Letter of intent, memorandum of understanding, and contracts : an analysis

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September 29, 2021

This article is written by Pranjali Aggarwal of the University Institute of Legal Studies, Punjab University, Chandigarh. This article deals with the basics of letter of intent, memorandum of understanding, and contract and the difference between the three.

Introduction

The commercial transactions revolve around a letter of intent, a memorandum of understanding, and contracts. These terms are used synonymously by people on an everyday basis but these terms vary based on their usage and objective. The whole concept of these three instruments is discussed in the article.

Letter of intent

A letter of intent is a formal letter or a document, sent by one party to another, that elucidates the intention of entering into a contract in the future. The letter outlines the material terms of the prospective deal which are negotiable and can be altered accordingly while entering into the final contract. It also prescribes the tasks or procedures that are to be followed by the parties, till the time the final agreement is entered into. It is also referred to as a ‘letter of inquiry’ or a ‘concept paper’.

In the case of Rajasthan Co-op Dairy Federation Ltd versus Mahalaxmi Migrate Marketing Service Pvt. Ltd (1996), the Honorable Supreme Court held that the letter of intent only indicates the willingness and intention of the party to enter into the contract. These do not lead to any kind of legal relationship between the parties.

Contents of letter of intent

The letter of Intent is generally written in the format of a formal letter and primarily includes the following contents:

Summary statement
Statement of the issue
Tasks to be performed
The result of the procedure
Budget and financial aspects of the transaction
Closing paragraph
Signature

Advantages of letter of intent

Deciding material terms of the deal – It helps to ponder over broad strokes of the contract before delving into finer points which ensures that the parties are on the same page from the beginning. It also aids in ruling out any existing or potential misunderstandings before the parties get legally bound to the agreement. This ‘cutting to the chase’ method is effective as well as convenient.
Guide to the deal- As all the major pointers of the deal are already drafted, it acts as a guiding principle to the final agreement. One can prepare the essentials of the contract based on the letter of intent because all the deal-breaking points are already discussed and clearly laid down.
Establishment of trust and confidence- Ordinarily, the terms and conditions of the letter of intent are not binding, but deciding the particular matters and the intention of parties to enter into an agreement, builds trust and confidence between them. This mutual trust will make the transaction process more smooth.
Protection of interest- It gives certain security to the parties and hence big projects like mergers or joint ventures can be announced publicly, before entering into the contract. And generally, it is observed that the negotiating parties do not indulge in the negotiation of the same contract with other parties. This ensures the protection of the interests of all the parties involved.

Disadvantages of letter of intent

A liability for the parties- In some cases, even though the parties did not intend the letter to be binding yet because of wrongful drafting, the letter of intent becomes binding and the transaction takes place against the interests of the parties. Thus, imposing unnecessary liability on the parties.
Limits the scope of a better deal- While preparing the letter of intent, all the essential terms of the contract are already decided, and parties have to work on the pre-decided terms only that do not leaves much scope of variation in the future Thus, the chances of negotiating a better deal are lost by the parties.

Memorandum of Understanding

A Memorandum of Understanding (MoU) is a document between two or more parties that enumerates the details and instructions of the contract that they wish to enter in the future. Before signing the memorandum, both the parties should have discussed all the major aspects of the agreement and both the parties stand on the same footing regarding the contract. It can be said that this document lays the foundation for a future contract. The memorandum of understanding is a more formal document than any verbal proposal but less formal than the final contract. The MoU is not legally binding but the parties are bound by estoppel. If any party suffers loss because the other party refuses the acceptance of the MoU, the aggrieved party is entitled to recover damages.

In the case of Jai Beverages Pvt. Ltd. v. State of Jammu and Kashmir and Ors. (2006), it was held by the Honorable Supreme Court that if the conditions to the MoU are otherwise acted upon, the parties to the MoU are entitled to get the benefit out of the MoU.

In the case of M/s. Nanak Builders and Investors Pvt. Ltd. v Vinod Kumar Alag (1991), it was held by the Delhi High Court that the legality of the MoU would depend on the contents and nature of the agreement. For ascertaining the enforceability of the MoU, the intention of parties is to be seen through the clauses of the MoU. If it could be deduced from the MoU that the parties intend to enter into a binding agreement, then MoU could be legally enforceable.

Contents of MoU

The following aspects are mainly encompassed under the memorandum of understanding:-

Details of the parties entering into the MoU;
Purpose of entering into the MoU;
The obligations and duties of each party;
The resources employed by each party;
The proposed benefits for each party;
Duration and termination of MoU;
Signature of the parties involved.

Advantages of MoU

Setting up clear objectives- All the objects and prospective terms are already decided before signing the MoU. Thus, it provides a clear objective as well as a broad picture of the contract to the parties.
Reduces uncertainty- The MoU’s are based on pellucid and explicit intentions of the parties to enter into the contract. The parties only sign an MoU if they both agree to terms and conditions which prevents disagreements in the future. Thus, reducing the chances of uncertainty in the future.
Ease of exit- Before entering into an MoU, all the major aspects of the prospective contract are made clear and if the expectations of the parties are not met, they can exit from the contract at the initial stage only without wasting time over the same.
Foundation for a future contract- The crucial terms of the potential contract are already decided in the MoU. This sets an outline for the future contracts which makes it easier for the parties to decide the future terms.

Disadvantages of MoU

The document is not legally binding- The signatories of the MoU are not bound to enter into the future contract. Any party can easily refuse the terms of the contract. Thus, it will not lead to any liability regarding the performance of the same contract, but the other party can claim losses if occurred due to non-performance of MoU.
Leads to confusion- The terms of the MoU’s can be confusing because in certain conditions the terms are made enforceable by the judge even though the disclaimer shows the contrary intention. Thus, the interpretation of the MoU’s might lead to confusion.
Increased negotiation time- The drafting of the MoU itself takes time and in case of the time crunch, it may pose difficulties to the parties because of increased negotiation time.

Contract

In common parlance, a contract can be said to be a document backed by law. In the Indian Contract Act,1872, the term ‘contract’ is defined under Section 2(h). A contract is an agreement between two or more parties that create certain mutual obligations which are enforceable by law. If any party breaches or fails to perform the contract, the other party can knock on the doors of the court to redress the issue. The contract can be for any purpose either to perform an act or to abstain from doing any act.

Essential elements for the valid contract

Agreement

Section 2(e) of the Indian Contract Act, 1872 defines the term ‘agreement’ as a promise or set of promises between two or more parties for consideration. When one party offers or proposes to do something for another party and the other party accepts the same, it forms the agreement. The parties entering into an agreement should be on the same wavelength regarding the terms and conditions of the agreement.

Competency

Section 11 of the Indian Contract Act, 1872 enumerates the competent people who can enter into the contract. The conditions laid down for competency are;

The person should have attained the age of maturity (18 years as per Indian law)
The person should be of sound mind while entering into the contract
The person should not fall under the category of people that are disqualified to enter into the contract as per law like Alien enemy etc.

Free Consent

Section 14 of the Indian Contract Act,1872 defines the term free consent. The consent of the parties entering into a contract is said to be free if it is not obtained through coercion, fraud or misappropriation, etc. The parties should be willing to enter into the contract without the usage of any malpractice.

Consideration

Section 2(d) of the Indian Contract Act,1872 defines the term consideration. It means ‘something in return’. The consideration for the promisee (a person to whom the promise is made) is the price paid by the promisor (a person who makes the promise) for the promise (either for the commission of the act or for the non-commission of the act) being performed by him according to his desire. On the other hand, the consideration for the promisor is the act or omission done or to be done by the promisee as per his intention. For example- A and B enter into an agreement according to which A will teach music to B for Rs. 10,000. Here, the consideration for A is Rs. 10000 and for B is learning music. For the contact to be valid the consideration should be lawful and adequate.

Lawful object

The contract should be made regarding the lawful object to be fulfilled by following lawful means. According to Section 23 of the Indian Contract Act,1872 following objects are unlawful:-

Object that is forbidden by law; or
If object is of such a nature that if allowed would be against provisions of any law; or
The object is fraudulent; or
If the contract entered into would cause injury to the person or property of another; or
the object is immoral or against public policy; or
Any contract for illegal activities or using illicit means will render the contract void.

The contract entered should not be expressly void

Certain contracts as enumerated under Section 25 (agreement without consideration), Section 26 (agreement putting restraint on marriage), Section 27 (agreement restraining trade), Section 28 (extinguishes rights of any party), Section 29 (uncertain agreements), and Section 30 (wagering contracts) of the Indian Contract Act,1872 are expressly void. The contracts between parties should not be regarding these aspects which are expressly considered void by the law.

Advantages of contract

Legally binding- The contract is a legally enforceable document and thus any party not complying with the contract can be sued and thus the issue can be redressed in court. This also creates a sense of security for the parties.
The clarity in obligations and duties- The contracts provide a lucid picture of all the obligations and duties to be performed by the parties. Thus, no chaos and confusion arise regarding the relationship and agreement between the parties.
Acts as evidence- The contract is in writing and thus acts as a piece of evidence regarding the terms and conditions agreed upon. Thus, it can be shown in the court of law by the aggrieved party to get the relief.
Pre-decided measures for dispute resolution- In several contracts, the procedure to be followed in case of dispute is already decided by the parties which ensure easy redressal of the dispute.

Disadvantages of the contract

Tedious and cumbersome process- The drafting of the contract is a cumbersome process and requires a good deal of energy and working hours so that all the aspects are covered.
Expensive- The contracts generally are drafted or reviewed by the lawyer which makes it a costly affair.
Language acts as the barrier- The language of the quiz sometimes leads to unclear contracts which creates a hindrance while performing the contract.

Differences between the letter of intent, memorandum of understanding, and contract

Sr no.	Basis	Letter of intent	MoU	Contract
1	Parties involved	It is prepared and signed by one party and is accepted by the other.	Two or more parties are involved.	Two or more parties are involved.
2	Contents of the instrument	It contains several important points agreed upon before finalizing the deal.	It encompasses the roles and responsibilities of the parties to which they have to adhere to before entering into the contract.	It encompasses every detail regarding the agreement to be performed.
3	Intention for formation	It is framed to indicate one’s intention to enter into the prospective contract.	It is almost like a prior agreement agreed upon by both parties which provides, a framework for future contracts.	It is a final agreement that is legally binding on both parties.
4	Order of formation	It is the document prepared at first showcasing the intention of one party to enter into a contract with another party.	It is next in line in which an outline is prepared regarding the material terms.	In the end, the contract is formed which was the ultimate objective of the parties.
5	Binding	It is not binding unless the parties intend so.	It is also not binding unless the parties intend.	All the valid contracts are binding on the parties and they have to stick to the contract.
6	Legal enforceability	It is ordinarily not legally enforceable.	The terms of MoU are not enforceable by law per se but if the intention of the parties is such that then it can be enforced.	All the valid contracts are legally enforceable and if any party deviates from the contract then such party can be held liable for the same.

Conclusion

The letter of intent, memorandum of understanding, and contract are the terms that are mostly used interchangeably. Even under Indian law they have not been expressly differentiated and thus primarily depend on the intention of the parties and how terms of the contract are interpreted. As held by the Honorable Court in the case of Jyoti Brothers versus Shree Durga Mining Company (1956), a contract to enter into a contract is not binding on the parties. However, this criteria is not conclusive. To decide the enforceability of the instrument, the court will rely on the intention of the parties while framing the instrument.

References

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All you need to know about the holdover clause in a real estate agreement

By

Oishika Banerji

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September 29, 2021

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This article has been written by Nikita Arora pursuing the Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho. This article has been edited by Anahita Arya (Senior Associate, Lawsikho) and Dipshi Swara (Senior Associate, Lawsikho).

Table of Contents

Introduction

While renting their property to a tenant, a landlord will sign a real estate agreement. Among several clauses on the agreement, which will constitute the contract with the tenant, is a clause known as a “holdover clause”. The holdover clause, also known as the holdover rent clause, is one of the most significant terms to negotiate in a real estate agreement. This provision is critical for both landlord and tenants because it prohibits the former from re-letting the space while increasing the amount of rent a tenant pays. In this article, we will look at how the holdover provision in real estate agreements works and why landlords and tenants should be concerned about it.

What is a Holdover clause?

This clause is included in most representation agreements to safeguard the brokerage. It often specifies that once the broker and client split ways, the client must pay the previously agreed-upon commission in a very specific condition and within a specific period. The carryover period is the length of time following the agreement’s expiration during which the commission may be payable.

What constitutes lawful tenancy by holding over?

According to Section 116 of the Transfer of Property Act 1882, the following conditions would result in tenancy by holding over:

After the lease granted to the lessee is determined, the lessee or under-lessee of the property retains possession.
The lessor or his legal representative either accepts rent from the lessee or under-lessee or agrees to the lessee or under-lessee’s continued possession.
There isn’t any agreement to the contrary. In such circumstances, the lease is renewed on an annual or monthly basis, depending on the purpose for which the property is rented. Assume A rents out a house to B for five years. B rents out the house to C for Rs 5,000 per month.

The five-year lease expires, but C keeps the house and pays the rent to A. As a result, C’s lease is renewed on a month-to-month basis. Assume A rents out his house to B for the duration of C’s life. C dies, but B retains possession with A’s permission. B’s lease is renewed on an annual basis.

Buyers’ application

When an agent offers or shows a potential property to a client but the client does not sign a purchase agreement until after the business relationship has ended, the holdover clause kicks in. This might happen for a variety of reasons, including a change of heart, a glitch in finance, or the desire to strike a private arrangement. Whatever the reason, if the agent conducted the effort of identifying the property and the buyer purchased during the holdover period, the agent is entitled to a commission.

Sellers’ application

The deciding aspect for sellers is simply exposing the listed property to the eventual buyer. It makes no difference why the visitor visited the property or how he or she was introduced to it. If the buyer exhibited prior interest and then purchased after the listing expired, the agent is entitled to a commission. The holdover clause usually does not apply if the seller lists with another brokerage that charges the same or greater commission – no danger of undercutting the original agent. There is no quick or simple way to avoid paying a commission. The good news is that the holdover clause (like all contractual terms) is negotiable. So, make your best offer, both to interested parties and to the brokerage.

The holdover clause alters the length of the tenancy

The amount of time a tenant can detain and remain in the space is also determined by how the initial lease is drafted. For example, a company renting office space in New Delhi may have a holdover clause that states that once the original agreement expires, the lease becomes month-to-month at the new increased rent. If this occurs, the tenant will be required to provide adequate notice of its desire to vacate for the security deposit not to be forfeited. Other holdover clauses may require the tenant to leave after the lease, but if they do not, the lease becomes month-to-month at the increased rent. A third form of the holdover clause in a business lease may state that the tenant has no right to remain and that the lease does not turn month-to-month, but that if the tenant stays, he or she must pay a higher rent sum. The renter is working in the grey region in these final two instances. Even though the renter is paying a much higher rent, if the lease states that the tenant must depart and the tenant refuses to relocate and stays, the tenant may be trespassing on the landlord’s property.

How can tenants use a holdover clause to protect themselves?

When negotiating the original lease, tenants should pay special attention to the terms and conditions of the holdover clause. Unfortunately, tenants frequently fail to pay attention to the clause. They don’t find out what they’re responsible for until the lease expires. Extra expenditures may arise as a result of a significant rent increase, as well as damages caused by the tenant holding over and the loss of a new contract to a new tenant.

Here are four key factors that a tenant can negotiate into a holdover clause to create a win-win situation for both the tenant and the landlord:

Eliminate tenant accountability for any rent loss caused by the landlord’s inability to re-lease the space owing to a tenant stay. This is especially crucial in a strong leasing market, when landlords may be able to receive more for the property than the lingering tenant pays, even with a rent rise.
Negotiate a progressive scale for raising holdover rent. Instead of a 200 percent holdover rent increase commencing immediately, tenants may request a 125 percent increase in the first month, 150 percent in the second month, and so on.
Make certain that the holdover rent increase only applies to the ‘base rent’ element of the tenant rent. Tenants under leases pay a monthly base rent plus charges including utilities, property tax, building insurance, and common area maintenance. Applying the holdover increase just to the basic rent reduces extra rent expenses.
The landlord’s liquidated damages should be included in the holdover rent increase. In addition to paying a higher holdover rent, some stay clauses compel the tenant to compensate the landlord for damages caused by the holdover. By factoring in damages in the rent increase, the tenant can reduce its potential liability.

A holdover clause in an estate agreement allows rent to fluctuate

The amount by which the rent increases under a holding clause varies per agreement. The rise can be as much as 150 percent, 200 percent, or even more. That means tenants who believe they can continue in the space and put off negotiating a new lease will be in for a rude awakening when the next monthly rent statement arrives. Assume a tenant was paying a gross rent of 1,000 rupees per square foot per year when his or her lease on a 200 square-foot space expired. If the tenant decides to employ the holding clause and remain in the premises without signing a new lease, the new rent might be 1,200 rupees or even 1,500 rupees per square foot. So the 500-square-foot space that was renting for 2,00,000 rupees per month when the lease expired now has a residual rate of 1,200 rupees to 1,500 rupees per month.

Sample holdover clause in a real estate agreement

If Tenant holds over after the expiration or termination of the Term without the written approval of Landlord, such tenancy shall be regarded to be on a month-to-month basis and may be terminated by Washington law. Tenant agrees to pay Landlord 125 percent of the lease holdover letter throughout such occupancy.
If the Tenant extends the Term with the written approval of the Landlord, such tenancy shall be deemed a month-to-month tenancy, which may be terminated by applicable state legislation. During such tenancy, Tenant shall be bound by all of the terms, covenants, and conditions mentioned herein, except Basic Rent, which shall be one hundred fifty percent (150 percent ) of the Basic Rent due before the term’s expiration.

