Privatisation of Indian Railways : how bonafide is the need

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October 3, 2021

Indian-Railways — Image Source- https://bit.ly/2Se49Cy

This article is written by Priyanshi Soni, a student of Symbiosis Law School, Noida. This article seeks to discuss the privatisation of Indian railways and the questions raised regarding it, along with stating the merits and demerits of the same.

Table of Contents

Introduction

Indian Railways are credited for serving the largest democracy in the world. It is one of the highest revenue-generating industries in India. After around 167 years after the start of Railways in India, Tejas Express, which was an initiative of the Indian Railway Catering and Tourism Corporation (IRCTC), was started as India’s first (partially) private train. The train has done incredibly well so far, both in terms of reviews and finances. It is almost at break-even in the first quarter. The Mumbai-Ahmedabad Tejas has seen increased occupancy, and this may be a stepping stone for the introduction of private enterprises.

The second term of the Narendra Modi government introduced the idea of privatizing Indian Railways, as the railways continue to struggle with financial difficulties despite an improving operating ratio, and are still far from achieving an optimal financial position to sustain railway operations, which the Government believes can be achieved through its privatization.

There has also been a debate going on in recent times regarding the complete privatisation of railways. Is there really a need to privatise them or should it rather be totally owned by the Government? Or, is any mid-way possible? Let us examine the possibilities of privatisation of Indian Railways and the stand of the Government with regard to the same.

The questions raised regarding privatisation

Indian Railways are an age-old service that we are provided with. With the changing needs of the economy, the Government is of the view to privatise it. There is a long debate going on whether privatisation will be beneficial to the general public or will it prove to be disadvantageous as the accessibility will then become disproportionate, due to income disparity. Another question relates to the manner in which the market forces will impact Indian Railways and the way the Government will tackle any financial withdrawal, post-privatization.

The coming of privatisation will also raise concerns about which areas private players will focus on, who will control railway operations, and how the distinction between the Government and the private players in all sectors will be drawn. If private players’ judgments and railway organisation outweigh the interests of employees, it may have a significantly negative influence on employee welfare and ultimately lead to the organization’s end.

The origin of current reforms

In 2015, an official committee, headed by NITI Aayog member Bibek Debroy, recommended several reforms concerning the Indian Railways, restructuring the Railway Ministry, and suggested a complete overhaul of the railway board and entry of private players. Unification of the railway budget with the Union Budget was also suggested by the committee which was then implemented by the National Democratic Alliance (NDA) Government in 2016. It was pointed out by the committee that there is increased competition in the road transport sector. Low passenger fares and high freight rates have led to a preference for road transport.

But, the committee supported liberalization as a way of giving entry to private players instead of straightaway terming it as “privatisation”. In its view, this will help in improving services, growth, increase in healthy competition, etc. which will be beneficial for all.

Opening of the sector

In 2017, the then Union Railway Minister Suresh Prabhu launched the “largest transit-oriented development program ever executed in India” for reform and overhaul of 400 stations. He wanted to open the entry of private players, like airport mode, and lease them for 45 years. But in 2019, NITI Aayog’s Chief Executive Amitabh Kant wrote that there is a delay in implementations of the same. Finally, in 2020, the process to allow private trains on 109 routes began. The Indian Railways plans to introduce the private trains in phases due to start from 2023-24.

The debate on fares and prices

The major question that is raised is that will the privatisation of Indian Railways lead to an increase in fares and prices? Last year, it was clarified that only the private concessionaire will decide the fares for private trains. Now since the maker will decide the price, there is a good possibility of higher fares for these trains. But, it is also the stand of the ministry that the operation of these trains will be independent. That means, it signifies that there should be no interference with the regular fare prices.

Opposition’s stand

The opposition stood against the privatisation of Indian Railways as they contended that the operation would be handed over to few players and would result in fare price hikes.

Piyush Goyal, who was the Union Railway Minister, said recently that the Railways will never be privatised but private investment will be encouraged. “Let me make it clear, the Indian Railways will never be privatised, Indian railways is India’s asset and will continue to remain so and belong to the people…If a railway line is installed should there not be the need to ensure good services to the passengers and higher speed trains? And if any private investment comes, I feel it should be welcomed.” – Piyush Goyal.

Merits of privatisation of Indian Railways

Indian Railways has devolved into an ineffective and bureaucratic monolith over time. The merits of privatisation of Indian Railways are discussed as follows:

Efficient services

In many aspects such as catering and punctuality, railways lack efficiency and if private players enter into the handling of organization, then these services will become more efficient.

Increase in revenue collection

Right now, both freight and passengers are maintained by a single entity, so there is an imbalance in profits and losses for each other. If private players enter, giving world-class service, there will be an increase in revenue collection.

Introduction of latest technology

The allowance of international private players will lead to the introduction of the latest technology which will improve accountability, unlike present times when accidents are rising.

Normalization of prices due to competition

An increase in competition is important for the growth of the sector which would be ensured when private players enter and hence lead to overall betterment in the quality of services. This will normalize the prices charged as now the competition will be on the increase and thus, quality would also become better.

Demerits of privatisation of Indian Railways

Coverage

It is a big advantage if the railways are government-owned as it helps in wide coverage throughout the nation. On the contrary, when it is privatized, the less popular routes would get neglected leading to poor connectivity. Mainly, the regions such as hilly areas and North-Eastern states will get neglected.

Increased fares

Increased fare prices are a major problem that might crop up with the coming of privatisation. The private players would be more concerned with making a profit which will result in a rise in prices, resulting in poor reach to all segments of society. This will undermine the very purpose of railways and may result in a loss to road transport.

Also, taking the social welfare concerns into account, privatisation will lead to high-cost transportation of goods across the country.

Conflict of interest

Since the Ministry of Railways is given the charge of service providing, policymaking, and regulation, there are fewer chances of conflict of interest, and the interest of the entire system is maintained well. But if privatisation happens, there will be conflicting interests between the Government and its investors.

The future of privatisation

As we have examined the pros and cons of privatisation, it is now clear that total substitution by any one player can result in many drawbacks. The need is the co-operative working of Government and private sector. The function of privatization is not to override employee and passenger benefits, but also to regulate infrastructure development, with disinvestment in the freight segment which would further help the concentration of investments in diverse sections of railway operations with the engagement of private players in helping the Government supplement its efforts in the sustenance of railway operation.

It cannot be said that railways can depend totally on the private sector. Definitely some sort of government help is needed. For better connectivity and reach, it is important that the Government keeps a check on the working of the sector. The needs of economically backward people can only be addressed by the Government’s support and supervision. It is, therefore, necessary to have a partnership, rather than a complete substitution.

In response to the recent Parliamentary debate, Railway Minister Piyush Goyal said that the railways will never be privatised totally. He clarified that the Government is working more on passenger safety. He said the 5,500 km track is going to be privatized this year and talked about the Government’s target of complete electrification by December 2023. It is true that the core sectors can be corporatized, which refers to the restructuring or transformation of a state-owned asset or organization into a corporation, rather than privatized.

The Niti Aayog strategy for New India @ 75 includes various targets in railway infrastructure, such as raising infrastructure development speed from 7 km/day to 19 km/day by 2022-23. Privatisation will thus help in the development of better infrastructure.

A study on the privatisation of railways

In a recent study conducted by a few BA.LLB students on privatisation of Indian Railways found that most of the common people are not happy with the idea of privatisation as they know that standard of service will do get an increase, but they also are aware regarding increased fare prices which are inevitable. The majority of people are rational and are of the middle class, those who choose rail transport. Thus, people are generally suggesting to not privatise it as it will be disadvantageous for those who heavily depend on the railways as a means of transport.

Conclusion

The railways are the largest means of transportation. But in many aspects, it lagged behind; such as in terms of punctuality and accountability, as we discussed above, The private sector can better manage the service. There are increased cases of accidents as well, which calls for a proper modern technological setup in place.

In recent times, due to the increase in the public mass interface, the Government has made it clear that it is important to open it up, although refused to call it privatization. It is important to modernize the railways to meet up with the modern demands and also to match globally in terms of developments. The need of the hour is thus a balanced approach by both the Government and private players.

References

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Ideas are not protected by intellectual property law but expressions are : analysis

By

Oishika Banerji

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October 3, 2021

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BV Acharya — Image Source - https://www.avinashchandra.com/business-ideas

This article has been written by Kaushiki Vatsa pursuing the Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho. This article has been edited by Ruchika Mohapatra (Associate, Lawsikho) and Dipshi Swara (Senior Associate, Lawsikho).

Table of Contents

Introduction

In copyright law, the ideas are not protected per se but the ways in which those ideas are projected or manifested are protected. To ensure that generic ideas or ideas that can be expressed in a limited number of ways should not be copyrighted, idea expression dichotomy doctrine and merger doctrine were created. An idea is a suggestion about a particular thing which is generally intangible whereas an expression is the implementation of all the ideas to achieve the desired result (Expressions provide the ideas a tangible form). The main objective behind these two theories is that it is completely possible that many people can come up with the same idea because a broad idea can have many interpretations. If they secure copyright over these ideas then it will lead to offering copyright to the very basic or general ideas or giving monopoly over ideas which will further put censorship and in a way as it will be violating freedom of speech. There should be a free-flow of ideas so that they are present in the public domain for everyone to be used. By this way, ideas can be developed gradually, modified and rectified if necessary. Moreover, if the courts start granting copyright to ideas then the courts will be flooded with these meaningless cases of copyright over ideas.

Idea expression dichotomy

This doctrine has the aim of protecting the ways by which the original or creative ideas of the author/ creator can be manifested, by granting it’s expressions copyright. Dichotomy is basically a fancy term of bifurcation. It helps to differentiate between ideas and expressions as they both are treated differently in copyright law (ideas are not granted copyright but expressions are copyrightable, considering it fulfills all the other elements which are necessary for claiming copyright ). Baker v Selden was the case that established the idea-expression dichotomy in the US (Section 102 (b)– which says that only expressions are protected and not the ideas). Selden argued that he has the copyright in the very underlying method of accounting which he has developed in the book. The Supreme Court said that Selden never demanded copyright for the introductory paragraph of the book but he wanted copyright for his ideas. To which the Supreme Court answered that copyright cannot be extended to the “ideas” and the “art” that has been used in the book but can only be granted to the expressions and not in the underlying method. They added that the sale of the books can be protected by granting them copyright but this copyright cannot be extended to pictures, sketches, figures, drawings or any other pattern that are inside the book. Furthermore, they distinguished between idea and expression as claiming copyright over ideas will give undue advantage to the copyright holder (or monopoly in this case) which will further destabilize the flow of the market as few people will have the whole control. Over time this distinction has expanded to cover other things as well (Article 9 (2) of TRIPS– apart from ideas, it talks about procedures, method of operation, mathematical concepts).

In Nichols v Universal Pictures Corp, the court used the abstraction test. This test basically says that if the two works are similar, then that does not mean that it is copyright infringement. For copyright infringement, the works should be more than just the ideas and substantial parts of the two works should be similar. The point here is to draw the line where these similarities amount to copyright infringement. Using this test the judges compared the plot, screenplay and the characters of both the work and they were not the same. So, there was no copyright infringement.

In Indian context, there is no section in the Indian Copyright Act of 1957 that expressly excludes ideas from being copyrighted or no substitute of Article 9 (2) of TRIPS but there are several case laws that give us clear ideas. In RG Anand v Delux films the Supreme Court laid down three major propositions regarding idea and expression:

(i) Firstly, ideas, themes, historical facts and subject matter cannot be copyrighted but the ways/ expressions in which those ideas are manifested can claim copyright.

(ii) Secondly, if the idea is the same then the court will have to determine these similarities. They will have to check whether the similarity between the works is substantial or not and whether a reasonable or a prudent man (substantial similarity test) would find those works similar or not (average viewers’ test). It is important to note that the substantial similarity test is the same as the abstraction test of Nichols v Universal Pictures Corp. The average viewers’ test is an objective test which was criticised heavily because of the fact there are no certain guidelines provided by the court to determine whether the several expressions of the same idea are similar or not.

