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Legal developments in equestrian law

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This article is written by Anushka Singhal, a student of Symbiosis Law School, Noida. In this article, she tries to throw some light on equestrian law and developments therein across the globe. 

Introduction

Equestrian or equine law is the law regarding horses and the activities related to them. Horse racing is a very popular sport throughout the world. To regulate horse racing, different countries have their own Equestrian Laws. In India, we have made betting illegal except for the betting in horse races. Horse racing is allowed as it is considered a ‘game of skill’. Equestrian law covers various factors like the safety of the riders, doping in equestrian sports, the legality of horse races, etc. 

Equine Law in India

In India, wagering agreements are illegal. Section 30 of the Indian Contract Act,1872 says that the agreements by wager are void. This section lays down a proviso stating that agreements entered into for the purpose of horse racing are valid. Agreements entered into for horse racing were also considered as agreements by way of wager till 1996. In 1996, the Hon’ble Supreme Court gave its landmark decision in Dr KR Lakshmanan v. State of Tamil Nadu and Anr. (1996). In this case, the Tamil Nadu government brought horse racing under the ambit of gambling laws. The petitioner being a horse club owner challenged this decision of the Tamil Nadu government in the Supreme Court. The Court held that horse riding is a game of skill as it depends on the ability and training of the horse trainer. The Court also went on to explain further and said that horse racing involves skill at various stages. First of all, selecting the perfect breed for the race is a skill in itself.

Then the horse is given extensive training with the help of a skilled trainer. The jockey himself is properly trained and thus horse racing is not a game of chance and should be out of the purview of the Madras Police Act,1888 that banned gambling. Horse racing may include certain instances of chance i.e. when the horse becomes unruly, but in totality, horse racing is a skill-based game only. In India, there are no separate laws regarding horses and all the animal-related laws apply to them. When it comes to horse racing, it is permissible in India as held by the Apex Court in the case of Dr KR Lakshmanan.

Equine laws in the US

Equestrian Liability Act

The United States of America has a well-defined equestrian law. The horse racing industry of America is very well developed and regulated. In the US, several states have their Equine Liability Acts which regulate the equestrian activities in that particular state. 

The statutory language of the equine activity law seeks to protect persons or organizations, engaging in an equine activity, from liability for an injury resulting from a horse-related activity. But this protection is not absolute and extends only to equestrian-related activities. Therefore whenever a horse-related mishap occurs in this state the first question that arises is whether it was an equestrian activity? Horse racing is a very popular concept in the US and thus the protection of the horse persons is the prerogative of the club owners. It is interesting to note that the state symbol of New Jersey is a horse. The courts usually use the strict interpretation of the statutes. There was a landmark case in New Jersey that made the courts consider the validity and usefulness of the equestrian protection laws. It was the case of Hubner v. Spring Valley Equestrian Center(2010) after which the New Jersey Law Review committee started looking into the ambiguity of this particular law. The commission proposed certain changes in the act. It said that the 1) definitions, 2) assumption of inherent risk, 3) operators’ duties, and 4) the posting of warning signs should be changed. 

Some recent case laws and developments

There have been a plethora of cases in the past two or three years that point out that equine law has become popular and also lays down the recent developments. Cases in 2019 and 2020 created a body of law related to injuries and the scope of risks inherent in equine activities.

Franciosa v. Hidden Pond Farm, Inc.

In this case, a thirteen-year-old girl was riding a horse wherein she got injured. She had been undertaking training since she was of the age of eight years. When she got injured, she was on a free ride i.e. she was not under the supervision of the instructor. The instructor was not liable for leaving her alone and the Court said that as the girl engaged herself in an ‘inherently risky activity,’ the trainer is not liable. 

McCandless v. Ramsey

In this case, McCandless was standing on a track inside the riding arena when she was injured by Ramsey’s ten-year-old daughter who was riding a horse. McCandless was not able to get damages as the Court held that an equine’s behaviour is unpredictable and Ramsey’s daughter was not at fault when the equine went out of control. The Court also rejected the claim of McCandless where she said that Ramsey was riding in the wrong area. The Court said that it was McCandless who was standing in an area where she knew equine related activities are most likely to happen. 

Some important definitions 

  1. Equine animal means “a horse, pony, mule or donkey.”
  2. Equine animal activity means “any activity that involves the use of an equine animal and shall include selling equipment and tack; transportation, including the loading and off-loading for travel to or from a horse show or trail system; inspecting, or evaluating an equine animal belonging to another person whether or not the person has received compensation; placing or replacing shoes on an equine animal; and veterinary treatment on an equine animal.”
  3. In equestrian activities, a participant means any person who participates in an equestrian activity. He can either be a professional or an amateur. Also, anyone accompanying the participant or coming to the equestrian property is also considered a participant. It is not necessary that that person is necessarily an invitee or has come thereafter buying the tickets i.e by paying consideration. 

Equestrian immunity statutes

The equestrian immunity statutes show a variety of options for defining persons that may qualify for immunity from liability. If a person falls under the given statutes then he is not liable for an injury caused due to an equestrian activity. If a general standard of care is not adopted then the person is liable but if a person has adopted reasonable care and also falls under the immunity, then he is not liable. In the case of Muller v. English (1996) wherein a horse kicked the plaintiff and the plaintiff filed a case against the defendant, the defendant was not held liable. The argument by the plaintiff that if the horse was violent, it should have been marked with a red ribbon was not accepted. The Court held that it was a natural animal behaviour. The immunity provided under the immunity statute can be broken down if the conduct of the person claiming immunity is full of blemishes. In Shandy v. Sombrero Ranches, Inc.,(1974) the plaintiff was learning to ride a horse; the agent appointed therein failed to assist the plaintiff when she lost control of the horse. In this case, the agent was not able to claim immunity as he was negligent. 

Sports responsibility statutes

These statutes provide that a participant in an equestrian activity is liable for the consequences. Operators are only liable when they are negligent or when their conduct is not appropriate. There are several duties for a service provider and if he fulfils those duties he is not liable. Sports participants too have certain duties and they also need to abide by them. 

Equestrian helmet laws

Equestrian activities are considered to be more dangerous than skiing, rugby, automobile racing, etc. Thus, to reduce the risk involved in equestrian activities, several US states have formulated their own equestrian helmet laws. The states of New York and Florida are leading this initiative. Currently, there are four equine helmet laws in the US in New York, Florida, Norco and California. The laws in the four cities differ as each state has its own helmet-wearing criteria. 

New York

It was the first state to formulate equine safety laws. Here, a helmet is compulsory for a rider below the age of eighteen years. Failure of a rider under eighteen years of age to wear a helmet will result in a civil fine of two hundred and fifty dollars or less. Here the non-compliance with the helmet laws will not bar a person from claiming damages from an injury.

Florida

In Florida, wearing a helmet is necessary for a person under the age of 16 years when he/she is riding an equine animal in a public place. However, it is not compulsory to wear a helmet in a private area. The helmet should pass the standards set by the American Society of Testing and Materials for protective headgear.

Bainbridge Island, Washington

In Bainbridge, every person is required to wear a helmet. It is compulsory to wear a helmet in a public place. Failure to wear a helmet may result in a civil fine not to exceed ten dollars, however, the first infraction only results in a warning. An exception can be granted to those persons who submit a doctor’s note to the authorities stating that the use of a helmet may cause health problems to the person wearing a helmet. 

Norco, California

Here it is compulsory for certain riders under the age of 18 years to wear a helmet. It is compulsory to wear a helmet when riding in a public area. Further, no person may knowingly rent or lease an equine to a rider under the age of eighteen without verifying that the rider has an appropriate helmet or providing such a helmet for the rider to wear.

Effect of equestrian helmet laws on equestrian liability

New York is the only state which lays down that the equestrian liability laws affect the equestrian helmet laws. Otherwise, the other three states leave everything to the judicial interpretation. When an equestrian professional fails to comply with the regulations, he is held liable. In the case of Snyder v. Kramer (1983), the equine provider failed to provide an appropriate saddle for riding the horse. He was held liable as he did not meet the safety standard. On the contrary, if a rider himself fails to comply with the safety standards then his claim is definitely affected. Even when a provider has done wrong, the claim of a rider not complying with the helmet laws would be reduced as he had contributed to the negligence. 

Horse Racing Integrity and Safety Act

This is the latest development in the field of equestrian law in the United States of America. This Act was passed in the senate in the year 2020. This Act lays down the provisions for the establishment of a uniform national medication program, encouragement of fair competition, modernization of regulations across state lines and prioritization of the safety and welfare of the people and equine athletes. The Act lays down the provisions for the establishment of a ‘Horseracing Integrity and Safety Authority.’ Doping is also one of the major problems in equestrian law and thus this Act lays down the provisions for the establishment of an ‘Anti-Doping and Medication Control Standing Committee’. The jockey club of the USA supported this Act as they felt that the safety of the horse and the rider is of paramount importance. The United States Trotting Association opposed the Act as it felt that the Act would create an unnecessary layer of federal oversight, additional regulations, costs, fees, and resultant job losses. Now it will be interesting to see the implications of this Act on the equine industry. 

Developments in the concept of vicarious liability

Recently some decisions of the American Supreme Court led to a new development in the field of equestrian law. The recent developments by the Court’s decision provide a respite to the employers. Two cases provided us with a new insight into the concept of vicarious liability in the field of equestrian law. These decisions are particularly important for the equestrian industry. These decisions provide respite to an equestrian employer in those cases wherein he has employed an independent contractor. In such cases, he would not be held liable. Similarly, in the cases where the employee does something which is out of the scope of employment, the employer would not be liable. Let us discuss the two case laws that led to a certain development in vicarious liability and in turn affected the equestrian law.

Barclays Bank plc v. Various Claimants

In this case, about 126 claimants brought group litigation against the defendant bank. They alleged that there was sexual misconduct by Dr Bates during the medical examination for the selection process for the bank. The complainants, in this case, were the existing employees of the bank while some were about to become the employees of the bank in the future. The High Court held the bank vicariously liable for the act of Dr Bates even though he was not an employee but an independent contractor. The case went to the Supreme Court. It overturned the decision of the High Court and held that the bank was not vicariously liable. The Court observed that as Dr Bates was permitted to carry out his own independent examination, he was not an employee but an independent contractor. The Court also observed that he was not ‘akin to an employee’ and thus there was no scope for the bank to be vicariously liable. The equestrian employers will take a sigh of relief now as this case law will help them escape from being vicariously liable for such employers.

WM Morrison Supermarkets plc v. Various Claimants

This case also dealt with the aspect of vicarious liability. Herein an employee of Morrisons unlawfully disseminated the data of other employees to frame someone. Morrisons was held vicariously liable for the actions of the employee, Mr Skeleton. The Supreme Court held that though Mr Skeleton was an employee of Morrissons, his act was out of the purview of his scope of employment. The Court declared Morrisson not liable. This case would also assist the employers wherein their employees have gone out of their scope of employment and such employers would not be vicariously liable. For example, If an employee of an equestrian service provider, who was appointed for training, feeds the horse something and as a result, the horse caused injury to the rider, the service provider would not be held liable as feeding the horse was out of the scope of the trainer’s employment.

Equine laws in Australia 

The equine laws in Australia are not as wide as they are in the US. The Civil Law (Wrongs) Act, 2002 lays down the provisions for equine liability. It provides provisions for the liability of a person. This law regarding equine activities is laid down in Schedule 3 of the Civil (Law) Wrongs Act 2002.

Schedule 3- Equine activities

Definitions

  1. Equine- It means a horse, mule, donkey or, hinny.
  2. Equine activity- They include an equine show, parade, competition, a training activity, a boarding activity, involves riding others equine for the purpose of reward or for examining, an activity sponsored by an equine sponsor like hunting or pacing horseshoes on equine. Also polo, showjumping, steeplechasing, dressing and performance riding.
  3. Inherent risks- They include the propensity and unpredictability of the equine. It also includes surface damages and collisions. Also, a participant’s negligent behaviour affecting other participants is included here. 

Limitation on liability for death or injury of a participant

It lays down that an equine activity sponsor or organizer is not liable for an injury caused to an equestrian rider. But that person is liable if-

  1. The injury is caused by faulty equipment or track
  2. The defendant failed to assess the participant’s ability
  3. The land or facilities provided were dangerous
  4. The defendant showed reckless behaviour
  5. The defendant intentionally caused injury to the participant

Along with it under this schedule, there is also a necessity of a warning notice. A clear warning notice should be displayed at the equine activity area and it is the duty of the equine activity provider or the sponsor to abide by these rules.