Conclusion

Real estate agreements contain numerous negotiable terms and conditions. Accepting the boilerplate phrasing of an agreement holdover clause can have a significant consequence when the lease expires and the tenant stays:

Holdover rent can rise by up to 150 percent, 200 percent, or more.
The length of tenure under a holdover provision varies from lease to lease;
tenants may be subject to trespassing under specific circumstances.

As stated earlier, holdover rent terms are often enforceable and give a major incentive to renters to timely evacuate and relinquish the premises after the lease period. Thus, a landlord should generally not accept monthly rent payments from the tenant after the lease expires (unless the parties expressly agree that such payments may be accepted as use and occupancy, without prejudice), and especially should not do so without clearly stating that the tenant is holding over and that the landlord has the right to collect holdover rent. The penalties for a landlord acting imprudently can be severe, especially if the landlord foreclosed on a claim against the tenant for a huge amount of money.

References

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

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:https://t.me/joinchat/J_0YrBa4IBSHdpuTfQO_sA

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An analysis of the right to speech and expression and contempt of court

By

Diganth Raj Sehgal

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September 29, 2021

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Contempt proceeding — Image Source - https://rb.gy/45wign

This article is written by Varchaswa Dubey, from JECRC University, Jaipur, and Apurva Pandey and Amrita Malagi ( 2nd Year BA LLB students at Symbiosis Law School, Nagpur). This article is exhaustive work concerning the conflict of right to speech and expression and contempt of court. Further, the article aims at providing a better understanding of the concept of freedom of speech and expression and contempt of court.

Table of Contents

Introduction

Right to speech and expression refers to the liberty of freely expressing the views and delivering speeches however such right is not absolute in nature and reserves certain restrictions. It means the right to express one’s thoughts and concepts freely by either word, prints, writing, etc.

It also involves the representation of independent ideas and thoughts in any form of communication or any clear action or display like, visible and clear signs, gestures, etc. However, such rights of independence and free speech are limited in scope and come with reasonable restrictions by the government to prevent danger and other factors which may affect the sovereignty and integrity of the state.

The contemporary law on contempt of court is governed by The Contempt of Courts Act, 1971 which defines contempt of court as civil contempt or criminal contempt under Section 2(a). The Constitution of India in its Article 19(1)(a) reserves the freedom of speech and expression however such right is not absolute. There are certain restrictions to such rights which are present in Article 19(2) of the Constitution of India.

According to Amnesty International, the right to speech refers to the right to seek, receive and impart information and ideas of all kinds, by any means. The right to speech and expression is considered one of the essentials of a democratic country like India, where the suppression of such rights has been practiced by its formal rulers, i.e. the British.

Contempt of court on the other hand refers to an act of non-compliance or discourtesy against the order of a court or any other judicial body, and such disrespect must interfere with the due process of court, and therefore, a reasonable punishment is imposed by the court.

According to Black’s Law Dictionary, contempt of court refers to “any act which is calculated to embarrass, hinder, or obstruct the court in the administration of justice, or which is calculated to lessen its authority or its dignity. Committed by a person who does any act in willful contravention of its authority or dignity, or tending to impede or frustrate the administration of justice, or by one who, being under the court’s authority as a party to a proceeding therein, willfully disobeys its lawful orders or fails to comply with an undertaking which he has given.”

Origins of freedom of speech and expression and contempt of court

The origins of freedom of speech and expression can be traced back to ancient Greece where citizens enjoyed considerable freedom of speech in the 400s B.C. The Greek people used the term “Parrhesia” which means free speech or to speak frankly. The right to speech and expression became a fundamental right during the period of Athens in Greece and leaders, philosophers, playwrights, and every citizen was free to discuss politics and religion and to criticize the workings of government.

Later the concept appeared in the English Bill of Rights 1689, where it held that the freedom of free speech and expression against any proceedings of the parliament, shall not be rebutted or challenged in any court of law or other than parliament.

Afterwards, the 1st Amendment in the U.S. Bill of Rights, adopted on December 15, 1791, stated that Congress shall not enact any law which will suppress the freedom of speech and expression of the people and the press, and no law shall suppress the right of people to assemble peacefully. However, the first amendment failed to define what refers to the freedom of speech and expression and what type of speeches are protected by the courts in the nation.

The origins of contempt of court originated through an undelivered judgment of the court, in the case of R. v. Almon (1764) wherein the presiding judge held that the power of contempt of court is essential to preserve the respect and dignity of the judges and uphold their jurisdiction. The case is also a landmark case concerning the contempt of scandalizing the court, an offence which every time has come up when the comment about judges crosses the line and affects the proceedings of the court.

In ancient times, it was the duty of the king to administer justice by hearing all the parties to a conflict with the help of advisors to the court of the king. When the king was not able to hear disputes, he appointed the judges to act as his delegate and preside over the matters in conflict. Whoever violated or disobeyed the order of such appointed person by the king, was believed to have committed contempt and was punished accordingly.

What is freedom of speech and expression?

The right to freedom of speech and expression is considered to be God’s gift to mankind, where humans can practice criticism only in a positive way, where the rights of humans are being violated. By virtue of Article 19, everyone shall have the right to hold an opinion without any interference. Such right to free speech and expression shall be made available to every person and no authority shall have a right to suppress such rights.

What are the advantages of freedom of speech and expression?

Discovery of truth: Exposure to truth is the main reason why freedom of speech and expression is practiced. Truth not only reveals the facts of a case but also leads to a full discussion of truth which leads to the development of society.
Helps inform the public: Having a right to know what’s going around in the nation or state is also a right and to stay informed and updated about the current issues, freedom of speech and expression shall be practiced.
Stronger democracy: Criticisms on democracy also impact the democracy in a negative way. Criticism helps in highlighting the mistakes of the government and therefore, the government improves its mistakes.
Impact on elections: Freedom of speech also prevents the malpractices undertaken by the election candidates to win by unfair means; however, if such practice is witnessed by any person, such person has the right to inform the concerned authorities about such practice, resulting in the suspension of the candidate from elections.
Protection of human rights: Press and journalists are the most vital ingredient of freedom of speech and expression, and when the press creates awareness about the violation of human rights, the concerned authorities take action and safeguard the rights of citizens.
Voice of the unheard: By practicing their right to speech and expression, media sometimes becomes the voice of the people whose matters are not considered by police, or courts.

What is the importance of freedom of speech and expression?

The right of freedom of speech and expression is a significant human and fundamental right adopted by the Constitution’s framers which gave citizens the right to freely speak and express their views about most of the things in the country. Such freedom only protects the human rights of individuals but also the rights which are essential for the prosperity of the nation.

Hamdard Dawakhana v. Union of India (1959)

In the case of Hamdard Dawakhana v. Union of India (1959), the Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954 was challenged on the grounds of violation of Article 19(1)(a) and Article 19(1)(f) of the Constitution of India. The petitioners in the present case, who were into the business of medicines, challenged the 1954 Act because they were facing difficulty in advertising their product and many complaints have been filed against them. The 1954 Act was enacted to regulate and govern the advertisements of certain drugs in public, and to eliminate the advertisements of specific remedies which were alleged to have magical qualities.

The Supreme Court of India in this regard held that such an act is not violative of freedom of speech and expression and that freedom to distribute or publish any advertisement does not fall within the ambit of Article 19(1)(a) of the Constitution of India.

Romesh Thappar v. State of Madras (1950)

In the case of Romesh Thappar v. State of Madras (1950), the Government of Madras, banned a journal named “Cross Roads”, to maintain public order and safety. The petitioners in the present case filed a case against the order of the Government of Madras because such a ban is a violation of his rights under Article 19(1)(a) of the Constitution of India.

The Supreme Court of India, in the said case, held that until and unless there exists a law that restricts the freedom of speech and expression, which straightly goes against the security of the state or tends to violate it, the law shall not fall within the ambit of Article 19(2) of the Constitution of India.

Indian Express Newspaper v. Union of India (1984)

In the case of Indian Express Newspapers v. Union of India (1984), the petitioner challenged the customs tax applicable on the newspaper and the high costs have affected the newspaper violating their Article 19(1) of the Constitution of India. The Supreme Court of India in this case held that the government is indeed empowered to impose a tax on the newspaper, however, the rate of tax must be reasonable. The court also held that the press has adopted the responsibility of public education which gives types of education on a wide scale in contemporary times, where types of communication like television are still not available to the society at large. The aim of the press must be the betterment of the public by printing true events and opinions in the absence of which the democratic electorate cannot make reliable judgments.

Bijoe Emmanuel v. State of Kerala (1986)

In the case of Bijoe Emmanuel v. State of Kerala, (1986), the petitioners in the case, were expelled from their school for not singing the national anthem during the morning assembly. The children believed that their religion does not permit them to join any rituals except it be in their prayers to Jehovah their God.

The Supreme court of India, in the present case, ruled that to compel people to sing the National Anthem in the presence of a genuine religious belief, is violative of the rights enshrined in Article 19(1)(a) and Article 25(1) of the Constitution of India.

What are the international provisions concerning the right to speech and expression?

Article 19 of the Universal Declaration of Human Rights

Article 19 of the Universal Declaration of Human Rights states that every person possesses a right to freedom of speech, opinion, and expression, which also comprises the right to deliver personal opinions in the absence of any hindrance and to strive and receive information from any media.

International Covenant on Civil and Political Rights (ICCPR)

Article 19 of International Covenant on Civil and Political Rights states that:

Every person has the right to have opinions without interference.
Every person has the right to have the freedom of speech and expression and the right includes the right to receive information and ideas, irrespective of whether they are written or oral, published or written, etc.
The rights mentioned in this Article shall be practiced with utmost sincerity and responsibility and that such rights may have certain restrictions, however, these restrictions shall only apply when they are provided by the state.

European Convention for the Protection of Human Rights and Fundamental Freedoms

Article 10 of the European Convention for the Protection of Human Rights and Fundamental Freedoms reserves similar rights to the ICCPR, and states that:

Every person has the right to freedom of speech and expression and the right also includes the right to have opinions and ideas without any intervention of the state or its authorities. However, the article shall not cease the nations to impose compulsion on obtaining a competent license of broadcasting.
The rights present in the Article shall be practiced with proper care and responsibility, also such rights may be altered or suppressed or restricted if prescribed by the laws of a particular nation in the best interest of the democracy, society, national security, sovereignty, and integrity of the state to prevent the crimes, and national peace and sovereignty, etc.

American Convention on Human Rights

Article 13 of the American Convention on Human Rights states that:

Every person has the right to freedom of speech and expression and the right includes the freedom to seek, receive information and independent ideas of any kind, irrespective of what form they are in, i.e. written, oral, published, etc, or is delivered by any medium of the choice.

What is freedom of the press?

To maintain the true concept of democracy the people need to know what is going on in their nation and how the government is working for the betterment of the people in the country. A single person cannot cover the events across the nation at the same time, however, the job is done by media which telecasts, prints, announces, broadcasts, etc. the events taking place across the nation and therefore, to get true insights of the working of a nation, the media must not be suppressed by any means, except for the reasonable grounds of restrictions.

In the case of Express Newspapers (Private) v. Union of India (1958), the Supreme Court of India held that with all types of freedom, freedom of the press includes the freedom from and for. An independent press is liberated from any type of bound from any governmental, social, or inter and intra sources.

In the case of Life Insurance Corpn. of India v Prof. Manubhai D. Shah (1992), The Supreme Court of India ruled that the media concerned with printing, the radio media, and the media which telecasts fulfill the responsibility of public educationists, which helps in the development and growth of democracy and therefore, each citizen in this country has the right to broadcast their views, with the assistance of any type of media, however, such broadcast shall be subject to certain restrictions enshrined under Article 19(2) of the Constitution of India.

What are the limitations of freedom of speech and expression?

As mentioned above, the freedom of speech and expression in India is not absolute and there are certain restrictions to the right to freedom of expression:

Security of the state

The security of the nation is one of the most sensitive topics when it comes to the discussion of ambits of right to free speech and expression because certain acts cannot be entertained by the state at any costs including public disorder, waging war against the government of India, riots, unlawful assembly, rebellion, friendly relations with the enemy state, sedition, etc. because such acts cause hate towards the nation which destroys the sovereignty of the country.

One such instance is the national emergency of 1975-1977, a 21-month-old tenure proclaimed by then Prime Minister of India Indira Gandhi on grounds of imminent internal and external threats to the Indian state. The emergency was proclaimed under Article 352 of the Constitution of India which empowers the President of India to proclaim an emergency after communicating it to the Prime Minister and council of ministers.

Decency or morality

The expressed words must be decent and shall not cause a nuisance to the public. The Indian Penal Code, 1860 in its Section 292, Section 293, and Section 294 provides the punishment for words that cause any obscenity or nuisance to the public at large. According to Section 292-294, any word, gesture, publication, book, songs, etc which are immoral and not decent shall not be practiced under the disguise of the right to freedom of speech and expression.

Defamation

Section 499 of Indian Penal Code, 1860, reserves the legal provision for defamation and states that whosoever, by any signs, words, visible representation, etc, accuses any person to violate or knows that such acts will violate the reputation of a person, shall be termed to have caused defamation.

Defamation is a direct attack on the image of a person in society and such acts shall not be practiced under the disguise of practicing the rights of Article 19(1)(a) of the Constitution of India.

Contempt of Court

Judiciary is considered as one of the three pillars of democracy and to preserve the judiciary it is necessary to safeguard the rights of the judges and any act which attacks the integrity of the court shall be punished.

It is believed that the judiciary can only achieve its objective if its orders are being executed or else there is no sign of having a judiciary in the country and therefore there is no right of freedom of speech and expression if the right violates the integrity of the court.

Incitement of an offence

Section 505(1)(c) of the Indian Penal Code, reserves the provisions of incitement and states that any person with the intention of inciting, or is likely to cause incite, among any community or class of people to engage in any offence, against any other person or the group or community, then such person shall be imprisoned for a term which may extend to three years, or with fine or with both.

Incitement refers to soliciting or instigating a person to commit a criminal offence of any nature, shall not be entertained by the government, and such words are not protected by Article 19(1)(a) of the Constitution of India.

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Contempt of Courts Act, 1971

Section 2(a) of the Contempt of Courts Act, 1971, reserves the definition of contempt of court which further classifies contempt of court in civil contempt and criminal contempt. Section 2(b) and Section 2(c) define civil contempt and criminal contempt respectively. While civil contempt refers to any intentional non-compliance with the order of the court, the judgment of the court, the direction of the court, or any other order passed by the court in its official capacity, shall be referred to as civil contempt.

Criminal contempt on the other hand refers to the publication of a statement, either written or spoken, or by any other means, which offends or tends to offends or degrade or tends to degrade, or intervene or tends to intervene with the administration of justice, or interrupts with any judicial procedure or tends to interrupt any judicial procedure, shall be termed as criminal contempt of court.

The law of contempt of court aims at maintaining public reliance on the way of working of the court of law, and the law of contempt of court is not concerned with the criticism of judges as an individual but with criticism of the court.

Background of Contempt of Courts Act in India

Just like most of the contemporary laws governing the country are of British origin, the law of contempt of court also hails from the same background.

The Contempt of Courts Act, 1926 was the first legislation enacted to punish for contempt. However, the Act was very limited in scope and was only concerned with the power of the High Courts to punish itself and the subordinate courts for the contempt of court. The objective behind the Act was to resolve the conflicts of opinion between the High Courts and those subordinate Courts who felt under the jurisdiction of such High Courts. The Act also empowered the High Court to penalize itself and the subordinate courts if they go against the judgment and proceedings of such a High Court.

The Contempt of Courts Act, 1952 replaced the 1926 act and reserved more provisions like the limit of the punishment imposed by the High Courts on itself and subordinate courts. The 1952 Act provided with a punishment of simple imprisonment for a term which may extend to six months, or with a fine which may extend to two thousand rupees, or with both. The 1952 legislation also held that the accused shall be discharged from the punishment of contempt of court if such accused makes an apology to the court and such apology meets the satisfaction of the court.

H.N. Sanyal Committee, 1963

The H.N. Sanyal Committee was made to determine the application of contempt of courts in India. The Committee under the chairmanship of H.N. Sanyal, then Additional Solicitor General of India. The Committee recommended that contempt proceedings should not be initiated by the courts themselves, but on the recommendation of a government law officer.

The recommendations of the Sanyal Committee were incorporated in the Contempts of Courts Act, 1971. The 1971 act was not only wide in scope but also consisted of broader definitions of what does not amount to contempt of court.

The Sanyal Committee also recommended the defences which shall be taken if he/she is charged with contempt of court.

Law Commission of India report

The Law Commission of India in its Report No. 274, 2018, while concluding highlighted the number of cases pending before the court from July 1, 2016, to June 30, 2017, and found that a total of 568 criminal contempt cases and 96,310 civil contempt cases are pending, the highest being in the High Court of Orissa in criminal matters and Allahabad High Court with 25,370 civil cases. The Supreme court of India as of 2018, has 683 civil contempt cases and 15 criminal contempt cases.

The Law Commission also suggested that striking down certain provisions relating to criminal contempt of court like ‘scandalizing of court’ might not be an efficient step and such amendment will have no result on the jurisdictions of the courts to punish for contempt.

The Commission also found that any amendment to the 1971 Act which aims at amending the currently existing definition of the term “contempt” shall also result in vagueness because the very act may result in increased events of uncertain and numerous definitions and interpretations as the superior courts exercising their inherent powers of contempt of court.

Altering the ambits of contempt of court to include “willful disobedience of directions or judgment” seems unacceptable. If the provisions are altered or narrowed in scope, then the impact of such legal provisions will be altered as well. Such an amendment will also lessen the respect for the courts and their authority and functioning.

