This article is written by Wardah Beg, student, Faculty of Law, Aligarh Muslim University

Introduction

If, while riding on a train, a shoe shiner comes, and without us saying anything, starts to polish our shoes and when they’re done, they ask for some money. Are we obliged to pay them that amount? Or can we tell them “I did not ask you to polish my shoe anyway!”. Imagine another situation, where someone else’s Amazon package, with its payment already done, is left at your door. Do you become all excited and say “YAY! Free Gifts!” or do you make an effort to find the owner or return the package? This blog post will give you answers to similar questions.

There are certain obligations, specified in the Indian Contract Act, that are not actually contracts because they miss one or the other elements of a contract, but are still enforceable in a court of law. Such obligations are called Quasi-contractual obligations. Each of them has been talked about separately in Sections 68 to 72 (Chapter V) of the Indian Contract Act, 1872. Let us first look where these obligations arise from, and then discuss each of them separately.

Background

It is first important to note that a contract before it becomes so, is an agreement. Therefore, where there is no agreement, there is no contract. Yet, there are some obligations that do not have their origin in an agreement. The obligation not to harm another person or his property (Torts), for instance, the judgments or orders of courts, quasi-contractual obligations, etc. These obligations are not ‘contracts’ by definition, but they are enforceable in a court of law.

The Principle of Unjust Enrichment

Quasi-contracts are based on the principle of  “Nemo debet locupletari ex aliena jactura”, which means ‘No man should grow rich out of another person’s loss’. Therefore, liability in the case of quasi-contractual obligations is based on the principle of ‘unjust enrichment’. It essentially means that no man should get unjustly enriched at the cost of another person’s loss. That means no person should gain anything unjustly, when his gaining such a thing may mean a loss for another person.

Features of a Quasi-Contract

• Their origin does not lie in the offer and its acceptance, that is, in an agreement between the parties.
• They are rather based on justice, equity, and a good conscience and on the principles of natural justice.

Section 68 (Claim for necessaries supplied to person incapable of contracting, or on his account)

If the “necessaries” for a person, who is incapable of contracting (for example, a minor or a mentally disabled person) or of the dependants of such a person are taken care of by someone, he has the right to be reimbursed from the property of such incapable person. Although the word “necessaries” has not specifically been defined in the Act, it is impliedly clear that it means the necessaries to sustain life, basic things like food, clothing, education, etc. These are things without which a person cannot reasonably exist. In simple terms, if a person A supplies another person B (who is incapable of entering into a contract) or his family or anybody else who is dependant on him, with necessaries for life, he is entitled to take his due return from the property of person B. He is entitled only to such a reasonable amount as the value of the goods or services he may have supplied hold.

Section 69 (Reimbursement of person paying money due by another, in payment of which he is interested)

If a person A pays something in someone’s (a person B’s) place, that which person B is himself ‘bound by law’ to pay, A will be reimbursed by B. Please note that the person A should be ‘interested’ in this payment. It is a case of implied indemnity.

For instance, Joe is a Zamindar. Annie holds one of his lands on lease in Punjab. The revenue of Joe’s land is payable to the government in arrears. So, the land ends up being advertised for sale by the government. According to the Revenue Law, if the land is sold, it will end Annie’s lease. To prevent this sale, Annie pays Joe’s dues to the government. Joe is bound to pay back to Annie.

The aforementioned illustration satisfies the following conditions-

1. The party paying the other party’s dues is interested in the payment.
2. The party whose payment is due was in fact bound by law to pay.

Section 70 (Obligation of person enjoying the benefit of the non-gratuitous act)

When a person lawfully does something for another person (for example, delivers a good or a service) without intending to do so ‘gratuitously’, and the other person enjoys the benefit of the delivery of that good or service, the latter is bound to pay back to the former.

A gratuitous act is one that is done for a person by another without the expectation of a return. For example, giving someone a gift is a gratuitous act. Here comes your Amazon package delivered to the wrong address. A pack of chocolate chip cookies that you ate as soon as they arrived. You are liable to compensate the actual owner of the package. The illustration of a shoe-shiner unsolicitedly polishing one’s shoes or that of the coolie picking up one’s goods will lie under Section 70. Such acts and services are not done gratuitously and therefore a liability to pay back arises on the part of the person on the receiving end.

Section 71 (Responsibility of finder of goods)

Simply, a person who finds goods that belong to another person shall be treated as a bailee. A bailee is essentially a safe keeper of the goods, who is supposed to return the goods to the actual owner or dispose them in the manner in which the actual owner may want them to. The bailee has certain duties and rights as the ‘possessor’ or ‘custodian’ of the goods for the time being. For example, Sarah finds a diamond lying on the floor in a shop. She picks it up and keeps it in her safe possession. Sarah makes all reasonable efforts to find the true owner of the diamond. The diamond actually belonged to Nadia. Sarah has the right to hold the possession of the diamond against all the world except Nadia, and is supposed to make reasonable efforts to find her, and return it to her. In this case, Nadia will have to pay the compensation for all the loss suffered by Sarah in finding her.