Possible compulsory Hendra vaccination of horses

The Australian Equestrian Federation has recently allowed the FET veterinary committee to discuss the proposal for compulsory horse vaccination in the Hendra affected areas of Australia. The horses in Australia have been widely affected by this virus. The cases started roaring up in 2014 and since then there has been a demand for a law on compulsory vaccination. Till now, there has been no such legislation and the government has given the discretionary powers to the event organisers to decide whether they would admit unvaccinated horses in their events. The event organisers, as well as participants, are advised to follow the Biosecurity Act, 2014 but still, there is no compulsion for vaccination. The government can, no doubt, make it compulsory in the future. 

Equine laws in the UK

The United Kingdom has the Equine Identification Regulations Act. Scotland, Wales, Northern Ireland and England all have their separate laws. This regulation applies to a wild or semi-wild equine that is of any age or is being transported from one place to another for a purpose other than slaughter. The equine laws are not so defined in the UK as they are denied in America. Other laws of negligence, the Sale of Goods Act, animal laws, etc. apply to equine animals and equine racing.

Conclusion

Equine law is not so popular throughout the world. Countries promote equine activities and there are elite horsing clubs. But very few countries have equine laws. Equine lawyers and firms can assist in selling and buying equines. In India, particularly, there is a dire need for equine laws, seeing the growing equine industry. One needs to understand that if there are activities then there should be laws too otherwise it will lead to an absurd situation. 

References


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Interpretation of Section 37 of the Narcotic Drugs and Psychotropic Substances Act, 1985

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This article is written by Anushka Singhal, of Symbiosis Law School, Noida. In this article, she discusses Section 37 of the NDPS Act. 

Introduction

Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS Act) governs the provisions regarding drugs in the country. This Act has 83 sections and six chapters. It lays down provisions regarding punishment and provides rules and regulations for controlling the operation of drugs and psychotropic substances. Recently, Section 37 of this Act came into the limelight when the Hon’ble Supreme Court said that a liberal approach cannot be adopted when granting bail under the NDPS Act. Let us delve more into this Section and interpret it. 

Section 37 of NDPS Act

Section 37 of the NDPS Act lays down the provisions for offences under this act. Offences under this Act are cognizable and non-bailable. Under this Act, the following provisions are laid down-

  1. Offences under this Act are cognizable, i.e., an offence for which the police can arrest without any warrant. 
  2. Offences under this Act are non-bailable unless the public prosecutor has been allowed to oppose the application and the court is satisfied that the accused shall be released
  3. The provisions regarding bail in this particular Section are in addition to the provisions laid down under the Code of Criminal Procedure (CrPC),1973.

Interpretation by the Courts

State of Kerala and Ors. v. Rajesh and Ors. (2020)

In this case, the circle inspector of excise arrested an accused who was carrying hashish oil. The accused requested for bail. The trial Court rejected the bail request and held that under Section 37 of the NDPS Act, he cannot be granted bail as there was prima facie evidence of him being guilty. The High Court reversed the order and even without noticing Section 37 of the NDPS Act, granted him bail. The Supreme court reversed the decision and held that the single-judge bench of the High Court was wrong. The Court held that the term ‘reasonable grounds’ mean ‘something more than prima facie grounds.’ It said that the High Court had taken a very liberal approach and overlooked Section 37 of the NDPS Act. 

Union of India v. Thamisharasi and Ors., (1995) 

In this case, the Court held that Section 167 of Code of Criminal Procedure, 1973 (CrPC) and Section 37 of the NDPS Act are not in conflict with each other. It held that the limitations under Section 37 of the NDPS Act are not attracted when the grant of bail is automatic under Section 167 of CrPc, i.e., when the complaint is not filed within the maximum period under which the complaint has to be generally filed. The case also brought out a distinction between Section 143 of the CrPC and Section 37 of the NDPS Act. It laid down that the latter was a more stringent provision. Under Section 37, the onus is on the accused to prove that he is not guilty while under the CrPC, the burden is on the prosecutor to prove that the accused is indeed guilty and thus he should not be granted bail. 

Satpal Singh v. State of Punjab, (2018)

In this case, the Hon’ble Supreme Court held that in the cases related to drugs, an order should be passed after taking Section 37 of the NDPS Act into consideration. The relevant provisions under CrPC cannot be applied by ignoring Section 37. In this case, the Hon’ble High Court had granted bail keeping in mind Section 438 and 439 of CrPC. The Court reminded the police and the prosecutor that they need to show due diligence and vigilance while dealing with the cases under the NDPS Act.

The State (GNCT) of Delhi v. Lokesh Chadha,(2021)

In this case, certain parcels from an office were seized as they contained certain prohibited drugs. The respondent was arrested. The trial Court convicted the defendant but the High Court acquitted him. The matter went to the Supreme Court. It held that there should be strong compelling reasons for the grant of bail and since there was no such reason, in this case, the Supreme Court overturned the decision of the High Court. 

Offences for which Section 37 is invoked

Chapter V of the NDPS Act lays down the provision for offences and penalties. All offences committed under this act would be non-cognizable offences under Section 37 of the same Act. Following are the offences under this Act-

  1. Section 25 of the Act provides punishments for the use, purchase, sale, transportation, import or export of warehoused poppy (a drug). The punishments under this Act are divided into three categories, depending upon the quantity of the poppy straw.
  2. Section 16 of the Act lays down the penal purposes for the use, purchase, sale, transportation, imports or exports of coca leaves. 
  3. Section 17 lays down the provisions for punishment for the offences related to prepared opium while Section 18 provides penal provisions for opium and opium poppy. Section 19 of the Act also lays down the provisions for offences related to opium. It provides that if any authorised cultivator illegally deals with opium, he shall be punished for a rigorous punishment of not less than 10 years and not more than 20 years.
  4. Section 20 sought to punish those who commit offences related to cannabis. Offenders under this Act are divided into three categories based on the quantity they deal with.
  5. Section 21 of the Act lays down penal provisions for those dealing in manufactured drugs. Those dealing in manufactured drugs or any other substance containing the same would be punished.
  6. Section 22 and Section 23 deal with offences related to narcotic and psychotropic substances. While Section 22 punishes for other offences related to psychotropic substances, Section 23 specifically lays down punishment for the import and export of such drugs.
  7. The Act also resolves to punish those who consume drugs. Section 27 of the Act lays down provisions for punishment. If the drug consumed is in the form of cocaine, morphine, diacetyl-morphine or any other narcotic or psychotropic substance, the punishment prescribed is imprisonment for a term of 1 year, or a fine of rupees 2000, or both. Where the substance consumed is other than these substances, then the punishment prescribed is 6 months of imprisonment or with a fine which may extend up to ten thousand rupees or both. Moreover, one who finances or harbours any person involved in drugs would be punished under Section 27-A

Similarly, there are punishments for an attempt, abetment, criminal conspiracy and preparation to commit an offence under the NDPS Act. It has been held by the courts that Section 37 of the Act is attracted only when the offence is punishable with a punishment of five years or with a punishment that may extend up to five years. In A.V. Dharm Singh v. State of  Karnataka, (1992) the Hon’ble Karnataka High Court held that the legislative intent was to invoke Section 37 for offences with a punishment of five years and thus the same should be followed. There is an ambiguity in the provisions and the courts have had to deal with the question of whether the term five years punishment means a minimum of five years of punishment or punishment that may extend up to five years. In Peter v. State of Kerala, (1993) the Kerala High Court held that it is not possible to read the term imprisonment of five years mentioned under Section 37 (b) as a minimum punishment of five years. 

new legal draft

Principles for grant of bail under Section 37 

As per section 37 of the NDPS ACT, 1985 bail should not be granted to an accused unless the accused is able to satisfy:

  1. Reasonable ground for believing that the accused is not guilty of such an offence. 
  2. The additional burden on the accused is that the accused would not commit an offence or is not likely to commit an offence if granted bail.

The Hon’ble Supreme Court in the case of Union of India v. Shiva Shankar Kesari,(2007) has tried to lay down an approach that needs to be adopted while granting bail under Section 37 of the NDPS Act. The Court should not look over for the records that say that the accused is not guilty, rather it should look for the reasonable grounds that point out that the accused is not guilty and then take their decision of granting the bail. Thus, a Court has to look over the provisions and then decide the feasibility of granting bail to the accused. 

The conflict between Section 37 of the NDPS Act and other Indian Laws

While bail is the rule under other Indian Laws, under the NDPS Act, bail is an exception. Article 19 of the Indian Constitution gives us the right to freedom and liberty while Section 37 (2) of the NDPS Act restricts the same. Under this Section, the accused cannot be released on bail unless and until some strict conditions are fulfilled. Bail is an exception under this Section of the NDPS Act while under the other sections of the Act, bail is a rule. This rule of ‘bail as an exception’ makes this Section go against the spirit of Article 19. The Hon’ble Punjab and Haryana Court, in the case of Ankush Kumar v. the State of Punjab, (2018) raised the question that this Section seemed ultra vires to the Constitution. The Court did not deal with this question as it had no authority to do so. Thus, the Court held that the provisions under Section 37 of the NDPS Act have to be complied with before granting bail to an accused under Section 239 of the CrPC. The constitutional validity of this Section was questioned but still, there is no consensus on the same.

Other laws where bail is an exception

Apart from Section 37 of the NDPS Act, there are a plethora of other offences which are cognizable and non-bailable. Following are some of the laws under which bail is an exception-

National Security Act, 1980

Under this Act, a person can be detained for up to 12 months under the orders of the Central or state government for securing the security of the nation. Unlike other offences, where one has the right to bail under Section 50 of the CrPC, a conviction under this Act takes away such a right from a person.

Unlawful Activities (Prevention) Act, 1967

Under Section 43 D of the Act, an accused person does not have the right to bail if the court feels that there are reasonable grounds for his detention. Also, this Act lays down that if a non-Indian has been convicted under this Act, no matter what, he will not be granted bail. 

Non-bailable offences under IPC

There are certain non-bailable offences under the Indian Penal Code,1860. For example, waging a war against the country (Section 121), sedition (124-A), adulteration of drugs (Section 274) etc.

Conclusion

Section 37 of the NDPS Act works as a deterrent when it comes to offences related to drugs. It is necessary because it leads to the creation of fear among people that if they commit a crime under this Act, they will not be granted bail. On the other hand, this provision sometimes becomes draconian as innocent people get jailed. Thus, the judiciary needs to adopt a cautionary principle to ensure justice. 

References


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Performance guarantee : protecting interests of the employer

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This article has been written by Mansi Gehrana, pursuing a Diploma in Law Firm Practice: Research, Drafting, Briefing and Client Management from LawSikho. It has been edited by Smriti Katiyar (Associate, LawSikho).

Introduction

A performance guarantee protects the interests of the employer. Some of the essential clauses in a performance guarantee contract are concerned with the guarantee amount, obligation of the guarantor, dispute resolution & governing laws, etc. These clauses are not exhaustive but only illustrative to provide a roadmap to achieve as envisaged by the parties to a performance guarantee contract.

The guarantee is for performing the obligations of the contractor/supplier as stipulated in the contract by the client/beneficiary. While entering into a contract, the client asks explicitly for the bank guarantee and the bank gives an undertaking on behalf of the contractor to re-pay the client in case of default or in case of breach of the terms and conditions of the contract or the non-performance of the contractor’s obligations. 

These are the conditions precedent used by the client for entering into the contract. In the case of Edward Owen Engineering Ltd. v Barclay’s Bank International Ltd., the performance bond or the letter of credit stands on a similar footing. A bank that gives a performance guarantee must honour that guarantee according to its terms. It is not concerned in the least with supplier and customer relations nor whether the supplier has performed his obligations. The bank must pay according to its guarantees, on-demand if so stipulated, without proof or conditions.

Parties to performance guarantee

There are three parties to a performance guarantee:

Contractor/supplier 

The first party to the contract is the contractor/supplier who is obliged to perform his (duties) obligations according to the terms and conditions of the agreement.

Client 

The client is the other party to the contract for whom the obligation is being performed. Upon completion of which he is required to pay the stipulated amount as in the contract.

Guarantor

In a performance guarantee, the guarantor is the bank. The bank undertakes the payment to the client on behalf of the contractor/supplier in case of breach of the terms and conditions of the contract. 

Types of performance guarantee

 There are basically two commonly used types of performance guarantee:

Advance payment guarantee

There is a very prevalent practice of taking credits before the delivery of goods or performance of the contract’s obligations, the bank backs the payment of money. It assures in case of violation of any terms and conditions of the contract to repay back the sum by the contractor.

Tender guarantee

This guarantee applies to both domestic as well as international tender. When the contractor is obliged to perform his part of the obligations of the contract; it is also known as the “Bid Bond” guarantee.   

