be avoided. Thus, when interpreted liberally, judges refer to the golden rule and the mischief rule.

Inapplicability of liberal construction or beneficial rule:

When the Court determines that applying the rule of liberal interpretation, would result in re-legislating a statute provision by substituting, adding, or changing the terms in the statute. Then this construction does not apply.
When a term in law can only have one meaning, the application is not possible. However, if a term may have more than one meaning, liberal Construction is possible to apply.
If the statute’s provision is clear, unambiguous, and without doubt, the applicability of Liberal construction is not possible.- Shyam Sunder v. Ram Kumar, (2001) referenced with approval in Union of India v. Tata Chemicals, (2014)
Beneficent legislation may have to be liberally interpreted, but when a statute does not allow for more than one interpretation, a literal interpretation must be used — Collector of Central Excise v. Saurashtra Chemicals, (2007)
The assumption of liberal interpretation of beneficial law applies only when two points of view are available – Manipal Academy of Higher Education v. Provision Fund Commissioner 2008

Case laws

Allahabad Bank v. All India Allahabad Bank Retired Employees Association, (2010)

In this case, the skilled counsel for the appellant side argued that remedial statutes, as opposed to punitive statutes, such as welfare, beneficent, or social justice focused legislation, are preferable to penal statutes. Such welfare statutes should be liberally construed. They must be interpreted in order to get the remedies contemplated by the legislation. It is well established, and there is no need for repetition, that labour and welfare statutes must be broadly and generously construed with appropriate consideration for the directive principles of state policy. Welfare, beneficent, or social justice-oriented statutes should always be construed liberally. In this case, this was the judgement.

Om Prakash v. Reliance General Insurance, (2017)

The Consumer Protection Act, 1986 is a beneficial legislation that needs to be liberally construed in order to defend the interests of consumers. This was the verdict.

Secretary v. Suresh, (1999)

The Contract Labour Regulation Act, 1970 is a beneficial piece of legislation that should be given the broadest possible meaning in terms of the words used. Courts are created for the benefit of society, and a question presented in the matter of interpreting beneficial legislation with a liberal construction would not be appropriate, nor would a question posed in the matter of interpreting the same with a narrow pedantic approach.

Madan Singh v. Union of India, (1999)

In the case, the Court’s obligation is to liberally interpret a provision, particularly one that is helpful, in order to offer a broader meaning rather than a limited reading that would contradict practically every goal of the law.

Radhyshyam v. Mewalal, (1929)

The Allahabad High Court ruled that the Excise Act should be interpreted strictly and constructed liberally in the public interest.

What is a strict construction of a penal statute

The term “strict construction” refers to a statute that is strictly construed in legislation. Each word must be interpreted by letters, and the interpretation must not exceed the scope of the legislation. It is a legal theory that applies in a narrow manner or in a strict manner of interpretation to legal legislation such as the United States Constitution. The bench’s ability to read a text in written form that is provided inside the four boundaries of a legal document must be evaluated. The constitution must be rigorously construed in its original meaning.

This form of construction is used in taxation and criminal legislation. In strict construction interpretation, the courts refer to the literal rule. The literal rule, alternatively known as the simple rule, is a traditional rule used by English courts. It is a guideline of law interpretation that in the first instance, the grammatical interpretation of words must be followed. This is the earliest construction rule to which judges refer when referring to strict construction. Even today, judges utilize it since they do not have the authority to make laws. In each and every system of interpretation, it is the primary and first interpretation of laws. In other words, it’s just what the law says rather than what the law was meant to express.

The term “strict construction” refers to “a close or narrow reading and interpretation of a legislation or written document.” In cases involving a dispute over terms of legal meaning, the bench is sometimes called upon to determine a construction or interpretation of an ambiguous or confusing phrase. The common law tradition has created a number of maxims and guidelines that help courts interpret legislation or agreements such as contracts. Strict construction occurs when ambiguous legal language is treated as an accurate and precise interpretation and no further fair evaluations or justifiable consequences are considered. When interpreting legislation affecting the subject’s liberty, strict construction is recommended, but only after verifying that all conditions are met before the subject’s liberty is restrained.

In terms of penal law, strict construction must be used in penal legislation, which implies that penal statutes may not be broadened by assumption or purpose beyond the fair meaning of the language employed or the interpretation that is fairly justified by its provisions. These statutes will not be construed to include offenses or people other than those expressly defined and provided for in their wording. The rule of liberal is aided by the rule of strict construction under penal statutes, which states that any complexity in a penal statute should be settled in favor of the defendant. According to strict construction criteria of Maxwell, the gravity of the criminal legislation should be determined. Penal legislation must be strictly construed, as stated in Smith v. Wood (1889) and Kamal Prasad v King-Emperor (1947).

Case laws

State of Jharkhand v. Ambay Cements, (2005)

The judgment, in this case, was decided by a three-judge panel of the Supreme Court, and it was determined that:

The exemption clause must be rigorously construed, and it is not available to the Court to ignore conditions specified in the exemption notification.
A mandatory rule must be carefully obeyed, but a directory rule may be satisfied with sufficient adherence.
When legislation prescribes a certain Act to be performed in a specific manner and states that failure to comply with the said requirement results in serious consequences, such requirement is mandatory.
It is the basic principle of interpretation that if a statute directs that something must be done, it must be done in the manner specified and not in any other way.
Where legislation is criminal in nature, it must be rigidly construed and obeyed.

State of Punjab v. Ram Singh, (1922)

The facts of the case seem to be that a constable was caught wandering in a public spot with a gun, having been intoxicated while on duty. During a medical check, he abused the doctor. It was determined that the policeman was capable of committing the most crimes as a result of his drinking. The Supreme Court construed strict construction in accordance with Maxwell standards, which are based on the seriousness of Penal legislation, and found it justified to punish him for his misbehavior.

Bakhtawat Singh v. Balwant Singh, (1927)

The Allahabad High Court held that if punishment has been issued for failing to observe the requirements of any legislation, it shall be construed strictly.

Difference between strict and liberal construction of penal statutes

	Strict Construction of penal statutes	Liberal Construction of penal statutes
1.	Strict Construction states that each word in legislation must be interpreted letter by letter, and the interpretation must not go beyond the scope of the statute.	Liberal construction indicates that the interpretation must be liberal in order to advance the legislation or accomplish the legislation’s purpose.
2.	Courts favour literal rule under this construction.	Courts favour the golden rule or mischief rule under this construction.
3.	Taxing and criminal laws are strictly construed.	The Employers State Insurance Act and the Contract Labour Act are both liberally construed.
4.	Strict construction denies widening the law, resolving all reasonable disputes against the applicability of penal Acts, and disabling statutes.	Liberal construction broadens the law by resolving any reasonable uncertainties against the applicability of welfare laws, unclear words or sentences, and disabling statutes.
5.	It refers to the process through which legislation is broadened in order to express legislative purpose.	It refers to the process through which legislation is constrained in order to express legislative purpose.
6.	This construction implies that the bench believes that the original text has all of the answers to any present or future difficulties.	If the legislation is unclear or ambiguous in nature, this interpretation can be expanded to grasp the attitudes and things change.
7.	This strict construction can be used even if just one interpretation is needed.	This statute construction is performed when a statute does not allow for two or more interpretations.
8.	A strict interpretation is necessary for sales tax.	For the prevention of animal cruelty, a liberal interpretation is necessary
9.	The strict construction is interpreted rigidly by the courts. They do not mistake in their interpretations of the legislation, and the decision is solely based on the original text.	The liberal construction is freely interpreted by the courts. They are not bound by the exact interpretation of the law and can interpret it in a variety of ways using liberal construction.