(iii) Lastly, if only ideas are the same and the expression is totally different then there is no question of infringement. Before the substantial similarity test, the courts must determine that the two pieces of work should be more than just the ideas and their focus should be on the expressions of the works. The courts in India have followed this judgement for the idea-expression cases. Conventionally, the reason for the ideas to be not copyrightable is that they are very abstract or general. However, It is also important to note that it is not mandatory for the ideas to be abstract. It can be functional, processes, systems, methods and technical but then also it won’t be copyrightable because at the end, they will be ideas only no matter how technical they are (Bikram Yoga Case).

There is another doctrine which is very similar to this doctrine called the Facts-expression doctrine. This doctrine basically tells us that in copyright law only the expressions of the fact are protected and not the facts as such. The same facts for an instance can be taken and expressed differently and when that happens copying these facts is not copyright infringement. Copyright does not care the amount of time and hard work it has taken to obtain these facts but more about the ways in which those facts are expressed or manifested (the pattern in case of newspaper). As stated earlier, the main objective of bifurcation between ideas and expressions is to ensure the protection of free speech in our everyday life interactions.

Merger doctrine

If we are talking in practical terms, sometimes the distinction between the idea and expression is not clear because whenever an expression is copied, the idea behind it is also necessarily copied. There are circumstances where ideas can only be projected or manifested in a limited number of ways. In such a situation, according to the doctrine of merger, ideas and expressions are considered to be merged and neither of them can claim the copyright as the ideas swallow the expression. Expressions will also not be given copyright because granting copyright will give the owner the whole monopoly over the idea as there are a limited number of ways to express those ideas. It is also important to note that the grant of copyright over such a monopoly will be against the public good as it will lead to censorship. This doctrine can be explained well with these two case laws- In Shamoil Ahmad Khan v Falguni Shah & Ors, the court elaborated on how or in what way we should distinguish ideas and expressions. The court said that to achieve the basic idea we should strip away elements of expressions such as themes, plot, settings etc. It is also important to note that this test is criticised by the judges in this case only because there is no way to draw the line with the series of abstractions. In Mattel Inc. v Jayant Agarwalla, the court said that the major task before the court is to separate ideas from expressions (Extraction test). And if this distinction is not clear because that certain idea can only be expressed in a limited number of ways, then the work will not be copyrightable under the doctrine of Merger.

Conclusion

From the above-mentioned information, it is clear that the idea-expression dichotomy has been very intensely used in the United States of America and is very much familiar to Indian Jurisprudence as well. However, there is another side of the story. There are certain times when the idea-expression dichotomy fails to deal with copyright infringement cases. But the courts have continued supporting this doctrine which led to more confusion. In a practical sense, the courts never examine this doctrine in a detailed manner and even when it is examined properly, it rarely helps in deciding cases. This could be a shock because of the fact that the doctrine has a very general statement to challenge any particular application. This doctrine does not provide any specific mechanism to either put the work in the public domain (for it to be used by all people) or to grant the work copyright and protect author exclusive rights.

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Analyzing the Haryana State Employment of Local Candidates Bill, 2020

By

Abanti Bose

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October 3, 2021

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This article is written by Rishabh Shukla, pursuing B.A.LL.B (Hons) from the Maharaja Sayajirao University of Baroda, Faculty of Law. This article is a detailed analysis of the Haryana State Employment of Local Candidates Bill, 2020.

Table of Contents

Introduction

The Haryana Government passed the ‘Haryana State Employment of Local Candidates Bill, 2020’, (the Bill) on November 5, 2020. The assent of the Governor of Haryana for the same was received on February 26, 2021. The aim of the bill is to increase employment opportunities for the locals in the private sector. Similar to the Bill introduced by Andhra Pradesh Government, Haryana Government has also announced that 75 percent of private-sector jobs in the state, till a certain salary slab, shall be reserved for local candidates.

The Bill shall come into force on such date, as the Government may, by notification in the Official Gazette, specify. The implemented Bill would reserve 75% of the jobs in specified private sector posts for specific local candidates.

The flood of countless migrants seeking low-paid positions puts a critical effect on local framework and lodging and prompts the expansion of slums. This has prompted natural and medical problems which have been intensely felt in the metropolitan spaces of Haryana influencing the nature of living and work. Accordingly, offering inclination to local candidates in low-paid jobs is socially, financially and ecologically attractive and any such inclination would be in light of a legitimate concern for the overall population.

With the authorization of the present Bill, in light of a legitimate concern for the public, the State is likewise going to support every one of the private employers in Haryana to help and expand local employment. The Bill will give enormous advantages to the private employers straightforwardly or in a roundabout way through the certified and trained neighbourhood local workforce. Accessibility of a reasonable labour force locally would improve the effectiveness of the industry as the labour force is one of the significant parts for the advancement of any mechanical association/industrial facility.

Key features of the Bill

To give essentially 75% of employment to the local candidates in different companies, societies, trusts, limited liability partnerships firms, partnership firms and so forth arranged in the State of Haryana.
To give training to capable local candidates were qualified or reasonable candidates are not available.

Application and duration of the Bill

Applicability – The Bill is applicable to all the companies, societies, trusts, limited liability partnership firms, partnership firms and an entity, employing 10 or more persons on salary, wages or other remuneration, as may be notified by the government on an updated basis. It shall not include the central or state legislative authority or any other institution owned by the Central or State Government.
Duration – As per the Bill, its provisions shall cease to have an effect on the expiry of 10 years from the date of its commencement (such date is supposed to be notified by the State Government).

Important provisions

Registration of employees

Employers in the applicable establishments are supposed to register employees who are having a monthly salary below Rs 50,000 on a designated portal, within 3 months of the Bill coming into effect. An employer is not supposed to employ any new person till the time such registration is complete.

Recruitment of local candidates

For posts where the gross monthly salaries or wages are within the wage limit, every employer is supposed to employ 75% of the local candidates. The term ‘local candidate’ refers to any candidate who has a domicile in the state of Haryana. An employer may, at his option, restrict the employment of local candidates from any district in Haryana, to 10% of the total number of local candidates. Further, these local candidates have an option to avail benefits that are mentioned under the Act, only when they have registered themselves on the designated portal.

Exemption from recruiting local candidates: If an adequate number of local candidates of the desired skill, qualification, or proficiency is not available, employers have the option to claim exemption from recruiting local candidates. In such a situation, the employer is supposed to apply, in the prescribed manner, to the designated officer as defined under the Act, (“Designated Officer”). The Designated Officer thereafter, after carrying out an inquiry as he deems fit, and after evaluating the attempt made by the employer to recruit local candidates of desired skill, qualifications, proficiency, has the option to either accept or reject the claim of the employer for an exemption or to instruct such employer to train the local candidates to achieve the desired/required skill, qualification or proficiency.

Offences and penalties

Liability in case of offences: In an event of the commission of an offence by a company, unless they are able to prove that such offence was committed without their knowledge or due consent, every director, manager, secretary or person concerned with the management of the company is deemed guilty of such offence.

Will the employer be penalised for not following provisions of this Act

Yes, once it is established that an employer has committed any violation with respect to the provisions of the Act, the employer can be penalised with a minimum fine of Rs. 10,000 to a maximum fine of Rs. 2 lakhs. Nonetheless, if the employer still chooses to continue committing such violation, even after conviction, then in that case, a penalty of Rs. 1,000 per day shall be imposed on him till the day such violation continues. A penalty of Rs. 50,000 shall be levied on the employer who knowingly produces counterfeits or false records or false statements. On a subsequent offence, the penalty shall not be less than Rs. 2 lakhs, and it may extend up to Rs. 5 lakhs.

Constitutional issues related to the Bill

Certain fundamental rights have been guaranteed to all citizens by the virtue of the Constitution of India. These rights include the right to equality before the law (Article 14-18), the right to freedom to reside in any part of the country, and the right to practice any occupation or business. They prohibit every sort of discrimination on the basis of religion, race, caste, sex, or place of birth. However, through the process of reservation in the education and employment sector, the state may provide for the upliftment of certain sections of society. These reservations are based on domicile or backwardness.

For instance, the Constitution, under Article 16(3) grants the Parliament powers to make employment-related laws for an office that works under the State, providing requirements such as residence within that state. Under Article 15(4), the State has the power to make provisions for the upliftment of socially and educationally backward classes of citizens. Further, under Article 16(4), the State has the power to make provisions for reservation of posts or appointments in favour of citizens who fall under the category of backward classes and who are not adequately represented in the services of the State.

The Bill makes it mandatory for all the Haryana based private establishments to provide 75% of their new jobs to local candidates. This gives rise to 3 potential issues.

Firstly, reservation in private institutions may result in violating their right to carry on occupation or business.
Secondly, a state law that is providing for domicile-based reservation may not be termed constitutional.
Lastly, 75% reservation in employment may result in violating the guidelines that were laid down by the Honourable Supreme Court in the past. These issues will be examined in detail below.

Reservation in private institutions may violate Article 19(1)(g)

The Bill makes it mandatory for all Haryana based companies, societies, trusts, partnership firms, or any person to employ 10 or more persons in order to provide 75% of new job opportunities to local candidates. Article 19(1)(g) of the Constitution states that every citizen has a fundamental right to practice any profession or to carry on any occupation, trade or business. Mandating private institutions to employ a certain set of candidates may result in encroachment upon such institutions’ fundamental right to carry on their occupation.

In the year 2002, the Honourable Supreme Court of India held that the private educational institutions that are unaided are entitled to have full autonomy in their management and administration. Further, in the year 2005, the Court ruled that State is not entitled to insist on unaided private educational institutions, to implement reservation on the basis of any other criterion except for merit. It was held that the State cannot force private educational institutions to provide for reservations, merely because the resources of the State for providing professional education are limited. In doing so, the Court further observed that the right to establish and administer an educational institution will also be counted as an occupation under Article 19(1)(g).

Subsequently, in the year 2005, the 93^rd Constitutional Amendment Act was passed, which allowed the State to make provisions in the matters related to admission in private educational institutions, for the upliftment of socially and educationally backward classes of citizens. However, it is pertinent to note that the amendment does not provide the State with the power to make such provisions for employment in private sectors. Therefore, the provision for reservation mentioned in the Bill may result in a violation of Article 19(1)(g) of the Constitution.

State law providing for reservation solely on the basis of domicile may not be constitutional

The Bill commands foundations to give reservation in work to local candidates. Local candidates are people who have a residence in the territory of Haryana. In 1957, the Public Employment (Requirement as to Residence) Act, 1957 was passed to nullify all existing laws endorsing any necessity of residence inside a state for public employment. Further, Article 16(2) of the Constitution explicitly disallows any segregation dependent on the place of birth or residence in the issue of public employment. However, a few states in the past have taken measures to accommodate reservations dependent on domicile. In these cases, the Supreme Court has held that reservation in employment based wholly on domicile is violative of Article 14 (balance under the steady gaze of law) and Article 16(2) of the Constitution. The Court held that domicile in itself doesn’t give any substantial or sensible order for giving reservation.

For instance, in 2002, the Supreme Court announced the appointment of government teachers in Rajasthan where the state offered inclination to candidates having a place with a specific district, as illegal. It held that geological order can be utilized for the categorisation of financial backwardness. Except as provided in Article 16(3) residence by itself in a state cannot be a ground for reservation. It is pertinent to note that the power to establish a law providing for residence as a ground for reservation (in public employment) is vested only with the Parliament under Article 16(3). Essentially, in 1995, the Supreme Court struck down rules by the Andhra Pradesh government giving preference for competitors with Telugu medium in public services. It held that such an arrangement will remove the best applicants and would give unnecessary benefits to less praiseworthy candidates.

Notwithstanding, as of late, some different states have additionally taken measures to accommodate reservations for local applicants in the private sector. In July 2019, the Andhra Pradesh government passed a law to accommodate 75% reservation to local people in industries or production lines. The following Act has been challenged in the High Court of Andhra Pradesh. In May 2020, the High Court observed that the share for local people in private positions might be illegal, and sought a reply from the public authority. The case is now sub judice.