Essential clauses in a performance guarantee agreement

Unconditional and irrevocable liability 

A bank guarantee is an independent contract between the bank and the client/ beneficiary irrespective of any contract between the contractor and the client. In the case of  Ansal Engineering Projects Ltd. v Tehri Hydro Development Corporation Ltd. and another, In a bank guarantee, the bank unconditionally and irrevocably promised to pay, on-demand, the amount of liability undertaken without any demur or dispute. 

Obligation of the guarantor

The guarantor is liable unconditionally and irrevocably for any breach of terms and conditions of the contractor/supplier.  In State of Maharashtra v Dr M.N Kaul and another, it was held that a guarantor could not be held liable beyond the terms of his agreement. 

Specified amount and period 

The amount for which the bank undertakes to pay should be specified in clear and concise terms, it should not be vague. And the period for which the bank is liable on behalf of the contractor/seller should be specified, though the guarantee is always continuing. Still, it can never be for an unlimited duration. 

Stamp duty

For giving the legal recognition to the bank guarantee and to enforce it by the client at any time without being questioned, it is necessary to get the bond made on a non-judicial stamp paper of INR 100 or the according to the laws of State whichever is higher.

Dispute resolution and governing law

In case of any dispute between the parties, an arbitration clause should be provided in the bond. The panel of arbitrators, venue, and seat of the arbitration, and the costs of arbitration have to be there and the governing laws i.e., the Indian laws would be applicable in case of any disputes between the parties. It is equally settled in law that in terms of the bank guarantee the beneficiary is entitled to invoke the bank guarantee and seek encashment of the amount specified in the bank guarantee. It does not depend upon the result of the decision in the dispute between the parties, in case of the breach. The underlying object is that an irrevocable commitment either in the form of a bank guarantee, or letters of credit solemnly given by the bank must be honoured. 

Attestation

An attestation of the bond by at least two witnesses is necessary for authentication of the bond. 

Conclusion 

The performance guarantee bond is signed to secure the credit of the client. The bank undertakes to pay for the breach of the contractor’s obligations to keep everything under the sun. By signing, the performance guarantee bond client can easily enforce the terms against the contractor/supplier and the bank in case of any disputes. It will help in checking the activities performed by the contractor/supplier and the performance of the same. It will parallelly secure the interest of the client. 

References 

  1. https://www.lawinsider.com/dictionary/performance-guarantee
  2. https://www.investopedia.com/terms/p/performancebond.asp 
  3. https://indiankanoon.org/search/?formInput=performance%20guarantee%20in%20contract&pagenum=1
  4. https://uk.practicallaw.thomsonreuters.com/3-107-6993?transitionType=Default&contextData=(sc.Default)&firstPage=true 

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Legislation for giving effect to international agreements – Article 253 of the Constitution

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This article is written by Oishiki Bansal, a student of Symbiosis law school Noida. The article explains the treaty-making power of the Indian government while analyzing Article 253 of the Constitution and also discusses similar provisions in other countries .

Introduction

The world is converting into a global village at a very fast pace. With the growing relations with foreign nations and the growing impact of the various world forums, summits, and organizations, there is a growing need to maintain foreign relations. As new treaties and conventions are coming into view it is important to understand how the Indian legislations for the implementation of international treaties work. 

The scope of this article is to explain Article 253 of the Constitution, its relevance in the international relations of our country with other nations and organizations. The effect of this article on implementing the international treaties along with the domestic laws. The article also discusses how international treaties come into effect in other countries.

Analyzing Article 253 of the Constitution 

Article 253 provides for the following – 

  1. The Article presents a notwithstanding clause stating that none of the provisions under Chapter 11 of the Constitution will affect Article 253.
  2. The Parliament has the power to make any law for the Union of India or particular state or any union territory for – 
  3. Implementing any international treaty, agreement, or convention or for implementing any decision made at any international forum, conference, organization, or association. 

Therefore, Article 253 read with Article 246 clause (3) provides that the union government can make laws on the matters enumerated in either of the lists that is union list concurrent list and state list. 

The landmark case of Kesavananda Bharati vs the State of Kerala (1970) that outlined the basic structure of the Constitution also discusses the power of the Union of India as given under Article 253. Chief Justice Sikri opined that if any municipal law is vague then the courts must take the support of the parent International authority on that particular municipal Law. 

Important articles and schedules 

Here are some important Articles and schedules that you need to know before you read the Article-

  • Article 1 of the Constitution of India, 1949 – defines the territory of India as states, union territories listed under the 1st schedule, and other territories occupied or acquired by India. 
  • Article 3 of the Constitution of India,1949 – provides the parliament with the power to alter the boundaries of states or union territories by either of the following methods – merging them, separating them, diminishing the area, increasing the area, or by altering the name. 
  • Article 14 of the Constitution of India,1949 – provides for quality before law. 
  • Article 15 of the Constitution of India, 1949 – states that the state will not discriminate against citizens on the basis of sex, caste, religion, race, or place of birth.
  • Article 19(1)(g) of the Constitution of India,1949 – states the right to profess any trade, occupation, business, and profession.
  • Article 51(c) of the Constitution of India 1949 – provides for the state to encourage respect towards International laws and treaties and also advocate settlement of international disputes through arbitration.
  • Article 73 of the Constitution of India,1949 – lays down the extent of executive power of the union – to the matters in which parliament has the power to make laws and to exercise powers or authority that are exercisable by the government of India given by any treaty or agreement. 
  • Article 226 of the Constitution of India, 1949 – details the treaty-making power of the high court with respect to issuing of certain writs.
  • Article 246 of the Constitution of India,1949 – defines the power of the legislature in forming laws. The Article is divided into three clauses – 
  1. The government has the exclusive power to make laws on the subject stated in list one in the seventh Schedule
  2. The state legislature has the power to make laws on the subjects enumerated in list three of the seventh schedule. (concurrent list) 
  3. The government has the power to make laws regarding the territories not included in the state notwithstanding that matter is a subject enumerated in the state list. 
  • List 1 of the seventh Schedule – also known as the list. It states down the matter on which only the government of India has the power to make laws. 
  1. Entry 13 – Participation in international conferences, associations, and other bodies and implementing of decisions made thereat.
  2. Entry 14 – entering into an agreement with foreign countries and associations and implementing such treaties and agreements.
  3. Entry 15 – war and peace.
  4. Entry 16 – foreign jurisdiction. 
  • 1st Schedule of the Constitution of India – states and specifies all the states and union territories of the union of India 

Treaty making power of the government

In India, international law is implemented either as per the role of each of the government’s organs or from the perspective of the applicability of the international law in all areas of law. 

Article 253 of the Constitution read with Entry 13 and 14 of list 1 of the Seventh Schedule gives exclusive power to the Parliament to form any laws relating to any conventional creating agreement entered with a foreign country or countries or any decision made for any treaty signed with the international associations or organizations.

Concerning Article 253 two views exist on the implementation of international treaties –

  1. The traditional view of Basu says that note international treaty can be implemented to the municipal court until and unless it has been ratified by the legislation according to the said Article. 
  2. The present view is of Alexandrowicz which says that not all treaties are to be implemented by the legislation, only the treaty that deals with private rights needs to be implemented by the legislation.

Article 246 read with entry 14 of the union list in the Seventh Schedule provides that the Parliament can make any law regarding The treaty-making power but it has not been done so far and India has adopted the British Parliament tradition to implement the treaties. The British tradition gives the executive a privilege to decide whether the international treaty is to be ratified or not. Therefore, when Articles 73, 246, 253, and Entry 14 of the union list are read together results that the executive power of the Government of India is co-extensive with that of legislation when it comes to treaty-making and implementing power. 

The power of the Parliament to enter into a treaty under Article 235 was further discussed in the case of P.B Samant v Union of India (1994), Where the petitioners reached the Bombay High Court issuing a writ of mandamus restricting the union government from entering into the Dunkel proposal without discussing it with the state legislature. They contended that the proposal involved The subject matters mentioned in the state lists, for the executive powers of the union government cannot be exercised without considering the state legislation. The Union of India argued that with effect to Article 253 the Parliament alone has the power to make laws on international treaties notwithstanding with Article 246(3) relating to any subject mentioned in all the lists.

The Court held that the Issue of the government entering into an international treaty is a policy decision and it does not come under the court’s jurisdiction as provided under Article 226 of the Constitution of India

Hence, in the process of treaty-making parliamentary approval is required only when the treaty affects the rights of citizens and a new law is to be made or change is required in the existing domestic law. The state government has no power in the treaty-making process. 

Treaties that require legislation to give effect 

Broad categories of the treaties that will require the legislation to make new laws are –

  • Treaties that involve cession or acceptance of land. 
  • Treaties that require any change, be it alteration, addition, or removal, in any existing law.
  • If the treaty requires any legislation or a specific allocation of financial resources to enable its implementation within the state.
  • Treaties that affect private rights. 

Other Constitutions with a similar provision

Australia

Australia is a common law country and a Federalist just like India. Section 61 of the Australian Constitution Act 1900 provides that the treaty-making power is exclusively the power of the executive. In 1996, the foreign minister of Australia gave a new treaty-making process which outlined that any multilateral or bilateral International Treaty signed by the Australian government has to be tabled before both the houses for 16 sitting days before its ratification for the parliamentary discussion as to the domestic laws of the country. Also, it was stated that before entering into any treaties the government will discuss the implications of the treaties with the state legislatures. 

The case of Minister of immigration and ethnic affairs v TEOH (1995) laid down provisions relating to the treaty-making process – 

  1. No Treaty shall be considered as a domestic law until and unless it is ratified by both houses. 
  2. Any treaty, convention, or agreement signed by the Federal government will become a part of the domain domestic law and administrative decisions can be challenged based on the ratified treaties, conventions, or agreements.

France 

Article 52 and 55 of the French Constitution deals with the treaty-making process in France. According to Article 52 of the French Constitution, the power to enter and ratify international treaties is vested with the president. The Parliament’s role is only limited to rejecting or accepting the rectified treaty. It includes peace treaties, treaties relating to human rights and trade, and treaties of accepting or ceding Territories. Article 55 of the French Constitution provides that after a treaty is ratified by the president, overrides any conflicting domestic law that is already existing and such treaties can be enforced without passing any legislation.

America 

United States of America by the virtue of Article II Section 2 of the Constitution of America the President and the states both have different powers in the treaty-making process of the President negotiating and starting the process of treaty-making. After assigning the treaty it is presented before the senate for advice, consultation, and consent. There have been instances, such as the Treaty of Versailles after WW1 and The comprehensive Test Ban Treaty on nuclear weapons, where the US Senate has rejected treaties signed by the President. Therefore, the practice of consulting the important members of the senate before signing or negotiating a treaty has been developed so that it gets easier to approve the treaties later by the Senate.

Article VI of Section 2 of the American Constitution provides that the ratified treaties are the supreme law of the land and they will override any federal law, domestic law, or any constitutional provision in case of any dispute.

  • Argentina and Mexico follow the same pattern of treaty-making process.

Switzerland

The executive authority to negotiate and sign a treaty in Switzerland has been given to the Federal Council. This Council consists of seven members (elected through a joint meeting of both houses of the Parliament) headed by the President and the federal chancellor. Once a Treaty is signed it is ratified in four different ways – 

  1. The Federal Council, in some cases, is authorized by the Parliament not only to sign the treaty but also to bring it into force.
  2. Parliament needs to authorize some treaties before they come into effect.
  3. The treaties which are effective for or an indefinite period, Are subjected to an optional referendum as per Article 141 of Switzerland’s Constitution, 1999.
  4. Treaties that provide adherence to Supranational Organisations and organizations for collective security are subjected to Compulsory referendum as per Article 140 of Switzerland’s Constitution, 1999. 

Article 141a of Switzerland’s Constitution provides for the implementation of international treaties – 

  1. If subjected to the mandatory referendum – the federal assembly may provide amendments to the Constitution for the implementation of the ratified treaty.
  2.  If subjected to an optional referendum – the federal assembly may provide amendments to the law that provides for the implementation of the ratified treaty.

Canada 

Canadian Constitution Act, 1982 does not provide any specific provision related to the executive powers of 20 and making process however in this case of Attorney General For Canada Vs. Attorney General For Ontario (1894), The Privy Council held that the Federal Government has the exclusive powers to enter into international treaties on behalf of Canada. The Canadian Constitution also provides that only the provinces can make legislation to implement a treaty therefore the provinces are taken into a thorough discussion before entering into any treaty. The government seeks the approval of Parliament before ratifying any International Treaty although such provision is not mentioned in the Canadian Constitution.

