All about a contract of affreightment

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April 13, 2022

This article is written by Michael Shriney from the Sathyabama Institute of Science and Technology. This article outlines the contract of affreightment, its obligations, how it works, and the distinction between the contract of affreightment and contract of carriage.

It has been published by Rachit Garg.

Introduction

The term ‘contract of affreightment’ refers to a legal commitment between the shipowner and the charterer. A charterer is someone who borrows/ rents a ship from its original owner. For the charterer, the shipowner will contract to ship a certain amount of goods for a certain period of time. Regardless of whether the items are ready to transport or not, the charterer is liable for making payments to the owner under this commitment. When looking about chartering a ship, this contract is necessary. The charterer’s and shipowner’s duties, as well as the terms and conditions with liabilities, must be stated in the agreement, which is commonly known as the contract of affreightment (COA).

As an example of an affreightment contract, Italy was the world’s leading exporter of pasta, exporting primarily to Germany. Exporters in Italy have to enter into an affreightment contract with a freight operator. The contract states that the ship must deliver a certain quantity of pasta every month that will be exported to German ports for the next three years, which is agreed upon by both parties.

Contract of affreightment : a brief overview

A contract of affreightment is a deal between a shipowner and a charterer in which the shipowner promises to deliver a defined number of cargos for the charterer at a set price over a set period of time. The charterer is required under this contract to pay for the shipping regardless of whether the items are ready for shipment or not. The shipowner provides cargo room for items to be transported on a certain journey or voyages. The freight charges are the fees paid by the charterer. The charterer would settle the full price for the freight that is ready to be sent at the agreed-upon time. Even if the items are not available to transport at a particular time as per the schedule, the charterer will pay.

The shipowner is liable for the items carried on board until they are delivered to the stated destination on time. If the cargo products do not arrive at their destination as per the schedule, the shipowner will be held liable for any penalties incurred as a result of the delay. The shipowner and charterer each have their own duties and privileges under an affreightment contract. Its objective is to place responsibility on the transporter to transmit a particular quantity of goods within the time frame specified in the contract. A bill of lading and a charter party are the two types of affreightment contracts used in business.

Duties of shipowner

For a set period of time, the shipowner will lease a vessel to the charterer. The shipowner is responsible for uploading and managing the cargo entrusted to him in a safe and careful manner.
The shipowner must follow the authorised directions of the charterer.
The shipowner is responsible for carrying out the contract, which involves transporting a set amount of items for the charterer over a specified period of time during a given journey.
The shipowner is responsible for following the directions of the route and monitoring the management, which includes the captain, crew, and the ship.
It is the shipowner’s obligation to ensure that the ship is in perfect condition and that the diesel tank is full to reach the destined destination.

Duties of charterer

The charterer will be in charge of the vessel’s maintenance and security until the owner takes incharge of the vessel.
The charterer is responsible for the rental as well as the freight expenses.
Only the cargo damages will be held against the charterer.
The charterer has the authority to order the ship’s captain to follow the agreed-upon route.
The charterer is responsible for the cargo from loading to unloading process, as well as being held accountable for cargo damage.

Types of contract of affreightments

There are mainly two types of affreightment contracts namely ‘Bill of Lading’ and ‘Charter party’.

Bill of lading

A bill of lading, also known as a bill of agreement, is a receipt for cargo placed onto the ship for transportation to a set destination. The ship owners or agents sign the document to indicate that the shipping for the cargo of goods received for transportation has been completed. The agreement describes all the terms and circumstances under which the cargo will be transported to a specific spot. The document takes on three characters which are as follows:

The document serves as a receipt for freight services.
It acts as a commitment between a cargo operator and a shipper.
It also acts as a title document.

It is required for freight cargo movement. The document will have all of the information that is required for a valid document to be issued in order to complete the cargo transfer, and the invoice must be specified accurately and verified.

Case law

Hamilton Fraser & Co. v. Pandorf and Co., (1887)

Facts of the case

The lawsuit concerns a shipment of rice that was damaged by seawater. The facts of the case are that a cargo of rice was damaged by seawater, which allowed water to enter through the hole made by the rats, causing the cargo of rice to be spoiled. A condition on the bill of lading that excluded marine hazards and accidents was determined to be applicable, and the shipper was not held accountable. Damage caused by seawater was thought to be a sea peril. The damages caused by the rats were not the perils of the sea.

Issues involved in the case

The question is whether the shipper is liable for not properly enforcing the contract of affreightment.

Judgement of the Court

Lord Hershell gave a verdict in this case based on the contract of affreightment, which he examined and interpreted, stating that the shipper is not liable for not properly enforcing the contract of affreightment.

Charter party contract

In the context of a charter party contract, the charter can rent the entire ship or a portion of its cargo space for one or more voyages for a specific amount of time that must be legally stated in the contract. It is identical to a leasing contract in which the landowner rents out his or her place to a lessee in return for money. Similarly, the owner of the ship will lend his ship entirely or partially to a charterer to transfer cargo by charging the charterer fee till the ship reaches the destined location to deliver those items to the desired location. Generally, the shipowner will be in charge of the ship’s navigation and maintenance under this contract. The charterer must pick which destination the ship must visit based on the call he receives.

There are four forms of chartering contracts of affreightment: voyage charter, time charter, bareboat charter, and lump sum contract.

Voyage charter contract

A voyage charter contract is the most common affreightment agreement. The ships are rented to the charterer on a one-way voyage basis to destined ports with a certain cargo at an exact price of freight agreed upon. The shipowner is in charge of the ship’s operations. He shall be held accountable for the monitoring and shipment of cargo to its destination. In this sort of contract, the freight amount, methods of shipment, and schedule of payment must be stated. It must also state the tenure, lay days for reloading and offloading the cargo, and the amount owed if the ship arrives later than the days specified. The charterer is held liable for the costs and hazards associated with bringing and transporting the cargo to the ship, till the end of the voyage. The shipowner must sign the bill of lading document for the shipment must be added to this contract, and the contract might vary based on the needs of the specific event.

Time charter contract

In a time charter contract, the charterer is in charge of the business operation of the ship, while the shipowner is in charge of sailing and other ship management. He is responsible for paying the captain and crew’s salary, whereas the charterer is responsible for providing coal and paying port taxes. In terms of vessel handling, the captain must follow the charterer’s instructions. This contract will specify a location where the ship must be redelivered to the owners at the expiration of the period, and the freight will be paid until that point.

Bareboat charter contract

In a bareboat charter, which is less frequently used in ordinary commercial practice. In bareboat charter agreement, the charterer effectively operates as a shipowner for the duration of the contract. The shipowner leases his ship to the charterer for an agreed-upon duration of time without the ship’s captain and crew, stores, or insurance policy. The charterer has the choice to select his own captain and crew, and he has the responsibility of the ship management, making all navigation choices and directing the captain of the ship. It is usually used mostly for financial agreements for the ownership of ships. The ships are rented as bareboat charter contracts with the opportunity to purchase. The charterer must make full and correct payments to the shipowner. The shipowner hands over the ship to the charterer as soon as the payment is paid to him.

Lump-sum contract

Contracts can also be lump-sum contracts, in which the owner agrees to carry a certain quantity of a specified cargo by sea from one port to another port for a mutually agreed-upon sum of money. It is also referred to as a stipulated-sum contract. The owner will provide detailed instructions for the work and the parties will agree on a price for the work to be performed. Clients benefit since the price is fixed, which is resulting in reducing risk. Work carried out by ships on the water, such as exporting or importing commodities from one port to another, is dependent on the parties involved.

Obligations of affreightment contracts

The contract terms must describe the duties and obligations agreed upon between the charterer and the shipowner. Some of the responsibilities are as follows:

The master must provide notice to the charterer’s agent at a certain time as an obligation.
As specified in the contract, the vessel can be filled and released from the port included as an obligation.
The bill of lading must be issued within a given time frame included as an obligation.
The procedures to be taken if payment is late will also be included in the obligation of the contract.
When carelessness occurs, who will be held liable: the dockworkers or the crew will also be included in the obligations of a contract.

These are to be included in the obligation of the affreightment contract. Other requirements are also included in the contract. They are as follows:

The seaworthiness of the ship

The agreement between the shipowner and the charterer states that the ship must be seaworthy. The ship must be capable of overcoming the threats it will experience on the sea voyage. The contract also contains specific terms and circumstances, such as the availability of fuel, the effectiveness of crew members on board, and other criteria pertaining to the transportation of products. The ship must successfully meet the charterer’s criteria in order to fulfil the contract’s objective. The ship must consider all things in order to provide the best service possible.

Staying on the agreed route- no deviation

The shipowner agrees to follow the route specified and not to depart from the ship’s route as agreed in the carriage contract. When both parties agreed on the contract’s pre-determined path, changing the route is not considered a fair switch. The deviation is only authorised once the party has reviewed and acknowledged the contract deviation. Until then, the ship must take the correct path, which is a guided route for loading and unloading cargo between ports which is agreed upon. The ship may change its route only if the agreed-upon path poses a danger to the ship or cargo. When it is necessary to protect the ship, crew, and cargo from damage, it may be authorised to change routes.

No shipping of dangerous goods

Certain products are dangerous to the ship if they are not acknowledged by the carrier, and they are prohibited from being carried for their safety advantages. The shipper can not act independently. Some commodities are not harmful at the beginning of the journey, but they might become dangerous later if fuel or toxic gas escapes or fumes. If the shipper fails to disclose to the carrier dangerous goods or hides them for whatever reason, the shipper shall be held liable for any accidents or damages to the ship or cargo.

The obligation of reasonable dispatch

The shipowner and carrier must be able to properly fulfil their dispatch responsibilities. If the contract’s conditions do not include the delivery date, the shipper must deliver the products within a reasonable amount of time. This is based on the shipowner’s wishes. If the carrier fails to meet the specified commitment, the charterer has the right to claim cargo damages. Damages caused by natural disasters such as floods, heavy rains, and other events beyond the charterer’s control are not recoverable.

Nominating a safer port

If the charterer insists on nominating the port of his choice, it must be a trustworthy one. It is the charterer’s obligation to choose a safe port for the charter service and to guarantee that the cargo is safe for the duration of the contract. The safe period will record the time of arriving and departing from the port, which must be noted. The ship must have safely left the port while loading and unloading are also checked.

Frustration

When one party is at fault in performing the contract, frustration arises; in other words, the contract cannot be completed until one of the parties makes a mistake, which causes frustration. For example, if the chartered ship is destroyed or the charterer is missing, this will result in the contract’s inability to be fulfilled. Transport delays are often a source of frustration since they prevent the contract’s goals from being met. They must convince the court that the contract is no longer useful or is unlawful as a result of its failure to execute

Nomination procedure and potential problems

The shipment schedule and nomination processes will be the least standardised aspects of the contract. Some contracts are extremely detailed, including complicated requirements in the nomination method. The terms governing the nomination procedure will usually include everything from who is responsible for initiating the procedure to who has the final authority on the boats necessary during the time of delivery. The provisions in this process are written in a highly detailed way, which prevents misunderstandings since the procedures are well-written and include the contractual conditions. It’s necessary to let the parties be aware of where they are in the case of a COA and quick acceptance of the vessel nominated. When charterers violate a condition, owners will be able to easily and confidently place the vessel on a new contract.

Difference between a contract of affreightment and a contract of carriage

	Contract of Affreightment	Contract of Carriage
	The contract of affreightment is between the charterer and the shipowner.	The contract of carriage is between the carrier and the shipper.
	The charterer pays for the freight as per the contract.	The carrier gets payment in return for the carriage as per the contract.
	In this agreement, the shipowner promises to transport the cargo or use a portion or all of the ship’s area across a certain voyage for the advantage of the charterer.	In this agreement, the carrier agrees to transport the items delivered to the lawful owner through the shipper in exchange for money.
	To be enforceable, the contract must have agreed-upon payments, a stated time period with a specific location or voyage, and the cargo products stated on the contract.	The contract must have both necessary and formal aspects for the carriage of goods in order to be enforceable.
5.	This contract requires the charterer to pay just the lease charges over a specific time frame.	This contract requires the payment of freight undertaken to deliver goods from one port to another port.
6.	It deals with both the voyage and the port.	It is dealing with moving from one port to another.
7.	The payment is done for the freight whether the goods are ready for shipment or not.	The payment is done for the freight that is ready for shipment. Only after the payment, the contract is executed to deliver the goods.

Difference between charter party and bill of lading

	Charter party	Bill of Lading
1.	The charter party is an individual who holds a lease from a shipowner in exchange for payment to use his ship and get into an affreightment contract.	The bill of lading is a negotiable instrument in an affreightment contract that acknowledges receipt of the goods on board for carriage to a particular port of shipment designated by the owner or charterer.
2.	A charter party is not transferable to a third party.	A bill of lading is transferable to any third party by authorisation and shipment.
3.	For a limited time, the captain and crew act as the exporter’s agents.	For an indefinite amount of time, the captain and crew act as the shipowner’s agents.
4.	A charter party is the charter party’s lease of the ship.	A bill of lading is not a ship lease.
5.	A charter party cannot be used to secure a loan.	A bill of lading can be used to secure a loan.
6.	A charter party is not a document that declares the ownership of goods.	A bill of lading is a document that declares the ownership of goods.
7.	A charter party is for a specific journey.	A bill of lading is connected with a certain destination.

Conclusion

The aim of a contract of affreightment (COA) is to obligate a carrier to deliver a specified or ascertainable volume of goods of a particular kind over a certain time frame. The contract does not apply to a single vessel but operates to a series of journey charters. Freight is paid according to the amount of cargo being transported, and the carrier assumes the risk of route delays. Except for the unique trip charter conditions that involve lifting each vessel after it has been offered for loading, this contract is a set of standard terms.

The charterer is liable for all costs associated with carrying goods, as well as any cargo losses. If a ship fails to deliver goods on schedule or deviates from the agreed-upon route, resulting in cargo damage, the shipowner will be held liable for the losses. When chartering a ship for a time or voyage charter, it is important to make sure that it is safe during the duration of the contract. A contract of affreightment is a contract between a shipowner and a charterer for the purpose of renting his ship. As a result of such an agreement, certain responsibilities and obligations must be met to fulfill the contract.

References

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All you need to know about an Option Contract

By

Rachit Garg

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April 13, 2022

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This article is written by Hrishika Rawat of BBA LLB, Banasthali Vidyapith, Newai (raj.). This article deals with the meaning of ption contracts with their features, advantages, and disadvantages. It also elaborates on how option contracts work.

It has been published by Rachit Garg.

Table of Contents

Introduction

Options are financial products that may offer you, an individual investor, the flexibility you want in nearly any investing circumstance. Alternatives provide you with options. You are not restricted to simply buying, selling, or keeping out of the market. You may customize your position to your specific scenario and stock market forecast by using options.

Consider the following choices’ possible benefits:

You can protect your stock assets against a market price fall.
You can enhance your income by selling some of your present stock holdings.
You can plan to purchase stock at a lower price.
Even if you don’t know which way prices will move, you may prepare for a large market change.
You can profit from a stock’s increase or fall without paying the expense of purchasing or selling it.

A stock option is a contract that grants its holder the right, but not the duty, to purchase or sell shares of the underlying securities at a certain price on or before a defined date. The option is no longer available after the specified date. At the buyer’s request, the seller of an option is bound to sell (or purchase) the shares to (or from) the buyer of the option at the stipulated price.

What is an Option Contract

As options are a sort of derivative, their value is determined by the value of an underlying instrument. The underlying instrument might be a stock, but it could also be an index, a currency, a commodity, or any other type of investment.

Now that we know what options are, let’s look at what an options contract is. An option contract is a financial contract that grants an investor the right to purchase or sell an asset at a certain price by a certain date. It does, however, include the right to purchase, but not the responsibility to do so.

When it comes to understanding the meaning of an option contract, it is important to remember that there are two parties involved: a buyer (also known as the holder) and a seller (also known as the writer).

Modern options were born in 1973, with the establishment of the Chicago Board Options Exchange. On June 4, 2001, the National Stock Exchange (NSE) of India began trading in index options.

Types of Option Contracts

Call Option

A call option, usually referred to as a “call,” is a financial contract between two people, the buyer, and the seller of the option. The buyer of a call option has the right, but not the responsibility, to purchase an agreed amount of a certain commodity or financial instrument (the underlying) from the option seller at a specific time (the expiration date) for a specific price from the seller of the option (the strike price).

If the buyer decides to sell the commodity or financial instrument, the seller (or “writer”) is compelled to do so. This right is purchased for a charge (known as a premium). The owner of the stock has the right to “call the stock away” from the seller, thus the name “call.”