Conclusion

State governments have endeavoured shifted measures to lift up the local residents of their state and augmentation the work extent. In any case, preferring a specific part of the general public based on their domicile over different segments, in regions requiring capability and abilities is simply prone to hamper the nature of the business and market. The well-deserving candidate might be shunned from being employed at specific organizations and add to the economy of the country and raise the quality market just on the ground of not being a resident of a specific state. Further, the private areas may not see the value in such high mediation from the public authority wherein they won’t just think twice about the nature of candidates being employed yet additionally cause extra cost on training the employees for the necessary range of abilities. Private industries may rather search for a change in their office areas to an adjoining state in this manner prompting an enormous effect on the neighbourhood work of such a state as well as it will affect the real estate sector. State governments should engage their local population with abilities and capabilities rather than supporting reservations.

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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Presumption of intention in domestic and social agreements

By

Abanti Bose

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October 3, 2021

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This article is written by Jinal Prajapat from Damodaram Sanjivayya National Law University and the article has been edited by Khushi Sharma (Trainee Associate, Blog iPleaders)

Table of Contents

Introduction

It is not wrong to say that millions of contracts are concluded in one day. To give basic instances, we can consider transactions between shopkeepers, transactions between corporations, experiencing the service in the restaurant, and the purchase of tickets, etc.

A contract is the foundation of the civilized world. To define contracts in the way Salmond did – “A contract is an agreement creating and defining obligation between two or more persons by which rights are acquired by one or more acts or forbearance on the part of others. ”

It is vital to describe what a contract is according to the Indian Contract Act of 1872 which mostly covers contractual principles and rules. As per Section 2(h) of the Act, a contract means “any agreement which is enforceable by law”.

It should be understood here that not every agreement results in a valid contract. There are different essential elements of a contract to form a valid contract. The Indian Contract Act in Section 10 lists the essential requirements for a contract to be enforceable in a court of law. India follows the English principle, which makes it necessary for a valid contract to have the intention to create legal relations.

The meaning of Intention to create legal relations is that the “intention of the parties to enter a legally binding agreement i.e., contract and fulfil its obligations lawfully”. The common intention of the parties to enter into legal obligations, expressed or inferred, to create a valid contract must be present in addition to consideration. There must be, it is said, consensus ad idem.

In circumstances where the question of the existence of a contract arises, the Court seeks to bring into effect what was agreed at the time by the parties. However, when the terms of these proceedings are uncertain, the Court shall examine whether the parties have intended to create legal relationships.

The idea may have been derived from the famous Carlill v Smoke Ball Company case of 1893, but it had not truly been established by the landmark judgment of Balfour v. Balfour in 1919.

The legal analysis of the intention to create legal relationships has therefore led to a conventional split and to establish standards to help with the verdict on the presence of this intent. The split includes analyzing if a social, familial, or domestic agreement or a commercial agreement is established. The assumption is that there is no intention of creating legal relationships in a domestic agreement, although this can be rebutted where objective circumstances evince an intention.

This essay will review the rules governing the intent to create a legal relationship.

Presumption of intention in domestic and social agreements

Although many sources include “social and domestic agreements” as a single category, it is preferable to distinguish ‘family agreements’ from ‘social agreements’, since social agreements do not evoke a presumption and only the objective test applies in cases determined on the facts. Of course, the presumption may be rebutted by proof of contrary intent, but a purely subjective intention to create legal relations will not suffice. There must be objective proof of an opposing intent.

Unless there is strong evidence to the contrary, family agreements are assumed not to create legal relations. Courts will invalidate agreements that are not legally binding. The simple establishment of a joint bank account between a man and his wife, or the guy promising to purchase her a vehicle in an attempt to mend their troubled marital connection, is a merely domestic agreement that does not result in a legal relationship.

In 1919, in Balfour v Balfour, Lord Atkin held that no intention to be legally bound was found although the husband was not able to pay maintenance while working in Ceylon (when the husband failed), even though the woman was dependent on the payments. In general, agreements between spouses, the Court noted, are not legal, and highlighted the fact that considering the contract, makes it ridiculous, because in this case, it seems to be more or less trivial concerns of life, where a wife promises him, at the request of her husband, this is a promise that can be enforced. The Court has decided that the plaintiff has the duty of concluding a legally binding agreement.

In Spellman v Spellman, it was determined that a husband’s commitment to buy a car from his wife followed by the contract of purchasing a car booked on behalf of his wife—a prohibition on parting with a car—was not meant to establish a legal relationship or to confer rights in a car or a purchase agreement. A purely domestic agreement was signed against Spellman v Spellman. The transaction was entirely domestic, with no intention of carrying out a fair transfer or trust.

The same concept applies to agreements between parents and children that are assumed not to be legally binding but are rebuttable based on whether the parties’ language demonstrates such an intention.

Mrs. Jones purchased a home where Mrs. Padavatton lived while studying at Lincoln’s Inn in the case Jones v Padavatton. Mrs. Jones filed for possession after a dispute, but Mrs. Padvatton claimed that their agreement constituted a legally enforceable contract, allowing her to stay in the home until she completed her bar examinations. The Court used Balfour v Balfour and determined that a mother’s commitment to give an allowance and use of a home in exchange for her daughter leaving the United States of America to study for the English Bar was not an enforceable contract.

This case exemplified the Court’s thorough study of the parties’ dealings to determine if the assumption may be rebutted. The Court reaffirmed the assumption that family agreements are often based on mutual trust and love and have no purpose of establishing formal relations.

“Unlike the earlier case, however, the complexity and precision of the agreements in this one meant that the facts had at least to be considered, rather than being dismissed as ‘outside the realm of contracts.”

Rebutted presumption

In the case of social relations, Courts disregard the presumption of intention to establish a legal relationship and instead look at the facts and circumstances. All that is required by the law is that the parties intend legal consequences. The assumption is rebutted if there is evident intent to be contractually bound.

The assumption of domestic agreement parties not intending to establish legal relations may be rebutted in several ways. There is no definitive list of techniques for rebutting the assumption. While whether or not the presumption is rebutted ultimately relies on the circumstances of the case, instances in which the presumption is rebutted have certain characteristics. When spouses have separated, it is usually assumed that they intend to abide by their agreements. The signed written agreement provided further proof of a desire to be bound.

For example, in Merritt v Merritt, a separation agreement between estranged spouses was held to be binding after the presumption was successfully rebutted and an intention between an estranged husband and wife was established. In this instance, the husband agreed to give the wife £40 each month to assist her with mortgage payments, and in exchange for her paying all mortgage costs until the mortgage was paid off, he would transfer his part of the property to her. He lowered his monthly allowance to GBP 25 per month once the mortgage was paid off and refused to transfer the property. She filed a lawsuit seeking a declaration that the home was hers. The Court conducted an impartial analysis of all relevant facts before finding that there is an intention in such situations. In this case, the Court of Appeal determined that their contract was binding and differentiated it from Balfour v Balfour based on the parties’ separation.

McGregor v McGregor is another example of a legally binding relationship between husband and wife. In this case, a husband and wife withdrew their complaints according to an agreement in which the husband agreed to give her an allowance and she agreed not to pledge his credit. The agreement was found to constitute a binding contract.

Simpkins v Pays demonstrates how the assumption that an agreement is legally binding may be rebutted when a third party is involved. The facts are as follows: The defendant, her granddaughter, and the plaintiff (a paid lodger at their residence) all participated in a weekly tournament, with each contributing one-third of the stake held in the defendant’s name. When they won a £750 reward, the defendant refused to split it, prompting the plaintiff to sue for a third of the winnings. The Court determined that the outsider’s presence rebutted the assumption that the pact was a familial agreement and meant to be legally enforceable. There was adequate reciprocity in the agreements reached between the parties.

Parker v Clark shows that, although it is believed that domestic agreements do not establish legally enforceable duties, the circumstances may overrule this presumption in certain instances. The defendants, an elderly couple, proposed that the claimants, who were their friends, move in with them, forcing the defendants to sell their own home. The defendants bequeathed a portion of their home to the plaintiffs in their will. The claimants accepted this offer, sold their home, gave the remaining funds to their daughter to assist her in purchasing an apartment, and moved in with the defendants. As a result, the claimants vacated the premises and filed suit against the defendants. The defendants contended that they did not enter into a contract because they lacked the intent to establish legal relations. The Court determined that the parties wanted to establish legal relations. This case shows that the agreement intends to have legal consequences where one party has acted to his detriment on the faith of the agreement.

Additionally, in Errington v Errington, a father-in-law bought a home for the residence of his son and daughter-in-law. He promised the couple they would own their house if they continued with their mortgage payments. The father died afterwards and left the mother’s house. The son returned home with his mother when his father died, but his spouse refused to make the mortgage payments and continued to pay. The mother submitted a request that the wife is taken out of the house. In the defendant’s favour, the Court of Appeal ruled. The home had no rights of ownership for her and her husband. However, it did take advantage of a clause that ensured its continuing occupation until the mortgage was paid. The defendant had the right to see her: neither could her sister be expelled.

In Beswick v. Beswick, also, an uncle’s agreement was binding to transfer a coal carrier to his nephew.

Reasons behind rebutting the presumption

As demonstrated in the previous instances, courts are generally reluctant to interfere with policy concerns in domestic contracts. The floodgates argument is the main reason for this perspective. According to Adams and Brownsword, the main aim of this argument is to limit the kinds of cases that may be brought before the courts or to ‘prevent societal and family disputes from over-burdening the legal system.’

Subsequent to this is the idea of De minimis non curat lex which means “Law does not deal with minor matters”. This strategy may be ignored since internal disputes are commonplace. In the case of Balfour v. Balfour, this was also upheld.

The policy highlights the need of safeguarding the private lives of people from excessive judicial intrusion. This is called “contractual freedom” by Chen-Wishart. Adams and Brownsword thus correctly argue that the ‘sanction’ presence of courts may hinder social ties. In a case such as this, it is up to the Court to decide whether the arrangement is “completely social” and thus impractical.

While it is possible to distinguish the idea of preserving the law from the domain of a ‘liberal democratic society,’ Balfour’s approach was attacked for gender inequality.

Conclusion

Not only academics but even courts address the issue of the intention as one of the essential elements of a valid contract. The article tried to unravel the intention of legal relations in domestic and social agreements.

In England and India, the situation about the purpose of contract construction is the opposite. The legal evolution on the concept of the intent to create legal connections has guaranteed in England that marginalization only serves as a proof element. However, in India, it is necessary to demonstrate the legal purpose of binding contractual parties. In formulating binding contractual responsibility it is a non-negotiable aspect.

As a fundamental component of contract law, the purpose of establishing legal relationships is not stated in our Indian legislation, as the Indian Apex Court voiced reservations on the need for this distinct ‘intention to enter into legal relations’ required under the contract statute.

We should ultimately conclude that the intention to create legal relationships is a basic contract requirement. First of all, there may be some similarities, but when the two components are distinct, there can be so many instances. As if two friends agreed to visit a restaurant, one of whom pledges to pay for the drink, and another for the meal so that we can not claim that there is no consideration, but yet that there is no intention to create legal relations.

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Case analysis : Vidya Drolia and Ors. vs. Durga Trading Corp.

By

Abanti Bose

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October 3, 2021

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This article is written by Manaswee, pursuing Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho. The article has been edited by Aatima Bhatia (Associate, LawSikho) and Dipshi Swara (Senior Associate, LawSikho).

Table of Contents

Introduction

The December 2020 judgement of the 3-judge bench of the Hon’ble Supreme Court in Vidya Drolia and Ors. v. Durga Trading Corporation has been a landmark in settling many controversies that had been looming over the Arbitration Law jurisprudence ever since the 1996 Act came into force. Primarily addressing the issue of arbitrability in landlord-tenant disputes which are governed by the provisions of the Transfer of Property Act, 1882 (“TPA”), the Court delved deeper into the issue of subject-matter arbitrability and scope and ambit of the jurisdiction of Court while dealing with an application made under Section 8 or 11 of the Arbitration and Conciliation Act, 1996. The court also settled down the question of arbitrability of fraud much in line with its recent judgment in Avitel.

In this article, we shall look deeper into its two primary determinations: subject matter arbitrability and scope and power of such determination under Sections 8 and 11 of the Arbitration and Conciliation Act, 1996.