Duties of the finder of goods

1. The finder has a duty to take reasonable care.
2. He/she has a duty not to use the goods for his personal purposes.
3. He/she has a duty not to mix the found goods with his own goods.
4. He/she has a duty to make reasonable efforts to find the actual owner of the goods.

Rights of the finder of goods

1. Right to Lien– The right to retain the goods found until he receives compensation for all the expenses suffered in finding the owner.
2. Right to Sue– If the owner had announced a reward for whoever finds the good, the finder has the right to sue the owner for such reward or retain the goods until he is compensated.
3. Right to Sell– The finder of goods has the right to sell the goods in certain specific circumstances, for example:

i) If the owner could not be found even after reasonable efforts.

ii) If the owner is found but refuses to pay compensation or the lawful charges of the finder.

iii) If the goods are in immediate danger of perishing if not used.iv) If the lawful charges of the finder amount to two-thirds of the value of goods.

Section 72 (Liability of person to whom money is paid or thing delivered by mistake or under coercion)

As the heading suggests, if something is delivered to a person by ‘mistake’ or under ‘coercion’, he is liable to pay it back. For instance, Aristotle and Dante share a flat and contribute in half for the rent to be paid.  Aristotle, without knowing that Dante has already paid the due rent to the landlord in whole, pays again to the landlord. The landlord, in this case, is liable to give back the money delivered to him by mistake. The term mistake here can mean both mistake of fact or mistake of law.

The section also uses the term ‘coercion’. Here is an example of something delivered under coercion-  A railway company refuses to deliver goods to a certain consignee except upon the payment of a certain illegal sum of money. The consignee pays the sum to obtain his goods. The company is liable to return the sum of money illegally charged.

Conclusion

A contract has certain elements, like the offer, and its acceptance, that give rise to an agreement. The agreement, if it is legally enforceable becomes a contract, that is, it can be taken care of in a court of law in case it is not performed by either of the parties involved. Yet, there are certain situations where even in the absence of an ‘agreement’ as such, one or the other party is obliged to perform something. Such obligations are called quasi-contractual obligations. Chapter V of the Indian Contract Act, 1872 deals with such obligations.

The post Quasi-Contractual Obligations under Indian Contract Act appeared first on iPleaders.

This article is written by Wardah Beg, student, Faculty of Law, Aligarh Muslim University

Introduction 

Dear reader,

You probably are in your first year, trying to get a grip of the immensely overwhelming law-school atmosphere around you. Or it has been long and you want to see how much you remember from your very first contract classes here. Or you are not in a law school, but contracts fascinate you? (Let’s just admit here that the chances of that one are extremely low). Whoever you are, I hope you benefit from this attempt to summarize nearly the most important cases in Indian Contract Law, with obvious references back to the Common Law of England. To make these cases easier to learn and memorize, I have added some keywords at the end of each case. Without much adieu, here is the list of cases you very much need to know:

Acceptance should be communicated: Felthouse v. Bindley  

Can a person’s silence be considered acceptance?

In this case, the petitioner, Mr. Paul Felthouse wanted to purchase a horse from his nephew, but the price he offered to pay for the horse was less than that his nephew was willing to sell it for.  The horse, therefore, was still in his possession. The Uncle communicated his offer through a letter, saying, “If I hear no more about him, I consider the horse mine at £30.15s” The nephew could not respond to the letter because he was busy with an auction on his farm. Though he asked the auctioneer, Mr. Bindley, not to auction the horses, he accidentally did. Mr. Felthouse then sued the defendant for conversion of his property. The defendant argued that the horse was not actually Mr. Felthouse’s property, as there existed no contract between him and his nephew at the time of the auction because Mr. Felthouse’s offer was not accepted by his nephew and the nephew’s silence cannot be considered to be an acceptance of the offer.

It was held that Mr. Felthouse did not have the ownership of the horse at the time of the auction, which is why he could not sue for conversion, as the offer he made was not actually accepted.

Keywords: Uncle-Nephew, horse, auction, conversion of property

General Offer: Carlill v. Carbolic Smoke Balls Company 

Can offers be open to the public in general? Can a general offer lead to a contract?

In this case, a company carried out advertisements about their product, carbolic smoke balls, that claimed that any person who took the smoke balls in the prescribed manner (i.e., three times daily for two weeks) will not catch influenza. In case someone does, the company promised to pay 100£ to them immediately. To show their sincerity regarding this offer, the company deposited a sum of 1000£ in a public bank. Now, the plaintiff, Carlill bought the smoke balls and used them as prescribed in the advertisement, but still ended up catching the flu. She filed a suit for the recovery of 100£ as promised in the advertisement. The company denied the payment saying there existed no contract between them and the plaintiff. It was held that a contract came into existence between the plaintiff and the company as soon as the plaintiff bought the smoke balls and used them as prescribed.

