What you need to know about the social contract theory

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March 28, 2022

This article is authored by Nidhi Bajaj, of Guru Nanak Dev University, Punjab. In this article, the author has explained the meaning of social contract and has also discussed the theories of social contract propounded by the three political philosophers: Hobbes, Locke and Rousseau.

This article has been published by Sneha Mahawar.

Introduction

A ‘Social contract’ connotes a hypothetical agreement used to explain the origin of society and state. Before the formation of state and government, man used to live in a state of nature. The social contract theorists compared the advantages of an organised government with the advantages enjoyed in the state of nature and reasoned as to why men should accept and obey the government voluntarily. The conclusions of this exercise led to the formation of a social contract setting out the rights and duties of the citizens towards the State. Although the idea of a social contract had been discussed priorly, the concept is predominantly associated with the English philosophers Thomas Hobbes and John Locke and the French Philosopher Jean Jacques Rousseau.

In this article, the author will explain the meaning of the social contract and social contract theories followed by a discussion of the social contract theories propounded by Hobbes, Locke and Rousseau.

Meaning of social contract

A social contract refers to an actual or hypothetical agreement between the ruled or between the ruled and the ruler, defining the rights and duties of each. Individuals being born into a state of nature, by exercising their reason and collective will agreed to form a society and a government. A social contract can also be viewed as a means to escape from the state of nature. Thus, a social contract can be of two forms:

Firstly, a contract that led to the origin of the State: This contract simply spells out the willingness of the people to establish the State as the sovereign.
A contract of government or a contract of submission: This contract deals with the course after the establishment of a State or society. It spells out the terms and conditions of governance and involves reciprocal obligations and promises on part of the ruler and the ruled. The most important of them is the promise of obedience made by citizens and the reciprocal promise of protection of citizens and good governance made by the King/Ruler/State.

The social contract is based on the express or implied consent of the people to give up some of the freedoms that they enjoyed in the state of nature in exchange for the protection of their remaining rights and the maintenance of social order.

The social contract theory

At the outset, social contract theory seeks to explain two things:

Historical origins of sovereign power
Moral origins of the principles that establish the legitimacy of the sovereign authority

Social contract theory deals with the formation of the social contract and gives answers to questions regarding the nature of life before the state came into existence and the reasons or circumstances that led to the formation of the social contract etc.

Life before the coming into existence of organised societies or governments is referred to as the ‘state of nature’. The condition of man and his life in the state of nature is described differently by different political thinkers. Some describe life in the state of nature as blissful and others describe it as brutish and harsh. To overcome the hardships existing in the state of nature, the following two agreements were formed:

Pactum Unionis: Through this pact, people demanded protection of their lives and property. This led to a formation of society wherein all were to live in peace and harmony.
Pactum Subjectionis: This pact was aimed at enforcing the initial contract. Through this pact, people collectively surrendered their freedoms and rights as existing against one another in the state of nature in favour of an authority which in turn agreed to protect their right to life, property, and liberty.

Typical features

Social contract theories often deal with the relation between natural and legal rights.
The theory grew to prominence as the leading doctrine of political legitimacy during the mid-17th to early 19th centuries.
These theories usually begin with the examination and discussion of human life without political order, i.e., state of nature.
The theory explains why rational individuals would agree to give up their natural rights in favour of political order.
The social contract theory maintains that the law and political order are human creations.

Major social contract theories

Before proceeding with the discussion of social contract theories as propounded by various political philosophers, it is pertinent to note that the purpose of all social contract theories is not the same. Some theories focus on justifying the origin/power of a sovereign, while others deal with the protection of individuals from the oppression of a powerful sovereign.

Hobbes’s theory of social contract

Thomas Hobbes was the first modern philosopher who put forward a detailed social contract theory. Hobbes describes man’s nature as egoistic and selfish. To him, humans were isolated beings with insatiable desires who continually sought pleasure and avoided pain.

State of nature

Since humans living in the state of nature were pessimistic and brutish, the state of nature was gloomy and sordid. The only rule that prevailed was “take if you have the power and retain as long as you can”. Men were suspicious and hostile towards each other in the state of nature. There was no law, no notion of right and wrong. Only fraud and force existed. The conditions of life existing in the state of nature made it ill-equipped for civilised pursuits. As long as a man were to live in a state of nature, there could be no society and his life would be short, poor, and solitary.

However, in the state of nature, the man had complete freedom and a natural right to everything including the right to one another’s bodies. According to Hobbes, natural laws existed merely for the fulfilment of individual good. There were 19 natural laws, the most important among them being:

Seek peace and follow it
Abandon the natural right to things
Individuals must honour their contracts

Social contract

The only way to achieve the goal of attainment of peace, self-preservation and self-protection was to enter into a contract for the establishment of a State. Individuals surrender their powers through a contract to a third party, who was not a party to the contract.

Form of contract

I authorise and give up my Right of Governing myself, to this Man, or this Assembly of men, on this condition, that thou give up thy right to him, and authorise all his actions in like manner.

Thus, the basis of the Hobbesian contract was not common will. It was a contract of each with the other wherein each person agreed to give up his right in favour of a third party in consideration of other persons giving up their rights in the same manner. As a consequence of the contract, a third party(Sovereign) came into existence. The third-party was an artificial person distinct from natural individuals.

The subjects were under an obligation to obey the sovereign because of the following reasons:

Disobeying the sovereign would attract punishment.
There was a moral consideration that the individuals must honour their contracts.
Sovereign was the duly authorised representative of all individuals and individuals had authorised him to act on their behalf.
Moral obligation to obey based on consent.
The desire of individuals for peace and order.

Features

The Hobbesian contract was a social and political contract that created civil society and political authority.
The contract created the State and government simultaneously.
Individuals agreed to a set of rules and in turn, they were guaranteed basic equality.
Sovereign must treat all individuals equally in matters of justice and levying taxes.
Sovereign power shall possess all the powers and be like a mortal God.
The contract was perpetual and irrevocable.
The sovereign power is unlimited, inalienable, permanent, and absolute. This did not mean that the king had divine rights, but this power was derived through a contract validly and willingly agreed upon. Individuals had no right to change the form of government.
Since the contract was entered by individuals with each other and not with the sovereign, there was no escaping from the subjection of the sovereign. The subjects had a duty to obey the sovereign.
The sovereign could enact any laws that it deemed fit and such laws were legitimate. Law was the command of the sovereign and the sovereign was supreme and even above law.
By creating a civil society, individuals voluntarily agree to limit their freedom.
According to Hobbes, the beneficiary of the contract i.e. the third party should be a monarch.

Rights and duties of the sovereign

To govern and conduct policy;
Protection of civil society from dissolution;
To put limitations on right to expression;
Resolving conflicts;
Choosing ministers;
Conferring honours;
Make war and peace with other States etc.

Criticism

The ruler is not a party to the contract.
Hobbes’s theorem of government was artificial. He provided for absolute authority without adequate standards to prevent the abuse of power.
Critics denied the Hobbesian reality of a state of nature by positing that if humans were so asocial and bad, they would have never come together to form a society or state.
Hobbes’s depiction of the state of nature is exaggerated, unreal and misleading.
The Hobbesian contract was permanent. There was no way to escape from the tyrannical government.
According to the Hobbesian contract, liberty was a gift given by the sovereign rather than a right.
Civil liberties are restricted in Hobbesian state.

Locke’s theory of social contract

Locke’s social contract theory explains that legitimate political authority was derived from the consent of people and such consent could be withdrawn if the freedom of the individual was violated.

State of nature

Locke conceived men as being free, independent, and equal in the state of nature. He described the state of nature as one of perfect equality where all humans enjoyed the right to life, liberty, and property. Locke’s state of nature was in stark contrast to that of Hobbes. Here, the man was not as brutish and selfish as described by Hobbes. The state of nature was not a state of war but a state of “peace, goodwill, mutual assistance, and preservation”. Locke’s state of nature talks about a pre-political order rather than a pre-social order. In the state of nature, man is governed by the law of nature. God made everything for subsistence and not for waste. Therefore, man had no right to take his own life or the life of others since even human life was given by God as a trust.

Social contract

According to Locke, the individual was a free and rational being who became a political subject out of his free choice. The purpose behind the formation of civil society was to protect and enlarge freedom. The state of nature was one of equality and liberty but it lacked security. Peace was not secure in the state of nature and was constantly disturbed by the viciousness of some degraded men. The state of nature lacked the following three important elements:

An established, settled, and known law
A known and indifferent judge
An executive power to enforce just decisions

Thus, Locke tried to explain that men consented to the establishment of political authority to ensure greater observance of the laws of nature, to bring impartiality in decision making and implementation of rules, and to secure peace. People entered into the social contract for the protection of their life, liberty, and property.

It can be said that in Lockean theory, there are two aspects to the social contract :

Individuals contracted with each other to submit to majority rule and organise themselves as a civil society for the protection of life, liberty, and property. The individuals did not surrender all of their natural rights but only the right to interpret and execute the law of nature and restore their grievances. These three specific rights to enforce the laws were now vested in the community as a whole.
After the establishment of civil or political society, the second task was to appoint a government that will declare and execute the natural law. Individuals established a government to act as a judge in the nature of a “fiduciary power” for promoting certain ends.

Even after establishing a government, the community retained supreme power, meaning that if the government failed to preserve society or if its performance was not satisfactory, people could take steps to change the government. Thus, the government could be changed, altered, or dissolved legitimately

Features of Lockean contract and political authority

The relationship between civil society and government is based on trust. If the government acts contrary to the trust reposed in it by the community, the people have the power to change the government.
Political authority is legitimate as long as it is based on the consent of the people.
The government is not a party to the contract.
The government was to have three wings:

Legislature: It had the power to make laws. The legislature was the supreme body within the government.
Executive: The power to enforce the law was vested in the executive. Executive also included the judicial power. The executive was subordinate and accountable to the legislature.
Federative: The Federative wing had the power to make treaties and conduct external relations.

Locke was of the view that absolute political power is illegitimate and advocated for a limited sovereign state. The state existed for the people who formed it and not vice versa. The state must be based on the consent of people subject to the Constitution and the rule of law.
The sovereign was limited since it derived power from community/people in a fiduciary capacity.
The obligation of people to obey the government was conditional on the protection of an individual’s right to life, liberty, and property by the government.
The state is to deal with political matters and cannot interfere anywhere else. There was a dichotomy between state and society, the private and the public sphere. Even after the establishment of the State, an individual has the right to pursue his activities in a private sphere without any interference.
The purpose of government is to protect and uphold natural rights, especially the right to life, liberty, and property.

Criticism

Locke assumed that a minority would consent in all things to rule by the majority.
The government is not a party to the contract.
People cannot be given a choice to disobey the law.
The state of affairs existing in Locke’s state of nature is unreal and hard to believe.
It seems that Locke is encouraging people to cause rebellion.

Rousseau’s theory of social contract

State of nature

According to Rousseau, in the state of nature man was solitary but happy, healthy, and free. Human beings were guided by instincts of self-preservation and compassion. Man differed from other animals because he possessed a will and desire for perfectibility. He was innocent and independent and ignorant of any rights, passion, vengeance, interests. Rousseau’s view was that humans were not born with reason. It was a quality that remained dormant until a situation arose for its need. Human beings were happy without reason or thinking. The emergence of reason led to an increase in the wants and needs of humans. As a consequence, man ceased to be happy and his life became miserable and far from peaceful. Rousseau called the departure from the state of nature “a fatal accident”. He has described the state of nature as a golden past that could not be recaptured.

For Rousseau, it was important to study the state of nature because of the following reasons:

To understand the original primitive condition of mankind
To identify the qualities and characteristics of human nature in man’s original state
To describe and evaluate the new state of nature, i.e., the present-day society

Civil Society: fraudulent social contract

As people started living together, individuals realised that they could rely or depend on others in certain matters of mutual interest. Then, as the man started living separately with his family, he discovered love and beauty and started acting rationally rather than instinctively. Small communities developed. Division of labour was introduced. Men started to make discoveries and inventions and in their leisure time, they made comparisons with others. This developed feelings of jealousy, pride, and contempt. Once they started to live in a society, human beings transformed psychologically. On entering society, a man entered into the phase of dependence. The creation of private property and the division of labour generated differences in wealth, power, and status. This interdependence led to inequality. A man who was supposed to become more free ended up in chains by losing his independence. This is why Rosseau called the emergence of society and departure from the state of nature a fatal accident. Civil society came into existence to protect the property of the privileged few. It was formed to protect peace and protect the right to property of those who were lucky enough to have possessions. It converted de facto ownership into rightful ownership and the poor remained dispossessed of any property. However, one thing was clear once civil society emerged there was no going back to the state of nature.

Solution: Genuine social contract

In order to become free, every individual must give up all his rights to the entire community, creating the same conditions for all and thus creating equality. Rousseau talked about the creation of a right society instead of a first society. According to him, men are subject to “general will” which exists for the public good. Consent is the basis for political authority. Force can never be a basis for establishing political authority. Also, society is not a natural occurrence. Man can enter into society(relationships with other men) out of his own will and choice. A higher organisation would be a polity that would look after the general interests of its members. The right kind of society would enhance human freedom. The object of the social contract was to reconcile liberty with authority. Rosseau rejected the idea that the social contract involved the surrender of freedom to a third person.

Rousseau said that “man is born free and is everywhere in chains”. A community that was constituted by all consenting individuals voluntarily submitting to the general will was the solution to his paradox of persons born free, but yet in chains.

Features of Rousseau’s contract and political authority

Every human activity was related to politics.
Oppression can never lead to the formation of a society.
Consent is the basis of society.
Rousseau gave importance to the general will of the community along with the need to protect individual freedom. He attempted to reconcile the claims of a community with that of the individual and the claims of authority with those of liberty.
Sovereignty is the exercise of the general will. All individual rights are subordinate to the general will.
The creation of a community leads to a moral transformation of the individual.
An ideal republic would be a community of virtue.
Rousseau described Ancient ‘Sparta’ and ‘Rome’ as models of his ideal republic.
The ‘general will’ would be the source of all laws. The executive will could not be the general will. Only the legislative will which was sovereign could be general will.
The State should be a consensual and participatory democracy. According to Rousseau, direct democracy embodied the legislative will.
Human beings can become truly free by following the dictates of the law.
Rousseau rejected the idea of total surrender of powers which made the individual submissive to the Sovereign.
Sovereignty was inalienable and indivisible.
Sovereignty originated and stayed with the people.
Rousseau described the government as an agent of the general will.
As Rousseau did not see any possibility of the general will becoming tyrannical, he did not provide any safeguards against such a condition.
Liberty for Rousseau was the greatest good.
Property was the root cause of moral corruption and injustice.