United Kingdom 

In the UK the power of treaty-making has been affirmed by the House of Lords in the case of J. H. Rayner Limited Vs. DEPT. Of Trade And Industry (1990), The Court held that – 

  1. The power to negotiate, construe, observe, conclude, repudiate or breach is with the government.
  2. The parliament has the power to alter the laws.
  3. The courts have to enforce these laws.
  4. The judges have no power to make laws or grant specific performance or award any damages in order to enforce the treaties. 

In case of conflict between the domestic laws and provisions of international treaties or conventions, the domestic laws will prevail.

In the case of Salomon v Commissioner of Customs and Excise (1966), The Court of Appeal held that when the legislations are not clear on certain terms and more than one meaning can be interpreted from such legislation, the courts must assume that the parliament intended to fulfill the obligations are specified under the international agreements treaties or conventions ratified by the country.

OECD Countries 

OECD stands for the Organization for Economic Cooperation and Development. The organization consists of 38 members out of which 24 members follow a similar procedure for a treaty-making process that is the parliament has approved treaties in certain categories of treaties, excluding the self-executory treaties.

International treaties and their effect on domestic laws of India

As discussed above every country has different provisions to the effect of international treaties on their domestic laws. The effect of international treaties on Indian domestic laws has been discussed in various cases.

Jolly Verghese v. Bank of Cochin (1980)

The Supreme Court held that courts do not have the power to enforce the treaties entered by the Union of India and the treaties don’t become a part of the domestic laws in the country. 

Xavier v. Canara Bank Limited (1969)

Furthering the view the Kerala High Court, in this case, held that until and unless the parliament has passed any legislation to enforce International treaties, conventions, or agreements the said treaties cannot be treated as laws and courts do not have the power to enforce them. 

D.K Basu v. State of West Bengal (1996)

The Supreme Court in this case differed from the view of the Kerala High Court. The government of India ratified an International Treaty on Civil and Political Rights, 1966. While ratifying the treaty the government reserved a clause that provided for compensation to people who were wrongfully detained or imprisoned. The Supreme Court was of the viewpoint that this reservation is no longer valid as there have been precedents where the Court has granted compensation to individuals whose fundamental rights were infringed. Thus, this decision showed the affirmation towards the international convention ratified by India and also the readiness of the supreme court to accept changes for the welfare of the society. 

People’s union for civil liberties v. union of India (1997)

The question raised before the Supreme Court was to what extent the covenant and provisions of international treaties and conventions are enforceable by the courts. The Court concluded that all the provisions in the conventions that put into force the fundamental rights can be relied on by the courts and thus, are enforceable. 

Visakha v. state of Rajasthan (1997)

A similar question as to the effect of the provision of international conventions enforceable by the courts was taken into consideration by the Court. The issue was to make the workplace safe for women and protect them against sexual harassment so that Women are not stopped from exercising their fundamental rights. While coming to a decision the Court relied upon Articles 14, 15, 19(1)(g) of the Constitution read with Article 51(c), Article 253, Article 73, and entry 14 of the union list in the Seventh Schedule. Opined that if the provisions of the conventions are not consistent with the fundamental rights as guaranteed under the Constitution should be right read such as to enlarge the meaning of the provisions with that of fundamental rights and promote the basic objective of the rights guaranteed under Constitution. Therefore, the international laws when ratified make a part of the domestic laws until and unless there is no conflict with the provisions of domestic laws. 

Power of the government to cede and accept land

The power of government to cede and accept land is discussed at length in the landmark case of Maganbhai Ishwarbhai Patel Vs. Union Of India (1969), the case came to light when the petitioners challenged the government’s power under Article 235 and voiced concerns over the cession of the Indian territory of Rann of Kutch in Gujarat to Pakistan.

Maganbhai Ishwarbhai Patel v. Union Of India (1969)

Facts of the case 

There was a border dispute between India and Pakistan as to the Great Rann of Kutch, marshy land that lies between the Sindh province (Pakistan) and the mainland of kutch (India). Due to its marshy nature and being underwater for approximately four months a year the boundaries of the land were not defined. Both Pakistan and India approached the arbitration for resolving the dispute. As a result, the arbitration awarded the disputed land to Pakistan. India accepted the award and proceeded with the cession of the territory. While the treaty was being executed some petitioners approached the supreme court claiming that the land awarded to Pakistan is a cession of the union territory of India and any alteration to the boundaries of the union territory of India invites amendment of the first schedule of the Constitution (as discussed above). 

Argument presented by the Government of India

The government argued that the boundaries of the disputed area kept shifting due to the nature of the area. The boundaries of the Union of India were not certain and it did not include the disputed area. Therefore, the amendment to the 1st schedule was not attracted, and by the execution of the treaty, the boundary can be defined.

Supreme Court’s view on this case 

The Supreme Court supported the government by saying that the arbitration award does not obligate the Indian government to cede the Indian territory therefore no constitutional amendment is necessary to cede the Indian territory. Furthermore, it stated that the government of India has accepted the award by the arbitration, And put forward that when a Treaty comes into force it needs to be complied with by all the wings of the government that is the judiciary, the legislature, and the executive, or any of them who possesses the part to make the necessary changes.

The Court while deciding on the issue said that the case deals with international law as well as domestic law. Therefore, it discussed provisions from various other countries like the United States of America, England, and France to support the view that the Indian Constitution does not provide any clear direction towards enforcement of treaties as provided under the Constitution of America and France. 

The Court stated that the present case does not deal with the cession of Indian territory but defining the boundaries between two States. Courts discussed Article 253 which empowers the Parliament to make any law regarding the implementation of a treaty or an agreement. Also referred to the Article 1,3 and 73 and entries 13 and 14 of the list one in the Seventh Schedule to emphasize the powers that the Parliament has to implement International treaties with foreign Nations. 

Therefore the Supreme Court concluded that the power of government to seed the next line through International treaties and agreements is it is an exclusive power of the Parliament and no Constitutional provisions are needed to be amended but it cannot change the boundaries of the Union of India that have been already marketed without amending the first schedule of the Constitution. 

Re Beru Bari Union and Exchange of Enclaves ( 1960)

Facts

In a similar case the question of whether the parliament could cede an Indian territory to a foreign country under Article 3 was discussed. The facts of the case were as follows, during the time of the India-Pakistan partition the area of berubari Union No. 2 fell in west Bengal. However, there was always a dispute between Pakistan and India over the said territory. Therefore, the prime minister of India and Pakistan entered into an agreement to exchange berubari enclaves with Cooch Bihar enclaves that came under the territory of Pakistan. The matter was challenged in the Supreme Court. 

Judgment

The Supreme Court held that Article 3 of the Constitution allows the parliament to adjust the Indian territory internally and it only allows the government to absorb an acquired territory. No authority is given to give up an Indian territory to foreign nations therefore the agreement can take place only after amending Article 368 of the constitution. However, the Court held that since the agreement relating to berubai involves the cession of the internal territory of the country and its implementation would take place through Article 1 of the constitution the government of India can implement such agreement by amending Article 368. Hence, the 9th constitutional amendment was passed to give effect to the India-Pakistan agreement relating to the cession of territory. 

Conclusion

India has always fostered and respected International relations in our Constitution makers while drafting the Constitution put in a lot of effort to be clear about the provisions of international laws and legislation giving effect to International laws. Among many of the Articles, Article 253 of the Constitution of India enables the union of India to make laws for enforcing international treaties, conventions, or agreements while keeping in view the fundamental rights guaranteed to the citizens of India. the power of making International treaties has been clearly defined and separated. The judiciary has also maintained the separation of power given under the Constitution through various precedents; however, wherever necessary the court has tried to interpret these provisions in various ways to ensure that the maximum benefits of the laws and treaties go to the citizens of the country. Although this Article provides the Union of India with exclusive powers the Constitution-makers have kept in mind to keep six and balances at every stage and provide citizens with a medium to address their grievances. To be clear as to what our Constitution says on the enforcement of international treaties or conventions Articles 51,73, 253. 246 and entries 13 and 14 of the list one of the seventh schedules of the Constitution of India have to be read together.

References 

  1. Constitution of India bare act
  2. https://www.Constitutionofindia.net/Constitution_assembly_debates/volume/8/1949-06-13
  3. https://legalaffairs.gov.in/sites/default/files/Treaty-making%20power%20under%20our%20Constitution.pdf
  4. https://www.researchgate.net/publication/272707936_Status_of_Treaty_under_the_Constitution_of_SAARC_Countries_An_Approach_towards_Bangladesh_and_India_Perspective
  5. https://www.researchgate.net/publication/343473713_IMPLEMENTATION_OF_INTERNATIONAL_LAW_IN_INDIAN_LEGAL_SYSTEM
  6. https://indiankanoon.org/doc/1310955/
  7. https://laws-lois.justice.gc.ca/pdf/const_e.pdf
  8. https://www.constituteproject.org/Constitution/Switzerland_2014.pdf?lang=en
  9. https://www.senate.gov/civics/resources/pdf/US_Constitution-Senate_Publication_103-21.pdf
  10. https://www.foundingdocs.gov.au/resources/transcripts/cth1_doc_1900.pdf
  11. https://www.constituteproject.org/Constitution/France_2008.pdf?lang=en
  12. https://www.advocatekhoj.com/library/bareacts/Constitutionofindia/seventhschedule.php?Title=Constitution%20of%20India,%201949&STitle=Seventh%20Schedule

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An analysis on the case of CIT V. Nalwa Investment LTD

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This article has been written by Shwetha Shivaram pursuing the Diploma in General Corporate Practice: Transactions, Governance, and Disputes from LawSikho. The article has been edited by Smriti Katiyar (Associate, LawSikho).

Introduction

M/s Nalwa Investment Ltd (hereinafter referred to as “Assessee”) belonged to Jindal Group of Companies and was one of its promoter companies. The Assessee was holding shares of Jindal Ferro Alloy Ltd (JFAL) which subsequently got amalgamated with Jindal Strips Ltd. (‘JSL’). 

The assessee company was allotted the shares of JSL in lieu of shares held for JFAL and accordingly, the profit on this particular transaction was charged to income tax by the Income Tax Authorities which was initially claimed as exempt by the assessee company.

Accordingly, upon the assessee company getting a favourable order from the ITAT, the Department filed an appeal against the order to the Honourable Delhi High Court where the court remanded the case back to the Tribunal for fresh adjudication and ordered the appeal in favour of the Department. 

Background and facts

The jurisdictional assessing officer of the assessee company claimed this particular transaction is taxable under the Income Tax Act and subsequently calculated an amount towards the profit on such transfer of shares. Such profit was calculated by adopting the value of shares of JSL at the rate of Rs. 218 per share, calculated the profit on receipts of shares of JSL under the scheme of amalgamation at Rs. 5,31,28,579/-, and taxed the same as ‘business income.’

The assessing officer was of the opinion that since the assessee company was holding JFAL shares as stock-in-trade and not as a capital assets, it was not entitled to exemption under Section 47(vii) of the Act. The statutory first Appellate Authority [‘CIT(A)’] supported the action of AO treating the same as a Taxable Income and issued a favourable order for the Department. Upon receiving this order a further appeal was filed before the Income Tax Appellate Tribunal by the assessee company. Upon such filing the ITAT heard the learned counsel of both the parties and upon analysing the facts of the case ITAT issued a favourable order towards the assessee company, thereby treating the entire transaction as not transfer thereby not attracting tax under the provision of Income Tax Act. Accordingly, the appeal was allowed in favour of the respondents, holding that no income accrues when shares of the amalgamated company are received in lieu of shares of amalgamating company.

Aggrieved with the aforesaid order, revenue i.e the Income Tax Authority filed the present appeals before the Honorable High Court of Delhi, thereby questioning the correctness of the order passed by the ITAT and raised several questions of law. Accordingly, the High Court admitted the appeal and a substantial question of law was framed.

Facts argued by Mr. Ajay Vohra, learned senior counsel on behalf of the respondent

  • The shares of the assessee company i.e. JFAL and/or JSL are held as part of the promoter holding
  • The assessee company had furnished non-disposal undertaking stating that It would not dispose of the shares held in JFAL,  to financial institution and lenders who had lent money to the operating company
  • It was clear that Shares of JFAL were reflected as investment in balance-sheet of financial statement of the assessee company
  • The shares received in JSL on amalgamation were not sold during the relevant previous year during which the revenue had taxed this income and hence the income had not accrued during the relevant year during which it was taxed.
  • The market price of the share of JSL as on 23rd December 1996 was Rs.76/- per share whereas the assessing officer had adopted a rate of  Rs.218/- per share.