Keywords: Carbolic smoke balls, prescription, general offer, public bank

Offer and Invitation to Treat: Harvey v. Facey 

Can a mere quotation of price be considered an offer?

In this case, the petitioner, Harvey communicated with the defendant, Facey, about a Hall Pen through telegram, saying “”Will you sell us Bumper Hall Pen? Telegraph lowest cash price-answer paid”. The same day, Facey responded with the price of the Pen to be £900. To which, the appellant replied, “We agree to buy Bumper Hall Pen for the sum of nine hundred pounds asked by you. Please send us your title deed in order that we may get early possession.” The defendant refused to sell at that price that they had initially quoted. It was finally held in this case that no contract came into existence between both the parties because their exchange of telegrams was merely an informational exchange where the appellant asked for the price of the Hall Pen and the defendant quoted the price. Therefore the appellant had no right to sue.

Keywords: Bumper Hall Pen, price quotation, telegram

Offer and Counter Offers: Hyde v. Wrench 

This is a leading case eliciting the concept of offers and counter-offers.

In this case, Wrench, the defendant offered to sell his farm to the petitioner, Hyde for £1000. The petitioner declined the offer. The defendant again reinstated his offer for selling the farm at £1000 to the petitioner’s agent stating that it is the final offer from their side. The petitioner, through a letter, offered to buy the farm for £950. The defendant refused to sell the farm at that price. The petitioner, several days later, offered to buy the farm at the initial price of £1000. The defendant did not send any agreement to that and refused to sell the farm, because of which the petitioner sued for breach of contract. It was held that no contract came to arise between the parties as the price was not agreed upon. Rather, offers and counter-offers were exchanged.

Keywords: Farm, offer, counter-offer

Agreement, Not Contract: Balfour v. Balfour 

Can a promise between married parties result in a legally binding agreement?

In this case, Mr. and Mrs. Balfour, who used to live together as a married couple in Sri Lanka, went for a vacation to England. During this time, Mrs. Balfour developed rheumatic arthritis. The doctor advised Mrs. Balfour to stay back in England as, according to him, Sri Lankan climate would worsen her health. Before Mr. Balfour returned to Sri Lanka, he promised to send £30 to her per month. During their stay away, the parties drifted apart and separated. It was held in this case that Mr. Balfour’s promise to pay a monthly sum of £30 did not amount to a contract, as there was no intention to create a legal relationship on part of either of the parties.

Keywords: Husband & Wife, Sri Lanka, Rheumatic Arthritis, intention to create legal relationship absent

Communication of Offer is Necessary: Lalman Shukla v. Gauri Dutt 

In this case, the defendant’s nephew went missing and the petitioner, who was a servant under the defendants was sent out in his search to Hardwar. After sending the petitioner, the defendant carried out an offer to the general public offering Rs. 501 to whomsoever finds the missing boy. The Plaintiff found the boy and helped return him back to his home. He had been paid the money he spent in going to search for the boy, i.e., his travel expenses. When he returned, he continued working for the defendants for about six months. After six months, he sued the defendants for paying him the prize money that was offered earlier. It was held that the petitioner was not entitled to the prize money, as he was only obliged by the duty he had as the defendant’s servant to find the missing boy, and the reward was announced after he had already been sent.

Keywords: Missing boy, nephew, servant, travel expenses, reward money

Minor’s Capacity to Contract: Mohori Bibee v. Damodar Ghose 

Is a minor’s agreement void ab initio?

In this case, the defendant, Darmodar Ghose, as a minor was the sole owner of his property. His mother was his legally appointed guardian. One Mr. Brahmo Dutt who was a moneylender, through his agent Kedar Nath, lent Damodar Ghose a sum of Rs 20,000 at 12% interest per year. The loan was taken by way of mortgaging the property. The same day this deal was made, Damodar Ghose’s mother notified the appellant that Damodar was a minor, and anybody who would get into an agreement with him would do so at his own risk. Kedar Nath claimed that Damodar Ghose had lied about his age on the date of the execution of this deed, which turned out to be untrue. Therefore, Brahmo Dutt’s appeal was dismissed and his request for the return of Rs 10,500 advanced towards him was also rejected. It was held that a minor’s agreement is void ab initio.

Keywords: minor, property, mortgage, moneylender, 12% interest, loan, void ab initio

Doctrine of Frustration: Krell v. Henry 

In this case, the defendant agreed to rent a flat of the plaintiff to watch the coronation of King Edward VII from its balcony. The plaintiff had promised that the view from the flat’s balcony will be satisfying since the procession will be perfectly visible from the room. The parties corresponded through letters and agreed on a price of £75 for two days. Nowhere in their written correspondence did the parties mention the coronation ceremony. The coronation did not take place on the days the flat was booked for, as the kind fell ill. The defendant refused to pay the whole sum of money that the parties had agreed upon, for this reason. It was held that it could be incurred from the circumstances surrounding the contract what the implied purpose behind the contract was. Due to the cancellation of the procession, the purpose of booking the flat was frustrated.

