All you need to know about components of a judgment

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July 29, 2021

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This article has been written by Tanisha Kohli, pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.com.

Table of Contents

Introduction

Reading judgments is an essential and inescapable aspect of any lawyer’s everyday life. Irrespective of the stage of one’s journey in the legal field, one will always find oneself reading through several pages of judgments to understand the court’s decision and the reasoning that underlies it.

The first exposure to reading judgments is at law school, for the purpose of college lectures, as well as internships, research papers, moot courts, satiating one’s own curiosity about a particular legal proposition, and so on. This article has a focus on judgments delivered by courts in India.

The aim of this article is to serve as an introductory guide to anyone who may feel intimidated by the dense paragraphs of a judgment and find that it is too difficult to navigate. The article will enumerate the various components that often make up a judgment. Identifying the various parts of the judgment is a useful tool to comprehend it, as it can help break the judgment down into smaller and more digestible pieces.

Title of the judgment

The title of the judgment can reveal many aspects of the case. Firstly, it tells us the names of the parties to the dispute. The parties can be individuals, corporations, governments, and so on. However, there is the limitation that the title only mentions the name of one party on each side of the dispute. Thus, to determine all involved parties one often has to look at the text of the judgment. Secondly, it indicates which party has filed the plaint/suit or which is the party that has appealed from the lower courts. Thirdly, it can also be of assistance in identifying which area of law does the case deals with. For instance, if the Union or State government is a party to the dispute, it is quite likely that case is a criminal or constitutional matter. Example of a judgment title: Som Prakash v. Union of India.

Citation

The title or name of a judgment is accompanied by the citation of the judgment. In addition to being published on the website of the concerned court, judgments are published by case reporters such as Supreme Court Cases (SCC), Manupatra, All India Reporter (AIR), and many more. The citation indicates to us the location of the judgment in the case reporter i.e. the page number, volume of the publication, and year of the publication. The citation also serves as an indicator of the court which delivered the judgment.

Example 1: In the citation AIR 1955 SC 549, the use of ‘SC’ tells us that it is a judgment by the Supreme Court.
Example 2: In the citation AIR 1955 Cal 319, usage of ‘Cal’ tells us that it is a judgment by the Calcutta High Court.

The year in the citation also points to the year in which the judgment is delivered. However, this may not always be the case.

The bench

The judgment also tells us the number of judges who heard and decided the matter, as well as their names. The size of the Bench is particularly important in determining which courts are bound by the judgment. For example, a single judge is bound by the judgment of a division bench (two judges). However, the converse is not true.

The procedural journey of the matter

This includes a background of how the present matter came to be before that particular court. For example, it could have reached the court by way of an appeal from a lower court decision, or it may be by way of an SLP i.e. leave granted in a Special Leave Petition.

The decision in the lower courts, by a bench of lower strength

The judgment more often than not states the decision taken by the lower court(s) and the reasoning adopted by the lower court(s). For example, “Both the Division Benches held that ICRISAT was an international organisation and was immune from being sued because of a notification issued in 1972 under the United Nations (Privileges and Immunities) Act, 1947 and that a writ under Article 226 could not be issued to ICRISAT.”

Description of the parties

The court may describe the parties involved in the dispute, and which party initiated the legal proceedings. For example, “The appellants were employees of the respondent no. 1 (ICRISAT). Their services were terminated. They filed writ petitions before the High Court of Andhra Pradesh against ICRISAT and the Union of India.” This statement of the court tells us who has filed the appeal, the relation of the appellants to the respondents, and that the petition was originally filed by the appellants.

Facts of the dispute

This means the material facts which have led to the dispute. It includes the conduct of the parties, the incident(s) which led to a conflict between the parties, and so on. Understanding the facts of the case is extremely important, as the final decision of the court rests upon the application of the law to these specific facts. The same legal principles applied in different facts can have a very different outcome.

Contentions of the parties

This section contains the arguments by the parties, which includes the cases and provisions of the law that they have relied upon. It is evident that the contentions portion of the judgment has arrived when one sees language such as “The learned Senior Counsel, Mr. … Argued on behalf of the … that…”

The court may list all the contentions in the beginning at one go and then deal with them at a subsequent stage. The court may also deal with each contention by referring to them one by one and rendering its views on the said contention. When the contention and the court’s views are provided in the same paragraph, it can become difficult to distinguish between the two. It is useful to look for sentences that begin with “We” or similar words to determine where the court’s view starts. For example, “We find force in this contention”, “In our opinion, there is no force in this argument.”

The issue

The issue(s) is the question of law or the mixed question of fact and law which the court has to decide upon. Example of an issue: “Whether the Respondent, which is a non-signatory to the arbitration agreement, is bound by the arbitration agreement?” A judgment may also discuss the issues framed by the lower courts. It is possible that at the higher court they are not dealing with all the issues framed by the lower courts but only a few of them. The court may directly state that “The issue in this case is ……..” Another common way to state the issue is “The question, in this case, is whether……” “Now we come to the issue of……..”

Provisions of the statute(s) concerned

The court will also deal with the applicable legislation in the matter and the provisions of the legislation which are applicable to the dispute. It may discuss the scheme of the legislation, its preamble, the verbatim sections, essential ingredients of the sections, the object of the sections, and so on.

Case law

A judgment discusses other cases within it. The court deals with case law relied upon by the parties on each side. It may also discuss relevant case law on the subject matter, which may not have been brought up by the parties themselves. The case laws could be judgments by foreign courts or by Indian courts. If not already mentioned in the judgment, to determine whether the case law is foreign or domestic, a quick glance at the citation can indicate the same.

There are several ways in which the court may deal with a particular case. The case may be quoted with approval through language such as “We agree with the observations in X v. Y”, “The matter was squarely decided in…”, “The question of law is no longer res integra and was settled in the case of …” The court may distinguish the case and thus refuse to apply the principles enunciated in that case, even though it is bound by the case. To distinguish, the court may use language such as “This case has no application to the present matter.” The court may also humbly disagree with the observations in a case. A case may also be overruled by the court, which would mean that the principles of law in the overruled case are not correct, and no longer have any binding power.

Observations and the decision

This includes the court’s considerations of the law involved. The court discusses and lays down the principles of law applicable in that matter. The court may apply the law to the facts of the dispute and decide the matter. The matter may also be remanded to the lower court for the decision on facts in accordance with the law laid down.

Ratio Decidendi

This is a very important term in legal parlance. The ratio decidendi is the binding portion of the judgment. Statements that are not part of the ratio decidendi do not have the power to bind other courts. Ratio decidendi is understood as having three possible meanings:

The reason for (or of) deciding. However, in this understanding of the term, even a finding of fact may form the ratio decidendi. For instance, a judge may state a rule and then decide that the facts do not fall within it.
The rule of law is proffered by the judge as to the basis of his decision.
The rule of law which subsequent courts which deal with the judgment consider being binding.

To determine the ratio of a case, it can be useful to search for other cases in which that case has been discussed.

Obiter Dicta

The Obiter Dictum is the non-binding portion of the judgment. For instance, observations by the court on legal principles which were not necessary for the court to decide upon in the facts of that case, are generally considered obiter dictum.

Conclusion

There are several ways to navigate through a judgment. Being able to break it down into its components is certainly a useful tool in the road to achieving clarity on the judgment. The components work in tandem and have to be looked at as an interconnected whole. The interactions between the various components are crucial to consider when looking at a judgment.

References

Dias, Jurisprudence, Chapter 7, Justice In Deciding Disputes pp. 126-164 (Ed. 5, 2013).

The author has relied upon her experience of reading judgments in law school to articulate the content of this article.

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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Plea of insanity : a need for reform

By

Diganth Raj Sehgal

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July 29, 2021

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This article is written by Varchaswa Dubey, from JECRC University, Jaipur. This article is an exhaustive work reflecting the in-depth study of the defense of insanity. Furthermore, the article also reflects various other factors concerning insanity and why there is a need for reform in the laws of insanity.

Table of Contents

Introduction

It is an established criminal law jurisprudence that a person committing an offence has guilty intentions to commit such crimes and in furtherance, the person must also do some acts with such intention. However, it is practically impossible for an insane person to determine if his/her acts would constitute a crime or that such acts will take away the life of another person and therefore such person lacks requisite mens rea and cannot be held liable for his/her acts.

The word insanity has not been mentioned anywhere in the Indian Penal Code, 1860 (IPC). However, Section 84 of IPC reserves the term ‘unsoundness of mind’ and states that nothing is an offence which is done by a person who, while doing such acts, is incapable of determining the nature of such acts due to unsoundness of mind.

The defence under Section 84 is established on the jurisprudence that a person who cannot understand what he/she is doing or what are the consequences of committed acts, shall not attract the punitive measures of IPC. The plea of insanity can also be understood by the Latin maxim, “Actus Non Facit Reum Nisi Mens Sit Rea” which means “an act does not make anyone guilty unless there is a criminal intent or a guilty mind” and “Furiosi nulla voluntas est” which means a madman has no will.

Insanity is often considered a mental disorder, however, the Indian judiciary is not concerned with medical insanity but legal insanity. Legal insanity differs from medical insanity, thus causing a debate among legal professions and medical professionals.

The essentials of insanity are mentioned in different cases and in each case, courts apply the same test to determine the unsoundness of mind of the accused. The test applied is the M’Naghten Rule.

Origins of insanity

The origins of insanity as a defence can be traced back to the early establishments of government where they recognized that it is unjustified to punish a person of unsound mind. The first recorded source of insanity as a defence can be traced back to Hammurabi’s code which dates back to around 1772 BC.

The Romans also practiced the defence of insanity where they found people non-compos mentis (without mastery of mind), and people were not held responsible for their criminal actions and this evolved concept is found in contemporary times as the principle of ‘mens rea’.

Initially, the good and evil test first appeared in the year 1313, on the beliefs of biblical and religious concepts.

Historical tests laid down

Certain tests laid down to determine insanity are:

Good and evil test: The first test to determine insanity as a defence was laid down in the good and evil test, which was based on the beliefs of the Bible and religion. The test first appeared in 1313 in a case that was concerned with the capacity of a child below the age of 7. The test held that like children below the age of 7 are incapable of knowing the nature of their act, the insane person was thought of as a child who is not capable of knowing the nature of the act or cannot distinguish “good from the evil”. The good and evil test was used from the 14th Century to the 16th century, but it was later abandoned.
The Wild beast test: First appeared in the case of Rex v. Arnold, 1724, where the accused was tried for shooting at Lord Onslow because Lord Onslow bewitched him. The relatives of the accused also testified that he was suffering from delusions. The court ruled that the defendant shall be acquitted due to his suffering from insanity and that he did not know what he was doing in a similar way like a “wild beast”. The test continued to apply for a century.
The right and wrong test: The actual predecessor of the M’Naghten rule is the right and wrong test which originated in the case of Regina v. Oxford, 1840, where the jury held that it is very important to determine, whether the prisoner was of unsound mind at the time of doing such acts or if some disease was acting within him, by which he could not resist the committed acts. Later in the year 1843, the M’Naghten case, (1843) led to the landmark case of determining the insanity of an accused in the court of law.

Overview of the M’Naghten rule

The rule mentioned in M’Naghten’s case has been extracted from other tests which were earlier used to determine the insanity of an individual. The irresistible impulse test, The “Durham Rule” and The ‘Model Penal Code’

The case of M’Naghten briefly unfolds as in the year 1843, Mr. M’Naghten attempts the assassination of the then Prime Minister of England Sir Robert Peel but he however kills the secretary of the Prime Minister believing the secretary to be Prime Minister himself. The medical experts on the case considered Mr. Naghten to be of unsound mind. The incident was followed by public outrage as subsequently, the House of Lords asked the parliament to widen the definition of insanity.

The judges in this case laid down five tests that shall be considered by a court of law when dealing with the insanity of an accused person:

Whether at the time of committing the offence, if the accused knew his acts were against the law but he still committed such acts because of delusion,
Whether the pleaded defence of insanity is a setup of the accused when he alleged that he suffered insane delusion,
Whether the person was under a state of mind when he committed the wrongful acts,
If a person committed wrongful acts under an insane delusion, then is he excused from the liability,
Whether the medical professional who shall determine the insanity of the accused, who never saw the accused, but such professional was there during the whole trial, examination, etc. can be asked for his opinion by the court.

The court while answering such question held that:

Every individual is presumed to be sane and has enough reasons to be held responsible for the crime committed until the contrary is proved to the court of law,
To plead the defence of insanity, it is to be established by the accused that at the time of committing such offence, the accused was under a delusion or was suffering from the absence of not knowing the nature of his acts,
If the accused was aware of the acts he did and if the acts are contrary to law, then such person shall be punished,
The medical professional who has never seen the accused before the trial, shall not be asked for his opinion-whether or not if he thinks the accused is of unsound mind,
When the acts are committed by an individual who is under delusion, and such acts conceal the truth of the acts he did, he shall be under the same responsibility as he would have been if he imagined them.

English law on defence of insanity

The common law is the actual founder of the defence of insanity in contemporary times. The law of insanity has evolved from different cases, however, the case of M’Naghten was established to be a landmark case in the history of English law which considered insanity as a genuine defence in criminal cases.

It was in the case of M’Naghten when judges established certain principles:

Every person is presumed to be sane and possesses a reasonable amount of reason to be held liable for the crimes they committed until the contrary is established,
To establish the defence of insanity, it must be proved that at the time of the commission of such offence, the accused was under some mental illness,
The accused did not know the nature of the act he/she committed, and
The accused did not know his/her acts were contrary to law.

Under English law, the term “complete madness” was initially established as a defence to criminal cases by the common-law courts in the late 13th Century, and by the 18th Century, the doctrine of complete madness was evolved in the “wild beast test”.

The initial codification of law under the English law was done by Criminal Lunatics Act 1800, to punish an individual named James Hadfield, who tried to kill King George III because he wanted to die and knew that an attempt to kill the king would lead to his death. The act was later broadened in scope by the establishment of The Trial of Lunatics Act, 1883, to amend the law respecting the trial and custody of insane persons charged with an offence. Lunacy Act, 1890 was passed in the year 1890 to consolidate the laws relating to lunatics in the jurisdiction of the crown.

Laws on insanity in other countries

In the United States of America, the Model Penal Code, 1962, developed a new law on insanity, which was considered not too strict like M’Naghten’s case and not too lenient like the irresistible impulse test. The American law, in Section 4.01 states that a person will not be responsible for criminal conduct if at the time of the commission of such conduct the person as a result of mental disease cannot appreciate the criminal conduct or the requirements of law.

Australia’s The Tasmanian Criminal Code Act, 1924, in Section 381, provides the defence of insanity on the grounds that if the evidence establishes that the accused was insane at the time of the commission of the crime, such person shall be acquitted and the jury must especially mention whether such accused was acquitted by them on grounds of insanity and while the primary burden of proof is on the accused the prosecution establishes the evidence against the defence. In circumstances where the accused does not present evidence of insanity, the prosecution shall produce evidence of sanity.

In Canada, the Criminal Code, 1985, in Section 16 states that no person shall be criminally responsible for any act committed while suffering from a mental disorder which rendered his capability of understanding the nature and quality of the act. The section also states that everyone shall be presumed to be sane until the contrary is proved, in other words, it initially places a burden of proof on the accused to prove that he/she was insane at the time of the commission of the offence.

In France, Section 64, France Penal Code, 1810 states that there can be no crime when the accused was in a state of madness at the time of the action or when he was under a force which he had not the power to resist. To determine the insanity the court shall appoint an attorney who shall conduct an inquiry into the mental health of the defendant.

Irresistible impulse test

The irresistible impulse test is another type of defence concerning insanity, under this test, a person shall not be punished for crimes which he did not intend to commit and could never prevent or resist such crimes even though they knew the crime was wrong but couldn’t stop themselves due to mental illness.

To prove irresistible impulse test, the accused must prove:

The sufferance of mental illness, and
The mental illness resulted in the inability of the accused to control his/her actions which were contrary to law.

The irresistible impulse test was established as a direct criticism of M’Naghten Rules in the year 1886 in the case of Parsons v. State, 1886, where the Alabama Supreme Court asked questions like whether the defendant because of such mental disease had lost the power to choose between right and wrong, and if at the time such person was insane the alleged crime occurred must be concerning the mental disease of such person.

Burden of proof

It is an established principle of criminal jurisprudence that a person is presumed innocent until proven guilty and until then the burden to establish guilt beyond a reasonable doubt rests upon the prosecution and this onus of proof always lies on the prosecution however Section 84 of IPC is an exception to this rule.