When you purchase a call option, you are purchasing the right to purchase a stock at the strike price at any time before the expiration date, regardless of the stock price in the future. The seller, on the other hand, can short or “write” the call option, giving the buyer the right to acquire that stock from you at any moment before the option expires. To compensate you for the risk you took, the buyer gives you a premium, often known as the price of the call. The seller of the call is said to have shorted the call option, and he or she keeps the premium (the amount paid to acquire the option) whether or not the buyer exercises the option.

Let’s look at an example of a call option to better comprehend it. Assume an investor purchases a call option on a stock of XYZ business on a given day at a strike price of Rs 100, with an expiry date of a month later. If the stock price climbs over Rs 100 on the expiration day, say to Rs 120, the call option holder can still buy the stock for Rs 100.

Put Option

A Put, also known as a put option, is a stock market mechanism that gives the owner of a put the right but not the obligation to sell an asset (the underlying) to a specific party at a predetermined price (the strike) by a given date (the expiry or maturity) (the seller of the put). The purchase of a put option is interpreted as a downgrade in the underlying future value. The ability of the owner to “put up for sale” the stock or index is referred to as a “put.”

Put options are most typically employed in the stock market to safeguard against a stock’s price falling below a certain level. If the price of the stock falls below the strike price of the put option, the owner/buyer of the put has the right, but not the obligation, to sell the asset at the specified price, whereas the seller of the put must purchase the asset at the strike price, if the owner uses the right to do so (the owner/buyer is said to exercise the put or put option).

Let’s look at an example to better understand what a put option is. Assume an investor purchases a put option on XYZ business on a specific date with the understanding that he can sell the investment for Rs 100 at any time before the expiration date. If the share price goes below Rs 100, say to Rs 80, he can still sell it for Rs 100. If the share price climbs to Rs 120, the holder of the put option is not required to exercise it.

Elements of a typical Option Contract

Options contracts include all of the elements of a standard contract, such as:

A promise made by a promisor
A promisee’s acceptance
Consideration (this is the exchange of something of value for something else of value)
Mutuality of parties
Legal capacity for parties to enter into the contract
Legally acceptable terms

In most cases, an options contract will also include the following extra elements:

The fundamental security
The sort of alternative (whether it is a call option or a put option)
The contracting party’s commodity
The date on which the contract takes effect
The price of the strike
The date of expiry

Features of Option Contracts

Highly flexible

Because options contracts are highly standardized, they can only be exchanged on organized exchanges. Such choice instruments cannot be made flexible to meet the needs of both the writer and the user. There are, on the other hand, privately negotiated options that can be exchanged ‘over the counter.’ These instruments can be customized to meet the needs of both the writer and the user. As a result, it includes the characteristics of both ‘futures’ and ‘forward’ contracts.

Down Payment

To exercise the option, the option holder must pay a fee known as a “premium.” This is regarded as the contract’s consideration. If the option holder does not exercise his option, he forfeits the premium. Otherwise, this premium will be subtracted from the total payment when computing the option holder’s net payoff.

Settlement

When the contract is written, no money, commodity, or share is exchanged. In general, this option contract expires when the option holder exercises the option or when it reaches maturity, whichever comes first. As a result, settlement occurs only when the option bearer exercises his option. If the option is not exercised by the maturity date, the agreement immediately ends, and no settlement is necessary.

Non-linearity

Unlike futures and forward contracts, options do not have the attribute of linearity. It signifies that the option holder’s profit when the underlying asset’s value moves in one way is less than his loss when it moves in the other direction by the same amount. In summary, earnings and losses in an option transaction are not balanced.

No obligation to buy or sell

The option holder has the right to buy or sell an underlying asset in all options transactions. He may exercise this privilege at any moment throughout the contract’s term. In no instance, however, is he obligated to purchase or sell. If he does not purchase or sell, the contract just expires.

Purpose of an Option Contract

Options are often used for hedging, but they may also be utilized for speculating. Options are often only a fraction of the price of the underlying shares. Using options is a type of leverage since it allows an investor to wager on a stock without having to buy or sell the shares entirely. The option buyer pays a premium to the party selling the option in return for this right.

Traders usually employ options to hedge their positions. Options, on the other hand, can be utilized for speculating. This is because options are often just a fraction of the price of the underlying asset. Options may be used to gain leverage since they allow an investor to wager on a stock without having to acquire or sell the shares altogether.

How does it work

The following terms are included in an options contract:

The expiration date of the contract
The striking price, or the price at which an underlying asset can be purchased or sold
The fundamental asset.

In general, call options may be purchased as a leveraged gamble on the appreciation of a stock or index. Put options, on the other hand, are typically purchased to benefit when prices fall.

Call option purchasers have the right but are not compelled to purchase the number of shares covered by the contract at the strike price. The inverse is also true: purchasers have the option, but not the obligation to sell their shares at the strike price specified in the contract.

Option sellers, on the other hand, must complete their side of any deal whether the buyer decides to execute the call option and acquire the underlying asset or execute the put option and sell the underlying asset.

Advantages of an Option Contract

Now that we’ve established what options are, let’s look at some of their advantages.

Low cost of entry

When compared to stock transactions, the first benefit of options is that it allows the investor or trader to establish a position with a modest amount. When purchasing genuine stocks, you must pay a huge quantity of money equal to the price of each stock multiplied by the number of stocks purchased.

Risk hedging

Options are a fantastic strategy to safeguard your stock holdings. Purchasing options are similar to purchasing insurance for your stock portfolio, reducing your risk exposure. If the underlying security price for a call option does not increase over the strike price before the option expires, your option becomes worthless, and you lose all of the money you paid upfront. The premium you finish up paying, though, is the maximum limit of your risk. In the previous example, if the price of a security falls to Rs 80 from a strike price of Rs 100, you would have lost Rs 20 per share. With the alternative, you just lose the premium amount, which is significantly less.

Flexibility

Options provide the investor with the ability to trade for any prospective movement in an underlying investment. An investor can utilize an options strategy if he believes the price of a security will move shortly. If an investor believes that the price of a security will climb, he can purchase a call option and lock in the price of the asset at a specific level. If the underlying security’s price rises, he can buy it at the strike price and then sell it at the market price to profit. If, on the other hand, an investor believes that the price of a certain asset will decline, he can purchase a put option with a specific strike price. Even if the security’s price falls below the strike price, he can still sell it at the strike price and lock in a set price for selling it. As a result, options can be used in a variety of market scenarios.

Disadvantages of an Option Contract

Trading in options has several disadvantages. Let’s have a look.

Lower liquidity

One of the major drawbacks of options is that they are not liquid since the options market is small. It is difficult to acquire and sell options due to a lack of liquidity. When compared to other more liquid investing alternatives, this frequently means buying at a higher rate and selling at a lower rate.

Risk

As previously stated, the risk in the case of options is limited to the option premium. However, if the price movement of the asset is unfavourable, an investor risks losing the whole option premium.

Complicated

Options are a tricky financial instrument for newcomers. Investing in options may be difficult even for experienced investors. One must predict the price movement of certain securities and the time frame in which this price movement will occur. It might be difficult to get both correctly.

What happens when an Option Contract expires

Each option contract will have an expiration date. That is, the contract’s value is strongly dependent on the date. Within this window, you have the option to purchase, sell, or exercise the contract. When an options contract expires, however, the contract is no longer valid.

Mistakes to be avoided while drafting an Option Contract

Conduct an attorney evaluation

Contract law is one of those areas where an ounce of prevention is worth a pound of cure. We have clients that approach us regularly because they are involved in a contract dispute. When we examine the contract, sometimes it works in their favor; other times, important wording is lacking that greatly undermines their claim.

Awareness of critical issues

Before I put pen to paper, I want to have my customers orally explain to me a general framework of the agreement so that they understand it. Typically, these are the topics that my clients are most concerned about, and I want to address them first. Next, before I begin drafting a contract, I want to discuss my ideas with my customer and get their feedback on my ideas. This assists both of us in becoming acquainted with the key topics.

Be specific in your terms

Over the years, I’ve had several badly drafted agreements come across my desk that required to be reworked due to sloppy drafting. “The parties feel they can work out a parenting plan that is fair and reasonable,” for example, is a recipe for disaster. Do yourself a favor and be explicit with the conditions, you can always depart if you agree to do so as you proceed. Clarity is king in all things contractual.

Investigate existing forms and templates

One size does not fit all when it comes to preparing legal papers and contracts. However, this does not exclude you from using pre-existing forms and templates to construct your papers. You must strike a balance between efficiency and client utility. In general, while writing papers, you must ascertain your client’s particular and subjective criteria and aims. With these in mind, you may begin to develop a broad paper, tailoring it to meet the unique demands of your customer.

Proofread thoroughly

The most common error one encounters is due to inadequate copy-and-paste. Occasionally, it comes from a customer who copied provisions from something they discovered on the internet. As is usually the case with such contracts, there will be something that does not make sense or is detrimental to the customer in the context of their circumstances.

Make a Memorandum

It is suggested to utilize the deal memo as a checklist for the initial contract writing after having produced hundreds (literally) of technology and entertainment business contracts throughout my 20-plus-year legal career. Then, as an intermediate and final phase in the contract negotiation process, cross-check your contract draft against the agreement memo.

Verify thoroughly

Do your homework. Before you put ink to paper, get all of the facts necessary to verify what your counterparty is telling you. Without that knowledge, you risk overpaying, being taken for a ride, or being left holding the bag (depending on what’s at stake in the deal).

Sample of an Option Contract

[Company Name] [Stock Plan Name]

NOTICE OF STOCK OPTION GRANT

[Optionee Name] [Optionee Address Line 1] [Optionee Address Line 2]

You have been granted an option to purchase Common Stock of [Company Name], a Delaware corporation (the “Company”), as follows:

Date of Grant:	__________
Exercise Price Per Share:	USD$__________
Total Number of Shares:	__________
Total Exercise Price:	USD$__________
Type of Option:	__________ Shares Incentive Stock Option__________ Shares Nonstatutory Stock Option
Expiration Date:	__________
Vesting Commencement Date:	__________
Vesting/Exercise Schedule:	So long as your Continuous Service Status does not terminate (and provided that no vesting shall occur following the Termination Date (as defined in Section 5 of the Stock Option Agreement) unless otherwise determined by the Company in its sole discretion), the Shares underlying this Option shall vest and become exercisable in accordance with the following schedule: __________ of the Total Number of Shares shall vest and become exercisable on the __–month anniversary of the Vesting Commencement Date and __________ of the Total Number of Shares shall vest and become exercisable on the __________ day of each month thereafter [(and if there is no corresponding day, the last day of the month)].
Termination Period:	You may exercise this Option for [3] month(s) after the Termination Date except as set out in Section 5 of the Stock Option Agreement (but in no event later than the Expiration Date). You are responsible for keeping track of these exercise periods following the Termination Date. The Company will not provide further notice of such periods.
Transferability:	You may not transfer this Option except as set forth in Section 6 of the Stock Option Agreement (subject to compliance with Applicable Laws). [You must obtain Company approval prior to any transfer of the Shares received upon exercise of this Option.]

By your signature and the signature of the Company’s representative or by otherwise accepting or exercising this Option, you and the Company agree that this Option is granted under and governed by the terms and conditions of this Notice and the [Company Name] [Stock Plan Name] and Stock Option Agreement (which includes the Country-Specific Addendum, as applicable), both of which are attached to and made a part of this Notice.

In addition, you agree and acknowledge that your rights to any Shares underlying this Option will vest only as you provide services to the Company over time, that the grant of this Option is not as consideration for services you rendered to the Company prior to your date of hire, and that nothing in this Notice or the attached documents confers upon you any right to continue your employment or consulting relationship with the Company for any period of time, nor does it interfere in any way with your right or the Company’s right to terminate that relationship at any time, for any reason, with or without cause, subject to Applicable Laws. Also, to the extent applicable, the Exercise Price Per Share has been set in good faith in compliance with the applicable guidance issued by the IRS under Section 409A of the Code. However, there is no guarantee that the IRS will agree with the valuation, and by signing below, you agree and acknowledge that the Company, its Board, officers, employees, agents and stockholders shall not be held liable for any applicable costs, taxes, or penalties associated with this Option if, in fact, the IRS or any other person (including, without limitation, a successor corporation or an acquirer in a Change of Control) were to determine that this Option constitutes deferred compensation under Section 409A of the Code. You should consult with your own tax advisor concerning the tax consequences of such a determination by the IRS. For purposes of this paragraph, the term “Company” will be interpreted to include any Parent, Subsidiary or Affiliate.

The company:

[Company Name]

By:

(Signature)

Name:

Title:

OPTIONEE:

(Print Name)

(Signature)

Address:

Conclusion

An option is a contract in which the buyer is given the right, but not the obligation, to buy or sell an underlying asset. A call gives the holder the option to buy an asset at a specific price and within a given time frame. A put allows the holder to sell an asset for a set price on or before a certain date. The striking price of the underlying stock is the price at which it can be bought or sold. There are four types of players in the options market – holders, writers, buyers, and sellers. Holders are commonly used to describe buyers, whereas writers are used to describing sellers. An option strategy is a combination of buying and selling options that differ in one or more aspects at the same time, sometimes in a mixed manner. This is done as part of a trading strategy to get exposure to a certain type of opportunity or risk while avoiding other risks. A basic strategy would be to buy or sell a single option; however, option strategies typically involve a combination.

References

https://www.thebalance.com/call-and-put-options-definitions-and-examples-1031124
https://www.icicidirect.com/knowledge-center/article/advantages-of-options-over-futures
https://www.investopedia.com/articles/active-trading/020216/five-advantages-futures-over-options.asp#:~:text=investor%20to%20understand.-,The%20Bottom%20Line,liquidity%2C%20and%20easier%20pricing%20model.
https://www.thinktrade.net/options-advantages-and-disadvantages.php
https://www.indiainfoline.com/knowledge-center/derivative-market/what-are-the-features-of-option
Brenner, M., G. Courtadon, and M. Subrahmanyarn. 1985. “Options on the Spot and Options on Futures.” Journal of Finance (December): 130S17.
https://media.orrick.com/Media%20Library/public/files/o/option-agreement.docx?__cf_chl_tk=bDsGlNvKVp075Wx.9sliWhv9Nnp7KKgdfwfllD0MyiI-1648409438-0-gaNycGzNB70

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All you need to know about express contracts

By

Sneha Mahawar

-

April 13, 2022

0

The article is written by Ansruta Debnath, a law student at National Law University Odisha. This article talks about the different characteristics of express contracts.

This article has been published by Sneha Mahawar.

Introduction

What are express contracts

Contracts can be of a variety of types and can be formed in a variety of ways. The most common method of forming legally binding contracts is express contracts.

An express contract is a written or oral agreement that has been completely laid out. This contract involves at least two parties making legal obligations to each other to fulfil set/specified parameters. According to the law, they agree to be legally bound by these agreements.

This contract necessitates all parties’ joint purpose to be bound by the agreement. It necessitates that the terms be written in such a way that both parties and those responsible for contract enforcement can understand them. There must be a firm offer, unconditional acceptance, and some means of payment in the contract. Furthermore, during the contracting procedure, both sides must provide something to the other. It’s possible that the gift will be monetary, but it’s not always the case.

Examples of express contracts

The following are some examples of express contracts:

Oral express contracts

A tells on the phone to B that A wants to sell their car. B informs A that he agrees to A’s offer and wants to buy that car. An express contract is then formed.
Person A sends a text from his phone to Person B, proposing to sell their bike for a cost of Rs. 10,000/-. Person B calls the first person and agrees to the terms of the promise.
Suppose you list your computer for sale on an online website. A prospective buyer meets with you, negotiates and both of you come to an agreement that you would sell that computer for X amount of money to them. The sale then takes place. This is an oral express contract.

Written express contracts

Where a landlord presents ‘A’ with a preprinted lease on the apartment that “A” wants and if he agrees to the terms and signs it, then it is an express, written contract.
Another example is when you sign an employment contract. That has all the information related to your employment and when it is presented to you, that is an express offer. The moment you sign it, that is an express acceptance.
Signing a contract agreement with a contractor for renovating your kitchen is another example of a written express contract.

Required components of an express contract

Offer

For a contract to be formed, there must be an offer to enter into a contract.

Acceptance

The offer when accepted by the party to whom the offer was made to is called acceptance. Acceptance of the offer will complete the contract.

Consideration

All contracts must have consideration. This is the embodiment of quid pro quo, i.e., someone does or does not do something for some benefit.

Object

The contract must be for some object or obejctive. Or else, there will be no basis of the contract.

Capacity

Parties to a contract must have the capacity to contract. According to Indian law, people who do not have the capacity to contract are minors, those of unsound mind and those who have been specifically disqualified by law.

Foundation of an express contract

Express offer

Proposals or offers are made into contracts, and such proposals or offers are accepted. Proposals and their acceptance can be explicit or implicit. A proposition stated in words constitutes an express offer, according to Section 9 of the Indian Contract Act of 1872. As a result, an express contract is formed by the use of words, either verbally or in writing. For example, A might ask B if he wants to sell his house for X dollars. This is an example of an express offer.