Legal issues underlying the case law

The question of law which was admitted by the honourable High Court in the present case was:

  • “Whether the ITAT was correct in holding that where the assessee gets shares of Amalgamated Company in lieu of shares of amalgamating company, no transfer takes place?”
  • “Whether the assessees’ were holding the shares as ‘capital asset’ or ‘stock-in-trade?”
  • “Whether the respondent assessee is eligible to claim exemption under Section 47(vii) or is the income from sale of shares taxable under Section 28?”
  • Whether the receipt of shares of amalgamated company in lieu of shareholding in the amalgamating company constitutes a transfer?”
  • “Whether the difference between the market value of the shares received by the assessee-companies in exchange of the shares of JFAL and the book value of shares has to be treated as income of the assessee under Section 28  of the Income Tax Act?”

Court’s observation and decision

The appeal has been filed by the revenue against the order issued by the ITAT in the favour of assessee stating that the issue of shares in lieu of amalgamation should not be treated as a transfer and no tax is leviable on the same.

  • At the first instance the court tried to interpret the definition of capital gains under Section 45 of IT Act and the exemption provided under Section 47(vii) of the Act
  • The court has observed that Section 47 starts with a non obstante clause which states that “nothing contained in Section 47” which means that if the shares held as a capital asset and the subsequent exchange of shares in the course of amalgamation should not be treated as a transfer and hence exempt from capital gains taxation
  • The definition of transfer as per Section 2(47) Has been analysed where it has been noted that “Transfer takes with in its sweep the concept of sale, exchange or relinquishment of the asset as well as extinguishment of any right also a conversion of stock in trade into a capital asset would be treated as a transfer.”
  • It has been noted that the learned counsel for revenue has agreed to the legal proposition and submits that if the shares were held as capital asset, the transfer would be exempt from the capital gains taxation referred under Section 47(vii) of the  IT Act and ‘Revenue would have no case to argue before the Court of Law.’
  • The court has noted the case laws of: 
  1. Commissioner of income tax Bombay v. Rasiklal Maneklal
  2. Commissioner of Income-Tax v. Mrs. Grace Collis and Ors., 
  3. Chainrup Sampantram v. CIT,
  4. Orient Trading Co. Ltd. v. Commissioner of Income-Tax, 
  • Accordingly, it was noted that in  the case Grace Collis and Ors. The scheme of amalgamation was virtually identical to the scheme that was in question in the Rasiklal Maneklal case. The Court went into the expanded definition of ‘transfer’ under Section 2 (47) of the Act and extinguishment of rights of assessee in the capital asset, being shares in the amalgamating company, was held to be a ‘transfer’ within the meaning of Section 2(47). 

Thus, the judgment of Grace Collis and Ors has a direct bearing on the present case, and pertinently because the findings of the ITAT are solely resting on the decision in Rasiklal Maneklal case which has been considered and not followed in the later decision in Grace Collis and Ors.

  • Subsequent to the process of amalgamation, the shares held in the old company i.e JFAL has been replaced with new shares issued by the amalgamated company which is JSL the same would be valued entirely on different fundamentals.
  • The non agreeing shareholders who do not support the amalgamation would receive an amount equivalent to the value of their existing shareholding while the shareholders approving this amalgamation would receive the same value in the form of shares of the amalgamated company
  • The income generated from the transaction has to be charged to income tax as per provisions of law. The fundamental principle to be followed is that the basic substance for the transaction has to be separated from the form and the taxing statute has to be applied accordingly
  • The has observed from the decision of ITAT that there is no transfer in the scheme of amalgamation, the decision issued by the Tribunal is not in order and  the same is unsustainable in so far as capital asset is concerned and findings of the Tribunal are plainly erroneous
  • Accordingly, the matter has been remanded back to the ITAT since the initial facts that is under dispute between the parties has not been decided and appeals under this court were allowed in favour of the revenue and against the assessee company.
  • The court has not issued the order towards demanding any amount as liability towards this respective transaction. Instead has only sent back the case for fresh hearing before the Tribunal and to revisit the facts of the case and relevant provisions of law.

Analysis and impact of the judgment

The court has tried to analyse the question framed by the revenue as to whether the scheme of amalgamation through which the shares of the amalgamated company received by the amalgamating company would result as a transfer and whether the income on such transfer would be taxed under the income tax provision.

The case has been remanded back to the Income Tax Appellate Tribunal for a fresh adjudication process. However, even the High Court is of the opinion that the exemption under Section 47(vii) is not eligible for the respondent-assessee and the tax should be payable on the transfer of shares.

Accordingly, the ITAT will have to give another opportunity of being heard to the parties of the case and hear their plea based on the facts of the case and the matter to be decided accordingly keeping in mind all the findings of the Delhi High Court’s Order.

Conclusion

There are various ambiguities with respect to interpretation of the provisions under income tax law as to whether the particular transaction in relation to the exchange of shares with respect to the amalgamation procedure should be treated as a business income and taxable under Section 28 or to be treated as income from capital gains and taxable under Section 45 or exempt under Section 47(vii).

Simultaneously, it is also required to decide whether the shares held by M/s Nalwa Investment Ltd currently are being exchanged for JSL shares to be treated as stock in trade or to be treated as an investment which is held for a longer-term. Upon deciding on the above-referred terms, it is to be decided and the order will have to be passed by the ITAT whether the transaction is to be treated as taxable or exempt under the income tax law.


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Collaboration agreement : an overview

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Image source: https://rb.gy/5z1i1d

This article has been written by Vishakha Bhandakkar pursuing the Diploma in Law Firm Practice: Research, Drafting, Briefing and Client Management from LawSikho. This article has been edited by Smriti Katiyar (Associate, Lawsikho).

Introduction

A collaboration agreement (also known as a collaborative agreement, co-operation agreement or a strategic alliance agreement) is a legally binding agreement or contract between two or more parties that want to collaborate on a commercial project. It is formed when at least two entities having their distinct businesses come together for a particular business purpose.  It is a document that describes the terms and conditions of the collaboration, including work responsibility, profit sharing, confidentiality, dispute and termination of the contract  if a dispute arises. A collaborative project could either be contractual or entity-based. In a contractual collaboration, the parties collaborate only for one specific project, whereas in an entity-based collaboration, the parties form a distinct legal business entity. 

The content of the agreement and how the agreement benefits the parties

The content of collaboration will vary depending on the nature of the collaboration. For example, a technology or data transfer project will have terms related to intellectual property, a real estate project will have terms describing protection and preservation of property, whereas a research project will have provisions describing the development, creation of know-how and confidentiality. For example, the 2014 collaboration of Uber with Spotify where users can link their Uber and Spotify accounts which would allow them to play a Spotify playlist on their journey in an Uber. Through this collaboration, Uber and Spotify were able to capitalize on what each of them had to offer. This helped both parties in strategic marketing and to increase brand recognition.

What is the necessity of a collaboration agreement?

A Collaboration agreement defines and regulates the relationship of parties involved in a project. It ensures that the parties understand their terms, expectations, obligations, responsibilities and limitations. It is necessary to have a collaboration agreement in writing so that all the key issues are addressed, and any conflict or disagreement can be managed and avoided. It helps to avoid uncertainties by defining the nature and scope of the relationship of the parties. This will help the collaboration achieve its goals and deliver results efficiently. 

Things to keep in mind before drafting a collaboration agreement

  1. Ensure that the terms of the agreement have been negotiated from the beginning.
  2. The parties must communicate their goals and ask each other leading questions to develop understanding in the collaboration.
  3. It must be discussed expressly as to what shall happen at the end of the term and agreements thereof must be put in the record.
  4. Verification of certain important aspects such as ownership of intellectual property.
  5. Consider what will happen if the partnership is good before it starts, provided the members’ bargaining power.
  6. The parties must ensure that they follow the agreement’s obligations, maintain records of compliance and exercise their rights if and when necessary.

Important clauses in a collaboration agreement

Definitions

Terms that are important and are used repeatedly must be defined in the definitions clause of the agreement, and this offsets any ambiguity and provides better clarity and understanding.

Purpose

Aspects such as goals, objectives, purpose and expectations of the parties must be clearly specified. This will give a direction to the agreement.

Responsibilities and Obligations

The rights, responsibilities and obligations clause will set out the contribution and resources of the parties at the beginning of the project. It will also show what is expected of the parties throughout the collaboration period .

Duration, Period and Schedule

The execution date, duration of the project (fixed period or ongoing basis), the end date of the collaboration along with a schedule and timeline must be set out in the agreement. The parties may extend the duration after the expiration of the initial period. 

Representation and Warranties

Representations are assertions and statements of facts regarding the business activities in the collaboration and warranties are securities to make good the loss if any of the statements made are not true.

Payments 

Funding and financing of the project, amount each party has to pay, provision for when there is a  breach of the payment obligation, how and when parties can expect to get their return on investment and profit distribution. 

Confidentiality

Non-disclosure and protection of confidential and commercially sensitive information and content, the extent to which the parties can use such content should be drafted into the agreement.

Intellectual Property Rights

Protection of intellectual property created and owned by the parties before entering into the collaboration, ownership and use of intellectual property created during the collaboration and the restrictions thereto, grant of license by one party to another for the use of such intellectual property.

Data Protection

Data protection clause for protection of data that is collected, stored, used and processed to  ensure that the parties comply with applicable data protection laws. 

Limitation of liability

A clause limiting the liability that might arise due to performance or non-performance of obligations of the parties.

Disputes

Provisions for dispute resolution process and governing laws.

Termination

The termination clause in case the project fails or stalls, lock-in periods and exits. The collaboration agreement has to be filed with the sub-registrar for it to be a legally enforceable document. It has to be executed and stamped in the state the agreement is signed.

Conclusion

A collaboration agreement contains many key elements. These are important for parties who come together for expertise, financial resources and intellectual property rights to achieve common goals. It is important that the parties invest enough time, energy and effort to finalize the terms of the agreement. While a collaboration agreement is a private commercial agreement, and there is no statutory legal obligation to have one in place, it ensures that the gains and risks of parties are well defined, and recourse can be taken in the event of a dispute. 

References


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Interim reliefs by courts and Arbitral Tribunals – S.9 and S.17 Of Arbitration and Conciliation Act, 1996

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This article has been written by Rajasimha Shastry BK pursuing the Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho. This article has been edited by Smriti Katiyar (Associate, Lawsikho).

Introduction 

Section 9 and Section 17 of the Arbitration and Conciliation Act, 1996 provide interim relief to the parties in arbitration. The necessity for interim measures arose as, on several occasions, circumstances arose where either of the parties engaged in activities that delayed proceedings or prejudiced the rights of other parties or turned the judgment in their favor. An example for this would be selling off the disputed asset. Interim reliefs vary according to prevailing situations and circumstances. Thus, in order to safeguard the rights of the parties, a provision for granting interim relief became a necessity. While both the Sections 9 and 17 of the Act provide for granting of interim reliefs, the circumstances in which they can be availed vary. 

Section 9 of the Act states that a party can seek for interim measures or protection from “the Court” before, after or during the proceedings or at any time after making of the arbitral award but before its enforcement. Once the arbitral tribunal has been constituted, a party shall approach the arbitral tribunal unless the court finds that the prevailing circumstances do not render the remedy provided by the arbitral tribunal (under Section 17 of the Act) efficacious. The words “the Court shall not entertain” of S. 9 (3) of the Act makes it clear that the courts shall not grant relief once the arbitral tribunal has been constituted. In the case of Sri Tufan Chatterjee v. Sri Rangan Dhar, the court stated that “shall not entertain” phase meant that “a party that has the power to institute a proceeding under Section 9 at any juncture, since the word used was “entertain ” and not “institute ” as used in Section 3 of the Limitation Act, 1963  (Bar of limitation), the Court is denuded of its power to hear an application on merits unless it is convinced that the remedy under Section 17 is not efficacious.” 

The court can grant interim measures under Section 9 only if the measures provided by the arbitral tribunal are not efficacious. On the other hand, Section 17 of the Act states that a party can seek for interim measures or protection from “the Arbitral Tribunal” during the arbitral proceedings or at any time after the making of the arbitral award but before it is enforced. The arbitral tribunal has the same power as that of the court for making orders, for the purpose of, and in relation to, any proceedings before it. Both the sections also provide for the appointment of a guardian for a minor and unsound person for arbitral proceedings. 