Whether contempt laws protect the judges as an individual

The objective of the law of contempt is to preserve the integrity of the court and it is not concerned with the criticism of the judges as an individual until and unless such criticism directly affects the administration of the justice and due process of law and such criticism is direct disobedience of the judgment of the court.

In the case of P.N. Duda vs V. P. Shiv Shankar & Others (1998), the Supreme Court of India held that the criticism regarding the judiciary and the presiding officers should be welcomed, as long as such comments do not violate or impact the due course of justice. The court held that contempt laws shall not be practiced by the judges to preserve their dignity and any criticism of the judgment is allowed until it violates the administration of justice.

In the case of Re: Arundhati Roy, (2002), the Supreme Court of India ruled that honest criticism of the working of the judges, and the comments on the judiciary and the way it operates shall not fall within the ambit of contempt of court if such statements are made in good faith.

International scenario of contempt of court

The contempt proceedings are not new to India and can be noticed in a lot of other countries as well. Some of them are discussed below-

UNITED STATES OF AMERICA–

In the United States of America, contempt proceedings are carried out for the same purpose as that of India i.e. to secure the dignity of court and at the same time ensure smooth administration of justice. Contempt of court is civil or criminal in nature but also direct or indirect as well. Direct contempt is in the presence of the presiding judge and the judge often informs the party in contempt and allows them to respond and may impose sanctions thereafter. Whereas indirect contempt is generally when there is a disobedience of a prior court order.

Coupled with the federal structure of the USA, it is prominent to notice how different states have different rules of conduct and punishments pertaining to contempt proceedings. For instance, in Michigan, a person accused of criminal contempt will have the same rights as that of a criminal defendant including right against self-incrimination, the presumption of innocence and contempt to be proven without reasonable doubt. Whereas under civil contempt basic due procedure is followed. Punishment for contempt at large holds imprisonment and fines in its ambit.

AUSTRALIA-

In Australia, the matter of contempt of court arises when there is disobedience of a court order or disrespect of the court. Specifically in New South Wales, a few criteria have been termed and if satisfied, a person can be held under contempt some of which include swearing at the judge, refusal in taking oath in court or refusing to leave the court after being told to along with evading court’s orders among others. Some defenses are also available if we talk about contempt in New South Wales; these include necessity, duress and self defense. The punishment includes fine or imprisonment as decided by the court in question.

UNITED KINGDOM-

In the United Kingdom, actions like, disobeying or ignoring a court order, taking photos or yelling in court, refusing to answer the court’s questions if you’re called as a witness and publicly commenting on a court case, for example on social media or online news articles can amount to contempt. If one is found to be in contempt of court, they could go to prison for up to 2 years, get a fine or both.

NEW ZEALAND-

New Zealand is one of those countries where the topic of contempt conviction doesn’t have much clarity to it. However, even if contempt is not widely known it is still practiced. In this country, the idea is whatever is the disruption caused to the system it ultimately results into contempt or in other words anything which plainly tends to create a disregard of the courts of justice”.Contempt includes disruptive courtroom behavior (by words or actions) that threatens the orderly and due disposition of court business. The ambit of contempt is also outside the conventional courtroom setting such that when an individual or entity is charged with an offence (whether criminal or civil), the public must be assured that these issues will be tried in the courts and not the media.

The Contempt of Courts Act, 1971

According to Section 1 of the Act, The Contempt of Courts Act has its jurisdiction across India. It is significant to note that the Act does not provide a direct definition of contempt of court but it gives a difference between civil contempt and criminal contempt.

Apart from jurisdiction and definitions, the Contempt of Court Act also reserves sections that define what is not contempt instead of defining what is contempt.

The Act in its Section 12 reserves the punishment for contempt of court. The Section states that the punishment for contempt of court shall be simple imprisonment for a term which may extend to six months, or with fine which may extend to two thousand rupees, or with both”

Article 129 and 215 of the Constitution of India

Article 129 of the Constitution of India states that the “Supreme Court to be a court of record.” The Supreme Court of India is the court of record and shall possess all the powers concerning the court of record including the power to punish itself for contempt of court. Article 129 reserves the inherited powers of the Supreme Court of India to punish itself under contempt of court if any judgment or proceedings violate the dignity of the court.

Article 215 of the Constitution of India states that “High Courts to be courts of record.” The article declares that each High Court in India shall be a court of record and such High Courts possess all the necessary powers to act as a court of record, including the power to punish itself for the contempt of court. Article 215 empowers every High Court to maintain the records of itself and its subordinate courts, the provision also empowers the court to hold itself guilty of contempt of court if any judgment or order of such court violates the dignity or administration of justice of itself.

What are the essentials of contempt of court?

Civil contempt

Disobedience of the order of the court: The person accused of committing contempt of court has caused disobedience to the court proceedings, or any order of the court or the judgment of the court, and such action must be done wilfully.
The respondent must be competent to comply with the order: The accused contemnor must be a person who was competent to the orders of the court and not some random person who has nothing to do with the court’s order.
Knowledge of the order of the court: The accused must know that the court has passed a certain order, and if after such knowledge, the accused fails to comply with the orders of the court, he/she is guilty of contempt of court.
There must be an order of the court: The disobedience of the order of the court can only be caused if the court has explicitly passed an order and the contemnor disobeys such order of the court.

Criminal contempt

Publication of any matter: any matter, either by words, prints, publication, etc. which interferes with the due process of law and the dignity of the court is violated by such publication, then such acts shall be falling within the ambit of criminal contempt of court.
Scandalizing or lowering the authority of the court: the publication must be of such a nature that it violates the dignity of the court. The acts must be defamatory and must question the competency of the judges.
Interference with due course of justice: the published words must be of such a nature that they affect the administration of the court and its ability to be a competent authority to deal with a matter, or that such acts must directly or indirectly affect the court proceedings in any way.

What does not amounts to contempt of court

The contempt of courts defines what shall not amount to contempt:

Innocent publication and distribution of matter

According to Section 3 of the Contempt of Courts Act no person who practices innocent publication and distribution of matter shall be guilty of contempt of court. Sub-clause 1 of Section 3 states rules that an individual shall not be punished with the punitive measures of contempt of court if he/she has published anything, in either written or spoken form, by any type of clear signs, or any visible acts, which interferes or tends to interfere or acts as a barrier or tends to act as a barrier to the natural administration of justice, only if, when such piece of data was published, the publisher has no reason to believe that the proceedings were pending before the court.

A fair and accurate report of the judicial proceeding

According to Section 4 of the Contempt of Courts Act, no person shall be guilty of contempt of court if such person published a correct and true report of judicial proceedings.

When a person prints any accurate report of any judicial proceedings, in the open court for transparency of the judicial proceedings. However, if the reports are biased and are not true, the defence of section 4 is not available.

Fair criticism of the judicial act

According to Section 5 of the Contempt of Courts Act, no person shall be guilty of contempt of court if such person practices his right to fair criticism on the acts of the judiciary, or of any case which he has knowledge about.

Fair criticism refers to the comments which are fair and do not intimidate the proceedings of the court or the dignity of the court. However, if the comments are not true, then the defence of Section 5 cannot be availed.

Complaint against presiding officers of subordinate courts

According to Section 6 of The Contempt of Courts Act, no person shall be guilty of contempt of court if such person makes any type of statement in good faith regarding the presiding officer of any court to either any subordination or lower court or the High court.

Publication of information relating to proceedings in chambers or camera

According to Section 7 of the Contempt of Courts Act, no person shall be guilty of contempt of court, if such person published a true and correct report of any judicial procedure which took place in chambers of the judge or in-camera, except when such proceedings are contrary to the law in force, or when such recordings are being conducted in the chambers or in-camera due to public policy or security of the state, or when the information is of such a nature that is a secret issue of the private proceedings.

What are the advantages of contempt laws?

The independence of the judiciary is considered a significant factor in a democratic country like India, where the courts are the last resort of justice. To deliver justice, the judiciary needs to be independent and not consider the threats and interferences, and therefore, the law of contempt is the most ideal legislation which protects the dignity of the court and punishes those who hamper the administration of justice by intimidating the court.

The contempt laws also punish the disobedience to a court and its rulings for the smooth administration of justice.

The court laws safeguard the judiciary and its working, and the primary objective of enacting the Contempt of Court Act is also to protect the dignity of the court and preserve its due process of law and punish those who disobey or act as a barrier in the due course of justice.

The conflict

In the case of Shri Baradakanta Mishra v. Registrar of Orissa and Another (1973), the Supreme Court of India ruled that the main word is “justice” and not “judge”, the main concern revolves around justice and not the judges. The Contempt of Courts Act respects the right of free speech and expression and the right to justice. The contempt laws should be practiced only when there is mala fide intention to violate the dignity of the court and not fair or trivial comments made on the judiciary and the judicial officers.

In the case of Dr. D.C. Saxena vs Hon’ble The Chief Justice of India (1997), the Apex Court while speaking of the benefits of the freedom of speech and expression in the legal fraternity observed that freedom of speech and expression promotes the development of the judiciary and its dignity. Freedom of speech and expression also plays a significant role in securing and protecting basic human rights. The right to freedom of speech and expression is one of the most vital factors in a democratic nation and therefore the right to freedom of speech and expression is a basic concept for the development of advocacy and all those who are indulged in the legal fraternity, who practice law in courts.

In the case of The State vs Editors, Printers, And Publishers (1954) the Supreme Court of India held that when a publication was published with the objective of violating the principles of fair trial of a case pending before the court, there is no doubt that law of contempt shall be practiced however in cases where there is no malafide intention to violate the dignity of the court, then the law of contempt does not follow.

What amounts to contempt

Summing up the question with the case of Indirect Tax Practitioners Assn vs R.K.Jain (2010), where the court held that the law of contempt is not practiced by courts to punish the person by violating his right to speech and opinion but in cases where the criticism is of such a nature that it crosses all moral limits and it is a deliberate act to violate the integrity and dignity of the court, then the court shall use the power to punish a person under contempt of court.

The courts never practice the jurisdiction of such laws to protect their dignity but the dignity of the court, neither the contempt laws are used against those who speak against the courts. The right to speech and expression includes the right to criticize the judgments of the court until and unless such criticism violates the dignity of the court.

Propositions

The law governing contempt needs clarification and its ambit needs to be discussed widely by everyone so that neither is it misused nor is it used as a tool to abuse the rights of the public. Debate and discussion are a part and parcel of Indian democracy and so is active participation. The combination of the two is the ultimate success ‘mantra’ in bringing a reform and that is the first step in this domain as well. Active participation from every side is required to push for reforming this law such that it balances the opinions well in its ambit. Below are some suggestions mentioned that could be a stepping stone in igniting a debate about this hugger mugger topic.

A remedy available for contempt is Apology. A layman or an advocate might say some things they don’t mean because they are under a lot of pressure or this might happen out of pure frustration in such a scenario it is vital to accept that one has made a mistake and apologize for it hoping that the court remits the punishment awarded. It is vital that the apology is sincere.
On the other hand, the court must understand the grievances that citizens are under and should be a little more accepting of the criticism, it is crucial to examine why the person took such actions which led to contempt conviction and what were their intentions behind the same.
The consequences or the punishment should be the same for every citizen, irrespective of if the person is a public figure or a layman.
The recent lines of contempt paint a very blurred image if anyone files an appeal for contempt conviction a committee should be established that analyses if the case comes under contempt or not, and this committee should be free of interference from the judge’s side this can be established under the idea of checks and balances.
A crystal clear image between contempt of judge and contempt of court should be made available in the public domain.
The conviction must be used as an expedient when the court has a very reasonable foundation for contempt.

Narrowing down the solutions, one can understand that the judicial stance over the law of contempt has to be clarified. Additionally, the same has to be communicated and explained better to the people so that the scope of misunderstanding reduces significantly and the communication gap is filled.

Conclusion

There have been numerous cases where the jurisdiction of the contempt of courts is practiced by the court, e.g. the Prashant Bhushan contempt case (2020) where his tweets allegedly scandalized the proceedings of the court, and the lawyer was fined with 1 Rupee only, the reason behind such fine is reflecting the guilt of Prashant Bhushan that he was indeed guilty of contempt of court, and this discretion on the judiciary to decide on the fine is a matter of concern.

The other and the most important matter of concern is the clash of the freedom of speech and expression and the contempt of court where it is not clear as to what shall violate the dignity of the court and whatnot. It is not clear as to what shall be contempt, whereas it is clear what does not amount to contempt in the Contempt of Courts Act, 1971.

The line between freedom of speech and expression and contempt of court is upon the discretion and interpretation of the court and therefore causing uncertainty in the laws of contempt of court.

On the other hand, criticism indeed helps the nation to prosper, but the criticism of the court is not acceptable, however, such acceptance is also upon the understanding of the judges, and therefore, there is an urgent need to enact such legislature which reserves broader definitions and more interpretation with the view of safeguarding the right to speech and expression.

References

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A complete guide on drafting a privacy policy under GDPR for a start-up

By

Abanti Bose

-

September 29, 2021

0

This article is written by Garima Gunjan, pursuing Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho. The article has been edited by Anahita Arya (Senior Associate, LawSikho) and Dipshi Swara (Senior Associate, LawSikho).

Table of Contents

Introduction

General Data Protection Regulation (GDPR) is a game-changer framework that came into existence on May 25, 2018. GDPR was launched across every country in the European Union (EU) in alignment with the then prevalent data protection policies. However, it brought an increase in the protection level for EU citizens. The law helps its EU citizens to gain control over their data and is at par with the current tech era. Nowadays as every site that you visit collects data, GDPR has created a standard for the way data-related laws should be implemented in order to protect a private citizen’s privacy.

Privacy Policy is that part of a website that describes the manner in which that entity will be collecting, protecting, utilizing, or storing the personal information that the entity collects from its site user. Generally, personal information such as name, birth date, gender, residential and IP (Internet Protocol) address, and social security number is collected after the user gives prior permission. Depending on local legislation, the exact definition and information collected may vary. The Privacy Policy legislation of a region defines how entities are required to meet legal obligations, and what kind of punishments the companies may face if they fail to protect this data. This article highlights how recently launched start-ups should draft their official site’s privacy policy.

Meaning of GDPR

All the global companies irrespective of the countries they are based in, need to comply with GDPR if they are involved in business transactions with citizens based in the EU countries. The European Parliament and Council came up with GDPR so that global ventures with desktop & mobile apps along with sites can collect personal data with the consent of EU citizens.. If a company is involved in the procession or collection of personal data belonging to EU citizens, it must comply with GDPR and non-compliance of which may result in the company being slapped with hefty fines by the authorities.

GDPR is legislation according to which companies are required to adopt both technological and organizational steps to protect users’ data. Being an organization that deals with EU customers, they need to appoint Data Protection officers and train their staff regarding the handling of sensitive data. Under technological measures, the staff should be taught about data encryption, classification, deletion of data, management of consent, making changes according to requests made, and data loss prevention.

By complying with GDPR policies, the company needs to inform its site users of the reason their data is being processed and the period for which it will remain stored with this company in a clear and simple language.

For example, if you run a start-up that has users and customers from the EU countries, and your start-up is involved, then you will have to provide information to these users regarding what personal information is being collected, what is the process to collect it, how the data shall be utilized, how it shall be secured, whether data shall be shared with third parties, or shall users have any control over this data.

Significance of privacy policy

The technique of obtaining information regarding personal data and processing it according to the requirements of an organization is known as the privacy policy. If a company has a rigid privacy policy, its consumers may start trusting the organization and make frequent purchases online from such a company site. In a well-drafted privacy policy, details of collected information, parties with whom it is being shared or sold, and ways in which it is being analyzed.

The transaction habits of consumers widely depend on the company’s trustable privacy policy. So, organizations take utmost care in drafting their respective privacy policy depending on applicable laws and legal jurisdiction. The privacy policy of a company represents a crisp and generalized description in layman terms so that users are kept informed about how and where their data is being used.

Why is a privacy policy needed?

According to the GDPR, if a company fails to draft a privacy policy, it shall be liable for a fine of up to 4% of its annual revenue or €20 million, whichever remains higher. Even if the offence is found to be less serious during the investigation, the fine may amount to 2% of the company’s annual revenue or €20 million, whichever remains higher.

Privacy Policy under GDPR is intended to help EU citizens to understand how the companies (with whom citizens share asked data) utilize their collected data and file complaints if they discover that their data was being violated in some manner. Personal information is an integral part of the digital economy which needs the consent of the EU citizens before being utilized.

When the GDPR took effect, many big names such as Google, H&M, British Airways, etc. were fined hefty amounts as they were not complying with these norms. Several other companies and news providers also refused to comply with their privacy policy according to GDPR and as a result, they were blocked across Europe.

If a company complies with the privacy policy as mentioned in GDPR, the customers and users shall have this feeling that their data is safely being processed by the company. They may also show interest in trying new services or products that the company might be launching in the future.

How can privacy policy be drafted under GDPR for a startup?

While drafting GDPR privacy policy for start-ups, addressing the rights as a separate clause and by including personalized details. Let’s see them one by one.

How are user rights being addressed?

Under the GDPR provisions, users have been granted certain rights so that they may be able to gain control over their data. Some of these rights are:

The right to be informed,
The right of access,
The right to rectification,
The right to erasure,
The right to restrict processing,
The right to data portability,
The right to object.

These rights can be related to any personal information that the company collects from its users.

For example, suppose there is an Indian start-up called ‘Fellon’ with customers from the EU, it will address the user rights under GDPR via the following clause:

“You have the right to ask us not to process your personal information for marketing purposes. You can exercise your right to prevent such processing by checking or unchecking a few boxes on the forms we use to collect your data. If you wish to exercise this right, please drop us a mail at [email protected].”