Express acceptance

By replying, “I agree to sell the house to you for X dollars”, B agrees to A’s express offer. This will be a valid express acceptance and as a result, an express contract will be formed. As can be clearly seen, the conditions of the deal are therefore explicitly defined in an express contract. B might also have accepted A’s offer by simply nodding his head. But that would have been an implied acceptance and not an express one.

Absolute acceptance

The acceptance given should be absolute and unqualified. The core of an express contract is that the parties have agreed to be legally bound by the contract’s provisions in a clear, unambiguous, and unequivocal manner. If there is any doubt about whether a person accepted or rejected a contract, you may not be dealing with an express contract, and the agreement may not be classified as such by a court.

Essentials of an express contract

Section 10 provides for certain essentials as follows, which all contracts must fulfil to be considered valid:

There must be free consent between the parties involved.
The parties must be competent to contract.
The consideration and object of the contract should be lawful.
The contract must not be declared void under the law.

These essentials when present makes an express contract valid. Other than these essentials, certain other things also need to be fulfilled for the contract to be recognized by the courts. Firstly, there must be a meeting of the minds of the parties involved. This means that the parties involved must agree on the same things in the same sense. For example, suppose person A sees a clock belonging to B, and wants to buy it. The clock is actually metal but because of its design, it seems wooden. A, believing it’s a wooden clock, offers to buy it and B agrees. In this situation, B knows that it is a steel watch and believes he is selling the same while A believes he is buying a wooden clock. In the very object of the subsequent contract, there is no meeting of the minds and this is thus, not a valid contract.

Another example of a contract that lacks sufficient agreement is when the terms are not clearly defined and open to interpretation. In a valid express contract, the terms of the contract should be unambiguously expressed. Because the definition of a “desirable amount” is subjective and open to interpretation, there is no contract if someone offers to buy a house for a “desirable amount” and the owner of the house agrees.

An important point to remember is that a valid contract gets formed only when there is an intent to create legal relations. Otherwise, it remains simply an agreement and cannot be enforced by law. To that effect, in an express contract, the intent to enter into legal relations must be clearly expressed.

Difference between express contracts and implied contracts

The fundamental difference between express and implied contracts is the manner in which they are formed. While express contracts are made through words, implied contracts are formed by actions, gestures etc. (that is, anything other than words, either spoken or written). An implied contract is formed when the parties’ actions lead them to believe that a contract exists. They are not written and arise as a result of the parties’ circumstances. They do, however, include one party benefiting from another’s conduct or the knowledge that the parties have reached an agreement.

Implied contracts are likewise recognised under Section 9. It states that any offer (or acceptance) made without using words is considered an implied offer (or acceptance). The actions, gestures, and other activities of the parties concerned form the basis of an implied contract. In an auction, for example, the customer’s raising of the numbered paddle is an implicit offer, and the auctioneer’s final bang of the gavel when a commodity is sold signifies that the offer is accepted. As a result, this is a case of an implied contract.

The court must look at the language or words used in the contract while it is being created or drafted unless they do not represent the intention accurately. If a term is not expressed, it will be implied only if the will result in the contract’s business efficacy. An express term of a contract will always take precedence over an implied term. In the case of Luxor Ltd. Vs Cooper (1941) On behalf of the defendants, the plaintiff agreed to provide prospective purchasers for the sale of two theatres in exchange for a £10,000 commission. The defendants refused to execute the deal after providing prospective buyers, claiming that the arrangement was made with unapproved corporate personnel and hence was ultra vires (outside the director’s and company’s authorities). While the agreement may be ratified, the Court determined that the fact that all of the directors had a personal interest in the transaction rendered any attempt at ratification null and void.

The Court determined that there was no agency agreement because the agent was not instructed to find a buyer for the cinema despite being promised a reward if he did. This argument concerns the agent approaching the principal rather than the principal asking for the agent’s services. Furthermore, the contract specified that the arrangement was subject to contract, removing the right to commission if the deal did not go through. The House of Lords came to the conclusion that there could be no implied term since it imposed a negative commitment in which precise words could not be defined.

Are e-contracts express or implied contracts

The term ‘electronic contract’ refers to a contract that is made through e-commerce, with the parties rarely meeting in person. It refers to electronic commercial transactions that are undertaken and completed. A consumer using an ATM machine to withdraw money is an example of an electronic contract.

E-contracts can be both express and implied. When the terms are clearly stated, then the contract will be express. But in situations like when you click on a link for a product to buy it, it is implied that you will have to pay for it.

Difference between express contracts and quasi-contracts

Quasi-contracts are a type of contract wherein obligation is imposed by law. For example, when a person is a finder of lost goods, there is some degree of obligation that is imposed on them to find the owner of the goods. In essence, a contract is formed without there being any intention to enter into a contract. This is the place where quasi-contracts become different that express contracts. In express contracts, through the clear expression of offer and acceptance, there must be absolute intention to enter into a contract and create legal relations. On the other hand, quasi-contracts are formed irrespective of contracts.

An example of an express contract involving a celebrity divorce

Michelle Marvin claimed that she and actor Lee Marvin “got into an oral agreement” in October 1964 that they would pool their earnings and share equally in any property they gained while living together. Michelle also stated that she and Lee had agreed to portray themselves as husband and wife to the general public despite not being married. Michelle would also act as Lee’s companion, homemaker, cook, and housekeeper, among other things.

Michelle gave up her flourishing job as an artist shortly after signing this explicit contract with Lee in order to devote herself full-time to Lee. Lee had committed to cover Michelle’s financial needs for the rest of her life in exchange. Michelle claimed that she kept her end of the bargain during her time with Lee, which lasted from October 1964 to May 1970.

The couple had earned a small wealth during this time, including Motion Picture rights worth over $1 million. Michelle, on the other hand, alleged in May 1970 that Lee had forced her to leave his home. He continued to support her financially until November of 1971, after which he refused. Michelle subsequently filed a lawsuit, requesting that the court rule on her rights in light of the express contract and her separate property. She also requested that the court set up a constructive trust for half of the property she had accumulated throughout her relationship with Lee.

The trial court granted Lee’s move to dismiss after a hearing. Michelle subsequently filed an appeal, claiming that she and Lee had reaffirmed their express agreement after Lee’s divorce from his first wife was finalised. Michelle’s application was dismissed by the trial court, and she appealed the decision.

The Court ultimately decided that the trial court erred in allowing Lee’s request for dismissal, and that the provisions of the couple’s express contract were not unconstitutional, but rather provided as “a legitimate basis upon which the trial court can render declaratory relief.”

Conclusion

A contract in which the parties directly exchange a mutual pledge to be bound by specified obligations and expressly establish their purpose and readiness to be legally committed to carrying out their responsibilities is known as an express contract. The way they are formed distinguishes an express contract from an implicit contract. While an express contract is made when the parties indicate their wish to be bound by the contract, implicit contracts are formed when the parties’ conduct is assessed without regard to their intent.

Overall, express contracts are the easiest contracts to make. They are also more desirable as it relies on clear words which are less open to interpretation when compared to actions and gestures. Express contracts are thus, most easy to enforce in courts, because of all their above-mentioned characteristics.

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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Comparative analysis of the Takeover Code in India and the UK

By

Sneha Mahawar

-

April 13, 2022

0

This article is written by Aishwarya Shankar pursuing a Diploma in M&A, Institutional Finance and Investment Laws. This article has been edited by Zigishu (Associate, Lawsikho).

This article has been published by Sneha Mahawar.

Introduction

To understand the topic of the paper we must first know what a takeover actually is? A takeover also called acquisition is the process of a buyer company or an acquirer buying or bidding for a significant amount of shares of the Seller Company or target/Acquired Company. A larger company typically conducts takeovers for a smaller one. In a takeover bid, the acquirer usually offers cash, stock, or a mix of both, “bidding” a specific price to purchase the target company. Takeover regulation is essential to protect the rights of the stakeholders, the public and others affected by it. The regulation is also important for safeguarding the rights of the target company and shielding them from being oppressed by the buyer company. Depending on the economic system of India and the UK their takeover Regulations also differ.

Types of takeover

There are four types of Takeover, these include:

Friendly takeover

A friendly takeover is a type of acquisition where a company acquires the other company where the board of directors of both the companies approves of the transaction. Both companies have a common motive and advantage. In this type of takeover, both shareholders and management are in consensus on both buyer and seller sides of the deal. E.g. takeover of Whatsapp by Facebook and Flipkart by Walmart.

Hostile takeover

This type of acquisition happens when the target company does not approve of the acquisition. The acquiring company must collect a majority stake in the target company for automatic acquisition. A hostile takeover mostly happens through a tender offer. In a tender offer, a company tries to purchase shares from the existing or outstanding shareholders of the target company at a premium over and above the current market. E.g. takeover of Ashok Leyland by Hindujas.

Reverse takeover bid

A reverse takeover bid takes place when a private concern buys a public company. The main stimulus behind this takeover is to get the private company listed without initiating an initial public offering (IPO) as the process of being listed is costly, time-taking and tedious. Thus in this kind of takeover, a private company by acquiring a public company automatically becomes a listed company.

Backflip takeover

A backflip takeover takes shape when the acquirer becomes the subsidiary of the target company. A common motive behind this takeover is to retain the brand name of the smaller yet well-known company. This way, the larger acquirer can gain strong brand recognition and market share of the smaller company.

Why is there a need for a takeover code

Mergers and acquisitions have grown exponentially in the last few years and a range of strategic reasons have been motivating factors for companies to opt for takeover. These include increasing integration of markets, economies of scale, elimination of competition, product differentiation, vertical integration, technology requirements, strategic change in focus, and rehabilitation of loss-making units, improved corporate governance, etc.

Everybody in today’s day and age is aiming for a good Shareholding and ownership in a high potential company and to protect the interests of these stakeholders, States have enacted various securities laws. To achieve a credible corporate governance rating it is imperative to have efficient and well-planned takeover regulations in place.

The fundamental corporate governance principle is to ensure that the interests of the shareholders of listed companies are taken good care of in case of a takeover especially the interest of a minority shareholder which is why enactment of Takeover laws has been necessary in most of the common law countries.

The takeover rules and regulations make sure that public shareholders of a listed company are given fair treatment in relation to a takeover of a listed company thus maintaining stability in the securities market.

The takeover regulations are drafted with the objective of offering an opportunity to exit from the company at the most promising and beneficial terms for the public shareholders of a company.

Any considerable acquisition done by a company may lead to complications or misunderstandings with the minority shareholders or a change in company policies and control that the minority shareholders would not want to be a part of. The key objective of the regulation is to check hostile takeovers and safeguard the interests of minority shareholders. This ensures that no unjustified advantage is taken by the majority shareholders. Thus it makes the whole process just and in the best advantage of the company.

Takeover regulations in India

Laws governing takeover code in India

The Companies Act, 2013

Section 261 of the Companies Act, 2013 talks about the preparation of a scheme of rehabilitation, revival and the takeover of an insolvent company by a solvent company with the approval of the National Company Law Tribunal (NCLT). Section 230 (11) says that a takeover should have complied with the regulations drafted by the Securities and Exchange Board. Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulation, 2011 also called the Takeover code, is prepared under the Securities and Exchange Board of India Act, 1992. Many amendments have come in overtime in the takeover code, the most recent being in June 2020. According to Section 250 (3) the NCLT has been empowered to guide a company’s manager/administrator to take over the assets and supervision of the company.

The Competition Act, 2002

This Act controls and manages the transactions which have an unfavourable effect on the healthy competition between companies in India.

Evolution of the takeover code

The road map of the Takeover code came to life due to the SEBI Act, 1992 which made regulation of acquisition and takeovers mandatory. This led to the formation of the takeover Regulation of 1994. In November 1995, a committee was formed by SEBI to review the takeover regulation, 1994, chaired by Justice P.N Bhagwati. Taking the suggestion of the committee Substantial Acquisition of (Shares and Takeovers) Regulation, 1997 was announced on February 20, 1997, repealing the code of 1994.

However, due to the growing changes and complexities in the takeover market, these regulations become ineffective. To tackle this situation an advisory committee, named Takeover Advisory Committee was established in September 2009. Mr. C. Achuthan was the chairman of this committee. On the suggestion of this committee, the famous Takeover Regulation of 2011 was introduced which repealed the 1997 code.

Securities and Exchange Board of India (takeover code), 2011

The Securities and Exchange Board of India (SEBI) regulates companies that are listed on the stock exchanges of India. The SEBI (Substantial Acquisition of Shares and Takeovers, hereinafter referred to as SAST) Regulations, 2011 (Takeover Code) restricts and keeps a check on the acquisition of shares and voting rights in a listed company.

If an acquirer wants to acquire shares of a listed target company and the cumulative shareholding of the acquired company touches 25%, then the acquirer has to make a mandatory open offer to the outstanding shareholders of the target company to acquire 26% shares of total share capital of the target. They cannot record the extra shares acquired by them in their name till they make an open offer. SEBI has made this step mandatory so as to protect the interest of the shareholders and to also give them an easy way to exit in case they do not wish to be a part of the new arrangement.

If the acquirer so far holds 25% or more shares in the target company and has formerly made an open offer for that 25% and now plans to acquire more than 5% shares in the target company in one financial year, then the acquirer has to first give an open offer again to the outstanding shareholders to acquire at least 26% of the total share capital of the target.

If an individual or a company already holds 25% more shares in the target company and acquires additional 5% shares in a financial year it is not obligatory to provide an open offer to public shareholders, this theory is called creeping acquisition. By applying this concept an acquirer can grow his stake in the target entity by acquiring additional 5% shares in each financial year without compulsorily making an open offer.

SAST (Amendment) Regulations, 2020

After taking into account the changes in the financial situation of the companies owing to the pandemic, SEBI had to make changes in the Substantial Acquisition of Shares and Takeovers Regulations. According to the amendment made by SEBI, an acquirer can now purchase further shares in the target that is more than the 5 % limit but not more than10 %, which is conditional.

The situation was such that the acquirer had to be the promoter of the company and the shares acquired had to be preferential shares. This amendment was made only for a period of a year (FY20-21). In this period, the acquirer could buy further stake without the need of a public announcement for an open offer.

SAST (Amendment) Regulations, 2021

As per the new amendment, if the target company has its securities listed on the innovators’ growth platform, the limit of acquisition of 25 % will be extended to 49%.

In the same way, the acquisition limit of 5 % voting rights has been increased to 10 %. Further, the pattern or outline of voting of the meeting in which the open offer takes place should also be disclosed by the company.

Voluntary open offer

It is an offer made through a public announcement in cases where the acquirer together with persons acting in concert already have 25% or more voting rights or equity shares in the target company and desire to increase their stake in the target company, for this they make a total offer of 10% of the total share capital of the Target Company. It is not a mandatory offer but at the option of the acquirer.

Takeover Code’s Regulation 2(1)(q)(1) defines persons acting in concert (“PAC”) as persons who have the same objective of acquirement of shares or voting rights in, or having control over the target company, relating to an agreement, collaborate for the acquisition of share or employ control over the target company.

For a successful voluntary open offer to take place the acquirer or PAC must not have taken over any shares by creeping acquisition or by a mode that is exempted for the period of 52 weeks preceding the public announcement nevertheless he can buy shares via Bonus or an open offer.

The open offer should be for at least 10 outstanding shares.
If a voluntary open offer is made, the following compliances should be adhered to:

The acquirer must not buy any shares in the course of the open offer
The acquirer is not allowed to acquire any shares during the six months after the conclusion of the open offer but he can make an additional Voluntary offer or a competing offer during that period.

Takeover regulations in the UK

Evolution

The United Kingdom’s Takeover Code has been a broad framework or a guidebook for framing takeover regulations for countries with common laws like Australia, New Zealand, and Hong Kong. The Companies Act, 1985 is the main law that governs the affairs of companies functioning in the UK. The companies in the UK are regulated by the City Code on Takeovers & mergers, which is a body of rules framed and administered by the panel on Takeovers & Mergers. The UK has the most experience and skill in the regulation of takeovers. The City Code on Takeovers and Mergers was framed in 1968. The city code is issued and managed by the Takeover Panel, which acts as supervisory authority to carry out a set of regulatory functions relating to takeovers under the EU Takeover Directive. According to Part 28 of the Companies Act 2006, the City Code has statutory consequences and the Panel is a statutory body. The Panel implements the City Code and also gives directions that are obligatory to control any person breaching the City Code. Other legislation which covers certain aspects of corporate takeover activities includes the Enterprise Act, 2002, The Competition Act, 1998 Financial Services and Markets Act, 2000, Rules governing Substantial Acquisition of Shares, and the Criminal Justice Act, 1993.