Criticism

Rousseau’s idea of the general will is too vague.
Rousseau failed to give a practical example of his social contract.
His theory is paradoxical as while maintaining that society has corrupted mankind, he devises another social contract to eliminate this corruption.
The abstract general will seems to be an absolute regime.

Need for a renewed social contract

While traditional social contract theories deal with the origin of state and society, the modern versions and revivals of social contract theories are not concerned with that. The social contract on which society is currently based emerged as a means to tackle the post-war problems. The social contract must be changed and updated with a change in circumstances. The pandemic that the world witnessed beginning in 2020 and is still witnessing has called for the need for a renewed social contract. The United Nations(UN) in Part II of “Our Common Agenda-Report of the Secretary-General” has proposed the renewal of the social contract. The foundations of the new social contract are as follows:

Trust: In order to build trust and counter mistrust between people and institutions and different groups of society, the report makes the following proposals:

Establishment of institutions that listen: Governments should conduct national listening and envisioning the future exercises and establish better ways of listening to the people that it serves.
Services: Governments are urged to make investments in public systems and services and ensure quality public servants.
Justice and rule of law: The Secretary promoted a new vision of law and recognised justice as an essential element of the social contract.
Taxation: Governments should consider using taxation for reducing inequalities in wealth.
Stringent actions must be taken to tackle corruption.
Information in digital space: A global code of conduct that promotes integrity in public information could be explored together with States, media outlets and regulatory bodies, facilitated by the United Nations.

Inclusion, protection and participation

Social protection systems including Universal Health Coverage
Education and lifelong learning
Decent work
Women and girls at the centre, peace at home
Adequate housing digital inclusivity

Measuring and valuing what matters to people and the planet

Finding measures of progress that complement GDP
Implementing the recent System of Environmental-Economic Accounting (SEEA)
Considering alternatives to GDP, such as the human development index, the inclusive wealth index, the Genuine Progress Indicator, the multidimensional poverty index and the inequality-adjusted human development index.
Finding ways to validate care and informal economy such as valuing the unpaid care work, investing in quality paid care as part of essential public services and social protection arrangements.

Thus, the report recognised the importance of the renewal of the social contract between governments and their citizens and within the societies as well. It is time to rebuild trust and embrace a comprehensive vision of human rights.

Conclusion

The above-mentioned social contract theories have been described as hypothetical arrangements to understand and clarify certain political problems. A significant conclusion to be drawn from social contract theories is that law and political order are not natural, but have been created by humans. A social contract is only a means for achieving the end of maximum good and benefit of all individuals in the form of protection of civil liberties, law and order and peace. It is a sort of agreement by people on the laws and rules by which they are to be governed.

References

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Know about trade secret threats and their misappropriation

By

Sneha Mahawar

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March 28, 2022

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This article is written by Farheen Ansari pursuing a Diploma in US Intellectual Property Law and Paralegal Studies. This article has been edited by Ruchika Mohapatra (Associate, Lawsikho).

This article has been published by Sneha Mahawar.

Table of Contents

Introduction

There are various intellectual property rights available to protect your intangible assets. They give the creator exclusive rights over the use of his/her creation for a certain time limit. These are trademarks, copyrights, patents, industrial designs, trade secrets, and geographic indications. Let us know about them in brief.

As per the Trade Marks Act, 1999, “a trademark means a mark capable of being represented graphically and which is capable of distinguishing the goods or services of one person from those of others and may include the shape of goods, their packaging, and combination of colors.”
Copyright is a type of intellectual property that protects original works of authorship as soon as an author produces the work in a tangible form of expression.
Patents: A patent is a type of intellectual property right that is granted for an invention. Certain conditions are needed to be satisfied for registering a patent, namely patentable subject matter, novelty, inventive step, and industrial applicability.
Industrial Designs: An industrial design is defined as features of shape, configuration, pattern, ornament or composition of lines, color, or a combination thereof applied to any article, whether two-dimensional or three-dimensional, or in both forms. Design protects the look, i.e., appeals to the eye (aesthetic or artistic appeal) and not the functionality.
Trade Secrets: A trade secret is any process or practice of a company to protect its confidential information from the public domain through the execution of non-confidentiality agreements with its employees or third parties.
According to the TRIPS Agreement, an indication that identifies a good as originating in the territory of a member or a regional locality in that territory, where a given quality, reputation, or another characteristic of the good is essentially attributable to its geographical origin.

In this article, you will find details on how you can protect your intellectual property as a trade secret and what its essentials are, as well as the most common threats to trade secrets and their misappropriation.

What is a trade secret

A trade secret is an item of commercial or technical information that is not readily available to the general public and is subject to protection to preserve the owner’s interest. A secret product or service is not generally known to the public. Trade secrets differ from confidential information. Confidential information is not a secret, but it may be treated as a secret if it is kept secret.

The trade secret regime is an important law in ensuring that the information and knowledge generated by companies are protected. While trade secrets are not protected by the copyright clause of the United States Constitution, the Supreme Court has recognized a limited “common law” right to trade secret protection, which, however, is only available if the plaintiff establishes that he has:

a safeguarded secret;
improper application of that secret; and
resulting in injury to the claimant.

Importance of a trade secret

The importance of trade secrets continues to grow. The Uniform Trade Secrets Act has been adopted by many countries, which provides comprehensive protection for trade secrets and also helps in their development.

There are many perks to protecting a piece of information as a trade secret. It helps the company keep its information confidential and also prevents its competitors from taking unfair advantage of it. If the information is protected as a trade secret, then the company can also sue for its misappropriation and gain damages.

Protection under trade secrets can be enjoyed for an indefinite time, provided the subject matter of the trade secret is commercially valuable and is kept confidential. The information loses its trade secret status if it is accidentally or intentionally disclosed by anyone.

The essentials of trade secrets

As per Article 39(2)of the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), its members are given the flexibility to frame laws that prevent the unauthorised disclosure and use of certain information. The information must meet the following criteria:

It is secret in the sense that it is not readily accessible by those people who deal with such information on a regular basis.
It has commercial value.
Reasonable steps have been taken by the person lawfully in control of the information.

What information can qualify as a trade secret

Scientific or Technical Information: Information related to the development of upcoming products or services with their functional or technical attributes, such as inventions, patents, computer software, passwords, methods for increasing production efficiency, security standards, etc.
Drawings, blueprints, production recipes, production and marketing plans, strategies, investment offers, and descriptions of business processes are examples of technological and production information.
Business information: sensitive information including business ideas, such as ideas for a new product or a new marketing approach, marketing plans, cost and price information, customer lists, market analysis, data on suppliers and contractors, customer information.
Financial Information: Information related to management and accounting data, cash flow calculations, reports, pricing mechanisms, etc.
Any other valuable information that has some value and is not widely known by the company’s competitors.

Examples of trade secrets

Some of the most famous examples of trade secrets include:

The secret formula of Coca-Cola;
The Maharaja Mac’s special sauce is made by McDonald’s;
The chemical composition of Listerine mouthwash;
The Google search algorithm.;
KFC’s secret recipe includes 11 herbs and spices.

Right to secrecy

The right of secrecy is to be strictly observed. Secrecy is to be maintained in such a manner as to prevent access to trade secret information by those who are not entitled to it. Information is secret if it is not generally known to the public and the secrecy is not waived by the owner of the information. The trade secret must be kept secret and should not be used without the owner’s permission. If a company uses trade secret information, then it must sign a non-disclosure agreement or other confidentiality agreement with its employees.

What are the threats to trade secrets

Threats to trade secrets can be of two types:

External threats
Internal threats

Let us understand them in brief:

External threats are those that come from parties who are interested in obtaining your trade secret. They can be:

Companies that have the same niche area as yours or companies that want to pursue the same business and enter the same market as you.
Companies that want to earn the same market position as yours.
Parties that extract trade secret information and distribute it to other enterprises, minority shareholders, and other people who may be interested in such information and use it for their benefit.

Internal threats are those threats that are primarily linked to the company’s personnel. Employees having access to corporate trade secret information collect such data with the mala fide intention of selling it or using it in their own projects or distributing it to a large number of people to harm the company.

Protective measures

There are several measures that a company can adopt to protect its valuable information as a trade secret. These are listed below.

The companies should identify which information constitutes a trade secret and should review it periodically.
A trade secret regime should be established in a company. The document should include the main parameters of the protection system and a list of people responsible for regulating protective measures.
Any valuable business information can be protected by way of encryption.
There should be controlled and limited access to trade secret information by using measures like physical, managerial, technical, and contractual.
Accessing trade secret information by employees should not be allowed from remote locations.
There should be confidentiality agreements between the employees and the third parties to grant them access to the trade secret information, and such confidentiality should be maintained even after the expiration of such agreements.
While preparing employment contracts and standard contracts with contractors, a clause that talks about the liability for revealing confidential information should also be incorporated.
A vigorous trade secret policy should be implemented for the company if such a trade secret forms a critical part of the business value.
Technological means, such as mechanisms that can expose a trade secret, should be adopted to manage risks associated with reverse engineering if the company offers a technological product.
There should be strict control over the use of computer network accounts, with a disclaimer that if anyone transfers a password, that may constitute dismissal due to “disclosure of trade secrets.”

Misappropriation of trade secrets

Misappropriation of trade secrets refers to the infringement of the rights of the trade secret holder to exclude others from using the trade secret. It can be defined as the unauthorized disclosure or use of a trade secret by a person who has a duty not to disclose or use the trade secret, or by a person who owes a duty to the secret holder to maintain its secrecy.

Most jurisdictions define misappropriation as the unlawful acquisition of a trade secret, the disclosure or use of a trade secret by one who knows or should know that the trade secret is secret, or the interference with the contractual rights of the trade secret holder. In the past, the courts have recognised the importance of trade secrets and have adopted several laws to protect them. Currently, the most common types of trade secrets include know-how (including inventions), technical data, customer lists, and business strategies. If there is no contractual agreement between the company and the person, the court may be able to order the person to return the trade secret to the company.

Types of misappropriation

Misappropriation of trade secrets can be of several types. The most common are:

Disclosure of a trade secret to a competitor or other individuals who have a duty to keep the information confidential;
Commercial use of a trade secret
Breach of contract, and
Breach of confidence

Who can be made liable for the misunderstanding of a trade secret

According to Section 1(2) of the Uniform Trade Secret Act, the following groups of people are prohibited from copying, using, or benefiting from one’s trade secrets or disclosing them to others without their permission:

People who are contractually obligated to not disclose or use any such trade secret information. This includes any employee who is regularly in contact with such information as part of his or her employment with the employer.
People who deliberately gain access to trade secret information by means of improper means, such as theft, industrial espionage, or bribery.
People who involuntarily get access to trade secrets by accident or mistake, despite being aware of the fact that such information is protected as a trade secret.
People who are obligated under non-disclosure agreements have a duty not to disclose trade secret information without getting permission from the owner.

Exceptions

If a group of people discovers a trade secret without making use of any unfair means or violating any agreements such as NDAs, then that shall not constitute misappropriation of such information that was protected as a trade secret.

In Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470 (1974), the US Supreme Court gave judgment that reverse engineering, which involves “starting with the known product and working backward to divine the process which aided in its development or manufacture, “cannot be considered as a misappropriation of a trade secret.

Furthermore, if an employee acquires skills during the course of his or her employment and is able to retain such information in his or her mind, then that information may not be protectable as a trade secret and that employee cannot be sued for misappropriation.

Reliefs are available to the trade secret holder.

Reliefs available to the plaintiff or trade secret holder are as follows:

The court can grant relief in the form of an injunction to restrain the defendant from using or disclosing the trade secrets to the outside world.
Damages may be awarded by the courts in cases related to trade secret misappropriation. Damages may be liquidated, actual, or punitive.
Other civil remedies include orders to return the trade secrets or delivery of such materials that contain trade secrets, and the court may also pass search and seizure orders.
There are no express criminal remedies available for misappropriation of a trade secret. However, offences such as criminal breach of trust, theft, or cheating may be applicable. The Indian Penal Code 1860 (IPC) and specific subject-matter legislation, such as the Copyright Act 1957 (governing copyrights) and the Information Technology Act 2000 (governing electronic records), contain provisions setting out specific offences that may be punishable by imprisonment or a fine.

Conclusion

A trade secret is any process or practice of a company to protect its confidential information from outside the world through the execution of non-confidentiality agreements with its employees or third parties. To qualify for trade secret protection for your intellectual property, the trade secret holder must use the necessary means to conceal such information from any outsiders in order to avoid misappropriation.

As the world is getting more competitive and everyone wants to build brand value, companies should take the necessary steps to protect their information that has commercial value as a trade secret. There are many advantages that come with protecting information as a trade secret. The biggest one is that, under trade secrets, protection is granted for an indefinite amount of time unless someone breaches a contract or spills it to the outside world. In addition to that, the trade secret holder gets relief in the form of an injunction or damages if someone is liable for the misappropriation of a trade secret.

Reference

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.

AMLS International Maritime Essay Writing Competition 2022

By

Rachit Garg

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March 27, 2022

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AMLS International Maritime Essay Writing Competition 2022 is being organized by Ally Maritime & Legal Services, Mumbai, India (AMLS)

Table of Contents

About the organizers

Ally Maritime and Legal Services (AMLS) was incorporated in the year 2018 with the purpose of providing a single-window solution for maritime and legal expertise while ensuring that only the best engineering and business ethics are practiced. AMLS provides professional maritime consulting services to the global client base along with very specialized strategic associations with various esteemed organizations.

About the Competition

The main purpose of the competition is not only to acquaint the people with the scope and knowledge of the maritime laws but also to support the interested candidates and to promote the significance and growth of maritime laws in India. The competition, in a way, is an attempt to inculcate and develop the writing skills/habits within individuals and provide them with a platform where they can freely share their knowledge and show their talent to the outside world.

Eligibility

The Competition is open to any person who, as of the deadline for submission, is:

a. A student from a recognized law college, shipping college or maritime college or any institution concerned with maritime.

b. A student under the age of 30 years.

Theme & Sub-themes

The main theme of the competition is “The Maritime Labour Convention”. The suggestions of sub-themes are-

Impact of MLC – with respect to Seafarers, Ship Owners, Recruitment Agencies P&I Clubs and other stakeholders
Principles of Natural Justice and its implementation in the maritime labour regime.
MLC and its effective implementation towards Port Management.
Does the regulatory framework of the Special Tripartite Committee under MLC 2006 need revisiting?
Implementation of MLC in various jurisdictions (UK, USA, India etc)

Participants may either choose to write on suggested sub-themes or choose own topics under the main theme.