Keywords: King Edward VII, coronation, balcony, flat, cancelled, implied purpose, frustrated

The remoteness of Damage: Hadley v. Baxendale 

In this case, the plaintiffs were operators of a mill, that they had to shut down temporarily when the crankshafts of the mill broke. Plaintiffs then contacted the manufacturers of the engine to make a new engine on a similar pattern. A servant of the defendants was then sent to the carriers to transport the crankshaft to the engine manufacturers. The servant told the Defendants that the mill is shut down, so the crankshafts must be sent immediately. The defendants informed that whenever the old crankshaft is given to them, the new one will be delivered by 12 o’clock its next day. Due to the delay of the defendants, the delivery got delayed and the mill had to stay shut for several days. In this case, due to the involvement of a third party (the carriers), the delay and loss could not entirely be blamed upon the defendants. Whatever damages or loss rose, did not come to existence because of a direct breach of contract by the defendants.

Keywords: mill, crankshaft, carriers, delay, damages, remote

The post 9 Cases That Should be on Your Fingertips While Studying Contracts appeared first on iPleaders.

This article is written by Col. Rajesh Tandon, pursuing Diploma in Intellectual Property, Media and Entertainment Laws by Lawsikho as part of his coursework.  Col. Rajesh works with the Indian Army for the past 29 years and has been handling the legal matters for 2 years.

Introduction  

The property rights have always played their role in promoting the social economic and political development in various societies. The concept of property includes a person’s legal rights of whatever description. The Honourable Supreme Court of India in R.C Cooper Vs Union of India has defined the property as the highest right a man can have to anything to include the right of a man to ownership, estate, interest in corporeal things, the right to land or tenements, goods or chattels, the right to trade Mark, copyright, patents and even rights  in personam capable of transfer or transmission such as debts and something signifying a beneficial right thing considered as having a money value. Largely the property is either corporeal or incorporeal. Corporeal property is the right of ownership in material things. Incorporeal property is of two kinds namely Jura in re aliena i.e encumbrances ( like leases, Mortgages and servitudes) and Jura in repropi  (i.e patents, copyrights and trademarks). Intellectual property is the product of the human mind and intellect which emanates from the exercise of the human brain, something that involves the visual expression of a mental conception. When we talk of the transfer of business, it is imperative to understand the scenarios under which the transfer of business takes place. The ownership in the course of transfer of businesses can take place by the sale of a business or through the addition of a partner or Lease purchase or Family Member Transfer or through the process of merger/amalgamation, demerger, acquisition or takeover, divestments, strategic alliances or slump sale. While the transfer of business occurs, the assets and liabilities also do get transferred. In such a scenario wherein, the assets and liabilities are being transferred, it is very important to get to evaluate the value of intellectual property. A thorough evaluation of the value of intellectual property puts in a clearer perspective of the assets and liabilities to those to whom the business is being transferred.

The intellectual property       

The Convention establishing the world intellectual property organization (WIPO) concluded in Stockholm on July 14, 1967, provides that intellectual property shall include the rights relating to:-

1. Literary, Artistic and scientific works
2. Performances of Performing Artists, Phonograms and Broadcasts.
3. Inventions in all fields of human endeavor
4. Scientific discoveries
5. Industrial designs
6. Trademarks, Service Marks and Commercial Names and Designations
7. Protection against unfair competition
8. All such rights resulting from intellectual activity in the Industrial, Scientific, Literary Or Artistic Fields.

Branches of Intellectual property      

Intellectual property is usually divided into two main branches as under

Necessity to assess the value of Intellectual Property of the Business   

There are various reasons to carry out an evaluation of the IP assets to ascertain their value. Some of these are as under:

1. Evaluating the value of IP for shareholders.
2. Evaluating the value of IP for:
   • Mergers
   • Acquisition
   • Divestment
   • Strategic Alliance.
   • Management Buyout or By in

In all these cases, the valuation of IP enables the parties to make an informed decision for the acceptable cost of Capital i.e the rate of return that could be expected from such Business transfers.

3. Fund Raising

4. IPO

5. Licensing and Franchising of Intellectual property assets: In the course of licensing and franchising of intellectual property assets, the valuation of the intellectual property assets is of prime importance on account of the following:

• Once the value of the intellectual property held by the owner/patentee is known to him, it facilitates an informed Negotiation and Decision making with the licensee.
• It facilitates the determination of fair and robust royalty rates.

6. Assignment of Intellectual property Assets: The valuation of intellectual property assets facilitates the determination of Royalty rates to be charged while assigning the intellectual property assets.