Mandatory offers

The City Code is a set of rules and principles that administer mergers and takeovers of entities with registered offices in the UK. The Code is made to guarantee that shareholders are treated fairly and acts as a planned framework for takeovers to be conducted.

The mandatory bid rule is the most significant rule of the City Code. The rule states that if a person acquires shares that (together with persons acting in concert) carry 30 % or more of the voting rights of an entity, in that case, he has to make a mandatory offer in cash for the target at the maximum price paid by the person (or persons acting in concert) for an interest in target company shares in the 12 months prior to the offer is announced.

Thus the threshold for triggering the mandatory offer in the city code is set at 30%. There is no provision for a creeping acquisition in the UK’s Takeover code. There was a provision in the past for a takeover of 1% in the duration of 12 months except that was scrapped after harsh disapproval for its lack of any justification in principle.

The panel came up with this rule so as to make sure that a holding of 30 % or more does not give the holder legal control or valuable control over the affairs of the company. According to the belief of the panel, it is unfair for the shareholders to find that they have to be shareholders in a business that may have different management, objectives, policies to which they do not want to be a party to and they have left with no better option than selling the shares in the market. Thus the panel is of the view that this must be taken as a change of control and so the dissenting shareholders should be given the opportunity to exit by selling their shares. The objective is to achieve equal treatment for all shareholders. The EU Takeover Directive also says that the affiliate states have a mandatory offer regulation when control changes.

Penalties

In the UK, as we know the Panel has the power to make rules in cases of breach of the rules given in the Code. It also has the authority to offer rules ordering payment of compensation and interest where it thinks is fair and reasonable. Infringement of these rules can give rise to liabilities in the shape of fines. The Panel in addition has corrective powers given in the Code which comprise the power to issue a public or private statement of, suspend, censure, or withdraw any special status established by the Panel for such a person.

Conclusion

Take-over codes are shaped as per the economic conditions, market, Government policies, types of companies, etc. in a particular country. The takeover code of the UK portrays a shareholder-oriented strategy while in the case of India there seems to be a striking sense of balance between state control ensuring value maximization and fairness of the shareholders. Further UK’s City code is focused more on the capital market while the Indian Takeover Code gives prime importance to the protection of labour force and welfare. In terms of penalties, SEBI in India imposes severe penalties. It has been empowered to impose strict criminal and civil penalties whereas in the UK the takeover panel have powers of censure which permit them to bring the guilty party to the task but in a less strict manner.

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.

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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Is it the time for mandatory mediation?

By

Rachit Garg

-

April 12, 2022

0

This article has been written by Anuj Sharma, pursuing a Certificate Course in Introduction to Legal Drafting: Contracts, Petitions, Opinions & Articles from LawSikho. It has been edited by Zigishu (Associate, LawSikho).

It has been published by Rachit Garg.

Table of Contents

Introduction

Humans, since time immemorial, have had to contend with conflicts among themselves. An ‘ideal state’, free of conflict, is inconceivable. The hallmark of a mature civilization is not the absence of conflicts but the institutions it develops to resolve conflicts amicably. In modern times, marked by globalisation and integration of economies, protracted litigation extracts unacceptable costs in terms of time and financial resources. In several countries, including India, judicial systems are overburdened with an unmanageable backlog of cases. As per a recent report, over 4.6 Crores cases are pending in various courts across the country. On top of this, according to the written reply of Law Minister Kiren Rijiju in Rajya Sabha, India has only about 21 judges per 10 Lakh people. The situation, to say the least, is alarming; it calls for out of the box thinking.

One significant advance in this direction has been the concept of Alternative Dispute Resolutions (ADR), a generic term that includes arbitration, conciliation, mediation, adjudication and expert determination. The judicial system – judges, legal professionals, the statutory Law Commission mandated with the task of suggesting reforms to the legal system as also law makers – has been exploring and experimenting with newer mechanisms to address conflicts. It is a work in progress.

Mediation, one of the most used modes of ADR across the globe, has become the subject of a fair amount of debate in India. Mediation is a non-adversarial dispute resolution process whereby dispute is solved by the parties with the assistance of a neutral third party known as mediator. The role of mediator is confined to assisting the parties in resolving the dispute; the mediator does not take on the role of judge. Being a flexible and non-adversarial dispute resolution option, mediation may help keep the relationship between warring parties intact. Despite all of such attributes, so far Mediation has not been used in proportion to its full potential as an effective ADR tool.

Mediation in India

In India, resolution of disputes through consultation and mediation, has had a fairly long history. Anecdotal evidence of mediation abounds even in rural areas where ‘socio-judicial mechanism’ in the form of Panchayat could rope in village elders to resolve disputes. In recent times, in a more formal sense, the country’s judicial system embraced different modes of ADRs at different stages. The Industrial Dispute Act 1947, provided for mediation. A watershed moment for ADR was amendment to the Code of Civil Procedure, 1908, whereby Section 89 was inserted in 1999 to enable courts to refer any pending case to ADR.
This section needs to be quoted in full.

[89. Settlement of disputes outside the Court.–(1) Where it appears to the Court that there exist elements of a settlement which may be acceptable to the parties, the Court shall formulate the terms of settlement and give them to the parties for their observations and after receiving the observations of the parties, the Court may reformulate the terms of a possible settlement and refer the same for

(a) arbitration;

(b) conciliation;

(c) judicial settlement including settlement through Lok Adalat: or

(d) mediation.

(2) Were a dispute has been referred–

(a) for arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply as if the proceedings for arbitration or conciliation were referred for settlement under the provisions of that Act;

(b) to Lok Adalat, the Court shall refer the same to the Lok Adalat in accordance with the provisions of sub-section (1) of section 20 of the Legal Services Authority Act, 1987 (39 of 1987) and all other provisions of that Act shall .apply in respect of the dispute so referred to the Lok Adalat;

(c) for judicial settlement, the Court shall refer the same to a suitable institution or person and such institution or person shall be deemed to be a Lok Adalat and all the provisions of the Legal Services Authority Act, 1987 (39 of 1987) shall apply as if the dispute were referred to a Lok Adalat under the provisions of that Act;

(d) for mediation, the Court shall effect a compromise between the parties and shall follow such procedure as may be prescribed.]

Voluntary Mediation

As is evident in sub clause (1) cited above, power of courts qua mediation was circumscribed: court could refer matters for ADR where it appears that “there exist elements of a settlement which may be acceptable to the parties”. If any major party to the dispute categorically expressed its unwillingness to submit to ADR, courts had no option but to proceed with the suit. Thus, in effect, even under the new law, litigating parties could veto suggestions by court to try ADR.

Litigation has been the primary choice to get matters adjudicated in India. As of now, barring some statutory provisions, mediation is primarily a voluntary ADR option. Over the last couple of decades, Indian lawmakers and the judicial system has been pro-actively adopting and promoting ADRs. It is being increasingly suggested that in view of the courts being overburdened with backlog of cases, ADR should be the first option; litigation should be resorted to only in those cases where ADR mechanism does not lead to settlement of dispute. The question is: Should mediation be made mandatory?

Hitherto, in consonance with Indian laws, Indian courts actively referred only certain types of cases to mediation. These included disputes among relatives and family members. In recent times, Mediation was formally accorded importance in, besides aforementioned amendment of 1999 in the Code of Civil Procedure, among other statutes, Consumer Protection Act 2019 (Sec.37-38, Chapter V) and The Companies Act 2013 (Sec. 442).

Push for Mandatory mediation

Mediation, thus far, has had limited success. However, it is being seen as a potent tool for dispute resolution. Many voices in the legal fraternity have argued that against the backdrop of pendency of suits in Indian courts, mediation should be made mandatory. The 129^th Law Commission of India weighed in favour of expanding the role of mandatory mediation. A bold and defining step in this direction was the amendment of The Commercial Courts Act 2015 whereby new Section 12A was added in 2018 which made it obligatory for parties to explore mediation before approaching to court.

“12A. Pre-Institution Mediation and Settlement—
(1) A suit, which does not contemplate any urgent interim relief under this Act, shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation in accordance with such manner and procedure as may be prescribed by rules made by the Central Government.”

The concept of mandatory mediation seems to have got a fillip from the Apex Court. In a landmark judgement in M/S. Afcons Infra. Ltd. & Anr vs M/S Cherian Varkey Construction Ltd & Anr, the Supreme Court of India widened the scope of sending disputes to ADRs. It held that in the absence of consent regarding Arbitration & Conciliation, the court may, without consent of the parties, refer the case to other ADRs methods which include mediation also. Per the judgement:

“ 26. If the parties are not agreeable for either arbitration or conciliation, both of which require consent of all parties, the court has to consider which of the other three ADR processes (Lok Adalat, Mediation and Judicial Settlement) which do not require the consent of parties for reference, is suitable and appropriate and refer the parties to such ADR process.”

Thus, in Afcons Infra supra, India’s Apex Court has, albeit cautiously, given the courts fair degree of latitude to firmly nudge litigants towards ADR.

Caution

While it may be tempting to push for mandatory mediation to reduce the backlog of pending cases in India, it is necessary to bear in mind that thus far, far by and large, litigants have reposed more faith in litigation than mediation. Furthermore, since mediation has not been resorted to much, there is also a dearth of professional mediators. Also, participation in mediation in good faith is sine qua non for fair, successful mediation. If one party has a strong case and another party is using the mediation as a tool to frustrate it or buy some time to compel for some sort of settlement, the mandatory provision would become a tool of coercion. In the latter case, i.e. where a party is abusing the process of law to coerce the opposite party to submit to an ‘unfair deal’, mediation could be misused as a sword to perpetuate injustice. It has been aptly stated in in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576:

“10. If the court were to compel parties to enter into a mediation to which they objected, that would achieve nothing except to add to the costs to be borne by the parties, possibly postpone the time when the court determines the dispute and damage the perceived effectiveness of the ADR process. If a judge takes the view that the case is suitable for ADR, then he or she is not, of course, obliged to take at face value the expressed opposition of the parties. In such a case, the judge should explore the reasons for any resistance to ADR. But if the parties (or at least one of them) remain intransigently opposed to ADR, then it would be wrong for the court to compel them to embrace it.”

Mediation Act

In Indian law, voluntariness is writ large on the landscape of mediation. Indian Courts and various stakeholders time and again have raised issues regarding giving Mediation statutory status essentially to bring uniformity. Recently The Mediation bill 2021 was introduced in Rajya Sabha, which has the provision of mandatory mediation for civil and Commercial suits. As per its section 6 (1).

“Subject to other provisions of this Act, whether any mediation agreement exists or not, any party before filing any suit or proceedings of civil or commercial nature in any court, shall take steps to settle the disputes by pre-litigation mediation in accordance with the provisions of this Act.”

The ‘Mediation Bill 2021’ has been referred to the Parliamentary Standing Committee’s public grievances department for examination. It was long overdue, and it is hoped that the Bill will become a law. As stated recently by Chief Justice N V Ramana, there are about 43,000 mediation centres across India. The data suggests that since 2005, nearly 3.22 million cases have been referred and nearly 1 million cases have been settled by mediation up to March 2021. The numbers, impressive on the face of it, do not shed any light on the details of the process of mediation, the quality of mediation.

All in all, it is high time India accorded more importance to Mediation in its overall legal architecture as it also established mechanisms and training of advocates to make the most out of upcoming legislation.

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All you need to know about an employment contract

By

Rachit Garg

-

April 12, 2022

0

The article is written by Ansruta Debnath, a law student at National Law University Odisha. This article talks about the most important provisions that must be included in an employment contract, the advantages and disadvantages of forming the same and also includes a sample employment contract for your reference.

It has been published by Rachit Garg.

Table of Contents

Introduction

An employment contract is a written agreement between an employer and an employee that specifies the length of the employee’s employment. It can be implied, oral, or written, and it usually involves the employee signing a lengthy physical contract. The contract’s conditions are determined by what was agreed upon when the employee affirmed their willingness to work. It specifies the rights and responsibilities of both the employee and the employer.

It is important to review information on what to expect when you are asked to sign a contract and study the benefits and drawbacks of employment contracts. This article will give an overview of these parts of an employment contract to give you a comprehensive idea of the same.

The purpose of employment contracts

The primary reason for an employment contract is to provide job security to the employee and ensure that employers are also insulated from risks like lower productivity that can occur due to unclear working hours. These contracts also ensure that the involved parties will abide by the rules of the organization and there would be the availability of effective ways to resolve disputes in case the need arises.

Types of employment contracts

There exist a wide range of employment contracts. Some of them, inter alia, are as follows :

Full-time contract

This is the most comprehensive type of contract and is offered to permanent employees. They include all the important information that an employment contract should contain.

Part-time contract

These are offered to those employees who work, for example, for half a day. These employees are called part-time employees and work a lesser number of hours as compared to full-time employees. These generally don’t include benefits and bonuses.

Zero-hour contract

Employees that work intermittently or only when employment is available are offered zero-hour contracts. In a zero-hour agreement, an employer commits to offer work when it becomes available, either in writing or verbally, and an employee agrees to work such hours or be on call for availability reasons.

Casual contract

Employees who work on a seasonal or temporary basis are usually offered casual contracts. Employers generally stipulate in casual contracts that employees will only be paid for completed work and that the company is not compelled to supply a certain number of shifts or work hours. Furthermore, such contracts may indicate that employees are not obligated to accept any shifts or work hours that are provided.

Freelance contract

These contracts are offered to those people who are given a particular project to work on. Such contracts focus mainly on project details and protect the freelancers from losing out on timely payment of fees.

Union contract

Union contracts are standardised legal agreements that are usually offered to workers who join a local or national labour union. These contracts are frequently offered to members of specific trades who may work directly for the union or be hired by a private enterprise.

Fixed-term contract

Employees who only work for a limited amount of time or until they complete a specific assignment are given a fixed-term contract

At-will contract

An at-will agreement is a sort of employment contract that may appear to be a contract but does not provide employees with many benefits. At-will agreements often detail all of the same things that a contract does, but they rarely specify the length of work or provide certain rights. As a result, at-will agreements allow employees to leave occupations whenever they want and employers to terminate their employment without cause, making such agreements difficult to enforce in the event of a discrepancy.

Consultancy Agreement/ Contract for Services

When an organisation wants to hire someone who isn’t going to work for them, they usually use a consultant agreement. If a person is going to be self-employed, they will almost always need a consultancy agreement (contract for services). A contract for services is a common legal word that is not defined anywhere in the law. A contract of service, on the other hand, is described as an employment contract in employment and tax regulations.

Secondment

An employee is leased by his or her employer to another portion of the same organisation, another organisation within the group, or an external organisation under a secondment agreement. The individual is still employed by the original employer during the secondment period. He does not move his or her job to the host company or department.

Most important clauses of an employment contract

Job title and description

This clause provides you with, in detail, the nature of the work the employment contract is about. It is very important to specify this from the very beginning to ensure that both the employer and the employee are on the same page and there is consensus ad idem or ‘meeting of minds’ with respect to the duties and responsibilities of the employee.

Length of employment

This clause will specify the duration for which the employment will run. This clause can also include the provisions for renewal of employment if necessary. Renewals may be joint, one-time, etc. This section can also be sometimes called ‘schedule’. If the employee is not going to work continuously then it is important to specify the days they will be working and the time of said work to ensure maximum transparency.

Salary, bonuses and benefits

This is an extremely important clause that outlines the remuneration that the employee will receive because of the employment. Proper negotiation must be done before agreeing to this clause. Employees must also ensure that they are receiving bonuses that they deserve, through this clause. The compensation and benefits package included under this clause should have the annual salary of the hourly salary, raises, bonuses, incentives, health benefits, company stock options, retirement plans, signing bonuses and other benefits.

Overtime rules

There is an often ignored clause and is very important since no employee, especially in India, can avoid working overtime. So, they also deserve to be compensated for the same. Overtimes are generally provided at an hourly rate.

Holidays and leaves

Time-offs, leaves and holidays are crucial components of an employment contract. A comprehensive time-off policy should detail how time off is accrued when it can be used, and what employees must do to take advantage of those benefits. Holidays based on company policies and detailed information on paid leaves should also be mentioned within these clauses.

Communication channels

It is important to specify the person to whom an employee reports. This leads to efficiency and transparency through proper communication channels. These lines of communication should be properly established so that work can be done in a hassle-free manner.

Intellectual property clauses

Clauses that define to whom intellectual property developed during the employment belongs are needed in an employment contract. For example, a software engineer working for a firm will probably make some code that will be his creation. But, like in most employment contracts, that intellectual property will belong to the firm. Such provisions should be specified beforehand to prevent ambiguities in the future.

Confidentiality and privacy

The confidentiality clause specifies the circumstances in which employees must keep their anonymity. These conditions are critical since employees have access to the company’s trade secrets while working for them. The confidentiality agreement normally includes the legal consequences for an employee who divulges any confidential information.