It was held in the case of Gelsing Pida Pawar v State of Maharashtra, 2010, that the burden of proof of circumstances to bring the case within the ambit of Section 84 of IPC rests upon the accused under Section 105 of Indian Evidence Act. However, the burden of proof on the accused is not equal to the burden of proof on the prosecution.

In the case of Dahyabhai Chhaganbhai Thakker vs State Of Gujarat, 1964, it was held that:

The prosecution must prove beyond reasonable doubt that the accused has committed the offence, and such burden to prove always lies on the prosecution throughout the trial,
There is a rebuttable presumption that the accused was not insane at the time of the commission of the offence and the accused may rebut such presumption by placing all the relevant evidence, oral, documentary, or circumstantial however the burden of proof upon him is not higher than that rests upon a party to civil proceedings,
Even if the accused was not able to establish conclusively that he was insane at the time of the commission of an offence, the evidence placed before the court by either party to the proceedings may raise a reasonable doubt before the court and the accused shall be entitled to an acquittal because the prosecution did not discharge the general burden of proof.

In the case of Butu @ Madhua Oram vs State, 1985, the Orissa High court held that the accused is not called to prove the ingredient of Section 84 of IPC beyond reasonable doubt to get an acquittal from criminal charges. However, it is sufficient if the pieces of evidence shown lead to the inference that the requirements of Section 84 may be probable.

Essentials of Insanity

In the case of Sarka Gundusa vs State, 1969, the Orissa High Court laid down certain essentials of Section 84 of IPC:

The accused must be of unsound mind, at the time of the commission of the offence,
The accused must be of insane mind at the time of the commission of the offence and not before and after the commission of the offence.
The unsoundness of mind must be of such a nature, that the accused was incapable of knowing the consequences of the committed his/her acts.

In the case of Ratan Lal vs The State Of Madhya Pradesh, 1970, the Supreme court of India held that “The crucial point of time for ascertaining the state of mind of the accused is the time when the offence was circumstances which preceded, attended and followed the mind as to be entitled to the benefit of Section 84 of the Indian Penal Code can only be established from the circumstances which preceded, attended and followed the crime.”

Law Commission of India report

The report highlighted the issues of Section 84 of IPC and stated that as soon as the test of insanity in the case of M’Naghten was established, it attracted criticism. The commission also considered the law of Australia, the USA, France, etc. and asked certain questions like:

Should the existing laws of insanity be amended or modified?
The test relating to the offender’s mental capacity to know the act is wrong or to his incapacity to know that it is punishable?
Should the defence of insanity be available to cases where the offender was although aware of the wrongful acts yet still did such acts due to mental condition?

The commission answers the above questions:

Amending the existing laws will create more dependency on medical opinion and whether medical experts will be available throughout the country,
The majority held no change concerning the test relating to insanity. However, a few held that test should be knowledge of what is wrong and others that it should be knowledge of what is punishable by law,
To include “irresistible impulse” within the ambit of Section 84 of IPC, very little support was witnessed and the main objection was that it will make the trial more difficult for judges.

While holding the above-mentioned reasons, the commission did not find it fit to amend Section 84 of IPC.

Legal insanity vis-a-vis medical insanity

Legal insanity is different from medical insanity because in legal insanity the court is concerned with the delusions which the accused suffered during the commission of the crime and that the accused is a person of unsound mind. Each person who is suffering from insanity cannot plead the defence of insanity in a court of law and only a person whose mental impairment made it impossible to judge if the acts committed by him are contrary to the law can plead the defence of insanity in a court of law.

In other words, a person who suffers from mental illness at all times is called mentally insane and a person who suffers from mental illness and who has lost his ability to understand the nature of the offence committed by him shall be referred to as legal insanity.

When a person is subjected to irregularities of mind, delusions or irresistible impulses, or any traits of a psychopath, all of these shall constitute medical insanity and a person will only get the benefit of Section 84 of IPC if he/she proves that he/she was suffering from any of such impairments at the time an unlawful act was committed.

In the case of Surendra Mishra vs State Of Jharkhand, 2011, the Supreme Court of India held:

Every person who is suffering from mental disease is not ipso facto exempted from criminal liability,
Section 84 of the Indian Penal Code is to prove legal insanity and not medical insanity,
The burden is on the accused but he is not required to prove the same beyond all reasonable doubt, but merely satisfy the preponderance of probabilities.

In the case of The State vs Chhotelal Gangadin Gadariya, 1957, the court observes that they are only concerned with ‘unsound-ness of mind’ as defined in Section 84 of IPC and not with ‘unsoundness of mind’ as understood in the medical science. A similar view was taken by the court in Surendra Mishra vs State of Jharkhand, 2011, and ruled that the accused who seeks pardon under Section 84 of IPC shall prove legal insanity and not medical insanity.

The issues with the defence of insanity

The misuse of the defence has led to many countries abandoning the defence of insanity. Countries like Germany, Argentina, and Thailand, have abolished the defence of insanity. The current understanding of insanity and understanding of neurology and absence of impulse contract, and then conducting rationality tests, is an obsolete manner of determining insanity.

There are high chances of such defence being misused by the criminals since it is almost impossible to determine the insanity of a person based on acts committed by him/her and therefore the defence lawyer can take advantage of this defence to free the actual wrongdoer from imprisonment.

The insanity defence simply unsettles the foundation on which the law was built, i.e. to punish the wrongdoer, and this is done by misusing the defence of insanity in a court of law when a criminal gets acquittal by pleading insanity.

Proving insanity is a difficult task for the accused since the burden to prove insanity lies on the accused. To prove legal insanity is a difficult task unlike medical insanity since to establish legal insanity, the accused has to present concrete evidence and sometimes the accused fails to establish insanity and the court imprisons the accused and an innocent should be getting medical assistance undergoes imprisonment for a crime which he/she never intended to do.

Everything in a case concerning depends upon the understanding of facts and evidence before the judge, and if the judge is not satisfied, an actual insane person may suffer incarceration therefore, the understanding and knowledge of the judge is an essential part.

It can be concluded that the defence of insanity has lost its actual foundation and now it is either a way of getting away from the liability for a crime or may attract imprisonment which is not even lawful.

Criminal law aims to punish the guilty person who possesses ‘actus reus’ and ‘mens rea’ i.e. guilty act and guilty mind. However, in cases of insanity the accused usually does not possess the required ‘mens rea’ and therefore it is not justifiable to punish such a person.

The defence of insanity is often criticized after being confused between medical insanity and legal insanity, however, the courts are only concerned with legal insanity. It is almost impossible to determine if the person was insane at the time of the commission of the offence by the physiatrist.

The need to reform

Insanity as a defence has lost its real purpose and has now evolved as an instrument for criminals to get away from legal accountability and therefore the judiciary must revisit the concept of insanity and bring back the soul of the law.

Although the mechanism is doing efficient work to determine the illness of an individual, there are certain instances where an actual criminal gets acquittal and an insane person gets imprisonment. Therefore, these errors must be rectified and prevented.

The tests applied to determine insanity are very lenient and so obsolete that it often relieves a violent criminal from the punishment of crime he committed and places an actual insane person under detention and sometimes under imprisonment for a long duration of time.

The current mechanism instead of placing an insane person under medical assistance places such a person under police or judicial custody, which is a human rights violation of the ill person. Since the Indian courts often take much time in reaching a decision, an innocent person stays in prison for no reason except for his mental illness.

The responsibility to administer mentally challenged persons shall be made mandatory by professionals belonging to the medical field since numerous persons may act as a threat to society and therefore such persons must be kept under observation until they recover.

When a person pleads the defence of insanity, the courts must, after determining the gravity of the offence, send a person under medical supervision for some time, and the court shall ask the medical fraternity to determine if such person is insane.

The need for psychiatrist hospitals must be encouraged, or a separate hospital for persons who plead the defence of insanity must be established where the doctors must be well versed with determining the actual mental capability of the accused. The medical assistance at such hospitals must be free of cost or nominal charges must be charged with the main aim of assisting the patient.

Conclusion

The defence of insanity is a serious issue in contemporary times since the defence is used as a tool by hardened criminals to get away from criminal liability. The defence of insanity has numerous issues like difficulty in determining the mental incapacity of an individual. The process to determine such insanity is also very slow. Therefore, it creates an issue not only for those who are liable for an offence but also for those who are innocent and have some mental disorder.

The current test to determine the insanity of a person is not very reliable since the court is concerned with only legal insanity which is determined by the acts of a person before, during, and after committing an act that is contrary to law.

The laws of insanity need to be amended or abandoned since it has caused many issues in the legal mechanism. The defence of insanity plays a significant responsibility in protecting the human rights of the individual who is suffering from some mental disorder and therefore the task of determining the insanity shall be performed with utmost accountability.

References

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The difference between a click wrap, a shrink wrap and a browse wrap

By

Abanti Bose

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July 29, 2021

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meeting-1019875_1920-1s6eqac (1) — Image Source: https://rb.gy/thbw9g

This article is written by Chaitali Bagai, pursuing Diploma in International Business Law from LawSikho.

Table of Contents

Introduction

Did you ever wonder that you have signed a contract with such a big company as Amazon while sitting in your recliner? Have you ever accepted the terms and conditions before using an app? Have you clicked on “I agree” without knowing what the contract is all about? Pandemic has led to innovations and new business models have developed during this period. Everything is now just a click away, you want to order food from Zomato, order electronics from Amazon, or order groceries from Grofers. Have you ever wondered how they sign contracts with you? Signing contracts is also a click away these days.

What are e-contracts?

E-contracts are the cousins of contracts who went abroad and came back with the new electronics and a fancy name. Electronic contracts are contracts in the digital version and are in demand these days. E-contracts are very similar to regular contracts, the only difference is that they take place through a digital mode of communication that is online. E-contracts have eaten the job of the middlemen, now sellers reach out to the customers directly. The middlemen now are the computer programs that connect the seller with an electronic agent i.e. the app and the buyer also with an electronic agent. Basically, it creates a platform for the buyer and seller to meet.

Are e-contracts binding and valid?

In India, the Indian Contract Act, 1872, Section 10 states that “All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.”

Also, Section 10(A) of The Information Technology Act 2000 states that “Where in a contract formation, the communication of proposals, the acceptance of proposals, the revocation of proposals and acceptances, as the case may be, are expressed in electronic form or by means of an electronic record, that such contract shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose.”

According to the Indian Evidence Act, 1882, Electronic signatures are also treated as proof of signature and Digital Signature Certificates are generated when a document is electronically signed and this certificate is also legally valid and binding according to the IT Act, 2000.

In India, contracts are governed by The Indian Contract Act, 1872, and electronic contracts must be valid within the interpretation of the law. The essentials of electronic contracts are;

Offer,
Acceptance,
Lawful consideration,
Lawful object,
Competent parties to contract,
Free consent,
Certainty of terms.

E-contracts are a substitute for expensive and inefficient on paper documentation and are preferred to avoid a lengthy process. On the other hand, electronic contracts are efficient to use and the turnaround time is much higher than lengthy paper works. In fact, e-signatures also save a lot of time and effort. So, e-contracts are enforceable by law and legally valid even if they are digitally signed and executed. However, it is different in the case of click-wrap contracts.

Types of e-contracts

There are different types of electronic contracts to name a few shrink-wrap contracts, click-wrap contracts, browse-wrap contracts, source-code escrow contracts, software development and licensing agreements, and many more. Here are three different types of contracts;

1. Shrink wrap contracts

The name of this contract came from the shrink wrap packaging of the CD-ROMs in which software used to be distributed. Shrink-wrap contracts are the licensing agreements for different software. These contacts are the license agreements or boilerplate or terms and conditions which are wrapped with the product itself. When a customer uses the product, it means that he has accepted the contract. Shrink wrap is basically the plastic wrapping done on the cover of the product.

Shrink wrap is mostly used by IT companies. The most interesting feature of this contract is that acceptance of this contract can be reversed by returning the product.

Also, these days licensing agreements are not delivered with the product instead it shows up before installing the software.

2. Click wrap contracts

Have you seen the long texts, detailed terms and conditions for using an app or software that nobody reads? Yes, those are the Click wrap contracts. As the name suggests, the party is just a click away from signing this contract. They just need to click a button or check a box to accept the contract. Basically, the user is forced to sign up the contract otherwise he would not be able to proceed and therefore they are not negotiable at all. There are some legal issues related that will be covered later.

3. Browse wrap contract

Have you seen these lines which go like “By continuing your use of these services, you agree to the terms and conditions” or “By signing up I agree to the terms of use”?

Browse wrap contracts are seen at the bottom of the webpage and the acceptance is assumed if the customer is using the application. These contracts are commonly seen in websites and even in some mobile apps or software applications. They can also be seen through a hyperlink.

Critical analysis

Now let’s talk about the enforceability of these contracts. In general, the validity of Click Wrap contracts is more than the validity of the Browse Wrap Agreements in the courts.

In the case of Long V. Provide Commerce Inc., the court held that the Browse Wrap contract will only be enforceable if the consumer has read and is aware of all the terms mentioned in the contracts. The conclusion of this case was that these contracts are only enforceable if a reasonably prudent man would know the terms of the contract which will depend on the placement and the design of the links.

In another case of Nguyen V. Barnes and Noble Inc., the court ruled that the contract would be enforceable on the basis of proximity and conspicuousness of the link. In the case of Re Zappos.com Inc., the court held that these contracts cannot be enforced because the font, colour and design of the links of these contracts are similar to the other links. Therefore, consumers were not able to distinguish.

There are some guidelines to design browse wrap contract links which established by the court;

The visibility of the links should be on the first page not on the sub-pages and should be placed at such a place where it is immediately visible.
The link should have a larger font with different font and colour. This should be done to differentiate it from other links.
Additional notice should pop up as the link is not enough.

Click wrap contracts and shrink wrap contracts are unilateral and are presented as a fixed contracts whereas browse wrap contracts are quite different because they do not force the consumer to accept the contract rather the acceptance is assumed while using the website.

Contracts like click wrap and browse wrap are usually used by websites that want to make it mandatory for your consumers to agree with their terms and conditions. The only difference between the two is the manner in which they mandate it. Browse wrap does not require consent but click wrap does make consumers click on the “I agree” button.

Browse wrap, click wrap and shrink wrap contracts are the ways to get into contracts with the consumers online. Browse wrap is the oldest form and standard form for agreement as it was simple and covered all the relevant information. Shrink wrap was found in the software industry only but in a different form.

The shrink wrap contract has the agreement inside the packaging and the opening of the package indicates the consumer’s acceptance of the same. Browse wrap contracts have the terms and conditions and privacy policy written on the website highlighted with the link. The consumer has agreed to this contract by default. And usually, the line says “Your use of our site constitutes your acceptance of these Terms of Use and your agreement to be bound by them”. So, if you don’t agree with the terms and conditions, just don’t use the website.

On the other hand, the requirements of a click wrap contract are more than of a shrink wrap and browse wrap. The two main components that make a huge difference are that firstly, click wrap contracts provide a link but they also provide a notice which is a summary of all the legal terms and conditions. Secondly, they ask for an actionable consent through a pop-up window like an “I agree” button or a check box. If a website or an app uses this contract, it means that they require an express consent from the consumer before proceeding further. The consumer also has an option to decline the terms and conditions by clicking on a “Cancel” button.

Conclusion

The Indian Contract Act, 1872 governs all the contracts in India but all the electronic contracts are governed by the Information Technology Act, 2000. Mostly all the electronic contracts are presented to the consumers in the form of click wrap and browse wrap. The word wrap for both the contracts is derived from the shrink wrap contracts as the terms and conditions were shrunk and wrapped in the packaging of the product. But click wrap and browse wrap are both used in digital form only. Shrink wrap can be used in both digital and physical.

In the past, the owner of the website had a choice between click wrap and browse wrap both were treated equal legally like privacy policy and terms and conditions but now the times have changed.

In the end, I would like to highlight that for terms and conditions one can use a browser wrap contract but the legal documents like privacy policy have to be with a click wrap contract so that there is an expressed consent.

References

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

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

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Arbitrability of the intellectual property rights clashes

By

Abanti Bose

-

July 29, 2021

0

This article is written by Suyash Karkare, pursuing Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.