Case laws

Ravula Subba Rao and Another v. the Commissioner Of Income-tax, (1956)

In this case, there is a distinction between strict and liberal construction in respect to the following question: “Why should a statute be given a strict or liberal interpretation, depending on the situation? The only possible accurate response is that the sort of construction used gives effect to the legislative intention. Sometimes, in order to make the legislation effective, a liberal construction is required, and sometimes, such construction will defeat the legislature’s intention. If this is the correct understanding of the rule of construction to be followed, then a strict or liberal construction is simply a method of extending or restricting the scope of a statute in order to convey the legislative meaning. If this is the proper position to be given strict and liberal constructions, it would make no difference whether the statute in question was penal, criminal, remedial, or in exemption of common right, because the distinction based on this classification would be meaningless.”

Conclusion

Thus, liberal and strict interpretations of penal legislation are applied to interpret regulations in their own way. The strict interpretation of penal legislation is carefully construed in favour of the individual being prosecuted. In the event of an ambiguity in the text of the provision, this rule suggests a predilection for the subject’s liberty. Criminal and penal laws must be rigidly construed and cannot be widened by intention, interpretation, or fair considerations. If a liberal interpretation is established in criminal legislation, it must be for the advantage of the public interest. Penal laws should not have a retrospective effect since it is harmful to the accused’s interests. The literal rule of interpretation will be used by the courts in strict interpretation. The golden rule of interpretation, or the mischief rule, will be applied by the courts in liberal interpretation.

References

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Section 325 IPC : meaning, punishment and exception

By

Rachit Garg

-

April 21, 2022

0

This article is written by Vihanka Narasimhan, a law student from Jindal Global Law School, O.P. Jindal University. This article makes an attempt to explain Section 325 IPC which deals with the concept of ‘Punishment for voluntarily causing grievous hurt’.

It has been published by Rachit Garg.

Introduction

The grave offence of grievous hurt can be found in chapter 16 titled ‘offences affecting the human body’ under the Indian Penal Code, 1860. Section 320 enumerates eight kinds of hurt which are ‘grievous’ in nature including emasculation, injury resulting in loss of eyesight and/or hearing, loss or impairment of a person’s limb or joint, disfigurement of face and head, dangerous hurt i.e., severe bodily pain for a period of twenty days and fracture or dislocation of a bone or tooth. The punishment for voluntarily causing ‘grievous hurt’ has been provided under Section 325 of the Code. In order to be convicted under this Section it is crucial that the grievous hurt is a sort of specific hurt which has been voluntarily inflicted on a person and comes under the ambit of Section 320.

Meaning of hurt

The term hurt has been defined under Section 319 of the Indian Penal Code as “Whoever causes bodily pain, disease or infirmity to any person is said to cause hurt.” In layman’s terms, in order for an offence to be conceived as hurt, the following elements need to be satisfied: –

Bodily pain

In order for an offence to be classified as hurt, it is essential that there is an element of ‘bodily pain’. It can be understood as the direct result of an act causing bodily pain irrespective of the methods used. It is also important to note that this element can be satisfied without physical contact; however, the concept of emotional or mental pain is not covered under this section. In addition to this, It is important to take note that any kind of injury which causes a risk of life resulting in severe body pain making it unable for him/her to follow his/her ordinary pursuits temporarily cannot be regarded as a grievous hurt but falls under the ambit of hurt.

Disease

In order for an offence to be classified as hurt, it is essential that the spread of a ‘disease’ takes place. In a nutshell, it implies that if a person gets a certain disease from another person, it will come under the purview of this section. In the case of Raka v. Emperor, with a prostitute who had syphilis and as a consequence of the nature of her profession the disease was transferred to her customers. In this case, the Court made the judgement against her stating that the prostitute was liable under Section 269 of the Indian Penal Code which was a negligent act on her part that led to the spread of the disease which could be potentially dangerous to the life of another person.

Infirmity

In order for an offence to be classified as hurt, it is essential that there is an element of ‘infirmity’. The term can be understood as the inability of an organ to perform its normal function either temporarily or permanently. It can be conceived as the direct result of an act that leads to a state of temporary mental impairment, hysteria or terror.

Meaning of grievous hurt

The term grievous hurt has been defined under Section 320 of the Indian Penal Code in the following manner: –

“The following kinds of hurt only are designated as “grievous”: —

First. —Emasculation.

Secondly. —Permanent privation of the sight of either eye.

Thirdly. —Permanent privation of the hearing of either ear.

Fourthly. —Privation of any member or joint.

Fifthly. —Destruction or permanent impairing of the powers of any member or joint.

Sixthly. —Permanent disfiguration of the head or face.

Seventhly. —Fracture or dislocation of a bone or tooth.

Eighthly. —Any hurt which endangers life or which causes the sufferer to be during the space of twenty days in severe bodily pain, or unable to follow his ordinary pursuits.”

In layman’s language, in order for an offence to be conceived as grievous hurt, the following elements need to be satisfied: –

Emasculation

In order for an offence to be classified as grievous hurt, it is essential that ‘emasculation’ takes place. According to Merriam Webster, the term emasculation has been defined as “to deprive of strength, vigour, or spirit”. This type of grievous hurt is restricted to men only and is generally used when harm is caused to the scrotum of a man which in turn results in his impotence. It will be considered as a type of grievous hurt irrespective of it being permanent or temporary in nature.

Injury to eyesight

In order for an offence to be classified as grievous hurt, it is essential that ‘injury to the eyesight’ of a person takes place. This type of injury includes disfigurement of the body through permanent or partial loss of eyesight in either or both eyes.

Hearing impairment

In order for an offence to be classified as grievous hurt, it is essential that ‘hearing impairment’ has taken place due to some injury to a person. This type of injury includes disfigurement of the body through the infliction of damage to the ear in such a way that it causes permanent deafness. It can take place when a person’s skull, brain or ear gets damaged. This injury is only given traction in case of permanent hearing loss and is considered less serious than the loss of eyesight.

Loss of limb or joint

In order for an offence to be classified as grievous hurt, it is essential that there is an element of ‘loss of limb or joint’ that has taken place due to some injury to a person. The term limb can be defined as an arm or leg of a person and a joint is the articulation of two bones in the body. The deprivation of a limb or joint can make a person incapable of doing tasks that are done with the help of limbs or joints; for instance, if a man’s legs are cut down by someone, he would not be able to walk or run.