How does the user’s consent have to be obtained?

As per Article 7 of GDPR, If the users freely give their affirmative consent to a company regarding their personal data collection, in such a case, the company has managed to obtain users’ consent regarding the collection of personal data.

Suppose if ‘Fellon’ wishes to obtain its users’ consent before collecting personal info, it may do in the following manner:

“We want you to know exactly how our services work and why we require your registration details. Please state that you have read these terms before you continue.

__ I agree to the terms and conditions.”

How can data be modified or deleted?

According to Article 4(11) of GDPR, if a user believes that their data has become out of date or contains errors, they can request the company to get their data modified. The company has to oblige to this request without any due delay.

For example, ‘Fellon’ shall include this right as a clause given below:

“If you have registered an account on Fellon, we provide you with tools and account settings (link) to access, collect, delete, or modify the personal data you provided to us or associated with your account. You can download certain account information, by following instructions here (link redirects to page with details). You can request the correction, deletion, or modification of your data, and download account information, by following instructions here (redirects to a page with details).”

How can personal data be utilized for some other purpose?

According to Article 4(10) of GDPR, If the company that collects its users’ personal data wishes to utilize this data for some purpose other than those users have provided consent, the company will be able to do this only after the users agree to the same.

If ‘Fellon’ wishes to utilize its users’ data for some other purpose, it may draft that privacy clause in the following manner:

“Fellon provides you with a means to download the information you have shared through our services by clicking here (redirects to a page with details). We provide you with a means to download the information you have shared through our services by clicking here (redirects to a page with details).”

How to resolve complaints?

According to Article 65 of GDPR, if a company receives any complaint from its user regarding its privacy policy, it is required to resolve that complaint at the earliest.

To resolve complaints received from the users, ‘Fellon’ will have to draft a clause as follows:

“If you have any concern about the way Fellon is handling your User Personal Information, please inform us immediately. You can email us at [email protected] so that your complaint reaches our Data Protection Officer (DPO) directly.

Whether data is being used in automated decision making?

According to Article 22 of GDPR, If a company wishes to utilize collected data in automated decision making after processing personal data, the users are to be informed about the same.

If ‘Fellon’ decides that it shall be using automated decision making in order to provide services to its customers, the clause shall be drafted as follows:

“Fellon may use automated decision making in processing your personal information for some services and products. You can request a manual review of the accuracy of an automated decision if you are unhappy with it.”

The purpose for collecting data

According to Article 13 of GDPR, information has to be provided from when data is being collected from the data subjects.

As ‘Fellon’ collects personal data of its users to process them accordingly, it may inform users about it by drafting the following clause:

“Fellon collects the data of its users to introduce new people to its products, improve the site quality, for personalization for optimizing content and to display ads on other sites.”

Period for which data shall be stored with the company

According to Article 5(e) of GDPR, the users are to be informed about the specific period for which their data shall be stored and analyzed for different purposes.

As ‘Fellon’ has the policy to store users’ data for 36 months according to GDPR, it has to be described as under:

“Fellon collects and uses data provided by its users only for providing services. The maximum period for which your data shall remain with us is 36 months.”

What are the compliances related to GDPR Privacy Policy?

According to GDPR Privacy Policy, companies need to elaborate and justify how they are going to use personal data collected from the users. Personal data such as sexual orientation; genetic and health data; political affiliations and opinions; online data such as RFID tags, cookies, or IP address; ethnic or racial data; biometric data; personally, identifiable information such as names, social security number, birth dates, etc., are required to be protected according to GDPR privacy policy.

A start-up can be compliant according to GDPR privacy policy by providing the following rights to its users

Right to be forgotten

Also known as ‘Right to erasure,’ under Article 17(1) of GDPR, users can request the data controller of the company to remove their personal information without undue delay. Once the companies have achieved their target regarding the processing of data collected from the users, these users have the right to request to get their data erased from the company database. It is also famous as a right to data deletion.

Appointment of Data Protection Officers (DPO)

Article 37 of GDPR talks about the appointment of the DPO. In order to deal with GDPR issues, few companies can be asked to appoint a DPO. The need depends on the way user data is processed and company size.

Timely breach notification

According to Article 33 of GDPR, if a site complying with GDPR faces a security breach, the concerned company is required to report this issue to both its data controllers and customers within 72 hours. If this step is not taken within a given time frame, the company can attract a fine.

Privacy by design

According to Article 25 of GDPR, companies should design their sites in a manner that complies with cybersecurity protocols. The data collection process should also be regulated. If a company fails to comply with this, it may face a fine.

Obtaining consent

According to Article 7 of GDPR, the companies are required to clearly state their terms for consent. The terms and conditions should be explained in simple language for the users. Sites should allow the users to withdraw their consent anytime freely.

Data portability

According to Article 20 of GDPR, users reserve their rights to the data that they have consented to a company. Users can obtain that data from the company and it can be used for another purpose by another company.

Sample draft of privacy policy under GDPR for a start-up

Let’s see how the GDPR privacy policy for the earlier mentioned Indian start-up “Fellon” is going to be.

1. Privacy statement
The protection of your personal data is of great importance to Fellon Limited (“Company”) and its affiliates in the European Economic Area (the “EEA”) (together, the “Company Group”). This privacy policy (the “Privacy Policy”) therefore intends to inform you about how the Company Group entities, acting as data controller, collect and process your personal data that you submit or disclose to us. We also act as a data controller when we process your personal data received or obtained through third parties. We process this personal data in accordance with the applicable EU and Member State regulations on data protection, in particular, the General Data Protection Regulation No 2020/382 (the “GDPR”).We encourage you to read this Privacy Policy carefully. If you do not wish your personal data to be used by us as set out in this Privacy Policy, please do not provide us with your personal data. Please note that in such a case, we may not be able to provide you with our services, you may not have access to and/or be able to use some features of the Website, and your customer experience may be impacted.
2. How do we use your personal data?
We will always process your personal data based on one of the legal basis provided for in the GDPR (Articles 6 and 7). In addition, we will always process your sensitive personal data, for example, concerning your trade union membership, religious views, or health condition, in accordance with the special rules provided for in the GDPR (Articles 9 and 10). We may collect and process your personal data for the purposes detailed below, which are required so that we can pursue our legitimate interests and provide you with adequate services and products:
a. To ensure that content from our site is presented in the most effective manner for you;
b. To notify you about changes to our service(s);
c. To manage your customer account;
d. To offer you products and services;
e. To inform you about our policies and terms;
f. To promote safety and security, such as by monitoring fraud and investigating suspicious or potentially illegal activity or violations of our terms or policies;
g. To provide, improve, and develop our products, services, and advertising;
h. To use personal information for purposes such as data analysis, research, and audits;
I. To ensure business continuity.
3. What type of personal data do we use?
For the purposes specified under this Privacy Policy, we may collect the following categories of personal data:
a. Name and surname,
b. Title,
c. Home Address,
d. Identification number (e.g., customer number),
e. Location data,
f. Email address (personal/professional),
g. Telephone number (personal/professional),
h. Employer,
i. Credit card/bank account information,
j. Recorded customer phone calls,
k. Record of employee performance assessment,
l. Recruitment information (e.g., CV, certificates, marital status, date of birth, reference letters).
We can obtain such personal data either directly from you when you decide to communicate such data to us (i.e., when you fill in forms displayed on the Website) or indirectly where such personal data is provided to us by your electronic communication terminal equipment or your Internet browser. We ensure that the personal data processed is adequate, relevant and limited to what is necessary for relation to the purposes for which they are processed.
4. How do we share your personal data?
We may share your personal data with Company Group entities and with third parties in accordance with the GDPR. Where we share your data with a data processor, we will put the appropriate legal framework in place in order to cover such transfer and processing (Articles 26,28 and 29 GDPR). Furthermore, where we share your data with any entity outside the EEA, we will put appropriate legal frameworks in place, notably controller-to-controller and controller-to-processor Standard Contract Clauses approved by the European Commission, in order to cover such transfers (Articles 44 of GDPR).
Strategic Partners
Subject to your prior consent, your personal data may be transferred to, stored, and further processed by strategic partners that work with us to provide our products and services or help us market to customers. Your personal data will only be shared by us with the partners in order to provide or improve our products, services and advertising.
Service Providers
We may share your personal data with companies that provide services on our behalf, such as hosting, maintenance, support services, email services, marketing, auditing, fulfilling your orders, processing payments, data analytics, providing customer service, and conducting customer research and satisfaction surveys.
Corporate Affiliates and Corporate Business Transactions
We may share your personal data with all Company’s affiliates. In the event of a merger, reorganization, acquisition, joint venture, assignment, spin-off, transfer, or sale or disposition of all or any portion of our business, including in connection with any bankruptcy or similar proceedings, we may transfer any and all personal data to the relevant third party.
Legal Compliance and Security
It may be necessary for us; by law, legal process, litigation, and/or requests from public and governmental authorities within or outside your country of residence – to disclose your personal data. We may also disclose your personal data if we determine that, due to purposes of national security, law enforcement, or other issues of public importance, the disclosure is necessary or appropriate. We may also disclose your personal data if we determine in good faith that disclosure is reasonably necessary to protect our rights and pursue available remedies, enforce our terms and conditions, investigate fraud, or protect our operations or users.
5. Our records of data processes
We handle records of all processing of personal data in accordance with the obligations established by the GDPR (Article 30), both where we might act as a controller or as a processor. In these records, we reflect all the information necessary in order to comply with the GDPR and cooperate with the supervisory authorities as required (Article 31 GDPR).
6. Security measures
We process your personal data in a manner that ensures its appropriate security, including protection against unauthorized or unlawful processing, accidental loss, destruction or damage. We use appropriate technical or organizational measures to achieve this level of protection (Article 25(1) and 32 GDPR). We will retain your personal information for as long as it is necessary to fulfil the purposes outlined in this Privacy Policy unless a longer retention period is required or permitted by law.
7. Notification of data breach to the competent supervisory authorities
In case of breach of security leading to the accidental or unlawful destruction, loss, alteration, unauthorized disclosure of, or access to, personal data transmitted, stored or otherwise processed, we have the mechanisms and policies in place in order to identify it and assess it promptly. Depending on the outcome of our assessment, we will make the requisite notifications to the supervisory authorities and communications to the affected data subjects, which might include you (Articles 33 and 34 GDPR).
8. Processing likely to result in a high risk to your rights and freedoms
We have mechanisms and policies in place in order to identify data processing activities that may result in a high risk to your rights and freedoms (Article 35 GDPR). If any such data processing activity is identified, we will assess it internally and either stop it or ensure that the processing is compliant with the GDPR or that appropriate technical and organizational safeguards are in place in order to proceed with it. In case of doubt, we will contact the competent Data Protection Supervisory Authority in order to obtain their advice and recommendations (Article 36 GDPR).
9. Links to other sites
We may propose hypertext links from the website on which this policy is stated to third-party websites or internet sources. We do not control and cannot be held liable for third parties’ privacy practices and content. Please read carefully their privacy policies to find out how they collect and process your personal data.
10. Updates to Privacy Policy
We may revise or update this Privacy Policy from time to time. Any changes to this Privacy Policy will become effective upon posting of the revised Privacy Policy. If we make changes which we believe are significant, we will inform you through the Website to the extent possible and seek your consent where applicable. For any questions or requests relating to this Privacy Policy, please mail us at [email protected].

Conclusion

Start-ups should draft understandable and clear GDPR privacy policies with help of trained lawyers. If the start-ups have any site or application that collects certain data from its users, such an entity has a certain responsibility towards its users. Visitors should understand legal terms without any hurdle. The policies can vary depending on the needs of start-ups or the kind of services that they provide. The policies should be drafted according to the requirements of the venture.

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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Violence against women : a social and legal concern in Egypt

By

Diganth Raj Sehgal

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September 29, 2021

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This article is written by Varchaswa Dubey, from JECRC University, Jaipur. This article reflects the exhaustive work conducted regarding the violence against women in Egypt.

Table of Contents

Introduction

Violence against women is considered to be the worst type of crime the contemporary developed societies in the world can witness. Violence is not only humiliation, suffering, pain, agony, disrespect for a woman but also a violation of her human rights and legal rights. The violence against women is such a widespread practice that it is now considered a pandemic. Often practiced in low and uneducated families, violence against women is one of the most worrying issue around the world.

The Arab Republic of Egypt, a country well known for its ancient pyramids, is the very nation where the violence against women is at its peak. According to The Egyptian Center for Women’s Rights, the rights of women in Egypt are not only violated by their family members and society, but also by the state, including police, whose actual purpose is to protect and serve the people. Women in Egypt are a victim of constant sexual harassment and abuse on the streets, and around 97% of the Egyptian women are a victim of female genital mutilation.

According to a report, lifetime physical and/or sexual intimate partner violence in Egypt is 26% and child marriage is 17%, while the nation stands at 132 in the WEF’s Global Gender Gap Index.

Origins of violence against women in Egypt

The traces of violence against women in Egypt are so old that there is no conclusive proof to establish the origins of violence against women. With changing rulers in the territory, Egypt witnessed numerous laws to tackle the problem however no laws were executed practically. In ancient Egypt, the laws and beliefs were established and sustained by the threat and execution of violence under the disguise of cruel and unusual punishments imposed.

Egypt is an Islamic country and therefore, most of the applicable laws are highly influenced by the Islamic Sharia which considers rape as a serious offense against women. During Ottoman rule, rape was a common occurrence in the lands governed by the Ottoman sultans, which for a long time included Egypt, but it was criminalized under both Sharia law and the laws of the sultanate.

In modern Egypt, Article 291 of the Egyptian Penal Code was struck down in the year 1999. The said article was ‘marrying your rapist’ law, under which, the rapist shall not be punished for rape if he marries the woman he has raped.

Post-2011 revolution, laws regarding sexual harassment were inserted by an Amendment in 2014 in Article 306(bis)(a) of the Egyptian Penal Code which states that those who are found guilty of any sexual or indecent acts or gestures of any kind at any place, including social and digital media, shall be punished with imprisonment for a term not less than 6 months or a fine of EGP 3,000.

Violence against women

Violence committed by the State

Laws criminalizing violence against women exist in Egypt, however, the problem lies in its application, and in many cases, state agents are themselves involved in physically and sexually abusing women in Egypt, and such reasons were one of the main abettors of the 2011 revolution.

According to a report, a total of 289 cases of torture, 272 cases of death outside state authorities, 119 instances of disappearance and 63 injuries caused by careless handling of weapons by the state authorities were reported in the year 2011. Approx. 500 people died in state custody or were either killed by the security forces. Further 600+ instances of torture during detention were reported, according to another report. The gravity of the negligence of the Egyptian authorities can be determined by the awarding of a life sentence to a four-year boy.

To tackle the problem of violence against women, the New Woman Research Center and the Arab Alliance for Women, formed a coalition to eliminate the violence against women practiced by state agents, police and state security.

Domestic violence

Despite the legislations concerning domestic violence against women, the Egyptian parliament has enacted numerous laws however none of them have achieved their objective, i.e. protecting the rights of women in the country. Some factors which contribute to the violence against women are:

Some traditional practices like husbands or fathers believing that violence against women is their right.
Fear of women engaging with police to report the violence they have witnessed, because the system itself is corrupt, and associated with such practices.
Egyptian media considers domestic violence normal and acceptable, and therefore there is not much awareness about the domestic violence issue in Egypt.
Cultural barriers are another factor due to which women do not report their incidents to the administration, police, or media.

According to the Economic Cost of Gender-Based Violence Survey, more than 7.8 million women are a victim of violence in Egypt every year, and such violence is caused by their own spouse/fiance or some close relatives and other strangers in public places.

Female genital mutilation

Female genital mutilation means the removal of external female genitalia, either partially or totally, and other injuries to the genital organs of the female.

According to a report, the female genital mutilation rate in Egypt remains huge, with 87.2% of all women between the age of 15-49. Egypt also has the most number of incidents of female genital mutilation, the traces of which are found even before the existence of Christianity and Islam in Egypt.

The effects of such mutilation includes excessive bleeding, genital tissue swelling, high fever, infection, urinary problems, shock, and death. Female genital mutilation is usually practiced on young girls between infancy and adolescence, and rarely on adult women. The rate of practicing female genital mutilation is so high that, more than 3 million girls are estimated to be a victim of female genital mutilation every year.

A barrier to political participation

A barrier to political participation refers to the seizure of the opportunity for women to participate in the elections for the progress of women in society. The reason such a barrier exists is the violence against women in Egypt which prevents women from accessing such opportunities. The Constitution of the Arab Republic of Egypt itself guarantees equality of opportunity to all Egyptians however it is not a practical approach for Egyptians.

A national strategy was initiated in June 2015, which is estimated to be implemented over a five-year plan, i.e. 2015-2020. The strategy was prepared by the National Council for Women, in association with concerned ministries, and other state and religious institutions. However, the strategy failed to suggest the amendments in the current legislation of Egypt, which should have been adopted to tackle the problem of violence against women.

Issues with the strategy

The national strategy failed to suggest the broadening of the vague definition of rape, enshrined in the Egyptian Penal Code.
Failure of having a transparent strategy and there were no sufficient suggestions to encourage the participation of women in the elections.
The policy did not reserve any specific suggestions which shall promote the participation of women in politics and eliminate violence against women.
The strategy emphasized the development of women in policing, judicial training, health care, social workers, etc, but failed to ensure the protection of women in their workplace.