Awards & Perks

The Top essays shall be awarded cash prizes worth 21K Rs. along with a hard copy of the certificates. The distribution of Prizes is as under-

First Position- INR 5,000/-
Second Position- INR 3,000/- (Two runner ups)
Third Position- INR 2,000/- (Three winners)
Fourth Position- INR 1,000/- (Four Winners)

The Top 20 essays will be published on AMLS Website, iPleaders Blog and many other company’s newsletters or websites.
The Top 10 participants will get an opportunity to enroll into AMLS Maritime Law Course for free.
The Top 20 participants will get internship opportunities at AMLS.

Registration

No prior registration and/or fee is required for participation. The participants can directly submit their essays via the Google form before the deadline.

Submission

All the essays should be submitted on or before 15^th April 2022, 11: 59 PM (Indian Standard Time) via the google form- https://forms.gle/6nKGSM17mVGZL9yy7

Important Dates

Important dates

Accepting Submissions – 15^th March 2022

Deadline of Submissions – 15^th April 2022

Declaration of Result – 7^th May 2022

Contact details

Email– [email protected]

Organizing Committee-

Adv. & Capt. Rahul Varma- +91 9920606742
Hettal Hariya- +91 9892366799
Yukta Joshi- +91 7974588958

For rules and submission guidelines, click here.

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Drone laws in India

By

Rachit Garg

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March 27, 2022

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This article is written by Vanya Verma from O.P. Jindal Global University. This article answers whether it is legal to fly drones in India and laws governing drone flying.

It has been published by Rachit Garg.

Table of Contents

Introduction

Drones, also known as Unmanned Aerial Vehicles (UAVs), are legal to operate in India. On August 26, 2021, India’s Ministry of Civil Aviation (MoCA) issued a new drone policy that formalized a draft regulation released earlier this summer. The government has chosen to remove the UAS Rules, 2021, and replace them with the liberalized Drone Rules, 2021, based on public feedback.

Recently the Civil Aviation Ministry has made huge changes to drone laws in the country. The government has passed Drone (Amendment) Rules, 2022 which states that remote pilot certificate (earlier it was called license) will not be required for flying small to medium size drones of up to 2kg for non-commercial purposes.

Drones are beneficial in a variety of industries, including transportation, agriculture, defense, law enforcement, surveillance, and emergency response, to name a few. Consumer interest has grown in recent years as demand for aerial photography and a wide range of business uses have increased in India’s B2B sector.

One can now operate a drone, but one must adhere to the criteria set forth by the Indian government, the Ministry of Civil Aviation (MoCA), and the DGCA. To fly a drone in India, certain norms and regulations must be adhered to, which will be further discussed in this article.

Permission to fly

Before knowing about the permissions required for flying drones one must be aware of the various drone categories segregated by the government. They are:

Nano: Less than or equal to 250 grams.
Micro: Greater than 250 grams and less than or equal to 2 kg.
Small: Greater than 2 kg and less than or equal to 25 kg.
Medium: Greater than 25 kg and less than or equal to 150 kg.
Large: Greater than 150 kg.

Except in the nano category and micro category only for non-commercial use, all drone activities must be done only after receiving prior approval from the Digital Sky online platform for a flight or series of flights. The drone operator will also guarantee that the aircraft remains inside the stated area for which permission was granted, as well as provide an online log of each flight. For the nano and micro category the 2022 rules state that for flying and operating tiny drones one does not need a permit. Moreover, the government is carving out drone corridors to facilitate delivery of cargo deliveries.

Certificate to fly a drone

On an application filed by a manufacturer or importer of that type of drone on the digital sky platform, the Quality Council of India or a certification entity authorized by the Quality Council of India or the Central Government may issue a certificate of airworthiness for that type of drone if it meets the specified certification standards.

The Central Government may set the standards for getting a certificate of airworthiness for drones based on the Quality Council of India’s suggestion. These guidelines may encourage the adoption of Indian-made technology, designs, components, and drones, as well as India’s regional navigation satellite system, Navigation with Indian Constellation (NavIC).

Research and development entities no longer require a type certificate, a unique identification number, prior permission, or a remote pilot license for drone flying in India. Furthermore, under the new regulations type certification of drones will be completely undertaken by the Quality Council of India and other entities that have received authorisation from Quality Council of India.

Applicants can now apply for drone certification with just a single D-1 form which can be submitted through Digital Sky. Follow these steps:

Fill in the name, contact details, and GSTIN on the form
Details and supporting documents regarding the prototype drone
Proof of fee payment
Handing over the prototype drone to the certification body

Rule 12 of the Drone Rules lays down exemptions of drone certification. It says that no certificate of airworthiness shall be required for manufacturing, importing or operating:

prototype drone for the purpose of research and development;
prototype drone for obtaining certificate of airworthiness; and
nano drone.

Remote pilot certificate to fly a drone

A remote pilot license means the permit issued by an authorized remote pilot training organisation to any natural person for operating a particular class or class of drones. However the amended rules substitute the word in the Drone Rules, 2021 with the word certificate.

A remote pilot license is valid for ten years and can be renewed for another ten years with each renewal application. The DGCA will issue a remote pilot license for a fee after receiving a certificate of training and a skill test report from an authorized training provider.

Previously, the government mandated that only after an individual gets trained from an authorized DGCA-approved drone training institute in India and registers themselves at Remote Pilot to get “Pilot Identification number” and Unmanned Aircraft Operator Permit (UAOP) will they be allowed to fly drones (except the nano models). But the recent rules state that individuals flying nano and micro drones (only for non-commercial purposes) do not require training.

The following natural persons are eligible for a remote pilot license:

Must be at least eighteen years old and not more than sixty-five years old;
Must have passed a recognised Board’s class tenth or equivalent examination; and
Must have completed the training prescribed by the Director-General for the applicable class of remote pilot license from an authorized remote pilot training organization.

Although these are just the basic requirements of flying drones, the pilot also needs to understand the basics of flying like avionics, weather, wind speed, and other mechanics. With the advancement of technology drone flying is becoming more popular in every sector and each sector has specific requirements.

The duration of remote pilot license training depends on the type of drone one wants to operate but most training is short and lasts from five to seven days.

Drone flying restrictions in India

The restrictions of drones flying in India are stated below.

A micro drone may not fly higher than 60 meters above ground level (AGL) or faster than 25 meters per second.
A small drone may not fly higher than 120 meters above ground level or faster than 25 meters per second.
Drones that are medium or large must fly in compliance with the conditions outlined in the DGCA’s Operator Permit.
Prohibited zones are completely off-limits, whereas restricted areas require prior approval from the DGCA.

Area to fly a drone

According to the Civil Aviation Ministry, an interactive airspace map would be available on its website, showing the three zones:

Yellow (controlled airspace).
Green (no permission required).
Red (flying not permitted).

Drone operators can use these zones to determine where they can and cannot fly their unmanned aircraft systems.

The yellow zone, which was previously a 45-kilometer radius around an airport perimeter, has been decreased to a 12-kilometer radius, indicating that drone operators no longer need permission to fly outside of a 12-kilometer radius around an airport perimeter.

Green zone is the airspace upto 400 feet that has not been designated as a red or yellow zone; and upto 200 feet above the area located between 8-12 km from the perimeter of an operational airport.

No-Fly zones in India (Red Zone)

Drones are not permitted to be flown in India in case of the following:

Within 5 kilometers of the international airport perimeters in Mumbai, Delhi, Chennai, Kolkata, Bengaluru, and Hyderabad.
Within a 3-kilometer radius of any civil, private, or defense airport’s boundaries.
Within 25 kilometers of the international border (AGPL) that includes Line of Control (LoC), Line of Actual Control (LAC), and Actual Ground Position Line.
Without clearance, within 3 kilometers of military installations/facilities.
Within a 5-kilometer radius of Delhi’s Vijay Chowk.

Unless clearance is acquired, within 2 km of the perimeter of strategic locations/vital installations notified by the Ministry of Home Affairs.
In the State Capitals, within a 3-kilometer radius of the State Secretariat Complex.
If the ground station is located on a fixed platform on land, it can be placed beyond 500 meters (horizontal) into the water from the coast.
From a moving vehicle, a ship, or any other improvised floating platform.
Without prior approval from the Ministry of Environment, Forests and Climate Change, over eco-sensitive zones around National Parks and Wildlife Sanctuaries.
Within Prohibited, Restricted, and Danger zones, whether permanent or temporary.

Data security and drone pilots

Any data collected during a drone operation is the responsibility of the drone pilot. To securely keep or dispose of such data, one must follow appropriate protocols and have the necessary hardware. Furthermore, you must ensure that any data collected during operations is not shared with any third parties without the consent of the person to whom the data relates.

Cost of obtaining a drone remote pilot license

In India, the cost of obtaining a remote pilot license for drones has considerably decreased to nominal amounts. The cost structure has also been delinked from the drone’s size.

According to the new regulations, all types of drones must be registered for a fee of Rs 100. The drone remote pilot license will now be valid for ten years and can be renewed for another ten years with renewal application.

Indoor drone swarming and operations

Drone swarms and indoor operations are only permitted with drones in the Nano and Micro categories. Only approved regions and conditions approved by the DGCA are permitted for swarm operations. Drones in the small, medium and large categories should not be flown in enclosed spaces.

Penalty for non-compliance of the Drone Rules, 2021

After giving a person an opportunity to be heard, if the Director-General or an officer authorized by the Central Government, State Government, or Union Territory Administration is satisfied that a person has contravened or failed to comply with the provisions of these rules, he may levy a penalty not exceeding rupees one lakh in accordance with Section 10A of the Aircraft Act, 1934, for reasons to be recorded in writing.

After giving a person an opportunity to be heard, if the Director-General or an officer authorized by the Central Government, State Government, or Union Territory Administration is satisfied that a person has contravened or failed to comply with the provisions of these rules, he may cancel or suspend any license, certificate, authorisation, or approval granted under these rules.

Key amendments to the Drone (Amendment) Rules, 2022

On 11th February, 2022 the Ministry of Civil Aviation enacted and passed the Drone (Amendment) Rule, 2022. The key amendments to the previous rule are as follows:

The remote pilot certificate will no longer be required for the micro category (only for non-commercial purposes) of drones.
Under Rule 16 the registration of unmanned aircraft systems for the words, “within a period of thirty-one days falling after the said date” will be substituted with the words, “on or before the thirty-first day of March, 2022”.
An individual owning any unmanned aircraft system manufactured in India or imported into India on or before 30th of November, 2021 must make an application to register and obtain a unique identification number and state the required details in form D-2 and the stipulated fee under Rule 46.
Rule 34 which talks about procedure for obtaining a remote pilot license, sub-rule (4) has been omitted.
The word “license” under the Rule has been substituted with the word “certificate” dealing with Remote Pilot Training Organization, Research, Development and Testing under the Rule.
The amendment also modified Form D-1, D-2, D-3, D-4 and D-5.

Do’s and don’t to be kept in mind while flying drones in India

Do’s

For operating in controlled airspace, obtain a Unique Identification Number (UIN) from the DGCA and attach it to your RPA.
Only fly during daytime hours (after sunrise to before sunset)
Fly in favorable weather: Good weather allows one to not only fly your RPA more efficiently but also to maintain track of it while it is in the air.
Avoid airports and heliports at all costs.
People’s privacy must be respected.
Adhere to the flying guidelines.

Don’t

Fly a Nano RPA no higher than 50 feet (15 meters) off the ground.
Never fly a Micro RPA higher than 200 feet (60 meters) off the ground.
Keep RPA at a distance of no more than 400 feet (120 meters) from the ground.
Avoid flying RPA close to airports and heliports.
Do not fly RPA over crowds of people, public events, or crowded stadiums without prior permission.
To not fly RPA over or near any no-RPA zones or government facilities/military bases.
Do not fly the RPA over private property without permission.
Do not fly RPA in controlled airspace near airports without a flight plan or clearance from the AAI/ADC (at least 24 hours before actual operation).
Do not drop or transport dangerous materials.
Do not fly RPA if you are inebriated or under the influence of drugs or alcohol.
Do not attempt to fly RPA from a moving vehicle, ship, or plane.

Conclusion

One should be careful of the regulations while flying the drone in India, though it is legal but not to mention the possibility of their malfunctioning and inflicting unintended harm to others, as a result, it is critical to govern their ownership and use.

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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Summary of JPC report on draft Data Protection Bill, 2021

By

Sneha Mahawar

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March 27, 2022

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This article is written by Sumedha Ganjoo and Arundhati Banerjee and pursuing a Technology law BootCamp. This article has been edited by Prashant (Associate, Lawsikho).

This article has been published by Sneha Mahawar.

Table of Contents

Introduction

The JPC on Personal Data Protection Bill, 2019 has been reported to both Houses of Parliament and approved by the JPC on December 16th, 2021. The Committee’s deliberation process is outstanding. With stakeholders from many walks of life, it ensured a diverse spectrum of opinions and ideas. The Committee’s final report offers 93 recommendations, indicating the Committee’s careful investigation of every aspect of the legislation in question. In order to provide the Indian people with a robust, effective, and comprehensive data protection law, some areas and specifics need further attention.

To that aim, this study compares the report’s suggested amendments to the prior Bill, evaluates their relevance, and provides concrete suggestions for the operationalization of a progressive and rights-enabling data protection system.

Data Protection Bill

Modification of Bill’s title as well as objects and reasons

The taxonomy of the Bill has changed from ‘Personal Data Protection Bill, 2019’ to ‘Data Protection Bill, 2021’. Amending the Bill to incorporate both personal and non-personal data. Many provisions, most notably Clause 2, which elaborates on Bill’s application, reflect the changes. The “Application of Act” was changed to the “Processing of personal and non-personal data”, which specifically includes both. The Committee defines “non-personal data.” But the concept doesn’t convey the intricacies of non-personal data. It simply means non-personal data is information that cannot be linked to an individual. The Committee has now suggested covering non-personal data breaches under the phrase “data breach.”

Deliberately excluding privacy from the standard of data protection law is a substantial departure from previous attempts. The long title of the Draft Data Protection Measure, 2021 places national security first. This is a significant change since the long title is used internally by the Court to interpret the Act.

Definitional modifications

The definitions of essential terms including consent management, non-personal data, and social media platforms have been updated, as has the concept of damages. While updating concept definitions is welcomed, several places need greater elaboration. The term “psychological damage” has to be defined and explained to remove any misunderstanding. The term fails to account for the multidimensional character of non-personal data.

Timeline for implementation

The JPC proposed a two-year phased implementation strategy that followed global best practices. It will give small firms time to comply, and larger corporations time to renegotiate global contracts and restructure their global supply networks. It will also allow the DPA to better cooperate with industry and other stakeholders, develop codes of conduct, and sign MoUs with other sectoral regulators to minimize regulatory disputes, which is a good thing. However, the Committee did not incorporate this idea in the draft bill given with the report.

Child definition and treatment in the framework

The framework’s definition of a “child” has not been altered, affecting their ability to consent online. Many say India must follow global best practices, which define a child as someone under the age of thirteen.