Impairment of a limb or joint

In order for an offence to be classified as grievous hurt, it is essential that there is an element of ‘Impairment of limb or joint’ that has taken place due to some injury to a person. This type of injury includes disfigurement of the body through the infliction of damage in such a way that it permanently decreases the utility of a limb or joint which in turn results in hampering a person from performing day-to-day tasks.

Disfigurement of head or face

In order for an offence to be classified as grievous hurt, it is essential that disfigurement of the head or face has taken place due to some injury to a person. The term disfigure has been defined as “to spoil the appearance of something or someone, especially their face, completely” by the Cambridge dictionary. This type of injury includes disfigurement of the body through the infliction of damage in such a way that it permanently ruins a person’s looks or physical beauty by scaring.

Fracture or dislocation of a bone or teeth

In order for an offence to be classified as grievous hurt, it is essential that a fracture or dislocation to a bone or teeth has taken place due to some injury to a person. A fracture can be usually defined as a complete or partial breaking of bone and dislocation is when a bone is forced out of its ordinary location.

Dangerous hurt

In order for an offence to be classified as dangerous hurt, it is essential that one of the following takes place when a person is injured: –

An act of a person puts another person’s life in danger
An act that leads to severe bodily pain that a person suffers for a period of twenty days
An act that leads to severe bodily pain that a person is unable to do his ordinary work and daily activities for a period of twenty days

It is crucial to note that, in case there is an absence of an intention to cause death (mens rea), or grievous bodily hurt, the accused will only be held guilty of causing hurt and not grievous hurt.

Difference between hurt and grievous hurt

The terms hurt and grievous hurt may seem similar in nature but in actuality have different provisions in the law. The differences between both the terms are as follows: –

The term ‘hurt’ has been defined under Section 319 whereas ‘grievous hurt’ has been defined under Section 320 of the Indian Penal Code.
The term ‘hurt’ includes three main components which include bodily pain, disease and infirmity caused due to an injury whereas ‘grievous hurt’ includes eight main components namely, includes emasculation, injury resulting in loss of eyesight and/or hearing, loss or impairment of a person’s limb or joint, disfigurement of face and head, dangerous hurt, fracture and dislocation of tooth or bone.
The criminal offence of ‘grievous hurt’ is way more serious than the offence of ‘hurt’.
‘Hurt’ is punishable under Section 323 only up to 1 year or a fine which may extend to one thousand rupees, or with both whereas ‘grievous hurt’ is punishable under Section 325 up to 7 years and a fine.
It is necessary that another offence has been committed along with the offence of ‘hurt’ to be punishable; however, in case of ‘grievous hurt’, it itself is sufficient to hold a person who committed the offence liable.
The offence of ‘hurt’ is a non-cognizable, bailable and compoundable offence whereas ‘grievous hurt’ is a cognizable, bailable and compoundable offence.

For simpler understanding, please refer to the table below: –

Basis	Hurt	Grievous Hurt
Components	It is defined under Section 319 and includes bodily pain, disease and infirmity.	It is defined under Section 320 and includes emasculation, injury resulting in loss of eyesight and/or hearing, loss or impairment of a person’s limb or joint, disfigurement of face and head, dangerous hurt, fracture and dislocation of tooth or bone.
Seriousness	It is not serious in nature as it does not endanger a person’s life.	It is serious in nature as it endangers a person’s life.
Punishment	It is punishable under Section 323 and is non-cognizable.	It is punishable under Section 325 and is cognizable and bailable.
Requirements	In order to be deemed punishable, it must be accompanied by other offences.	It is punishable by itself.

Punishment under Section 325 IPC

Section 325 of the Indian Penal Code provides for the punishment of grievous hurt. It states that: –

“Whoever, except in the case provided for by Section 335, voluntarily causes grievous hurt, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.”

In simple words, causing grievous hurt to someone is considered to be a somewhat serious crime in India and is cognizable in nature. Cognizable offences can be defined as a privilege that the law provides to a police officer which allows him to make an arrest without a warrant from a court. It is, however, bailable and compoundable at the discretion of the court. It is important to remember that in case a person gets convicted for this crime, he/she will be imprisoned for a term which may extend up to seven years and shall also be liable to a fine.

Exception to Section 325 IPC

From the language of Section 325, it can be easily interpreted that Section 335 serves as an exception which in turn will not result in the penalisation of a person in case of grievous hurt. Section 335 states that the accused should voluntarily cause grievous hurt on grave and sudden provocation and such a grievous hurt should not be intended to hurt other than the person who gave that provocation. According to this section, in case a person is caught doing the aforementioned, he/she will be either punished with imprisonment of four years or a fine which may extend to two thousand rupees, or with both.

What happens when a person is charged with Section 325 IPC

In order for a criminal procedure to start, generally the first reaction of the victim would be to go to a police station and file a First Information Report (FIR) or in simple terms, the victim will file a complaint. After this step, an investigation is started by the police wherein evidence is collected. This leads to the creation of something known as the ‘charge sheet’ which is filed by the police. A charge sheet is basically is a report that is filed by the police to the Magistrate after the investigation has been successfully done which records the details relating to the name of the informant/complainant, the accused and victim, any witness, items or articles seized, date, time and place of occurrence of the crime, the name of the investigating officer, the medical reports if ant made, the FIR number, the true findings of the case diary etc. The accused person is then taken before the Magistrate who orally narrates the offence(s) committed to the accused and asks them if they plead guilty or not. If the accused person pleads guilty, the Magistrate makes a record of the statement of the accused and then proceeds for conviction. However, if they do not plead guilty then a trial takes place wherein the judge may then decide the acquittal or the conviction of the accused.

FAQs on Section 325 IPC

What offence is defined under IPC 325.

This Section specifies the punishment for the offence of voluntarily causing grievous hurt to a person.

If a person gets convicted under Section 325, what is the punishment?

The offence committed under this Section is punishable with 7 years in jail and a fine.

Is Section 325 a cognizable offence or a non-cognizable offence?

The offence committed under this Section is a cognizable offence.

Is Section 325 a bailable or non-bailable offence?

The offence committed under this Section is a bailable offence.

In what court can IPC 325 be tried?

The offence committed under this Section can be tried in the court of any Magistrate.

Conclusion

In the Indian Penal Code, the provision with regards to grievous hurt has been laid down from Section 320. At first glance the term hurt may look synonymous with grievous hurt however, they have specific meanings and punishments assigned to them by our legal system. Grievous hurt is a grave crime and is scrutinised and penalised by the judiciary strictly. If convicted, one can be sentenced behind bars for up to seven years and will also be liable to pay a fine.