While it seems that both the courts and tribunals have the same power to grant interim reliefs, the court has more power to grant relief.  A plain perusal of Section 9 (3) will reveal that the Court has been given a superior status than the Arbitral Tribunal. While an inefficacious interim relief from the tribunal is a ground to approach the court, there is no provision that provides grounds to approach the arbitral tribunal in case of an inefficacious interim relief by a Court. Prior to the 2015 Amendment Act, interim measures granted under Section 9 were more than the reliefs granted in Section 17. Through the 2015 Amendment Act, more power was granted to the tribunal. The order of a Tribunal was to be deemed as an order of court for all purposes and shall be enforced in the same manner as a Court order. This was done as S. 9 of the Act was the preferred option for the parties even after the Tribunal was constituted. Thus, with time, the authority of arbitral tribunals is increasing. 

There are circumstances where there is an overlap between Sections 9 and 17 of the Act. The Delhi High Court held that a pendency of an application under section 17 does not take away the powers of the court to give order for interim relief. The Andhra Pradesh High Court held that remedy under Section 9 of the Act is not barred even if it is already, partly or fully sought under Section 17 of the Act. The court is higher in the hierarchy and has primacy as far as interim reliefs are concerned. From this, it can be said that the parties have two options. But does this mean that a person can directly approach the court under Section 9? Section 9 (3) states that once the tribunal has been set, the court shall not entertain any application made under s. 9 (1) unless the remedy under S. 17 is inefficacious. The court will then first examine the relief granted under S.17, before taking up the case as the tribunal has already been set. This means that the party must approach the tribunal first. 

This has been well explained in the case of M Ashraf v. Kasim VK.  The court provided three stages. The first stage is before the commencement of arbitral proceedings. In this stage, S. 9 (3) of the Act does not apply. The second is when the arbitral proceedings have begun. At this stage, it is necessary for S. 9 (3) of the act to be satisfied. The third stage is when the arbitral award has been made but is yet to be enforced. It is to be noted that at this stage, the tribunal has ceased to function. Except in cases provided under Section 33 of the Act, the tribunal would have ceased to function, and the unsuccessful party might try to sell off the property in dispute. In such a scenario, the successful party can approach the court and the court cannot reject on the grounds that an efficacious remedy has been granted under S. 17 of the Act. This judgment also serves as an exception to S. 9(3) of the Act.

Standards applicable

Standards applicable to grant interim relief by Courts. There are no standards prescribed to grant interim relief under S. 9 of the Act. The applicability of provisions of CPC remains unsettled. This was not addressed in the 2015 Amendment Act as well. There are two lines of reasoning regarding this. One is the inclusionary approach, and the other is the exclusionary approach. The exclusive approach is that the rigors of CPC cannot be put in place as it defeats the purpose to grant interim under S. 9 of the Act. The other one considers proceedings under S.9 to be akin to Order XXXVIII Rule 5 and Order XXXIX of CPC. Order XXXVIII Rule 5 of CPC pertains to certain reliefs in nature of grant of security, attachment of property or arrest of defendants that are similar to the reliefs under Section 9 (ii) (b) and (c) of the Act. Order XXXIX of CPC provides for temporary injunction akin to the relief under Section 9 (ii) (d) and (e) of the Act. 

An example for an exclusionary approach is the case of Tata Capital Financial Services Ltd. v. Unity Infraprojects Ltd. & Ors. In this verdict the Bombay High Court stated that the court will broadly bear in mind the Order XXXVIII Rule 5 and Order XXXIX of CPC. At the same time, it will also have the discretion to give relief depending upon the facts and circumstances of the case to secure the ends of justice and preserve sanctity of arbitral proceedings. An example for an inclusionary approach is the verdict of the division bench of Delhi High Court in Anantji Gas Service v. Indian Oil Corporation. In this case it was held that Section 9 is akin to Order XXXVIII Rule 5 and Order XXXIX of CPC. The requirements of these orders of the CPC were held to be necessary. The requirements are, prima facie case, balance of convenience and irreparable loss in case no protection is offered. 

Standards applicable to grant interim relief by Arbitral Tribunals. In the case of Intertoll ICS (Cecons) O&M Company v. NHAI The court held that the arbitral tribunal would have to ascertain whether the petitioner has made out a case as per order XXXVIII Rule 5, prior to granting interim relief. Also, in the case of Yusuf Khan v. Prajita Developers Pvt. Ltd. and Ors, it was held that “tribunals while exercising their power under section 17 and particularly Section 17(1)(ii)(b) of the Act, i.e., the principles laid down in the CPC for the grant of interlocutory remedies must furnish a guide to while determining an application under Section 17 of the Act.”

Enforceability

Enforceability of interim relief under S.9 of the Act. Since the order is given by a court, the interim relief shall be enforced like any other order of the court. This means that all laws applicable in relation to orders passed are applicable on orders under S.9 of the Act as well. Enforceability of interim relief under S.17 of the Act. As discussed earlier, through the 2015 Amendment Act, orders of tribunal were held on par with orders of a court.  In the recent case of Alka Chandeshwar v. Shamshul Ishrar Khan, the Supreme Court held that non-compliance of a tribunal’s orders amounted to contempt and would be triable under the Contempt of Courts Act, 1971. From this it can be said that orders under S. 9 and S. 17 of the Act are fully enforceable and are at the same level. 

Conclusion 

To conclude from the above writing, it can be said that S.9 and S. 17 are not merely a procedural matter. It affects the encouragement being provided to ADR in recent times. Before the 2015 Amendment, as mentioned before, despite the formation of tribunal, parties would go to the court for an interim measure. However, when the tribunal order was placed at par with a court order, parties went to the tribunal for an interim relief. This not only reduced the burden of the court, but also reduced the intervention of the judiciary in arbitral proceedings. However, a contrary opinion to this can be found in the case of M.D., Army Welfare Housing Organisation v. Sumangal Services Pvt. Ltd. This judgment was delivered prior to the 2015 Amendment Act.  The court held that an arbitral tribunal is not a court of law and that its orders are not judicial orders. It also held that the tribunal is to be restricted to the four corners of the agreement and pass an order which may be a subject matter of reference. However, it must be noted that the courts have been outmoded and litigative justice has been put to a halt. The need for ADR methods to evolve as an adjunct of the judicial system. There is a severe need to reduce the burden on judiciary and speed up the process of delivering justice. Hence, to bring S.17 orders at par with S.9 is a step in the right direction.  Despite the troubles of the judiciary, opinions against bringing tribunal and court at par continue to exist, like the above Army Welfare Housing judgment. It is to be noted that Indian law does not lay any specific qualifications for arbitrators. Perhaps laying off certain qualifications to become an arbitrator could reduce such opinions. 


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The privity rule of Contract Law : a ground for reform

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This article is written by Swetalika Das from Amity University, Kolkata. This is an exhaustive article that talks about the need for reform in the privity rule of contract law. 

Introduction

The doctrine of privity rule in Contract Law is an English Law principle that prevents any third party or a stranger from being bound by any obligations or terms and conditions of a contract. Here, a third party or a stranger means any party other than the original parties of the contract. 

What is the actual purpose behind this principle? Are there any exceptions to it? Does this principle need reform? These are exactly the questions that are going to be answered in this article focusing mainly on the required reforms in the doctrine of privity rule of contract law.

The privity rule of Contract Law: meaning and purpose 

Meaning:

As already stated, the doctrine of privity rule of contract law allows only the original parties to be entitled to the terms and conditions of the contract. 

Let’s take an example to understand it:

Abhishek accepts an offer from a company in consideration of receiving fees every month with some other facilities provided by the company. If in this case, the breach of contract occurs then no other person is entitled to the terms and conditions of the contract because the contract is between Abhishek and the company.

Purpose:

The only purpose behind this rule is to protect the third parties from getting involved in any sort of lawsuit initiated from the contract.

Comparison between English Law and Indian Law 

English Law

In English law, both the doctrine of privity rule and the doctrine of consideration was established in the 19th century. The provision of the privity rule of contract law was first introduced in the case Tweddle v. Atkinson (1861). In this case, Tweddle’s father-in-law came into a contract with Atkinson to contribute an amount of $200 and $100 each to Tweddle and his wife. Tweddle’s father-in-law contributed his part but Atkinson died before contributing the money as a result of which Tweddle filed a suit against Atkinson’s estate. However, the court rejected his claim due to the absence of consideration from Tweddle’s father-in-law to Atkinson. Also, Tweddle himself was not a part of the contract. As Tweddle was a third party to both contract and the consideration, his claim was not accepted by the court even if it was for his benefit.

Further, the doctrine of privity was modified in the case Dunlop Pneumatic Tyre Co Ltd v. Self ridge & Co (1915) where the court rejected the claim of the plaintiff because he was not part of the contract.

Indian Law

The rule came into notice after a judgment of the privy council in the case of Jamna das v. Ram Autar (1911) where the privy council held that there is no contract between the plaintiff and the other party which makes the plaintiff a stranger to the contract and hence, the plaintiff cannot claim for any damages arising out of the contract. But it doesn’t mean that the above case will always be the same as in the famous case Donoghue v. Stevenson (1932) Ms. Donoghue’s friend brought a defective ginger beer that contained a partially decomposed snail due to which Ms. Donoghue filed a suit seeking damages. In this case, the contract was between her friend and the owner of the shop but it was observed that the manufacturer should have some sense of commitment and a duty of care towards his customers, consequently she was awarded the damages. 

Comparison

If we compare both the laws then we can say that there are many similarities between the English law and the Indian law that only the original parties of a contract can file the suit. However, the scope of privity rules is much wider in Indian law than in English Law. It’s because the definition and importance of consideration in Indian law are much wider than in English law (Babu ram Budhu mal and Ors. v. Dhan Singh Bishan Singh 1956). In India, a stranger or a third party can sue if the contract involves consideration but the same cannot happen in England. 

Consideration in privity rule of Contract Law:

As the above comparison suggests, the only difference between English law and Indian law is that a person can sue even if he is a stranger to the consideration. Therefore, it’s important to understand the concept of consideration in Indian contract law. In simple terms, consideration can be defined as an exchange of value between the parties because in a contract both the parties must benefit from each other. 

Before moving into the legal definition of consideration we need to first know the meaning of contract and agreement under the Indian contract law:

  • Contract: Section 2(h) of the Indian Contract Act,1872 (ICA, hereinafter) explains a contract as a valid agreement between two parties that is enforceable by law.
  • Agreement: Section 2(e) of the ICA,1872 states that every promise and set of promises made by the parties that form a consideration between the parties is known as an agreement.
  • Consideration: Section 2(d) of the ICA, 1872 states that an act of consideration can be formed as per the desire of the promisor, promisee, or any other person.

It is important to note that the term “any other person” mentioned in Section 2(d) is third-party of consideration. This denotes that if there is a presence of consideration in the contract then it does not matter who provided the consideration. 

Example:

Rajesh promises Dinesh to give a pair of shoes in consideration of Rs. 2000 but the consideration is provided to Rajesh by Rahul instead of Dinesh. This shows that the presence of consideration matters even if it’s provided by a third party to the contract.

Case law

In Venkata Chinnaya Rau v. Venkataramaya Garu and others (1882) case the Hon’ble Madras High Court stated that the consideration does not always move from the promisee, it can also move from any other person who is not involved in the contract. 

Additionally, some other cases that explain the concept of consideration are such as Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd (1915), Tweddle v Atkinson (1861),  Dutton v Poole (1678)

Exceptions to the privity rule of Contract Law

  • Building in the trust:

 In this exception of the privity rule of Contract Law, the third party is entitled to sue the other party if there is a presence of trust. It is also important to note that there must be a certain benefit to the third party. According to this exception, in case of any breach of trust, the third party can sue the other party even if he is not a part of the contract. (Lloyds v. Harper 1880, M.C. Chacko v. State bank of Travancore 1970)

For instance, person “A” gives the possession of his company’s share to person “B” with a condition that person “B” would give 50% of his shares to Person “C”. But after the death of person “A”, person “B” refused to give any of his share to person “C”. As a result of this, person “C” sued person “B”. In this case, person “C” has trusted “B” for receiving the shares but person “B” didn’t fulfill the conditions. Here, person “C” can sue the other party even if he is not part of the contract.

  • Contract with the third party through an agent:

 According to the Indian Contract Act, an agent is a person who acts and represents on the behalf of a  principal and deals with the other parties who are not a part of the contract. If the agent establishes a contract with a third party, then it’s the responsibility of the agent to fulfill all the terms and conditions of the contract. For instance, if A is an agent of B, then A will build a contract with C and deal with him on behalf of B.

  • Acknowledgment, estoppel, or admission: 

According to this exception, a third party can sue the other party if they acknowledge an act, then they are obliged to do that act. In case of failure, they would be liable as per the law of estoppel. (Waltons stores Ltd v Maher 1988)

For instance, Jack asks Mary to give Rs. 5000 to Patrick on his behalf. If in this case, Mary acknowledges it then she is bound to pay the amount to Patrick. If she doesn’t pay the amount then Patrick can sue her irrespective of the fact that he is the third party.