Introduction

Before we deal with the conundrum of arbitrability of IPR disputes, let me ask you a question. Which dispute resolution mechanism would you choose for your company? A} Arbitration or B} Settlement through the court of law. Most corporations would choose option A as it provides greater control over the process i.e. party autonomy and is faster when compared to the court process. A report suggests that 91% of companies who have a dispute resolution policy in India prefer Arbitration as their preferred mechanism. According to the ICC report of 2019, the number of Indian parties tripled in 2019 and reached 147. These statistics show that arbitration is growing as a preferred method to resolve commercial/contractual disputes especially when it comes to corporate bodies. But what about disputes in the field of intellectual property? Do our laws and courts accept the disputes under intellectual property to be resolved through arbitration? In this article, I will give you a complete overview of the arbitrability of IPR clashes.

IPR regime in India

In India, the intellectual properties regime is governed under certain statutes like:

These acts grant the owner a right to enjoy a ‘Statutory monopoly’ in the market for a certain period during which only the owner of such intellectual property can exercise his/her control over it and get the monetary benefit. These acts also give a statutory right to the owner to go to a court of law in case his/her rights over such intellectual property are being infringed by any other person. For instance, in the Copyright Act, Chapter XII- Section 55 to Section 58 gives certain rights to the owner of the copyright to enforce his/her right over the creation in case any other person is infringing it. Similarly, in case of infringement of rights over the patent, the owner has a right under Chapter XVIII- Section 104 of the Patent Act and over trademark under Chapter XIII- Section 134 of the Trade Marks Act. What’s pertinent to note here is that the remedies regarding the protection of all the rights mentioned above are to be granted by District Courts. According to the Indian legal system and courts, these rights granted by the statutes above-mentioned are rights in rem instead of rights in personam.

Rights in Rem are the rights that are exercisable against the world at large whereas Rights in Personam are the rights that are exercisable against a particular individual. Generally, Rights in Personam are the rights that arise from a contract as it corresponds or imposes a duty on one of the parties to the contract only. The question of arbitrability of IP disputes revolves around Rights in Rem vs Rights in Personam policy mainly.

Arbitration in India

In India, arbitration is governed by the Arbitration and Conciliation Act, 1996. The act was amended substantially with time to bring it in harmony with the UNCITRAL model law so that it could amalgamate and define the law concerning domestic arbitration, international commercial arbitration and the enforcement of foreign arbitral awards. According to Section 34 (2)(b) of the Arbitration and Conciliation Act, 1996, the courts have the power to set aside an arbitral award where the subject matter of the dispute is not capable of being subjected to arbitration. But what’s peculiar to note here is that neither the Arbitration and Conciliation Act, 1996 nor any of the acts governing intellectual property in India define the scope of subject matter arbitrability. It’s been defined only by a series of judgements passed by our courts.

Journey of arbitrability of IPR disputes through judgments of courts

Mundipharma Ag vs. Wockhardt Ltd

The question of arbitrability of IPR disputes was for the first time raised before the Hon’ble Delhi High Court in the case of Mundipharma Ag vs. Wockhardt Ltd ( ILR 1991 Delhi 606) in the year 1990. It was in this case where the question of ousting the jurisdiction of an arbitral tribunal by the provisions of the Copyright Act was discussed.

Facts

Both the parties entered into an agreement for licensing of technology. The agreement contained an arbitration clause. A dispute arose and Mundipharam AG prayed to restrain Wockhardt from infringing their copyright over packaging, breach of confidentiality and breach of terms of the license agreement and wanted these disputes to be referred to arbitration.

Issue

Whether civil remedies available under Chapter XII of the Copyright Act, 1957 excludes Arbitration in copyright infringement disputes?

Held

The Hon’ble Delhi High Court interpreted Chapter XII relating to civil remedies of the Copyright Act, 1957 and held that in cases of infringement of copyright where remedies by way of injunctions, damages and otherwise are prayed, such cases have to be instituted in District Court of competent jurisdiction and such infringements cannot be the subject-matter of arbitration. Though the court did not give any detailed reason for such a decision nor cited any precedent, this line of law continued for a very long time and Indian courts were not keen on adopting a pro-arbitration policy to settle IP disputes until 2011.

Booz Allen and Hamilton Inc. v SBI Home Finance Ltd

The biggest and most prominent judgment given by the Hon’ble Supreme Court which dealt with the question of arbitrability of IPR disputes was Booz Allen and Hamilton Inc. v SBI Home Finance Ltd. {(2011) 5 SCC 532} in the year 2011.

Facts

In this case, Capstone Investment Co. Pvt. Ltd. and Real Value Appliance Pvt. Ltd. availed a loan from SBI Home Finance Ltd. The loan availed was secured by the two companies mortgaging the flats owned by them. Thereafter, the two companies entered into a leave and license agreement with Booz Allen and Hamilton Inc. A security deposit agreement was entered into by the above-mentioned 4 entities which contained an arbitration agreement. A dispute arose and SBI filed a suit for redemption of money through the sale of the suit premises.

Issue

Whether a suit for the enforcement of mortgage by the sale can be adjudicated by an arbitral tribunal and whether the subject matter of the suit fell within the scope of an arbitration agreement?

Held

Thereafter, the Hon’ble Supreme Court dismissing the appeal recognised three conditions that need to be satisfied for a subject matter to come under the jurisdiction of arbitration. They were:

The disputes must be capable of adjudication and settlement by arbitration;
The disputes must be covered by the arbitration agreement; and
The parties must have referred the disputes to arbitration.

The Hon’ble Apex Court also added a caveat to reserve arbitrability of certain categories of disputes. Such categories were rights in rem as opposed to rights in personam. Since rights in rem determined rights not only as between the parties to the action but also against the world itself, including any other person claiming an interest in the subject matter, the Supreme Court held that such actions could not be arbitrated and rights in personam were held to be arbitrable. Arbitrability of another species of rights i.e. rights in personam arising out of rights in rem was also discussed and it was held that such rights were also considered to be arbitrable.

Eros International Media Limited v. Telemax Links India Pvt. Ltd

In the year 2016, by rightly interpreting the judgment in Booz Allen, the Hon’ble Bombay High Court gave a pro-arbitration judgment for the first time while dealing with an issue regarding rights in personam arising out of rights in rem in the case of Eros International Media Limited v. Telemax Links India Pvt. Ltd.{ 2016 (6) ARBLR 121 (BOM)}.

Facts

In this case, Eros and Telemax entered into a contract for giving an exclusive license to telemax the copyrighted material of Eros. Eros, later on, alleged that Telemax had infringed its copyright and as the contract had an arbitration clause, the dispute must be referred for arbitration. Telemax contested this claim by stating that rights under the Copyright Act are rights in rem and hence are not arbitrable.

Issue

Whether disputes regarding infringement of copyright arising out of contractual agreement are arbitrable and whether Section 62 of the Copyright Act, 1957 oust the jurisdiction of Arbitral tribunal?

Held

Hon’ble Bombay High Court held that the dispute is arbitrable as the IP disputes in copyright or trademark arising out of commercial contracts regarding an infringement or passing off action, that action and that remedy can only be an action in personam. The court said that any finding of such infringement (or absence of) will be valid only against telemax and not against any third party or world at large. It was observed that section 62(1) of the Copyright Act should not be read down to mean the ousting of the jurisdiction of an arbitral panel.

Indian Performing Rights Society (IPRS) Ltd. vs. Entertainment Network

Soon after the judgement in the case of Eros, The Bombay High Court in the case of Indian Performing Rights Society (IPRS) Ltd. vs. Entertainment Network {2016 SCC OnLine Bom 5893} interpreted Section 62(1) of the Copyright Act differently, relying upon the judgement of Delhi High Court in the case of Mundipharma Ag vs. Wockhardt Ltd.

Facts

In this case, the dispute between both the parties arose out of the license agreement which gave Entertainment Network a right to broadcast works of IPRS’ repertoire through their FM Radio Channels. The breach in the said license agreement was alleged and an arbitral award was passed which was challenged in the said case.

Issue

Whether disputes in respect of copyright infringement under a licence agreement were arbitrable?

Held

The Bombay High Court held that Section 62(1) mandates the institution of every suit in civil courts only and cases of infringement of copyright, passing off, remedies of an injunction are not arbitrable. This judgment again ousted the subject matter from the scope of arbitration.

This judgment of the Bombay High Court is in stark contrast to its previous judgment in the case of Eros. Although the decision regarding the issue being non-arbitrable was a correct one as the issues involved in both the cases i.e. Eros and IPRS were different. Eros’ case mainly dealt with infringement of copyright while in the case of IPRS, a question regarding the right to claim royalties was involved.

A. Ayyasamy vs A. Paramasivam & Ors

There has always remained confusion regarding the scope of arbitration in the field of IPR. Some judgments treat disputes regarding IPR to be arbitrable while some of them have not. Some also have even misinterpreted or ignored the law laid down in Booz Allen’s case. One such case is A. Ayyasamy vs A. Paramasivam & Ors {(2016) 10 SCC 386}.

Facts

The parties were brothers and had entered into a deed of partnership for carrying on hotel business. Some disputes arose out of the said partnership deed which contained an arbitration clause. But Respondent filed a civil suit in which an application under section 8 of the Arbitration and Conciliation Act, 1996 was filed by the appellants. The same was challenged by the respondent by levelling the allegations of fraud and claiming that such allegations cannot be adjudicated by an arbitral tribunal. The case reached the Supreme Court.

Issue

Whether the plea of fraud could be adjudicated by the Arbitral Tribunal?

Held

The Supreme Court held that the disputes in the field of copyrights, trademarks and patents are non-arbitrable. Though this judgement of Hon’ble Apex Court is contestable as the matter before the Court was not even remotely related to IPR. The main issue before the Court was regarding the arbitrability of fraud.

Lifestyle Equities Cv vs. Qdseatoman Designs Pvt

However, the Madras High Court in the case of Lifestyle Equities Cv vs Qdseatoman Designs Pvt. {2018 (1) CTC 450} has clearly dealt with the policy of rights in rem and action in personam while also emphasising the concept of Judgment in rem and Judgment in personam. A judgment in rem refers to a judgment against a thing, right or status or condition of the property which operates directly on the property itself while a judgment in personam refers to a judgment against a person as distinguishable from a judgment against a thing, right or status. To make this illustrative, it can be said that a patent license issue may be arbitrable, but the validity of the underlying patent may not be arbitrable. It has also been noted by the Hon’ble Court that the list of disputes mentioned in A. Ayyasamy’s case which are not arbitrable is just a scholarly opinion and there is no ratio or application of judicial mind.

Vidya Drolia vs. Durga Trading Corporation

But as the Hon’ble Supreme Court recently has and is actively trying to make the Indian legal system a pro-arbitration system. There are many judgments passed by the Supreme Court which clarifies the position of what kind of disputes are arbitrable. One such latest judgement passed by Hon’ble Apex Court is Vidya Drolia vs Durga Trading Corporation {2020 SCC OnLine SC 1018} where the Supreme Court has taken a pro-arbitration stance.

In this case, the three-judge bench of the Supreme Court answered a reference made by the Two-Judge bench of the Supreme Court regarding the arbitrability of landlord-tenant disputes governed by The Transfer of Property Act, 1882 and doubt over the ratio laid in the Himangini Enterprises case. The Court laid a four-fold test to check whether any dispute is arbitrable or not. It held that a dispute would be non-arbitrable when the cause of action and/or subject matter of the dispute:

Relates to actions in rem that do not pertain to subordinate rights in personam that arise from rights in rem;
Affects third party rights or has erga omnes effect;
Relates to the inalienable sovereign and public interest functions of the state and
Is expressly or by necessary implication non-arbitrable under a specific statute.

Analysis of the stand taken by the judiciary

Even today, the position of arbitrability of IP disputes in India is not clear and there is no straight-jacket formula laid down by statutes or courts to determine which disputes in the intellectual property domain can be subjected to arbitration. There is no expressed bar on the arbitrability of IP disputes. In cases like Mundipharama and IPRS, the question of arbitration in IP disputes was answered negatively as the court held that the statutory claims of infringement of copyright/trademark and the remedies all fell under the public law domain. What is pertinent to note here is that all these cases involved such IP disputes which were purely born out of IP statutes. But recent trends show that IP disputes are starting to be contractual too and with an increase in commercial transactions, the arbitrability of IP disputes born out of purely contractual transactions are arising and the courts are now taking efforts to have a pro-arbitration approach which can be seen by having a look at judgments like Eros and Vidya Drolia. What can be said by looking at the judgments of courts in India is that the arbitrability of IP disputes largely depends upon the nature of claims raised.

Lessons from other countries

While arbitration of IP disputes in India is yet not fully permitted but using arbitration or other ADR methods to settle the IP disputes is getting popular and can be seen as the most desired choice of dispute settlement method in many parts of the world. It is clear that the use of ADR methods, especially arbitration, is rising in the global IP sphere and it is very evident from the rising number of cases filed in WIPO Arbitration and Mediation Centre. Today, arbitration is allowed in most economically advanced countries. Some of them are:

United Kingdom

The courts of the UK do recognise arbitrability of IP disputes especially in trademark and copyright-related disputes which are fully arbitrable.

Canada

In the case of Desputeaux vs. Éditions Chouette (1987) Inc., [2003] 1 SCR 178, the Supreme Court of Canada ruled that ‘The parties to an arbitration agreement have virtually unfettered autonomy in identifying the disputes that may be the subject of the arbitration proceeding’ which shows Canada’s pro-arbitration policy.

United States

Laws in the USA specifically state that parties can use arbitration as a disputes settlement method in patent disputes. Even though no statute in the US provides for arbitration in copyright disputes, the courts have held that copyright disputes are arbitrable.

Asia

If we look at Asia, the top three commercial hubs are Singapore, Hong Kong and India. India faces strong competition from these two countries when it comes to becoming the most favoured destination for MNCs to enter the market and conduct business. By carefully understanding and observing the rise in the use of ADR methods in IP disputes, Hong Kong recently in 2017 amended its Arbitration Law vide Arbitration (Amendment) Ordinance 2017 {Ord No. 5 of 2017}. According to Section 103C, disputes over enforceability, infringement, subsistence, validity, ownership, scope, duration or any other aspect of an IPR are now capable of settlement by way of arbitration. Another interesting provision i.e. Section 103D (4) states that recourse to arbitration would be possible even if the law of Hong Kong gives the jurisdiction to decide IPR dispute to any specific entity and even when the law does not expressly mention possible settlement of IPR dispute through arbitration. One more feature of this amendment is that the awards do not bind third parties (Including licensees) unless they are made a party to the arbitration proceedings. These features have made Hong Kong a favourable arbitration hub for China-related IP disputes.

Following Hong Kong, Singapore also amended their Arbitration law in 2019 through the Intellectual Property (Dispute Resolution) Act, 2019 (‘IPDRA’ for short). This Act brings all IP disputes including enforceability, infringement, subsistence, validity, ownership, scope, duration or any other aspect of IP rights under the scope of arbitration. An important feature which both the arbitration laws (Hong Kong and Singapore) inherits is that the arbitral awards are not deemed to be contrary to public policy solely on the basis that the subject matter relates to an IP rights dispute.

India is also trying out to be a commercial hub for many MNCs. Apple Inc. is planning on shifting its production base to India from China. Samsung is also planning to shift its production to India from Vietnam. In such a scenario, India needs to adopt a pro-arbitration policy in the field of IP disputes and could learn from other countries mentioned above. These countries have turned into a commercial hub for many MNCs and hence are climbing the charts to become more economically stronger. But as more and more companies enter the market of any country, they bring with them new Intellectual Property and disputes related to them. As these disputes are mostly cross-border, these countries have adopted a pro-arbitration policy in the field of IP disputes to provide such companies with speedy and efficient remedy, the confidentiality of disputes, technical and knowledgeable experts as arbitrators, all of which invites more and more companies to enter such countries which results in more economic growth.

In India, settlement through courts invites a lack of confidentiality of the party information but this is done keeping in mind the public policy and public interest in ‘right in rem’. Though arbitration is the method that provides confidentiality, it is very difficult to balance both aspects of confidentiality and public interest unless certain changes are made in our laws. Just like in The United States and Switzerland, arbitration law allows arbitration of IP disputes like patent or trademark infringement, validity and other aspects but a copy of such award passed in such disputes have to be compulsorily registered with the patent and trademark office. Until and unless this requirement is fulfilled, the award passed is unenforceable. Such provisions can be welcomed in India which will ensure a balance between the public interest in ‘right in rem’ and confidentiality.