Restrictive clauses

These clauses are those that come into effect after the termination of the job and have effects on the future jobs of the employee. The following are some examples of restrictive clauses:

Non-compete clause: This is a clause that prevents an employee from taking a job at the current company’s competitor for either a particular time period or in a certain geographical area.
Non-dealing clause: This clause prevents an employee from dealing with or contacting previous colleagues or employees.
Non-solicitation clause: This clause prevents a company employee from poaching that company’s clients when the former shifts to a new company.
Non-poaching clause: This is similar to the non-solicitation clause, except it refers to poaching ex-colleagues or employees of the previous company.

Termination and severance

These clauses will specify the criteria under which termination of the employee may take place. From the perspective of the employer, it is important to ensure the reputation of the company is not tarnished or negatively affected by the termination. So, the provisions giving severance packages should also be included.

Date and signature of parties involved

Signatures of the parties involved at the end of the agreement convert the latter into a legally binding contract and indicate the formal acceptance of the parties to the terms. The date is also important, which shows the time from when the contract started.

Pros of employment contracts

The advantages or pros of using an employment contract are as follows:

Clearly defined responsibilities and perks

The employment contract spells out the job’s responsibilities as well as the benefits that come with it. Employers can use it to set performance expectations for employees as well as reasons for terminating them.

Employers and employees are both protected

Both parties’ rights are protected under the employment contract. To prevent the employee from using sensitive information for personal advantage, the employer can put a non-compete or non-disclosure language in the employment contract. It can also keep them from leaving their positions and going to work for a competitor of yours.

Stability

Both the employee and the employer have a clear understanding of what to expect from their working relationship.

Legally binding

The employment contract is legally binding, and if the employee violates it, there will be penalties.

Attract employees

You can utilise an employment contract to entice candidates to work with you rather than the competition by promising job stability or other favourable provisions in the contract.

Cons of employment contracts

The cons or drawbacks of an employment contract are as follows:

Limited flexibility and fixed terms

Contracts by default are fixed that can rarely be changed once made and signed. This non-flexibility of contracts is its largest drawback as it fails to take into account the changing circumstances of employment.

Can be biased against employees who have less negotiating power in the beginning

Employment contracts are generally drafted by the employer giving them more power to put in terms to their linking. Future employees are also in a disadvantageous position as they would not be likely to resist to terms of a contract for a job they want. This creates a highly biased power dynamic and leads to prejudice against the employee for the benefit of the employer.

Things to include while drafting an employment contract

While drafting an employment contract, the following things need to be kept in mind:

Plain and lucid English should be used to ensure maximum transparency.
The contract should be as flexible as possible.
Contracts should not be too much inclined towards one party.
The most important clauses must be added to the contract.

Mistakes to avoid while drafting an employment contract

Not being specific or detail-oriented.
Not establishing proper and efficient lines of communication.
Not detailing how to make changes in the contract.

Sample of an employment contract

Sample employment contracts are widely available for the benefit of everyone who wants to draft an employment agreement for hiring employees. A point must be noted that these samples contain certain provisions which are a must for all consultation agreements. Apart from those, the contracts can be amended and sub-clauses added or removed to cater to individual needs.

The following is a sample of an employment contract-

EMPLOYMENT CONTRACT

This agreement lays down the terms of employment, agreed upon by the employer and employee. Whether stated explicitly in the agreement or not, both the employee and the employer have the duty of mutual confidence and trust, and to make only lawful and reasonable demands on each other.

__________________________________________________________

This EMPLOYMENT AGREEMENT (hereinafter, the “Agreement”) is entered into on this ___ day of ________, 20__,

BY AND BETWEEN

_____________, a private limited company incorporated under the Companies Act, 1956, having its registered office at______________(hereinafter referred to as the “Company” or “Employer”, which expression shall, unless repugnant to the meaning or context thereof, be deemed to include all permitted successors and assigns),

AND

_______________ son/daughter/wife of ___________ aged _____ years and residing at ______________________(hereinafter referred to as the “Employee”, which expression shall, unless repugnant to the meaning or context thereof, be deemed to include all permitted successors and assigns).

WHEREAS, the parties hereto desire to enter into this Agreement to define and set forth the terms and conditions of the employment of the Employee by the Company;

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, it is hereby covenanted and agreed by the Company and the Employee as follows:

ARTICLE 1: Interpretation

In this agreement the following terms shall have the following meanings:

1.1 Confidential information: Any trade secret or other information which is confidential or commercially sensitive and which is not in the public domain (other than through the wrongful disclosure by the Employee) and which belongs to any Group Company (whether stored or recorded in documentary or electronic form) and which (without limitation) relates to the business methods, management systems, marketing plans, strategic plans, finances, new or maturing business opportunities, marketing activities, processes, inventions, designs or similar of any Group Company, or to which any Group Company owes a duty of confidentiality to any third party and including in particular [insert specifically all named items of Confidential Information];

1.2 The Employment: The employment of the Employee by the Company in accordance with the terms of this Agreement;

1.3 Group Company: the Company, any company of which it is a Subsidiary (being a holding company of the Company) and any Subsidiaries of the Company or any holding company, from time to time;

1.4 Termination date: the date on which the Employment ceases.

ARTICLE 2: Position

2.1 Upon execution of this Agreement, the employee would be posted as the _______of the Company.

2.2 During the term period of this Agreement, the Company may change the employee’s above-mentioned post (or position) or location based on the Company’s production, operation or working requirements or according to the employee’s working capacities and performance, including but not limited to adjustments made to the employee’s job description or workplace, promotion, work transfer at the same level, and demotion, etc., or adjustments made to the employee’s responsibilities without any change to employee’s post (or position).

ARTICLE 3: Term and Probation Period

3.1 It is understood and agreed that the first ____ (_____) days of employment shall constitute a probationary period (“Probationary Period”) during which period the Employer may, in its absolute discretion, terminate the Employee’s employment, without assigning any reasons and without notice or cause.

3.2. After the end of the Probationary Period, the Employer may decide to confirm the Employment of the Employee, at its sole discretion.

3.3 After the end of the Probationary Period, this Agreement may be terminated in accordance with Clause 12 of this Agreement.

ARTICLE 4: Performance of Duties

4.1 The Employee agrees that during the Employment Period, he/she shall devote his/her full business time to the business affairs of the Company and shall perform the duties assigned to him/her faithfully and efficiently, and shall endeavour, to the best of his/her abilities to achieve the goals and adhere to the parameters set by the Company.

4.2 The Employee shall be responsible for ________________________

ARTICLE 5: Compensation

Subject to the following provisions of this Agreement, during the Employment Period, the Employee shall be compensated for his services as follows:

5.1 The Employee shall receive an annual salary, payable in monthly or more frequent instalments, as per the convenience of the Employer, an amount of________ per annum/ month, subject to such increases from time to time, as determined by the Employer. Such payments shall be subject to such normal statutory deductions by the Employer.

5.2 During the term of this Agreement, the Employee’s salary shall be paid by means of bank transfer, cheque, or any other method convenient to the Employer, and consented to by the Employee.

5.3 All reasonable expenses arising out of employment shall be reimbursed assuming that the same have been authorised prior to being incurred and with the provision of appropriate receipts.

ARTICLE 6: Obligations of the Employee

6.1 Upon execution of the agreement, the Employee shall not engage in any sort of theft, fraud, misrepresentation or any other illegal act neither in the employment space nor outside the premise of employment. If he/she shall do so, the Company shall not be liable for such an act done at its own risk.

6.2 The Employee further promises to never engage in any theft of the Employer’s property or attempt to defraud the Employer in any manner.

6.3 The Employee shall always ensure that his/her conduct is in accordance with all the rules, regulations and policies of the Company as notified from time to time.

6.4 The Employee shall not take up part-time or full-time employment or consultation with any other party or be involved in any other business during the term of his/her employment with the Company.

6.5 The Employee shall always ensure that his/her conduct is in accordance with all the rules, regulations and policies of the Company as notified from time to time, including but not limited to the Leave Policy and Sexual Harassment Policy.

6.6 The Employer hereby prohibits the Employee from engaging in any sexual harassment and the Employee promises to refrain from any form of sexual harassment during the course of employment in and around the premise of employment. If the Employee violates this term in the agreement, he shall be fully responsible for his/her actions and the Employer shall not be held responsible for any illegal acts committed at the discretion of the Employee.

ARTICLE 7: Leave Policy

7.1 The Employee is entitled to ____ (___) days of paid casual leaves in a year and ____(___) days of sick leave. In addition, the Employee will be entitled to _____ (__) public holidays mentioned under the Leave Policy of the Employer.

7.2 The Employee may not carry forward or encash any holiday to the next holiday year.

7.3 In the event that the Employee is absent from work due to sickness or injury, he/she will follow the Leave Policy and inform the designated person as soon as possible and will provide regular updates as to his/her recovery and as far as practicable will inform the designated person of the Employer of his/her expected date of return to work.

7.4 If the Employee is absent from work due to sickness or injury for more than three consecutive days he/she must submit to the Employer a self-certification form. If such absence lasts for more than seven consecutive days the Employee must obtain a medical certificate from his/her doctor and submit it to the employer.

7.5 For any period of absence due to sickness or injury the Employee will be paid statutory sick pay only, provided that he satisfies the relevant requirements. The Employee’s qualifying days for statutory sick pay purposes are Monday to Friday.

ARTICLE 8: Assignment

8.1 The Employee acknowledges that any work including without limitation inventions, designs, ideas, concepts, drawings, working notes, artistic works that the Employee may individually or jointly conceive or develop during the term of Employment are “works made for hire” and to the fullest extent permitted by law, Employee shall assign, and does hereby assign, to the Employer all of Employee’s right, title and interest in and to all Intellectual Property improved, developed, discovered or written in such works.

8.2 Employee shall, upon request of the Employer, execute, acknowledge, deliver and file any and all documents necessary or useful to vest in the Employer all of Employee’s right, title and interest in and to all such matters.

ARTICLE 9: Competing Businesses

During the Term of this Agreement and for a period of one (1) year after the termination of this Agreement, the Employee agrees not to engage in any employment, consulting, or other activity involving_______________ that competes with the business, proposed business or business interests of the Employer, without the Employer’s prior written consent.

ARTICLE 10: Confidentiality

10.1 The Employee acknowledges that, in the course of performing and fulfilling his duties hereunder, he may have access to and be entrusted with confidential information concerning the present and contemplated financial status and activities of the Employer, the disclosure of any of which confidential information to the competitors of the Employer would be highly detrimental to the interests of the Employer.

10.2 The Employee further acknowledges and agrees that the right to maintain the confidentiality of trade secrets, source code, website information, business plans or client information or other confidential or proprietary information, to enable the other party to such information constitutes a proprietary right which the Employer is entitled to protect.

10.3 Accordingly, the Employee covenants and agrees with the Employer that he will not, under any circumstance during the continuance of this agreement, disclose any such confidential information to any person, firm or corporation, nor shall he use the same, except as required in the normal course of his engagement hereunder, and even after the termination of employment, he shall not disclose or make use of the same or cause any of confidential information to be disclosed in any manner.

10.4 The Employer owns any intellectual property created by the Employee during the employment, or in relation to a certain field, and he shall thereon have all the necessary rights to retain it. After termination of employment, the Employee shall not impose any rights on the intellectual property created. Any source code, software or other intellectual property developed, including but not limited to website design or functionality that was created by the employee, during the course of employment under this Agreement, shall belong to the Employer.

ARTICLE 11: Remedies

If at any time the Employee violates to a material extent any of the covenants or agreements outlined in paragraphs 6 and 9, the Company shall have the right to terminate all of its obligations to make further payments under this Agreement. The Employee acknowledges that the Company would be irreparably injured by a violation of paragraph 6 or 9 and agrees that the Company shall be entitled to an injunction restraining the Employee from any actual or threatened breach of paragraph 6 or 9 or to any other appropriate equitable remedy without any bond or other security being required.

ARTICLE 12: Amendment and Termination

12.1 In case the Employer terminates the employment without just cause, in which case the Employer shall provide the Employee with advance notice of termination or compensation in lieu of notice equal to ___ (___) month(s).

12.2 The Employee may terminate his employment at any time by providing the Employer with at least ____ (___) month(s) advance notice of his intention to resign.

12.3 The Employee may terminate on the last day of the month in which the date of the Employee’s death occurs; or the date on which the Company gives notice to the Employee if such termination is for Cause or Disability.

12.4 For purposes of this Agreement, “Cause” means the Employee’s gross misconduct resulting in material damage to the Company, wilful insubordination or disobedience, theft, fraud or dishonesty, wilful damage or loss of Employer’s property, bribery and habitual lateness or absence, or any other willful and material breach of this Agreement.

ARTICLE 13: Restrictive Covenant

Following the termination of employment of the Employee by the Employer, with or without cause, or the voluntary withdrawal by the Employee from the Employer, the Employee shall, for a period of three years following the said termination or voluntary withdrawal, refrain from either directly or indirectly soliciting or attempting to solicit the business of any client or customer of the Employer for his own benefit or that of any third person or organisation, and shall refrain from either directly or indirectly attempting to obtain the withdrawal from the employment by the Employer of any other Employee of the Employer having regard to the same geographic and temporal restrictions. The Employee shall not directly or indirectly divulge any financial information relating to the Employer or any of its affiliates or clients to any person whatsoever.

ARTICLE 14: Notices

14.1 Any notice required to be given hereunder shall be deemed to have been properly given if delivered personally or sent by pre-paid registered mail as follows:

To the Employee: ______________________________
To the Employer: ______________________________

14.2 And if sent by registered mail shall be deemed to have been received on the 4th business day of uninterrupted postal service following the date of mailing. Either party may change its address for notice at any time, by giving notice in writing to the other party pursuant to the provisions of this agreement.

ARTICLE 15: Non-Assignment

The interests of the Employee under this Agreement are not subject to the claims of his creditors and may not be voluntarily or involuntarily assigned, alienated or encumbered.

ARTICLE 16: Successors

This agreement shall be assigned by the Employer to any successor employer and be binding upon the successor employer. The Employer shall ensure that the successor employer shall continue the provisions of this agreement as if it were the original party of the first part.

ARTICLE 17: Indemnification

The Employee shall indemnify the employer against any and all expenses, including amounts paid upon judgments, counsel fees, environmental penalties and fines, and amounts paid in settlement (before or after the suit is commenced), incurred by the employer in connection with his/her defence or settlement of any claim, action, suit or proceeding in which he/she is made a party or which may be asserted against his/her by reason of his/her employment or the performance of duties in this Agreement. Such indemnification shall be in addition to any other rights to which those indemnified may be entitled under any law, by-law, agreement, or otherwise.

ARTICLE 18 Modification

Any modification of this Agreement or additional obligation assumed by either party in connection with this Agreement shall be binding only if evidenced in writing and signed by each party or an authorised representative of each party.

ARTICLE 19: Severability

Each paragraph of this agreement shall be and remain separate from and independent of and severable from all and any other paragraphs herein except where otherwise indicated by the context of the agreement. The decision or declaration that one or more of the paragraphs are null and void shall have no effect on the remaining paragraphs of this agreement.

IN WITNESS WHEREOF, the Employee has hereunto set his hand, and the Company has caused these presents to be executed in its name and on its behalf, all as of the day and year first above written.

____________________ ___________________

(Employee) (The Employer)

Name: _________________ Represented By:

Designation: __________________

Conclusion

Thus, it is very clear for employees and employers to outline rights and duties through an employment contract. With the changing landscape of the service and labour industry, there is a marked need to move from strict to much more flexible agreements. At the same time, a balance must be struck, ensuring that both parties are equally benefited from the agreement.

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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All you need to know about false confession

By

Sneha Mahawar

-

April 12, 2022

0

This article is written by Rida Zaidi, a law student of the Faculty of Law, Aligarh Muslim University. This article deals with false confessions under the Indian Evidence Act,1872 and the way different countries deal with it.

This article has been published by Sneha Mahawar.

Introduction

Admission is one of the most essential fragments of evidentiary value under a criminal proceeding. The entire case depends upon the evidentiary value that is provided before the Court of law. Confession is not defined under the Indian Evidence Act,1872 but an inference for it is given under Section 17 of the Act, this inference applies to both admission and confession. According to it, confession falls under the ambit of admission. Admission, as defined by Section 17, is a statement made orally or in writing or in electronic form which suggests

a reference as to the fact in issue or relevant fact, and
where it is made by a person under the circumstances hereinafter mentioned.

Such ‘hereinafter circumstances’ are mentioned under Section 17 to 23 of the Indian Evidence Act. Under English law, the term admission is used under civil cases and the term confession is used under criminal cases. But under the Indian Evidence Act, no such distinction is made between the two. Confession is the admission of guilt by a person stating or suggesting the inference that he is guilty of committing a crime.