References

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Judicial analysis on personal liability of agents

By

Sneha Mahawar

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April 21, 2022

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This article is written by Senjyoti Howlader pursuing a Certificate Course in Advanced Commercial Contract Drafting, Negotiation & Dispute Resolution. This article has been edited by Ruchika Mohapatra (Associate, Lawsikho).

This article has been published by Sneha Mahawar.

Table of Contents

Introduction

The Indian Contract Act, 1872, Section 182 defines an “agent” as a person employed to do any act for another or to represent another in dealings with third parties. The person for whom such an act is done, or who is so represented, is called the “principal”. In the case of P. Krishna Bhatta v Mundila Ganapathi Bhatta, Ramaswami J of the Madras High Court has further explained the concept of agency as “In legal phraseology, every person who acts for another is not an agent.” It is only when he acts as the other’s representative in business negotiations, that is, when contractual obligations between that other and third parties are created, modified, or terminated. Representative character and derivative authority may briefly be said to be the distinguishing features of an agent.

In a contract agency, an agent is a person hired to create a relationship between his principal and the agent. The agent cannot directly enforce the contract, nor is he personally accountable for the contract unless the contract expressly states otherwise. In this article, we will discuss the personal liability of agents.

Agency under Contract Law

Chapter 10 of the Indian Contracts Act, 1872, deals with the agency, wherein:

Section 230 says that an agent cannot personally enforce, nor be bound by, contracts on behalf of a principal.
Section 231 discusses the rights of parties to a contract made by an agent not disclosed. If an agent makes a contract with a person who neither knows nor has reason to suspect, that he is an agent, his principal may require the performance of the contract; but the other contracting party has, as against the principal, the same rights as he would have had as against the agent if the agent had been principal.
Section 235 talks about the liability of a pretended agent. If his purported employer does not confirm his activities, a person falsely portraying himself as an authorized agent of another and enticing a third party to deal with him as such an agent is obliged to compensate the other for any loss or harm he has received as a result of such dealing.
Section 236 discusses that if a person falsely contracting as an agent is not entitled to performance, “A person who entered into a contract in the capacity of an agent is not allowed to demand its fulfillment if he was acting on his own behalf.”
Section 188 of the Act mentions the extent of an agent’s authority. An agent having the authority to do an act has the authority to do every lawful thing which is necessary in order to do such an act.

Any authorised thing necessary for the purpose of conducting such a business, or commonly done in the course of such a business, is permissible for an agent with the power to carry on a business.

Illustrations

B, who lives in London, hires A to reclaim a debt owed to B in Bombay. A may take whatever legal action is necessary to recover the debt and, in the process, may grant a lawful discharge.

The primary premise of agency, as we’ve seen, is that the agent works on behalf of his principal and, hence, cannot personally enforce the contract. Likewise, he is not personally liable for any of the behavior. Unless there is a contract to the contrary,

An agent is not personally accountable for the contracts he enters into on behalf of his principal. Because an agent is only a conduit between his principal and a third party, he cannot, in most cases, personally enforce contracts entered into on his principal’s behalf, nor can he be held personally accountable for such contracts in the absence of a written agreement to the contrary.

An agent is, however, personally liable in the following cases:

When a person enters into a contract with an agent, he may specifically indicate that if the contract is breached, he may hold the agent personally accountable. If the agent agrees, he is personally liable.
When the agent acts for a foreign principal—when an agent makes a contract for the sale or purchase of commodities on behalf of a merchant based overseas, the agent is personally accountable. He can limit his personal culpability by including a clause in the contract that expressly states so. If he does so, he cannot be sued for breach of contract.

In the case of Delhi Express Travels Pvt. Ltd. v. International Air Transport Association and Others, it was held that a contract making the agent personally liable has to be presumed to exist where the principal is residing abroad and/or where the principal, though disclosed, cannot be sued.

When the agent acts for an undisclosed principal—when an agent acts for an unknown principal, he is individually accountable, albeit the principal is equally liable if the principal is found by a third party.
When the agent acts as a principal who cannot be sued, when the principal is unable to enter into a contract, such as when the principal is a minor or an imbecile, the agent is held personally accountable since credit is assumed to have been given to the agent rather than the principal.

In the case of Union of India v. Chinoy Chablani & Co., AIR 1982 Cal. 365, on behalf of the plaintiff, i.e., Union of India, the Mineral and Metal Corporation of India Ltd. made an agreement with the Black Sea Steamship Company of the USSR. Under the agreement, the Shipping Company of the USSR agreed to carry a consignment of some fertilisers from the port of Odessa in the USSR to any port in India. The respondent, i.e., Chinoy Chablani & Co., were the steamer agents in Calcutta for discharging the said consignment. When the cargo was discharged, certain bags containing fertiliser were found cut and torn, and certain quantities were swept only. This loss to the plaintiff (Union of India) occurred due to the wrongful acts of the carriers. The plaintiff brought an action against the steamer agents (Chinoy Chablani & Co.) for claiming damages of Rs. 73, 285. It was contended by the plaintiff that since the shipping company belonged to the USSR and the same could not be sued in India, the agents of the shipping company in India should be liable for the same under section 230, Clause (3).

It was held that in order to make the agent liable under this provision, the first prerequisite is that there must be a contract entered into by the agent on behalf of the principal. Since in this case, the contract had been entered into by the principal (shipping company) with the Union of India directly, the question of the liability of shipping agents did not arise, and they were not liable for the same.

Unless a country’s purpose is readily apparent from the body of the instrument, an agent who signs a contract in his own name without a qualifier, despite being known to be an agent, is assumed to have contracted personally.
Where he acts for a principal who is non-existent, this is an unusual situation. Even though the purported principal (i.e., the company) has no legal existence until the moment of incorporation, the promoters of a business that has yet to be formed occasionally enter into contracts on behalf of the firm. In this instance, the promoters are considered to have entered into the contract on their own behalf and are personally accountable.
Where he is liable for breach of warranty—in a lawsuit brought by the third party with whom he pretended to form the contract, a person who claimed to serve as an agent but had no authorization from the supposed principal or exceeded his power is personally responsible for breach of warranty of authority.
Where he receives or pays money by mistake or fraud, an agent is personally accountable to third parties if he gets money from a third party by error or fraud. Similarly, he has the right to sue a third party for the recovery of money he has paid by mistake or under the guise of a third party’s fraud.
Where his authority is coupled with an interest – when an agent’s authority is linked with an interest in the subject matter of a contract he enters into with a third party, he has the right to sue, or be sued, but only for the amount of that interest in the subject matter.
Where the trade usage or custom makes him personally liable—where there is a trade usage or a custom making him personally liable, he is liable if there is a contract with the country.
Pretended Agent: A feigned agent is someone who pretends to be an agent for someone else when he actually has no control over them. When someone pretends to be someone else’s agent, the principal may endorse the agent’s actions and shield him from accountability. However, if the principal refuses to authorize the agent’s actions, the latter is solely accountable for any loss or harm he causes to a third party.