  • Family Arrangements or marriage expenses: 

The family arrangements or marriage settlements are mentioned in the Specific Relief Act,1963. If a contract is made according to the family arrangements or marriage settlements to provide benefit to the third party or stranger to the contract then the third party can sue for the benefits of the contract. (Sundara Raja v Lakshmiammal 1914)

For instance, Ankita belongs to a joint family, and her family made some arrangements to pay the expenses for her marriage. However, the family parted ways due to which the provision for marriage expenses of Ankita was not fulfilled. Later, Ankita sued for her benefits even if she is not part of the contract. 

The need for reform in privity rule of Contract Law 

History of reform in privity rule

In 1937, the British Courts observed the need for reforms in the doctrine of privity rule and proposed the Sixth Interim Report that states the benefits for the third parties in a contract. The cases like Beswick v Beswick (1968), increased the significance of the call for reform where Lord Reid referred to the 1937 report and stated about the necessity to deal with the matters related to the privity rule. Similarly, in cases such as White v Jones (1995) and Woodar investment development ltd v Wimpey constructions (UK) Ltd (1980), the Judges criticized the inflexible nature of contract law while dealing with third party rights. 

In 1996, the Law Commission of the UK agreed to carry out the reforms in the doctrine of privity without making any difference in the doctrine of consideration. Later, the law commission concluded that:

  1. The doctrine of privity need to get a legislative reform
  2. The main aim of the legislative reform is that the third party should be able to enforce according to the terms and conditions of the contract. 
  3. The other parties of the contract must agree that the third party should receive the benefits from the contract and intend to form legal obligations upon the third party.

Contract (Rights of Third Parties) Act, 1999

Introduction

After a brief discussion, the English Parliament enacted the Contract (Rights of third parties) Act,1999 to change the old rule of “only the party of a contract could enforce the contract terms”. The Act made the changes by making the third parties eligible to enforce the terms according to their wish. 

Applicability

It applies to almost all the contracts except some contracts such as carriage of goods contracts, negotiable instruments, and articles of association of a company. Further, the Act states that the third parties cannot enforce terms in employee contracts against the employer of a company. 

When the third party rights arise

  • If the contract expressly provides the right to a third party
  • If the contract confers about providing the benefit to a third party.

Limitations of the Contract (Right of third parties) Act, 1999

  • The Act does not provide any exception that the third parties should not be the subject of a burden in the contract to which they are not the original party.
  • The provision of enforceability in Section 1 of the Act must be satisfied for the third parties to enforce their rights. 
  • According to the Act, the parties of a contract can draft an “opt-out” clause that states about denial of the rights of third parties but the provision does not provide any right to the third parties to seek remedies.
  • The Act doesn’t say anything about the rights of the promisee to obtain remedies for the benefits of third parties.

Why is reform needed in the privity rule of Contract Law

The privity rule of contract law raises a lot of issues and demands for reform. First of all, the rule that denies the rights of a third party to sue and that only the other party is eligible for recovering their losses would lead to injustice towards the third party. Also, the rule opens a room of uncertainties or complexities due to a large number of common law exceptions and statutory exceptions. Hence, the need for reform is high.

The privity rule of contract law has created several problems that can be addressed through the help of some contexts, such as:

Construction contract

In the context of constructions, the case D & F Estates Ltd v Church Commissioners for England (1989) held that the claim of the purchaser cannot be accepted and the builder was not liable in tort concerning the quality of the building. Due to such cases, the third party in construction cases such as tenants, purchasers, and property financiers seek protection. 

For instance, a property developer enters into a contract with the contractor. The property developer undertakes a warranty from the contractor for the benefit of the purchaser (third party), that in the case of any defects the contractor will provide the remedies to the purchaser. However, if the contractor doesn’t provide the remedies then the third party cannot sue the contractor due to the privity rule.

Insurance contract

In this case, if the employer receives insurance from the insurer for the sake of his employee then in case of breach of contract by the insurer, the employee cannot file a suit against the insurer because he is not part of the contract. 

Contract to pay the third parties

The “A and B came into a contract to pay money to C” is what we commonly see in the topic of privity rule. Similarly, in the famous case Beswick v. Beswick (1968) where the nephew promised his uncle to pay a certain amount of money every week to his aunt because of which the uncle sold the business to his nephew. However, after the death of his uncle, the nephew stopped paying his aunt as a result of which the aunt filed a suit against the nephew and claimed damages. However, the court refused to allow the aunt to claim for damages as she was not part of the contract. Therefore, it shows that the rule of privity can lead to injustice towards the third parties.

What are the possible reforms in the privity rule of Contract Law

The possible reforms in the privity rule have been mentioned in the 13th report of the Law Reform Commission of India where they recommended the following reforms:

  • The original parties of the contract can identify the name of the third party in the contract before the enforcement of the contract. 
  • The third-party must be allowed to enforce a term in the contract irrespective of the presence of consideration.
  • The original parties should not be allowed to cancel the contract on their own, affecting the rights of third parties. They must take the consent of the third party before canceling the contract. 
  • If a contract benefits more than one third-party then each party must approve the contract to avoid any sort of confusion.
  • There should be a provision made in the legislation when the original parties of the contract mention the enforcement of rights of the third party. This term would help the contracting parties to protect the rights of the third parties.
  • The legislation should also be applicable in the case where the third party is a customer. So that the third party can sue the promisor.
  • The legislation should not apply to Section 25 of the Companies Act 1956.
  • The legislation should not provide any rights to the third parties to sue their employees.

Amendment for benefits of the third parties

The rigorous use of the privity rule has undoubtedly caused injustice to the third parties. The proposed legislation and reforms suggested by the 13th report of the Law  Commission are truly an escape from injustice for the third parties. Therefore, the Law Commission of India recommended that a new provision of Section 37A which is similar to the Contracts (Rights of Third Parties) Act, 1999 should be enacted in the Contract Act that states the benefits to third parties. The following benefits are:

  1. If a contract directly mentions the third party then it must be enforceable in the name of the third party and allow the third party for defenses that would have been valid between the original parties.
  2. If a contract expresses regarding the benefits upon a third party then the contracting parties cannot terminate it, form a new contract or alter the terms of the contract as it can affect the rights of the third parties. 

Conclusion

Undoubtedly, the aim behind the introduction of these rules is to protect the third party from lawsuits but the rule lacks behind while protecting the rights of the third parties. Also, the number of exceptions creates a lot of uncertainties and complexities in the implication, and the provisions for the doctrine of privity rule don’t confer anything about the benefits for the third parties which shows the significance of reform in the doctrine of privity rule.

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/joinchat/J_0YrBa4IBSHdpuTfQO_sA

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Analyzing a physician’s prescription under the Competition Law lens

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competition law

This article is written by Priyanshi Soni, a student of Symbiosis Law School, Noida. This article seeks to understand and analyze the physician’s prescription under the Competition Law lens.

Introduction

It would not be wrong to say that since there are so many doctors in India, the medical industry lives in good market conditions, where demand and supply checks can shield against market failures. But actually, there is a big difference in the bargaining power of the service provider and the end consumer. Now since deliverables are crucial, just like human life, the demand depends more on or is rather influenced more by the quality and not by price. This also makes the consumer vulnerable as the industry is very technical and information asymmetry is immense. The nature of India’s anti-trust laws i.e. the competition laws exacerbates the already existent knowledge asymmetry in the pharmaceutical industry. 

Overview of Competition Law in India

Competition Law i.e. the Competition Act, 2002 was introduced in India to promote healthy competition between enterprises in the market, protect the interest of consumers, prevent activities that might have an appreciable adverse effect on competition (AAEC), and also ensure the freedom of traders. The Competition Commission of India is the statutory body established by the Government of India to enforce the Act, promote fair competition, and keep a check on AAEC. 

While talking about competition regulatory systems the two most influential systems in the world are the competition law of the European Union and the anti-trust laws of the US.

In India, for 40 years, the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) existed. This Act did not allow the concentration of economic power in a few hands and so prohibited any monopolistic and restrictive trade practices. However, this Act did not apply to government companies and undertakings, and many others. These things made the Act very restricted and thus, to enlarge the scope of the legislation, the Competition Act, 2002 was passed by the Parliament in 2003.

About the Act

The Act contains provisions for anti-competitive agreements, abuse of dominant position, and combinations like acquisitions, mergers, etc. Anti-competitive agreements refer to the agreements made by two or more competitive companies in the same market that try to manipulate the market so as to make it favourable for them. This has reduced the competition and so, affected the companies and also the end consumers. 

The Competition Act, 2002 defines anti-competitive agreements as such in section 3 where it states, “No enterprise or association of enterprises or individuals or association of individuals may agree to production, supply, distribution, storage, acquisition or control of goods or provision of services which may adversely affect the competition in the Indian market”. Such agreements are expressly void as they cause an adverse effect on competition agreements. 

The inventor’s patent and the generic drugs : background

When an inventor invents any molecule/drug, he procures a patent for it. A patent is a right granted to the inventor that prevents others from making or selling the invention without his permission. It is granted for 20 years, subject to payment of annual renewal fees. This patent is allotted to him after undergoing proper clinical trials of the product. It is done so that he can recover the research and development investments so that he can use the profits to innovate again. Meanwhile, he sells the drugs under its brand name and at higher prices. 

After the 20 year period is over, the Pharmaceutical Companies (PCs) sell the generic drugs in their chemical names as the crowd is already high. However, instead, PCs assign a proprietary name to these generic drugs and then eventually try to build a brand through promotions and advertisements. 

Is there any difference between these two types of drugs – generic drugs and branded drugs?

The misconception

The drugs are pharmacologically similar. Both generic drugs and branded drugs have identical characteristics. They ought to undergo similar bio-equivalence tests and are equally effective. The difference lies only in the price – the price of generic drugs is usually less than that of branded drugs. Around 30 to 90% of the difference can be seen. For example, generic drug paracetamol costs Rs.1 for 1 tablet, and Crocin costs around Rs. 2 for 1 tablet. This way, the cheaper tablets/drugs deter the consumers as they assume that cheaper drugs would be effective quality-wise. This misconception of patients gets aggravated when the physician recommends them the branded drugs only reasoning that branded drugs are better in quality. Since the field is highly technical, patients become vulnerable and so go with what their physician prescribes. 

By citing the better quality of branded drugs, the physicians violate Regulation 1.5 of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (‘Ethics Code’), which mandates the doctors to prescribe the generic names of medicines. 

However, the empirical study published on the website of the National Center for Biotechnology Information shows that generic drugs are as effective as branded ones and there is no big difference between the two. As a result of that study, 93% of generic and 87% branded drug users believed that their drugs were effective (P = 0.238) in controlling their ailments. No significant difference was observed in reported adverse effects between generic and branded drug users.

The antitrust problem

The real reason behind the prescription of branded drugs by the physicians is their vested interest in prescribing these drugs and not the quality of the drugs, as it is a proven fact that quality is the same. The truth is that generic drugs are as effective as branded ones, but the endorsements by PCs create an artificial difference between the two and the patients get attracted to the costlier drugs. Further, due to the patient’s consumption behaviour, the generic drug industry which is predominantly volume driven is unable to make profits. This is how such an equation forecloses rival competition thereby affecting consumer welfare and harming the weaker player.

The law attempts to address this, albeit in ineffective ways. The doctors are prohibited from receiving bribes from PCs under Ethics Code Clause 6.8. Furthermore, the Drug Technical Advisory Board (DTAB) has advised all pharmacies to display generic pharmaceuticals on separate shelves so that they are easily accessible to customers. However, this equates to treating symptoms rather than root causes.

The ex-post remedy

Section 3(4) in the Competition Act, 2002, which deals with agreements among enterprises or persons at different stages of production, also includes PCs and physicians who are at different stages in the same market environment and thus, interact. 

The PCs offer incentives and persuade the physicians to prescribe the drugs manufactured by them, and this, in turn, leads to a promotion of their branded drugs. Patients themselves cannot make informed choices as they are subject to the asymmetry of information in this technical field. They only eventually rely on the physician’s advice. 

Within the meaning of Section 3, this implies that there is an exchange of agreement between the PCs and the physicians to sell the agreed drugs. But such agreements might affect the consumers’ welfare. Section 3(4) of the Act states that in case such agreements affect the competition adversely, they will be termed as void and illegal, although it directly does not mention a presumption, unlike Section 3(3) does, we still should view such vertical agreements between physicians and pharma companies because the medical market is a peculiar market when viewed from the perspective of patient’s rights and consumer welfare. This is done by keeping in mind that one’s right to life cannot be subjected to derogations and all the other rights depend upon this right alone and that it is crucial. 