In the case of CBI v. V.C.Shukla (1998), the Supreme Court pointed out the difference between confession and admission. Confession is the actual admission of guilt by the person who has committed the crime whereas in the case of admission if the confession falls short of actual admission it can be used as evidence for admission.

Confession is quite an adequate form of evidence as the accused himself admits his guilt which can be a ground of conviction but not the sole ground of conviction. This was due to the reason that in order to be corroborated with other evidence because sometimes the accused may provide the investigating officers with a false confession which will land him/her in jail as the aim of our justice delivery mechanism is that several guilty perpetrators may be set free but one innocent should not be proved guilty.

This article shall deal with false confessions made by the accused, under what circumstances, and the way of different countries in dealing with false confessions according to their respective legal systems.

What is a confession

The term ‘Confession’ is the affirmation of guilt by the accused. It is the acknowledgement or admission of commission of an offence. A confession is made by the person against his favour which would enable the Court to reach its decision and pass the judgement effectively. Confession is nowhere defined in the Indian Evidence Act but Sections 24-30 deal with various provisions regarding the admissibility of confessions. A confession must either admit the entire offence that has been committed or all the facts that have constituted the commission of an offence. Confessions and admissions are constructed on the same proposition that an accused will not lie by giving a statement that goes against his interests. Thus, confessions are a mere category of admissions. The test laid down through which the Court can be satisfied regarding the confessions made are-

The confession is made voluntarily by the accused or co-accused.
The confession is based on truth and can be relied on.

If the Court after conducting the first test along with all the other evidence provided before it thinks that it is pleaded, the second test is fulfilled.

In case of Pakala Narayan Swami v. King Emperor (1939) the Privy Council held that the confession made by the accused are partly confession and partly admission. The observations that were made by Lord Atkin were as follows:

The confession was partly confession and partly an admission.
The confession ought to accept the terms of the offence or the factors that constituted the offence.
Even if the confession falls short of an absolute confession but if an inference can be drawn from that statement that he has committed the offence, it shall be considered as a confession.
Even if the accused makes a severely accusatory statement still it would not amount to a confession.

In the case of Palvinder Kaur v. State of Punjab & Haryana (1952), the Supreme Court held that the Court has to accept in totality the confession as it cannot accept the incriminating portion and reject the defensible portion as the Court is not competent in doing so.

Form of confession

A confession may occur in any form. A confession can be made to the Court, to some other person or while self conversation. In the case of Sahoo v. the State of UP (1966) the Court observed that it is not obligatory that the confession must be made to some other person; it is sufficient and admissible even if the confession is made to oneself.

Types of confessions

Confessions can be categorized under the following heads:

Judicial Confessions

Statements made by an accused in regards to a confession during a criminal proceeding admitting his guilt before a judge or magistrate is known as judicial confession or formal confession. A confession made by an accused before a Judge or Magistrate is admissible under Section 164 of the Criminal Procedure Code. It is known as a plea of guilt and a conviction could be made based on a judicial confession but the condition that needs to be satisfied is that the confession should be voluntary and based on truth. It is the duty of the judicial officer or magistrate to ensure that the accused is not exploited and is protected as per the provisions of Article 20(3). The evidentiary value is dealt with under Section 80 of the Indian Evidence Act that a judicial confession is substantive evidence and though a conviction can be made on the sole ground of it as a rule of caution it should be corroborated with other evidence.

In the case of Bhagwan Singh & Ors v. the State of MP (2003) the Court observed that a confession made involuntarily was inadmissible and unreliable and retracted so it cannot be treated as a corroborative piece of evidence either

Extra-judicial Confession

Confession made to a person, during self conversation or before anybody including a Judicial Magistrate is known as extra-judicial confession or informal confession. They are made in the absence of a Judge or Judicial Magistrate. It is admissible even if it is overheard by others and that piece of evidence can be proved if the Court is satisfied that it is substantive evidence that goes against the accused but it should be corroborated with some other evidence. Extra-judicial confessions are comparatively weaker than judicial confessions in terms of their evidentiary value. The same principle is applied to informal confession which is applied to judicial confession which is that the accused ought to be protected under Article 20(3) which talks about self-incrimination that a person cannot be compelled to give confession against himself. It should not be involuntary and should be reliable.

In the case of the State of Rajasthan v. Raja Ram (2003) the Court held that the extra-judicial confession, if made voluntarily and with a sound mind, is not merely weak evidence owing to the presumption that extra-judicial confession is a weaker kind of evidence. Its reliability depends upon the facts and circumstances of the case and the credibility of the witnesses.

Retracted confession

Retracted confession is a confession that is withdrawn or revoked after it is made owing to any reason whatsoever, may it be fear of somebody or fear of getting defamed in society etc., but it should have been made voluntarily and not out of threat, inducement or any promise. Retracted confession is weak evidence as it is retracted but it could be used against the accused if it could be proved before the Court and if the Court is satisfied that the particular retracted confession could be relied upon as a basis for conviction, it is admissible.

In the case of Bharat v. State of UP (1969), the Court held that a confession is examined on the grounds of its voluntary nature and its truthfulness and a retracted confession too can be taken into account by the Court. The Court must weigh both the confession and retracted confession together and then decide whether the retraction has affected the confession that is made voluntarily.

In the case of the State of Maharashtra v. Bharat Chaganlal Raghani & Ors (2001) the Court held that even for the admissibility of retracted confession some corroboration is required and a mere confessional statement is sufficient for pleading conviction not on the grounds of rule of law but out of relevancy.

Confession by co-accused

When one or more than one person is being tried for the same offence then confession by one of the accused shall be admissible against all the other co-accused. Confession by a co-accused is a weak sort of evidence.

In the case of State NCT of Delhi v Navjot Sandhu (2005), the Court held that a confession made by an accused requires corroboration but if the court is satisfied with the relevancy of the confession then a conviction can be pleaded on the sole ground of the confession.

What is a false confession

A false confession is the admission of guilt by the accused of a crime which in reality, he has not committed. People confess false confessions under threat, coercion, or mental disabilities where they are not able to understand the questions which are asked to them during interrogation or are not under a frame of mind to answer such questions. The most vulnerable group of society who profess false confession are children as they might under fear admit something which they have not done. False confessions are inadmissible and the police should interrogate thoroughly to examine the accused and to disclose the truth. False confessions have existed for ages and have acted as a hindrance to the justice delivery mechanism of our country. It delays the process of trial of a case and might end up putting an innocent person behind the bars. Furthermore, the real culprits escape and the purpose of justice remains unachieved.

In the case of Ahem Raja Khima v. the State of Maharashtra (1955), the appellant stated that as soon as he was put in jail, he was compelled to give a false confession by the police and out of fear he gave false confession as per directed by the police which he later repudiated.

Kinds of false confessions

False confessions can be divided into several categories on the grounds of facts and circumstances of a case and the gravity of the confession made.

Voluntary false confessions

These confessions result from an underlying mental disability or psychotic disorder. It is usually made in the absence of police officers. It happens in cases where the mentally disturbed person is seeking self-punishment for quashing his guilt or where he is not able to understand the difference between his imagination and reality or where he wants to protect the real culprit which might be his family member, relative or just an accomplice, furthermore to take revenge from someone. The police find voluntary false confessions unreliable and untrustworthy.

In the famous Lindberg kidnapping case (1932) where two babies were kidnapped and were found dead less than 5 miles from their home. It was found that the culprit was made to write similar notes like the ransom notes by the police. Later he was hanged to death.

Complaint false confession

The environment where the accused is interrogated in police custody is scary, unfamiliar, stressful and may cause the accused to get nervous. One of the most common practices of the police during questioning is to make the accused frightful, making him believe that if he confesses now he shall be availed during the trial and the judge would be lenient which is something that does not happen in most cases. The accused trusts the officers and thinks that if he confesses the whole scenario of interrogations will come to an end and thus gives the confession. The accused already being behind the bar finds his self-esteem is too low, and sometimes his answering does not satisfy the officers which may result in using physical torture and mental pressure which ultimately results in the conveying of false confession.

In the famous case of the New York Central Park Jogger (1989), four teenagers who were were presumed to have committed the heinous offence of rape were arrested. It was later found out that they were innocent owing to their statements and the DNA reports did not match with the DNA of the woman.

Persuasive false confession

It is the confession made by the accused where the police officers use such tricks and tactics where the accused doubts his memory and gets into self-doubt that he might have committed the offence. The scenario which is created during the time of enquiring the accused is such that it causes anxiety and fear to the accused. Furthermore, the police officials while questioning him, fabricates the crime scenes in such a way before the accused that he starts to ponder about his actions and begins to believe it. It is a kind of psychological hypnotisation where the mental faculty of the accused is molded according to the officers examining him.

Causes of a false confession

According to expert Richard Leo on false confessions, there are majorly three reasons for making a false statement. These reasons can be,

Misclassification of error

The first error that the police officials make is suspecting and creating suspicion regarding innocent people which ultimately leads to false confessions in many cases. When a presumption is created about a suspect it is almost considered that he has committed the crime in the eyes of the police officers and the interrogation is conducted keeping in mind that the suspect is the possible culprit. The behavioral analysis in regards to the suspects creates more confirmation for the police as to his body posture, how he speaks, how he affirms and denies and whether he is confident or nervous while answering. Though these tests are a total sham as every suspect is different to the facts and circumstances of each case.

Coercion error

It is the error where the police use such tactics as putting across the accused that he will be advanced to harsher punishment if he does not confess or that the accused has to admit his guilt as it is a part of the questioning, under some circumstances the accused is offered money or ransom in exchange of conveying a confession. The police officers in some cases take the aid of causing physical and mental torture to the accused by depriving him of necessities like food, water, washroom facilities etc. The accused undergoes discomfort and displeasure and feels trapped and helpless and might believe to surrender to whatever is being told to him.

Contamination error

Interrogators are experts in creating, molding and making the accused acknowledge his guilt for an offence which he has not committed. These are the repercussions of doing the same job for years and for now they know how to create such a story that portrays a real one and is credible for the Court and the judge. The accused is manipulated in accepting the guilt as he is confined in unfamiliar and unpleasant surroundings with an officer whose only motive is to make the confessor confess his guilt regarding the commission of a crime.

Admissibility of a false confession

The Indian Evidence Act,1872 embodies within itself the provisions relating to confessions from Section 24 to Section 30 under which confessions are admissible because they are made voluntarily and are based on truthfulness. However, false confessions are entirely inadmissible under the Indian Evidence Act. Every country has a different way of dealing with cases of false confessions and some of them are discussed below.

India

Under the Indian Legal System, if it comes to the notice of the Court that a false confession is made the Judge has full authority to condemn it and nullify it completely. There are certain rules known as the Confession rules. The Indian legal system deals with false confession in the following ways:

The Judge can charge Contempt of court, 1971 if it obstructs the working of the Court or leads to a lack of cooperation from the opposite party.
Perjury, i.e., lying to the Court is a serious offence under the Indian Penal Code and is dealt with under Section 193. Its punishment is dealt with under Section 196, that is, imprisonment for 7 years.
Lying to the police officer is dealt with under Section 182 of the Indian Penal Code, where a person intends to give false information with an intent to cause the public servant to use the power of law to cause injury to another person by doing something which he should not do or would not have done it if he knew the facts, such persons shall be punished with imprisonment of either description for six months or beyond or with fine or with both.

United Kingdom

Britain has embraced the technique of investigative interviews where the investigation is recorded so that the accused cannot be exploited and his interests are protected. Britain has always aimed to collect information rather than abuse the accused. The quality of evidence has always been up to the mark without compromising the accused’s mental and physical well being.

Canada

Canada uses a technique known as the lead technique. It involves three stages that is- facts analysis, interviews and interrogation. The suspect is questioned in a way that he goes into self-doubt regarding his actions and he starts to think that he might have committed the crime, he is wrongfully told that his DNA is matched or that some other evidence is found which will prove that he is guilty. There are a lot of unjust and unfair practices that exist under the Canadian legal system. There are many recommendations made to improve its shortcomings.

United States of America

The United States of America has one of the most expert investigators in the world. They have resorted to keeping into consideration the psychology of the accused. The Supreme Court has declared several guidelines to keep in mind while interrogating in cases of false confession. They are as follows-

DNA testing and exoneration

DNA completely adjudicates the matters as to whether the suspect is the real culprit or not. It ensures that no innocent is wrongfully detained for a crime that has not been committed.

The USA has completely abolished practicing harsh and inhumane treatment done to the accused. It does not aim to achieve information at the cost of the lives of the suspects.
The accused are made aware of their rights and are provided with a lawyer to aid them regarding the legal advice.

Brazil

Brazil embraces the practice of torturing its suspects. The accused were left with no other option than to convey false confession. The officials targeted the poor and the violent suspects of society. The country is condemned for following this practice.

China

China has had a long history of wrongfully detaining the people, immigrants and the vulnerable. The Chinese legal system has embodied the system of video interviews which will enable the officials to practice fair dealings with the suspects.

Conclusion

One of the aspects of confessions is false confession where a suspect admits his guilt for the commission of an offence which he has not committed and he is aware of the fact that he is innocent but maybe due to social pressure, the psychological tactics used by the police while interrogating, the accused sometimes tries to protect his family member, relative or acquaintance who has committed the crime or where he is mentally unfit to understand the questioning put before him by the police officials etc. A false confession is not admissible under the Indian legal system as it is untrustworthy and based on lies. If false confessions delay the proceedings of the Court or makes the opposing party lack cooperation, a person could be charged with contempt of Court or perjury where he lies before the Court under the Indian Penal Code. Different Countries have different ways of dealing with false confessions under their respective legal systems. For example, the USA uses the technique of DNA testing and preventing harsh measures while interrogating, whereas Brazil practices inhuman ways of dealing with confessions of its suspects. There have been a lot of changes being made in every country’s legal system in regards to their ways of dealing. But one cannot deny the fact that false confessions have always existed and their rate has somewhat increased during recent times. Lastly, after analyzing the whole scenario of false confessions prevalent in different countries and the different techniques which are employed in dealing with the accused, the author is of the view that the laws regarding false confessions should be stricter and such accused should be punished for misleading the courts.

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.

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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All you need to know about physical evidence

By

Rachit Garg

-

April 11, 2022

0

This article is written by Farzeen Rose, a student of Government Law College, Thiruvananthapuram, Kerala. This article seeks to understand physical evidence and its examination in detail.

It has been published by Rachit Garg.

Table of Contents

Introduction

Physical evidence, also known as real evidence or material evidence, is a tangible object which can tie the defendant, the witness, or the victim to the crime scene. Physical evidence helps the examiner or investigator to recreate the crime scene and infer the sequence of events that might have taken place. Physical evidence, being objective in nature, can be used as a solid and reliable fact to prove or disprove statements from the individuals involved. It is through the combined understanding of the physical evidence and statements from various parties involved, that the judge makes a decision in a case.

Physical evidence is also referred to as the “silent witness” as it is one of the crucial ways to prove the involvement of someone in a certain activity that took place at the crime scene. When documented without errors, collected by experts without any mismanagement, and preserved properly, it is completely reliable and is irrefutable. Physical evidence can help infer information related to the method the defendant used to harm the plaintiff, the trajectory of the weapon used, and even an estimated intent in case it is a question of plain murder or self-defense. Even things like dust and dirt can contribute immensely to the establishment of a fact. For example, the presence of a different type of soil in the crime scene can prove that there has been an external influence and it can even indicate or hypothesize the source of such a presence

Physical evidence is not one particular group of things that fit a certain mold. According to the American Academy of Forensic Sciences, it could be anything from being microscopic in nature and hence may go unnoticed by an ordinary human to something that is macroscopic to a level that someone may perceive it to be normal and hence insignificant.

History of physical evidence

Edmund Locart, the director of the first-ever crime laboratory, was the first person to emphasize the importance of contact or trace forensic evidence that we extract as physical evidence. He formulated a theory called the exchange principle, which talks about the exchange that takes place when there is a contact between two objects. This leaves to the experts what is known as physical evidence.

As the times progress, the legal system is increasingly putting more importance on objective facts and hence, physical evidence. The crime laboratory must be used as an effective investigative aid to utilise the physical evidence obtained from the crime scene and sustain the criminal charges.

Examination of physical evidence

The examination of physical evidence at the crime scene and later is done by forensic scientists or experts. They conduct it according to the rules and regulations prescribed by law regarding the admissibility of evidence and the procedure to be followed.

Forensic experts have precise methods of examining, collecting, and preserving all various kinds of evidence. They categorize it in several ways, analyze it, and present it as evidence as required. Forensic evidence can generally be categorized into:

Living physical evidence and
Non-living physical evidence.

Here, living physical evidence is anything obtained that might have been from a living thing like blood, saliva, hair. etc. and non-living physical evidence is anything that is inorganic in nature like fingerprint impressions, tire impressions, glass, or bullet.