7. Corporate Finance: The valuation of the portfolio of patents held by the firm is often carried out to assess the value of the intangible or incorporeal property for the purpose of obtaining corporate finance. A new phenomenon of securitization called Royalty Interest Securitisation is the trend in the market for obtaining Finance using IP. The salient features of Royalty Interest Securitisation are:

• Selling of IP to the Holding Company.
• The Holding Company issues bonds backed by revenues of intellectual property rights.
• The owner of the intellectual property gets upfront cash in this process.
• The bondholders are paid off over a period of time with the royalties.
• The Future Royalty Payments from the intellectual property are the founding basis of such securitization.
• The licenses of the intellectual property become a basis for offering the security for obtaining the Finance i.e the Intellectual property is used as collateral for loans.

8. Litigation: Whenever the cases of infringement are filed by a patentee, a royalty is often awarded to compensate the pit and the poor the unauthorized use of the patent by the infringer. In such a scenario it is very important that the value of patent must be assessed and determining the damages in the case of patent infringement litigation and for the purpose of assessment of reasonable royalty.

9. Transfer Pricing: A transfer pricing is the rule/method for determining the price for pricing transactions within and between the enterprises under common ownership. In layman’s terms, the transfer pricing is the rule for determining taxable profits/losses of a company in a country. Wherever there is a transfer of tangible or intangible assets, the rules of transfer pricing get applicable to such transactions.

Essential Pre-requisites for Undertaking Evaluation of Intellectual Property

There are certain fundamentals which must be satisfied before taking an evaluation of the intellectual property. Therefore a checklist is warranted before going in for evaluation of the intellectual property.  Such a suggested checklist is as under:

1. Whether there is a recognizable description of the intellectual property that is owned by the business which can be identified appropriately?
2. Whether the intellectual property used by the business is such which is used by business with or without the permission of others who own such intellectual property?
3. Who is the owner of the existing intellectual property assets viz:
   1. The company or
   2. one or more employees or
   3. consultants or
   4. Business partners of the company/firm

4. Whether there is Tangible evidence of the existence of the asset in the form of intellectual property needs to be there in terms of the following:

• A Contract of intellectual property viz:
  • Assignment of patents, trademarks, designs, copyrights and Geographical Indications.
  • Technology Licensing and Technology Transfer Agreements.
• A license of intellectual property.
• A Registration Document signifying the registration of intellectual property like registration of trademark, patent, and copyright.
• Financial Statement in respect of Intellectual Property.
• A client list of intellectual property.

5. Whether there is an intellectual property that can be legally enforced and legally transferred?

6. Whether there is an intellectual property that is able to generate its income distinct from the other assets of the business?

7. Whether there is an intellectual property that can be sold without selling the other assets of the business?

8. Whether there is an intellectual property that  has got a definite period of existence

9. What are the factors which can affect the value of intellectual property viz:

• Too short a legal span/life of the intellectual property
• Availability of any substitute product or/alternative technology for the intellectual property in question.
• The likelihood of a third party claiming the ownership of the intellectual property in question.
• The market strength of intellectual property i.e the level of competent winners of Intellectual Property.
• What are the marketing strategies of this intellectual property in terms of:
  • Aggressive Marketing Strategy or
  • Conventional Marketing Strategy.

Method for valuation of Intellectual property

Normally one of the following methods for valuation of intellectual property are adopted:

Cost-Based Method

The different Cost Based methods are discussed below as under:

1. Historical Cost Based Method: The salient features of this method along with the method of calculation are as under:
   • Firstly, aimed at assessing the actual cost involved in the creation and development of intellectual property.
   • Secondly, largely used for evaluation of IP assets in the research and development phase.
   • Thirdly, the cost-based method works out the Actual costs incurred in creating and developing the intellectual property [H],  and therefore takes into account the following parameters:
     • Funds Invested- [F]
     • The time cost of money [T] (based on a risk-free interest rate).

• Method of calculation with an Example: The formula for calculation of Cost Based Method is: H= F+T
  • Parameter One: Let’s assume a situation wherein,  an amount of Rupees 5 lakh per Annum is spent on research of a project for two years, whereby the total fund invested is Rs. 10 lakh.  i.e F= 10,00000/-
  • Parameter Two: Let’s Assume that the  Time cost of money (T) involved is 5%
  • The cost valuation of the IP would be H= F+T i.e  10,00000 +[(5,00000 x0.05) + (10,00000x 0.05)] i.e =10,00000 + 25000+50,000=Rs 10,75000/-

2. Replacement Cost Method: It is a method which calculates the cost involved in an recreating the functionality or utility of the IP in question. However, the IP so created by replacement may be in a form or pages that may be different from the IP in question. The salient features of this method along with the method of calculation are as under: 

• Firstly, in this method the cost to replace the intellectual property is set to develop an alternative is worked out. In fact, in order to re-create the functionality or the utility of the IP in question, the use is made of the following:
  • Modern Methods to develop the functionality of the IP in question.
    • The state of the art design and layout.
    • The new technology.
• Secondly, in this method, it involves assessing risk and estimates of future costs and benefits.
• Thirdly, the replacement cost method works out the Replacement cost valuation [R] and takes into account the following parameters:
  • Funds Invested- [F]
  • The time cost of money [T] (based on a risk-free interest rate).
  • A Reasonable Risk Premium[M]

• The Utility of replacement cost method: Following are the instances under which the Replacement Cost Method can be used:
  • To evaluate the value of IP in the case of negotiations.
    • To work out the starting point/fundamental basis for charging the royalty rates.
    • To settle on the transfer pricing

• Method of calculation with an Example: The formula for calculation of replacement cost Method is: R= (F+T) x M

  • If the chance of failure as discussed in the example for Historical Cost Method is 30% i.e a situation where an there are 70% chances of success and 80% chances of failure than in M=100/ (100-30)=1.42.