The Children’s Online Privacy Protection Act in the US and the General Data Protection Regulation in the EU both enforce the thirteen-year-old age limit. The Committee has chosen to keep the previous criteria for underage. This may impact parental consent compliance.

Obtaining broad parental clearance for their children’s online activities leads to excessive compliance, ranging from internal age verification systems to linking the child’s account or activity to the parents and authenticating the relationship. It’s unclear how this will be executed. In the best interests of children, the DPA may categorize data fiduciaries who manage children’s data as substantial data fiduciaries under Clause 26(1)(g).

Portability of data

To safeguard the data principal’s (citizens whose data has been acquired) rights, the Draft Data Protection Bill, 2021 is being proposed. All data custodians must now translate these rights.

A DPA permission is necessary for each data portability request; however, the JPC did not advise on how to execute data portability. Moreover, enforcing data portability places excessive demands on data custodians and exposes sensitive data. The DPA should investigate the validity of request denials while preserving a responsibility of confidentiality.

Provisions for non-consensual processing

Permission to handle personal data is required under the Draft Data Protection Bill 2021. This basic assumption is discussed in clauses 12-14. The JPC offered no substantive suggestions on how these consent exemptions should be supplied.

Concerning the State’s exemption from permission-based processing, Clause 12 retains the previous draft’s overbroad phrasing, which exempts the State from collecting consent to “perform State tasks.” Examples of instances covered in this area include: providing services to the data principle; issuing certificates; licensing; and implementing laws. The Committee now proposes to include court, tribunal, and even quasi-judicial orders under this Clause. To prevent collecting authorization for almost all gatherings or activities, this Clause’s phrasing is excessively broad. The fundamental goal of this framework is to establish a policy that supports a consent-based architecture for data and privacy protection.

The Bill’s Clause 13 concerns the processing of personal data for job reasons and suggests an exemption for consent for work-related activities. Given that companies cannot use employees’ personal data for employment purposes without their consent, the Committee advised that processing be restricted to “just that which is reasonably expected by the data principal.” This suggestion is crucial to avoid employers from abusing data, like sharing it with competitors. Businesses agree not to compete on salaries, benefits, or other work conditions.

To cut therapist remuneration and push other competitors to do the same, the Federal Trade Commission sued a company that provides therapist staffing services on July 31, 2018. Allowing companies to freely handle employment data, including sharing it with competitors, may harm competition in relevant labor markets. It’s therefore vital to ensure that employment data is treated “reasonably.” The committee’s approach may help maintain healthy competition in labor markets. During implementation, it is critical to add more specificity to the Clause to ensure an adequate level of employer accountability.

Clause 14, which allows for non-consensual processing, has also been changed. These regulations should be created using the criteria recommended by the Committee. The data fiduciary’s legitimate interest is now included. The sub-clause on mergers and acquisitions has also been expanded to include similar corporate combinations or restructurings.

Authority for data protection

Process of appointment and selection

The Act’s DPA is vital to the digital economy. The regulator’s independence and technical capabilities must be addressed, and more must be done to ensure the DPA can function independently. The Attorney General, the Directors of the Indian Institutes of Technology and Management, and an independent expert selected by the national government to the DPA Selection Committee are all good additions. However, the executive branch continues to dominate the selection process, with no participation from the judiciary or the legislature.

This may undermine the DPA’s independence, which is required for the Bill to be accepted by the EU, UK, and US for bilateral data transfer and access agreements.

This implies future agreements between India and other nations on appropriateness. The federal government may also remove DPA members, jeopardizing the authority’s independence.

Institutional structure

The JPC missed the chance to debate the DPA’s organizational structure. To manage the regulator’s huge worklist, a tiered structure with zonal/state DPAs is required. With many duties and people, this is vital. This regulator may fine both the federal and state governments. In this situation, the DPA’s centralized structure must be reviewed to provide enough state representation. Institutionally regulators, like Consumer Protection Commissions, Human Rights Commissions, and Information Commissions created under the Right to Information Act, enable state participation. The DPA’s institutional design lacks a connection to India’s federal governmental system, which may affect its implementation.

Functional autonomy

The DPA’s power has also decreased, in terms of autonomy. JPC recommended limiting the DPA’s ability to authorize the transfer of sensitive personal data beyond India. The federal government’s prior approval must be consulted. Second, the JPC has proposed expanding the scope of the central government’s directives on DPA from solely policy concerns to other areas also. This may affect the DPA’s independence. Compared to the DPA, the annexed legislation gives the central government far more authority.

Possibilities of conflicting jurisdictions between other agencies and the DPA

DPA coordination with other regulatory bodies including the Competition Commission of India, Securities and Exchange Board of India, and the Reserve Bank of India may assist reduce regulatory burden and uncertainty for the digital ecosystem. JPC has offered no proposals. As a remedy, the Draft Data Protection Bill, 2021 requires the DPA to consult with the authority before taking any action, and the two agencies may even sign an MOU to coordinate their activities. But such discussions and memorandums of the agreement still need explanation.

The report emphasizes teamwork by including the DPA’s “economic activities.” Regulations specifying timelines and procedures for these consultations and memorandums of agreement may be added to this resolution. These norms may require an open process including a wide variety of parties, technology companies, governments, and civil society.

Protection of commercially sensitive information in the course of DPA investigations

Inquiries and investigations must protect commercially sensitive information. In the absence of a trade secret law, data fiduciaries must be adequately protected. Clause 49(3) of the Draft Data Protection Bill, 2021 specifies that the DPA shall not release sensitive information unless required by law or to accomplish its duties. The JPC was expected to instruct the DPA to create legislation preventing the creation of secrecy rings. But it hasn’t happened. Confidentiality legislation or the DPA’s general operating guidelines may focus on this problem in the future, producing a stable confidentiality regime.

Data flows across borders

Data localization is still sought to safeguard personal data, sovereign interests, and provide law enforcement access to data. Critical personal data remains unclear, and the resulting compliance ambiguity may harm the industry. Affected trade and commercial interests with the EU, US, and the UK may hinder the formation of data-transfer agreements/multilateral treaties. As per Bill’s provision, the Central Government must ensure that a mirror copy of sensitive personal data held by overseas corporations is transported to India in a timely way.

Moreover, cross-border data transfers are illegal if they contravene “public policy” or “state policy”. Undefined or ambiguous terminology may lead to implementation uncertainty. The DPA must consult with the federal government before considering contract or scheme amendments involving personal data. Notably, the 2019 Bill’s localization limits were less onerous than the Sri Krishna Committee. The JPC was also excluded from negotiations on global data flows. Tools exist to facilitate data transfers between countries that have enacted data protection regulations. Countries may utilize these tools to share data more easily while maintaining strong privacy standards agreed upon in a bilateral or multilateral agreement.

Data protection laws must be consistent with global ecosystems. Notably absent from the JPC’s recommendations is any discussion of how the Indian data security framework may embrace interoperability and align with global data protection ecosystems.

This does not ease industry and investor concerns about India as an investment place. Increased compliance and startup costs for SMEs and start-ups are also a major concern, as they may push out existing companies and serve as an entry barrier for new enterprises and start-ups.

Also, the technology industry has advanced in providing methods to protect sensitive data throughout the processing cycle, such as confidential computing. Confidential computing is a kind of cloud computing technology that ensures sensitive data is segregated during processing. This is only one of the several privacy-enhancing measures utilized throughout the data lifecycle, from collection to processing, to protect sensitive data. The Committee has ignored such technologies and their potential security concerns in favor of localization as a solution.

Regulation of hardware

A new sub-clause 49(2)(o) governs hardware manufacturers that collect data from digital devices. Concerns about data security must be addressed.

Targeted regulation of the digital ecosystem is necessary for a safe digital environment. Hardware manufacturers seek certification from the Bureau of Indian Standards, Ministry of Electronics and Information Technology, Telecommunication Engineering Center, and Wireless Planning and Coordination. The National Security Directive on Telecommunications also requires telecom service providers to link their networks with “trusted goods” from “trusted sources.” Adopting data protection legislation that requires the DPA to monitor, test, and certify hardware devices may result in regulatory overlap with other sectoral agencies.

As a consequence, appropriate criteria must be set, taking into consideration the following:

Excellent technical and industrial advice;
Ensuring global testing and compliance requirements to preserve data privacy and business convenience.

Exemptions from government

Clause 35 of the Bill, which exempts the State, remains intact. Because the government collects important data on all people, any exemption must be narrowly targeted. The term “just, fair, reasonable, and proportionate” is an excellent indication.

However, limiting the scope of such exclusions by defining certain instances would have reduced the probability of misuse. Despite the Puttaswamy verdict mandating the ‘necessary and proportional’ criteria, the Personal Data Protection Bill, 2018, and Justice BN Srikrishna’s report maintain the ‘test’ for civil rights restriction.

Civil liberties may be suspended in an “emergency” without proof that the suspension is “necessary” to the harm. In the Rangarajan case, the Supreme Court clearly barred ‘expediency’ as a criterion and enforced ‘necessity’.

For the State to utilize its Clause 35 exemption, the State must employ a procedure that is just, reasonable, and proportionate, which falls short of the Puttaswamy responsibility. The State need not prove “necessity” as required by the case to claim the exemption under article 35. To provide effective accountability and a check on state power, it is essential to define conditions or goals for such exclusions.

Inclusion of non-personally identifiable information

The JPC essentially controlled all data by including NPD in the Draft Data Protection Bill 2021. This has widened the regulatory perimeter, making it harder for regulators to rule efficiently, corporations to comply, and citizens to exercise their rights. Notably, in other nations with established data protection rules, personal data is treated separately from non-personal data.

While it has been suggested that non-personal data be included in the definition of a breach, the procedures for doing so remain unclear, causing unnecessary complexity. Also, the government must be able to access non-personal data for public policy purposes. Currently, it allows the government to obtain “any data from any data fiduciary,” which is broad.

This raises issues of implementation and compliance. Without a clear definition of personal and non-personal data, data classification becomes difficult in the backend. Even if the goal is compliance, a broad mandate without sufficient direction would make it impossible for global firms to comply. Also, adopting non-personal data requirements may be more challenging due to a lack of understanding and insight into how firms function. Prior to finalizing such a provision in Bill’s wording, significant stakeholder involvement may be prudent.

The Draft Data Protection Bill, 2021 aims to protect people’s data privacy, while the urge to regulate NPD stems from the desire to unleash data’s economic potential for individuals, businesses, and communities. Given these opposing goals, merging the regulation of both types of data would undermine the latter.

There is a lack of clarity on the planned regulation of NPD.

The JPC report makes minor changes to the Draft Data Protection Bill 2021, such as disclosing non-personal data breaches, while other areas of data protection remain personal. This shows a lack of clarity in the new bill on NPD regulation. NPD inclusion in Bill 2021 without consideration of its effect, application, and intent may create uncertainty and dispute.

Infringement of Intellectual Property Rights

The government hasn’t said how it would regulate anonymized data. Given that NPD may potentially include all information handled by a company, over-regulation may infringe on some parts of the company’s intellectual property rights.

The DPA’s regulation of NPD

The GDPR is largely recognized as an important privacy and data protection law. It mandates that data protection standards apply only to information related to an identified person. Thus, anonymized data may be maintained beyond Bill’s reach. To enforce the Data Protection Law, the DPA should set criteria for anonymization and punishments for de-anonymization.

Regulation of platforms and intermediary liability

Consider social media platforms to be publishers

The JPC study identifies social media intermediaries as publishers, although the Draft Data Protection Bill for 2021 does not. The study advises seeing digital platforms as publishers of the data they hold. This advice assumes that intermediaries regulate access to the content they host. Transparency and accountability in the platform’s actions are critical to successful regulation. This approach clashes with the Shreya Singhal decision’s recognized conceptions of intermediate duty.

The Bill emphasizes building a sound data security framework, not controlling social media corporations. The approach goes against recognized platform regulatory principles laid forth in the Information Technology Act and implementing Rules, the bedrock of social media regulation. The IT Act protects intermediaries from liability for user-generated content if they have no “actual knowledge” of its illegality.

Eliminating this safeguard may result in intermediaries self-censoring, affecting citizens’ right to online free speech.

Verification of the user

The recommendation supports mandatory social media account verification as a prerequisite for intermediate status resulting in an increase in the amount of personal data stored by social media corporations. There is a need to address online safety concerns, which have exploded in recent years due to bots and fake accounts. The recommendation’s catastrophic ramifications for users’ privacy and freedom of speech cannot be disregarded. Anonymity allows the free sharing of information and ideas online. Mandatory verification may also harm journalists, human rights activists, LGBTQ+ groups, and groups that employ anonymous social media identities.

A centralized regulating authority for both internet and print media

Establishing a single regulatory entity to control print and social media content is unfeasible. In order to preserve the integrity of published material, it is necessary to control the media space. Social media platforms serve as a channel for third-party user-generated material. Print media produces the content that these platforms host. Given their varied business models, it is vital that both organizations be governed in ways that meet the specific needs of their respective industries.

Algorithmic Transparency

Clause 23(1)(h) of the Draft Data Protection Bill, 2021 includes algorithmic disclosure, the EU’s Digital Services Act, and the Santa Clara Principles on Transparency and Accountability in Content Moderation 2.0. By 2021, data fiduciaries must ensure that the algorithms or methods used to handle personal data are transparent. This information allows the data subject to understand the decision and prevents the controller from making discriminatory or illegal decisions.

The vague language of this sentence, along with its vast reach, raises concerns about its abuse. The extent of such disclosure is not specified; much of Clause 23 is left to future legislation. The public’s access to these algorithms may enable undesirable actors to exploit the platform and overcome the algorithms. More than disclosures, the precise rules and cutoff points for establishing the ‘fairness’ of such algorithms utilized by data fiduciaries would be preferred. Before requiring algorithmic disclosure, stakeholders must be consulted and industry practices evaluated.

Sanctions

The Bill’s punishments include criminal penalties for re-identification, financial fines, and the ability to launch class-action lawsuits where the same data breach harms numerous persons.

Fines are based on an amount or a percentage of annual income. However, criminal liability laws, notably jail penalties, continue to hinder many start-ups and small businesses from innovating. The Bill’s criminal penalties include three years in prison for negligent data processing. To maintain proportionality and reward innovators, criminal liability must be eliminated.

Conclusion

While the JPC Report and the 2021 Bill make headway toward resolving various problems that face people in today’s digital environment, they have also drawn criticism. Critics of the 2021 Bill claim that the bill, in its current form, is prone to be misapplied in ways that might jeopardize people’s basic rights. In the digital era, privacy and data protection take precedence and must be protected at a comparable level. The way in which the 2021 Bill’s powers are used will decide whether they are required for state functioning or whether they leave digital data rights unprotected and diminish the code’s aim.