Legal framework concerning rights of women in Egypt

The new Egyptian Constitution was adopted in 2014, to advance the laws in the country and for the protection of rights of citizens in the country. The Constitution of Egypt also places a responsibility on the State to execute equality among men and women in economic, social, political, civil and cultural spheres. It is significant to understand that Egypt only has only one provision in the Constitution regarding the prohibition of violence against women in the country. Article 11 of the 2014 Egyptian Constitution is the only article concerned with the rights of women in the country.

Necessary measures must be taken to establish representation of women in the Parliament of Egypt, which will provide women with the right to hold public high designated posts in the country. The state must also ensure the protection of women against all types of violence and must ensure that women’s empowerment to be compatible with the duties of a woman towards her family and her work. The state must ensure care and protection of the mother and her child, the breadwinning women, and old women.

The Constitution of Egypt also reserves the right to equality before the law, and equal protection of rights and duties, and that the people of Egypt shall not be discriminated against on the grounds of religion, belief, sex, origin, race, color, language, disability, social class, political or geographical affiliation, or any other reason. Yet women continue to be a victim of violence constantly.

Egypt has also ratified the Convention on the Elimination of All Forms of Discrimination against Women, which aims at the development of a country, and the welfare of the universe, and that peace requires the maximum participation of women equally as compared to men in all fields. Egypt has also signed the Rome Statute of the International Criminal Court however the statute was not ratified by Egypt. Despite numerous international conventions, Egypt has failed to eliminate the cases of violence against women in the state.

Criminal laws

Sexual Assault: Egyptian Penal Code in its Law No. 58 of the Year 1937 gives protection to women by Article 267 which reserves the right of women against rape and provides for a penalty of three to seven years’ hard labour for the rape of a person, male or female, whether by use or force or intimidation and where the victim is under 16 or the offender is the victim’s ascendant, guardian or supervisor or works in the victim’s home, the penalty is the legal maximum. Where both of these conditions are met, the penalty is life imprisonment with hard labour.
Domestic violence: There is no law or legal provision against domestic violence of women in Egypt. Therefore, women face a violation of rights in Egypt.
Adultery: The laws concerning adultery in Egypt are discriminatory since they impose imprisonment for up to 2 years on women and only imprisonment up to 6 months on men.
Human trafficking: Law no. 64 of 2010 is the central legislation concerning human trafficking in Egypt yet the concerned authority is not able to tackle the problem of human trafficking in the country.
Honour killing: Article 237 of Egypt’s Penal Code only places a husband under detention who kills his wife committing adultery. The article states that whoever catches his wife in the act of committing adultery and if such person kills the wife and the person with whom she was committing adultery, on the spot, then such person shall be punished with detention instead of imposing punitive measures.
Short-term marriages to tourists: The concept of short-term brides refers to the concept where a foreign tourist, usually from a nearby country marries a young girl from a village by the consent of her parents, and such tourist pays a certain amount of money in return. These ‘marriages’ are treated as customary or Urfi marriages and last for a few weeks in return for financial compensation.

Impact of violence against women

Violence against women has very serious mental and physical effects on women who suffer such violence and those who witness such violence, except the person causing such violence. Women who are a victim of violence face issues like inability to perform regular work and due to serious injuries caused by the violence, a woman can’t earn a living for herself if such violence has disabled any important part of her body, i.e. hands, legs, etc.

The children of such victims of violence are also very likely to be affected by such violence directly or indirectly. The direct consequences are future generations inheriting the same disorder as the mother, and other physical, mental diseases and mental trauma, if such a child witnesses any violence and may also practice such violence in future considering it very normal.

Other than undergoing pain, agony, sufferings, etc, sexual assault victims are likely to undergo lifelong mental trauma which may cause temporary or permanent problems to such females. The sexual assault victims are also very likely to have sexually transmitted diseases and if such sexual assault is caused during her pregnancy, then such assault may also affect the child either physically or mentally or the child may even die in the womb of the mother.

Conclusion

To tackle the problem of gender discrimination and violation of rights of women in Egypt, efforts to promote gender equality and tackle violence against women should be practiced by the government of Egypt. The Egyptian government must, on an urgent basis, analyze the laws which are discriminatory and arbitrary. Further, the government must also revise the national strategy on combating violence against women. Also, Egypt’s government must enact separate legislation to protect the rights of women in their country, however, the nation is itself involved in the violation of the rights of its female citizens by practicing discriminatory laws.

The situation in Egypt concerning the protection of rights of women is very disturbing, especially in the times where human rights are given more importance over other rights. The circumstances in Egypt concerning the rights of women are very low and arbitrary, however discriminatory and vague laws are still practiced in Egypt. The discriminatory laws can only be struck down with the interference of the United Nations and other international human rights advocates.

References

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Risk allocation in project finance

By

Abanti Bose

-

September 29, 2021

0

Risk of loss — Image source: https://rb.gy/mkpxoi

This article is written by Raghav Madan, pursuing Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho. The article has been edited by Ruchika Mohapatra (Associate, LawSikho) and Dipshi Swara (Senior Associate, LawSikho).

Table of Contents

Introduction

Project finance is the funding (financing) of long-term infrastructure, industrial projects, and public services using a non-recourse or limited recourse financial structure through debt and equity, which are repaid from the cash flow generated from the project. Due to this reason, there always exists a scope of uncertainty and risks like demand risk, construction and completion risks, political risk etc. As a result, managing risks becomes very important to ensure the successful completion of the project in a cost-effective manner. This article will deal with the concept of risk allocation in project finance and the specific risks that exist at different stages.

Few key parties involved in this risk are as follows

Project Sponsors who subscribe a significant proportion of equity shares in the project vehicle.
Project Vehicle selects and appoints all the project contractors, negotiates and executes the contracts, raises the financing, supervises constructions and commissioning, and operates the project either directly or through an Operations and Maintenance (O&M) Contractors.
Lender to provide debt to finance the construction of the project. Typically, a consortium of lenders, led by the “Lead Bank”, ascertains a bankable project cost and in consultations with the SPV and the project sponsors a “Means of Finance”.
EPC Contractor(Engineering, Procurement and Construction Contractor) designs the project, procures all the engineering skills and equipment to construct the project, erects all the project facilities, conducts tests and trial runs.
O&M Contractor is responsible for operating and maintaining the plant in line. Performance parameters that need to be achieved during operations are pre-defined in an O&M Contract.
Off-Taker buys the product or service that is to be produced by the project. Off-taker can be an independent third party or an affiliate of the project sponsor.
The government would provide a concession to the Special Purpose Vehicle to set up the project and ensure that a proper legislative and regulatory framework exists that allows the concerned Special Purpose Vehicle.

Generally, it is seen that efficient and structured allocation of these risks are given to the parties that are most capable of managing them which thereby makes project finance beneficial for all the parties. Now that we have discussed the parties involved in the project finance risks, let us understand how it is allocated.

Project-specific risks

The project-specific risks can be better understood by way of the project lifecycle through 3 stages which are as follows:

Stage 1 : project development

Under this stage, the project sponsors have to carry out technical and economic evaluations in order to judge whether the project is feasible or not. They need to obtain all the necessary permits and acquire the land on which the project is supposed to be built. It includes preliminary economic assessment, feasibility study, license acquisition, land acquisition, financing arrangements, etc. This phase takes anywhere around 3 to 10 years depending upon the industry and project.

These tasks are costly as multiple consultants would be employed by the project sponsors to carry out these tasks. At this stage, the sponsors are yet to find out whether the project would be able to raise necessary finance or not. So, the risk is majorly on project sponsors and it is their industry expertise and project finance transaction experience which can really mitigate the risks at the development stage.

Stage 2 : construction

At the construction stage, an EPC Contractor designs the project as well as procures necessary equipment and materials. He builds the project according to the specification set out by the Project Sponsor. The Construction stage lasts from 1 (one) to 5 (five) years depending upon the complexity of the project.

When the project enters the construction stage, there are mainly 3 risks:

a. Delay risk

Delay of the project is one of the biggest risks in project finance since it can have a domino effect on other factors. This is because:

If the project is delayed, the lenders will not be paid the agreed debt repayment within the provided time;
The buyers will not be given the project’s output within the provided time;
The suppliers to the project will not sell the product as per agreement;

And the list of problems will continue. Project finance is a very structured transaction where every activity/conduct is dependent on the other. Even a small hindrance at any point can cause chain effects which may generate a multi-crore rupees liability (depending upon the terms of the agreement) and therefore requires careful diligence.

This risk is dealt with through an EPC Contract (Engineering, Procurement and Construction Contract) where EPC contractors will have to pay penalties to the project company for each day the project completion is delayed. These penalties are usually equivalent to the costs that Project Company incurs including the cost of lost opportunities.

Project completion risks under the EPC Contract provide a completion guarantee and this guarantee is typically backed by an independent bank.

b. Performance of the project

Performance risk means that the project has to perform as per the minimum standards laid down in the EPC Contract or better. If not, the project will not be able to produce planned output and generate planned cash flows which will adversely affect the ability to repay the debt and dividends.

Therefore, it is vital to have performance guarantees in the EPC Contract which again, is dealt with by the EPC Contractor whereby any short faults in the performance would be punished.

So fundamentally at the Construction Stage, the EPC Contractor takes the risks under a turnkey EPC Contract. Once the construction is completed and all necessary tests have been taken care of after which the project enters the operations stage.

Stage 3 : operations

At this stage, O&M Contractor takes over and is responsible for the execution of the project which includes activities like operation and management, revenue and supply of the project. Operations stage deals with typically 3 types of risks:

a. Revenue risks

The revenue risks are closely associated with the risk of lack of market for the project’s final outcome. And there are numerous methods to counter revenue risks. If the project has a few or only one buyer, the project typically enters into a “take or pay contract” with buyers. This means the buyer must purchase the provided quantity of the project’s output and at the provided price in the contract. The buyer must purchase the output when it is delivered. This type of contract generates a stable cash flow to the project company as there is no way the buyer can back out of such contracts.

Moreover, in the case of multiple buyers (for example toll roads), mitigation of revenue risk is done through either govt. support where the govt. provides some minimum payments to the project to cover the project’s fixed costs and debt repayments in case revenue does not meet the planned amount. Such governmental support would only be available if the project is being developed as a concession project or the revenue risk can be mitigated through detailed market studies.

Therefore, it is either the government under concession agreement or Sponsors and Lenders that take revenue risk.

b. Supply risk

Supply risk deals with the necessary amount of raw material that is to be supplied to the project at a provided cost in the Supply Contract. They manage this risk through “put or pay contracts” (a party agrees to supply raw material for a certain price during a certain period and agrees to pay for an alternative supply in case it fails to perform). Such risk is taken by the raw material suppliers.

c. Regular maintenance

The O&M Contractor is responsible for the regular maintenance of the facility and receives variable payments for services agreed in the O&M Contract. However, if the maintenance of the project is not up to the standards (through regular checks), penalties (after due consideration to the situation) will be applied to the O&M Contractors. As a result, O&M Contractor bears such risk.

Macroeconomic risks

Macroeconomic risks include:

Inflation

Inflation is generally a pass-through to the project off-taker. This typically includes price escalation in the off-take and supply contracts. Accordingly, the increase in the supply cost is according to the escalation formula as per the Off-take agreement for which an off-taker is responsible.

Exchange rate

The exchange rate risk arrives from the fact that financing cost is almost always in some kind of hard currency and revenue is in local currency. And in the case of countries like India (where local currency tends to depreciate overtime), the project company would have a hard time repaying the debt which would hamper the value of returns.

Exchange rate risks can sometimes be hedged. However, if hedging is not available, it is possible to quote the price of the product or service in the hard currency and thus avoid the exchange rate risks.

Of course, in the end, off-takers take the risk of the exchange risk. Often in concession projects, the exchange rate risks are taken by the govt. which compensates the project company to bear any losses through adverse exchange rates.

Political risks

Political risks arise from the government through some key legislative decisions such as cancellation of a project, change in the terms of the contract, regulatory risks, or even a risk of nationalization of the project.

Some of this risk is mitigated through project agreements with the government but not all political risks are likely to be borne by the government. Sometimes, commercial lenders also bear the political risk to a certain degree.

As clearly visible, the commercial insurance market absorbs a very limited degree of true political risk. This is why many Project Sponsors have turned to export credit agencies to shoulder some or all of this burden.

Social risks

Infrastructure projects have an important impact on local communities and quality of life (in particular delivery of essential services like water and electricity or land-intensive projects like toll roads) that could result in resistance from local interest groups thereby leading to delay in project implementation and increase the cost of execution and shake project viability. The lenders and project companies often look to the grantor to manage this risk.

Force majeure

It is important to note that the financing agreements may not always include force majeure (considering they were not given due importance before the pandemic). As a result, the obligation to pay these loans will continue in the event of force majeure or change in the law. Such clauses are carefully looked at by the Lenders and influence their decision making. As a result, this risk needs to be allocated to the party. Usually, these are covered by an insurance company.

Mentioned in the table below are outlined the major risks that a project faces in typical risks allocation in project finance.

Risks	Major Burden
Project Development	Sponsors
Construction	EPC Contractor
Demand	Off-Taker
Supply	Raw Material Supplier
Operational and Performance Risk	O&M Contractor
Macroeconomic Risk	Off-Taker
Political Risk	Government & Export Credit Agency
Social Risks	Grantor
Force Majeure	Insurance Company

The above-stated risks are general in nature and the burden to bear these risks vary from situation to situation. They can vary based on:

The nature of the project;
Location and jurisdiction of the project;
Parties involved and their ability to bear such risks;
Applicable laws;
Negotiation between the parties.

Conclusion

Project financing involves multiple parties like Financial Sponsors, Lenders, O&M Contractors and even govt. amongst the few. The nature of Project Finance is based on long-term borrowings and generally, these risks are given to the party that is most capable of handling it. However, there are many shortcomings in risk analysis and risk allocation which may result in project failure.

This is where risk analysis becomes vital and requires due diligence. As a result, risk allocation becomes vital for the project’s success and a favourable outcome. It is the efficient and structured allocation of these project-related risks such as political risks, macroeconomic risks, etc. which makes project finance beneficial for all the parties.

References

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Cost-plus contracts : special reference to its use in a construction business

By

Diva Rai

-

September 28, 2021

0

This article is written by Divya Jangid, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho. The article has been edited by Priyanka Mangaraj (Associate, LawSikho) and Dipshi Swara (Senior Associate, LawSikho).

Table of Contents

Introduction

The past few years have seen tremendous growth in the real estate & construction business. The construction contracts accommodate the fluctuation of the prices of raw materials, time factor as well as inflation. These contracts detail out risks, the scope of the work, rights & duties of the parties, amongst other clauses. It is the first document which details the intention of the parties to enter into a construction contract. Every contractor wants a return on their investment and wants to cover its cost on the material. Cost-plus contracts help the contractor to achieve the desired results.

In India, most of the contractors are not good at maintaining records of material, its price with inflation, and expenses. In order to make the management of costing & expenses easier expenses thing easier for the unorganised contractors, cost-plus contracts are generally preferred. This article would discuss the overview of the cost-plus contracts in detail in construction agreements. In such agreements, the contractor had to provide a fixed rough estimate of the cost for the work at the beginning and the cost-saving during the construction will be transferred to the owner.

Various types of construction contracts

There are various types of construction contracts like cost plus fixed-fee contract, cost plus a percentage of cost contract, Re-measure contract, Lump sum contract, and scheduled contracts, sub-contract agreements, unit cost contracts, the specific project contract, the cost-plus fixed fee contract time and material contracts.

Generally, not all contracts mentioned above are used but only a few actually used in businesses. The Lump Sum contracts are one of the very elementary contracts but it reduces the profitability in case of higher fluctuations in the market price. The Lump Sum contract reduces complexity for any agreement or contracts having less time occupancy and short venture work.

Time and material contracts are useful in case there is no defined scope of work. Over time this scope will be defined and the amount of raw material will also be calculated. This will lead to higher losses and is very time-consuming.

Unit cost contracts and guaranteed minimum price (GMP) contracts are also commonly used contracts but the profit sharing is comparatively lesser and it is more time-consuming.

Cost-plus contracts are profit-bearing contracts which are also known as cost-reimbursement contracts, these contracts keep out a percentage of profit over and above the cost of the contracts.

Understanding cost-plus contracts

Cost-plus contracts are one of the most commonly used contracts in case of big projects and are profitable contracts as it reimburses the cost of the contract. In Cost-plus contracts, the owner is responsible for the cost incurred during the project. These contracts cover both direct and indirect costs in addition to the profit percentage decided in advance. Cost-plus contracts are flexible contracts, which allow the parties to be paid for extra time & material but not inaccuracy.

In the case of a Cost-plus contract, the owner is held responsible for any risk of increasing prices during the project.
A cost-plus contract seems to play a better role during the high inflation and uncertain future rate of the material, labour, etc.
A cost-plus contract is preferred when there is not enough information available in advance to detailed calculations of the cost.

Cost-plus contract means those contracts which include profits over and above the cost of the contract. It comprises the profit percentage calculated after the cost of the contract.

Firstly, the cost-plus contract may include direct costs (such as material, supplies, equipment, professional consultant/engineer/ architects, Labour, etc.).
Secondly, cost-plus contracts include indirect costs or overhead costs related to business. The indirect costs or overhead cost is essential to perform the contract, such as insurance, electricity and water charges, office rent, stationery, fuel, telephone & broadband expenses, draftsmen’s expenses, the printing of construction drawings.
Thirdly, cost-plus contracts also include a fraction of the profit as a “fee” and a fixed proportion connected with the work. Profit refers to a specific percentage of income over and above the cost of contracts as agreed by the parties.