As an example, A borrowed money from B as D’s agent. B was certain that he was. However, this was not the case. A was found to be responsible for B. When a person contracts as an agent, he is not allowed to demand that the contract be fulfilled unless he was acting on his own behalf.

A, in the role of B’s representative, enters into an agreement with C to purchase C’s home. In truth, A is operating on his own behalf, not as an agent for B. The contract’s fulfillment cannot be enforced.

In the case of Aa Bee Resort and Travel Pvt. Ltd. v. Om Prakash Palia, decided by the Delhi State Consumer Disputes Redressal Commission, wherein it has been held that the liability of the agent booking the ticket The agent had sold the ticket on behalf of the airline as its booking agent. Agents here cannot escape this liability.

Again, in the case of Air India and others v. Ranjot Singh and Ors., wherein it has been held that Singapore Airlines, being the agent of Ops No. 1 and 2, cannot escape their liability, A principal cannot escape his liability for the omission and commission of an act of his agent.

Termination of agency

Termination of an agency may take place in two ways:

The Application of the Law
Parties’ Act

An agency can be terminated by operation of law in any of the following cases:

Performance of the Contract
Expiry of Time
Either Party’s Death or Insanity
Insolvency of the Principal
Destruction of Subject-Matter
The principal becomes an enemy alien.
Dissolution of a Company
Termination of Sub-Agent’s Authority
Subsequent events Making the Agency Unlawful

An agency can be terminated by any of the following actions taken by the parties:

Mutual Agreement

For example, in order to collect the amount loaned to C and D, A designated B as his agent. The amount that was loaned to C was collected by B. As a result, A and B agreed to part ways with their agency connection. The agency is shutting down here.

2. Revocation of the Agent’s Authority by the Principal

D was appointed by A to act as his agent for the acquisition of certain products. A may cancel D’s authorization at any point before he acquires the products. However, the following requirements must be met before the agent’s authorization can be revoked:

If the agent has only partially utilized his power, the principal may remove the agent’s authority solely for future acts.
If the agency is established for a specific period of time, the principal may withdraw it before the end of that period if there is a good reason.
If the agency is constituted for a set amount of time or for an indefinite period of time, the principal must provide the agent with adequate notice of the termination of the agency.
If the agent has an interest in the subject matter, the agency can only be terminated if there is an express contract that allows it.
The Agent’s Revocation

After providing the principal with sufficient notice, the agent may renounce the agency business. If the agency contract is for a set amount of time, the agent must compensate the principal for the earlier termination of the agency activity.

Conclusion

Though a person is always liable for her own torts, an agent who commits one is also liable; if the tort was committed in the course of employment, the principal is also liable. Unless the principal encouraged the agent to conduct the tort, the agent must compensate the principal. In most cases, an agent is not accountable for contracts made; instead, the principal is liable. However, if the agent is not or only partially disclosed, if the agent lacks or exceeds authorization, or, of course, if the agent entered into the contract in his or her personal capacity, the agent will be held liable.

Agencies end either explicitly or implicitly, or through the operation of the law. The principal’s revocation or the agent’s renunciation, or the terms of the agreement or mutual consent, or the principal’s revocation or mutual consent, a variety of scenarios exist in which it is plausible to believe that one or both parties do not want the connection to continue, and therefore an agency terminates implicitly. When one of the parties dies or becomes incompetent, or if the agency’s object becomes illegal, the agency will be terminated by the operation of law. However, because an agent may appear to have residual authority, the principal should warn anybody who might deal with the agent after the agency is terminated.

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

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Tips to succeed in a law college

By

Rachit Garg

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April 20, 2022

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This article has been written by Robert Everett. He writes for an agency that trains students to be great corporate workers and entrepreneurs after college.

It has been published by Rachit Garg.

Table of Contents

Introduction

Law is not a course that is easy to deal for students. There is a lot of reading involved in the course. The material in the course is a lot and you need strong retention capabilities. You will need to remember a lot of sections and case laws which means you will need to constantly refer to this work. Exams are tough for law students even with consistent studying. This is why law students need all the help they can get. Here are some tips to help you succeed in law school.

Take notes in class

Make a point to take good notes when the lecturer is talking in class. You need to have decent notes that you can refer to come the exam period. But you should not get so caught up in trying to note down everything your lecturer is saying that you do not engage and participate in the class discussion.

Always review the notes you took in class before starting on your following reading assignment and take note of how the new cases you are reading affect those you had prior reviewed in class. Studying in law school and doing assignments can be a bit hard for college students. College students can use the assistance of online services to take some of the load off. A student can go to a coursework writing service for help. Leading writing service, Uk.EduBirdie, is a top name in this regard. With professional writing, you can create a balance in your education. You can learn, study and do assignments all at the same time and create a name for yourself.

Prepare an outline for each of your classes

Outlines that have been made by senior students are not acceptable substitutes for making your outlines. Doing your analysis is necessary to prepare a course outline that will help you determine the rules of law applicable to the subject matter of that unit. It will also help you determine how the rules and laws are related.

Most lecturers do not teach a course the same way from one year to the next. Therefore, using someone else’s outlines will not serve you well. The only way to get an outline tailored to your course is to make it yourself.

Form a study group

Study groups can be very good for law students. Discussing concepts and theories with classmates will help you understand the content better. You will also easily remember what you will study in a group context. Your peers can also help you with some good tips on the course. When forming a study group, make sure your partners are people who are prepared for class.

You also need to make sure you have the same academic goals and targets. You don’t want to waste more time on gossip and social talk during discussions instead of studying. If that is the case with your study group, it will do you more good to leave the group and study independently or find a better one.

Attend review sessions conducted by your professors and/or their academic fellows

Most professors and lecturers carry out review sessions with students. They are normally held right before exams. Attending these sessions is a great way to understand the areas that trouble you.

You will be able to straighten out your concerns without waiting in line outside your lecturer’s office. You will also be able to get some good tips on answering exam questions efficiently. You get to know what answers carry more points as compared to others.

Do practice exams

Do several practice exams in preparation for coming exams and to familiarize yourself with the concepts in your course. Exams that were previously administered by the professor teaching you are preferable. This will help you analyze how your professor sets his exams and cats.

Most school libraries provide these past papers and the answers for revision. When you have the time, visit the library where you can look at these papers and answer them. Compare the answers to those provided to see how good you are and what you need to work on.

Conclusion

These are some of the few tips you can use as a law student to study better. These tips will help you study, but they will also assist you in passing your exams. With good grades, you will be able to follow and achieve your dream of practicing law and even get to high ranks such as the attorney general. It is important to study hard to reach your academic goals.

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

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Lewis Hamilton’s contract with Mercedes

By

Rachit Garg

-

April 20, 2022

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This article is written by Akshaya V, pursuing LLB from CMR University, School of Legal Studies. This article deals with everything relating to Formula One Champion Lewis Hamilton’s contract with Mercedes.

It has been published by Rachit Garg.