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All you need to know about the Good Friday Agreement

By

Rachit Garg

-

March 26, 2022

0

This article is written by Neha Dahiya, a law student at Dr. B.R. Ambedkar National Law University, Sonipat. This article explains the background of the conflict in Northern Ireland and how it culminated with the signing of the Good Friday Agreement. It also analyses the drawbacks of the agreement and the impact of Brexit on it.

It has been published by Rachit Garg.

Table of Contents

Introduction

The Good Friday Agreement ended one of the longest conflicts in Northern Ireland between the Catholics and Protestants. The cause of the rift was the fate of a ‘united Ireland’. While one side wanted to stay with the UK, the other wanted to join the Republic of Ireland. After decades of violence and conflicts, peace came with the signing of this agreement that declared the will of the people as supreme and also created some institutional changes to ensure peace in the country.

What is the Good Friday Agreement

The Good Friday Agreement, also known as the Belfast Agreement was a peace agreement that brought the conflict in Northern Ireland to an end. It was signed on April 10, 1998, and was ratified by popular vote on May 22, 1998, in both Ireland and Northern Ireland. Basically, the issue can be condensed as a conflict between the Protestants and the Catholics. The numeric majority of one group helped it to run a majoritarian government against the other. This sparked decades of conflict that finally ended with the Good Friday Agreement. The agreement led to the formation of various political institutions in the Northern Ireland and defined its relation with Britain and Ireland. The agreement also expressed the will of the people of Northern Ireland who decided to stay as a part of the UK. It highlighted the ‘principle of consent’, i.e., the will of the people is considered to be supreme and legitimate.

Why was the Good Friday Agreement formulated

Background of the conflict in Northern Ireland

Ireland has been ruled by Great Britain for hundreds of years. However, a part of it split off from Britain and called itself ‘the Republic of Ireland’. The part that stayed with Britain was called Northern Ireland.

Following this, there was a division among the people of Northern Ireland into two camps. These were as follows:

The Unionists or the Loyalists- This group was loyal to the British crown and was content with remaining a part of the UK. They were mostly Protestants and dominated the government.
The Nationalists or the Republics- This group wanted to be independent of the UK. They were in favour of joining the Republic of Ireland and were mainly Catholics. They were a minority.

The conflict between Protestants and Catholics

The Protestants being the power holders dominated the Catholic minority. The policies were formulated to put the Catholics at a disadvantage. They found it difficult to get homes and jobs. However, the prevalence of discrimination is hotly debated even now. Nevertheless, the Catholics started protesting for their rights. A civil rights movement emerged by the mid-1960s to which the situation turned violent and as a result of which, the British government was forced to send troops to help in mitigating the violence. There were continuous bombings, assassinations and riots between the two groups. Several people lost their lives in the protest and several armed republican groups were formed. There were several armed Republican groups formed. The largest of these was the Irish Republican Army (IRA). On the other side, the loyalists of the government also formed some violent groups like the Ulster Defence Association (UDA) and the Ulster Volunteer Force (UVF). Together in the conflict, both sides caused some heavy casualties.

Path to the agreement between Catholics and Protestants

Finally, in the 1990s the IRA decided to stop its violent activities after years of fighting. Thus, this gave a window to both sides to negotiate on peace. Cease-fire was declared in 1994, but instances of sporadic violence continued. The peace process was a protracted one with many participants. Both sides tried to sort out their problems and even other countries were included in the process. After two years of negotiation and three decades of conflict, the peace came about in 1998 as the Good Friday Agreement.

Who signed the Good Friday Agreement

There were multiple participants in the agreement. Mainly, the agreement was signed between the British and Irish governments. The two major political parties involved were the Ulster Unionist Party (UUP) and the Social Democratic and Labour Party (SDLP). The former was led by David Trimble and the latter by John Hume. The two leaders even won the Nobel Peace Prize jointly in 1998. There were other parties as well like Sinn Fein, the Alliance Party, the Northern Ireland Women’s Coalition, and the Progressive Unionist Party. However, the Democratic Unionist Party (DUP), which later emerged as the largest Unionist Party walked out of the agreement.

Components of the Good Friday Agreement

The Multi-party Agreement

The multi-party agreement was a part of the Belfast Agreement agreed among the British government, the Irish government and the political parties of Northern Ireland. Basically, it provides support and legitimacy to the British-Irish agreement, extended by all the signatories. It also laid the groundwork for the political institutions of Northern Ireland.

Broadly, it had been broken down into three strands, which are as follows:

The Democratic Institutions in Northern Ireland- The main institutions of the government were declared to be the Assembly and the Executive in Northern Ireland.

The Assembly- It was a democratic institution having 90 members in total. The members, called MLAs are elected with the help of the system of proportional representation. An interesting feature here is that for some votes, cross-community support is necessary. This implies that 50% of both the designated unionists and nationalists must vote in favour, or 60% voting in favour including 40% of both the designated unionists and nationalists.

The Executive- It comprises a First Minister and Deputy First Minister, and up to ten other ministers as well. It is responsible to the Assembly and is composed of the people elected to the Assembly. The party with the most number of MLAs elects the First Minister. On the other hand, the party with the second-most number of MLAs nominates the Deputy First Minister.

The Assembly and Executive have the powers to make laws regarding health, agriculture, finance, education, infrastructure and justice. Unfortunately, the Executive collapsed in 2017 and since then the Assembly has also not sat together.

The North-South Ministerial Council– This is a place where ministers from both Ireland and Northern Ireland sit together to discuss the matters significant to both of them. The council has agreed to six areas that require common policies, which are then supposed to be implemented in each jurisdiction separately.

These include:

Agriculture
Education
Environment
Health
Tourism
Transport

Also, there are six more areas that require joint implementation bodies.

These are-

Waterways Ireland
Food Safety Promotion Board
Trade and Business Development Body
Special EU Programmes Body
Language Body
Foyle, Carlingford and Irish Lights Commission

3. British- Irish Institutions – In order to facilitate co-operation between the new British and Irish bodies in the areas of mutual interest, the British-Irish Council was established. It brought together government representatives from Ireland, the UK, the devolved administrations in Scotland, Wales and Northern Ireland and the Crown dependencies, the Isle of Man, Jersey and Guernsey.

The British-Irish Agreement

It was an agreement between the British and Irish governments to work together and co-operate in various institutions. It also clears the agreed positions of both the governments on the status and future of Northern Ireland.

Under the agreement, the British and Irish governments have:

Right to self-determination- Acknowledged the legitimacy of the will of the people of Northern Ireland on the topic of whether to continue to be a part of the UK or join Ireland, i.e. right to self-determination.
Accepted the right of the people on both sides of the border to decide on the fate of a united Ireland.
Recognized that a majority of people have decided to continue being a part of the UK, albeit a substantial number wanted the opposite.
Committed to bringing the required legislation, if the conditions for a united Ireland are fulfilled.
Agree to treat all the people of Northern Ireland equally and impartially, regardless of any choices made, and to respect their civil, political rights, and social and cultural traditions.
Recognised the right of all the people born in Northern Ireland to identify themselves as Irish, or British or both, and to hold both citizenships if they desire.

The agreement required changes in both the Irish and British Constitutions. Thus, it enacted the Northern Ireland Act,1998, to incorporate the principle of self-determination in the law and also repealed the Government of Ireland Act,1920. The Secretary of State for Northern Ireland was given the power to call for a referendum when it appears that the majority wants a united Ireland and if it was defeated, then no new referendum could be held until at least seven years have passed since the previous one.

Essential clauses of the Good Friday Agreement

The essential clauses of the Good Friday Agreement are as follows:

It provided for a balanced constitutional settlement based on the principles of self-determination and consent, which would require changes in both the British and Irish constitutions.
People were declared to be sovereign and it was up to them to decide the fate of their nation.
For the first time, a concrete pathway was laid down to build a united Ireland, if the people consented.
It provided for internal institutional changes in Northern Ireland along with the provisions for cross-community participation.
The constitution of 108 member Assembly and a Cabinet-type Executive ensured inclusiveness of all the communities with no scope of domination of one by the other.
It established a balanced and effective forum for communication and co-operation between North and South by means of the North-South Ministerial Council.
The principle of devolution strengthened by the British-Irish council provided a valuable platform to discuss issues of wider concern without friction.
The agreement also contained some landmark provisions related to equality of rights in political, social, economic and linguistic spheres, justice and policing. It aimed at unarming the police force and to reflect the demographic make-up of the country in the force.
As per the agreement, the Republic of Ireland deleted from its constitution, the provision that claimed sovereignty over the North. Also, the British government repealed the Government of Ireland Act, 1920, which provided it with a veto over the status of Northern Ireland.

Implications of the Good Friday Agreement

Since the Good Friday Agreement was signed in 1998, there have been several developments to implement its provisions and further the peace process. The following are some major developments:

As per the Agreement, the Irish Republican Army (IRA) was to be decommissioned. The Independent Decommissioning Body confirmed in 2005 that IRA had been decommissioned.
In order to implement the devolution of policing and justice and a stable power-sharing arrangement, the St. Andrew’s Agreement was brought in 2006.
In 2010, the Hillsborough Agreement was signed that facilitated the devolution of policing and justice powers to the Northern Ireland Assembly.
The Stormont House Agreement came about in 2014 which dealt with a wide range of political, social and economic issues with the aim of reconciliation and economic revival of Northern Ireland. A number of financial commitments were taken up. A new institutional framework was also taken up to deal with the incidents that had happened in the past.
To implement the provisions of the Stormont House Agreement and to tackle the issue of para-militarism, A Fresh Start- The Stormont Agreement and Implementation Plan came about in November 2015.

Criticisms of the Good Friday Agreement

In his book called ‘the Good Friday Agreement: A flawed and incomplete process’, Vicky Cosstick mentioned two fundamental drawbacks in the Agreement. These were mainly structural flaws that led to its failure. They were as follows:

I. Notion of ‘Two-communities’ or ‘traditions’- This notion can be found both in the Agreement and in the institutions developed post-agreement. This just amplified the divisions that were prevalent in the society and it further polarised the political environment. The groups represented by the major political parties have further been cemented by acknowledging the same in the formal agreement. In order to gauge the cross-community support, the leaders are supposed to identify themselves as ‘nationalist, unionist or other’ which further intensifies and highlights the divisions. This has further driven the communities away from each other. Such polarised yet suppressed sentiments have the potential to resurface and disrupt the peace.

II. Secondly, he mentions that the agreement was capable of matching the severity of the conflict that was deeply rooted in Northern Ireland. He also questioned the authenticity of the ‘neutral role’ played by Britain in the conflict.

Another criticism of the agreement is related to its lack of initiative and action. It does talk about peace and resolving other issues, but it does not provide any practical framework to take an action. Violent groups have continued to erupt and the various peace agreements have been signed and suspended from time to time. This has been called ‘negative peace’ where the root of the cause has not been addressed effectively.
The Agreement contains provisions for political reconciliation but falls short of strong measures for cultural reconciliation. Since then the cultural schisms have been exacerbated by the political divisions deepened by the concept of cross-community support leading to a form of ‘cultural war’.
The social effects of the conflict have been largely ignored in the agreement. The agreement may have affirmed principles like equality and justice but no clear pathway has been laid down to achieve the same.

Brexit and the Good Friday Agreement

Cause of apprehensions due to Brexit on the Good Friday Agreement

Brexit has sparked a new wave of fears and apprehensions. It has been contended that Brexit could mean the collapse of the Good Friday Agreement. Post-Brexit, Ireland would remain a part of the EU while the UK and Northern Ireland would not. This could give a rise to tensions on the Irish borders. The UK’s withdrawal from the European Union (EU) could endanger the special position given to Northern Ireland. A narrow majority voted for the ‘Brexit’ in 2016 and decided to sever its ties with the EU. Earlier, the UK was a part of the customs union and single market of the EU by the virtue of being its member. That means once the UK leaves the EU, the Irish border would become a customs border with checks and controls.

A proposed solution to protect the agreement from Brexit

Earlier it was decided that till an alternative mechanism is developed, the UK would remain a part of the single market of the EU. However, it was later revised to continue to include Northern Ireland as a part of the UK’s customs territory and Value Added Tax (VAT) area, and that it would also align with EU’s rules in the area. It was also stated that after fours of the end of the transition period, Northern Ireland Assembly would vote on its future course. However, the leaders from Northern Ireland have been wary of this arrangement. Since then, the US has been trying to negotiate and maintain peace between the sides. However, the apprehensions continue.

Conclusion

The Good Friday Agreement, though aimed at ensuring long term peace in Northern Ireland, as per the experience, has seemed to have failed in doing so. Not underestimating the role it played in ending the decades-long conflict, it has not been able to completely eliminate the problem. We have seen a number of fallouts. The major problem that remains is the integration of society and the practical application of the measures to implement the provisions of the agreement. Brexit has further complicated the situation, threatening the years-long peace with the special position that Northern Ireland has been placed. Nevertheless, the agreement brought some very effective and positive principles forward. It gave the right to self-determination to the people of Northern Ireland and declared the will of the people as sovereign. Thus, with sporadic instances of violence and friction, the agreement has somehow managed to hold the people of Northern Ireland together. But there is definitely a scope for better negotiation.

References

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All about different types of contracts

By

Rachit Garg

-

March 26, 2022

0

This article is written by Ansruta Debnath, a law student of National Law University Odisha. The article is an attempt to make an exhaustive list of various types of contracts that are available in India.

It has been published by Rachit Garg.

Introduction

There are various types of contracts and specific terms and conditions of contracts are unique and cater to the specific need of the parties drafting them. Yet, even after taking into consideration the differences, some similarities are found. Classification of contracts can be done on the basis of how they are formed, whether they are valid, the basis of their nature and on the basis of their execution. The categories of contracts mentioned in this article might overlap in the sense that most contracts can be of many types. For example, a contract can be verbal, valid and unilateral. The categories mentioned are thus distinct and all equally important.

Types of contracts on the basis of formation of the contract

Contracts can be formed in several ways. The following are the types of contracts that can be classified on the basis on which they have been formed.

Verbal contracts

Verbal or oral contracts are those which are formed by oral communication. From time immemorial, contracts have been made orally itself. But, because verbal contracts are difficult to prove in courts, these contracts are thus, generally not made anymore. Having said that, verbal contracts are valid contracts and enforceable by law, provided that they fulfil the conditions of valid contracts as given in Section 10 of the Indian Contract Act, 1872.

In the case of Nanak Builders and Investors Pvt. Ltd. v. Vinod Kumar Alag (1991), the Delhi High Court observed that an oral agreement might be a legitimate and enforceable contract. As a result, a contract does not have to be in writing in the literal sense unless it is required by law or the parties deliberately intend to reduce the terms of the agreement to writing.