Such a contract benefits the owner as it focuses on quality and not expenses, reduces contractor’s risks, covers all connected expenditures, and even then, there remains ambiguity about the final cost & the material consumption is comparatively higher. However, Cost-plus contracts, though very beneficial to the contractor, can be anexpensive affair for the owner at the same time.

Type of cost-plus contracts

There are different types of cost-plus contracts that can meet the needs of different situations and preferences of the parties.

cost-plus contracts have variations to accommodate different needs based on incentive fees, award fees, fixed-rate contracts, cost-plus fixed-fee.

Types of Cost-plus contracts are as follows:

Cost-Plus percentage of cost (CPPC): Cost-plus percentage contracts are additional payable fraction of cost on the fixed cost of the contracts & that was agreed on by the parties in advance. For example, it has been agreed that the owner will pay 10% of the cost by the owner along with the reimbursement of the total cost of the contract as contract consideration. So, an additional payment of 10% of the profit over the cost is the extra earnings of the contractor.
Cost-Plus Fixed Fee (CPFF): In the cost-plus-fixed-fee contracts, the Cost for the project is not assessable in advance, and the profit will be a pre-decided fixed fee above the Cost of the contract. For example, a contractor will receive a fixed sum of Ten (10) thousand on competition of the cost over the cost reimbursement as total consideration of the contract. So, the total earnings will be a fixed cost over cost reimbursement.
Cost-plus incentive fee (CPIF): When the contract is completed successfully before the expected competition date, an incentive fee is awarded over the cost reimbursement. For example, fixed sum incentives of Rs. ten (10) thousand agreed between parties and are given on outstanding performance over & above the cost reimbursement under the contract as consideration. So, the incentive fee of Ten thousand is awarded if the work is completed in advance.
Cost-plus award fee (CPAF): Award fee is receivable on good performance or quality work of the contract in addition to the cost. For example, Contractor Completed the project beyond the expected level of quality as 90%, and the quality standards were pre-defined as 85%. Then, the award fee will be over and above the consideration under the agreement. Here, the award fee is provided when the work is at par excellence or above expectation.

Suitability for Business

A cost-plus contract is suitable for business projects where there are no budget constraints. This kind of a contract will be successful in certain pre-conditions. They are discussed as follows:

Where there is a presence of an appropriate system check on the expense incurred.
Where there are possible frequent modifications in the future with the project.
It is suitable where it is necessary to start work at the earliest.
Where there is a proper channel to communicate daily updates and progress of the contract.
Where there are pre-defined terms and conditions.
It is suitable for those businesses where the contractor has money in hand before starting the project, as most of the time, cost reimbursement took place at the end of the project.
Where proper business financial records are maintained to calculate the cost incurred during the project.
The Cost-plus contracts are suitable for businesses where there is no time available to calculate contract price.

Cost-plus contracts in construction business

Construction business is very volatile, and there are numerous modifications before the competition of the contract. Construction contracts are mutual or legally binding agreements.

Cost plus vs. fixed price construction contracts

Fixed construction contracts are also known as Lump-sum contracts. These contracts have a pre-decided fixed amount for a contract, and the profit percentage is calculated on that cost only. The amount of cost percentage is the total consideration the party will receive for completing the construction contracts. So, when the contract is complete, the cost percentage fees shall be receivable by the contractor. Work certification is a mark of completion of the work. But not the whole amount is paid to the contractor on or before completion. After completion, some fraction of money is kept as retention money for security purposes for a specified time known as retention period & deductions are made in case of delay, penalties for delay, and extra payment for additional work done.

Price escalation clause in Construction contracts

At times the fixed price or lump-sum contracts contain an escalation clause. Escalation provision is an inculcated estimated cost of labor, raw material, equipment, etc., due to inflation and continuous price change. It is an estimated calculation of the future cost based on different historical parameters.

Escalation cost includes changes in prices, inflation, risk factor, market conditions, etc. It is essential to calculate the risk of price escalation as it can be a substantial part of the big and long-term projects due to more uncertainty.

Price escalation is dependent upon input cost, actual or anticipated market changes. Price escalation should never be confused with the changes in the quantity of the input.

It is essential to inculcate reasons for a fall in prices during the construction while deciding the estimated cost of escalation for a more accurate escalation effect. The contractor will face financial difficulties if the escalation price is not estimated correctly.

Price escalation is quite different from cost-plus contracts, and there is nothing in common. Price escalation means calculation of future prices from present data or calculating the current prices from historical data. In a cost-plus contract, the cost is the total expenses incurred (both direct & indirect) plus a percentage of the cost as a fee. A Price escalation clause reflects the future price of the project, and on the other side, cost-plus contracts are to calculate the cost at the end of the contract.

Construction contracts and need for cost plus contracts

A construction contract lays out the terms and conditions under the construction project. It is a document legally binding the parties involved therein. In simpler terms, it says that construction contracts between the property owner, contractors, and the person or company who hires the contractor to do the work.

Cost-plus contracts are the opposite of fixed-cost projects. Cost-plus contracts refer to a contract in which a fee over the cost is provided. In a cost-plus contract, a sum payable to the contractor is not fixed; rather, it is the total cost of the contract calculated at the end of the contract.

It is not possible to estimate its cost with accuracy due to fluctuations in prices in the market every day, the inflation rate is not stagnant, due to no time for negotiations on cost, etc. In construction contracts, there is a need for future modifications if the project is extended.

Construction contracts guard both parties involved in construction work. Without a legal written contract, there will be disagreements, miscommunication, confusion, and a late payment which could turn into a legal battle.

Key clauses of cost-plus contracts in construction business

The contract should include several clauses such as defining the recital, scope & objective, terms, & conditions, schedule, consideration, and how a dispute is going to be resolved. While starting to draft a contract, an introduction is the first part to start as it will introduce the binding parties to what they have agreed for.

The introduction part shall identify the document title as “Cost-plus Contract”, it identifies both the parties, effective date, identifies the hiring part as “Owner” and the contractor as “Contractor”.

Recital clause will mention the reason for entering into a contract, details about the Parties business which was not earlier mentioned in the introduction part.

Key clauses in cost-plus construction contracts are:

Details of the project Scope of the Work: This clause will be specifying the work set out under this agreement. It will include the description of the property (address & area), contains a list of the work to be done by the contractor, obligations of the contractor, exhibit the layout of the drawing of the site, etc.
Time of Commencement & Completion: Time of completion & commencement of the contract is very essential for cost-plus contracts so that there is no unpredictability over the term of the contract. It shall include the effective date and end date, any penalty for/if work is not completed on time. This clause is a highly negotiable part of the contract due to penalty.
Rights and the duties of the owner and the contractor: The parties are supposed to have different roles to perform in a contract and each duty/role and right shall be decided in advance. The cost-plus contracts are always beneficial for the contractors so that the contractors know the limitation before misusing them their rights and not fulfilling their duties.
Fee of the project/compensation/consideration: The compensation part shall discuss in detail, and is highly negotiable to decide on inclusion and exclusion of the different costs. It is the most complicated part of the cost-plus fee agreement as there would be agreements & disagreement upon inclusion or exclusion of a particular expense. It is always beneficial to decide about the expenses in advance. Expenses could be based on actual cost or it includes additional fees. Further, it is necessary to identify what falls under the category of costs. Parties can include employee salary, overtime, any direct charges, taxes, etc. The percentage of fees is fixed and is defined in advance, and in case of cost overrun, the contractor doesn’t have to bear the extra cost.
Payment schedule: A Contractor is required to update the owner about the progress of the work done and payment pattern/intervals, based on which invoices will be raised, liens on material or equipment, withholding payment in case of non-satisfactory work done, maintaining financial records, the requirement of sub-contractors, etc. It is also equally important to bifurcate different expenses that are payable by owner and the contractor differently.
Extension of the contract: This clause will be detailed out in advance mentioning that if the work is not completed with the time already framed then the parties are eligible for an extension on some conditions.
Right to cancel the Contract: Specify if the contract is cancellable or not then the period during or within which the contract may cancel. Also, disclose which party has the right to cancel the contract. But this clause does not mean that one could cancel the contract anytime they feel like but there are a few exceptions. In only some exceptional cases any party could cancel the contract.
Alteration in Order placed: During the construction, it may be possible that the requirements of the owner change, and it may be pre-decided by both parties if the contract alteration is agreeable for both parties. This clause is beneficial for the owner but may not be for the contractor. The contractor used to allot their time for the project, so any alteration will disturb their time and schedule.
Raw material: The raw material is the key ingredient; its quality should be decided under this clause along with a warranty if any. Also, ownership of the raw material shall also be decided in advance in order to avoid any ambiguity later on while calculating the cost of the contract.
Financial records of the Owner: A cost-plus contract is not beneficial when the contractor does not maintain physical records of documents and bills and will need to show them in case of cost overrun to justify the increase in the cost. Cost-plus contracts may not work for businesses where no financial records are maintained.
Force majeure: This clause shall interrupt in case of the execution of the contract in case of force majeure condition.
Representations and warranty: Each party promises something or the other under an agreement, and this clause inculcates these representations. It gives assurance or promises about their capacity to enter into the contract and declaration that they will perform their obligations. Under the warranty clause, the contractor gives assurance to correct the defective work and correction for normal wear or tear. It set some standards for the work output quality, so that in case of any defect it could be asked for a repair or correction.

Warranty can be extended by correction of the defective work and that too within a specified period, after the expiry of that period warranty expiries. Also, specify the number of years this warranty will last.

In case of normal wear and tear the owner is not responsible, if the category of normal wear & tear asked is not falling under the list shared between the parties. An exhibit of the list of normal wear & tear items shall also be shared in exhibits.

Liability: Accidents happen every day on the construction site and the team of the contractor is always present on the site and the liability is upon the Owner which is waived if agreed by the parties but subject to the prevailing law of the land.

This clause will detail out the responsibility of the owner in case of breach of safety standards at the construction site.

Retention money: A percentage of the amount due is retained as surety on work done as a surety and to check if work is completed or efficiently done. The retained money will be refunded only when the work is completed and retention time has expired.
Nature of relationship: explains that the contractor is not a partner of the Owner nor employee. It is vital for the contract to explain the relation for addressing the accountability in payment of taxes, salaries to the employee liability, etc. The role of the employed contractor and the independent contractor is completely different.
Confidentiality: The information shared during the term of the contract or before can be kept confidential by the parties as long as they wish. They can do so at the time of signing of an agreement, or at the time of the expiry or termination of this agreement obtained before or during this agreement.
Taxes and duties: This clause will limit the liability of the owner in case of and for any requirements they need to have prior approval of the owner.
Licenses and permit: This clause requires the parties to obtain the necessary permit and licenses to perform the work under the Agreement. Without proper permits & licenses one cannot start the work.
Liability and Indemnity: This clause will detail out liability of the parties in case work is not completed as agreed. Under this clause, the owner indemnifies itself against any negligent act of the contractor while performing the duties.
Facilities: Under construction contracts, one is not able to find space to keep their equipment store the raw material, therefore it is of vital importance to allocate a space to the contractor by the owner.
Termination: This clause will detail out the liability of the parties in case work is not completed as agreed. Under this clause, the owner indemnifies itself against any negligent act of the contractor while performing the duties.
Remedies: Usually, the contract of construction work is of specific performance and specific performance can pay it back. The remedies could be a breach of contracts, compensation/penalty, damages could also be asked for.
Notice: This clause details the contact address to which official legal correspondence should be sent, along with the physical addresses and the email addresses of the parties.
Ownership of the drawing and architectural work: The ownership credit shall be given to the proprietor of the copyrighted material.
Jurisdiction: This clause allows the parties to choose the laws of a particular state, wherein the contract will be interpreted in any mutually agreeable language. The contractor needs to decide on jurisdiction at the place of their convenience.
Dispute resolution: An arbitration clause will be better to save time from litigation, and under this clause, the venue of the arbitration shall be specified along with the number of arbitrators presiding.

Exhibit A: Scope of the work will describe what should be done, and how it is to be done. Prepare an exhaustive list of the requirements of the project.

Exhibit B: Drawing and specifications shall be exhibited in a clear manner; it will physically represent the property.

Conclusion

Cost-plus contracts are majorly found in the Construction Industry, where the expenditure of the contracts is reimbursed and a fixed percentage of fees of the contract cost is given to the contractor.

Those cost-plus contracts were initially designed for research & development but this won’t work until the financial records are perfectly maintained. The art of drafting a good construction contract is a mixture of so many clauses which depend upon the situation. Time is the essence of the construction contracts and profit and loss depends upon completion of the project on time.

With time, the cost-plus contracts are transforming and successful contract negotiations at the stage of drafting the contract could save one from losing millions and could avoid dispute in the future. To reduce the procedure of complex situations, parties used to add price escalation clauses if the work is not a detailed one.

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 skill.

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

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Counterclaims and set-off in international commercial arbitration

By

Rachit Garg

-

September 28, 2021

0

This article has been written by Jeya Suthagar A, pursuing a Certificate Course in International Commercial Arbitration and Mediation from LawSikho.

Table of Contents

Introduction

A counterclaim^*, in general, is nothing but when the respondent/defendant apart from defending the claims alleged by the claimant, makes a claim seeking relief against the claimant, duly substantiated with the facts and circumstances of the case before an arbitration tribunal. It is generally a cross-action taken substantially and is seen as a ‘sword’ of offense, by which a defendant can become entitled to his claim as an independent action. The counterclaims need not essentially arise out of the same transaction of the claim.

On the contrary, a set-off^* is a defense pleaded by the respondent/defendant before an arbitration tribunal arising out of the same transaction and limited to the amount originally claimed by the claimant/plaintiff. The set-off necessarily depends on the original claim and acts only as a ‘shield’ subject to the existence/ entitlement of the claim before the same arbitration tribunal.

Unlike the set-off defense, the distinctive nature of counterclaims is that apart from defense it also goes on to attack. Both the options of defense facilitate the defendant to make reciprocal claims against the claimant who had invoked the arbitration, with the advantages of mitigating the costs and time by referring to the extant arbitration tribunal instead of claiming it separately before another forum. It is for the arbitration tribunal to determine the complex issues with regard to the question of jurisdiction and governing law for permitting either counterclaim or a set-off defense.

This article aims to demonstrate the provisions available for defending the claims alleged by the Claimant by way of pleading counterclaims and set-off before international commercial arbitration. Further, this article attempts to emphasise on when a counterclaim should be preferred as a defense over a set-off defense along with their respective inherent benefits including the applicability of the doctrine of res judicata and lis pendens before the forum of international commercial arbitration

Characteristics of defense mechanism in international commercial arbitration

The choice of defending a dispute in international commercial arbitration by the Respondents/ Defendants falls under 3 distinct categories:

A simple denial – Known as a defense statement;
Offensive denial – Known as counterclaim(s); and
Defensive denial – Known as set-off.

Certain arbitration tribunals have limited entertaining the counterclaims in respect of the jurisdiction of the arbitration tribunal as provided for in the arbitration agreement. Accordingly, the counterclaims fall under three different categories:

Connected counterclaims – relating to the main claim of the Claimant.
Compensatory counterclaims – to compensate for mutual obligations.
Incidental counterclaims – addressing preliminary incidental issues.

The essential pre-requisites in institutional arbitration rules provide for the counterclaim to be based on the same arbitration agreement to arbitrate the disputes and the parties shall have the same contracting and legal relationship within the contract. Whereas, often the courts weigh the counter-claim and set-off as follows:

Firstly the courts determine whether the plaintiff’s claim exists, only then the set-off shall be considered, otherwise, the set-off would be annulled. This is not in the case of the counterclaim.
Secondly, in situations where the set-off (subject to determination by the court of the existence of the plaintiff’s claim) exceeds the plaintiff’s claim, the excess over and above the claim part can be addressed only as a counterclaim. Whereas the counterclaim needs no such condition and the same would be addressed as a whole.

A glance at counterclaim & set-off defense provisions in a few international arbitration rules

While a majority of the arbitration rules adopted internationally have explicit provisions for counterclaims, only some of them deal with set-off. This is despite the fact that the institutions also bear a striking similarity:

The UNCITRAL Model Law on International Commercial Arbitration under Article 2(f) recognizes the counterclaim similar in lines with the title ‘claim’.
The Arbitration and Conciliation Act, 1996 amended in 2015 in India provides for under Section 23 (2A) that the respondent in support of his case may also submit a ‘counterclaim’ or plead a ‘set-off’ for adjudication by the Arbitral Tribunal.
The Arbitration Rules of the Singapore International Arbitration Centre (SIAC Rules) under Rule 28.5 The jurisdiction of an arbitral tribunal provides for a party may prefer a set-off defense to the extent permitted by the Rules. Article 24 of SIAC Rules provides for the right to plead set-off defence should be the subject of further scrutiny.
Article 19(3) of UNCITRAL Arbitration Rules recognises the counterclaim and set-off arising out of the same contract for the purpose of set-off. The UNCITRAL Model law though does not have any such provision, the same was made clear in the Working Group deliberations that the jurisdiction is bound by the arbitration agreement.
Article 42(c) of WIPO Arbitration Rules provides for counterclaim and set-off defense by the use of the word ‘any’.
Article 21(5) Swiss Arbitration Rules 2021 provides for the jurisdiction of the Arbitral Tribunal to adjudicate even the set-off defense, which is already subject to another arbitration tribunal or court. Whereas Article 21(3) specifically reserves the possibility to object to jurisdiction over a counterclaim only.
Article 27 of International Arbitration Rules of the Zurich Chamber of Commerce provides for Set-off exclusively similar in line with Swiss arbitration rules 2021, which now administer the Swiss Arbitration Rules.

The distinction between counterclaim and set-off defense concerning the interpretation of Article 6 no.3 of the Brussels Judgment Convention has been clearly defined by the European Courts of Justice in the matter between Danvaen Production A/S v. Schuhfabriken Otterbeck GmbH & Co. C-341-93.