Non-living physical evidence can be collected and examined in various ways. Taking photographs or images of the marks, copying and reforming the images in plaster, and fingerprint lifting( the process by which fingerprints from a crime site are secured) are some methods used to examine physical evidence.

Examples of physical evidence

Paint – Paint chips or residue, when analysed as evidence can indicate its type or class, as saved in the databases. Similarities between the paint substance found in two things can help establish a connection.
Glass- Glass particles are found in various cases such as a hit and run or a murder. Once examined, it may provide leads regarding the crime.
Explosives- Explosives when examined can lead the investigation to the type of explosive and the source. Further, the traces of explosives found elsewhere or on anyone can provide useful clues.
Ballistics- Ballistics refer to gunshot residues, firearms, or ammunition. There are specialised tests used to look into the details of such weapons used.
Dust and dirt- Dust, dirt, sand, or soil can be used to establish a connection between two different places and may even help with understanding the time and weather when the incident took place.
Fingerprints- Fingerprint lifting or other methods are used to obtain the fingerprints and then using the automated systems for fingerprint identification, it can identify suspects or accomplices.
Impressions- impression evidence includes tire tracks, shoe prints. etc. can be lifted, cast using a tape, or photographed and compared with the suspect’s tires or shoes.
Fracture matches- Fracture matches in forensics are when an object is torn or broken, and its components can be matched when placed next to each other. This can show how multiple components were once part of the same object.
Questioned Documents- Documents found at the crime scene such as ransom notes or other materials can be analyzed based on watermarks or the handwriting on it which may help with identifying the suspects.

These are just the most common examples of physical evidence. The list is not exhaustive and includes many more such as tool marks, fibers, and trace evidence.

Legislations relating to evidence in India

Section 3 of the Indian Evidence Act, 1872, defines evidence. This Section talks about oral evidence (statements that are made by the witness permissible by the court) and documentary evidence (written or electronic evidence). Ideally, there should be provisions relating to physical evidence, demonstrative evidence, and testimonial evidence. The definition provided in the Act does not cover material evidence such as weapons or results from local enquiries. However this shortcoming has been covered by courts by statutory interpretations during trials involving physical evidence such as in the case of Santosh Kumar Singh v. State through CBI,(2010), Murari Ram v. State of Madhya Pradesh,(1979), etc. However, for the courts to step in, the issue must have already arisen. This leads to the problem of not having enough sources to address future issues.

Crime scene investigations and all related forensic processes are usually governed by native rules and laws. Everything from obtaining a search warrant to submitting evidence to the laboratory and then to the court is specified in native laws. If not followed thoroughly, it can lead to the court not admitting the materials so obtained and examined as evidence.

Physical Evidence has been mentioned in the Protection of Children from Sexual Offenses Act, 2012. In certain cases, physical evidence cannot be used to prove or disprove certain claims and statements. In this Act, it is mentioned that child sexual abuse is difficult to prove precisely because of the fact that it leaves no physical evidence. In this case, the physician’s testimony formulated based on the child’s statements and examination is valued more than just an examination that may provide little to no physical evidence.

With regard to the Indian criminal justice system, there is an immediate need to increase the capacity of forensics. The presence of too many variables during a trial makes physical evidence the most dependable source that the system can rely on.

The National Human Rights Commission, in 1999, published a report named State of the Art of Forensic Science: For Better Criminal Justice in which they examined the forensic science system in detail, and suggested changes for its improvement. It advocated for the strengthening of existing forensic laboratories and for the establishment of new well-equipped laboratories. A homogeneous system of evaluation and research should be established so that the quality of the report does not vary because of a lack of expertise or proper technology.

The quality of reports from forensic facilities depends on the quality of samples sent by the investigating officers from the crime site. Thus, all investigating officers should be provided forensic training on collecting and preserving physical evidence until handing it over to the laboratories. Judges and public prosecutors should also be given the same as they provide and evaluate the evidence.

International perspective

Physical evidence and its importance can be known by how crimes such as perjury, tampering of evidence, or bribery are punishable in almost all countries in the world. These affect the credibility of the evidence greatly. Obstruction of justice is openly condemned, and hence, destruction of evidence, tampering with evidence, or hiding of evidence with the knowledge that it will hinder the proceedings regarding a case, is a criminal offense. Tampering with evidence is taken so seriously, that in the US, under federal law, the defendant may be given 20 years of imprisonment and a fine.

Though physical evidence and forensic science, in general, have been gaining traction for the past few years, there is not enough influx of published materials regarding the collection, study, and examination of the different kinds of evidence. There is also a lack of research on the extent of influence it has on courts and judicial systems all over the world. However, this may be approached subjectively as the effect physical evidence has on different cases varies depending on the degree of crime, the different kinds of physical evidence, and the specific circumstances surrounding the case.

Criminal investigations are now most often done by the method of reconstruction or re-creation. For this, doctors, forensic experts, and the police work together, recovering all possible physical evidence and mapping out a proper sequence of the events that may have happened. It is through proper reconstruction and investigation, that the statements of the witnesses and suspects can be upheld or contradicted. All this is later produced in court in a compact and condensed form so as to enable the judges with maximum precise information to arrive at a decision.

Cases surrounding physical evidence

The importance of physical evidence

A capital murder case

This case took place in 1990, Virginia, and it was regarding the murder of a female (22-year-old) involving sexual assault and stabbing. During the investigation, the police could not find any significant piece of evidence apart from a pillowcase with many bloodstains on it, obtained near the victim’s body. On a detailed analysis of the pillowcase, many details which were not visible to the naked eye were detected. A faint fingerprint was found which had the potential to be identified. Later, after conducting the post mortem, semen was found on the victim’s leg and on a serological investigation, which led to the victim’s next-door neighbour. The warrant was given based on this and the fingerprint recognition solidified the arrest. On further investigation, the weapon was recovered from the suspect’s residence.

Bone in tree case

In this case, human remains were found under a tree. All bones were found to have been lying there undisturbed. Multiple physical evidence was obtained from the site- a long bone, worn-out pants, and a part of rope tied to the tree with one end in a tree branch. All skeletal remains were gathered and taken in for examination. On analyzing, it was found that all the bones found were of the same person; male and that he was of around 18 to 25 years of age. During the examination of the torn pants, a mobile phone was found which appeared to have been destroyed because of the long exposure to natural elements. However, the sim cards were retrieved and on searching the databases from the service provider, the person was identified, and reconstructing the incident was made possible.

Nirbhaya case

The 2012 Delhi gang rape and death case, where a 22-year-old female was gang-raped and tortured in a public bus, which resulted in her death a few days later is another case where physical evidence was proven to be of utmost importance. Evidence was collected with care from the site where the victims were present. There was DNA matching of blood hair and saliva, matching of dental marks on the victim’s body with that of two of the accused, cellular data collection and examination, CCTV footage from multiple places, testimonies from medical experts, legal personnel, and eyewitnesses and the dying declaration of the victim herself were all used as irrefutable evidence to counter the pleas of the accused in every step.

Constitutionality of biological sample taken as physical evidence

Malappa Malingara v. State of Karnataka

This case dealt with the question whether drawing a biological sample from an accused to prove them guilty was of a self incriminatory nature.

The background of the case is as follows: A woman was subjected to rape repeatedly by the accused at her workplace. He had promised to marry her which she refused. He then forcefully committed the crime and threatened to kill her as a result of which the incident was not known to anyone. This was until her family noticed changes in her body. The victim then revealed that she was pregnant by the accused. This was then taken up in court which found the accused guilty after a DNA test report was produced proving that the accused was the father of the child.

The accused then challenged the constitutionality of the procedure and also contended that he was not made aware of the consequences of having his sample taken. However, he had given his consent in front of a magistrate after making known all aspects of such procedure. The procedure was held not to be self incriminatory by the court as it is essential to prove the guilt or innocence of the persons concerned. As to the constitutionality, the learned magistrate took into account Sections 53 and 53A of the CrPC and passed the order in compliance with Section 164A of CrPC. Hence, it cannot be said to violate Article 20(3) of the Constitution of India.

The consequence of mismanagement of physical evidence

Aarushi Murder Case

Aarushi murder case, also known as the 2008 Noida double murder case, was one that shook the nation. It showed us the true potential of media trials and the consequences that may arise out of the mismanagement of physical evidence. The case is about the murder of 13-year-old Aarushi Talwar and 45-year-old Hemraj, whose bodies were found on successive days in two different locations in the same building. The investigation conducted after the discovery of Aarushi’s body and even further has been faulty and caused great damage to physical evidence pertinent to the case. The police who got to the site did not take proper care and failed to record evidence carefully. The media and general public had full access to the crime scene, during which much evidence either got tampered with or destroyed. One of the main pieces of evidence, i.e, a handprint next to Hemraj’s body was not properly investigated and hence it couldn’t be recognized. The police also failed to recognize the person to whom the shoe print found in the double bedsheet separating the terrace belonged. Moreover, the police ignored the fact that Hemraj’s mouth had hairs in it even after it was pointed out by the Talwar’s lawyer. The investigators could not identify the person who had called Hemraj from a Public Call Office located a kilometer away from the crime scene. They could not identify the fingerprints found on the whiskey bottle either. All these caused the case to go through multiple phases and loops, and it remains unsolved to this day.

Conclusion

Physical evidence is an authoritative component of any case. Due to its objective nature, physical evidence is one definite way to aid or rebut statements and claims in a case. When oral evidence is provided, it is cross-checked with relevant physical evidence to strengthen the establishment or discarding of the same. Thus, various methods are used to collect, analyse and preserve such evidence. It avoids unnecessary wastage of time. If not for the evidence proving or disproving a said fact of the case, the case would take much longer than required. Physical evidence, being free from human error or bias, helps in establishing facts that are peremptory to the case and hence do it justice.

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.

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

https://t.me/lawyerscommunity

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

Difference between promissory note and bill of exchange

By

Rachit Garg

-

April 11, 2022

0

This article has been written by Debatree Banerjee from KIIT School of Law, Odisha. Negotiable Instruments are essential documents playing an essential role in the business realm. They embody a right to the payment of money and can be transferred from one person to another. This article broadly discusses negotiable instruments, and the difference between promissory note and bill of exchange .

It has been published by Rachit Garg.

Table of Contents

Introduction

Goods are sold or bought, for cash or on credit. When goods are sold for cash, the payment is received immediately. However, the payment gets postponed to a future date, if the goods are sold on credit. In such cases, to avoid the possibility of delayed payment or default, an instrument of credit is drawn. This instrument ensures the payment by the debtor to the creditor according to the agreed conditions on the due date.

The negotiable instrument is a document embodying a right to the payment of money that can be transferred from person to person. As described by Justice Willis “ A negotiable instrument is one, the property in which is acquired by anyone who takes it bona fide and for value notwithstanding any defects of the title in the person from whom he took it”.

In India, the negotiable instruments are governed by the Negotiable Instruments Act of 1881. It operates subject to Section 31 of the Reserve Bank of India Act, 1934, which states that no person other than the Bank or as expressly authorized by this Act, the Central Government shall accept, draw, issue or make any bill of exchange, promissory note, hundi or engagement for the payment of money payable to bearer on demand. This Section also provides that no one apart from the Reserve Bank of India or the Central Government can make or issue a promissory note articulated to be payable or demanded or after a definite time.

Meaning of Negotiable Instruments

Negotiable Instruments are documents that embody a right to the payment of money and may be transferred from person to person. These instruments were developed with efforts to make credit instruments transferable i.e, creditors to meet their liabilities keep documents that proves somebody is in their debt. To illustrate, X has promised to pay Y a certain amount of money at a specified date, in the future that can be used by Y to pay his debt to Z. This ‘negotiability’ of instruments is possible with the development of numerous negotiable instruments.

Section 13(a) of the Negotiable Instruments Act, 1881 says that “A ‘negotiable instrument’ means a promissory note, bill of exchange or cheque payable either to order or to bearer.” Even though the Act mentions only three instruments – cheques, promissory notes, and bills of exchange, however, it does not exclude the possibility of other instruments satisfying the following primary conditions of negotiability:

The instrument can be freely transferable via delivery or by endorsement and by the customs of the trade.
The person obtaining it in good faith must get it free from all defects and must be entitled to recover money for the instrument in his own name.

Few of such negotiable instruments are share warrants, debenture warrants, and dividend warrants. Instruments like deposit receipts, bill of lading, postal orders, dock warrants etc., are not negotiable instruments as although they are transferable by delivery and endorsements, they do not give a better title to the transferee for value than the transferor.

Negotiation : analysis

Before discussing the characteristics, let us understand the term “negotiation” with respect to these instruments. Section 14 of the Negotiable Instrument Act 1881, states that an instrument is said to be negotiated when the instrument has been transferred to a person and constitutes such person as the ‘holder’. The main purpose of such transfer is to make the transferee of the instrument the holder thereof. Thus, it is the procedure by which a third party is made the holder of the instrument, giving him the possession and the entitlement to receive the sum of money in his own name.

The two essential conditions of negotiation are:

The instrument must be transferred to another person, and
The transfer must be made in such a manner as to constitute the transferee as the holder of the instrument.

Therefore, handing over an instrument to someone for safe custody does not amount to negotiation. Because the transfer was not made with the intention to pass the title.

There are two modes of negotiation:

Negotiation by delivery: This mode has been mentioned in Section 47 of the Act. In cases, where the instrument is payable to a bearer, it can be negotiated by delivery thereof.
Negotiation by endorsement and delivery: This mode is mentioned in Section 48 of the Act. An instrument payable to order can be negotiated only by endorsement and delivery. That means, unless the holder has signed his endorsement on the instrument and delivers it, the transferee does not constitute as the holder.

Characteristics of Negotiable Instruments

A negotiable instrument can be identified by the following characteristics:

Title

The person who is in possession of the negotiable instrument is considered to have the right to title over such instrument. Negotiable instruments can be transferred without any formality. A bearer instrument is transferred just by delivering it to the transferee, whereas an order instrument needs to be endorsed and delivered for transferring the instrument. The transferee of the negotiable instrument is known as ‘holder in due course’ as described in Section 9 of the Act. A bona fide transferee of value is not affected by any defect of title on the part of the transferor or any of the previous holders of the instrument.

Rights

The transferee of the negotiable instrument has the right to sue in his own name if the instruments get dishonoured. A negotiable instrument can be transferred multiple times till the date of its maturity. The holder of the instrument does not need to give any notice of its transfer to the party liable on the instrument to pay.

Presumption

There are a number of presumptions that apply to all negotiable instruments, for example, the presumption of consideration, time of acceptance, time of transfer, etc. These presumptions are presumed by the court in regard to negotiable instruments and do not need to be proved separately until the contrary is proved.

Presumptions as to Negotiable Instruments

As discussed above, in regard to negotiable instruments the court of law presumes certain presumptions, which do not need to be proved separately, until contrary following such presumptions is proved. The presumptions are as follows:

Consideration

It is presumed that every negotiable instrument drawn, accepted, or endorsed is for consideration. This presumption however may be rebutted, if proved that such instrument had been obtained by means of fraud or undue influence from its lawful owner.

Date

Until the contrary is proved, the date mentioned in the instrument is presumed to be drawn on such date.

Time of acceptance

In cases, where the date of acceptance is not dated, the instruments are presumed to be accepted within a reasonable time after its issue and before its maturity. Otherwise, where the date of acceptance is present, such date will be taken as prima facie evidence of the date on which it was made.

Time of transfer

It is presumed that a negotiable instrument was transferred before the date of its maturity.

Order of endorsement

It is presumed that the endorsements appearing upon a negotiable instrument were made in the order in which they appear.

Stamp

It is presumed that a lost instrument has been duly stamped according to the law.

Holder in due course

It is always presumed that the holder of the instrument is the holder in due course until otherwise has been proved.

Types of Negotiable Instruments

Section 13 of the Negotiable instruments Act recognises promissory notes, bills of exchange, and cheques as negotiable instruments. However, it does not exclude the possibility of other negotiable instruments. Hundis, share warrants, dividend warrants, circular notes, bearer debentures, etc., are examples of a few such instruments recognised by usage or custom.

The list of negotiable instruments mentioned above is not a closed chapter. With the continuous change in the commercial world, new kinds of securities may also get recognition as negotiable instruments.

Bill of exchange : meaning

Bill of Exchange is the most commonly used negotiable instrument and is also the most complex of all. Section 5 of The Negotiable Instrument Act, 1881 defines “bills of exchange” as a written instrument, signed by the maker, containing an unconditional order, and directing a certain person to pay an amount of money to a person or to the bearer of the instrument. In simple words, it is a document ordering a person addressed in the bill to pay a certain amount of money to someone else.