Conclusion

Allowing arbitration in IP disputes will surely help the corporations as these IP disputes are generally cross-border disputes and mostly become international which requires speedy remedy. Today every economically strong country has allowed the use of arbitration in settling disputes regarding IP rights involving commercial interest. As India is growing into an economic powerhouse, Indian legislation needs to support the arbitrability of IP dispute schemes in India which will not only benefit the corporate to settle their disputes effectively but it will also be a step forward in making India an arbitration hub for many MNCs. By allowing arbitration in the dispute arising out of purely contractual matters while keeping the dispute regarding the validity or registration of IP non-arbitrable, the courts can maintain a fine balance between the rights of the inventor/owner and public interest. Thus it remains to be seen in which direction the Hon’ble Apex Court and other High Courts will lead the Indian arbitration-friendly regime.

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

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

Hindustan Unilever’s initiative to collect 100% plastic waste by the end of 2021

By

Abanti Bose

-

July 29, 2021

0

HUL_ (1) — Image Source: https://rb.gy/5gfrmn

This article is written by Vibhor Goel, pursuing Diploma in Business Laws for In-House Counsels from LawSikho.

Table of Contents

Introduction

Humans have forgotten that they share this world with a variety of plant and animal life forms, which are interdependent on each other for survival. The lifestyle we have adopted is killing our planet at a rapid rate and the majority of the human population is turning a blind eye to this issue. The earth is facing a plastic pandemic which is killing our plants and animals, affecting climate and marine life. This plastic pandemic has worsened in the past few years and at the rate at which it is growing, soon it will be too late to make a change. Plastic dumped in our oceans is choking marine life, tiny pieces of plastics can be found in fishes, the large plastic waste decomposes into smaller “Microplastics” and enters our food chain, spreading toxicity. This article discusses in detail the problem of plastic waste we face today and the major cause for it while shedding light on the amazing initiatives taken by Hindustan Unilever to tackle these issues.

The problems of plastic waste

Plastics are a form of synthetic or semi-synthetic material that can be moulded into various different forms shapes and sizes. This highly adaptable behaviour is further enhanced by properties like high durability, being lightweight, flexible and being very easy and inexpensive to manufacture. While new variations of plastics are now being made from biodegradable organic material, the majority of the plastics we see today are made from fossil fuel chemicals. Today, we see and use plastic in almost every part of our lives, from daily routine habits like brushing teeth to the devices we use for medical care.

The use of plastic generates plastic waste, and plastic is very resistant to the natural degradation process, i.e., it does not break down easily and is classified as non-biodegradable material. According to an article published on the WWF Australia Blog, a plastic bag can take up to 20 years to decompose, plastic straws can take up to 200 years, plastic water bottles and plastic cups can take up to 450 years and a plastic toothbrush can take up to 500 years to decompose.

This non-biodegradable plastic waste can be found in landfills and a large amount can be found in the world’s oceans. Once it enters the waterways, it can be carried across the globe harming a large number of ecosystems. We can take the example of Henderson Island that lies in the south pacific. It is an uninhabited island, not a single person lives there. However, one can find copious amounts of plastic waste on its beaches carried to it by the sea from all across the globe, including countries like the United States, Japan and Europe.

Most of the types of plastics we use today contain potentially toxic compositions and they may also release toxic substances as they decompose. A recent study that studied 34 everyday products has further strengthened this fact. Moreover, plastic waste is increasing at an exponential rate, so much so that half of all plastics that have ever been manufactured have been made in the preceding 15 years itself and the production is expected to be doubled by 2050. Plastic production began in the 1950s, but back then the production rate and waste generated thereof was manageable. The first global tally was in 2015 that estimated that an average of 8.8 million tons of plastic waste flows into the oceans annually and it is estimated that almost 1 Lakh animals die in the sea because of plastic each year.

1. Plastic waste in the FMCG sector

Fast Moving Consumer Goods or FMCG is India’s 4th largest financial sector. The FMCG sector is responsible for the production, distribution and marketing of fast-moving consumer goods which, as the name suggests, include all the fast-selling affordable products like packaged foods, toiletries, household cleaning products, personal care products etc. The FMCG sector is the major reason for plastic waste, not only does it generate plastic waste in terms of the product itself and its packaging, but the production of the goods also involves the generation of a lot of waste plastic. In the past few years, both the government and the people have become conscious of this issue and have started reusing, reducing and recycling these goods. Social media has become one of the major platforms through which activists have been able to spread awareness. Some people have started carrying reusable metal straws and some big establishments like Starbucks have switched from plastic straws to paper straws in many locations. When discussing plastic waste in the FMCG sector, one should be familiar with the concept of “single-use plastics”.

2. Single-use plastics

Single-use plastics are those items that are thrown away after a single-use. Examples of this would include milk packets, straws, floss, small plastic cups or bottles, polythene bags, disposable cutlery or plates etc. Single-use plastics are the main cause of plastic pollution, feeding the human need for convenience. People fail to see the long-term consequences of their actions; they see clean streets and assume that the waste is being taken care of. Companies fail to put in the effort required to make their practices more sustainable and safer for future generations. Besides the quantity of waste generated, many single-use plastic wastes are too small to be recycled (if proper recycling efforts are undertaken) or are easily disposed of in the wrong places. Tiny items like straws, snipped parts of a milk bag, toothpaste caps, toffee wrappers etc. can make their way into animal habitats and make the wildlife sick when they accidentally consume them. It has also been reported that marine life like sea turtles can sometimes mistake plastic bags for food like jellyfish and consume them.

3. Impact of COVID-19 on plastic waste

The COVID-19 pandemic has exacerbated the problem of plastic waste worldwide. The majority of the medical equipment like the syringes, medicine wrappers, oxygen masks etc. and personal protection equipment like masks, face shields, sanitiser bottles etc. are all made out of plastic. This sudden increase in single-use plastic materials can set back the years of progress that various nations and activists have made in environmental protection. According to a study, it is estimated that approximately 3.4 billion single-use face masks or face shields are discarded on a daily basis due to the COVID-19 pandemic.

India’s waste management efforts

India is conscious of the waste management issues that the world faces today and is doing its part to bring this issue under control. In 2014, the Indian government launched the “Swachh Bharat Abhiyan” or the “Clean India Mission” with an aim of eliminating open defecation in the country and also improving the solid waste management mechanisms. As part of the campaign, a large number of volunteers and NGOs worked together to educate people about the risks of open defecation and poor solid waste management, while the government provided subsidies for the construction of toilets and spread awareness through various means. The campaign led to the construction of over 10 crore toilets with over 6 lakh villages declaring themselves as open defecation free (ODF).

In 2016, the government revised the rules governing plastic waste management and released the Plastic Waste (Management and Handling) Rules 2016 which are the strictest measures taken against plastic waste. The rules have banned plastic that is less than 50 microns thick, in an effort to encourage the reuse and recycling of plastic. These rules have been extended to include rural areas as well and for the first time responsibility has been established for producers and individuals conducting any gatherings to properly dispose of the plastic waste generated. Only pre-registered vendors who have paid a certain registration fee will be allowed to keep plastic bags. In 2018, these rules were amended and the automation of the registration process was suggested while also stating that the “Multi-Layered Plastics” which have no alternate use, are non-energy recoverable and are non-recyclable have to be phased out.

A new set of draft rules have been drafted that plan to ban more single-use plastics by the end of 2022. The ban is going to be done in 3 phases, the first phase will involve a ban on plastics used in decorations like balloons, flags, thermocol and also candy, ice-cream and earbuds. The second phase will include a ban on certain items that are less than 100 microns in thickness and the third phase will be for items that are less than 240 microns in thickness. These rules look promising. The NGT had banned plastic cutlery in Delhi and the results have been good, practically it is not easy to find plastic cutlery in restaurants and a similar country-wide ban could make a huge difference, especially in the country with the world’s 2nd largest population. However, India has a long way to go and can take insights from other nations for the better implementation of these rules. For example, when France announced its plastic ban, it suggested alternatives to the products that they banned; in Rwanda, the plastic ban has been largely efficient to their strict enforcement of heavy penalties that also include jail time; Sweden has been the most successful in recycling trash, their system is so efficient and robust that they have now started importing waste for incineration. Apart from these unique efforts, many countries have also made it mandatory for vendors to charge a decent amount for the carry bags which encourages individuals to bring their own reusable bags from home.

India is notably one of the few countries aiming towards a ban on single-use plastics, which will lead to Indians having to carry their own carry-bags and straws. The public may face certain minor inconveniences, but these efforts and lifestyle changes will go a long way in ensuring a safe, clean and sustainable future for all of humanity. Besides these rules, the ban has many other moving parts like ensuring livelihood for waste pickers, identification of which single-use products to be banned (for which an expert committee is made), facing opposition from the plastics manufacturing industry, pressure from environmental activists and the NGT etc. Therefore, while the government is making efforts in the eradication of plastic waste, the companies and private individuals need to take initiatives themselves as well. In this respect, we can take the example of Hindustan Unilever.

Hindustan Unilever: Waste management efforts

Hindustan Unilever (HUL) is a consumer goods company that is also India’s largest FMCG company. The company has a very diverse range of products like skincare items, frozen food, cosmetics, oral care, soaps, shampoos, drinks, household cleaning products etc. Forbes has rated HUL as the most innovative company in India and the 8th most innovative globally. The company is headquartered in Mumbai and has given employment to over 21,000 employees. The company is also known for its efforts in environmental sustainability and one of the most popular initiatives it has taken is to collect and process more plastic packaging waste than it uses to ultimately achieve 100% plastic waste collection by the end of 2021. This initiative of achieving plastic waste neutrality is probably done for the first time by a large scale FMCG company.

1. Waste collection

It is reported that the company plans to enable the processing of post-consumer plastic waste. In a statement by HUL, the company plans to process over 1 Lakh tonnes of plastic waste from over 100 towns across India. This initiative is supported by the municipal corporations and the company is also reaching out to various commercial establishments and housing societies. For the successful completion of this initiative, the company has partnered with various organizations including CARPE, Plant Savers, Geocycle, Ramky Enviro etc. The international organization Xyneto and the United Nations Development Programme is also involved in this initiative.

Vanashakti, an environmental group, had submitted an application before the NGT in 2018, according to which Mumbai dumps almost 80-110 tonnes of plastic waste into water channels or drains. Which is an alarming number. Since 2018, HUL has ensured the safe disposal of over 1.2 lakh tonnes of plastic waste. The CEO of CARPE has said that the waste collection is also positively impacting the lives of the workers involved and HUL has been a pioneer in implementing EPR (Extended Producer Responsibility). HUL in its partnership with Xyneto and Maharashtra Education Department has also launched a digital curriculum in schools that aims to educate kids on the need for safe disposal of waste, collection and segregation of waste.

2. Smart fill machine

The most recent and innovative step towards HUL’s aim of plastic waste reduction is the “Smart Fill Machine” that will enable consumers to refill products in the same bottles and motivate them to reuse plastic bottles. The first machine has been installed in a Reliance Smart store in Mumbai. To incentivize the consumers, the company is offering a discount of Rs. 30 on the MRP or effective store price if they get their own bottle and a discount of Rs. 15 to those who opt to purchase the “Smart Fill Bottle”. The consumers can at this point use these benefits on Surf Excel Liquid, Comfort Fabric Conditioner and Vim Dishwash Liquid Gel.

3. Other HUL goals

HUL has many other initiatives in the works for a more sustainable and green future. By 2025 they plan to half the amount of virgin plastic used in their packaging and increase the recycled plastic material content to 25%. They also plan to help collect and process more plastic packaging than they sell by the same year and design all their plastic packaging to be fully reusable, recyclable or compostable. Besides plastic packaging, HUL is taking big steps to reduce food wastage, protect and regenerate nature, positive nutrition, raise living standards, tackle climate change etc. All their initiatives and goals can be found by visiting their website here.

Conclusion

Apart from HUL, many other companies have started taking steps to fight plastic pollution in their own way. Nestle India has already reached plastic neutrality and Dabur is on its way to do the same. ITC is also taking steps to collect plastic waste and is expected to collect more than 28,000 tonnes of waste in 2020-21. While the big companies have started doing their part in environmental conservation, we the consumer need to make a conscious effort to help them as well. We need to favour reusable products, segregate our waste for proper recycling and properly dispose of even the smallest piece of waste that we come across. We need to ensure that the societies we live in have proper waste management systems and educate other consumers to make environmentally friendly choices. We need to welcome any policy to ban single-use plastics and even without such policies, we need to phase out the use of single-use plastics from our lives. We can have a much better planet if we can find it in ourselves to make some minor changes in our daily routines, which will ensure better living standards for all and the proper allocation of resources elsewhere.

References

https://www.wwf.org.au/news/blogs/the-lifecycle-of-plastics#gs.6evf8o

https://www.consumerreports.org/toxic-chemicals-substances/most-plastic-products-contain-potentially-toxic-chemicals/

https://www.nationalgeographic.com/science/article/henderson-island-pitcairn-trash-plastic-pollution

https://www.nationalgeographic.com/environment/article/plastic-pollution

https://www.bbc.co.uk/newsround/42810179

https://www.sciencedirect.com/science/article/pii/S2405844021004485

https://en.wikipedia.org/wiki/FMCG_in_India#Increase_in_number_of_government_initiatives

https://www.ibef.org/industry/fmcg.aspx

https://www.nrdc.org/stories/single-use-plastics-101

https://www.seeturtles.org/ocean-plastic#:~:text=Plastic%20 bags%20 are%20 petroleum%2Dbased%20and%20do%20not%20biodegrade.&text=Sea%20turtles%20and%20other%20 marine,digestive%20system%20and%20eventual%20death

https://scroll.in/article/997764/how-india-is-planning-to-get-rid-of-single-use-plastic-starting-next-year

https://www.hul.co.in/about/hul-at-a-glance/

https://www.business-standard.com/article/companies/hindustan-unilever-aims-to-achieve-100-plastic-waste-collection-in-2021-121022601306_1.html

https://www.greenqueen.com.hk/plastic-neutral-fmcg-hindustan-unilever-to-achieve-100-plastic-waste-collection-in-2021/

https://www.hul.co.in/planet-and-society/

https://www.businessinsider.in/advertising/brands/article/hindustan-unilever-limiteds-prabha-narsimhan-shares-latest-steps-that-the-company-has-taken-towards-sustainability-to-achieve-its-goal-of-100-plastic-waste-collection-by-the-end-of-2021/articleshow/84268609.cms

https://www.unilever.com/planet-and-society/waste-free-world/strategy-and-goals/

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Drafting the key clauses of Sula Vineyard’s web development agreement

By

Abanti Bose

-

July 29, 2021

0

SulaVineyardswithWineTastingDayTourfromMumbai — Image Source: https://rb.gy/1elpou

This article is written by Arushi Agarwal, pursuing Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.

Introduction

The internet has witnessed a boom with exponential growth in the number of both businesses as well as customers since the beginning of the 20th century. Today we see a huge number of people associated with diverse fields using all kinds of websites on a daily basis. This ever-increasing dependence has pushed people to learn to create and maintain websites, therefore, “What is website development? And what is its significance?” are commonly asked questions.

The development of a website commonly referred to as ‘web development’ is the process of building and maintaining websites. All the work that happens behind the scenes in order to provide a great user experience in terms of content, speed and accessibility of the website collectively refer to the process of website development. It includes aspects such as web designing, web programming, web publishing and database management. The professionals engaged in this kind of work are known as web developers. A web developer or a web programmer is a person who takes web design and turns it into a website.

The process of web development includes various types of web content creation such as building a website in a program, updating blogs through blogging websites, hand-coding web pages in a text editor etc. Content management systems such as WordPress, Drupal, and Joomla have become popular means of web development in recent times.

What is a website development agreement?

A website development agreement is an agreement between a web developer and a business under which a developer agrees to create one or more websites or web applications for a business. It covers the ambit of the services that the developer intends to or shall provide to the business. It elucidates the project timetable, duties and liabilities of the parties, terms of payment, the deliverables, assignment of intellectual property rights, termination conditions etc. The main objective of having a website development agreement is to ensure that the business gets the website created that it requires by assigning the responsibility to the web developer to create the website as per the requirements and specifications of the business. Such an agreement is governed by the Indian Contract Act, 1872 along with Copyright Act, 1957; Information and Technology Act, 2000; etc.

About Sula Vineyards

Nashik located in northern Maharashtra is popularly known as “Napa Valley of India” as it shares a climate similar to that in Napa Valley which is the wine capital of the world. Nashik is considered the perfect location for setting up vineyards and wineries. Nashik in recent years has also become the hub of wine tourism in India due to several big brands such as Sula, York and Soma opening their doors for people from all over India and the world to the intricate process of making some of the best Indian wines. India is one of the largest alcoholic beverage markets in the world.