Importance of arbitration agreement provisions

The arbitration agreement entered into between the parties plays a pivotal role in respect of the provisions relating to the counterclaims and set-off defense. Each arbitration agreement specifically emphasises the scope of the arbitration and the rules to be adopted by the disputing parties to refer to their corresponding claims and counterclaims/ set-off, with specific reference to the choice of law agreed to be adopted.

The jurisdictions of the arbitral tribunals are based on the intentions of the parties as agreed to in the respective arbitration agreements and hence are consensual in nature.

Set-off defense before arbitration

In general, the arbitration laws very rarely provide for rules on set-off. The set-off signifies a substantive defense by denying the claim of the claimant/ plaintiff before an arbitration tribunal and hence the same is generally admissible, even without a specific proviso. While set-off in international arbitration has been seen more commonly as a defensive approach, in case the arbitral tribunal does not have the jurisdiction to entertain the counterclaim, the set-off defense is the best immediate available alternative. The claim for set-off exists as a ‘reserve option’ in situations, where the defendant acknowledges the fact that the claimant’s claim exists, however, the same is extinguished by way of compensation due to the defendant by way of set-off against the claimant/plaintiff.

Set-off is often treated differently in the civil law and common law jurisdictions viz., in civil law jurisdiction, set-off is treated as a matter of substance, while in common law jurisdictions, it is considered as procedural character. The defendant possesses the option of set-off defense before arbitration in situations, where the counterclaim is beyond the competencies of the tribunal as per the arbitration agreement between the parties to the dispute. The set-off concept is principally based on the fundamental principles of equity, justice & good conscience.

The United Nations Commission on International Trade Law (UNCITRAL), at its 14^th session (1981) decided to assign its Working Group with the task of preparing a draft model law in the field of international commercial arbitration. The Working Group considered that the provisions that are applicable for the counterclaims would also apply mutatis mutandis to a claim which is relied on by the respondent/ defendant for the purpose of a set-off as well.

Klaus Peter Berger, a German Jurist notes that the intent behind the requirements for filing a set-off defense and the nature of decisions are similar to that of the counterclaim. However, set-off is limited to the amount claimed by the plaintiff, which represents a limitation in its scope, when compared to that of the counterclaim. In these situations, the defendant may have to seek claim of the remaining portion either before another arbitration tribunal or before a court, as may be applicable. The issue of connexity is rarely an issue in case of set-off, when compared to that of the counterclaim, which has its independent legal purpose.

Further K.P.Berger stated the set-off and counterclaim are only a ‘hair’s breadth away’ in international commercial arbitration since both may be resting on similar factual background, viz., reciprocal debts of the defendant against the claimant, in fact, the intended relief and the nature of decisions are also similar in nature. For this reason, a set-off defense is often called a ‘counterclaim in disguise’.

While a set-off defense is normally raised by a respondent in arbitration, the Claimant/ Plaintiff also can raise a set-off against a counterclaim raised by the Respondent/ Defendant. Thus in international commercial arbitration, the possibility of set-off is commonly invoked as a general principle of international commercial law.

New swiss arbitration rules

Switzerland represents one of the favourite arbitration destinations in international commercial arbitration for its uniqueness. The Swiss Rules of International Arbitration (“Swiss Rules”) were enacted on 1^st Jan 2004, after a long span of time the rules were revised for the first time on 1^st June 2012. Following which, a trivial revision was made on 1^st June 2021. The importance of Swiss Rules of International Arbitration could be revealed from the six Swiss arbitral institutions namely Basel, Geneva, Bern, Lugano, Lausanne and Zurich adopting uniform Swiss Rules concerning international disputes. The Swiss Rules of International Arbitration primarily is based on UNCITRAL Arbitration Rules which has been drafted in association with the Swiss Arbitration Association (“ASA”).

For the purpose of administering the arbitration, the Swiss Chambers Arbitration Institution (“SCAI”) was founded by the Chambers of Commerce, which was later converted and renamed as Swiss Arbitration Centre Ltd. (“Swiss Arbitration Centre”), with effect from the same date, when the new Swiss rules came into effect i.e. 1^st June 2021. The 2021 revision aimed at providing a more efficient and reliable framework for arbitral proceedings around the world. Presently the Arbitrations under the Swiss Rules are being administered by the Arbitration Court (the “Court”) of the Swiss Arbitration Centre.

The new Swiss rules are applicable to all arbitration proceedings, where the Notice of Arbitration is served on or after 1^st June 2021, with the provision in the arbitration agreement referring to the administration of the disputes by SCAI or the Swiss Arbitration Centre.

Analysing the Swiss Rules

A remarkable feature of the new Swiss Arbitration Rules is with regard to the extent of the jurisdiction of the Arbitrator to hear a set-off defence in situations involving if the defence has arisen beyond the scope of the arbitration clause or in situations where the defence falls within the scope of another arbitration agreement as embodied in Article 21(5) of the Swiss Rules. As the set-off defense principally aims to deny the very existence of the original claim, the set-off is of similar quality to any other substantive defense, the Arbitral Tribunal shall therefore have jurisdiction to decide on all sorts of defences raised against the claim. The inclusion of this feature is based on the principle of “Judge of the action, judge of the exception” according to which, the Judge who is competent to decide on legal actions is also competent to rule on the exception as well, known in French law as “Le juge de l’action est le judge de l’ exception”. This applies even in situations where the question of the rule of exception has been left to another tribunal or judge. Article 21(5) of Swiss Rules provides for the extent of the jurisdiction on the arbitral tribunal to deal with the ‘set-off defense’ which reads:

“The arbitral tribunal shall have jurisdiction to hear a set-off defence even when the relationship out of which this defence is said to arise is not within the scope of the arbitration clause or is the object of another arbitration agreement or forum-selection clause.”

It becomes evident from the above that the drafters of the new Swiss Arbitration Rules had primarily considered the ‘procedural economy’ keeping in mind the importance of express agreement made between the parties in the Arbitration Agreement. The extent of jurisdiction of the Arbitrators to deal with the set-off defense as articulated in Article 21(5) poses serious legal infirmities, which includes whether the jurisdiction of the Arbitral Tribunal is to be established or merely the provision permits automatically, whether the set-off defense should be construed in the stricter or broader meaning and the likely impediments that may arise out of this controversial provision.

The wordings of Article 21(5) resembles that the provision is imperative in nature. However, there is room for the invocation of doctrine forum non-conveniens unless the seat of the Arbitration is located in a common law country. Treating the provision of Article 21(5) as discretionary may have repercussions while enforcing or setting aside an award, wherein a court may find that the application of procedure of Article 21(5) to be not in accordance with the arbitration agreement as provided for under Article V (1) (d) of the New York Convention.

As the scope of application of Article 21(5) extends into other arbitration clauses or forum clauses, any unconditional application of it may result in potentially conflicting decisions of two arbitration tribunals or courts, which may have long term consequences on the procedural economy. Another ambiguity that may arise in respect of set-off defense is when the set-off exceeds the claim of the plaintiff, wherein the defendant shall have to deal with a set-off defense before one arbitration tribunal and for the excess or remaining part of the claim with another Tribunal, which is practically illogical. Moreover, this also paves way for the claimant to invoke Swiss Arbitral Award as res judicata and follow its consequences. This would create confusion and ultimately delay the arbitral proceedings by the second Arbitral Tribunal, awaiting the recognition or refusal of the award, which had dealt with set-off defense. The defense invoking lis pendens under Article 9(1) of Swiss Private International law In cases of parallel arbitral proceedings is also uncertain and is likely to be rejected on the principles of kompetenz-Kompetenz, which enables the arbitration tribunals to assess their jurisdiction independently.

As explained above, the two important factors that may lead to likely complications include the existence of the forum selection clause or arbitration clause, which covers the relationships based on which the set-off defence arises and the amount of respondent’s claim when it is in excess of the claim of the Claimant makes the procedural economy argument meaningless. The arbitral tribunal or the Court decides on an issue parallelly attracts the applicability of res judicata on the effect of arbitral awards & lis pendens before international commercial arbitration.

Decision on set-off as res judicata

Almost in all legal systems, the doctrine of res judicata exists. However, the different legal systems deal differently with regard to how they distinguish the positive and negative aspects of res judicata and its impact on the procedure. Res judicata includes only the holding in the continental systems. While in the common law systems in France, the Netherlands, Belgium and Switzerland, the effect of res judicata is extended to ratio decidendi and to understand the scope of the holding, in addition, it also recognizes the doctrine of ‘estoppel’.

The scope of res judicata depends on the law of the country of recognition of a foreign decision. The foreign court decisions render less effect than the domestic court decisions meaning that res judicata effect will be only to the holdings. While in the cases of arbitration, if res judicata is to be represented, a foreign decision must undergo a formal recognition process in the country of the seat of arbitration. In case such recognition is not available, the decision of another tribunal or court need not be considered by the arbitration tribunal. With regard to the applicability and operation of another arbitral decision, the arbitral tribunals have in fact seldom applied either standards of country of the seat of arbitration or applicable substantive law.

Thus, a decision on set-off defense by Swiss Arbitration will be binding if passed by another tribunal, only when the Swiss award could be recognised in the country of the seat of the respective other arbitration tribunal. While holding an arbitral award encompasses normally a statement on the existence and the value of the counterclaim. Hence the applicability of res judicata will hardly present any difficulty.

Parallel deliberation on the set-off defense

The wording of Article 21(5) by itself exemplifies parallel deliberation on the set-off defense, with the proviso that ‘……..is the object of another arbitration agreement or forum selection clause’. The intent of Article 21(5) offers the possibility of two tribunals to parallelly deliberate the set-off defense leading to legal questions in respect of applicability of lis pendens rules or examination of a tribunal’s jurisdiction on its own ignoring the arbitrations that may be initiated elsewhere.

The new Swiss Arbitration rules 2021 and the decision reached by Swiss Federal Supreme Court dated 14^th May 2001, in the matter between Fomento de Construcciones y Contratas S.A. v. Colon Container Terminal S.A held that the arbitration tribunal shall apply the lis pendens rules of its situs, in order to determine the indirect jurisdiction whether the other tribunal or court has jurisdiction. The indirect jurisdiction can be assessed by the system of bilateralisation or by a liberal position where indirect jurisdiction always subsists, except when the issue falls within the exclusive competence of domestic judiciary.

The parallel deliberations are inevitable when the arbitral tribunal adopts the lis pendens rules from the lex arbitri treating its own jurisdiction as exclusively based on the arbitration agreement. Whereas the intent of exclusive jurisdictions provides for no regard is to be given to competence of another tribunal or court. Thus if a Swiss arbitration faces another arbitral tribunal, the conflict of the jurisdictions has to be solved, whereas there won’t be any flexibility in case the Swiss arbitration tribunal is facing a court.

The tribunals dealing with set-off defense may consider their competence as ‘relatively exclusive’ or ‘concurrently exclusive’, which are contradictio in adjecto, the scope of Article 21(5) clarifies that both the tribunals are considered on equal footing. Both the tribunals are entirely competent to hear and decide the issue of counterclaim raised for the purpose of a set-off defense raised before a Swiss arbitration. Thus, in the spirit of international arbitration the party first raising a counterclaim in effect would determine the arbitral tribunal to be exclusively competent to decide.

Case laws

European Courts of Justice in the matter between Danvaen Production A/S v. Schuhfabriken Otterbeck GmbH & Co.C-341-93 clearly illustrated the difference of counterclaim and set-off.
ICC Case no. 3540, 3^rd October 1998 distinguishes the law applicable based on merits of self defense and the procedural admissibility of set-off. The Award also suggested that “according to the general principles of law, non-contractual set-off is subject to four cumulative conditions: identical nature of performances, similarity & reciprocity of the subjects, the claims should be certain, liquid, and finally maturity of the claims (i.e. not to be subjected to time limit).”
In a fundamental decision dated 14^th May 2001, the Swiss Federal Supreme Court, in the matter between Fomento de Construcciones y Contratas S.A. v. Colon Container Terminal S.A, held that the arbitration tribunal shall apply lis pendens rules, as in most of the countries, the principle of lis pendens has been well established and it applies equally in the arbitration proceedings governed by the Swiss Arbitration Act.
The ICC Case no.2745/2762, 1977, Paris 1990, Page 326 relates to the application of res judicata in regard to the scope of operation of decision of another arbitration tribunal, where the arbitral tribunals have applied standards of country of the seat of Arbitration.
The ICC Case no.3267/ 1984 (1987) XII relates to the application of res judicata in regard to the scope of operation of decision of another arbitration tribunal, where the arbitral tribunals have applied standards of applicable substantive law.

Conclusion

The defendant’s counterclaim raised for the purpose of set-off defense operates differently in international commercial arbitration when compared with that before the court for principal reasons of establishing the jurisdiction of an arbitral tribunal over a counterclaim and set-off which is more difficult by testing the objective reach of an arbitration agreement. Whereas the jurisdiction of court results in ‘attraction of procedures’ a party has commenced in the competent courts. Unlike the procedure in courts, the attraction of procedure conditions is harder to reach in arbitration.

In view of the above, the introduction of the new Swiss rule by which the tribunal may decide a set-off defense, even if it is subject to another arbitration clause or forum selection clause appears to be complicated. In general, the arbitration tribunals rely on the principle of Kompetenz-Kompetenz contained in the respective arbitration agreements. In case of any doubt or ambiguity in respect of the scope of jurisdiction, the scope of other arbitration agreements or forum selection clauses may represent similarities or overlap of jurisdictional aspects. Article 21(5) of the Swiss rules aims for the improvement of procedural economy and provides for the Arbitral tribunal to ignore the scope of other arbitration agreements or forum selection clauses.

Further, Article 21(5) of Swiss arbitration rules removes all the arguments in view of potential lack of jurisdiction by providing legal certainty, which is contrary to the provisions of Article 19(3) of UNCITRAL Arbitration Rules. Conclusively Article 21(5) of Swiss rules has broadened the jurisdiction of the arbitral tribunal and made it certain that the right of set-off defense irrespective of its origin would be admissible. The provisions introduced in the new Swiss arbitration rules are quite firm, straight-forward, clear and are inevitable. Thus a Swiss tribunal will not have any discretion in asserting jurisdiction over a set-off defense. Therefore the 2021 revisions made in the Swiss rules are seen by large, as welcome amendments, which apart from maintaining the key provisions and the spirit of the instrument intact has organized the existing practice and modernized the Rules.

The conception of the centralised “Swiss Arbitration” online platform is likely to increase the accessibility of resources for foreign countries and the efficiency, by continuing to maintain in an increasingly competitive field, with the position of Switzerland as the leading seat and venue for international arbitration. The latest revisions and refinements made in 2021 are audacious in international commercial arbitration and are expected to enhance the contributions of Swiss arbitration rules for further development of international arbitration. The concrete steps adopted in the new Swiss arbitration rules not only help to maintain its competitiveness with other arbitral institutions, but also motivates the other institutions and locales to consider optimizing and modernizing their rules and legislation.

References

Swiss Rules of International Arbitration, www.swissarbitration.org/centre/arbitration/arbitration-rules.
https://www.researchgate.net/publication/228159838 “Counterclaim and Set-Off in International Commercial Arbitration”
“Set-off in International Economic Arbitration” by Klaus Peter Berger, Arbitration International Volume 15, No.1, LCIA 1999.
Vladimir Pavic, “Jurisdiction of an Arbitral Tribunal over set-off under Swiss Rules of International Arbitration” – ASA Special Series No.44, JurisNet, LLC 2014.

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Supreme Court and the power to grant special leave to appeal with condonation of delay

By

Rachit Garg

-

September 28, 2021

0

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This article is written by Rakchit Mishra from Birla Global University. This article completely deals with the power of the supreme court in cases of appeal by special leave.

Table of Contents

Introduction

The Supreme Court is the Apex Court in India which was established after independence by the Constitution in the year 1950, where H.J. Kania was declared as the first Chief Justice of India. It consists of a maximum of thirty judges along with the Chief Justice of India, and it is also known as the highest court of appeal because if any person is not satisfied with the judgments given by any lower court or a high court, then in such cases they can appeal to the Supreme Court of India. In case of any conflict of authority between a judgment of the Full Bench of a High Court and a Judgement of Division Bench of the Supreme Court, judgments given by the Supreme Court will only prevail as it is the highest court in India and all those laws which are exercised by the Supreme Court under its jurisdiction will have the binding effect on all the courts in India. The Supreme Court of India is a court of record which means that the judgments given by the Supreme Court of India have a strong evidentiary value as those judgments can be presented in any court of law as evidence. The Supreme Court of India has the power to punish for the contempt of the court which also extends to the high courts and lower courts as well. As stated that anybody can go for an appeal in the Supreme Court of India but that person is bound to take special permission from the Supreme Court for such appeal to the supreme court of India has the power to grant the appeal by special leave to a person in any case which was passed by any court in India grant of special leave appeal by the supreme court which is stated under Article 136 of the Indian Constitution is a discretionary power of the supreme court which means that it’s upon the supreme court whether they allow for such special leave appeal or not but in other cases of appeal it acts as a matter of right of parties in civil, criminal and constitutional matters.

The role of SC in granting special leave appeal

Article 136 of the Indian constitution states that the supreme court of India can grant the appeal by special leave in any case where the order was passed by any of the courts or tribunals in India for example if session judge has given a judgment and there is disregard to the legal principle due to which the appellant wants to go for special appeal in the Supreme Court of India then in such cases he can go for appeal in the Supreme Court of India without first going to the high court. As it is stated that the supreme court’s power to grant special leave is also applied to tribunals which means that if any judgment or an order is passed by any tribunal, a special type of body which is created by law and gets the power from the law itself then in such cases also Supreme Court has the power to grant special leave appeal but granting such special leave appeal works as a discretion of the supreme court which means that here parties cannot claim that they will get permission from the Supreme Court for such appeal rather its upon the Supreme Court of India whether to give permission or not but if Supreme Court is exercising its power under discretion then in such cases there should not be any failure of justice.