Such stark inequality implies having ex-ante provisions and regulations of generic drugs instead of ex-post-facto remedies because remedy after the damage is already done, is of no use. 

The gaps

A Uniform Code of Pharmaceutical Marketing and Practices (UPCMP) which was introduced in 2015 deals with the fact that any sort of a PC is prohibited from any sort of monetary or non-monetary exchange with physicians. But they seem to be violating this rule blatantly by offering monetary and non-monetary incentives to physicians, in turn, over-prescribing their drugs to the patients. But, the Code is non-binding and lenient. All complaints are reviewed by the Ethics Committee, which is made up of members of the pharmaceutical associations themselves. Even the power of evaluation is in the hands of the members of these organisations. However, a sector that has frequently broken the law is infamous for patient exploitation, and is intrinsically hyper-technical – has to be held accountable from the outside. Further, even the penalties include merely taking away the incentive, gifts, etc. from the physician. This kind of penalty is not a deterrent. 

Conclusion and suggestions 

A permanent solution to this whole problem is to hold the offerors liable instead of providing limited costs towards enforcing a code of conduct on physicians. 

The antitrust laws should ensure that PCs are not given the opportunity to commit the violation, there is no intent to do the violation, and the law is deterrent, i.e., the predicted costs of the violation outweigh the advantages coming from it.

The problem with the present code is that it gives PCs a chance to commit a violation of rules as they have the capital to bribe the physicians and due to lack of enforceability, the cost of violation is also nil. 

As a result, it is proposed that UPCMP be made required and a deterrent to the extent that the costs of violation outweigh the benefits derived from it. Thus, it will serve as efficient ex-ante treatment. Such issues of gaps in the pharmaceutical industry are the result of poverty and illiteracy mainly. The state should take a closer look at such arrangements between PCs and physicians and put a stop to them before they cause big problems in near future. 

References 


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Analyse the judgment of the Madras HC on the seniority of civil judges which cannot be fixed on roster points

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This article is written by Raslin Saluja, from KIIT School of Law, Bhubaneswar. This article analyses the judgment of the Madras High Court in determining the process for fixing the seniority of the candidate.

Introduction

The seniority of the judges following the reservation and the roster system has long been into adjudication in various judgments. Since the placement in seniority has a huge impact on the progress of a candidate into higher positions of service, it needs a fixed rule in order to avoid repetitive conflict and a hindrance to a candidate’s future. In the present case, the Madras High Court has dealt with the issue and disapproved of the ongoing practice of fixing seniority on the basis of the roster point system.

Facts and background of the case

In the case of N. Vasudevan v. The Registrar General and 194 ors  (2021), Writ Petitions bearing nos. 20449, 20451 and 20452 of 2015 and 15866 of 2021, were filed under Article 226 of the Indian Constitution in the High Court of Madras.

The subject matter of the case revolves around the existing system of promotion of civil judges to seniority. In the current system of the Indian judiciary, there is a pyramidal hierarchy. At the subordinate level is district judiciary comprising three tiers under the superintendence of the High Court, which is followed by the Supreme Court. The recruitment procedure for the entry-level post of Civil Judge (Junior Division) is conducted by the Public Service Commission which is the general practice in almost all states. Herein the 200 point roster is followed for the purpose of reservation in which the list of successful candidates in the recruitment examination is passed to the High Court for its acceptance and appointment.

Whereas another way that was introduced in the case of All India Judges’ Association v. Union of India (2002) made it even easier to climb up the hierarchy as it allowed the entrants to give the examinations directly for the District Judge level at the apex of the three-tier district level judiciary.

Reservation system in Tamil Nadu

Tamil Nadu follows a 200 point roster system where 69 percent compulsory reservation on communal footing is made along with horizontal internal reservation which is above the 50 percent reservation bar.

Issue

The State of Tamil Nadu and the Tamil Nadu Public Service Commission maintained that the inter se seniority of the candidates will be governed by the roster positions of the judicial officers recruited. Thus the issue dealt with in this case is whether the determination of inter se seniority at the Civil Judge (Junior Division) entry-level at the time of recruitment would be on the basis of the roster positions of the recruits or otherwise. The petitions specifically addressed the concern of the order of seniority for civil judges and their recruitment conducted in 2009. Subsequently, it also attracts the recruitments that took place in the year 2012, 2015 and 2018.

Primary rule

The primary rule in the application of the reservation policy and the roster system is that when a reserved category candidate acquires enough marks to be entitled to get a seat of general category, then that candidate is moved out of the reserved category and given the seat in the roster that was marked for the general category candidate. The reason being that the reserved candidate securing the sufficient mark proves their merit and would be entitled to the seat even without a reservation. This rule of jumping the meritorious reserved candidate (MRC) into the general category seat is challenged.

This legal issue was acknowledged and conclusively answered in two previous judgments wherein it was stated that roster positions have no nexus with the inter se seniority positions of all recruits appointed simultaneously. However, the roster is still maintained despite the judgments in Swarnam J. Natarajan v. High Court of Judicature at Madras (2015) and N.Santosh Kumar v. The Tamil Nadu Public Service Commission (2015), has had a huge impact and influence in determining the progress and elevation of the candidates into the hierarchy.

Contentions

The state contended that in the case of Arvinder Sing Bains v. State of Punjab (2006), in para 39 it was stated that the prescribed roster has to be read along with the relevant rule for the determination of the seniority. Though that judgment does not apply in the present case, the later order of the Supreme Court in 2016 had endorsed the view in N. Santosh Kumar. For similar reasons the judgment of the All India Judges Association relied upon by one of the parties, is of no relevance.

The Court said that a first judgment cannot be read as a legislative enactment and a stray observation/ incidental remark though of persuasive value does not form the basis of ratio decidendi and therefore is not of binding value. Secondly, when a later case refers to the previous judgment of the Supreme Court, and if there is any variance in the interpretation of the earlier case in the later judgment, then the dictum in the later judgment becomes binding. In that case, an independent interpretation of the previous judgment is not possible. However, in circumstances where the Apex Court does not refer to any previous judgment of that Court and takes a contrary view, the High Court has the option to make a choice between the two judgments that are cited before them to apply based on the facts presented. The High Court will then choose which of the judgments is better suited and applicable to the facts of the case.

Even for the parties who contend relying on Rule 35(f) of the Tamil Nadu State and Subordinate Services Rules of 1955, the reliance is not because it has an impact on whether the roster positions should determine seniority list, but on the fact that the existing law prevents posing any objection to the seniority list after 3 years from the date of appointment to the grade/ date of the order fixing the seniority, whichever is applicable. This contention too was rejected as according to Rule 35(f), there is an exception for applying even after the lapse of 3 years if the case is for rectifying orders based on a mistake of facts.

Since the Court did not want to disturb the positions existing prior to the present case in the interest of justice and balance of convenience, it did not meddle with the promotions received by the candidates irrespective of whether it was as a result of the exercise of the High Court or pursuant to judicial officers representations. The revised seniority list will not affect the positions of the already appointed candidates.

This matter was referred by the members of the committee constituted by this Court in order to avoid any further litigation, heartburn and confusion. The present rule allows 65 per cent of the vacancies to be filled by the promotion from Civil Judge (Senior Division) based on seniority and performance, 25 per cent from the directly recruited members of the Bar based on eligibility and 10 per cent from those who are not in contention to be considered for promotion upon taking a limited competitive examination based on fulfilling the eligibility. The Court said that the revised list of seniority might alter the positions of those appointed at the same time and promoted at the same time following the inter se seniority. Thus, if the seniority position of a judge in the cadre of Civil Judge (Senior Division) is revised upwards but lacks 5-year qualification in the post to appear for the limited competitive examination he will still be eligible if another Civil Judge in lower seniority rank is eligible for the examination. This is because a systematic error should not be harmful to an individual who would have been eligible to take the limited competitive examinations seat.

Analysis

In this case, the Court was dealing with a batch of petitions relating to the recruitment conducted in 2009 and the order of seniority for the Civil Judges (Junior Division) recruited in that year. It rejected the state’s stand in its analysis and explained the situation through an example that if out of 10 point roster, the 2nd, 4th, and 8th place is secured for the general category, when a reserved category candidate obtains better marks than a third-placed general category candidate, then following the MRC rule he will be jumped to the 8th position which otherwise would have been a first position in the reserved category. Thus, due to the application of this rule, a meritorious candidate of the reserved category obtains a lower slot on the roster despite getting higher marks. The roster system is a method to apply reservations to vacancies when they arise and the position of the candidates in the roster does not reflect the merit of the person.

The High Court referred to the Supreme Court judgment in Bimlesh Tanwar v. the State of Haryana (2003). Para 40 said that Article 16(4) of the Constitution is meant for the representation of classes that are economically or socially backward and Article 16 is applicable in the case of appointment and not seniority. Therefore seniority must not be fixed based on roster terms otherwise it would extend the affirmative action beyond the constitutional schemes. The Court further went on to explain that the roster point system is only a template to effectuate reservation and only determines when a person joins the post.

The principle behind the rule is to acknowledge the meritorious candidate and treat an MRC as a candidate of the general category. This in turn will lead him to vacate the slot that he would have occupied otherwise in his reserved category and give it to another socially backward candidate of the same class. This rule of an MRC jumping to the general category has been further justified by the ethos of social justice founded on the principle of equal availability of opportunities. 

Precedents

It referred to the cases of Swarnam J. Natarajan and K.Santosh Kumar and suggested that the legal effect of both these judgments is that the roaster positions do not determine the seniority of the candidates who gain simultaneous appointments. It meant that the practice that took place in the state till these judgments were rendered, did not affect the ordinary rule of preparation of the seniority list. Though under Article 16(4), the state can make a provision for representation of the scheduled castes and scheduled tribes if in the opinion of the state they are not adequately represented in the matters of reservation in promotion, however in the present case or the earlier ones as having been mentioned, there did not seem any valid rule in operation that said that the roaster is also the seniority list. If in a hypothetical situation, it were so, it would be in contravention of Article 14 of the Constitution.

In the Swarnam J Natarajan and the N.Santosh Kumar cases, the judgments held that the 200 point roster prescribed to implement the rule of reservation had no nexus with the seniority of lists that were to be prepared upon simultaneous appointments of several candidates for the same position. 

To that end, the Court concluded that the issue is settled and it may no longer be contended that the roster position determines the seniority of the candidates in the recruitment process. From  2009 onwards, the seniority of the persons appointed for the post of Civil Judge (Junior Division) has to be determined by the marks secured by the successful candidates in the examination such that the candidate with the highest marks will be placed in the first position and the candidates with the lowest marks among the successful candidates will be placed in the last position in the list that will be prepared according to seniority and will have no nexus with the positions of the candidates in the 200 point roster. 

Decision

The court then disposed of the petitions and directed :

  • That the revised seniority lists that will be prepared according to the marks secured by the candidates recruited to the post of Civil Judge (Junior Division) would prevail regardless of their positions in the roster or the position shown by the Public Service Commission. In a case where two appointees secure similar marks, their age as to whoever is older/oldest will be considered to determine who will get the higher/highest position in the seniority list.
  • That this direction will be applied to those appointed to the post of Civil Judge (Junior Division) from 2009 onwards.
  • That though the dates of appointment are significant for the preparation of the seniority list but if a common recruitment process is undertaken then all new appointees will be deemed to be appointed on the same date and their seniority will be based on the marks secured in the recruitment examination without any consideration to the date of joining or roster position.
  • Those candidates recruited as Civil Judge (Junior Division) in or after 2009, who have already been promoted will not be demoted to a lower post.
  • The revised list of seniority results in higher-ranked officers remaining in lower posts than a lower rank officer; the promotion will be on the basis of prospective vacancy in promotional posts.
  • If a Civil Judge (Senior Division) is eligible for taking the limited competitive examination, the judges with ranks higher than the last-placed Civil Judge (Senior Division) who are entitled to take the exam based on the time spent in the post will be eligible even if they have not spent required time in the post.
  • That this order will be applicable in determining the seniority and preparation of the list will be based on descending order of marks secured in the examination for the recruitment process conducted in 2009, 2012, 2015, 2018 and 2020. The highest scorer will be given the first position and so it will be followed till the lowest scorer gets the last position irrespective of the roster slots.
  • This order will not be effective on any fixation/re-fixation of seniority made according to the law for judges recruited prior to 2009.

Conclusion

Thus, the judges declared that the practice of fixing seniority and granting promotions to judges based on reservations falls foul to Article 14 on the ground of unreasonableness. The merit of a reserved candidate should not be of disadvantage to him in terms of pushing him behind in seniority and promotion.

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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