Sula Vineyards is the brainchild of Rajeev Samant, a former employee of Oracle. In 1993, Samant set out an entrepreneurial venture by using his father’s 20-acre land in Nashik to grow mangoes but this venture was met with failure. Then he tries his luck on the cultivation of teak wood which also met a similar fate. After failure success knocked at his door in the form of wine production when he found an uncanny resemblance between Dindori hills’ landscapes of Nashik in India and those at Napa Valley in California. His research made him realize that these hills could be used to cultivate wine-producing grapes while everyone is following traditional table grape production.

The aim of Sula has always been to target the growing number of wine consumers in India and to promote its own premium wine. Over the years, Sula has grown to become India’s leading wine producer. With its presence known in 32 states across India, the company is presently the biggest wine producer in India occupying over 65 per cent of the market share. Sula wines also export to 20 countries across the globe including Japan, the USA and UK.

Why do Sula Vineyards require to make a web development agreement?

In this vast ocean of the World Wide Web (www), these websites enhance the presence and working of businesses and become the door to this huge online world. To keep pace with such a world of dot coms and dot ins, it has become very essential to have an agreement that helps a web developer and its client by protecting them from any legal fiasco. A well-negotiated, well-drafted, and legally valid agreement is a must for a hassle-free, business ride while a company takes off its success ladder.

It is an efficient way to develop websites because professionals are hired to do the job. This helps in saving time and provides clarity in understanding the scope of service and deliverables. This Agreement will ensure that the confidential information of the Sula Vineyards is protected as the developers are restricted to share such information with third parties. It will also ensure the efficient and proper functioning of the website as per the changing needs and demands of the business platform.

The website will ensure the brand credibility of the Sula Vineyards and will help in showcasing the products and services in the best way possible.

Important clauses of the website development of Sula Vineyards

1. Description of the project

Mention the details of the system that the operator and the company have mutually agreed upon. In this clause, the company should mention what all it desires to be delivered and implemented by the operator for use by the company on the company website.

2. Engagement of operator

Under this clause, it should be mentioned that the company has engaged the operator to provide services and related materials, which is subject to the terms and conditions of the agreement. This clause can also mention that the operator has agreed to provide services, as reasonably requested, during the term of this agreement and for as long as it continues to derive revenues from changes reasonably requested by the company.

3. Development of the company website

This clause should mention the obligation on the operator to provide services in connection with the development of the website which is approved by the company and this includes other services and programming activities which may be required by the company from time to time. The creative and design work including any new work shall be subject to the prior written approval of the company. Such services, materials and equipment shall include, without limitation:

Designing, creating and testing the company website, which should contain the content of the site, menus, cross-reference, hypertext, other organizational features and computer source code and related to the development and implementation of these elements.
Providing technical and creative assistance, materials, and services to upgrade or modify the company website.
Developing and implementing plans to promote and publicize the company website in appropriate forums, such as indexing services.
Providing general technical and support services for the operation of the company website on the webserver operated by the operator for the company website.
If any defects or errors are discovered, the operator will immediately correct the same at its own cost and expense.

4. License grant

This clause mentions the term of the agreement for which the operator grants to the company a non-exclusive right and license throughout the world to copy, distribute, transmit, display, perform, and otherwise use and exploit the operator technology, in whole or in part, its affiliates, and its clients with respect to the ordering, sale and distribution of the company’s and its client’s products and services.

5. Term of the agreement

Initial Term: Under this, mention the initial term of years for which the agreement shall remain in full force from the date of the commencement of the agreement. The date of commencement of the agreement is the date on which the agreement is executed by both parties.
Automatic Renewal: The additional “Extended Terms” of years should be mentioned after the expiry unless either party notifies the other in writing of its intention not to renew the agreement. The time period for giving such notice prior to the expiration of then-in-effect. Terms should be added because this will ensure certainty and reduce transaction costs of entering into negotiations for renewal in future, which may subject the entire contract to renegotiation and erode the value for any one or both parties.

6. Project management

The company and the operator have to appoint one individual as ‘Project Manager” and such project managers will be deemed to have authority to perform the management duties, which should be described in the agreement. All communications relating to the agreement have to be conducted through the respective project managers. This is a unique clause in this agreement because e-commerce website development is a huge and highly technical exercise.

7. Personnel resources

All services rendered by the operator in connection with the project like a recommendation, selection, system implementation etc. should be performed by the qualified personnel selected by the operator. The operator is bound to have the requisite expertise to perform the tasks assigned under the agreement and the company shall have the power to replace such person appointed if it is not satisfied with that person.

8. Operator software and the technology

The operator shall provide certain object codes which will be used in conjunction with the project and all the related intellectual property rights. From an operator’s perspective, all rights in the operator software and the operator technology could be owned by the operator especially in a revenue-sharing model, including all the changes and additions made during the term of the agreement by any party.

The developer/operator should also furnish to the company the copies of the web pages, and any supporting documentation in the user’s possession or control, relating to the operator software at the company’s request, including any updates or revisions to such materials.

9. Final acceptance

The company should accept the agreement only when the system is in line with specifications provided by the company. If any defects and/or deviations are found in the operator software or if it doesn’t comply with the specifications, the company should promptly notify the operator of such defect. The operator should cure the defect and should again demonstrate and test the operator software until it is free of defects. The company should send a notice when it accepts the operator software subject to any latent defects and terms and conditions of the agreement.

10. Compensation

In exchange for all services, materials and equipment and all rights granted by the operator to the company under the agreement, the company agrees to compensate the operator as follows:

A percentage of the royalty/net profits/ net revenues of online revenues of the company during the period of time beginning on the date of the first commercial online transaction consummated through the company website.
The royalty and net profits should be calculated on a quarterly calendar basis and should be payable within a particular time period after the termination of the preceding full semi-annual period.
This clause should also mention that during each calendar year the company should pay the operator a guaranteed minimum payment which may be credited against the company’s financial obligations to the operator. The guaranteed minimum payment should be calculated at the end of each calendar year.
The amount and the terms for the compensation to be provided by the company to the operator shall be defined clearly.

11. Record inspection and audit

This clause mentions the right of the operator to inspect the company’ books at any time. The operator should have the right to inspect the company’s books and records and all other documents and materials in the company’s possession or control with respect to the subject matter of the agreement, upon reasonable notice, to verify the calculation of sales and royalties. It may insist on a surprise inspection also.
If such inspection reveals an underpayment by the company of the actual monies owned by the operator, the company should pay the difference, plus interest calculated at the agreed percentage.
All books and records related to the company’s obligations should be maintained and made accessible to the operator for inspection for at least a few years after the termination of the agreement.

12. Ownership and assignment of rights

The rights related to the operator software and operator technology and every other right should be owned by the operator. This clause records the following:

Each party shall have intellectual property rights with respect to its brands and trademarks. The developer will not have any rights to the trademarks of the company. It may, however, request that it can use the company’s logo in its marketing materials if the project is successfully executed.
The parties will not challenge each other’s intellectual property rights and are free to independently prosecute any third party for violation of their own intellectual property rights.
From the website’s perspective, the clause must clarify that there will be a transfer of IP in the ‘work’ developed by the developer, to the company.
The clause must provide clarity on whether the developer can work with companies in a similar sector as the e-commerce company or not.

13. Representations and warranties

This clause mentions the representations and warranties made by the operator with respect to the software so provided and towards the third party.

Key representations that website developers must make to the company are:

That the software is free from defects.
That it is compatible with the hardware configuration of the company and other systems it will run on.
That both the parties have authority to execute the agreement.
That the software does not have any limitations that will erase it or limit its use.
That no third-party rights are infringed upon the performance of the contract by the developer.

14. Indemnity

This clause mentions the obligations on a party to indemnify the other party in case of negligence by it and obligations of both the parties to pay against the third party’s claim.

15. Termination

Termination rights are available with both parties including immediate termination and termination on notice. Upon expiration or termination of the agreement, the company may take possession of all copies of the web pages and at least one copy of the operator technology, all of which the operator agrees to deliver to the company promptly upon the company’s request, notwithstanding any dispute between the company and the operator.

16. Jurisdiction/disputes

This clause mentions the name of the State under which all disputes under this agreement should be resolved by the litigation should be mentioned.

17. Agreement binding on successors

The provision of this agreement shall be binding on the successors, heirs or assigns.

18. Assignability

Neither party shall assign this agreement to any other party without the prior permission of the other party.

19. Waiver

Effect of the waiver by either party of any default of any provision of the agreement.

20. Severability

If any provision of the agreement is held invalid, what will be the effect of it on the other provision of the agreement should be mentioned under this clause.

21. Integration

This agreement should be considered final and should supersede all the prior agreements.

Conclusion

In order to make the website development project a success, it is crucial that the parties negotiate an agreement that clearly outlines their rights, responsibilities and guide the path to deal with issues as they arise. The parties must use a competitive bid process as this process will allow the business to fix the terms of negotiation by including a draft agreement in its request for bids. It will help the business to identify the vendors that are willing to agree to its terms. It is also very crucial to be aware of whether the business requires a custom website or a standard template would suffice? Whether the business requires a contract for web hosting, maintenance, and support or it has the capability to maintain its web presence? The answer to the above questions would dictate a business’s approach to negotiate for its website development agreement, the agreement should clearly define the scope of services provided, including deliverables, customer requirements and milestones because all such definitions would become the measuring stick for the parties’ performance.

Another important point to be remembered while negotiating the website development agreement is that even when the developer may constantly insist on retaining ownership to a few software codes used to create the website a business shall ensure that it acquires the broad license to use all the software that may be necessary for the operation of its website. The company shall have ownership of the unique viewable aspects of the website and any custom software codes developed uniquely for that website. A confidentiality provision shall be added to the agreement to protect the divulsion of any sensitive information during the course of the project.

It is very essential for a website owner to appoint or retain a trustworthy project manager that keeps the project on track and resolve issues on a timely basis. The website owner should institute a clear change order process in the agreement in order to maintain control over the performance of the agreement.

It is also necessary that the representations and warranties provided by the developer shall be carefully reviewed by the website owner. It is necessary to ensure that the developer promises and delivers a website as per the specifications stated in the agreement and warrants that he/she will rectify the defects found in the website once it is ready. A developer shall also warrant that the website does not infringe the IP rights of a third party. In case of infringement, the developer shall indemnify the website owner to the extent of the IP clause made by the third party.

References

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The impact of COVID-19 on micro, small and medium enterprises and the way forward

By

Rachit Garg

-

July 28, 2021

0

This article has been written by Mehreen Garg.

Table of Contents

Introduction

As the World Health Organisation (WHO), on 11th March 2020 announced the COVID’19 crisis to be a global pandemic, there has been a high alert worldwide in order to contain the widespread of the disease. The unprecedented disruptions caused globally due to the Coronavirus outbreak (COVID’19), not only affected our social environment but also our political and economic environment. According to Aljazeera, over 188 countries have been confirmed to have been massively affected by the outbreak.^[1] Like these affected countries, India has been far from untouched by this pandemic. At the time of writing in November 2020, COVID’19 has wreaked havoc worldwide with over 58,229,138 confirmed cases and approximately 1,382,106 deaths.^[2] The outbreak has unquestionably been unnerving for not just human life but also global economics. Due to this tragedy, a massive number of countries have suffered through a lockdown period where most of the social life and economic activities in the country were brought to a halt in order to prevent a community spread of the disease. India too was shut down due to this outspread through the government’s Notification No. 40-3/2020-DM-I(A) as passed on 24th of March 2020.

The halt of social and economic activities worldwide subsequently had a direct effect on companies in almost every economic sector. This global lockdown (or also called the Great Lockdown) has not just affected global commerce chains but has also led to a collapse in the financial markets and commodity prices worldwide.^[3] Businesses over the last few months have had to resort to making extremely tough financial decisions as they suffered the impact of this unforeseen calamity. The pandemic has proven difficult the profit earning capacity whereas with regards to numerous companies, even the mere survival of most businesses to be of utmost difficulty. This crisis has led to massive disruption in the daily workings and activities of enterprises, from setting up remote operations reorganizing supply chains which has led to the contractual parties failing to meet their obligations. Fortunately, it can be said failure to meet one’s contractual obligation during this tragic crisis can be counted under Force Majure.^[4] In furtherance of the ongoing global crisis, following the announcement of the finance minister of India as on 24th March 2020 under “Atma Nirbhar Bharat Abhiyaan”^[5], to ease the companies during this highly distressed time, the Ministry of (MCA) issued a circular announcing multiple required measures for Indian Companies.

These measures included relaxation in independent director meetings, relaxation in holding board meetings, allowing delayed fillings for a certain time period and other miscellaneous provisions to be implemented by companies in India.^[6] According to a United Nations Economic and Social Council (ECOSOC) report, small and medium enterprises have endured the worst effect of the pandemic.^[7] After the agricultural sector, the Micro, Small and Medium Enterprises (MSME) are the largest generator of employment in India and play a key role in supporting and uplifting the business environment in the country. Despite 16 years of the MSMED Act regulating MSMEs, these industries still face huge obstacles on a daily basis due to lack of adequate infrastructure, inadequate financial literacy and various other reasons.^[8]

This paper aims to discover and analyse the impact of COVID’19 on companies in different Micro Small Medium Enterprises in India while also including the various amendments and the changes introduced in the Insolvency and Bankruptcy Code, 2016 during the pandemic.

Research Question

Are the measures that were taken by the Indian government during the initial period of the lockdown due to COVID’19, enough to save the micro small medium enterprises not just from short term impacts but also from the long term ripple effects which are predicted to occur due to the fall of the economy during the pandemic.

Impact of COVID’19 on the Micro, Small Medium Enterprises (MSME) in India

According to the World Health Organisation’s updates, India has had over 9,139,865 confirmed cases along with approximately 133,738 deaths.^[9] This shows how massive the impact of COVID’19 has been on the health of the large population in the nation. In a country such as India, which has a massive population of daily wage and migrant workers, the COVID’19 pandemic has proved to affect the MSME the worst as these stranded workers all over the country proceed back home to escape the cruelty of the lockdown on their daily life. Given the nature of the MSMEs, the imminent threat of insolvency is constantly hovering over these MSEMEs. Before the pandemic the MSMEs already had a variety of survival issues to concern themselves with, such as the capacity utilization and generation of revenue effectively declining.^[10]

Steps taken to protect MSMEs in India during COVID’19

Amendment to Section 4 of the IBC– Increasing the threshold limit for CIRP from One Lakh to One Crore:

Days after the announcement of the lockdown, Smt. Nirmala Sitaram, the Union Finance Minister of India announced that the government will be working on incentives to overcome the challenges and setbacks faced by the businesses in the country due to the pandemic.^[11] One such incentive by the MCA was the amendment of Section 4 of The Insolvency and Bankruptcy Code (IBC) of 2016 vide Notification No. REGD.NO.D.L-33004/99 where the limit to initiate the resolution process of corporate insolvency was altered to one crore rupees from the initial amount of one lakh rupees, taking effect from the 23rd of March 2020.^[12] The same was recommended by the 3rd Annual Insolvency Law Committee Report in order to reduce the number of insolvency cases pending in the NCLT due to the pandemic. The issue that arises with this particular application is that in case the IBC fails to equally help the corporate creditors recover their dues from the corporate debtors due to the raised threshold, these creditors are in lieu of becoming debtors themselves. This results in an endless cycle of litigation and financial distress for the corporate creditors in order to obtain their dues and make them incapable of returning dues owed by them to their creditors.^[13]

In case this happens, it becomes against the objective of the IBC. Another issue that arises here is that there was no mention of the order having a retrospective effect in this notification. This means that the new threshold amount will not be applicable for those applications seeking commencement of Corporate Insolvency Resolution Process (CIRP) before 24th of March 2020 and they will instead have to follow the previous threshold for Rupees One Lakh.^[14] Whereas those applications filed after the announcement of this notification will have to adhere to the new threshold of Rupees One Crore.

Addition of Section 10A to the IBC- Suspension of Section 7, 9 and 10 of the IBC for a period of one year

Analysing this amendment to the Section 4 of the IBC, we see that there is a direct effect on Section 7, Section 9 and Section 10 of the IBC which focus on the application filings before the addition of Section 10A to the Insolvency and Bankruptcy Code of 2016 which suspends the application of Section 7, 9 and 10 for a period of one year:

“10A. Suspension of initiation of corporate insolvency resolution process.

Notwithstanding anything contained in Sections 7, 9 and 10, no application for initiation of corporate insolvency process of a corporate debtor shall be filed, for any default arising on or after 25th March, 2020 for a period of 6 months or such further period, not exceeding 1 year from such date, as may be notified in this behalf:

Provided that no application shall ever be filed for initiation for corporate insolvency resolution process of a corporate debtor for the said default occurring during the period.