  • Now taking the same example of F+T as discussed in the example of historical cost Method , wherein the value of F+T works out to be Rs 10,75000/-, we shall now work out the value of R (i.e Replacement Cost Method), since the formula applicable now is R= (F+T) x M. So the same is worked out as R=(10,75000) x1.42 = Rs1,526,500/-

3. Reproduction Cost Method: This method involves evaluating the price involved in creating an exact replica of the IP in question/a duplicate Asset. The salient features of this method are as under: 

• Firstly, in order to reproduce and to create the same standard & Quality as that of IP in question the duplicate asset use is made of:-
  • Same or Similar Materials
  • Similar Design
  • Similar Layout

• The utility of the reproduction cost method: Following are the instances under which the Reproduction  Cost Method can be used:
  • For the Purposes of Litigation.
  • To assess the return on investment (ROI)
  • For Tax Reporting Purposes like in the case of computer software.
• Method of calculation: Taking into account the current market value of following essential Parameters, the method of calculation is:
  • The parameter of Cost Involved: 
    • Data Development-  Rs D/-
    • Labour/ Research Cost– Rs R/-
    • Technology Development– Rs T/-
    • Legal Fees– Rs L/-
    • Others- Rs O/-

        Reproduction Cost=  D+R+T+L+O= Amount Rs X/-

The Concept Of Obsolescence   

There are various kind of obsolescence which affect the value of the intellectual property:

1. 1. Functional Obsolescence:  It is a case where the user of the IP has to incur taxes operational cost to use the IP depending upon the various alternatives including the state of the art to overcome the obsolescence so set in the IP.
   2. Technological obsolescence:  It is a situation wherein on account of the advent of technology the better technological options are available in the market and the intellectual property becomes insignificant.
   3. Economic obsolescence:    This is a situation wherein the intellectual property despite in its best form, yet it does not fetch adequate returns on the investment because of being unique, wherein the intellectual property has a little use beyond its particular function. 

Alternative method of working out the cost taking into account the factor of Obsolescence, the  reproduction cost, replacement cost

1. Stage  I: Initially in this stage,  the replacement cost is worked out through the formula:

       Reproduction cost-Curable Functional & Technological Obsolescence= Replacement cost

2. Stage II: In this stage, the replacement cost so worked out is used to estimate the value of IP as under:

 Replacement Cost-Economic Obsolescence-Incurable Functional & Technological Obsolescence= Cost of IP

Market-Based Method

 In this method, the valuation of IP, is worked out by drawing a comparison with the actual price paid for similar intellectual property asset under comparable circumstances (i.e whether the circumstances of cross-licensing or circumstances which make license agreed-upon in settlement of litigation). There are various factors which should be considered for the purpose of compatibility such as:

• What is the structure of the company of which the two IP assets are being compared
• What is the market size in relation to the two or more IP’s are being compared?
• What is the nature of Intellectual Property to be compared i.e:
  • Whether it is copyright to be compared? or
  • Whether it is a Patent to be compared? Or
  • Whether it is A Trademark to be compared?
• Comparison of the extent to which intellectual property contributes to the market demand for the final product as different intellectual properties may conclude differently to the market demand i.e while comparing two copyrights or two patents or two trademarks, each such intellectual property may contribute differently to the market demand with a similar intellectual property. Therefore until and unless there is a near similarity between the two similar intellectual properties towards the contribution in the market demand, it may not be easy to compare the two similar intellectual properties.
• The licensor’s anticipated profitability from the use of the two intellectual properties being compared.
• The risk and profitability issues associated with the intellectual properties being compared.
• The Territory of operation/demand and geographical coverage of the two intellectual properties being compared.
• The substitutes available for the intellectual properties being compared.
• The scope of cross-licensing of the two intellectual properties being compared.
• The comparison of the legal protection of the two intellectual property is being compared.
• The state of development of the respective intellectual properties which are being compared.
• The market-based Method is of two types as depicted by the diagram under:

Economic Based Valuation Method or Income Method

Conceptually supposed to be the superior method as it addresses the issue of the contribution of the intellectual property. In this method, the amount of economic income that the IP as it is expected to generate is adjusted to its present-day value The two distinct components of this method are:

• Identification and Quantification of the cash flow for each intellectual property.
• The capitalization of these cash flows.
• The Economic Based Valuation Method is again of two types as depicted by the Diagram as under:

• Calculation of the present value under the Discounted Cash Flow Method (DCF)
  • The Formula

Here, 

PV= Present Value

CF= Cash Flow

t= time representing years of IP asset economic life

n=time that economic life is expected to end

r = Annual rate of discount(representing the risk factor) or time value of money and assumed.