Factual background

The present case was an Appeal challenging the legal ratio expressed by a Division Bench of the same Court in Himangni Enterprises v. Kamaljeet Singh Ahluwalia (2017) that landlord-tenant disputes which are governed by the provisions of the TPA are non-arbitrable based on the ground that such would be opposed to public policy. In Himangini Enterprises, the Court primarily relied upon Natraj Studios (P) Ltd. v. Navrang Studios and Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.

In brief, Natraj Studios ruled that on broader consideration of public policy, the licensee-landlord dispute was exclusively triable by Small Causes Court as per the statute governing it. While Booz Allen ruled that tenancy matters that are governed by special laws under which the tenant enjoys statutory protection, only the specified court under that statute has jurisdiction.

The landmark rulings of this judgement can be classified into two:

A. Subject matter arbitrability,

B. Scope and power of determination under Section 8 and Section 11

Subject matter arbitrability

Vidya Drolia recalibrates the law on subject-matter arbitrability and holistically articulates the fourfold test supplementing the rights test laid down in Booz Allen² the ratio of which was however held to be per incuriam with regard to the arbitrability of the tenancy disputes governed by the TPA.

The interesting thing about the determination of arbitrability is that its test is an inquiry into the non-arbitrability of the cause of action and subject matter of the dispute. Thus, arbitrability comes with a negative test which if the matter in question satisfies, becomes non-arbitrable. These have been nicely summed up by Pradeep Nayak and Vikas Mahendra as follows:

“Cause of action of dispute or its subject matter relates to actions in rem, which do not pertain to subordinate rights in personam that arise from rights in rem.
It affects third party rights; have erga omnes effect
It requires centralized adjudication, and mutual adjudication would not be appropriate and enforceable
It relates to the inalienable sovereign and public interest functions of the State and hence mutual adjudication would be unenforceable
When the subject matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statute(s).”

In order to better acknowledge the contribution of this judgement, we will understand this judgement alongside the backdrop of judgements relating to the arbitrability of fraud and tenancy disputes before this case.

Arbitrability of tenancy disputes

The jurisprudence on arbitrability of tenancy disputes can be understood by the position of the Supreme Court over the years in the three landmark cases, namely: Natraj Studios, Booz Allen and Himangni Enterprises that made the law governing arbitrability of tenancy disputes prior to Vidya Drolia.

In 1981, case of Natraj Studios, the Supreme Court held that for a tenancy covered under the special statutes regarding rent control, the disputes between landlords and tenants protected by the statute can be tried exclusively by the special court provided by the statute and are thus not arbitrable.

In 2011, the Supreme Court in Booz Allen reiterated the same view on tenancy matters regulated by special laws where the tenant enjoys statutory immunity from eviction; the jurisdiction over such disputes is bestowed on only the specified courts.

In 2017, the Himangni Enterprises case reaffirmed the non-arbitrability of lease and eviction disputes and held that even in cases governed by the TPA, and not by a special statute it would be the subject matter jurisdiction of the civil court and not of an arbitrator to adjudge upon landlord-tenant disputes.

The rationale so far in these cases continued to be the public policy perspective that statutes dealing with tenancy are special statutes and are inherently public welfare legislations serving the two-folds purpose of protecting tenants from unfair evictions and also from unfair rent/exploitation, striking a balance against an inherently weaker bargaining power in the hands of the tenant. Therefore, the disputes covered under these legislations were consistently ruled as non-arbitrable by Indian Courts. The shift in this viewpoint comes in Vidya Drolia.

In Vidya Drolia and Ors. v. Durga Trading Corporation the Supreme Court ruled that tenancy disputes governed by the TPA are very much arbitrable. It observed that landlord-tenant disputes ”are not actions in rem but pertain to subordinate rights in personam that arise from rights in rem. Such actions normally would not affect third-party rights or have erga omnes affect or require centralized adjudication. An award passed deciding landlord-tenant disputes can be executed and enforced like a decree of the civil court. Landlord-tenant disputes do not relate to the inalienable and sovereign functions of the State. The provisions of the Transfer of Property Act do not expressly or by necessary implication bar arbitration.” Thereby overruling its decision in Himangni Enterprises the court clarified the law upon this point, it ruled that landlord-tenant disputes covered and governed by special statutes would not be arbitrable only “when a specific court or forum has been given exclusive jurisdiction to apply and decide special rights and obligations.”

Arbitrability of fraud

The history of the jurisprudence governing the arbitrability of fraud under the regime of the 1996 Act can be understood with the help of the following four judgements: N. Radhakrishnan, Ayyasamy, Rashid Raza and the most recent being Avitel, as it stood right before Vidya Drolia in 2020.

Starting from 2009, in N. Radhakrishnan v. Maestro Engineers, the Supreme Court held that a dispute involving “serious allegations of fraud” would be non-arbitrable, without defining the ambit and scope of the phrase- ‘serious allegations of fraud’. Understanding illustratively from the facts of the case, here the appellant had alleged malpractices in the account books and manipulation of the finances of the partnership firm by the respondent since the court ruled that it cannot be referred to arbitration We may thus conclude that the allegations of financial impropriety were considered as ‘serious’ and determination over such allegations non-arbitrable.

In 2016, Ayyasamy v. Paramasivam the Supreme Court held that mere allegation of fraud “simpliciter” does not render a dispute no-arbitrable. So to say, matters having no public interest involved and that is purely between the parties shall not be regarded as non-arbitrable on grounds of fraud only. However, if the allegations are such as to make out a criminal case, or when they are so complicated as to require examination by a civil court in light of detailed evidence, the court may dispose of the Section 8 application and examine the case on merits. The Court further illustrated that in serious cases of fabrication or forgery, or where the fraud is such that permeates the entire contract, including the Arbitration Agreement, or when such fraud affects the validity of it, the matter is then non-arbitrable. The primary ruling, in this case, was the twin test that was further applied in the Rashid Raza case and has been discussed henceforth.

The decision of the Supreme Court upheld the principle of kompetenz kompetenz (embodied in Section 16) under which the arbitral tribunal is empowered to determine its own jurisdiction. What must be noted is that the Ayyasamy judgement could not theoretically overrule the N. Radhakrishnan judgement due to their co-ordinate bench strength.

Thereafter in 2019 Rashid Raza v. Sadaf Akhtar, the ruling from Ayyasamy a two-pronged test was applied by the Court under which the Court has to first see whether the allegations of fraud permeated the entire contract, and especially the arbitration agreement, thereby rendering it void and second, to see that whether the allegations pertained to the internal affairs of the parties inter se or whether they had an implication on the public domain.

In 2020 Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd. when HSBC applied for interim measures while Avitel pleaded since there exist serious allegations of fraud and pending criminal cases therefore, no orders should be passed. The Court in applying the twin test found that there is no ‘public flavour’ in the allegations of the Respondent. The Court reinstated the arbitrability of fraud.

The Apex Court in deciding the case for Avitel also observed that the criteria of arbitrability laid down in Booz Alllen and Afkons should be read in consonance with the twin test laid down in Ayyasamy in deciding the issue of arbitrability of fraud. It further held that in a dispute involving allegations of ‘fraud’ whether under Section 17 of the Contract Act, 1872 and/or under the law of tort or criminal, alone would not lead to non-arbitrability of an otherwise arbitrable (by applying the twin test) dispute.

Thereafter in December 2020, Vidya Drolia, the Supreme Court reaffirmed the law laid down in Avitel. It overruled its decision in N. Radhakrishnan and held that fraud renders a dispute non-arbitrability only:

In a clear case where the arbitration clause or agreement itself cannot be said to exist; or
If allegations are made against the State or its instrumentalities of arbitrary, fraudulent, or mala fide conduct which requires a public enquiry.

The Court further observed that “it would be grossly irrational and completely wrong to mistrust and treat arbitration as flawed and inferior adjudication procedure” thus marking a clear shift in judicial perception and its increasing faith in the process of arbitration.

Scope and power of determination under Section 8 and Section 11

The second most notable ruling of this case is with regard to its determination of the scope and extent of inquiry that can be made under

The issue of arbitrability may be raised at three distinct stages:

Under Sections 8 or 11 before the Court (Referral Stage);
Before the tribunal (Arbitration Stage); and
While challenging the arbitral award before the Court (Challenge Stage).

The position of law had been clear with regard to the scope of enquiry into arbitrability at the Arbitration and Challenge stages. Section 16 (1) of the Act provides for the arbitral tribunal to decide as to its own jurisdiction, including questions as to the arbitrability of the issue. This is known as the Kompetenz Kompetenz Rule.

Similarly, for the Challenge stage Section 34 of the Act, a court may set aside an arbitral award if it finds that:

“The arbitration agreement is not valid in law; or
The award deals with a dispute which was not within the scope of the submission to arbitration; or
The subject matter of the dispute is, by law, not capable of being settled by arbitration.”

Upon the point of referral stage determination, the Court has laid down the following five points:

“Sections 8 and 11 of the Act have the same ambit with respect to judicial interference.
Usually, subject matter arbitrability cannot be decided at the stage of Sections 8 or 11 of the Act, unless it’s a clear case of deadwood.
The Court, under Sections 8 and 11, has to refer a matter to arbitration or to appoint an arbitrator, as the case may be, unless a party has established a prima facie (summary findings) case of nonexistence of a valid arbitration agreement, by summarily portraying a strong case that he is entitled to such a finding.
The Court should refer to a matter of the validity of the arbitration agreement cannot be determined on a prima facie basis, as laid down above, i.e., ‘when in doubt, do refer’.
The scope of the Court to examine the prima facie validity of an arbitration agreement includes only:

Whether the arbitration agreement was in writing? or
Whether the arbitration agreement was contained in an exchange of letters, telecommunication etc?
Whether the core contractual ingredients qua the arbitration agreement were fulfilled?
On rare occasions, whether the subject matter of the dispute is arbitrable?”

The Court laid heavy reliance on the 246^th Law Commission Report and held that the scope of review under both Sections 8 and 11 is the same, despite the difference of language in the provisions. The Court reiterated strict adherence to the words in the erstwhile Section 11(6-A) of the Act and has also stated that its omission in 2019 does not change the restrictive examination of the courts at the referral stage. Under Section 8 a judicial authority is required to refer the parties to arbitration unless it finds that no valid arbitration agreement exists prima facie while Section 11 gives restricted power to the court to determine only the existence of an arbitration agreement. However, such an agreement must be enforceable in law; an arbitration agreement that is invalid or illegal is not legally enforceable and can’t be called an agreement at all. This implies that even under Section 11 the court shall have the power to examine the validity of the arbitration agreement.

The test at the referral stage is thus a prima fascie test which the Court simplified and stated, “when in doubt, do refer”.

Criticism

Vidya Drolia has been a landmark with regard to its rulings on subject matter arbitrability in tenancy disputes and disputes involving allegations of fraud as well as with respect to its determination of scope and extent of inquiry under Sections 8 and 11 by the Court and has been welcomed for the most part.

However, experts expressed concern over its ruling with respect to the DRTs that overlooks the concerns of banks and NBFCs and similarly over its ruling on non-arbitrability of all intra-company disputes without considering the subset of intra-company disputes that don’t need the specific powers available with the NCLT for their resolution.

Another point of concern has been pointed out in the matter of difference in appealability of the orders passed under Sections 8 and 11. It is speculated that such a lacuna could be used by recalcitrant parties to resort to dilatory tactics by filing mala fide Section 11 applications which would be antithetical to the intention of the legislature and the essence of the judgement in Vidya Drolia. The Supreme Court in 2021, Pravin Electricals (P) Ltd. v. Galaxy Infra and Engg. (P) Ltd. has this inconsistency and expressed its concern in relation to what has been laid down in Vidya Drolia. The Court invited the attention of the legislature by making an observation stating that it might be needed to have a look at Sections 11(7) and 37 in order to bring the orders passed under Sections 8 and 11 at par on appealability.

Conclusion

The Vidya Drolia judgment sets a landmark in the determination of arbitrability of disputes. By restricting the scope for the allegations of fraud to roar against the arbitrability of a dispute, the Court prevented a whole lot of trouble from getting in the way of efficient and smooth arbitration proceedings. Further, its test for arbitrability along with its observations on Sections 8 and 11 made it clear that the Indian Judiciary has started investing faith in the process of Arbitration. A few inconsistencies remain to be resolved and a few specifications would require elaboration and dedicated explanation for the Court in the future but the judgment has largely pushed India’s arbitration-friendly jurisprudence further ahead and has demonstrated that a similar approach may be expected from Indian courts in the future.