Explanation: For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply to any default committed under the said sections before 25th March, 2020.”^[15]

Insertion of Section 40C to the IBC- Excluding the period of lockdown from the CIRP timeline of 330 days:

Another provision added to the IBC as a measure to protect small businesses during the pandemic is Notification No. IBBI/2019-20/GN/REG059 which was announced on 29th of March 2020.^[16] This Notification provides for the insertion of Section 40C in the IBC to exclude the period of lockdown during the pandemic from the timeline for the insolvency resolution process of 330 days as mentioned in Section 12(3) of the IBC.^[17] The notification reads as:

“40C. Special provision relating to time-line. Notwithstanding the time-lines contained in these regulations, but subject to the provisions in the Code, the period of lockdown imposed by the Central Government in the wake of COVID19 outbreak shall not be counted for the purposes of the time-line for any activity that could not be completed due to such lockdown, in relation to a corporate insolvency resolution process.”^[18]

In furtherance of this amendment to the IBC, the National Company Law Tribunal passed two orders through a Suo Moto – Company Appeal (AT) (Insolvency) No. 01 of 2020 on 30th of March 2020 upheld the decision of the IBC in its first order order:

“(1) That the period of lockdown ordered by the Central Government…shall be excluded for the purpose of counting of the period for ‘Resolution Process under Section 12 of the Insolvency and Bankruptcy Code, 2016, in all cases where ‘Corporate Insolvency Resolution Process’ has been initiated and pending before any Bench of the National Company Law Tribunal or in Appeal before this Appellate Tribunal.”^[19]

This blanket ban has been deemed to be extremely helpful to small businesses and corporate debtors. However, it must also be noted that the government with this provision overshadowing Section 12(3) of the IBC and not mentioning a retrospective effective, failed to identity that corporates already going through the Corporate Insolvency Resolution Process will suffer huge monetary crises and will be expected to follow the given legal time frame of 330 days. We must also keep in mind the overburdening and massive rush of application and cases that will follow through after the uplifting of this blanket ban. The provision, by removing the time binding factor for the maximisation of the value of the assets of the creditors seems to raise a question on the validity and fundamentality of the principles that the IBC is founded upon.

Measures taken by governments to cope with the impact of COVID’19 on MSME Internationally

According to Winslow Sargeant, Ph.D, Incoming President of ICSB, “Micro-, Small and Medium-Sized Enterprises (MSMEs), the core of each economy”.^[20] MSME represents over 70% of the world’s employment as well as 50% of the global GDP.^[21] Keeping this significance in mind, the United Nations General Council (UNGA) recognizes the role MSME’s play in creating employment opportunities and acting as the backbone of the world’s economy.^[22] To create awareness amongst the public about the role of MSME in the development and growth of the economy and the vulnerable sectors on a wide scale, the UNGA declared the 27th of June as the MSME Day globally.^[23]

United States of America

As recorded by the World Health Organisation’s COVID’19 tracker, the United States of America has had around 11,972,556 confirmed cases and 253,931 deaths.^[24] According to a report on the state of small businesses in the United States of America collected by Facebook in april 2020 for small business owners or managers, it is evident that the SME in the States have taken a huge hit due to the COVID’19 pandemic.^[25] Facebook conducted this survey for over 86,000 such people and came to the conclusion that approximately 31% of the MSME in the United States have been forced to shut down due to lack of finances or lack of consumer demands. This pandemic proved to be worse for those owning personal businesses and services such as hotels, restaurants, fitness etc.^[26]

Due to these significant losses faced by small companies due to te pandemic, the President of USA at the time, Donald Trump on 27th of March 2020 passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide aid and shelter to Americans from the health and economic ill effects on the pandemic.^[27]

Under this Act, the U.S. Small Business Administration (SBA) with support from the Department of the Treasury introduced certain programmes to aid these enterprises.^[28] Some such major programmes were:

Paycheck Protection Program: Under this scheme, the SBA will forgive loans in order to aid Small Business and Non Profit Organisations in paying their employees. ^[29] Only companies employing less than 500 people can apply for this program. However, in case a small business avails the benefit of this loan, it cannot further enjoy the perks of employee retention tax credits or social security taxes.^[30] Moreover, this amount will be counted in the gross income.
Economic Injury Disaster Loan: The scheme was designed to grant to assist micro and small businesses in overcoming losses in their revenues due to the pandemic.^[31]
Employee Retention Tax Credits: This programme is applicable to the small businesses who have suffered heavy negative impacts of the pandemic and were forced to either temporarily or permanently shut down due to government orders. However, businesses which have been granted the PPP loan are not applicable to apply for this programme.

France

Similarly, on 23rd of March 2020 the government of France decided to adopt certain schemes and regulations under “Emergency law to cope with the Covid 19 epidemic” in pursuit of coping with the distress caused to MSMEs during the COVID’19 pandemic and helping them retain their businesses during this stressful situation. These regulations are ‘n° 2020-320’ and ‘2020-318’^[32] dated 25th of March 2020 with the objective of adapting the rules regarding corporate meetings, approvals and filings of accounts or managerial documents to better fit the ill circumstances.^[33]

Singapore

In order to aid the citizens and businesses of Singapore during this unprecedented time of the pandemic, Singapore introduced a new act on the 7th of April 2020 called the ‘COVID’19 (Temporary Measures) Act 2020’.This Act was introduced to specifically assist those unable to oblige with the terms of their con//tracts and agreements. Singapore has also, similar to India, increased the insolvency threshold and has also increased the time limit to satisfy the statutory demand from 21 days to 6 months.^[34]

Conclusion

It is fairly evident that this unprecedented situation brought upon by the COVID’19 pandemic has pushed nations and governments into taking excessive steps in order to protect the safety of the people as well as the economy. MSMEs play an extremely important role in upholding and running the economic environment of any nation. Thousands of MSMEs in India have been forced to close shop and shut down due to the lack of finances and demand during the pandemic regime. It is necessary for the governments to especially focus on this section of the economy in order to ensure a smooth functioning and well-backed economic situation in the coming years. Despite various notifications and orders provided by the government for Insolvency during the pandemic, there exist multiple ambiguities and confusions regarding the application of these orders in accordance with the existing laws.

One ambiguity that rises with respect to this is that in order to protect the MSMEs from various economic consequences the government passed various orders altering the application of the Insolvency and Bankruptcy Code of 2016, however, there was no involvement of section 240A of the IBC which specifically focuses on the application of the IBC on MSMEs, despite the Finance Minister Nirmala Sitharaman announced that a special insolvency framework will be introduced under his this section. These orders also fail to identify the nature and time period of defaults by a corporate debtor i.e. whether the default was caused directly due to and during the pandemic crises. Another confusion that has been created by these orders is the time period for the applicability of these orders. Although it has been announced that these orders and notifications are pertinent for a temporary term, the stretch and duration of this temporary period is still unclear.

The government needs to make sure that it provides an equal footing to both corporate creditors and debtors instead of tilting the scales towards the debtors. Unless these confusions are cleared by the government soon, it falls upon the country’s tribunals and courts to interpret the solution to these ambiguities and provide us with some relief. We can also see that some of these leeways and orders for insolvency provided for by the government during this unprecedented time of crises are contradictory to the core principles upon which the Insolvency and Bankruptcy Code is based and need to be altered or dealt with fairly after the pandemic.

References

[1] Al Jazeera. (2020, September 19). Coronavirus: Which countries have confirmed cases? News | Al Jazeera. https://www.aljazeera.com/news/2020/01/countries-confirmed-cases-coronavirus-200125070959786.html.

[2] WHO Coronavirus Disease (COVID-19) Dashboard. covid19.who.int/.

[3] The Great Lockdown: Worst Economic Downturn Since the Great Depression. IMF Blog. (2020, April 21). https://blogs.imf.org/2020/04/14/the-great-lockdown-worst-economic-downturn-since-the-great-depression/.

[4] Trilegal. “COVID-19 – Key Issues Faced In The Technology Sector – Coronavirus (COVID-19) – India.” Welcome to Mondaq, Trilegal, 5 May 2020, www.mondaq.com/india/litigation-contracts-and-force-majeure/927986/covid-19–key-issues-faced-in-the-technology-sector.

[5] IBC Laws. “The IBC 2016 & MSMEs: What the Future Holds? – By Nandani Anand.” IBC Laws, 5 July 2020, ibclaw.in/the-ibc-2016-msmes-what-the-future-holds-by-nandani-anand/.

[6] Lam, Niloufer. “CoVID 19: MCA Relief Package For Indian Companies – Corporate/Commercial Law – India.” Welcome to Mondaq, ZBA, 28 July 2020, www.mondaq.com/india/directors-and-officers/969838/covid-19-mca-relief-package-for-indian-companies.

[7] United Nations, “Responding to the socio-economic impacts of COVID-19”, March 2020

https://www.un.org/sites/un2.un.org/files/sg_report_socio-economic_impact_of_covid19.pdf

[8] IBC Laws. “The IBC 2016 & MSMEs: What the Future Holds? – By Nandani Anand.” IBC Laws, 5 July 2020, ibclaw.in/the-ibc-2016-msmes-what-the-future-holds-by-nandani-anand/.

[9] “India: WHO Coronavirus Disease (COVID-19) Dashboard.” World Health Organization, World Health Organization, covid19.who.int/region/searo/country/in.

[10] Sahu, Kailash Kumar, and Pushkar Dubey. “(PDF) MSMEs in COVID-19 Crisis and India’s Economic Relief Package: A Critical Review.” ResearchGate, Unknown, 16 Aug. 2020, www.researchgate.net/publication/343682950_MSMEs_in_COVID-19_Crisis_and_India’s_Economic_Relief_Package_A_Critical_Review.

[11] Parwani, Ashish. “IBC Amendments And Its Impact In The Wake Of Covid-19 – Coronavirus (COVID-19) – India.” Welcome to Mondaq, Rajani Associates, 8 June 2020, www.mondaq.com/india/operational-impacts-and-strategy/949132/ibc-amendments-and-its-impact-in-the-wake-of-covid-19-.

[12] Ministry of Corporate Affairs, Notification_28032020, March 2020

http://www.mca.gov.in/Ministry/pdf/.pdf

[13] Seemanh, Anvit “Suspension of IBC during COVID-19: A Mere Mask While What Is Needed Is a Vaccine- By Anvit Seemansh.” IBC Laws, 26 May 2020, ibclaw.in/suspension-of-ibc-during-covid-19-a-mere-mask-while-what-is-needed-is-a-vaccine-by-anvit-seemansh/.

[14] Kumar, Rahul. “Impact of COVID-19 on Insolvency and Bankruptcy Code, 2016: Relief(s) & Implication(s) – By Rahul Kumar.” IBC Laws, 10 July 2020, ibclaw.in/impact-of-covid-19-on-insolvency-and-bankruptcy-code-2016-reliefs-implications-by-rahul-kumar/.

[15] Insolvency and Bankruptcy Code, 2016

[16] Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate

Persons) (Third Amendment) Regulations, 29 March 2020.

https://www.ibbi.gov.in/uploads/whatsnew/be2e7697e91a349bc55033b58d249cef.pdf

[17] Insolvency and Bankruptcy Code, 2016

[18] Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate

Persons) (Third Amendment) Regulations, 29 March 2020.

https://www.ibbi.gov.in/uploads/whatsnew/be2e7697e91a349bc55033b58d249cef.pdf

[19] Insolvency and Bankruptcy Board of India. ibbi.gov.in/uploads/order/0fd02d6fd104fcdd63936eb4cb23021b.pdf.

[20] International Council for Small Business, “ Annual Global Micro-, Small and Medium -Sized Enterprises Report”, 27 June 2020

[21] MSME Day 2020: the COVID -19 Pandemic and Its Impact on Small Business, 26 June 2020, www.ilo.org/empent/whatsnew/WCMS_749275/lang–en/index.htm.

[22] “Micro-, Small and Medium-Sized Enterprises Day.” United Nations, United Nations, www.un.org/en/observances/micro-small-medium-businesses-day.

[23] United Nations General Assembly. Resolution Adopted by the General Assembly on 6 April 2017. 11 Apr. 2017, undocs.org/A/RES/71/279.

[24] “United States of America: WHO Coronavirus Disease (COVID-19) Dashboard.” World Health Organization, World Health Organization, covid19.who.int/region/amro/country/us.

[25] Facebook, “ Small Business Report”, 2020

https://about.fb.com/wp-content/uploads/2020/05/SMBReport.pdfhttps://about.fb.com/wp-content/uploads/2020/05/SMBReport.pdf

[26] Chacs, Benjamin. “Small Business Challenges During COVID-19 (+ How to Overcome Them).” Later Blog, 22 June 2020, later.com/blog/small-businesses-challenges/.

[27] The Coronavirus Aid, Relief, and Economic Security (CARES) Act, 2020

[28] COVID-19 Resources for Small Businesses, www.sba.gov/blog/covid-19-resources-small-businesses.

[29] Paycheck Protection Program, www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program.

[30] Henrik Patel Richard Smith Edward So Hagai Zaifman Matt Reznick. “Help on the Way: CARES Act Benefits Small Businesses.” White & Case LLP, 4 Apr. 2020, www.whitecase.com/publications/alert/help-way-cares-act-benefits-small-businesses.

[31] Economic Injury Disaster Loans, www.sba.gov/funding-programs/loans/coronavirus-relief-options/economic-injury-disaster-loans.

[32] “Report to the President of the Republic Relating to Ordinance No. 2020-320 of March 25, 2020 Relating to the Adaptation of the Deadlines and Procedures Applicable to the Establishment or Modification of an Electronic Communications Installation in Order to Ensure the Operation of Electronic Communications Services and Networks.” Rapport Au Président De La République Relatif à L’ordonnance n° 2020-320 Du 25 Mars 2020 Relative à L’adaptation Des Délais Et Des Procédures Applicables à L’implantation Ou La Modification D’une Installation De Communications Électroniques Afin D’assurer Le Fonctionnement Des Services Et Des Réseaux De Communications Électroniques, 26 Mar. 2020, www.circulaires.gouv.fr/jorf/id/JORFTEXT000041755884.

[33] “Coronavirus (COVID 19) and Corporate Law: Two Regulations (Ordonnances) Adapt the Rules Governing the Corporate Life of the Companies to the Sanitary Crisis Following Coronavirus: Perspectives: Reed Smith LLP.” Coronavirus (COVID 19) and Corporate Law: Two Regulations (Ordonnances) Adapt the Rules Governing the Corporate Life of the Companies to the Sanitary Crisis Following Coronavirus | Perspectives, www.reedsmith.com/en/perspectives/2020/04/coronavirus-covid19-and-corporate-law-two-regulations.

[34] Seemanh, Anvit “Suspension of IBC during COVID-19: A Mere Mask While What Is Needed Is a Vaccine- By Anvit Seemansh.” IBC Laws, 26 May 2020, ibclaw.in/suspension-of-ibc-during-covid-19-a-mere-mask-while-what-is-needed-is-a-vaccine-by-anvit-seemansh/.

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Laws governing transgender marriages in India

By

Rachit Garg

-

July 28, 2021

0

This article is written by Trisha Agarwala and Surbhit Shrivastava, from UPES, Dehradun. It deals with the status quo of the transgender community in India and laws governing their marriage as compared to those in other countries.

Table of Contents

Introduction

A transgender person is identified as “a person whose sense of personal identity and gender does not correspond with their birth sex.”^[1] Basically, transgender persons are those who do not identify with the gender they were assumed to be at birth. A transgender is not limited to the idea of only sexual preferences, but it includes the whole spectrum of gender. In most countries, they are recognized as the ‘third gender’.

Historically, the transgender community has been neglected. However, in India, the recognition of transgender people takes us as far as 3000 years ago. They also find their mention in the holy Vedas.^[2] Today, due to the rise in individuality and the express freedom given on expression, the rights of transgender people have been recognized and respected more than ever before in history. Some steps have been taken in the positive direction to ensure the basic rights of these people, who are often stereotyped by the society. Recently, 13 transgender people were recruited as police officers in the state of Chhatisgarh.^[3] Back in October 2017, the district administration of Bhopal inaugurated a public toilet exclusively for transgender people.

Gradually, transgender people are being recognized as members of the society at an equal footing. The Supreme Court has, through its various landmark judgements established that recognition of transgender rights is important. The most significant judgement is the NALSA v. Union of India^[4] judgement, in which the Supreme Court affirmed the position of transgender people as legally being “the third gender” and therefore, they are entitled to all fundamental rights guaranteed by the Constitution.