Table of Contents

Introduction

Lewis Carl Davidson Hamilton is a British National, born on 7th January 1985 in Stevenage, England. He was born into a mixed-race family. His father and mentor Anthony Hamilton, worked hard every day to advance his son’s career. At the age of eight, Lewis Hamilton was given a well-used go-kart to begin his racing vocation. In the year 1995, Lewis Hamilton was awarded trophies at a motorsport ceremony in London. During that year, he had approached Ron Dennis, head of the McLaren Mercedes formula one team and said that he will race for his team one day. Three years later, Hamilton’s family received a call from Ron Dennis himself that he would financially support Lewis’ career, provided he keeps working hard at his school and was signed by McLaren Mercedes-Benz to their Young Driver Support Programme. However, Lewis Hamilton needed to be worthy of his benefactor’s investment by winning all the time. He did so by showing progress in motorsports ranks. His prodigious talent made him an inspirational role model and the ideal ambassador for the racing profession.

Early days

Lewis Hamilton played kart racing for about six years and won eight championships. He continued to win three major single-seater titles, of which the most prestigious one was the GP2 Championship, wherein he bagged five victories in 2006. After having many comeback performances, McLaren was prompted to promote him to the Formula One racing team. He stormed through the 2007 season with astonishing ease. He consistently outperformed his celebrated teammate Fernando Alonso by barging into the podium a dozen times. To mention, he won four races, and led the championship for straight five months but lost the final race with a difference of a single point to Ferrari’s Kimi Raikkonen.

That year was so turbulent for McLaren because two drivers became bitter adversaries and their new hire’s astonishing debut was the only bright spot. In 2008, he became the team leader and scythed his way to the podium by winning five matches. All the rivals he overtook accused him of dangerous driving and arrogance. Hamilton insisted that his abilities and self-belief were wrongly interpreted though his driving was firm but fair. However, he lost his form in the following seasons, for which he blamed distractions from his personal life. He vowed to regain his lost focus In 2012, he drove really well and bagged four wins, and finished fourth in the standings. Post this incredible win, he announced his resignation from McLaren and offered his gratitude to the McLaren team for being a supportive team throughout his racing career. He also declared that he would replace the retiring Michael Schumacher at Mercedes. In no time, the 2013 championship earned him a respectable fourth position as an F1 racer for Mercedes.

Lewis Hamilton and Mercedes

In 2014, Mercedes won 16 out of 19 Championships and eventually dominated the season. Mercedes had a policy of letting their own drivers race against each other which brought Lewis Hamilton and Nico Rosberg into a long duel by competing for honours at the peak of motorsport. It tested the strength of their character and strained their friendship because of the intensity of rivalry. From then, he never lost his driving charm and his hunger to win. He worked on self-improvement and insuperable force in 2015. At the United States Grand Prix race held in Austin, he made full use of the Mercedes F1 team and capped the triple crown triumph. Despite making any driving errors and having many close calls even with his own teammate Nico Rosberg, he emerged victorious. This made him a third-place candidate on the all-time winner’s list, making him one of the greatest drivers. However, he lost the 2016 championship due to driving errors and mechanical problems. In 2017, he overcame these errors and demonstrated exemplary driving skills and efficiency winning nine races and finishing on the podium thirteen times.

With this triumph, Lewis Hamilton had established himself both on-field and off the field and remained one of the most popular personalities. Continuing this, in 2018 he won his fifth world championship equalling the record of Juan Manuel Fangio. Hence at the age of 33, he had seventy-three wins, eighty-three poles, and one hundred and thirty-four podium finishes. Mercedes and Hamilton’s partnership only kept growing stronger as Hamilton kept emerging victorious in various other races. He also remarked that it was the highest point of his career and his fans agreed by supporting him on social media making him one of the popular social media personalities. This fame also helped him launch his high fashion line of clothing which was successful. In 2019, the talented Hamilton won his fifth driving title with the strong support of Mercedes, who encouraged him to consistently deliver performance. Hamilton continued to develop interests in various other fields such as fashion, food choices, animal welfare, and other social welfare measures. The 2020 pandemic made Hamilton fit into a very tight schedule but did not hamper his performance. He won his seventh title with Mercedes and became the most successful F1 driver statistically. However, the pandemic also took a toll on him as he lost a few races but his fans continued to support him during these tough times. He is one of the few celebrities who used his fame and status to promote social causes. He broke Michael Schumacher’s win record in 2020 and he is now the race win record holder in Formula One.

The entry of Max Verstappen in 2021 drastically changed the domination of Hamilton. He gave a tough fight and even ended up winning against Hamilton in this season though it was a controversial decision. However, Lewis Hamilton and his team wholeheartedly congratulated his team for his victory. The decision of the race was a contentious issue and is being analysed by the FIA. However, Lewis Hamilton continues to remain one of the most successful people to have ever graced this sport.

Mercedes and Lewis Hamilton’s new contract for 2022

The reigning Formula One World Champion was pleased to announce his continuance with the Mercedes-AMG Petronas F1 team in 2021 by agreeing to sign a new contract after a lengthy negotiation period before the scheduled start of preseason testing at Bahrain International Circuit. As surprising as this admission sounds, it is one of the most successful collaborations in the history of sports for a ninth consecutive season. This agreement revealed that it would be a pathway to greater diversity and inclusion in all its forms in motorsport by virtue of a joint commitment achieved by Mercedes and Lewis Hamilton until then. Hamilton declared that actions would be taken for the inclusion of equality and diversity. Although Mercedes agreed to put Hamilton on the grid after resolving the contract saga, the speculation about his future after the end of 2021 as their tradition had always been to sign a multi-year agreement.

Hamilton stated that he was excited to head into the ninth season with his Mercedes teammates and to build his success even further both on and off the track while continuously looking to improve. He wanted to make this motorsport more diverse for future generations and thanked Mercedes for extending its support to address this issue. He also added that a foundation would be launched dedicated to diversity and inclusion in the coming years and that he is waiting to get back on track.

Toto Wolff, CEO and Team Principal stated that “we have always been aligned with Lewis that we would continue, but the very unusual year we had in 2020 meant it took some time to finish the process. Together, we have decided to extend the sporting relationship for another season and to begin a longer-term project to take the next step in our shared commitment to greater diversity within our sport. Lewis’s competitive record stands alongside the best the sports world has ever seen, and he is a valued ambassador for our brand and our partners. The story of Mercedes and Lewis has written itself into the history books of our sport over the past eight seasons, and we are hungry to compete and to add more chapters to it.”

Markus Schafer, Non-executive chairman shared that “we’re very happy to keep the most successful F1 driver of the current era in the most successful F1 team of the current era. Lewis is not only an incredibly talented driver; he also works very hard for his achievements and is extremely hungry. He shares his passion for performance with the entire team which is why this collaboration has become so successful. But Lewis is also a warm-hearted personality who cares deeply about the world around him and wants to make an impact. As a company, Mercedes-Benz shares this sense of responsibility and is proud to commit to a new, joint foundation to improve diversity in motorsport. Opening the sport to under-represented groups will be important for its development in the future and we’re determined to make a positive impact.”