Features of a bill of exchange

The features of a bill of exchange as derived from the definition are:

It must be a written document.
It is an order to make payments.
The order to make the payment must be unconditional.
The bill of exchange must be signed by the maker.
The payment to be made should be certain.
The date on which the due payment must be made should also be certain.
The bill of exchange must be made to a certain person.
The amount to be paid is payable either on-demand or on the expiry of the time mentioned in the draft.
The draft must be stamped as per the legal requirements.

It is usually drawn by the creditors (drawer) upon their debtors (drawee) to ensure their payment on the due date. The bill of exchange must be accepted by the drawee, as it is just a draft without such acceptance.

Parties to a bill of exchange

There are three parties to a bill of exchange:

‘Drawer’ is the person who makes the bill of exchange. Generally, a seller/ creditor who is entitled to receive an amount of money from the debtor draws a bill of exchange upon the buyer/ debtor. The drawer must sign the bill of exchange, as its maker after writing it.
‘Drawee’ is the person upon whom the bill of exchange has been drawn, and is directed to pay a sum of money. They are usually the buyer/ debtor of goods.
‘Payee’ is the person to whom the drawee must pay the sum of money. In general, the drawer himself is the payee, if the bill is with him till the period of its payment. However, the payee may change in certain situations:

If the drawer is getting the bill discounted, the person discounting the bill will be the payee; and
if the drawer has endorsed the bill in favour of its creditor, then the creditor will become the payee.

Let us understand this with an illustration. Seeta sold goods to Geeta on credit, worth Rs 8,000. Seeta drew a bill of exchange upon Geeta for the payment of the due amount after three months. The bill of exchange will only be a draft unless Geeta accepts it by writing the word ‘accepted’ on it and apprehending her sign thereto communicating her acceptance. Here Seeta is the drawer and Geeta is the drawee. If Seeta retains the bill of exchange for the period of three months and receives the amount of Rs. 8,000 on the due date, then Seeta is the payee. And if Seeta gives away the bill to her creditor Raghav, then Raghav will be the payee. In case, Seeta gets the bill discounted from the bank, the bankers will become the payee.

In the above case, as Geeta accepted the bill of exchange, she will be the acceptor. And in her place, suppose Aditya accepts the bill, then Aditya will be considered as the ‘acceptor’.

Advantages of a bill of exchange

The bills of exchange are most frequently used in business transactions because of the following advantages:

Framework for relationships

The bills of exchange provide a framework that enables the credit transactions between the seller and buyer, or debtor and creditor on an agreed basis.

Certainty of terms and conditions

There is a certainty of time as the creditor is aware of the time when he would receive the amount, and similarly, the debtor is also aware of the date by which he has to pay the due amount. This is because the bill of exchange mentions the terms and conditions of the relationship between the debtor and creditor such as the due amount, date of payment, interest to be paid if any, and the place of payment, etc.

Convenient means of credit

A bill of exchange enables the buyer to buy goods on credit and pay after the period of credit. And, the seller can also get the payment immediately, even after the extension of credit, by getting the bills discounted with a bank or by endorsing it to a third party.

Conclusive proof

These bills are legal evidence of credit transactions implying that a trade buyer has obtained credit from the seller of goods, and he is liable to pay to the seller. In case the debtor refuses to make the payment, the law requires the creditor to obtain a certificate from the notary as conclusive evidence of its happening.

Easy transferability

With the bills of exchange, debt can be settled easily by transferring them through endorsement and delivery.

Promissory note : meaning

Section 4 of the Negotiable Instrument Act, 1881 defines ‘promissory note’. And as per the provision, it is a written instrument, which is not a banknote or a currency note, containing unconditional undertaking, and is signed by its maker to make payment of a certain sum of money to a certain person or to the bearer of the instrument. In simple words, it is a promise in writing by a person, to pay a certain amount of money unconditionally to a certain person or according to his order.

Features of a promissory note

The features of the promissory note as derived from the definition are:

The undertaking must be in writing.
The promise to pay must be unconditional.
The sum payable must be certain.
The promissory note must be signed by the maker.
It must be payable to a certain person.
It must be properly stamped.
As the maker of the promissory note himself is promising to pay the amount, it does not require any acceptance.

Parties to a promissory note

There are two parties to a promissory note:

‘Drawer’ is the person who is making the promissory note about paying the certain sum of money as specified in it. He is also called the ‘promisor’.
‘Drawee’ or ‘payee’ is the person in whose favour the promissory note has been drawn, and to whom the drawer must pay the money. He is also called the ‘promisee’. In general, the drawee is also the payee, unless it is mentioned otherwise in the promissory note.

Let us understand this with an illustration. Ram is the drawer who promised to pay a sum of Rs. 10,000 to Priya, the drawee or payee. If Priya endorses this promissory note in favour of Akshay, then Akshay will become the payee. Similarly, if Priya gets the promissory note discounted from the bank, then the bank will become the payee.

Advantages of a promissory note

The advantages of a promissory note are similar to the advantages of bills of exchange, and they are as follows:

Identification

The promissory note contains the key details of the credit arrangement, including the amount due to be paid and the due date for such payment. It also contains the identification of both the lender and the borrower by their name. And in case, if the lender needs interest over the due amount, such an interest rate is also mentioned in the note.

Clarity regarding default terms

Another advantage of a promissory note is that it clearly mentions all the terms and conditions, including the terms in case of default of payment to prevent unnecessary confusion and disputes.

Use the note in the courts of law

On a promissory note, the credit is properly documented and thus, can be used as evidence while seeking a judgment in court if any conflict arises between the debtor and the creditor.

Difference between bill of exchange and promissory note

The bills of exchange and promissory notes, both are instruments of credit and similar in many ways. However, they have basic differences from as mentioned below:

The number of parties

In the case of a bill of exchange, there are three parties – the drawer, the drawee, and the payee. Whereas there are two parties in the case of promissory note – the drawer and the drawee.

Payment to the maker

In the bill of exchange, the drawer and the payee may be the same person. However, in the case of a promissory note, the drawer can never be the payee.

Unconditional promise

The bill of exchange contains an unconditional order for the drawee to pay the payee according to the direction of the order, whereas a promissory note contains an unconditional promise by the drawer to pay the payee.

Prior acceptance

In the case of a promissory note, the liability of the drawer is primary and absolute, but for a bill of exchange, the liability is secondary and conditional.

Relation

The drawer of promissory note stands in immediate relation with the payee, while the drawer of an accepted bill of exchange stands in relation with the acceptor.

Conclusion

Negotiable instruments play a major role in business transactions, and they are used in both domestic and international trades. These instruments become negotiable by statutory provisions or through mercantile usage. Promissory notes and bills of exchange are two of such negotiable instruments that are mentioned in The Negotiable Instruments Act. And these two are different from each other for their different features.

Bills of exchange is a written document showing the indebtedness of the debtor towards the creditor. It is the creditor who makes the bill of exchange. Whereas, a promissory note is a written promise by the debtor, to pay the specified amount of money on a specified date. These instruments are easily transferable, and the holder of the instrument can take the amount, or use it for another transaction in an appropriate manner.

Negotiable Instruments are significant for both domestic and international transactions by providing a very safe and secured system for monetary transactions, as one does not always have to carry a large sum of money with themselves to pay the other.

References

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Expansion and use of product design protection in Japan

By

Sneha Mahawar

-

April 11, 2022

0

This article is written by Poonam Gulati pursuing LLM in Corporate laws and/or Intellectual Property laws and Media and Entertainment laws Course at lawSikho. This article has been edited by Zigishu (Associate, Lawsikho).

This article has been published by Sneha Mahawar.

Table of Contents

Introduction

Most of the intellectual property rights in Japan are covered by patent rights, design rights, trademark rights, utility model rights, and copyrights. Certain other intellectual property rights are taken care of by the layout-design exploitation right, which is not much in use.

This article shall majorly focus on the improvements in the protection regime of product designs in Japan due to the amendment of their Design Act enforced on April 01, 2020. The ambit of discussion for the purpose of this article is confined to understanding the design law in Japan qua the following:

Definition of “Design” under the Design Law
A protection system unique to Japan
Revision of the Design act in Japan
Expansion of indirect infringement

A design right is born after the registration of the design under the Design Act, 1959, by way of a request for registration of Design & Drawings in the prescribed manner. The important take here is in the method of design drawings because in Japan it is mandatory that they have to be based on orthographic drawings. These drawings include all views of the design drafted by using the same scale and detailed views in isometric and oblique drawings. The prospective applicants must be aware of two important things. Firstly, the principle of ‘First to File’ and secondly, the rule to ‘keep the design unpublished or undisclosed before filing registration’. The rule to ‘keep the design unpublished or undisclosed before filing registration’ is mandated by Art3, the principle of ‘first to file’ the Act however exceptions to the rule are covered in Art4. The principle of ‘First to File’ gives priority to the earliest application at an instance when more than one application is received for registration of the same or similar designs by different applicants, this is commonly known as the priority rule.

Definition of “Design” under the Design Law

Design Art2(1) means the shape, pattern, colors, or a combination of any of these in an article that creates an aesthetic visual impression. ‘Article’ here includes any part or component of the product in question unless it falls within the meaning of Art8 of the Act. The Design is here associated only with the article and must be displayed on that article itself Art2(2). The definition of ‘design’ has been altered to expand the scope of protection of design under the categories of GUI and buildings & interiors. The shape, pattern, colors, or a combination of a part of an article includes any graphical image(s) on the display screen or that article itself or a certain associated article integrated along with that article. Such graphical image (GUI) must only be related to the operation of the device/article or should appear due to the functionality of that article.

A protection system unique to Japan

The Japan Design law has evolved to become a ‘protection system unique to its country’ due to the major amendments of the Act enforced in April 2020. These amendments provide significantly broader protection to a huge range of companies in many industries, creating exponential design rights in the package. A few major examples are

Group Design or Related Design System- A unique provision in the Revised Japan Design Law is that it not only registers (related design) a design related to the principal design but also allows the registration of a design similar to the related design (similar design) provided the application for such registration is made within 10years of registration of the principal design.
Single Design of a set of objects- Another unique feature of the revised Act that helps to keep the registration cost down is the provision of registering a ‘design of a set-of-objects’ as a single design. This is an exception to the principle of one-design-per-object. A pro of this provision is that partial design registrations for discrete objects usually sold in sets have become possible now.
Secret Design System- Yet another provision that makes Japan’s Design law a stand-alone law is that of allowing the registration to be kept secret for a stipulated period. This secret system, though not infrequent use, is beneficial to designs that fade fast due to fashion or popularity concepts. However, owners of secret designs have limited options for actions against infringements and thus should use the option prudently.
Registration of partial design- A very important aspect of the Japan Design Protection System introduced registration of parts of shapes or forms (partial design) with distinctive characteristics. This provision directly attacked those counterfeiters who copied the design smartly rather than completely so as to escape prosecution. This though breaks the tradition to register the entire design but prohibits infringements of indirect and intricate nature.

Revision of the Design Act in Japan

The Revised Design Act can be studied under three major heads qua the amendments.

Expansion of scope of protection– The revision of the law has significantly widened the scope of protection by expanding the umbrella over the graphical user interfaces (GUI) and the design of exterior and interior decorations on buildings which initially covered only tangible objects.

Design for GUI-The law prior to revision allowed protection of GUI image designs, which are based on non-cloud applications, which only included images recorded in a device and could appear on that device itself. Post the amendment cloud-based applications of GUI image designs are also protected. These GUI images need not be recorded within devices and may exist on the cloud and such protection also stretches to GUI image designs that are projected onto physical items.
Design for Buildings & Interiors– The concept of ‘single design as a set of objects’ is used in building designs & interiors. Designs that create a “uniform aesthetic appearance as a whole” thus qualify to be protectable in a single design. Within its meaning, the term interior designs indicate an aesthetic combination of multiple objects that form the elements of one design. This includes decorations, furnishings & fittings on the walls and the floor, the furniture in that space, giving an experience of “uniform aesthetic appearance as a whole”. The partial design protection system allows protection to parts of buildings however, there is a reservation concerning the law reforms dealing with the architectural and construction industry.

Enhancement of related design system– The protection provided to “Related designs” to the originally filed “principal designs” was provided in a restricted manner by the previous law and such protection was provided only if its registration was applied only within 8 months duration of registration of the principal design. The revised law protects the design similar to the ‘principal design’ as well as that to the ‘related design’ and such protection is provided to such application within 10 years from the application date of the principal design

Other important provisions
Duration– The duration of design rights provided to registered design owners applying on or after April 1, 2020, extends to 25years. This duration was restricted to 10years for prior applications made between April 1, 2007, and March 31, 2020.

Collective application– A single application may be filed requesting multiple design registration.
Article Classification table abolished– ‘The table for classification of Articles’ has been replaced by the ‘single design’ concept by the revised law.
Level of creativity– The shapes & patterns that have found a place on websites or in publications shall be subject matter while assessing the norms of creativity
Damage presumption method– The right holder can claim damages amounting to a figure equivalent to the license fee, for a part exceeding the production or the sales capacity.
Remedial procedure- The documents related to priority can be submitted after the lapse of the period prescribed for submission.

Expansion of indirect infringement

Expansion of indirect infringement: To avoid crackdowns, the amended law forbids indirect infringement by allowing the division of infringing products into components and manufacturing or importing them so that they constitute assisting or supportive acts that constitute infringement. These acts would amount to infringement of indirect nature, therefore, regarded as deemed infringements. A protection regime is now available against such indirect infringements under the revised law thus plugging the loophole which was taken advantage of by the sophisticated counterfeiters by breaking up and importing a part of the overall design as a separate component being used for the compilation of the entire design.

Conclusion

The revised product design law of Japan is a one-of-a-kind and protection system provided by it is unique in character attributing to several distinctive provisions which shall have a revolutionary impact upon the protection regime and the rights of the design holders.

References

https://www.managingip.com/article/b1m7fs5vv0pmbk/japan-why-legal-reforms-have-divided-designers

https://wipolex.wipo.int/en/text/583130

https://wipolex.wipo.int/en/legislation/details/20544

Japanese design law – Wikipedia

https://www.jpo.go.jp/e/resources/report/sonota-inf o/document/pamphlet/isho_kaisei_en.pdf

https://www.jpo.go.jp/e/faq/yokuaru/design.html

https://thelawreviews.co.uk/title/the-intellectual-property-review/japan

https://www.lexology.com/commentary/intellectual-property/japan/nishimura-asahi/expansion-and-use-of-product-design-protection-in-japan

Japan Patent Office (jpo.go.jp)

Searching for Patents, Utility Models, Designs, Trademarks | Japan Patent Office (jpo.go.jp)

How to use JPO website | Japan Patent Office

Trademarks | Japan Patent Office (jpo.go.jp)

Patent | Japan Patent Office (jpo.go.jp)

Expansion and use of product design protection in Japan – Commentary – Lexology

https://www.jpo.go.jp/e/system/design/gaiyo/design.html

https://www.jpo.go.jp/e/resources/report/sonota-info/document/pamphlet/isho_kaisei_en.pdf

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iPleaders

All about a contract of affreightment

Introduction

Contract of affreightment : a brief overview

Duties of shipowner

Duties of charterer

Types of contract of affreightments

Bill of lading

Case law

Hamilton Fraser & Co. v. Pandorf and Co., (1887)

Facts of the case

Issues involved in the case

Judgement of the Court

Charter party contract

Voyage charter contract

Time charter contract

Bareboat charter contract

Lump-sum contract

Obligations of affreightment contracts

The seaworthiness of the ship

Staying on the agreed route- no deviation

No shipping of dangerous goods

The obligation of reasonable dispatch

Nominating a safer port

Frustration

Nomination procedure and potential problems

Difference between a contract of affreightment and a contract of carriage

Difference between charter party and bill of lading

Conclusion

References

All you need to know about an Option Contract

Introduction

What is an Option Contract

Types of Option Contracts

Elements of a typical Option Contract

Features of Option Contracts

Purpose of an Option Contract

How does it work

Advantages of an Option Contract

Disadvantages of an Option Contract

What happens when an Option Contract expires

Mistakes to be avoided while drafting an Option Contract

Sample of an Option Contract

Conclusion

References

All you need to know about express contracts

Introduction

What are express contracts

Examples of express contracts

Oral express contracts

Written express contracts

Required components of an express contract

Offer

Acceptance

Consideration

Object

Capacity

Foundation of an express contract

Express offer

Express acceptance

Absolute acceptance

Essentials of an express contract

Difference between express contracts and implied contracts

Are e-contracts express or implied contracts

Difference between express contracts and quasi-contracts

An example of an express contract involving a celebrity divorce

Conclusion

References

Comparative analysis of the Takeover Code in India and the UK

Introduction

Types of takeover

Friendly takeover

Hostile takeover

Reverse takeover bid

Backflip takeover

Why is there a need for a takeover code

Takeover regulations in India

Laws governing takeover code in India

The Companies Act, 2013

The Competition Act, 2002