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Does the establishment of utility model make sense : Indian scenario

By

Diva Rai

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October 2, 2021

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Glowing spiral light bulb and tungsten one fighting duel — Image source - https://bit.ly/2Yb2uTS

This article is written by Ajay Kumar, pursuing a Diploma in Intellectual Property, Media and Entertainment Laws from LawSikho. The article has been edited by Prashant Bvaiskar (Associate, LawSikho) and Dipshi Swara (Senior Associate, LawSikho).

Introduction

Intellectual Property Rights strikes a balance between the owner’s exclusive rights and the social interest. The Intellectual Property Rights in India are recognised under the various Acts like The Patents Act, 1970, The Trade Marks Act, 1999, The Copyright Act, 1957, The Designs Act, 2001, The Geographical Indications Act, 1999, The Protection of Plant Varieties and Farmers’ Rights Act, 2001, The Semiconductors Integrated Circuits Layout – Design Act, 2000. It is explicit that India has plenty of legislation to protect IP Rights.

While obtaining patents can be a complex process, the utility model is another form of getting one’s inventions protected, the requirements being less stringent. Various countries provide “Utility Model ” protection to safeguard innovations affordably and speedily, such protection is still unavailable in India. This article will cover the Utility Model protection and the requirement of utility model protection in India.

What is a utility model

A utility model is an Intellectual Property Right to protect inventions. This right is available in more than ninety countries and regions. A utility model is similar to the patent but usually has shorter-term (6-10 years) and less stringent patentability requirements. The German and Austrian utility model is called the “Gebrauchshmuster“, which influenced other countries such as Japan. In Indonesia, the utility model is called a “Petty Patent” in France as “Utility Certificate” and in Belgium as “Short term Patent. However, there is no specific definition for the utility model, and it varies from one country to another. Most countries that provide utility model laws require that the invention should be new. However, many utility models or patent offices do not conduct substantive examination and grant the utility model after checking that the applications comply with formalities. Some countries exclude particular subject matter from utility model protection. For example, methods, plants, and animals are generally barred from utility model protection. A utility model is territorial and will be enforced only within the country in which it is granted.

Difference between utility model and patent

Although the Utility model and Patent seem to be the same, there are some differences between them.

To acquire Patent protection, novelty and nonobviousness requirements, inter alia need to be qualified. On the other hand, to obtain utility model protection, the requirement of novelty is necessary, and the requirement for non-obviousness is comparably low or absent.
Generally, the term of protection for the utility model is between 6 and 10 years which is shorter than the Patent protection.
Usually, the utility model applications are not examined before registration, which makes the registration process smoother and quicker. Obtaining a utility model is inexpensive than patents.
Most countries grant utility model protection only to the products and not for the processes.

Utility model in different countries

Europe

In Europe utility models are limited to the territory, unlike patents; thus, only national utility models are available in European countries. Some European countries that provide utility models are Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Poland, Portugal, Slovakia, and Spain. The utility model is still absent in the United Kingdom.

Germany

German utility model law provides a grace period, which means that prior use or description of the invention based on the applicant’s work does not destroy novelty if it was made six months before the priority date of the utility model. The German utility model does not apply to the whole of Europe and is strictly limited to only Germany. In Germany, applications can be filed for both a patent and a utility model for the same subject matter to get short term and long term protection in tandem.

China

As per the WIPO’s World Intellectual Property Indicators 2020, around 96% of the world’s utility model applications are filed in China. The period of the utility model in China is 10 years, and there is a much lower examination standard. Although there is no substantive examination process for the utility model, the examination for formality is relatively strict; therefore, it is favourable that overcoming all of the formal defects for the utility model applications before filing. The China National Intellectual Property Administration (CNIPA) has been secretly updating the utility model to examine the applications smoothly. The consequence could be more substantial utility model rights if applicants can successfully prepare for and navigate the new rigours of examination.

Japan

The Japanese Utility Model Act (JUMA) provides for a protection period of 10 years. A substantive examination is not required to register a utility model that fulfils the requirements provided under Article (6-2) of the Japanese Utility Model Act.

Need for utility model in India

The Utility model protection system can play an essential role in India. Small and Medium Enterprises (SMEs) and Micro, Small & Medium Enterprises MSMEs acquire a prominent position in a developing country like India. These sectors have a commendable contribution to the Indian Economy. These sectors have been rising at an exponential rate for the last decade. It is evident from the various countries that utility model protection is less cumbersome than the regular patent procedure. Considering these facts, if India opts for a utility model, it could be highly beneficial for the innovators in the country.

The simple, inexpensive and quick procedure of the utility model protection will promote the growth of SMEs and MSMEs and inspire them for more innovations.

How utility model can prove beneficial for India

Apparently, Patent has been a game-changer in technological growth and economic development among all Intellectual Properties worldwide. On the other hand, developing countries have been immensely benefited from the utility model protection. The utility model in developing countries plays a vital role in safeguarding the innovations at a lower cost for a certain period. Being developing and one of the fastest-growing countries globally, India needs to recognise the utility model protection.

The Indian Patents Act, 1970, follows the threefold criteria of novelty, inventive step and non-obviousness prescribed by the Trade-Related Aspects of Intellectual Property Rights (TRIPS) for a product or process to qualify as patentable subject matter. A large number of startups and small innovators are getting registered every day in India. Most of these startups offer innovative services but lack inventive-step criteria for patentability. Due to the absence of the utility model in India, most Indian Startups and small innovators with innovative working models cannot opt for patent protection. And without patent protection, other competitors in the market can copy the technology of innovation which leads to the risk of infringement and market loss. Unfortunately, these startups and small innovators often face such situations.

Small and Medium Enterprises (SMEs) and Micro, Small & Medium Enterprises (MSMEs) in India usually lack funds to conduct tests and trials and pay high patent costs. In that situation, the Utility model protection may be highly beneficial for them. The recognition of utility models in India would assist startups and small innovators by granting inexpensive and rapid enforceable IP protection.

Parameters that need to be considered regarding the utility model framework in India

Inventive Step Threshold

The inventive step threshold criteria prescribed under the Patent Act, 1970 is relatively rigid; to overcome this, India should adopt a utility model with relenting ‘inventiveness’ criteria. The registration process should be smooth, easy and technically less complicated so that the Startups and innovators operate it without any difficulty. More focus should be given to the Novelty and Non-obviousness criteria rather than the Inventive step.

Novelty

The elemental principle of Patent Law is that a patent is granted to an invention that must have utility and novelty. For providing protection under a utility model, the novelty criteria should be the primary criteria. However, selective absolute novelty criteria should be applied to decide whether an incremental invention is eligible for protection under the utility model.

Substantive examination

Like China and Japan, a substantive examination should not be compelled to register a utility model that fulfils the other basic requirements. A formal examination mainly focused on novelty should be conducted. Not only does this saves time, but it also lessens the work burden at the Patent Office.

Grace Period

In most countries, the grace period is usually 6 to 12 months. Innovators should be provided with a grace period (between 6 months to 12 months) to protect their innovation from unauthorised disclosure of their invention. This grace period can be beneficial for protecting the interest of SMEs and individual Innovators who expose their inventions at scientific/commercial conferences or through publication to attract investors.

Protection Period

The protection period under the Patent Act, 1970, is 20 years from the date of filing the application. The protection period under the utility model should be lesser than the Patent Act. It should not go beyond 10 years and preferably should be around between 6 and 8 years. It should provide the provision of renewal of the invention at the exhaustion of two-thirds of the stipulated period.

Registration Procedure

The registration procedure to secure utility protection should be easy, quick and uncomplicated. Therefore, the total period from filing to grant should ideally be around 6 to 8 months. Any formal objection related to the examination report should be complied with within 2 to 3 months from issuance of such examination report.

Should there be a separate legislation for the utility model

The utility model is the need of the hour in India. There should be a separate legislative framework regarding utility model protection. Any attempt to adjust the provisions of the utility model or amendment in the Patent Act and Design Act would dilute the whole Act. A well-drafted specific utility model legislation would provide better protection to the inventors.

Transmutation

The applicants should provide the facility for transmutation from Utility model applications to Patent applications and vice versa. It could be beneficial for small inventors and SMEs. When the inventive step threshold under the Patent Act obstructs the Patent application, they can opt for the cheaper and quicker protection under the utility model through transmutation. The applicants should not be barred from filing a new utility model application if their patent application is rejected due to a lack of inventive step threshold.

Conclusion

India has always been a country of brilliant minded innovators. In the last decade, India has recorded a tremendous growth in grant of Patents, but if we compare the data with other countries, we are still far behind as per our standard. Here innovators may lack resources, but there is no dearth of creativity. Unfortunately, due to the stricter, expensive and time-consuming Indian Patent regime, most of the innovative products/inventions failed to qualify for patent protection. Thus, to overcome this, the utility model should be recognised in India.

Moreover, India should learn from other Asian countries like China and Japan, providing better protection and promoting small innovators through utility models. India should introduce separate legislation for the utility model protection. This model will encourage and motivate small innovators and SME’s for more innovations so that they not only invent but also patent their inventions. Patent inventions will lead India towards self-reliance and help in the overall development of the country.

References

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What are the FDI restrictions on foreign investors

By

Rachit Garg

-

October 2, 2021

0

This article has been written by Aditi Sahu, pursuing a Diploma in Business Laws for In-House Counsels from LawSikho. The article has been edited by Aatima Bhatia (Associate, LawSikho) and Dipshi Swara (Senior Associate, LawSikho).

Table of Contents

Introduction

In India, successive governments’ policies, as well as trade liberalization, have resulted in a surge in foreign investment. The government’s liberalization policy results in a smoother integration with the global economy, as well as rapid and significant growth for the country’s economy. The outflow of foreign investment from India is also prevalent in the Indian economy, as international corporations invest in India. In India, foreign investment includes investments made in India by foreign companies. Foreign investment in India has had numerous good effects on the country, including more employment and the betterment of the country’s fundamental infrastructure.

India’s economy has huge potential for attracting foreign investment. Also, the investors would have to encounter certain uncertainties as well; yet, India offers significant investment opportunities for global players. The majority of them have already made investments in India, while a few more plan to do so soon.

What is foreign direct investment (FDI)?

The term “foreign direct investment” refers to a company purchasing a majority stake in a company operating in a different country. The overseas investment allows foreign firms to be more directly involved in operations in their host country. There is a lot of value being brought to the table by these newcomers in addition to money. For the most part, foreign direct investment (FDI) occurs when an investor sets up foreign operations or purchases foreign business assets, including acquiring ownership or a controlling interest in a foreign company.

Foreign Direct Investment (FDI) is defined as a “person resident outside India can invest through capital instruments in an unlisted Indian company or 10% or more of a listed Indian firm’s post-issue paid-up equity capital on a fully diluted basis.”

What are the routes through which India gets FDI?

Automatic Route: The automatic route allows foreign investment in all activities/sectors defined in Regulation 16 of FEMA 20 (R) without previous clearance from the government or the Reserve Bank of India. In the automatic route, the RBI or the Indian government do not need to approve FDI from a non-resident or Indian company.

Sectors included in the ‘up to 100 % automatic route’ category include:

Company in the infrastructure sector listed on the stock exchange: 49%
Insurance coverage is available for up to 49% of the cost.
Medical devices: up to a 100%
Pension: 49% Petroleum Refining (49% by PSUs): 49%
Involved in Power Exchanges: 49%
Agriculture and Animal Husbandry: 100%
Asset Reconstruction Companies: 100%
Air Transportation Services (non-scheduled and other services within civil aviation industry): 100%
Airports (Greenfield and Brownfield): 100%
Auto Components: 100%
Automobiles: 100%
Biotechnology (Greenfield): 100%
Broadcast content services (TV channel up-linking and down-linking): 100%
Broadcast carriage services: 100%
Capital goods: 100%
Wholesale cash and carry trading (including MSE sourcing), and many more: 100%

Government Route: Foreign investment that does not fall within the automatic route must first have government clearance. It’s impossible to move forward without the support of the government. The company will be required to apply via the Foreign Investment Facilitation Portal, which allows for single-window clearance. In consultation with DPIIT (Ministry of Commerce), the application is sent to the appropriate ministry for review and approval or rejection. DPIIT will issue the Standard Operating Procedure (SOP) for processing FDI policy applications.