What is this contract about

The deal with Mercedes might mark the end of an era for Lewis Hamilton. The belief that the deal would be a win-win for both Mercedes and Hamilton, however, is questionable on many levels. To begin with, this deal is beneficial for Mercedes. This is attributed to the fact that Hamilton still is the best F1 racer in the world. Though there have been rumours of his exit for multiple reasons, Mercedes has a wonderful opportunity to partner with Lewis just based on his capabilities and talent in this arena. In addition, with sustainability becoming a core strategy for the automotive industry, social contribution through the development of Charity with a famous personality like Lewis would catalyse their attempt to enhance society. With such a vision, this deal is heavily dependent and vulnerable on prospects. Therefore, the need to have an “equally-valued” alternative is inevitable. The external factors that could affect this deal are not limited to:

The future of Lewis Hamilton in F1: Given the fact that Lewis contracted COVID-19 and the importance that sports stars assign to their health, the need to find alternatives who have reputations as much as Lewis displays would be a challenge. Max, Russell, and Bottas though serve as potential drivers, the majority of them have their careers dependent on Lewis’s next step and hence there is a lot of uncertainty. Not only is the future of Lewis a dependent factor but his current commitment to Mercedes would be a factor to consider as well.

Market situation: Given the loopholes in the contract and the fact that the terms and conditions for one year are not transferable to the next year, a long-term relationship would be mandatory keeping in mind that Mercedes need to claim value. In addition, the phase shift in the automotive industry, the impact of COVID-19 on the company’s bottom line, and the race drivers would make it crucial for either of the parties to come up with a figure adhering to both the parties’ preferences.

To make the negotiation more integrative, additional issues that pertain to non-monetary benefits too have to be put on the table. Contract length, possibilities of long-term relationships, societal benefits, etc. could all be addressed to create better trade-offs and enhance value from the negotiation.

Increased competition: With mergers and acquisitions, the idea of collaboration is on the rise, especially during the pandemic, it is important the deal is offered with maximum security and is not having any scope for the short-term. Given that the T&Cs vary by year, discussions must be made in advance, additional values in terms of guarantees post the negotiation gives Mercedes greater security and also reduces the risk of Hamilton getting involved in other deals.

With the risk of all these factors, and the pandemic showing the impact of uncertainty, suitable risk assessments and the use of technology such as predictive analytics would be strategic enablers for effective communication. The importance of non-monetary benefits or off-track values would be quintessential to addressing the pointers in the deal. The transformation of the automotive industry and the need to establish balance in the lives of the race drivers without jeopardising their performance would be needed to take into account as well. A proactive approach would be required from Mercedes to avoid delays concerning any talks or conversations.

Why did Hamilton and Mercedes sign a one year contract

Given the unparalleled success, it seemed inevitable that Hamilton and Mercedes would strike a new deal. However, due to various delays, the process was repeatedly pushed back and all urgency was removed once Hamilton’s rivals were all given new contracts, effectively closing off any exit routes for him and turning down Mercedes any of the established front runners as substitution options. When the season finally started and the COVID- 19 threat became a factor, Wolff and Hamilton had no rush to sign the deal while Hamilton hinted that he changed his desire to continue with Mercedes and that his usual three-year deal would not appeal. Formula One contracts consist of the options that may allow the continuation of the contract for more than a year provided they are agreed upon by both parties. However, since the season was all set to begin in March 2021 and the hard deadline was fast approaching, the team had to get something done. This led to the joint agreement for one year as the only way forward. Now Mercedes has given confirmation as to its star driver continuing with the team for at least the 2021 season.

Advantages of a short-term deal

It is already known that Mercedes and Hamilton could not agree on certain matters of the contract which lead to the delay in sealing a deal between them. This positioning, although not ideal, is sorted for this season before preparing themselves for a longer-term arrangement. Hamilton clearly stated that he would be needing a better next deal not only to focus on his personal arrangement with the team but also to extend support to diversity and inclusion. This new arrangement signifies that the deal centres around launching a foundation entirely dedicated to inclusion and diversity in Formula One and may last for a foreseeable period. The form in which the working relationship will take is unknown and open for discussion.

Downfalls of a short-term deal

The short-term deal, in effect, is kicking the can down the road. For the past year, Hamilton and Wolff have been swamped with inquiries about the British Driver’s future. This new agreement will temporarily alleviate the pain but it will not be long before they are asked about 2022 when new wide-ranging regulations will be implemented. For such a short-lived deal, both parties face risks. Hamilton could decide to leave Formula One and pursue opportunities with another team, which will give him some negotiating power. Mercedes, on the other hand, may decide that the time has come to promote George Russel at the end of 2021 or to make a move for another driver elsewhere on the grid, by giving them some advantages. As there could be many changes in the Formula One regulations in the future, Mercedes would like to prefer stability while Hamilton will, given the team’s resources and recent success, know that Mercedes will be best placed to respond to such a change.

Contract extension until 2023

Lewis Hamilton, the 7-time Formula One champion, has signed his contract extension with Mercedes till 2023, the German Formula One car constructors’ outfit said in a press release on Saturday. Since signing for Mercedes in 2013, Hamilton has won the World Drivers’ Championship (WDC) for a record 6-times with Mercedes. The British F1 driver has always voiced out against racism and is a staunch advocate of the Black Lives Matter Movement. Hamilton said in a statement that it is going to be a couple of exciting years of partnership with the team and he couldn’t believe it’s been almost 9 years with an incredible team like Mercedes. He also added on the accomplishments he has achieved with the Mercedes Team both professionally and personally. He couldn’t hide his grin when he stressed the fact that how he is incredibly proud of and thankful for the support Mercedes has shown towards inclusivity and equality in the pinnacle of motorsport of racing i.e., Formula One.

Hamilton reminded us of the important steps taken by his team to make themselves as one of the diverse teams on the paddock which was possible only by creating an “All are equal” environment. It is to be noted that the contract extension has been announced at a time when he is behind his competitor Max Verstappen by 18 points in the World Drivers’ Championship table. The free practice session of the Australian Grand Prix on Friday was kind to Hamilton as he was faster than Max Verstappen of the Redbull Racing Team.

Toto Wolff, who’s the Team Principal & Chief Executive of Mercedes Team has sung praises for Hamilton by saying that the achievements and the records broken by the Briton speak for themselves, which were a result of valuable experience, pure speed, and the know-how of motor racing. Wolff believes that Hamilton has still got what it takes to be consistently on top of the Formula One drivers’ list. The top man of Mercedes is smacking his lips on the battle they have got this season with their rivals Red Bull racing and says the rivalry was one of the main factors to renewing Hamilton’s contract much earlier this season so that there were no distractions for their favourite driver on track this season. Wolff wanted to repeat the fact that as long as Lewis Hamilton has got the hunger and fire for racing, Mercedes will always welcome him with open hands.