Another notable case is Navtej Singh Johar v. Union of India^[5] which abolished S. 377 of the Indian Penal Code and paved way for legalizing sexual relationships between people of all genders. After this judgement, the next step for the community was to ask for a law that would allow them to register their marriage under the law, thereby legalizing the concept of third-gender marriages. However, that has not been the case yet.

Problems Faced by the Trans Community

Transgenders have been forced to face a horrendous journey in their life for decades and decades. The stigma attached to sexual orientation and gender identity that fall outside the expected heterosexual, nontransgender norm relegates many Transgender people to the margins of society^[6]. This marginalization has led to them being grossly discriminated against, marginalised to the extent of having little control over their lives, have not been able to have equal access to resources and opportunities such as in employment, education, healthcare, housing and so on. They have been socially excluded and continuously stigmatized by society time and again to the point of predominantly having a low self-esteem and other mental health problems because of having to face racism, sexism, poverty alongside homophobia or transphobia.

They lack even the most basic facilities such as separate toilets, making them prone to sexual assault and harassment and are regular victims of hate crimes and violence. Transgenders are also rejected by their own families, who feel abashed by the birth of an intersex child, and parents eventually force them these children to undergo sex reassignment surgery (SRS) or intersex genital mutilation (IGM) without providing an opportunity to such children to understand and identify their gender and sexuality. The trans community has been oppressed beyond thought and an attempt must be made to bring them back from the margins to mainstream society.

Transgender Rights

The Indian Constitution enshrines notions of justice- socially, economically and politically. Article 14 of the constitution provides for right to equality, Article 15 prohibits discrimination on the ground of religion, race, nationality, gender or place of birth, Article 21 guarantees the right to privacy and personal dignity to all citizens and Article 23 prohibits human trafficking and other forms of forced labour. Moreover, the Universal Declaration of Human Rights provides that all people, irrespective of sex, sexual orientation or gender identity, are entitled to enjoy the protections provided for by international human rights law, including in respect of rights to life, security of person and privacy, the right to be free from torture, arbitrary arrest and detention, the right to be free from discrimination and the right to freedom of expression, association and peaceful assembly.^[7] However, the sad truth remains that despite the existence of ample rights to safeguard the human rights of transgenders both internationally and in the Constitution of India, they remain unenforced.

An Overview of Transgender Marriage in India

In a landmark judgement^[8] in 2019, the Madras High Court interpreted the word “bride” under S. 5 of the Hindu Marriage Act and held that it includes transgender persons as well. Hitherto, a “bride” was a woman that too only on the day of her wedding. But with this judgement, a new ground has been established. The Madras HC relied on the three most important judgements for LGBTQ+ rights: the NALSA judgement^[9], the K.S. Puttuswamy Case^[10] (privacy under A. 21) and the Navtej Singh Johar judgement.^[11],^[12] The Court opined that they were only stating the obvious, and that they did not interpret anything additionally, since the right to marriage for transgender persons has always been present in this statute. This interpretation has paved way for the transgender community to lobby for their marriage rights.

Despite this judgement, the government has included no provisions related to the marriage of transgenders in the 2019 Transgender Persons (Protection of Rights) Bill that has been introduced by it as a protection mechanism of the trans community and aiming to pave the way for a more progressive legal system.

The Union Government has clarified its stance regarding LGBTQ+ marriages. In a 2021 case before the Delhi High Court, the government has said that the judgements of the Supreme Court in Navtej Singh Johar and K.S. Puttuswamy case does not mean that homosexuality has been legalized, contrary to popular belief.^[13] The Government has said that these judgements have only de-criminalized a particular human behavior. It also pleaded that it is in the legitimate interests of the state to limit marriages of same-sex individuals, as the conduct of marriage should be in the most “natural way”, implying that marriages should result in the procreation of a child. The Union also added that Courts cannot give legal recognition to LGBTQ+ marriages when the statute does not provide for it.

This takes us to the existing provisions and whether there is any scope of amendment in these existing provisions to account for transgender marriages. S.5 of the Hindu Marriage Act mentions several conditions for a valid marriage under the law. One of these conditions is that the parties should not be “within the degrees of prohibited relationship unless the custom or usage governing each of them permits of a marriage between the two”. The “degree of prohibited relationship” can be prima facie interpreted as a relationship that is not approved or allowed by the caste, sect, community or society. If this was the case, then it would’ve been easier to legalize same-sex and transgender marriages since the Courts would interpret it liberally, and hold that LGBTQ+ relationships are not “prohibited”. However that is not the case. “Degree of prohibited relationship” is defined under S. 3 (g) of the Act and mostly refers to close relatives and lineal descendants. Since “prohibited relationship” is clearly defined, it cannot be interpreted liberally to include marriages in the LGBTQ+ community.

S.4 of the Special Marriage Act discusses the conditions for a valid marriage. This Act was mainly enacted to give legal protection to inter-faith marriages if they are not recognized under the respective marriage laws of that religion. S. 4 (b) (ii) mentions that “neither party, though capable of giving a valid consent, has been suffering from mental disorder of such a kind or to such an extent as to be unfit for marriage and the procreation of children”. This provision also does not leave any scope for LGBTQ+ marriages, since it places a condition that the parties should be fit for procreation, which is not always possible in such marriages.

Therefore, the biggest challenge before the transgender community and the LGBTQ+ community, in general, is to secure marriage rights against the general notion of marriages for the procreation of a child. This can only be addressed by society accepting that marriages are not solely for raising children and families. The problem is mainly the society’s stigma regarding transgender persons, which has hindered them from securing marriage rights. They however have advanced their positions in society due to the liberalization of society, but there is still a long way to go.

Status of Transgender Marriage Laws in Different Countries

United Kingdom

Transgender marriage cases were first discussed in the 1970 British decision on Corbett v. Corbett.^[14] Here, a petition to legally annul a marriage was filed after one of the spouses who were born male had undergone hormonal treatment and sex reassignment surgery. The issues primarily involved determining “true sex” of the spouse and capacity to consummate the marriage. It was held that consummating the marriage using an “artificial cavity” constructed by a doctor could not be described as natural intercourse. This ruling was further codified and sparked a huge debate for transgender marriage jurisprudence.

At present, the Gender Recognition Act of 2004 allows people to gain full recognition of their acquired gender. This legal recognition enables people to obtain a new birth certificate that shows their acquired gender enabling them to adopt almost all of the legal rights which are afforded to that sex, including equal marriage rights.

United States of America

In the USA, anyone can marry in any of the 50 states, regardless of their gender and whether or not the officials in their state of residence recognise their gender. It was in the landmark case of Obergefell v. Hodges^[15], that the US Supreme Court recognised the right of same-sex couples to marry. It was iterated that merely decriminalizing the same-sex acts is not sufficient, legal recognition of same-sex relationships as heterosexual unions is equally necessary.^[16]

New Zealand

Quilter v Attorney-General (1994) is a landmark where New Zealand denied the right of marriage to same-sex couples. However, subsequent legislations did not comply with this stance. The Civil Union Act, 2004^[17], legalised civil unions for both same-sex and opposite-sex couples, where couples had been granted several rights including those of marriage.

Currently, New Zealand is one of the most liberal countries in the world when it comes to the rights of the LGBT community. Trans people have the same rights as the general population and marriage for them has been legal ever since 19 August 2013, after the passing of a legislation allowing the same.

Saudi Arabia

LGBT rights including that of transgender marriages are not recognised in Saudi Arabia and the community faces a lot of social as well as legal challenges in the country. Governed by extremely conversative Muslim ideologies, Saudi Laws recognises homosexuality and being a transgender as an immoral and indecent activity. Therefore, this is criminalised with severe punishments up to that of the death penalty.

South Africa

South Africa is a prime example of how one country that considered LGBTQ relationships a taboo changed its stance and formally enacted legislation to give marriage rights to all people irrespective of their gender. For this, the basic necessary condition of procreation was held discriminatory. In the case of Minister of Home Affairs v. Fourie^[18], the Constitutional Court of South Africa held that the condition of procreation excludes people that are not heterosexuals, and enforces that they are not normal. It also means that such people are not at an equal footing with the heterosexuals, and thus it is discriminatory and against the provisions of the Constitution. The Court held that there is much more to relationships than procreation, and that is love, which cannot be determined by the sex of the parties. Consequently, in 2006 the National Assembly passed a law allowing same-sex couples to legally solemnise their union.

Recommendations

Statutory changes that must be incorporated to concretely decide on the rights of the transgender community in relation to marriage are as follows:

The Special Marriage Act, 1954 has currently been drafted in a way to allow the marriage of only heterosexuals under it which seems to be violative of Article 15 of the Constitution. It must be read down by the courts to permit same-sex couples to marry under it.
If not so, the Transgender Persons (Protection of Rights) Bill 2019, should deal with the question of marriage, partnership, adoption, divorce, custody of child, succession and inheritance conclusively.
Marriage should be defined as the legal union of a man with a woman, a man with another man, a woman with another woman, a transgender with another transgender or a transgender with a man or a woman. Also, their union without marriage should also be legally recognized as partnership under the Act.
The Act must be specifically provided that the religious or customary practices are unable to prohibit the occurrence of such marriages. Moreover, adequate police protection must be granted when they are being solemnized if needed.
Transgender couples must also explicitly be given the legal right to adopt a child without their sexual orientation being a hindrance in the process.
Rights of divorce, custody of child, succession and inheritance must be addressed alongside the provisions for right of marriage.

Conclusion

Transgenders are a part of our society and the issues faced by them are countless. However, despite the progressive judgements by the Hon’ble courts, the transgender community in India is still oppressed and does not find sufficient protection under the statutes. The current laws relating to transgender marriages, both in personal laws and ones specially designed for them such as the 2019 bill seem to be grossly inadequate in providing proper inclusive definitions and addressing the issues faced by them in a humane fashion.

India is a signatory to the Yogyakarta Principles, principle 24(E) of which encourages states to recognise same-sex marriage and accord it equal status to different-sex marriage, which, though non-enforceable, is a progressive path for the country to follow.^[19] It is the duty of the government to empathise with the problems of this oppressed community, grant them the rights they deserve, and articulate a comprehensive legislation that clearly outlines the governmental position on transgender marriage and their rights as partners and spouses. There exists an urgent need for the government to clarity on this issue to allow for the formation of a coherent policy framework.^[20]

The transgender community deserves a heartfelt apology from the society for the way they have been mistreated and the delay they have had to suffer in obtaining a redressal for all that they have suffered. They must not be subject to more of this ostracism owing to the majoritarian norm and should be granted the Fundamental Rights that they have been guaranteed under the constitution of India.

[1] Oxford English Dictionary (Online Ed.)

[2] Serena Nanda, Gender Diversity (2014, ISBN 147861546X), p. 28

[3] https://www.hindustantimes.com/india-news/in-a-first-chhattisgarh-police-hire-13-transgenders-as-constables-101614610481859.html

[4] National Legal Services Authority v. Union of India, (2014) 5 SCC 438

[5] Navtej Singh Johar v. Union of India, (2018) 10 SCC 1

[6] 2018 IJCRT | Volume 6, Issue 1 January 2018 Pg 6

[7] https://www.un.org/en/about-us/universal-declaration-of-human-rights

[8] Arun Kumar and Another v. Inspector General of Registration and Ors. WP(MD)No.4125 of 2019

[9] Supra note 4

[10] K.S. Puttaswamy, J. v. Union of India, (2017) 10 SCC 1

[11] Supra note 5

[12] Devika Sharma, https://www.scconline.com/blog/post/2019/04/25/madras-hc-transgender-female-is-a-bride-under-hindu-marriage-act-no-impediment-in-registration-of-transgenders-marriage/

[13] https://www.livelaw.in/top-stories/same-sex-marriage-delhi-high-court-centre-affidavit-fundamental-right-opposite-sex-section-377-170398?infinitescroll=1

[14] Corbett v. Corbett [1970], 2 All ER 33

[15] 2015 SCC OnLine US SC 6 : 192 L.Ed.2d 609 : 576 US _ (2015), Director, Ohio Department of Health, et al.

[16] CNLU LJ (9) [2020] 158 Legal Recognition of Same-Sex Marriage Rights in India by Shivam Garg.

[17] https://www.nzherald.co.nz/nz/civil-unions-bill-passed/AEJSQ3XMMJCBJ4TZVXK5F5BBHQ/

[18] [2005] ZACC 19

[19] Yogyakarta Principles, Principle 24 provides for: ‘(E) Take all necessary legislative, administrative and other measures to ensure that in States that recognise same-sex marriages or registered partnerships, any entitlement, privilege, obligation or benefit available to different-sex married or registered partners is equally available to same-sex married or registered partners.

(F) Take all necessary legislative, administrative and other measures to ensure that any obligation, entitlement, privilege, obligation or benefit available to different-sex unmarried partners is equally available to same-sex unmarried partners’

[20] (2019) 6.1 IJLPP 1 The Transgender Persons (Protection of Rights) Bill 2019 Divergent

Interpretations and Subsequent Policy Implications by Abhimanini Sawhney and Sara Grover

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Local reservations in private sector – is it a solution to unemployment

By

Rachit Garg

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July 28, 2021

0

Reservation — Image Source - https://rb.gy/0bwgkm

This article is written by Somya Janki from Kalinga Institute of Industrial Technology. This is an exhaustive article that discusses domicile reservations in the private sector along with its capacity to curb unemployment.

Table of Contents

Background

It was on the 5th of November of 2020, the state of Haryana under Manohar Lal Khattar government passed the Haryana State Employment of Local Candidates Bill. Then on 26th February 2021 it came into news that Governor Satyadeo Narayan Arya gave his assent to the bill thereby making it an act. This year in the first half itself i.e. March 2021 saw another bill introduced by the Hemant Soren government, Jharkhand State Employment of Local Candidates Bill which had a resemblance to the one introduced in Haryana too which piques our interest that why are the states introducing these employment bills. So, let’s delve deeper into our subject.

Amid the pandemic era and lockdown, many Indian states have been facing economic slowdown including a rise in the rates of unemployment. To deal with this quandary many states have resolved to different methods. A few months back the state of Haryana passed a bill regarding 75% job reservation to the natives of the state in the private sector which became a debatable topic. But it is to be taken into account that Haryana was not the first state where such a type of reservation policy was introduced. Even before it states like that of Andhra Pradesh, Madhya Pradesh and Karnataka too introduced it. But here a million dollar question arises whether these incentives taken by the government are right? Is it legally correct? But before pondering upon these points we need to get acquainted with the provisions pertinent to the reservation policy.

Job reservation for domicile

Vocal for Local

Our nation is one of the largest developing economies in the world but there is something paradoxical about our growth. Even though we were experiencing progress the unemployment was still surging owing to the very fact that the country was experiencing jobless growth, that is the number of job creation was not in tandem with the growth. So at that time states like Andhra Pradesh introduced the job reservation policy under which 75% of the jobs would be reserved for the indigenous population of the state. Now in recent times, the economy is in a state of havoc due to which many have lost their jobs. To curb it, states like Haryana and Jharkhand came up with a 75% reservation policy in the private sector for locals for jobs with salaries not more than INR 50,000 and INR 30,000 respectively. However, it would not apply to the public sector jobs or the jobs generated by the central or the state government.

States where previous attempts to enact such laws were made

In the past too this reservation policy was debated over by several political parties in various states like in the Indian state of Maharashtra it came to light from 1968 onwards and once again in the year 2008 while in Himachal Pradesh it was mooted over in the year 2004 and in Karnataka too it came into limelight in the years 2014, 2016 and 2019 and Andhra Pradesh too had a chance in 2019 along with Madhya Pradesh in the same year. In the most recent times, Andhra Pradesh proposed about 75% reservation in the private sector but it is still in the process of its implementation being challenged in the court. While the Madhya Pradesh government made it a mandate for 70% reservation in the private sector, it was not wholly implemented. Further in Karnataka, 70% reservation is aimed towards 2025, and certainly for Group C and D leveled employees reservation is aimed for 100%. However, they never had a chance to face the reality as it was quite conspicuous that the industrial sector was quite reluctant upon its implementation.

Legal provisions related to the reservation

Yet all does not end well with local reservation in the private sector carrying loopholes. These provisional bills have fair enough contradiction with the fundamental rights enshrined within our Indian constitution such as:-

Right to equality

Under Article 14 of The Constitution of India every person is equal before the law irrespective of the place of his birth. Article 15 prohibits any kind of discrimination based on place of birth and fairly noted this article only allows positive discrimination that too for the unprivileged or the backward strata of the society and specifically Article 16 of the Indian constitution goes on to states that no discrimination on the place of birth should be made in the matters of public employment. And as the fact is there although domicile reservation could be made but this power is solely conferred upon the parliament but not bestowed upon the state legislature.