Sectors that fall under the ‘up to 100 %government route’ scope include:

Banking and government: 20%
Broadcasting Content Services: 49%
100% of assets are held by the core investment company.
Products of the Food Industry Mineral separations of titanium-containing minerals and ores: 100%
Retail trading: 100%
51% of retail sales are from many brands.
Print Media (publications/printing of scientific and technical magazines/specialty journals/periodicals and facsimile editions of foreign newspapers): 100%
Print Media (publication of newspapers, periodicals, and Indian editions of foreign magazines dealing with current events and news): 26%
100% of satellites will be built and operated.

Regulatory compliances for FDI in India

A person residing outside of India who has invested in an Indian company is permitted to invest in the capital instruments issued by such firm if the following conditions are fulfilled:

The Indian company’s offer should be consistent with the 2013 Companies Act.
As long as the problem is resolved, the company will comply with the sectoral cap.
To be eligible for a rights or bonus issue, a shareholder’s shareholding must have been acquired and held in compliance with FEMA Regulations, 2017.
A bonus issue or rights issue acquired by a person located outside India will be subject to the same requirements that apply to the original holding against which the rights issue or bonus issue was issued, except for share warrants.
For a listed Indian company, the rights granted to a person residing outside of India will have a price set by the firm itself.
If it’s an unlisted Indian company, the rights issued to non-residents cannot be less than those offered to Indian residents.
An investment made through a rights or bonus issue is subject to the terms and conditions in effect at the time the issue is made.
Money received as inward remittance from overseas can be paid from funds in an NRE/FCNR (B) account maintained under the Foreign Exchange Management (Deposit) Regulations, 2016, or from money kept in the account.
It is also possible to pay the consideration by debiting the NRO account kept as per the Foreign Exchange Management (Deposit) Regulations, 2016 if the initial investment was made without regard to repatriation.

Violation of any regulatory compliances will attract penal provisions under the Foreign Exchange Management (FEMA) Act, 1999. This Act is administered by RBI, Enforcement Directorate, The Ministry of Finance (Government of India) are the appropriate authority who can investigate the matter and initiate the suit against the defendant for violating the regulatory compliances of FDI under the FEMA Act.

Restrictions on FDI

The Government of India segregates the restrictions of Foreign Investment into two categories. On one hand, there are 100% restrictions for some sectors and on the other hand, there are some restrictions for permitted sectors.

Sectors in which FDI is 100% restricted

Betting and gambling
Lottery operations (including government and private lotteries, as well as internet lotteries)
Activities and sectors that are not open to private sector investment (for example, atomic energy and railroads)
Trading in the retail sector (expect single-brand product retailing)
A chit fund is a type of investment.
Nidhi is a corporation based in India.
Construction of farm dwellings or real estate enterprise
Transferable development rights (TDRs) are traded (TDRs)
Tobacco, cigars, cheroots, cigarillos, cigarettes, and various tobacco alternatives are manufactured.
Agriculture is one of the most important industries (excluding floriculture, horticulture, apiculture, and cultivation of vegetables and mushrooms under controlled conditions, the development, and production of seeds & planting materials, animals husbandry including the breeding of dogs, viniculture & aquaculture under controlled conditions and services related to the agro and allied sector).\
Transportation by train (other than permitted activities)
Foreign technological partnership in any form, including franchise, trademark, brand name, and management contract licensing.

Restrictions in Permitted Sectors

FDI in Single Brand Retail Trading

The government has now approved FDI of up to 100% in the retail trade of single brand products, subject to the prior approval of the FIPB and compliance with the following conditions:

The foreign investor must be the owner of the brand or one non-resident entity, whether the brand owner or not and shall be allowed to engage in single-brand product retail trading for a specific brand through a legally tenable agreement with the brand owner for the specific brand for which approval is sought.
If the proposed FDI exceeds 51% of the total capital of the company, at least 30% of the products sold must be mandated sourced from Indian small industries (where the total investment in plant and machinery does not exceed US$ 2 million at the time of installation), village and cottage industries, and artisans and craftsmen.
E-commerce retail trading, in any form, is prohibited.
Investors must apply to SIA for approval from the government to bring in FDI for the retail sale of a single brand product before they can do so. The application should specify which product categories will be sold under a single brand name. Any dependence on the single brand’s products or categories of products will necessitate new government authorization.

FDI in Multi-brand Retail Trading

The approval process in states that promote multi-brand retail trading allows foreign participation in multi-brand retail trading of up to 51%.

Certain conditions would have to be met before the investment would be approved. Here are a few examples of these circumstances:

A minimum of $100 million in FDI is required; 50% of the first $100 million in FDI has to be invested in backend infrastructure; and
At least 30% of the value of the manufactured/processed product purchase must come from Indian micro, small, and medium businesses.
According to the 2011 census, retail sales outlets are only available in cities with a population of more than one million people.
For multi-brand retail trading, e-commerce is not permitted.

FDI in Telecom Sector

Up to 49% of FDI in telecom services is permitted under the automatic route, and up to 100% of FDI is permitted with prior clearance by the Financial Intelligence Policy Board. For this reason, telecom services include basic, cellular, and unfired access, long-distance national/international, V-sat, public mobile radio trunked services, and worldwide mobile personal communication services, as well as various value-added services.
The overall foreign holding would include investments from FIIs, NRIs, FCCBs, and American depository receipt shares, as well as proportionate foreign investment in Indian promoters/investment businesses, including those companies’ holding companies.
To ensure that investments do not come from countries of concern or hostile entities, the FIPB reviews investment proposals before approving them. The FIPB must follow additional limits on the transfer of accounting information, user information, and infrastructure/network diagram data when evaluating the proposals.

Investment in Infrastructure Companies in the Stock Markets

Under SEBI regulations, foreign investment in securities market infrastructure companies, including stock exchanges, depositories, and clearing corporations, is permitted up to 49% of the paid-up capital.
The FII component cannot exceed 23% and the FDI component cannot exceed 26% of the permissible 49%. Foreign direct investment (FDI) is only permitted in certain enterprises with government clearance. FII participation is also restricted to secondary market purchases.

Investment in Credit Information Companies (CICs)

The Credit Information Companies (Regulation) Act, 2005 allows foreign investment in CICs, but only if it complies with all applicable regulations, including those issued by the Reserve Bank of India. Only 49% of a company’s paid-up capital can be invested by foreign investors in aggregate (including both FDI FII limits).
Only in CICs listed on stock exchanges can SEBI registered FIIs invest up to 24%(within the overall authorized ceiling of 49%). However, no FII can own more than 10% of the CIC’s stock either directly or indirectly.

Investment in Commodity Exchanges

In commodity exchange, only the government/approval route allows a composite ceiling of 49% for foreign investment, whereas FII purchases are restricted to secondary market acquisitions.
To comply with the requirement that no non-resident investor or entity, including persons working in concert with them, hold more than 5% of the total equity in such a corporation, foreign investment in commodity exchanges is required to be compliant.

Investment in Public Sector Banks

The aggregate statutory cap on FDI and FII investment in nationalized banks is 20%. Investments in the Indian state bank and its affiliated bank are subject to the same limit.

Investment in Print Media, dealing with news and Current affairs

The government/approval method allows up to 100% FDI in the publication of the facsimile version of foreign newspapers by the owner of the original foreign daily, subject to compliance with the standards published by the ministry of information and broadcasting.
Only a company incorporated or registered in India under the requirements of the Companies Act is allowed to publish.
NRIs, PIOs, and FIIs can invest up to 26% of their FDI and investment in the publication of Indian editions of foreign magazines that cover news and current affairs, as well as newspapers and periodicals that cover news and current affairs, via the government approval route and by following the minister of information and broadcasting’s guidelines.

Conclusion

To conclude, we can say that the government of India places restrictions on FDI to protect domestic industries and critical resources (oil, minerals, etc.), preserve national and local heritage as well as protect sectors of their population as well as retain socio political independence and control economic growth.

References

Legal history : the story of a revenge turning into an empire

By

Rachit Garg

-

October 2, 2021

0

law-legal-book-ss-1920-800x450 (1) — Image Source: https://rb.gy/hiddas

This Article is written by Harmanjot Kaur Kang. The article has been edited by Khushi Sharma (Trainee Associate, Blog iPleaders) and Vanshika Kapoor (Senior Managing Editor, Blog iPleaders).

Table of Contents

Introduction

Have you ever been thrown out of the corporate sector? Did you ever have a heartbreak? Has anyone ever insulted you?

Throughout life, we go through millions of such experiences. Here comes the story where the revenge of a man named Chanakya turned into an ‘Empire’.

The Mauryan Empire was the first empire that was ruling the whole of North India. The story of the Mauryan Empire starts from the life of Kautilya who is also known as Chanakya. He was a graduate of Takshila University. Once he went to the code of Dhana Nanda where he came to attend the alms-giving ceremony. However, King Dhana Nanda, looking at his ugly appearance refused to give him any offerings. This was very disheartening for Chanakya in the beginning. Owing to the disrespect of Chanakya in front of all the Council present in front of the Empire of King Dhanananda, he vowed to take revenge from King Dhanananda. And here he decided that he would have someone who would conquer the territory of King Dhanananda, and here starts the story of Chandragupta Maurya. Chanakya started training Chandragupta Mauryan and established the Mauryan Dynasty.

The Mauryan Empire is one of the most powerful empires in the whole history. No doubt it was one of the most efficient administrative systems in the history of the world. The designation of how the rulers were appointed and distributed among the masses was very beautifully designed. Even today we see instances that there is a division that is in congruence with the Mauryan Empire.

Governance in the Mauryan Empire was based on the division of power. However, the system was overall centralized. The following is how there is a division in power.

Administrative System

The administrative system was divided into three main parts which are king, Council of Ministers, and other officials.

King

Of the highest authority, he was having full control over all departments he was entitled to have the regular payment of tax and all the taxes which were collected. The commander in chief of military services. His life was full of pomp and splendour as on special occasions he was given a salute from 24 elephants. However, owing to such a life of luxury Kautilya’s dictum lies in: ‘The happiness of people to be the ultimate aim of a prince.’

Division under the Council of Ministers

Prime Minister: He presented invaluable advice and assistance to the king on various occasions.

Purohita: He looked after the religious affairs

Senapati: He was the commander-in-chief of the army

Samaharta: He was the Finance Minister. He collected taxes in the administration.

Sannidhata: He was the Minister of Royal Treasury. He looked after royal godowns, jails, and armouries.

Dauvarika: He was the Minister of Royal palace and household affairs.

Karnataka: He was the Minister of Mines and Factories.

Antapala: He headed the frontier in defence services.

Dandapala: He was the Chief officer of police.

Pradhatri: He was the inspector general of prisons.

Vyavaharika: He was the law minister or Hon’ble Chief Justice at that time.

Antarveshika: He was the Chief of Royal Harem.

Other Officials

Besides the above-mentioned officials, there were other ministers such as mahamatras, adhiaksha, amatyas, etc. Samaharta was the expert who appointed the minister of finance and Adhiakhas were the officials who were experts and chose who should be appointed as the tax collector.

Military Services

The military services were also very developed during the Mauryan Empire. There were foot soldiers, cavalry, infantry. People were aware of the use of bows and arrows, Trishul and swords, etc. The rulers of the modern Empire kept a very large and powerful army. There were about 60000 to 30000 cavalry, 9000 elephants, 8000 chariots. A total of about 6,90,000 troops were kept under this rule. The military was divided into a council of six boards, namely;

Patti or Padati: These were the infantry soldiers, who formed part of the army.

Ashva: The word ‘Ashva’ comes from the Sanskrit word which means horse. The cavalry was named ‘ashva’ during the Mauryan Empire.

Ratha: Ratha constitutes the chariots and the army who presented their service under this domain.

Hasti: The word ‘Hasti’ comes from the Sanskrit word which means elephant. The cavalrymen who used elephants in the war as their transport were termed as ‘hasti’ during the Mauryan Empire.