• An Example of Working out the Present value with the above formula
  • Let us assume that there is a company  A which is negotiating to license the use of its patent.
  • Let us assume that the current market value of the patent is Rs Ten lac (i.e Rs 10,000,00/-).
  • It is expected by company A bad the royalty rates would turn out to be Rs 50,000/- [ Rs Fifty Thousand] annually over a period of five years (i.e the economic life of the patent).
  • The risk-adjusted discount rate is estimated to be 5%.

• Accordingly, the present value of the patent will be as under:

                         1                                 2                                    3

PV= 50,000/ (1+0.05) +50,000/ (1+0.05) +50,000 /(1+0.05)

                        4                                      5

            +50,000 /(1+0.05) + 50,000 /(1+0.05)

i.e

PV= 47619.04 +45351.47+43191.87+41135.12+39176.35=216,473.85

Thus , the company A  would expect to receive at present, an amount of Rs 216,473.85/-, as  Royalty Rate, if it licenses its patent for five years

Royalty Rate method

In this method, the value of intellectual property is arrived by capitalising the post-tax royalty paid annually for the use of intellectual property under a hypothetical licensing arrangement.

There are three different approaches to work out the royalty rate method as under:

• The Precedent Approach: This approach involves:
  • Examining previous licenses issued by the licensor for intellectual property.
  • The royalty rates charged in previous licenses are generally the strongest evidence of royalty charged, provided that the previous licenses are similar to the licenses under consideration.
  • The factors for comparison which should be considered to gauge whether the grant of previous licenses was carried out in similar circumstances are as under:
    • The kind of technology and industry for which the previous licenses of IP  were issued.
    • The duration for which the previous licenses were issued.
    • The Rights that were tagged with the previous licenses in terms of:
      • Technical Support
      • know-how
      • Use of Trademarks
      • The Territories Covered
      • Any Reciprocal arrangements in the terms of Cross Licensing etc.

• The Industry Standard Approach: This approach involves factors like:
  • The Terms of License.
  • The Availability of Alternatives/substitutes.
  • The capacity to make ancillary sales (i.e sale of non-patented/unbranded goods or services which are sold along with patented/branded items).

These factors are then considered in relation to the specific circumstances of the license.

• The Available profits approach: This method involves:
  • Assessment of the Future Cash Flows.
  • Consequently, the cash flows of the future are then compared for:-
    • Situation with licenses
    • Situation without licenses

The resultant comparison gives out the incremental cash flow that will arise from the grant of License. Such incremental cash flows can be divided between Licensor or licensee in terms of ratios like:-

• 25:75 or
• 33:67 or
• 50:50

Conclusion   

In order to have effective decision-making, to negotiate the IP related contracts/agreements with a commanding position and to meet the legal accounting standard requirements and taxation liabilities, the evaluation of the intellectual property assets in a business enterprise is of prime importance and must be carried out from time to time.

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.

The post How Intellectual Property is Valued during a Transfer of Business appeared first on iPleaders.

This article is written by Ramanuj Mukherjee, CEO, LawSikho.

2018 was a whirlwind journey for us.

Thank you for supporting through thick and thin. We could not have made it so far without you.

I know a lot of you wanted to enroll in some course or the other but could not enroll for various reasons. So here is what I am going to do. . My team wanted to introduce the new prices from 1st April, but I insisted that we must not increase price before 15th April. I want to give sufficient notice to all our subscribers who planned to enroll later.

You are important to us and we don’t want to disappoint you.

At the same time, we must increase prices because costs are going up! I have to give a salary hike to my colleagues. They deserve it for the amazing work they are doing.

What is also going up very fast is the quality of our courses. We just hired an experienced lawyer who would regularly give coaching on call to learners who are struggling to finish their work, we introduced scholarships for poor students and decided to massively upgrade our study material!

Naturally, we have to enhance the prices, but what I can guarantee is that you will get the value many times over compared to the money you invest in any course with us.

How can I be so sure?

Every single day I get multiple unsolicited emails and messages from our learners, who tell us how our course has made a big difference in their life.

Take this for example:  

Dear Sir,

This is going to be a long message but this time I will not apologize to you for the same because you need to be told what you mean to juniors such as myself.

I am currently undergoing the certificate course on the Insolvency and Bankruptcy Code, 2016. I appeared for an interview at AMLEGALS, which is an all service litigation firm. I am happy to tell you that I have made it and have been offered the position of an associate at the firm.

Today at the interview, the founder himself tested me to the limit when it came to the practical application of the Code. From the drafting of a resolution plan to drafting an application under various sections of the code, everything was tested. And to my own surprise, I knew the most of it, despite having been your student for about one and a half months only.