The validity of verbal offers and acceptance comes indirectly from Section 2 of the Indian Contract Act. According to Section 2(a), a person is said to make an offer when they signify to another their willingness to do or not do something. Further, Section 2(b) states that the acceptance is given by signifying assent to the offeror. The term ‘signify’ plays an important role in showing that offers and acceptance can be given without actually writing it down.

Written contracts

Contracts that are formed in the written and tangible form are written contracts. These are the most prevalent types of contracts at present. When they fulfil the conditions of Section 10, they are valid contracts.

Express contracts

Contracts are made of proposals or offers and acceptance of such proposals or acceptance. Proposals and the acceptance of the same can be express or implied. According to Section 9 of the Indian Contract Act, a proposal when made in words is an express offer. Thus, an express contract is made in words, either verbally or through written form. For example, A asks B whether he would like to sell his house for an X amount. B agrees to the same by saying yes. This is an example of an express contract. Thus in an express contract, the terms of the contract are clearly expressed.

Implied contracts

Section 9 also recognizes implied contracts. It states that an offer (or acceptance) made through anything else other than words is an implied offer (or acceptance). An implied contract is based on the actions, gestures etc. of the involved parties. For example, in an auction, raising the numbered paddle by the customer is an implied offer and the final bang of the gavel by the auctioneer when a product is sold signifies that the offer is accepted. This is thus an example of an implied contract. A warranty on a product is another example of an implied contract. When you buy a product, you get a warranty that it will work as expected and advertised. This contract is implied since it came into force when someone made a specific action (purchasing a good), even if it wasn’t written down elsewhere.

Just like express contracts, there must be a meeting of the minds of both parties. It is much more difficult to ascertain the meeting of minds in a contract when terms and conditions of the same are not explicitly mentioned. Courts have very often refused to recognize implied contracts wherein meeting of minds cannot be ascertained with clarity.

In the case of Haridas Ranchordas v. Mercantile Bank of India Ltd. (1919), when the customer of a bank did not object to the charge of a compound rate of interest in accordance with the usual course of business, he was held to have impliedly contracted to pay the new compound interest.

Quasi-contracts

Sometimes, rights and obligations might arise not by contracts that the involved parties have assented to, but rather by law. These create legal relations that resemble contracts and are called quasi-contracts, with the word “quasi” meaning “seemingly”. Chapter V of the Indian Contract Act talks about ‘Certain relations resembling those created by contract’. This part is on quasi-contracts, even though the Act does not mention the term ‘quasi-contract’ anywhere.

The fundamental rationale behind quasi-contracts is the theory of unjust enrichment, although this is not a settled principle. This theory prevents one party from being unjustly enriched at the expense of another. So even without a contract, in the name of justice and equity, obligations can be made to arise.

Chapter V spans from Section 68–72. Section 68 states that if a person is not competent to contract (say a person A) and then that person or anyone dependent on that person is supplied with necessaries of life, then the person (say, a person B) supplying the same will be entitled to reimbursement from the property of the incompetent person. So, even though no contract is there between A and B, B can ask for compensation or reimbursement so that they are not negatively affected.

Section 69 creates a contract of guarantee in the absence of one. The contract of guarantee is a contract wherein one person, the guarantor promises to the other, the principal debtor that the former will pay the debt of the latter if the need arises. But, this Section protects the rights of the guarantor in the absence of a contract of guarantee. So if person A is in debt to B and another person C pays B on behalf of A, then C will be entitled to be reimbursed even when A and C had not agreed in advance that C would pay off A’s debt.

Section 70 provides for obligations of a person benefiting from a non-gratuitous act, while Section 71 talks about the obligation of the finder of goods, who must take adequate steps to find the owner. Finally, Section 72 says that a person to whom money or anything else has been delivered, either by mistake or coercion, must repay or return it.

E-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 to withdraw money is an example of an electronic contract. When a person orders goods through an online shopping website, this is an example of an e-contract. The spread of technology and globalisation has expedited the presence of e-commerce enterprises around the world. Online auctions are also becoming more common, where people may purchase and sell items by bidding on them over the Internet.

The Indian Contract Act does not explicitly recognize e-contracts. At the same time, it does not prohibit them as well. Indian courts have recognized e-contracts but they must fulfil the essentials of a valid contract under Section 10, especially the condition of free consent which is very often marred in e-contracts.

The legal basis of e-contracts can be somewhat drawn from the Information Technology Act, of 2000 and the Indian Evidence Act, of 1872. The IT Act recognises that proposals, acceptances, and revocations of proposals and acceptances, as the case may be, can be expressed in electronic form or utilizing an electronic record and that such electronic form or means shall not be deemed unenforceable, solely because such electronic form or means was used for that purpose.

The Indian Evidence Act extends recognition to computer output, which is defined as any information contained in an electronic record that is written on paper, stored, recorded, or reproduced on optical or magnetic media produced by a computer (hereinafter referred to as the computer output). Without further proof or production of the original, such information in compliance with Section 65B shall be acceptable in any proceeding as evidence of any contents of the original or any fact stated therein of which direct evidence would be admissible.

Types of contracts on the basis of validity of the contract

Too often problems arise with contracts and the courts must judge whether they are valid or not in the first place. Based on developed jurisprudence and the laws, contracts can be valid and when invalid, can be void, voidable or void-ab-initio.

Valid contracts

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 make a valid contract. Other than these essentials, certain other things also need to be fulfilled for the contract to be recognized by 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 way where contracts do not have sufficient meeting of minds is when the terms are not clearly specified and are open to interpretation. If someone offers to buy a house for a “desirable amount” and the owner agrees, there is no contract because the concept of a “desirable amount” is very subjective and open to interpretation.

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. Further, the performance of a valid contract should be possible. So a contract for reviving a dead person is not a valid contract.

Void contracts

Section 2(j) says that a contract that ceases to be enforceable by law is void from the moment it becomes unenforceable. The term “void” in law means “not legally binding” or “invalid.

A contract becomes void when it is unable to fulfil the conditions mentioned in Section 10. Thus, when parties are incompetent to form a contract, like minors or people of unsound minds, then the contract becomes void. Further, the impossibility of performance also makes contracts void.

Apart from the above, the following are certain other conditions of void contracts:

Section 20 states that an agreement becomes void when there is a mistake of fact concerning an essential facet of the agreement. It is important to note that a mistake of law does not make a contract void nor does a one-sided mistake make it void.
According to Section 24, a contract with an illegal object or consideration is void.
Section 25 states that an agreement without consideration is void unless it is in writing and registered, or is a promise to compensate for something done or is a promise to pay for a debt barred by limitation law.
Section 26 says that agreements in restraint of marriage are void.
Section 27 says agreements in restraint of trade are void.
Section 28 makes a contract void if it is in restraint of legal proceedings.
Section 29 makes a contract void if the meaning of the agreement cannot be made certain.

Voidable contracts

Voidable contracts are those contracts that can be made void on the will of one of the parties. In these scenarios, generally, consent is not free and it is obtained under coercion (Section 15), undue influence (Section 16), fraud (Section 17) and misrepresentation (Section 18). Here, the party defrauded or unduly influenced has the option to make the contract void.

Void-ab-initio contracts

They are a special type of void contract that means “void from the very beginning”. In essence, void-ab-initio contracts are those contracts that never existed from the moment of their inception. The most common example of a void-ab-initio contract is the one made by a minor. In Mohori Bibee v. Dharmodas Ghose (1903), it was declared conclusively that minor contracts are void-ab-initio.

Unenforceable contracts

If a contract is found to be unenforceable, the court will not order one party to act or compensate the other for failing to meet the contract’s requirements. While the elements of an enforceable contract (offer, acceptance, and consideration) appear straightforward, there are severe enforceability standards. A contract can be declared void for a variety of reasons, including the circumstances surrounding the signing, the contents of the agreement, or events that occur after the contract is signed.

Lack of capacity, duress, undue influence, deception, nondisclosure, unconscionability, public policy, mistake, and impossibility are all typical defences to contract enforcement. If these conditions are present, a contract that is otherwise lawful may be rendered unenforceable. In essence, these contracts can be enforced with the consent of both parties but cannot be enforced legally in courts.

Illegal contracts

Contracts that violate the law of the land are illegal contracts. Section 10 states that the object or consideration of a contract should not be unlawful. Thus, Section 10 prohibits illegal contracts. For example, contract killings facilitated by contracts for murder are illegal as murder is a crime under Section 302 of the Indian Penal Code.

Types of contracts on the basis of nature of the contracts

The nature of the contract is diverse and specific to the parties involved. On the broad level, they can be classified as unilateral, bilateral, unconscionable, adhesion, aleatory and option types. All contracts more or less fall under at least one of these broad categories.

Unilateral contracts

As the name suggests, unilateral contracts are those contracts where only one party makes a promise. The other party is not specified and the contract gets completed by performance. The offeror cannot be asked to fulfil the offer until performance is made by someone. The offer made is a general offer. General offers are types of offers that are made to the world at large and their acceptance need not be communicated for it to constitute as valid acceptance under law. Section 8 of the Indian Contract Act validates general offers and hence unilateral contracts saying that acceptance done by performing the conditions in a proposal or acceptance by receiving consideration is valid acceptance. The Madras High Court stated in A.T. Raghava Chariar v. O.A. Srinivasa Raghava Chariar (1916) that even when initially the offer is given by one party, there must be two parties to complete the contract and both parties must agree on the same thing in the same sense.

Bilateral contracts

These are the contracts where reciprocal promises are made by the parties involved. Thus, parties involved are fixed and the contract is formed by way of communication of offer and acceptance. These are also called two-sided contracts and are the most common type of contract in use.

Unconscionable contracts

An unconscionable contract is one that is clearly one-sided and unfair to one of the parties involved and hence cannot be enforced by law. If a lawsuit is brought against an unconscionable contract, the court will very certainly declare it void. There are no monetary damages awarded, but the parties are released from their contractual duties. It is up to the courts to determine whether or not a contract is unconscionable. They frequently deem a contract unconscionable, if it appears to be a contract that no mentally capable person would sign, that no honest person would propose, or that would jeopardise the court’s credibility in the jurisdiction where it was enforced.

In the case of ICOMM Tele Ltd. v. Punjab State Water Supply & Sewerage Board (2019), the Supreme Court said that contracts were liable to be set aside when they were between private players and the state on the ground that it is unconscionable. However, this principle was not the default where the players were private and the contract was commercial in nature, as was seen in this case. The contract would then be classified as an adhesion contract.

Adhesion contracts

An adhesion contract, sometimes known as a “boilerplate” contract or a “standard form” contract, is a contract between two parties in which one party (the one with greater bargaining strength) establishes all or most of the contract’s provisions. The opposite party (the one with less bargaining strength) has little or no leverage to reach an acceptable agreement. Adhesion contracts eliminate the need for individually tailored contracts for each customer. Although adhesion contracts have the potential to boost efficiency and speed up the purchasing process, their use is controversial due to some of the possible benefits and drawbacks. Non-negotiable clauses are included in adhesion contracts, which are effectively “take it or leave it” contracts. In most nations, adhesion contracts are lawful, but they are frequently reviewed by courts before being enforced. The parties who drafted the contract frequently do so in such a way that any costs associated with the loss or damage of the products being purchased are borne by the buyer. The goal of the courts is to protect the bargaining party against unconscionable or unjust conditions.

The Supreme Court in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) recognized that adhesion contracts can become unconscionable contracts.

Aleatory contracts

This is a type of contract where the parties involved do not need to perform a contract until a specific event occurs. These events are generally those which cannot be controlled by the parties involved. The most common type of aleatory contract is an insurance contract. Here, insurance premiums are paid without any kind of performance from the insurance company. Only when a specific event occurs, like for example, car damage with respect to car insurance, only then will the company be obligated to pay. More often than not, the amount of insurance premium paid in total is not equal to the insurance that is being paid by the company. Sometimes the amount of insurance premium is much more than the insurance that the company pays while some other times, the premium is very less compared to the huge amount of insurance that the company has to pay.

Option contracts

Option contracts enable one party to enter into a new contract with a different party at a later date. Exercising the option means entering into a second contract, and a common illustration of this is in real estate, where a prospective buyer will pay a seller to remove a property from the market, then have a new contract formed to buy the property outright at a later date if they desire.

The Supreme Court observed in V. Pechimuthu v. Gowrammal (2001) that the option could be expressly granted by the terms of the contract or could be implicit. Further, it was held in this case that the exercise of the right on the basis of an option is unilateral and the person being given the right cannot be compelled by the party giving the option to exercise the said right.

Types of contracts on the basis of execution of the contract

Contracts can be executed or performed immediately or over a period of time. The important thing for consideration is the time frame for the fulfilment of the promise. On the basis of this time frame, contracts may be executory or executed.

Executory contracts

These are contracts that are continuing in nature. For example, a lease agreement. Here, throughout the term of the contract, the owner would allow the tenant to stay in the former’s property and the tenant would pay monthly rent.

Executed contracts

These are contracts whose obligation has been fulfilled. So the purchase of a product or service is an executed contract.

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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Bankruptcy laws in Illinois

By

Sneha Mahawar

-

March 26, 2022

0

This article is written by Niketa Chitnis and pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution. This article has been edited by Prashant (Associate, Lawsikho).

This article has been published by Sneha Mahawar.

Introduction

If you live in Illinois and you come to know that you are in debt and you do not have the capacity to pay the same, bankruptcy laws in Illinois can protect you from creditors while you get rid of your debt. This law offers a start-over without any need to worry about bill collectors or a crushing debt load. In addition, state laws in Illinois allow its residents to protect some of their assets from creditors during their bankruptcy.

Bankruptcy is a court process that helps individuals having too much debt. The person filing under bankruptcy is known as the “debtor”. The people or businesses the debtors owe money to are the “creditors”.

Filing for bankruptcy shields the debtor from collection activity from creditors. This brings an “automatic stay”. Based on the type of bankruptcy the debtor has filed for, it can help the debtor to eliminate his debts.

The U.S. Bankruptcy Courts are federal courts subject to the U.S Bankruptcy Code. However, federal law allows states to make their own rules on which property can be protected by its residents from their creditors. This protected property is called “exempt property” and can help the debtors get on with their life after they have exited bankruptcy.

Some states offer their residents an option of choosing the federal bankruptcy exemptions which are provided under the bankruptcy code. However, Illinois is not among them. Filers under Illinois bankruptcy shall use the state law exemptions.

Types of bankruptcy

For a better understanding of the use of state exemptions during the bankruptcy process, let us get familiarized with the two types of personal bankruptcy:

Chapter 7 bankruptcy

Chapter 7 bankruptcy is often called “liquidation” bankruptcy because under this, the debtor is required to turn over all non-exempt property to a bankruptcy trustee who sells the same and uses those funds to pay off the debt to the creditors. Exemptions play a significant role under Chapter 7 filing because debtors end up losing most of the property that is not subject to an exemption. However, for exempt property, the debts are “discharged” or “cancelled”. This means the debtor no longer owes them. Debtors need to meet a strict income threshold to qualify to file for bankruptcy under Chapter 7.