Transportation: There was a specially designed army that dealt with the transportation of injured and sick people, food, and arms to the soldiers.

Navy: The board of soldiers which form a group during the sea-battles comes under this domain.

Village Administration

The village administration was headed by the following people:

Gram: This was the lowest unit of the administrative system. The head of a gram was known as Gramini or Gramik. This is similar to the panchayat head which is prevalent in the present system of administration.

Gopas: This was a collective system of 10-15 villages administered together.

Sthanika: This was an institute of Gopas collectively. In other words. It was similar to the federal structure of present-day administration.

District Administration

There were separate departments that were designated for the irrigation, treasury, education, collection of taxes, revenue, mines, and irrigation, etc. A Sthanika was the head of 1/4th of the town. A Gopa was the head of 5 to 10 villages. A Nagardhiksha or Pradeshika was the Deputy Commissioner of a district.

Historiographies

According to Dr RK Mukherjee: The village community functions like a self-governing corporation or a republic giving the village a healthy scope and exercise in the art of governance and management of local concerns and affairs. Thus, the Indian Society of those days was broad-based upon a truly democratic foundation. VA Smith, a renowned historian, believed that the Mauryan Empire was having stringent laws even more than the times of the Akbar Empire.

Some more interesting facts

During the Mauryan empire, the position of women was very good. It is evident from the fact that women were kept as detectives at the place of men.
To protect from the external invasion, the Mauryan empire decided to have capitals located in various directions. These were as follows:

North Western: Taxila

Western: Ujjain

Southern: Suvarnagiri

Central: Patliputra

How is it relevant in the present-day scenario?

It is no surprise that the nuances presented in the Arthashastra can be seen in various fields related to social science and diplomacy. Many political and economic theories are derived from this. Also, the diplomacy explained in it has relevance in International Relations as well.

Administrative Law

To see that today the administrative law which is governed by a similar system of division of our various organs is inspired from this. We have seen the instance of administrative law for this instance. And it is a surprise that we tend to follow the British model blindly not knowing that the Indian system was also praise-worthy. How can we be so sure about this?

We have seen an excellent instance of administrative law in the era of the Mauryan Empire. If we talk about the definition of administrative law, it says that:

“Administrative law is the law relating to the administrative operation of the government. it is with the powers and duties of the administration, the procedure one has to follow in exercising the powers and discharging the duties and remedies available to the aggrieved person when his rights are affected by any other administrative action.’

According to Robson:

‘Administrative law should be regarded as the law relating to public administration, in the same way as the commercial or concept of law relating to commerce or land law related to land.’

According to Dicey:

‘Administrative law is denoted as that portion of a national legal system which determines the legal status and liabilities of all state officials i.e., bureaucrats.’

According to Sir Ivor Jennings:

Administrative law is law related to administration i.e. It determines the organization, powers, and duties of the administrative authorities.’

According to Jain and Jain:

Administrative law deals with the structure, powers, and function of the organs of administration.

The limit of their powers
The method and procedure followed by them in exercising their powers and function
The method by which their parts are controlled including legal remedies available to the person against them;
when their rights are increased by the operation of law exercised by these bureaucratic authorities.

According to Justice Bhagwati, former CJ;

‘Administrative law is that branch of law which seeks to ensure the observance of rule of law.’

From the instances, it is very clear that administrative law has been an important part and has gained more attention in recent times. However critical analysis of Arthashasthra written by Kautilya shows the prevalence of Administrative Law back in the ages of the Mauryan Administration. The proper balance of powers and division of labour with the proper strategy such that the king was all-powerful. However, he administered with the help of due diligence on the part of the Council of Ministers and their advice.

Constitutional Law

Similar to the administration of the Mauryan Empire today, there is a system of Council of Ministers headed by the Prime Minister. This is governed under Article 74. This shows that apart from the contribution Apart from the Government of India Act 1935 there are many background sources on which the system of governance is dependent. Today also we see the judicial system, which was prevalent even at that time.

73rd Amendment Act, 1993

The 73rd amendment of the constitution which was related to the village administration was present even back then in the Mauryan Period. It is no surprise that at that time Arthashastra was the governing body according to which the rules were made and administered. today we see the Constitution of India, Part IX under Article 243 to 243O governing the village administration.

74th Amendment Act, 1994

In a similar way, we see the 74th Amendment which deals with the administration at the urban level and the Municipalities.

Thus, we see that Indian brains were also master strategists. The Mauryan Empire was the first consolidated Empire in ancient history. Those who do not learn from history are doomed to repeat it. And we have seen this naturally in the modern era, that due to internal disturbances and disunity among various small kingdoms resulted in the expansion of the East India Company.

Arthashastra: The Bible of Administration

Arthashastra demarcates that the administration should contain the following basic requirements without which it would be disastrous to have it. Its Saptanga Theory says that the following elements are necessary for a stable administration. These are as follows:

Raja [king]
Amatya [the secretaries]
Janapadas [territory]
Durg [fort]
Kosha [the treasure]
Sena [Army]
Mitra [Friend]

In the above system of saptanga theory, the government is having a centralized bureaucracy with a king in its nucleus. The king was regarded as a soul among the seven elements of the state. Apart from all the necessities which are discussed above, it has been observed that ‘mitra’ which is defined as a friend is elaborated in a wider sense. Here, it refers to foreigndiplomacy in times of crisis or war.

Nuances in the Saptanga Theory: Relation with Political Science

According to the Max Weber:

‘A compulsory political organization with continuous operations will be called a ‘state’ in so far as its administrative staff successfully uphold the claim to the monopoly of the legitimate use of physical force in the enforcement of its order.’

Also, according to Political Theory by JS Badyal: A State is defined as the one which constitutes four basic elements of fixed territory, population, government, and sovereignty.

It is again evident that Chanakya, who was an ancient jurist, was able to explain such complex theories way back in ancient Indian times. Even from the Harappan Civilization, the ancient Indian civilization was far more developed than its western counterparts. The well-developed system of drainage, Great Bath, intricately carved architecture are good examples to explain how Indian Culture was far more developed. However, it is because of the colonial mindset that we are more inclined to read modern history far more than ancient and medieval history. Furthermore, the importance of a good mentor, confidant and guide is emphasised in an implicit manner here.

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How do contract managers gain control over contracts

By

Diva Rai

-

October 2, 2021

0

1500-0- — Image source - https://bit.ly/3isQ4y1

This article is written by Aishwarya Divate, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho. The article has been edited by Prashant Bvaiskar (Associate, LawSikho) and Dipshi Swara (Senior Associate, LawSikho).

Table of Contents

Introduction

Irrespective of the types of business we have, one aspect is unequivocally central to the organisation’s contracts. Daily contracts are the backbone of the company and form a relationship that an organisation has with stakeholders like suppliers, partners and customers. The effective contract management drives.

Contract managers who want to take greater control of contracts need a good command over contract language and its substance.

There are two recent developments in particular how contract managers can gain benefit, firstly to set comprehensive guidelines for clear contract language, and the second is automated review of contracts.

Contracts are associated with lawyers. But business contracts pertain to business dealings. A relatively small part of business contracts relates directly to the law—the legal framework for the transaction and how disputes are handled. So the lawyers, although routinely involved to the extent of greater or lesser in setting all the business standards for the people dealing the business, handle most or all of that task.

What is Contract Management and its importance?

Contract management refers to the business processes that manage the creation, implementation and evaluation of contracts to maximize business performance and minimize risk.

Contract management is pivotal for your business. Contracts, being legally binding, determine a business’s stakeholder relationships, pricing structures, the scope of work, rights and obligations, timelines for projects, warranty provisions, etc. contract management can dramatically improve the performance of the organisations.

In recent days the role of contract management has been developed and it is evolving and it entails understanding every aspect of a contract’s lifecycle to extract meaningful data and insights. To achieve the company’s objectives and better performance Businesses are engaging in contract lifecycle management.

The objectives of contract management are to ensure that the contract is:

Delivered on time, at the right place and at the right time.
Completed to the required specifications, standards and/or quality.
Completed within the agreed price.

Throughout the life of the contract the contract management continues. It means that the borrower needs to plan for, and undertake:

Effective and efficient management performances.
Methodical and measured change control.
Active risk mitigation and management.
Resolution issues and disputes.

Elements of successful contract management

It’s not enough that an organisation has professionals in place to handle contract management. employees must be augmented with the presence of processes and software companies to satisfy increasing compliance and analytical needs. When a contract management strategy is successfully implemented, organisations can expect to see:

The expected business benefits and financial returns are being realized.
The supplier is cooperative and responsive to the organisation’s needs.
The organisation encounters no contract disputes or surprises.
The delivery of services is satisfactory to both parties.

Stages of contract management

There are many components of contract management. These stages make it easier when it’s time for a new round of contract to manage the end-of- quarter crunch that tends to happen. Here are the few steps of each stage:

Creation

The first stage is the initial requests the contract management begins the process with identifying the contracts and pertinent documents to support the contract’s purpose.

Authorising contracts manually by writing contracts is time consuming, the use of automated contract management processes can be streamlined.

Collaboration

Negotiating the contract. Employees should be able to compare the versions of the contracts and note any discrepancies to reduce negotiation time after drafting the contract.

Signing

Approving the contract. Getting the management approval is very necessary. Users can pre-emptively combat this by creating the approval workflows, including parallel and serial approvals to keep the decisions moving at a rapid pace.

Execution of the contract. By executing the contract, it allows the users to control and shorten the signature through the mode of electronic signature and fax support.

Tracking

Obligation management

To ensure the deliverables. This requires a great deal of project management, by being met by the stakeholders and the value of the contract is not deteriorating through the phases of growth.

Revisions and amendments

Getting all the documents pertinent to the initial contracts drafting is a difficult task. When the items are found overloaded the systems are required to amend the original contracts.

Auditing and reporting

Contract manager reviews the accounts and contract audits that are important in determining both organisation compliance with terms and conditions of the agreement and the possible problems that may arise.

Renewing

Generally manual contract management methods can often result in missed opportunities and lost business revenue. Automating the process allows an organisation to identify the renewal opportunities and to create new contracts.

Contract lifecycle management is too critical and it goes through various stages and contract managers need to monitor all the potential changes or breaches of contract. It is necessary to follow the contractual obligations and to ensure both sides of the contracts.

Contract management key roles

For an organisation contract managers play a very critical role as they direct and oversee the contracts through their lifecycle. Contract managers serve as the main facilitators for negotiations, recommendations, record keeping, monitoring, change management etc.

Contract drafting, evaluation, negotiation and execution.

Contract managers cover a variety of industries from government to technology to any company that has a large number of contracts. To oversee contracts successfully from drafting all the way to execution, in numerous areas the contract managers are required to be skilled. For example, some of those areas are legal compliance, negotiation, and relationship management.

Often contract managers serve as the key point of contract between a business and the third parties to ensure timely reviews and approvals of any variations. Streamlining communication and monitoring processes are very important for success in an organisation. It has a tool which will keep all the conversations and edits and improves a contracts lifecycle and a contract manager’s efficiency.

Maintaining contractual records.

Keeping thorough records of all documents that an organization has, even after a contract is seen through to execution, is essential for the efficiency and compliance of an organization.

A contract manager needs a good filing system. In today’s digital world the tools aren’t enough for the rapidly increasing pace of business. Storage is another benefit of digitalization.

Developing and implementing procedures and policies.

Policies and procedures ensure employees carry out an organisation’s vision. It also establishes the procedures involved in the contract process to reduce organisational expenses. It also increases efficiency and sets precedent for decision making.

Relationship between contract management and project management

The contract manager and project managers have similar types of tasks and challenges, their positions and functions within an organisation are fundamentally different. Exclusively contract management focuses on contract management. In comparison project managers oversee all the new projects till the completion.

Contract managers help the clients decide which contract to be signed through research and risk assessment. Contract managers negotiate the terms of the agreement on behalf of their clients once the clients sign the agreement. Including contract management the project manager comparatively may be in charge of a variety of project components.

Why is contract management software important?

An important question for the organisation to ask is if investing in CM software has a relevance. Contract management software suits the organisation’s requirements that might be complicated and time consuming. The right software can always make the work effective, efficient and productive in the long-run.