The Supreme Court of India can grant special leave appeal only in exceptional cases where there has been substantial injustice or disregard to the legal procedure by any courts except tribunals made for armed forces or if there is a violation of the principle of natural justice so in such cases, the Supreme Court of India can allow anybody to approach for appeal under Article 136 of the Indian Constitution. Further, whatever has been mentioned in Articles 132, 133, 134, and 134A will stand as a priority but if any person is not able to approach the Supreme Court concerning such provisions then in such cases the supreme court may permit him to approach for any appeal. This jurisdiction of the Supreme Court is not limited by any law. Since the Supreme Court is termed as the highest authority in decision making and in protecting the Constitution so this power is given to the Supreme Court. Article 136 of the Indian constitution is open to all types of cases but if there is purely executive direction and there is no such involvement of judiciary decision then in such cases the supreme court will not grant permission for an appeal by a special leave because the Supreme Court has the power to grant for appeals only if the subject matter is related to judicial decisions. If there’s a delay in filing the appeal by special leave then in such cases one has to justify the reasons properly to the court and if the court is satisfied then in such cases it may allow for such appeal by special leave. In cases of criminal matters, there has been a case named Mohd. Namaz v Emperor (1941) where it is mentioned about the events or the points where the Supreme Court can interfere if the decision is given by the lower courts and the high courts such as:

If the accused was not given any chance to speak which becomes a grave injustice in the legal system of India.
When the trial took place in the absence of the accused.
When the court did not allow the accused to call any witnesses.
When the court declared the judgment without understanding the language of the accused then in such cases also the supreme court of India can interfere.
When it was proved that the court which gave the judgment did not have the jurisdiction to try such a case.
So in such cases, the supreme court has the power to interfere but it is not limited to these points.

What kinds of tribunals are allowed under Article 136 of the Indian Constitution

First of all, it should be a body created by law and it should be given the power to determine disputes affecting citizens by the law itself. Secondly, proceedings that will be heard by such tribunals should start after the submission of application and it should have all those powers that a civil court has under the Code of Civil Procedure(CPC) i.e: the power to call the parties, question the parties, call the witnesses and examine such witnesses as it is done in a normal court of law, etc. Lastly, each member of such a tribunal should possess the qualifications of a judge but it should be noted that it will not include all those tribunals which are made for armed forces.

Who can grant, to whom can it be granted and the consequences

Appeal by special leave can be granted by the Supreme Court of India in any case where the order or the judgment is passed by any court or tribunal within the territory of India but it will not include the military tribunals. If there is a violation of the principle of natural justice or if there is any failure of justice by any courts within the territory of India then in such cases the Supreme Court of India may grant for appeal by special leave to any person provided that the person should take the permission from the Supreme Court before going for such appeal. This appeal by special leave is granted to the aggrieved party or the appellant i.e; the party who has suffered grave injustice by any of the courts of India or if there is any matter related to question of law and further if he wants to appeal in the Supreme Court then in such cases the Supreme Court of India may grant him appeal by special leave under Article 136 of the Indian constitution. As a consequence of such appeal by special leave, the Supreme Court can either accept such application made or it can reject such application which was made by the appellant because here the Supreme Court has the discretionary power to decide whether they should accept or reject such application of the appellant but if the Supreme Court accepts the application then after that it can reverse the order of the lower court or the high court. For example, if the accused was not given the chance to call witnesses in a court of law then in such cases further he can appeal by special leave to the Supreme Court of India as he suffered grave injustice by the lower court and if the court is satisfied then in such cases it may grant permission for such appeal and also reverse the order of any such lower court.

Landmark judgments

In the case of DC Mills v. Commissioner of Income Tax (1955), it was held by the court that as the supreme court uses discretionary powers while granting special leave appeal under Article 136 of the constitution so much power should be utilized moderately with due care that too only under certain exceptional cases.
In the case of Pritam Singh v the State (1950), it was held by the court that the supreme court will only decide about how to use its discretionary powers under Article 136 of the Indian constitution.
In the case of Delhi Judicial Service Assn. v. State of Gujarat (1991), it was held that the supreme court has got the powers to interfere in the decisions which were given by any court or tribunal in India which can be called the supervisory jurisdiction of the supreme court over all those courts and tribunals (except tribunals made for armed forces) within the territory of India.
In the case of Union Carbide Corp. v. Union of India (1992), it was held that the supreme court has got the power to transfer or discard any criminal proceedings which are pending before the Bhopal district court so further the order of the criminal exemption which was granted to the union carbide was cancelled by the court.
In the case of Ramakant Rai v. Madan Rai (2003), it was held by the court that even a private party can file an appeal in the supreme court if there was any failure on the part of the high court while passing the order of acquittal for the accused and there was no such appeal made by the state against such orders of the high court.
In the case of Ram Kala v. Deputy Director (1997), it was held by the court that a person needs to state the reasons behind such delay in filing such an application and further as in this case the court was not satisfied with the reasons which were given to the appellant for the delay of applying so the case was dismissed.
In the case of Dev Singh v. Registrar, P and H High Court (1987) it was held by the court that the appeal which was made before the supreme court was not related to judicial decisions so the case was dismissed.
In the case of CK Daphtary v. OP Gupta (1971), it was held by the court that if any obstructing words made by any person is related to the working of a judge then in such cases it will be contempt of a court and such person will be punished for such misconduct.
In the case of Delhi Judicial Services Association v. State of Gujarat (1991), it was held by the court that the power of the supreme court to punish for contempt extends to the high court and the lower courts.

Conclusion

According to my point of view, the power of the Supreme Court to grant special leave appeal and to interfere in those judgments passed by any lower courts where there is a huge miscarriage of justice serves the justice in our country under Article 136 of the Indian constitution because if there was no such power given to the Supreme Court then in such cases it will be impossible to meet the ends of justice as there may be some failure on the part of the court while declaring the judgments of a particular case so to keep a check on those mistakes the Supreme Court has been given the power to grant special leave by appeal to any person against any orders passed by the courts within the territory of India.

References

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An analysis of the rendition and extradition intricacies for immigrants

By

Rachit Garg

-

September 28, 2021

0

This article is written by Udita Prakash, from UPES, Dehradun. This article deals with the meaning of rendition and extradition of immigrants, its purpose, and procedure under the Indian Extradition Act, 1962. This article also dealt with the treaties related to immigrants between India and the UK.

Table of Contents

Introduction

Criminals have it easy in today’s time. After committing a crime in one’s own state, there is a good chance that the person will flee to another state. These cases are beginning to occur more frequently as a result of the development of air service as it’s easy nowadays to travel from one place to another or one country to another. The question arises whether the fugitive will be tried in the country where he fled, or in the state where the crime was committed.

Under international law, deportation requires one state to return the custody of a fugitive to another state for a crime committed outside the jurisdiction of the country in which the person was evacuated, punished by the law of the requesting country which is a formal diplomatic process. Extradition is an obligation of the state in good faith to promote and carry out justice.

Countries are usually in a position where it is difficult to punish those who commit crimes elsewhere, primarily due to lack of jurisdiction, so such persons may be handed over to the country in which the crime was committed. The surrender of the accused or the convicted person is called extradition.

Rendition and extradition intricacies under International Law

The term ‘extradition’ comes from the two Latin words – ex and tradium’. In general, it can mean ‘criminal surrender’, or ‘fugitive surrender’. Extradition can be defined as the surrender of an accused or convicted person to a country in which they have committed a crime or the country where the crime or offence was allegedly committed or the country that has jurisdiction over that particular act or omission. According to Oppenheim, “extradition is the delivery of an accused or a convicted individual to the State on whose territory he is alleged to have committed or to have been convicted of, a crime by the state on whose territory the alleged criminal happens for the crime to be”.

Purpose of extradition

Extradition is the process of suppressing crime. Generally, a person cannot be punished or prosecuted in a country where they are fleeing due to lack of jurisdiction or some technical rules of criminal law. Therefore, the criminal is handed over so that the crime committed by them can be punished under the law.
Extradition acts as a warning that criminals cannot escape punishment by fleeing to another state. Therefore, handing over has a deterrent effect.
Extradition is based on reciprocity. Countries that are required to surrender today may have to demand the extradition of criminals in the future.
Extradition is executed to step closer towards achieving international cooperation in solving problems of international and social nature. Therefore, it meets one of the purposes of the United Nations as set out in Article 1, Paragraph 3 of the UN Charter.

The procedure for extradition under the Indian Extradition Act, 1962

The Government of India currently has bilateral extradition treaties with 42 countries and extradition treaties with nine more countries to speed up and facilitate the extradition process. In India, the delivery of fugitives from the country to foreign countries, or vice versa, is subject to the provisions of the Indian Extradition Act of 1962. The basis for delivery is a treaty between India and a foreign country and an arrangement for personal transfer. Under Section 3 of the Act, the government may issue notices extending to the countries notified of the provisions of the law.

The legal basis for the extradition of criminals with countries where India has not signed extradition treaties (non-treaty countries) is set out in Section 3(4) of the Indian Extradition Act. 1962, where India and the foreign countries are parties to the extradition by a notified order. An extradition treaty by India with the foreign country provides for extradition for crimes specified in the treaty. India is also a party to the International Convention for the Suppression of Terrorists Bombing (1997). It also provides the legal basis for the delivery of terrorist crimes.

In May 2011, the Indian government ratified two UN treaties – the United Nations Convention against Corruption (UNCAC), the United Nations Convention against Transnational Organized Crime (UNCTOC), and their three protocols.

If there is an extradition treaty between the interested countries, the extradition request must be made in terms of that particular requirement. Regarding the issuance of comprehensive guidelines for overseas investigations and inter-administrative support issued by the Ministry of Interior (UAE), a request for delivery is to be issued only after the presentation of the accusation letter, knowledge of the accusation, and the issuance of the arrest warrant. If the accused is arrested and brought to court in India, all the necessary measures will be taken throughout the delivery process.

Therefore, after the investigative agency submits the imputation sheet, if the Justice of the Peace recognizes it, it issues an order/indication justifying the defendant’s approval to the trial and indicates the existence of the defendant facing the trial. Upon request, delivery will be carried out to the Ministry of Foreign Affairs (Netherlands). When issuing such an order to arrest the accused, the justice of the peace is governed by the above considerations.

Treaty between India and the UK

According to Article 1 of the Extradition Treaty between India and the United Kingdom, it is the duty of India and the UK to extradite any person being accused or convicted of an extradition offence committed within the territory of one State, either before or after the entry into force of this treaty. Each contracting state shall offer mutual assistance in criminal matters.

Extradition offences are defined as offences that impose at least one year of imprisonment under the laws of contracting parties. However, it excludes crimes of political nature and includes serious crimes, such as robbery and murder that are entirely related to financial nature, cause explosions, terrorism, etc.

If the person is being tried for extradition in the requested state court, or if the defendant is convinced that the indictment in the requested state is unfair, oppressive, disadvantageous, or discriminatory, extradition requests may be rejected in such a case.

If a person or an organization is targeting someone who has already been convicted, then a certificate of conviction is required for the same. In an emergency, the person may be provisionally detained by the requested country or state until the extradition request is processed. However, if the person does not request to be handed over, then he/she may be released 60 days after the date of arrest. Once a person has been handed over to the requesting country within 45 days, they may only be prosecuted for the requested offence, misdemeanour, or offence agreed by the requested country.

One can refuse that they had committed a crime that carries the death penalty in the requesting country, and so that person will not be sentenced to death in the requesting country for the same crime. If the extradition is approved, the requested country will deliver the defendant at the designated time, or the requested country will deliver the person from the territory within one month or as specified.

Immigrants and their status

There is no clear and universally agreed definition of immigrants, sometimes it is also referred to as international immigrants. According to the Office of the “United Nations High Commissioner for Human Rights” (OHCHR), some human rights groups and experts distinguish between international migrants and internally displaced persons, also called the migrants who have been forced to relocate or who have voluntarily relocated to improve their situation. Therefore, in general, international law refers to those who have voluntarily moved into the state to improve their situation, those who have been forced to evacuate within the state, or those who have voluntarily moved because of personal reasons. People who are at the border and are forced to cross borders to improve their situation. Thus, this defines migrants as cross-border people, either because they were forced to migrate or because they decided to migrate voluntarily. The International Convention on the Protection of the Rights of Migrant Workers and Their Families (ICRMW) defines migrant workers under Article 1 as “people employed, engaged or engaged in paid activities in the state”. It is the most comprehensive treaty on the rights of migrant workers, explaining the civil and political rights of migrants, as well as their economic, social, and cultural rights documented, both of the workers, and their families, although, some provisions apply specifically to irregular or undocumented migrants. In addition to ICRMW, several other international documents also protect the migrants in the workplace. ILO Employment and Immigration Convention specifically protects migrant workers and guarantees basic rights such as access to medical care and general rights. Various universal human rights treaties and basic ILO treaties establish workers’ rights to fair working conditions and equal wages, the ability to form and join trade unions, and access to social security.

Rights of immigrants

These are the following rights available to immigrant workers.

Right to life

States are obliged to mitigate the loss of life at land-sea border crossings. In general, in accordance with International Human Rights Law and the Law of the Sea, the state is obliged to protect and guarantee the right to life of people at sea within their territory or at the intersection of vessels at sea. In particular, the Law of the Sea has developed provisions for the rescue and protection of people, including migrants lost at sea. For example, Article 98 of the United Nations Convention on the Law of the Sea (UNCLOS) imposes an obligation on captains to assist those who are at risk of being lost at sea and to rescue those who are suffering when informed of their need. On the condition that such actions do not seriously endanger the ship, crew, or passengers. UNCLOS Article 98 (2) states that coastal states have an active obligation to cooperate with neighbouring countries to promote effective search and rescue services.

Protection against arrest and detention

Article 16 (4) of the ICRMW specifically protects migrant workers and their families from the arrest or detention by arbitrary individuals or groups. The Migrant Workers Commission is legally stipulated, “pursuing a legitimate purpose under ICRMW, necessary in certain circumstances and legitimate so that the arrest or detention is not arbitrary. It must be proportionate to the purpose. Furthermore, CMW states that the criminalization of illegal immigrants does not constitute a legitimate interest in the regulation of illegal immigrants. It can convert legal administrative detention into arbitrary detention if the state exceeds the legitimate period of detention.

Protection against collective expulsion

The ban on mass exile also applies to migrants intercepted at sea. The Migrant Workers Commission states that the obligation applies to all regions where the State has effective control, including vessels on the high seas. The European Court of Human Rights may return 24 people, along with about 200 people intercepted on the high seas, to a country at risk of torture or cruel, inhuman, or degrading treatment. Although the decision did not explicitly discuss a ban on collective expulsion, the ECHR confirmed that state obligations under International Human Rights Law apply to situations where migrants have been intercepted at sea.

What awaits in the future

India has a strong regulatory framework for the delivery of syndicated crimes, but other criminal loopholes have also been discovered. The number of fraud cases increased to about 6,000 between 2017 and 2018. Due to the enactment of the Corruption and Economic Crimes Act, no runaway economic criminals were counted until 2018. In 2019, the banking and financial sector suffered a staggering 41,000 losses as a result of fraud.

The best examples of recent fraud cases include the cases of Vijay Mallya and Nirav Modi, who are currently facing delivery procedures. In light of these fugitives taking advantage of loopholes for their benefit and fleeing from India, the Corruption and Economic Crimes Act, 2000 is an Indian law that requires runaway economic criminals to evacuate to other jurisdictions.

After China enacted National Security Law in Hong Kong, several countries such as the United Kingdom, Australia, and New Zealand suspended extradition treaties with Hong Kong. These actions have led to the declaration of the scope of national security law covering global criminal jurisdiction over overseas activities, the creation of special institutions and judges personally selected for prosecution, and a new series of extremists. It takes place after the relevant punitive judgment.

Abu Salem’s extradition case

India does not have an extradition treaty with Portugal. However, when Abu Salem, a defendant of the 1993 Mumbai explosion and a gift from the underground world, fled to Portugal with his wife Monica Bedi in the absence of the treaty, Portugal later handed over Abu Salem to India. He would not be sentenced to death. The Superior Court of Portugal issued an order on July 14, 2004, together with the reasons for his surrender to India. His wife was also handed over to India.

United States v. Rauscher (1886)

In this case, the defendant was handed over for murder but was tried and convicted in the United States for less than cruel and unusual punishment for the crew. He appeals to the United States Supreme Court, overturns the conviction, and releases the prisoner because he cannot prosecute the prisoner for the crime that was delivered unless otherwise provided in the treaty. Reasonable time to return to the country where he was delivered.

Conclusion

To conclude, International and cross-border crime present unique challenges regarding discovery, arrest, delivery, and prosecution. Given the increasing number of syndicated crimes worldwide, it has become very important for countries to define their rights and obligations in the fight against international crime and to establish procedures associated with the legitimate process of law. To promote this goal, many countries have adopted a comprehensive extradition framework. Delivery refers to the diplomatic and formal process of returning custody of a fugitive to a crime committed outside the jurisdiction of the country in which the fugitive has been evacuated and authorized by the law of the requesting country. The international transfer process is influenced by two factors: the existence of a binding transfer agreement and the laws of the local government of the country in which the transfer is required. However, the delivery process may occur in good faith and without agreement or arrangement between the two countries.

References

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