Chapter 13 bankruptcy

Chapter 13 bankruptcy allows people with a stable income to restructure most of their debt to pay it off over a period of three to five years. Under this chapter, payments are made to the bankruptcy trustee in accordance with the plan approved by the court. The trustee then pays the creditors, this usually eradicates some of the debt of the debtors. This chapter is quite popular among homeowners as they often get to keep their homes. Debtor shall have sufficient income for making payments for his debt, to qualify to file for bankruptcy under Chapter 13.

One of the major benefits offered by either type of bankruptcy is that it brings an automatic stay from the court when the debtor files for bankruptcy. The stay stops all collection activity from the creditor which also includes foreclosures and court cases. This stops harassment from collection agencies while the debtor works to resolve their debt problem through bankruptcy.

Secured vs. Unsecured Debt

During bankruptcy, debts are commonly placed into one of the two categories, i.e., secured debt and unsecured debt. The secured and unsecured debts are treated differently under bankruptcy, and it dictates how much of the debt can be eradicated under it.

A secured creditor has the right to reclaim the property under debt if the debtor fails to pay off the debt. These usually include loans for which the debtor has signed a contract giving the creditor the right to seek a lien on the collateral property, in case of failure to pay off the debt. Since secured creditors usually reserve their right to reclaim the property in bankruptcy, debtors are mostly required to either give up the [property or work out a repayment plan with the creditor. The most common type of secured debt includes home mortgages and car loans.

Debt is unsecured when the creditor has no right to reclaim the property of the debtor on its failure to repay the debt. The most common type of unsecured debt includes credit card debts, court judgments, and medical bills. These debts are most likely to be eradicated during bankruptcy, as unsecured creditors do not hold any collateral for their debt. However, there are some priority unsecured debts such as unpaid child and spousal support which cannot be eradicated.

What happens to the debt in chapter 7

When a debtor files for bankruptcy under Chapter 7, they can normally discharge most of the unsecured debt. Debtors will commonly have three options for secured debt.

Return the property to the creditor

On choosing this option, the debtor will lose the property, but generally, they will be free from making any additional payments.

Keep the property and continue making payments

A debtor can choose this option if the state exemption covers the equity in the item.

Purchase the property outright

This option is quite rare for cases under Chapter 7 because the debtor is usually required to make a cash payment and most of the assets will then be turned over to the trustee.

What happens to the debt in chapter 13

This chapter allows the debtors to repay their creditors over a period of three to five years. It is essential that the court approves such a plan. The court may compel the creditors to reduce or restructure the debt. Mortgage payments are not included in the plan, however, a trustee may negotiate a payment agreement with the lender if the debtor is late with the payments. Unsecured creditors are paid with the residual income left after repayment of secured creditors. At the conclusion of the plan, any unsecured debt that is not paid will be discharged.

Eligibility for bankruptcy in Illinois

The debtor shall have low income to qualify for filing for bankruptcy under Chapter 7 in Illinois. This is usually done through one out of two means tests.

To qualify for the first means test, the household income of the debtor is less than the median household income for a similarly sized Illinois household. For example, U.S Census data shows that the median household income for a three-person Illinois household was USD 92,711 in November 2020. So, a debtor living in a three-person household having a monthly income below USD 92,711 shall qualify for filing for bankruptcy under Chapter 7.

If the household income of the debtor is above the state median, they can still qualify for bankruptcy under Chapter 7 based on their disposable income. The monthly disposable income of the debtor is calculated by subtracting their monthly expenses from their monthly income. If the calculation shows that the debtor has little to no disposable income each month, they can file for bankruptcy under Chapter 7.

To file for Chapter bankruptcy under Chapter 13, the debtor shall show that they have a steady income, and their unsecured debt is not more than USD 149,275. Further, the secured debt cannot total more than USD 1.26 million.

Illinois bankruptcy exemption

Illinois has its own exemption system that can be used by anyone desiring to file for bankruptcy in the state. If debtors have any property that falls within one of these exemptions, they can protect it from creditors during bankruptcy and use it to start over after the bankruptcy.

In Illinois, married couples who jointly file for bankruptcy can double their exemption if they both hold an ownership interest in the property.

Homestead exemption

The homestead exemption is not very generous in Illinois, even though the cost of living is quite high in some parts of the state. Debtors can claim an exemption of up to USD 15,000/- of the equity they have in their home. This amount can double to USD 30,000/- if they file for bankruptcy jointly and own a home together. This can be used to protect real or personal property, including mobile homes, condos, co-ops, lots, buildings, or farms. A spouse or child can claim the home, in case of the death of the homeowner.

Wage exemption

Illinois allows exempting 85% of the gross earnings of the debtor or 45 times the federal hourly minimum wage, whichever is higher.

Vehicle exemption

Debtors are allowed to protect up to USD 2,400 of equity in a motor vehicle.

Wildcard exemption

Debtors can apply the Illinois wildcard exemption to property up to USD 4,000/- that would otherwise not be exempt. However, such an exemption cannot be used to protect a real estate or wages.

Personal property exemption

A wide range of personal property can be exempted in Illinois. Such exemption includes necessary clothing, family pictures, bible and schoolbooks, prepaid tuition trust funds, a certificate of title to any watercraft of more than 12 feet, prescribed home health aids, etc.

Government benefit exemptions

These exemptions include unemployment compensation, social security, veteran’s benefits, worker’s compensation also including worker’s occupational disease compensation, crime compensation, and certain federal restitution payments.

Insurance exemptions

Certain insurance benefits are exempt under Illinois bankruptcy, including life insurance proceeds to the debtor’s spouse or child if needed for support, health and disability benefits, benefits from a fraternal society, etc.

Other exemptions

These exemptions include alimony and child support, property of the business partnership, awards from wrongful death lawsuits or settlements, personal injury lawsuit awards and settlements up to USD 15,000/-, pre-need cemetery sales funds, care funds, and trust funds.

Conclusion

Bankruptcy is a legal proceeding involving a person or business that is unable to repay its outstanding debts. The bankruptcy process begins with a petition filed by the debtor, which is most common, or on behalf of creditors, which is less common. All of the debtor’s assets are measured and evaluated, and the assets may be used to repay a portion of the outstanding debt. Bankruptcy can be filed under Chapter 7 or Chapter 13 in Illinois. Illinois allows a list of exemptions for debtors apart from the exemptions allowed by federal courts.

Reference

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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Game theory and its sociological aspect

By

Sneha Mahawar

-

March 25, 2022

0

This article is written by Dev Shroff and Aryan Soni, a first-year students at Gujarat National Law University.

This article has been published by Sneha Mahawar.

Table of Contents

Abstract

Game Theory is essentially a mathematical field that aims to explain optimum strategic behaviour in social games, as well as economic and political circumstances. The theory is normative in the sense that it gives guidance; it is descriptive in the sense that it demonstrates social and economic events to be exactly identical with proper games of strategy.

Mathematicians John von Neumann and John Nash are creators of game theory. Business competition, political campaigns, animal and plant survival struggles, and so on can all be viewed as a type of ‘game’ in which individuals compete against one another. Game theory provides a framework for describing and analysing how people act in strategic circumstances. Any social problem can be formulated as a mathematical model of a game.

This paper explains why we all play a Nash equilibrium and why it is crucial. It also highlights the distinction between what is logical for society and what is rational for individuals. The paper goes on to discuss how game theory may be used to produce more efficient results in society. It also explains the features of game theory as well as its limitations.
Key words: Game theory, Nash equilibrium, Rational, Behaviour, Sociology.

Introduction

Initially, game theory was a mathematical and economic theory that predicted that human interaction will have game-like characteristics such as strategies, winners and losers, rewards and punishment, profits and expenses. It was designed to help people understand a wide range of economic activities, such as business, market, and consumer behaviour. The use of game theory to political, sociological, and psychological behaviours has risen in prominence in the social sciences since then.

Matching young physicians to hospitals for on-the-job training is a notable example of the application of game theory to reality in terms of constructing effective social institutions. Doctors receive their medical degrees after graduating from universities. However, before they may practise, they must first complete a residency programme, which lasts for a set number of years. The difficulty is how to pair such physicians with hospitals. There are both excellent and awful matches. Game theorists applied their understanding of game theory to create an ideal process for matching young doctors with hospitals.

Mathematicians and economists created the area of ‘game theory’ in the previous century as a tool for analysing both economic competitiveness and political conflicts. The following is how two famous game theorists, Robert Aumann and Oliver Hart, explain the attraction: Game Theory may be thought of as a kind of umbrella or ‘unified field’ theory for the rational side of social science, where ‘social’ is taken broadly to encompass both human and non-human participants (computers, animals, plants) … It does not make use of ad hoc constructions… It creates approaches that, in theory, may be applied to any interactive situation (Aumann and Hart, 1992, P. 3)

Definitions

Some definitions of game theory are below:

Game theory is the mathematical study of strategies for dealing with competitive situations where the outcome of a participant’s choice of action depends critically on the actions of other participants. [Lexico]
Games theory is an abstract and deductive model of policy-making. It does not describe how people actually make decisions, but rather how they would go about making decisions in competitive situations if they were completely rational. Thus, game theory is a form of rationalism, but it is applied in competitive situations where the outcome depends on what two or more participants do. [– Thomas Dye]
Game theory provides a fairly general framework to analyse a situation to tell you what kind of behaviour is observed in such strategic situations. Game theory has been applied through a number of fields, including economics, political science, philosophy, psychology, sociology, biology, and computer science. Is it possible to analyse a wide variety of social and economic problems using a unified framework? Any social interaction can be formulated as a mathematical model of a game which specifies players, strategies and payoffs. The question is if we can find a unified general theory to find the solution to all of those social problems. Is there any single solution concept that can be applied to all those social interactions? John Nash has found a unifying principle that can be applied to all social problems – the Nash equilibrium.

What is Nash equilibrium

According to Nash equilibrium, a game theory concept, the optimal finish of a game occurs when there is no reason to vary from the initial strategy. The Nash equilibrium is a game theory concept that asserts that the ideal outcome of a game is one in which neither player has an incentive to deviate from their chosen strategy after reviewing an opponent’s plan. Overall, changing acts will bring no extra benefit to a person if the techniques of the other participants stay unaltered. In a game, there might be numerous Nash equilibria or none at all. When other players’ decisions are taken into account, each player’s strategy is optimal in the Nash equilibrium. Every player wins since they all get the desired outcome.

Nash equilibrium is named after its founder, American mathematician John Nash. It is one of the most fundamental principles in game theory, and it seeks to define mathematically and logically what actions participants in a game should do in order to get the best possible outcomes for themselves. Expose each player’s strategy to the other players in order to quickly identify the Nash equilibrium or to determine whether one exists at all. If no one alters their method, the Nash equilibrium is proved.

One of the reasons Nash equilibria is considered as such an important concept in game theory is its applicability. The Nash equilibrium may be applied to a wide range of disciplines, including economics and social sciences.

Why all of us might play Nash equilibrium

There are various reasons why a Nash equilibrium could be used by players. There are three key causes, in my opinion:

It’s possible that players are really reasonable, and that all rational players calculate what they should do. They can sometimes achieve Nash equilibrium. This is the first and most important reason.
Reason number two is that before starting the game, participants talk about how to play the game. Players gather and discuss how they should play the game. People are established in a certain Nash equilibrium as a result of this type of pre-play conversation.
The third reason is that participants may not be as sensible as they appear, and they may not have the opportunity to communicate with one another. They simply play the game, and the conclusion may or may not be Nash equilibrium. Then they play the same or a similar game again, and as they gain experience, they finally converge to a Nash equilibrium. That is the logic behind the trial-and-error modification.

Characteristics of sociological game theory (SGT)

Game rules as social rules

In SGT, there is an explicit game rule complex that structures and regulates action and interaction, together with physical and ecological restrictions; there is an intricate theory of rules and rule regimes.

Diverse types of actors in varying roles

Actors as creative, interpretive, and transformational entities (with a ‘bounded’ level of reason). Additionally, because they are susceptible to normative and institutional environments, they have the capacity to be moral creatures.

Games are socially embedded

Games are socially entrenched, with normative, relational, and institutional settings defined and considered. Actors’ social ties have a significant impact on how they interact with one another.

Possible game structuring and transformation

External actors with sufficient power and/or game participants can reorganise and even alter a game, such as transforming a zero-sum game to a coordination game or a coordination game to a competitive or zero-sum game.

Communication actions

The rules governing action opportunities in a game define the circumstances and channels of communication. Different types of communication, as well as their uses and functions, have an impact on game processes and results, such as giving information or influencing others’ opinions and judgements. Deception and fabrication may be used in communication.

Limited capabilities of cognition, judgment and choice

Multiple values and norms, as well as other standards, can lead to inconsistency, incoherence and difficulties when they do not always fit together in a particular circumstance. Consistency and coherence are social constructs that are vulnerable to change.

Difference between what is rational for the society and what is rational for each individual

One of the most essential themes of game theory is that collective rationality differs from individual rationality. It frequently differs from individual rationality. That is, what is good for society is not always or even frequently equal to what is beneficial for each person. We must work together to achieve what is best for society. However, each individual may have an incentive to avoid. For example, keeping the park clean is beneficial to society. As a result, we must work together to maintain the park clean. However, you may have an incentive to leave some waste behind, so what is good for society may not be the same as what is beneficial for each person.

Another example is that the Earth’s temperature is rising. It’s known as global warming, and it’s quite dangerous. It is better for our civilization if all countries work together to combat global warming. This is in the best interests of society. However, every country has an incentive to pollute. Again, what is good for society as a whole is not always the same as what is beneficial for each individual.

One of the most significant lessons of game theory is that collective rationality, or what is desirable for society, differs from individual rationality. Nash equilibrium, which arises from individual rationality, is frequently inefficient. However, in the absence of strategic or game-theoretic thinking, we prefer to believe that collective rationality occurs in society. This huge misunderstanding previously occurred in economics, owing to Adam Smith’s magnificent hypothesis:
Adam Smith said, “rational pursuit of individual happiness leads to a socially desirable outcome in competitive markets. If each individual seeks to his or her own happiness, in competitive market wonderfully those selfish behaviour leads to a socially optimal outcome.”

How to achieve efficient outcomes through game theory

There are three broad approaches to achieving efficient societal results;
(i) The first is simply to alter the game’s rules and create social institutions. Create optimum trade rules such that the Nash equilibrium is efficient in the first place. (ii) The second method involves the use of legally enforceable contracts. (iii) The third approach is to use long-term relationships.