Contract management software automates the lifecycle of the organisation’s contract, manual efforts that work into tactical tasks and it will reduce the probability of the human errors.
Contract management software will also enable higher efficiency at every stage of the contract management and it also reduces the contract cycles.
Contract management software will help to centralize a repository for the contracts in a cloud system while simultaneously enabling more comfortable access to critical contract information by all relevant stakeholders.
Contract management automation powered artificial intelligence boosts data analytics. It forecasts costs, and revenues and also identifies how to drive the performance.

Benefits of contract management

The significant benefits of contract management is:

Aids Business Functioning

Efficient contract management will help and simplify how the organisation should function and it also structures business expectations, the mechanisms needed for their fulfilment and allows to analyse how the organisation achieves the objectives.

Improves Functional Efficiency

Contract management best-in-class involves the use of various software development or tools that automate the process of managing contracts. The personnel can focus on the more strategic aspects of contract management like evaluating the contract performances, identifying the areas for improvement, etc.

Improves spend visibility and minimizes spending

By structuring the engagement of an organisation with its stakeholders, especially with its suppliers, contract management simplifies transactional, and performance tracking. By increasing spend visibility, contract management also helps to identify the higher cost savings opportunities for the organisation.

Enforces and Improves Compliance

Contract management system that indicates the terms and conditions and procedures to be followed implements and it enhances the level of compliance amongst the relevant stakeholders. Increase in compliance invariably helps in mitigating a large number of risks within the organisation.

Why do some contracts fail?

The key reasons the contract fails are as follows:

Supplier and/or service contract compliance unsatisfactory, leading to end user dissatisfaction.
Predicted contract spend escalates beyond the budget due to spiralling costs.
Inadequate resources assigned to contract management.
The context, complexities and dependencies of the contract are not well understood.
Authorities and responsibilities relating to commercial decisions are ambiguous.
A lack of performance measurement or benchmarking by the customer.
A failure to monitor and manage retained risks (statutory, political and commercial).
Lack of integration.

Conclusion

Therefore contract management best practices to standardize contract creation using the terms and obligations of the contracts and legal language that applies to a large subset of the contracts. It also tracks contract approval time and it allows an organisation the advantage of receiving contracted goods and services, it ensures a quicker move towards a positive relationship. Contract managers also help and supervise all the aspects of a contract throughout its lifecycle.

References

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Offences pertaining to weights and measures under the Indian Penal Code, 1860

By

Rachit Garg

-

October 2, 2021

0

This article is written by Diya Rastogi, from Banasthali Vidyapith, Rajasthan. This article mainly deals with the Offences related to the Weights and Measures, their Fraudulent use and Punishment under the Indian Penal Code, 1860. The article has been edited by Khushi Sharma (Trainee Associate, Blog iPleaders) and Vansh ika Kapoor (Senior Managing Editor, Blog iPleaders).

Table of Contents

Introduction

We are all aware of the word, ‘Fraud’ because we hear it very often in our daily lives. But many of us don’t know that there are numerous types of fraud that have been occurring for so many years. Fraud can be defined as when a person intentionally deceives someone with the aim of achieving personal gain or to cause loss/damage to another individual. It includes intentional and wilful representation of facts. The most important ingredient of fraud is the ‘intention’ of a person committing a fraud’. If a person without malice/bad intention does something it will not amount to fraud.

There are so many ways where consumers are exploited such as by the traders or shopkeepers when they sale adulterated goods, degrade the quality of a product, supply of defective goods and so on but the most important amongst all of these is the Fraudulent use of any instrument for weighing actually less than the full weight whether the instruments are used in industrial production (a measurement involved in Human safety), commercial affair etc.

Sometimes the commodities which are sold by weight or measure are found to be less than the actual one only because of the use of false weights and measures by the traders. It is very common malpractice adopted by them, so to safeguard the interest of all the consumers and to create awareness amongst them certain provisions were enacted under the Indian Penal Code, 1860 in Chapter XIII from Section 264-267 in the context of the ‘Weights and Measures’ so that these unfair practices can come to an end and the persons involved in such offences can be punished. [1]

Legislations passed in context of standard of weight and measures are as follows

The first Act namely ‘Standards of the Weights and Measures Act’ was passed in the year 1956. It was enacted by the Parliament of India to provide a uniform standard of weights and measures. It was based on the metric system and has fixed the standard weight, capacity and length as a kilogram, litre and a metre respectively. But later certain changes were made to this Act and it was replaced by the ‘Standards of Weight and Measures Act, 1976’. This Act has laid down the specified standards of the weights and measures instruments used in commercial transactions, industrial production etc. It has also regulated the sale of pre-packed goods or distributed by weight, measure or number in the course of inter-state trade and commerce in weights and measures.

Then the ‘Standard of Weight and Measure Rules, 1977’ came into existence. This Act laid down certain rules such as:

All the weights and measures have to be only in standard units.
All the manufacturers of packaged commodities have to be registered under this act.
The goods/commodities which will be sold in packaged form shall contain a clear and proper declaration.

After some time, the ‘Standard of Weight and Measures (Enforcement) Act’ was enforced in the year 1985 which has repealed all the provisions of any other law except the ‘Standard of Weights and Measures Act, 1976’. This Act has prohibited the use of any wrong or different weights and measures other than the prescribed or standard one.

But with the rapid increase and advancement in technological innovations and globalization of economies, various new instruments and techniques related to the standard weights and measures have been established. By keeping these changes in mind, the Central Government enacted the ‘Legal Metrology Act, 2009’. This Act came into force on 1 April 2011 and has repealed and replaced the Standard of Weights and Measures Act, 1975 and Standards of Weights and Measures (Enforcement) Act, 1985. This Act has established the standard of weights and measures and has regulated trade and commerce in weights, measures and other commodities which are sold or distributed by weight, measure or number and have also established Government approved test centres for verification of weights and measures. Some provisions were also made under the ‘Indian Penal Code, 1860’ which made this offence punishable.

Sections that deal with such offence and their punishment under this code are as follows

Meaning of fraudulent use of false instrument for weighing

According to Section 264 of the IPC, 1860, ‘whoever fraudulently uses any instrument for weighing which he knows to be false, shall be punished with imprisonment of either description for a term which may extend to one year, or with fine, or with both.’

Thus, it can be deduced that an individual who has malice or bad intentions of cheating their customers by manipulating weighing scales will be punished under this criminal code. This is purposefully done to exploit the consumers and to gain personal profits. This section relates to the fraudulent use of any instrument of weighing which is known to be false and used only for the purpose of weighing fewer weights instead of full weights. For instance, if the possession of an instrument of weighing and measuring is not wrong and also there is no establishment of the fraudulent intentions of the trader/ shopkeeper, it will not constitute the offence of fraud under this section and hence he cannot be held liable. The accused shall be punished under this section with simple imprisonment or with a fine or with both. The said offence under this section is a bailable offence. It is a non-cognizable and non-compoundable offence and it is triable by the Magistrate.

In Emperor vs. Kanayalal Mohanlal Gujar, the meaning of the word fraud has been described. It means, ‘false or different instrument of weighing’ and ‘false weight or measure’ of length or capacity other than the one which the person who defrauded and the offender have fixed upon expressly or impliedly in reference with the dealings they both have adopted.

Essential ingredients to prove/make an individual accused under this section are as follows

1) There must be the usage of an instrument for weighing by an accused.

2) The instrument which will be used for measuring must have been false/wrongful to the knowledge of the accused.

3) The accused must have used it knowingly or intentionally.

Fraudulent use of false weight or measure

According to Section 265 of the IPC,1860, whoever fraudulently uses any false weight or false measure of length or capacity, or fraudulently uses any weight or any measure of length or capacity as a different weight or measure from what it is, shall be punished with imprisonment of either description for a term which may extend to one year, or with fine, or with both.

This section of the IPC is the extension of the preceding section. It can be inferred that if an individual uses false weights and measures of length and capacity or any other measure of length and capacity as a different weight or measure from what it is, shall be punished under this section with simple imprisonment or with fine or with both. The said offence under this section is a bailable offence. It is a non-cognizable and non-compoundable offence and it is triable by the Magistrate

Essential ingredients to establish an offence under this section are as follows

1) The accused must have used such a false weight to measure length or capacity.

2) The weight or measure should be a false/wrongful one.

3) That the accused did so with malice/fraudulent intention.

Being in Possession or has kept the False Weight or Measure

According to Section 266 of IPC, 1860, ‘whoever is in possession of any instrument for weighing, or any of weight, or of any measure of length or capacity, which he knows to be false, intending that the same may be fraudulently used, shall be punished with the imprisonment of either description for a term which may extend to one year, or with fine or with both.’

This section of the IPC clearly states that if a person has the possession of false weight or measure knowing that they are false and has kept them with the intention to deceive the other person to believe that a particular weight or measure is an accurate and authentic one shall be punished under this section with the simple imprisonment or with fine or with both. Mere possession of a false weight and measure is enough to invoke the provisions The said offence under this section is a bailable offence. The offence under this section is a bailable offence. It is a non-cognizable and non-compoundable offence and it is triable by the Magistrate.

Essential Ingredients to establish a charge under this section are as follows

1) The weights and measures must be wrongful.

2) They must be in the possession of the accused person.

3) The accused must know that they are false/wrongful.

4) The accused must have kept with him with the intention to cheat or deceive another person.

In Bansidhar vs the State of Rajasthan, the applicant was the licensed opium dealer in the town of Sambhar and was prosecuted under Section 266 of the IPC, for keeping two sets of weights in his shop and that one set of the weights was less in weight than the standard weight, and that he intentionally deceived his customers by using false weights. The true and false weights were found beneath the gunny bag on which the accused was sitting. The court held that the accused possessed false weights, knowing that these weights are false and with the intention that the same might be fraudulently used to deceive others. Hence, the accused was found guilty.

In Emperor vs Harak Chand Marwari, the accused and the purchaser both were well aware of the actual measure of calculation being used while the sale of goods, no question of malice or fraudulent intention arose on the part of the accused as both the parties have expressly agreed with no dishonest intention on the part of the accused on the same measuring instrument. Thus, it was held by the Hon’ble court that fraudulent intent is an essential ingredient to prove an accused guilty under this section and thus it was absent. Both the parties impliedly agreed on a certain measure of instrument hence he was not held liable as it does not amount to fraud.

Producing/Making or Selling False Weight or Measure

Section 267 of IPC, 1860 reads as, ‘whoever makes, sells or disposes of any instrument for weighing, or any weight, or any measure of length or capacity which he knows to be false, in order that the same may be used as true, or knowing that the same is likely to be used as true, shall be punished with imprisonment of either description for a term which may extend to one year or with fine or with both.’

This section clearly states that if a person produces, sales or disposes of any wrong instruments or balances, weights or measures shall be punished under this section with simple imprisonment or with fine or with both. The said offence under this section is a bailable offence. It is a non-cognizable and non-compoundable offence and it is triable by the Magistrate.

Essential ingredients to prove this offence are as follows

1) The accused must make, sell or dispose of any instrument for weighing for any weight or any measure for length or capacity.

2) Such instruments, weights or measures must be wrongful.

3) The accused must know that they are false/wrongful.

4) The accused disposes of such an instrument in order that it might be used as genuine.

Conclusion

The law states that if anyone weights and measuring the capacity of goods and selling the same to their customers then the instrument which is used for weighing and measuring should be accurate and not a fraudulent one. For example, sometimes the traders use wrong weights and measures such as there may be a hollow space in weights which the person buying may not see or the weighing balance may not be used accurately etc. It is a must that the goods which have been sold should be accurately weighed, measured or counted. It is our duty as responsible citizens of this country that if we see anyone possessing wrong weights or indulging in these unlawful activities then immediate action must be taken against that person. He/she shall be held liable for his/her fraudulent activities and shall be punished with the same under the law.

By being aware and using good judgement is how one can protect yourself from such frauds. Hence, it can be concluded from the above discussion that Sections 264-267 of the Indian Penal Code, 1860 were enacted to prevent the consumers from such existing frauds and to strengthen the confidence of the general public against unfair trade practices regarding fraudulent use of weight and measure instruments.

References

[1]	K. D. GAUR, INDIAN PENAL CODE 595-598, LEXISNEXIS, 2020.

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