Neither Hamilton nor Mercedes wanted it to be just a one-year contract but due to circumstances and to hammer out the finer details. They primarily wanted a two-year deal for stability. The question that must be pondered over is whether this is the final contract for Lewis Hamilton as he will turn thirty-nine years old when his new deal expires. But this is common in Formula One times as many people have been racing even beyond the age of forty years. But since he has interests outside Formula One such as music, dance, and fashion, which he may have in store. In any way, he will be the control of his destiny.

Hamilton’s earnings in the new deal

Mercedes has not disclosed the value of Hamilton’s contract. It is known that his contract was worth forty million per season and is believed to be of the same value as all the add-ons and bonuses. Initially, the one-year contract also included a pay cut from Mercedes owing to the implications of COVID-19. Team boss of Mercedes Mr. Toto Wolff said that the company is aligned with what the other side would expect on the contractual terms. He added that since Hamilton has a helicopter perspective, it was equally difficult from both health and economic aspects to meet his needs. With the extension of the contract for two years, Hamilton went back to his old earnings from before the pandemic, i.e., forty million per season which recognised Hamilton as the best-paid driver on the field.

While Max Verstappen, has laid his onslaught with a 156-138 point lead and entered the Austrian Grand Prix, Hamilton made his entry in the title race impressing in the Styrian GP although he finished second. For Hamilton, keeping Max Verstappen at Red Bull is not the only incentive to stick with Mercedes but he is said to earn eighty million pounds over the two years. So in comparison, it keeps Hamilton well ahead of his rivals in terms of salary as it is more than double the salary of Max Verstappen and about three times the salary as that of Fernando Alonso with Alpine. Formula One boss Stefano Domenicali stated that there could be more earnings for Hamilton as he seems to be overtaking Michael Schumacher’s world record and that his positive impact on Formula one is huge, both on and off the race track.

Veto clause in the contract : fact or fiction

Toto Wolff stated that the one-year contract agreed by Lewis Hamilton was the result of wanting some time to settle for a longer-term deal. Speculation on Mercedes’s side was over when it was announced that Hamilton would be staying for one more season with Formula One until 2021. However, speculation persisted among others and prompted some surprise that 2021 would be Lewis Hamilton’s last season in Formula One. Speaking to the media, Toto Wolff explained that their negotiations about taking this contract beyond 2022 kept going until both were affected by a Coronavirus that derailed the hopes of talks taking place, resulting in the change of plans. Considering the ongoing uncertainties due to the impact of the virus both on Formula One and on the team budgets, it would be tough to commit to a longer-term contract yet it was stated that they will carve out the plans via video conferencing between Christmas and the end of January.

Although the extended contract was not made public, there were rumours that Lewis Hamilton is entitled to veto who his teammate would be if Max Verstappen is put in the second seat. Damon Hill also stated that it was hard for him to believe that Hamilton would demand a veto clause in the contract since he has seen his metamorphosis from the youngster that defeated the partnership of Sebastian Vettel in 2017 and 2018 and beat Fernando Alonso. Of all the speculations as to why Lewis Hamilton and Mercedes delayed in reaching an agreement, no one would have anticipated that Hamilton would have made such demands especially when he had already openly stated that they did not care who his teammate was. So the question herein is whether the demand concerning the addition of the veto clause is a fact or fiction. The prolepsis to this can be put forth in a threefold manner –

Hamilton would have specifically demanded a veto clause to prevent Max Verstappen from being in the same car as them as they are the best drivers on the grid now and would want to see the two drivers from the same car fighting it out. It may be because Lewis Hamilton thought that Max would surpass him one day and cannot beat him in the same car.
On the other hand, Nico Rosberg stayed consistent and close to Hamilton’s performance and capitalised whenever he had momentary falls. He was even able to make up for the inadequacy of his driving acumen by keeping pressure on Hamilton. Hamilton may have even been looking to avoid the repetition of the same incident.
After winning seven championships and the eighth one looking highly possible, he must carry his legacy, as that is the only aspect to which the focus shifts from races and championships. He might have also thought that losing Max in the same car would not work for his legacy.

Looking at all the above expectations, none of it stands ground. If fear was a factor for Lewis Hamilton, he would not have agreed to race in the first place. He had not shown anything that would make you think that his approach or his changed attitude. So coming to the topic, the rumours of Lewis Hamilton demanding a “Veto” clause in his contract in my view was pure fiction with no proper stand behind it.

Conclusion

The Mercedes team does have a track record of responding brilliantly to rule changes, such as in 2014 and 2017, and continuing its impressive dominance. All this change could have worried Hamilton, but it is believed the Briton retains full faith in the company’s ability to react to change and progress – and has full trust in the leadership team and the handling. If he didn’t think they could contend for the world championship over the next couple of years, he would have not signed again. With the Hamilton deal done, Mercedes can now switch their attention to the second seat and spend the coming days and weeks considering other things over at length.

References

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Contract management : what you need to know

Introduction

What is contract management

Phases of contract management

Pre-execution phase

Execution phase

Post-execution phase

Essentials of contract management

Stages of contract management

Business objectives and goals must be recognized

Drafting a contract

Negotiating the contract with the involved parties

Finalizing and executing the contract

Managing contract obligations and audits

Managing contract termination and renewals

How does contract management work

Preparation

Communication

Signing

Implementation

Modification

What are the benefits of contract management

How can one become a contract manager

Skills required to become a contract manager

Technical skills

Communication skills

Attention to detail

Organizational skills

Conflict resolution

Risk management

What is a contract management software

Who uses a contract management software

Why is a contract management software important

Benefits of a contract management software

Difference between contract management and contract administration

Conclusion

References

Taxation of digital assets in India

Introduction to digital assets

Classification of digital assets

Taxation of digital assets in the USA

Evolution of taxation on digital assets in India

Implications of Budget 2022

Rate of taxation and explanation under various heads:

Business income

Other sources

Tax deduction at source in virtual digital assets

Insertion of Section 194S in Income Tax Act, 1961

When and who are excluded from TDS

How will the losses incurred on virtual digital asset be taxed

Illustrative example

Example 1 (TDS of Virtual Digital Assets)

Example 2 (Capital Gains from Cryptocurrency)

Conclusion, confusion and the future of digital assets in India

References

Unenforceable contracts : what you need to know

Introduction

What is an enforceable and unenforceable contract

Enforceable contracts

Unenforceable contracts

What mistakes make a contract unenforceable

Lack of capacity

Three types of capacity

Minor

A person with an unsound mind

A person disqualified by law

Duress/Coercion

Undue influence

Misrepresentation

Fraud

Nondisclosure

Unconscionability

Illegal contract

Mistake

Impossibility

Unwritten contract

How to avoid unenforceable contracts and agreements

Ensure that a contract accomplishes whatever the parties think it does

Include a paragraph regarding dispute resolution