Game theory informs you that if the rules of the game are given, and the game is supplied, game theory predicts what sort of behaviour will occur. This is the fundamental prediction of game theory. The kind of outcome is observed under a given set of rules is described by game theory. You can answer this question backwards using your understanding of game theory. As a result, you get off to a strong start. Now the issue is, what are the game rules that result in such a positive outcome? You may use your understanding of game theory to create the rules of the game such that the outcome is favourable. You may carefully build the system, institution, or trade rules using game theory expertise so that individuals have an incentive to attain a desirable end.

The second approach to get a desirable outcome in society is that the system itself may be inefficient, in which case participants may lack an incentive to cooperate. People can compel an efficient conclusion by forming a legally enforceable contract. You can enter into a legally enforceable contract to compel a good outcome in situations where individuals have a motive to deceive. An employment contract, for example, defines the terms and conditions. The employer or employee may break the terms and conditions if the contract is not in place.

What alternative means of preserving collaboration may there be? You may make use of long-term relationships. This is a less expensive and more flexible option than a legally binding contract. Individuals may be motivated to cheat at efficient points or cooperate if there is a positive reward from cheating. So, in a long-term partnership, it is beneficial if individuals cooperate. However, because he may cheat and get anything today, each player may have an incentive to stray. However, if he cheats now, the worth of your future connection in the long-term partnership is ruined.

Limitations of game theory

Game theory, like other economic theories, is based on a variety of assumptions, one of which is that the participants are rational and intelligent. The game theory ignores a player’s social context, on which his behaviours are highly dependent. As a result, these assumptions are severely faulty.
Another issue in this theory is that it ignores the reality that in order to make logical conclusions, all accessible evidence must be available. The players do not have firsthand knowledge of the situation. In this worldview, norms, morality, and ethics have no place.
Another disadvantage of game theory and Nash equilibrium is that they require knowledge of one’s opponent’s strategy. If a player is aware of their opponent’s strategy, a Nash equilibrium can only occur if they choose to stick with their current strategy.
In most situations, such as a conflict, whether military or commercial, an individual has limited information about the opponent’s strategy or planned outcome. Unlike the dominant strategy, the Nash equilibrium does not always result in the optimal outcome; it just signals that a person chooses the best approach based on the available information.

Conclusion

Game theory has been hailed by social theorists from many different fields as a framework that can unify the social sciences on a bedrock of mathematical reasoning, relegating all previous attempts to provide a unifying framework for economics, political science, anthropology, organisation theory, and so on to social science’s pre-history. Game theory provides a dependable set of social science concepts and tools for defining, analysing, and understanding a wide range of interaction events. The techniques have previously shown beneficial for exploring and modelling a wide range of interaction processes such as cooperation, conflict, and negotiation.

Game theory has been applied in a variety of circumstances where the choices of the players interact to impact the outcome. The theory supplements and extends the traditional theory of probability by emphasising strategic decision-making aspects or characteristics controlled by the players rather than pure chance. It has been used to forecast the formation of political coalitions or business conglomerates, the best price to sell products or services at in the face of competition, the power of a voter or a bloc of voters, who to select for a jury, the best location for a manufacturing plant, and the survival behaviour of certain animals and plants.

It would be astonishing if any one theory could cover such a vast array of “games”, but there is no single game theory!

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.

Statutory and judicial exceptions to restraint of trade

By

Sneha Mahawar

-

March 25, 2022

0

This article is written by Shyam Saxena, a 2nd Year BALLB student at Kalinga School of Law. This article explains the statutory and judicial exceptions to restraint to trade under Section 27 of the Indian Contract Act,1872.

This article has been published by Sneha Mahawar.

Table of Contents

Abstract

The agreement is completed when there is a consideration along with the promise which is enforceable by law becomes a contract. However, there are some restrictions where the agreement is not completed and held to be void which is enumerated as –

Section 26 Restraint to Marriage
Section 27 Restraint to Trade
Section 28 Restraint to Legal Proceedings
Section 29 Agreements void for uncertainty
Section 30 Agreements by way of wager

Are held to be void according to the Indian Contract Act, 1872.

The restrictions are however important there are always exceptions to these exceptions as well. Thus, we are going to discuss the exceptions related to Section 27 – Agreements in Restraint of Trade.

Introduction

“To Practice any profession, or to carry on any occupation, trade or business” as clearly in19(1)(g) of Part III – Fundamental Rights of the Constitution of India which clearly states that all citizens are free to practice any profession, occupation, trade or business in any part of the country and any restriction is held to be void. Analogous to this Sec 27 of the Indian Contract Act,1872 also states that the agreement was held to be void if it restricts any trade. However the difference between the two is in the former, the restriction should not be placed by the State while latter, the restriction should not be placed by the other Contracting Party.

The concept of restraint of trade has been placed in the case of Henry V. In the case, the bond had been placed on the debt that the defendant should not use his art dryer within a city for six months. However, the judge has held it void and held that any restraint to trade should be held void. But with the change of time, the idea also changed. In the modern idea, the exception to restriction had been decided in the case of Hubbard vs miller(1) where judge Christiancy had stated that” if the restraint is honest and reasonable and if it is not opposing to the public policy then restraint be valid.”

On that basis, there are two exceptions present for Section 27 which are-

Statutory exceptions

Sale of Goodwill
Partnership Act

Judiciary explanations

Trade Combinations
Solus or exclusive dealing agreements
Protection of trade secrets
Contract of Service

Statutory exceptions

The statutory exceptions are defined as the statutes which are made to clarify the exceptions by the legislature. These exceptions are generally written in the bare act of the legislation made. The statutory exceptions are sub-categorized into two parts –

Sale of goodwill

Goodwill is defined as the reputation of the company or the advantageous position it has acquired after years of business in the market. However, the definition of Goodwill has been defined in the case of Trego vs Hynt. Goodwill in this case is defined as the dependence on the nature and character of the business to which it is attached. It further clarified that goodwill is nothing but must resort the old people to the old business.

It is considered as the First Exception to Section 27 of the Indian Contract Act,1872. It was stated that if the seller has sold the goodwill of the company to someone, then the seller may agree with the buyer that it may refrain from carrying the business within the specified local limits, subject to the court’s opinion that such restriction should be reasonable.

Illustration

If AB has sold the goodwill of the company to CD, then AB may agree with the buyer to refrain from doing the business within the specified limits but subject to reasonable restrictions.

However, this reasonable restriction or exception to section 27 is for the public interest so that the seller’s old people may not go to the new buyer.

Case laws

Arvinder Singh vs Lal Pathlabs

In the following case, the Delhi High Court has explained the provision of section 27. It stated that if any restraint of trade agreement involves, then it is said to be void. However, if the court found it reasonable and it will benefit the public interest then such restriction need be necessary and the agreement is valid.

Chandra vs Parsullah

In the following case, the plaintiff and defendant are carrying out a similar service of bus fleet from Pune to Mahabaleshwar. To avoid competence, the plaintiff has bought the business of the defendant and made an agreement that the defendant can not do similar business for 3 years. But the defendant can not comply. However, the court told that the agreement is valid and reasonable under section 27 and sought an injunction to the defendant.

Vancouver Malt & Sake Brewing Co v. Vancouver Breweries Ltd.

In the following case, the company was licensed to manufacture wine and beer but it had confined to producing ‘sake’. To avoid competence, it had agreed with another party to manufacture wine and beer and sold the goodwill of the company.

The court in the following case stated that the agreement is devoid of its content. The production of sake is out of this agreement. It had no goodwill to sell for the brewing of the beer. Therefore nothing has been sold in this regard. And It is simply a case of the appellant undertaking to the respondent on consideration of a sum of money that it will not for 15 years varying on a particular branch of business.

Partnership Act

The partnership Act is another statute where the exception to Section 27 has been defined. There are four clauses where the exceptions to restraint of trade have been clearly defined.

Restriction on Existing partner [Section-11(2)]- In this section, it is stated that the person who is a partner in a firm can not undertake another business.
Restriction on outgoing partner [Section-36(2)]- In this section, it is stated that an outgoing person if agreed on the terms that the partner should not carry similar business within the particular period or particular limit, then it is held to be valid.
Restriction on partner upon or in anticipation of the dissolution of a firm [section 54] – The partners may upon or in anticipation of the dissolution of the firm agree that the partner should not carry similar business within the particular period or particular limit, then it is held to be valid.
Restriction in case of Goodwill [Section 55(3)] – A partner may upon sale of the goodwill agree with the buyer that the partner should not carry similar business within the particular period or particular limit, then it is held to be valid.

Case laws

Firm Daulat Ram vs Firm Dharam Chand

In the following case, it was decided that instead of two ice factories, one will work and the profits should be divided between two, this restriction is valid.

Hukmi Chand v. Jaipur Ice & Oil Mills Co

the validity of the agreement entered into between a retiring partner and the other partners, wherein the former sold his share of goodwill and agreed not to carry on similar business on the adjoining plot of land, which came to his share. The Court upheld it. With reasonable and valid it.

Judicial explanations

The judicial explanations are the exceptions where the interpretation of section 27 is sought and through which exceptions have been laid down. The judicial explanations are sub categorized into:

Trade combinations

In the present day, everyone is working in an organized manner. To avoid any competence in the market and to derive more profit out of it, trade combinations have been one of its ways. There are so many examples of the trade combinations like grain merchants, shoe producers, etc. These are mainly for the public interest. They bring about standardized goods, fixed prices, and eliminate competition.

Trade combinations are considered to be one of the exceptions to section 27 but it should be reasonable with the court’s opinion. The trade combinations thus to agree on same prices is valid, trade combination of the same cast is valid as decided in Vaithelinga v. Saminada

Case laws

Kores mfg company ltd vs Kulok mfg Ltd.

In the following case, the two companies are running a similar business where trade secrets and confidential knowledge may be acquired. Therefore both companies agree that the two companies would not employ each other employ without the prior consent of the company where the employee of any other company for any time during the five years.

However, the court has held this agreement invalid as the court said that it prohibited the appointment of any person to any other place however the person should be for short or in long term.

Hari Bhai vs Sharif Ali

In the following case, four grinning factories are entering into an agreement fixing uniform rates and dividing their earnings between them. However, the court in the following case held that such restriction is valid and reasonable. But the Courts would not allow a restraint to be imposed disguised as trade regulations

Solus or exclusive dealing agreements

The souls or exclusive dealing agreement is another exception to Section 27. The solus agreements are stated as the agreement between the two parties which may refrain the other party to do or abstaining from doing an act from another party. This type of agreement is legally valid and held reasonable in the eyes of the court as well.

Illustration

A is a salt manufacturer. B is a purchaser of Salt from B. Both A & B agreed that B should not purchase the salt from another manufacturer for 5 years. This is solus agreement and this is held legally valid.

However it was an opinion that if there was a surplus in the case, then the party may sell it to another party and if the agreement has been made to refrain from selling the surplus, then the agreement is held to be void as it is the restraint of trade.

Case laws

Shaikh Kalu vs Ram Saram Bhagat

In the following case, the seller of combos agreed that the free combos should be given to RS and their heirs. However, the court found this agreement invalid because the following agreement had been generation to generation which is unreasonable.

Carliles Nephew & Co. v. Ricknauth Buckte mull

In the following case, a manufacturer has been ready to supply 1,36,000 dhotis to the defendant and not to any other person is held to be valid by the court as it is reasonable and not restricted.

Gujarat Bottling Co. Ltd. v. Coca Cola Co

In the following case, the coca-cola co. While giving its franchise to Gujarat bottling co. Ltd to manufacture, bottle, sell, distribute beverages under the trademark have a negative stipulation that the franchise should not in the period of subsistence of agreement manufacture, bottle, sell, deal with any other party. The court, in this case, held that the negative stipulation is valid as it is reasonable because the period is fixed in this manner and it should be ended after termination. Therefore it should be held reasonable.

Esso petroleum ltd vs Harpo garager Ltd.

Esso co had agreed on two contracts where one for 4 and a half years and the other is 21 years. However, the court held that the 21 years agreement is held to be void as it is unreasonable but the 4 and a half years is held to be valid.

Protection of trade secrets

In some cases, the protection of trade secrets and confidential information is necessary to be saved. Therefore in an employment contract, there is a clause where the employer may lawfully prohibit his employee from accepting any position.

Contract of service

The contract of service is another exception under the judicial explanation where there must be an exception to restraint to trade under section 27 of the Indian Contract Act, 1872.

Under this clause, if any employer has asked its employee or refrained its employee from doing an act, then it is found to be reasonable under this clause. But this clause also has been dealt with under different conditions – 1) During the employment and 2) Post-employment or termination of employment.

During the employment

The contract of service during the employment is held to be reasonable by the court because it held that the interest of the party is important and necessary here. It further states that it should be no violation and restraint to trade is valid here.

Illustration

A doctor, X, was agreed with doctor Y, who was a neurosurgeon and physician, to do practicing under him with the stipulation that X should not practice within three years, he should not practice anywhere. This restraint was held valid in this case because it was a reasonable restriction.

Case laws

VN Deshpande vs Arvind Mills Ltd.

In the following case, the defendant left the respondent company and joined another company. He agreed to the respondent that he may not leave the company for three years. The court held that the agreement is valid and reasonable.

Niranjan Shankar Golikar vs. Century Spg & Mfg Co. Ltd.

A company collaborated with a foreign company. It was agreed that all the trade secrets be kept secrets. The defendant has been appointed and agreed that he should not serve for five years anywhere else. This agreement is held to be valid.

After termination of Employment

The contract of service after termination of employment is held to be unreasonable and void. And it supposes that the person is prohibited from an appointment in any other place or restrained from trade under sec 27. Therefore any agreement restraining the person from appointing any other place is held to be void as decided in the case of Brahmaputra Tea co. Vs E. Scarth.

Illustration

In the given example of Doctor, if there is any contract where the doctor Y may restrain X after three years of practicing to practice any other place, then it is held to be void.

Case laws

K.D. Campus (P) Ltd. v. Metis Eduventures (P) Ltd. India

The Delhi High Court in K.D. Campus (P) Ltd. v. Metis Eduventures (P) Ltd. India, has held that once the employer has treated the employment contract of the employee as terminated, then he cannot proceed to enforce any negative covenant against the employee.

Pepsi Foods Ltd. & Ors. vs. Bharat Coca-cola Holdings Pvt. Ltd.

In the following case, it was held that any clause restraining to trade after the termination is held to be violated of Article 19(1)(g). Therefore in the following case, the twelve months clause after the termination is held to be contrary and void.

Conclusion

The restraint of trade is one of the important clauses in the Indian Contract Act, 1872. But like in every condition there are always some exceptions. The exceptions, in this case, is both statutory and judicial which are of utmost importance to know about the nature of the restraint and its importance in deciding the cases in case of restraint of trade.

References

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