However, Article 371 of the Constitution of India also gives special protection to few states, for instance in the case of the state of Andhra Pradesh which has power bestowed to directly recruit local cadres in certain areas or fields.

Right to freedom

As guaranteed by Article 19 of the Indian constitution that any citizen of India can move freely throughout the territory of India unless contrary to it there are reasonable restrictions. It also gives freedom to practice or carries out any profession.

Benefits of laws reserving jobs for locals

Curb unemployment

As suggested by the bill itself the ultimate rationale behind introducing it was to curb unemployment. This bill would curb the unemployment rate within the states where these policies are to be implemented by providing much of the population with jobs.

Raise the morale

With the presence of a higher employment level it would also level up the morale of the citizens and especially it would boost up the youths who are left unemployed without such incentives.

Getting through the debacle

At present when the nation is overall facing turmoil these provisions would be able to get through the setbacks as that of the recent stagflation situation and it will also bring the development back to its pace and level up the infrastructure.

Agrarian crisis

Many people do want to get hold of jobs instead of practicing farming but due to the dearth of jobs in the private sector, they are not able to do so. This policy would help it out by supporting domicile reservations.

Migration

Migration is becoming a major concern especially inter-state migration and somehow it has also contributed a lot to the surge in the slum population.

Liberalization, Privatization, and Globalization reforms

Soon after the Liberalization, Privatization, and Globalization reforms the country faced a crisis in the job market with a plethora of jobs in the hands of foreigners. So, these reservations are somehow giving the reins to the government sector to secure jobs for the natives.

Avoidance of corporate biasness- There are many instances where it was found that there were inherent biases among the corporate sector against minorities and Dalits and this will ensure that no such prejudice would be made.

Observation of the judiciary

Indira Sawhney case

Facts of the case

During that time, the Congress Party was headed by Prime Minister P. V. Narsimha Rao and the government came up with some modifications in the reservation scheme which would raise the reservation of economically backward classes by 10% thereby becoming 37%. In the year 1992, a journalist called Indra Sawhney came across young student protestors and a few days later she filed a case against the union of India regarding the implementation of reservation policy. Finally, the judgment was decided in the ratio of 6:3 by a nine judge bench.

Issues of the Case

The case had the following issues or concerns:

1) Extension of reservation for a certain community is an infringement of the right to equal opportunity

2) Caste cannot be the basis of backwardness through economic criterion

3) The efficiency of public institutions was put at risk.

It had further core issues to dealt with:

1) Whether Article 16(4) was an exception to Article 16(1) or is it exhaustive in itself of the rights of the reservation.

2) Does Article 16(4) allow the classification of the ‘Backward Classes’ into the backward classes and most backward ones, and is it considered at the economic level?

Ratio Decidendi

1) The Backward class of citizens in Article 16(4) can be recognized with both the caste system as well as on an economic basis.

2) Article 16(4) allows further classification of backward classes into unprivileged groups and extremely poverty-stricken

3) There shall not be any reservation in promotion.

4) Article 16(4) is not an exception under Article 16(1) but rather an instance of classification. Reservation can be made under Article 16(4).

5) Backward classes in Article 16(4) were not similar to those in Article 15(4) that are socially and educationally backward.

6) Reservation shall not exceed above 50%.

7) Creamy layers should be excluded from the backward strata.

Nagaraj case

Facts of the case

During the 1950s states were giving much reservation to SCs and STs as they were not adequately represented in matters of public service. But in the case of Indra Sawhney V/S Union of India, it was held unconstitutional so reservation could only be made during the time of recruitment but not after it. Then the parliament enacted the 77th Amendment thereby introducing article 16(4) of the Constitution of India favoring reservation in promotion on fulfillment of the following prerequisites :

The SC/ST community should be socially or educationally backward.
The SC/ST communities are not adequately represented in matters of public employment.
Such a reservation policy should not affect the overall efficiency of the administration.

Ratio Decidendi

1)“Creamy layer” principle applies to OBCs only; it may be applied to SCs/ Sts to deny reservation.

2)Proof of Backwardness of SC/STs- The Supreme Court held the conclusion in the Nagaraj case that the State has to collect quantifiable data showing backwardness of the SCs and the STs as invalid which was just contrary to the finding arrived at by the nine-judge bench in Indra Sawhney v. Union of India and the social and economic backwardness cannot be applied to backward classes.

3)The test of proportionality to the population which is a mandate for the houses of parliament shall not apply to the reservation in promotions i.e. Article 16(4A) of the Indian Constitution.

Is it a bad idea?

Inconsistency with the Constitution of India

The ultimate point of the failure of these upcoming policies is that it is certainly not in compliance with the fundamental rights enshrined within the Constitution of India. It would breach Article 14 which guarantees Equality before the law regardless of the place of birth, Article 15 which prohibits discrimination on the grounds of place of birth, and further Article 16 prohibits biasness in the matters of public employment based on place of birth. It also infringes the freedom of movement within the territory of India and to carry out any business or profession regardless of the place of birth.

Strangulation of the private sector

During the 1990s the government had introduced Liberalization, Privatization and Globalization reforms or LPG reforms clearly to increase the efficiency, growth, productivity, and competitiveness of the industrial sector but if these reforms are implemented the industrial sector will lose the very purpose for which it was privatized.

Drop in investment

It is well evident investors whether foreign or domestic do want to invest for seeking profit if there are reserved jobs particularly the industrial sector will not only lose its significance but also retard the growth of it create a sort of unease in the business sector.

Promotion of communalism

This will also lead gradually to regionalism thereby becoming a barrier to the unity of the nation.

Economic setbacks

It will bring major crises along with it like paucity of the labor force, worsening of regional inequality, and endless problems which would rather than alleviating the problem add up to it.

How unemployment rate can be brought down without implementing such laws

Pro-market V/S Pro-business

Government should speed up with the policies of Vocal for locals but it is to be stressed on promotion of increasing exports with the rest of the world this will not only raise government revenue but also provide a source for more job allocation.

Focus on Human development

The government should focus on training the labor force rather than converting the private sector into a public one partly. It should focus on education programs and train the labor and also pose restrictions on the contract by the industrial sector which pose a “hire and fire” basis and promote long-term contracts.

Stimulus packages

Government needs to provide an injection to the economy or provide fiscal stimulus which would help to pair up with much of the solution to the crisis the economy is facing.

Conclusion

From the whole analysis, it is very evident that the government is certainly lacking in practicality. Even though there are local reservations in the private sector it would be plausible for a certain time frame only but it would not be an answer to long-term goals but it would add up to more problems. If it is implemented on a long term basis it will not be an eyesore just for the economy but a plethora of things like if a certain want to implement these policies certainly other states would also start adopting it which will bring innumerable economic problems and harm to the nation’s integrity which should not be the case. So, the government should take incentives with a clear picture. Although domicile reservation may work out for short-term goals for the future ahead, it needs to put much more effort into the prosperity of the nation.

References

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General Anti-Avoidance Rule : implication and perspective

By

Rachit Garg

-

July 28, 2021

0

This article is written by Sharad Yadav from the Institute of Law, Nirma University. This article will help you to understand all aspects relating to GAAR and case laws which will help you to understand this clearly.

Table of Contents

Introduction

We know that most of the revenue which the government generates is from taxes which they collect from individuals, organizations, etc. Everyone wants to benefit from the tax imposed on them. Many times they indulge in malpractice to get saved from taxes. The General Anti Avoidance Rule (GAAR) was brought about by the Indian government to curb tax evasion and avoid tax leaks. In India, the GAAR provision was brought by the government after the famous case of Vodafone International.

What is the General Anti- Avoidance Rule (GAAR)

General Anti Avoidance Rule (GAAR) is an anti-tax avoidance law for keeping a check on the businesses that entered into an agreement with the objective of avoiding tax. Chapter X-A of the Income Tax Act, 1961 of India deals with the concept of GAAR. GAAR was introduced in the year 2012 during the budget session in 2012 by then Finance Minister Pranab Mukherjee. Article 265 of the Constitution of India gives power to the government to levy or collect tax from the people of India. It is generally presumed that every citizen is liable to pay reasonable tax within the provisions of tax statutes. The person escaping from paying tax generally would be liable for evasion under Indian laws. Sometimes organizations try to lower their liability to pay tax to the government which is known as tax avoidance. GAAR was introduced by the Finance Act, 2012, with the aim that any planning or arrangement which involves any tax benefit, whether done directly or indirectly, would be impermissible and liable under the provision of said law. Black Law’s dictionary defines ‘tax avoidance’ as minimization of one’s tax liability by taking advantage of legally available tax planning opportunities.

Difference between tax evasion and tax avoidance

Tax evasion is when a person or organization does not pay tax to the government which they have to pay. This is completely illegal and the person or company can be held liable for prosecution.
Tax avoidance is not illegal. When a person or organization tries to avoid tax by taking legal recourse to legal actions. Let’s understand this through an example – when an employee invests a part of his income in some funds, then it can be called tax avoidance.
Tax avoidance, which is exercised by large corporate firms, can cause huge losses to government revenue. GAAR was brought specifically against such a type of transaction when the intention is to avoid paying tax to the government agency, hence getting benefit out of this.

How does GAAR work

GAAR is based on the doctrine of substance over form in which the real intention of parties is seen when they enter into an agreement to determine the tax consequence, irrespective of the legal structure of that transaction or agreement. There are four tests which are given below:

The arrangement creates obligations/rights that are not at arm’s length.
Arrangement or transaction results in misuse/abuse of a provision of tax laws.
It lacks commercial substance.
The transaction was not carried out in a bonafide manner.

If the concerned authority thinks that the main purpose of the arrangement or transaction is to avoid the tax and get benefit out of that, and even if only above 1 out of 4 conditions is satisfied, then the tax authority has the power to declare the transaction as impermissible and characterize the entire transaction in a manner that it is maximizing the tax revenue

Let’s take a few examples to understand the GAAR provisions.

Situation 1

Suppose X sets up a company for manufacturing in a developed tax exempted area. After the production of the product, X then transfers the product to other connected manufacturing units and shows it as a manufactured product in the tax-exempted unit while only packaging of the product is done there.

Reason – In this situation, the provision of GAAR would be applicable. It is clear from the example that X makes this type of arrangement to avoid tax or we can say that the main purpose of this type of arrangement is to get benefits from tax. There is a misuse of tax provisions. Hence, the competent authority can invoke the GAAR provision under this condition.

Situation 2

Suppose Y sets up a company in an area that is not very developed by investing a substantial amount of capital into it and carries out the production of the product. Y claims tax deduction on the sale of such products because of low tax imposed by the government in underdeveloped areas.

Reason – In this situation, the provision of GAAR would not be applicable. Here, we can see the main purpose of the company’s establishment is to get benefits from tax, but this is a case where taxpayers taking advantage of the low tax incentive is provided by the government. Hence, the GAAR provision would not be applicable in this case.

Situation 3

An Indian company ‘X’ buys goods from the USA and sells them in Nepal. Its world income will be made taxable in India. In order to avoid tax in India, company ‘X’ incorporates another company in Cyprus which is zero tax jurisdiction.

Reason – In this situation, the provision of GAAR would be applicable. This is done by the company to show that the sale takes place in the company Cyprus. Since there is not any commercial reason for undertaking the sale throughout the company in Cyprus, hence the provision of GAAR can be invoked in this situation

Procedure for invoking GAAR

Firstly, the assessing officer makes a reference to the tax commissioner about a case which is a potential GAAR case.
After making the reference, the tax commissioner issues a notice to the taxpayer after verifying that that arrangement is Impermissible Avoidance Arrangement (IAA).
Then, the taxpayer shows the document if they are having to claim that their arrangement is not IAA.
After filing the response, if the Tax Commissioner is unsatisfied with the answer, the case is referred to the approving panel.
The approving panel examines all aspects of the case and then issues directions directly to those which would apply to the taxpayers and tax authorities.
Finally, the assessing officer makes an order to the taxpayer.

Relevant case laws

Union Of India And Anr v. Azadi Bachao Andolan (2003)

In this case, it was argued before the Court that any type of planning with the aim of tax avoidance must be struck down in light of the case McDowell v. the Commercial Tax Officer (1985). The court rejected this argument and upheld the legitimacy of tax planning. In this case, the apex court referred to the judgment of the privy council in the case Bank of Chettinad Ltd. v. CIT (1940) which accepted the principle which was laid down in the case IRC v. Duke of Westminster (1935), where the court laid down that” every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be”. The judgment was the law when the Constitution of India came into effect. According to Article 372 of the Constitution, all laws in the territory of India shall be in force unless it is repealed or amended by the competent authority. Hence, the principle which was laid down in Westminster is still applicable. The court stated that – “we are unable to agree with the submission that an act that is otherwise valid in law can be treated as non-est merely based on some underlying motive supposedly resulting in some economic detriment or prejudice to the national interests, as perceived by the respondent”.

However, the tax revenue authorities challenged various forms of a transaction entered by the taxpayers, especially cross-border transactions.

Vodafone International case (2007)

In this case, Vodafone international decided to expand its business in the Indian mobile phone industry by buying Hutchison Essar. To avoid the tax, Vodafone took the roundabout route. Its subsidiary exchanged a case for shares with a similar holding company for Hutchison Essar outside India in the Cayman Islands. The deal had happened outside Indian territory where the Indian tax authorities have no jurisdiction. The Indian Tax Department initiated the proceedings against Vodafone for recovery of Rs. 22,100 crores. Vodafone approached the Bombay High Court against the same, but it ruled against the company and stated that the transaction was completed when all the rights and entitlements of Hutchison’s Indian assets were transferred and stated that the Indian authorities have the right to pursue Vodafone International.

Unhappy with the Bombay High Court’s decision, Vodafone moved to the Supreme Court where the main issue which was largely discussed was a deliberate case of tax avoidance or simple prudent planning of saving tax. After a lengthy discussion, the court ruled in favour of Vodafone International and stated that the sale did not amount to tax avoidance. It further stated that Vodafone no longer had to pay taxes on this transaction. After the happening of the case, the government introduced the new tax bill amending the existing regulation and brought in the General Anti Avoidance Rule (GAAR) which then forced Vodafone to pay tax. It was a retrospective legislature which means they gave power to the tax authorities to reassess transactions dating back to 1962. After bringing up new legislation, if the matter went again in the Supreme Court, then the court will rule against Vodafone.

Vodafone approached the Permanent Court of Arbitration at Hague and stated the gross violation of fair and equitable treatment promised under the two bilateral treaties (Indian-Netherland Bilateral Investment Treaty and Indian-UK Bilateral Investment Treaty). An international arbitration tribunal, based in Hague, ruled in favour of Vodafone and stated that India had breached the terms of the agreement and it must stop collecting tax from Vodafone. The Indian government was further directed to return Rs. 45 crores, which they had collected so far, and an additional Rs. 40 crores to compensate them for all the charges borne at the tribunal.

Criticism of GAAR

Many people criticize the provisions of GAAR because people think that its provisions are too harsh. There was, and continues to be, a fear amongst companies that the tax authorities will apply the GAAR provisions regularly and torture them even if they are honest taxpayers. It is often criticized by people because it provides discretion to the tax authority which can be misused. The Standing Committee in the year 2012 responded in its report that GAAR provisions should ensure that a person who is genuinely entering into a valid transaction should not be harassed. It suggested that one should be on the tax authorities and not on the taxpayer for proving the tax avoidance. The committee also suggested an independent body to act as an approving panel which would ensure that there is no impartiality.

Recommendations of the Parthasarathi Shome Committee

The Parthasarathi Committee had recommended in its report that the GAAR should be deferred for three years. The committee also suggested that the income from the sale of listed securities should be fully exempted from paying tax. Investors from Mauritius and Singapore may also look forward to more certainty on entitlement to tax treaty benefits. The committee’s recommendation was as was expected by the investors. GAAR should be used as a last resort when there is no option left.

Conclusion

Collecting taxes from organizations is very important for the government because this money is used to bring new policies into the country, which eventually help the society in various ways, such as building roads, highways, bridges etc. GAAR was brought about by the government to collect the taxes from organizations that intentionally make arrangements to avoid paying taxes. It is good for the country but there are certain loopholes also present in this which needs to be addressed by the government. There is a fear among many companies that they will be harassed by the tax authorities under GAAR even if they are honest taxpayers. This is what needs to be changed.