I don’t have words to thank you for making real lawyers out of law graduates. I sometimes wish that if 5 years of law school had been like this, students would practically graduate with 5 years of work experience.

• Shantanu, Certificate Course in Insolvency and Bankruptcy Code

The quantum of increase

The courses that are priced at INR 25,000 now (23,600 if you pay at once), will be priced at INR 30,000 from 15th April. Courses that are priced at INR 10,000 now, will be priced at INR 15,000. Courses which are INR 18,000 currently, will be priced at INR 20,000.

The increase is not so that we can make more profit. It is simply so that we can fulfill our vision of providing a world-class education to our learners. If you want to avoid it, the way to do so will be to enroll before April 15.

As you already know, we charge the same price to everyone and never give discounts for this reason. We have also never reduced prices, unlike our competitors, in our 8 years of history.

Money back guarantee – try out the course for a month risk-free

Check out our refund policy!

https://lawsikho.com/policy/refund-policy

Give us a call if you want any help. Our new number is: 011-40845203

The post Time Sensitive: Prices go up from 15th April 2019 appeared first on iPleaders.

This article is written by Advocate Shamika Vaidya pursuing Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from Lawsikho.com. Here she has discussed Benami transaction.

What is a benami transaction?

The Benami Transaction (Prohibition) Act, 1988 Act defined benami under Section 2(A)  means any transaction in which property is transferred to one person for a consideration paid or provided by another person.

The definition, therefore, misses a great deal of instances that could come under the benami transaction.

The 2016 Amendment to the Act defines Benami property as an arrangement or a transaction where the property is transferred to or held by one person and the consideration for it has been paid or provided by some other person, and the property is held for either indirect or direct benefit or immediate or future benefit of the person who paid the consideration.  

In addition, several transactions which could be genuinely undertaken but would still fall within the ambit of the above definition have specifically been listed and excluded from the purview of the definition of ‘benami’ (see below).

In contrast, the 1988 Act did not provide detailed exclusions. It defined a benami transaction as any transaction in which property is transferred to one person for a consideration paid or provided by another person.

As you can see, the level of explanation and detail introduced by the 2016 Amendment is very high, coupled with an elaborate adjudicative machinery and enforcement provisions.

Note that the person who is mentioned as the owner on paper is called the benamidar or ostentatious owner. This is a term which is frequently used in case laws and legal conversations associated with benami property.

What is the incentive to enter into benami transactions and what is the regulatory reason for prohibiting the same?

The following commercial incentives and regulatory concerns explain why benami transactions are prohibited.

• Commercially, benami assets were acquired to separate the assets from one’s personal assets, so that they could not be attached during insolvency and liquidation. As the purpose is inherently fraudulent, it made sense to prohibit such transactions for a regulator.
• Wherever a cash economy is prevalent (particularly in the pre-demonetization era), businessmen have the opportunity to utilize cash generated from the business by immediately investing into assets in somebody else’s name, without disclosing the income or paying tax on it. This was a tax concern behind prohibiting benami transactions. Until 1988, income tax law allowed benami transactions provided the assets acquired were declared in income tax returns, but later in 1988 it was prohibited by the introduction of the Benami Transactions (Prohibition) Act, 1988.
• Benami transactions can also give rise to round-tripping – for example, I could send money to a friend offshore, who could invest the same in India. In this way, a transaction which has funds generated in India could be masqueraded as a foreign investment.
• Apart from having unaccounted money flowing in the economy, some of the other reasons behind prohibiting benami transactions are to prohibit money-laundering, hawala transactions or any financing of terrorism or proceeds of crime.   

Types of assets that can be attached or forfeited if purchased benami

Typical assets which have been attached by the income tax department are land, flats, shops, vehicles, Fixed Deposits, bank account and jewelry (see an Economic Times article here mentioning details of notices issued and attachments of property.

In January 2018, Shahrukh Khan’s farmhouse in Alibaug was provisionally attached by the Income Tax Department (the designated inquiring authority can attach it if there is a concern about the alienation of the property – see Section 24(3)) on grounds of its being a benami property (see here).

What are the consequences of entering into a benami transaction?

If a person is found guilty of being involved in a benami transaction, he can face the following consequences:

• As per Section 53 of the Act, he or she may be sentenced to rigorous imprisonment ranging between one year to seven years.
• A fine of up to 25% of the fair market value of the property involved in the benami transaction may be imposed.
• The property involved can be confiscated.

Furnishing of false documents is also punishable with rigorous imprisonment ranging between 6 months to 5 years along with a fine of up to 10 percent of the fair market value of the property.

Those who are involved in furthering any aspect of the benami transaction (called abetment or inducement) or can also be subjected to the same punishment.

Which transactions are excluded from the purview of benami transactions?

Following transactions are not within the purview of benami transactions as per the 2016 Amendment:

1. Property held for the benefit of karta of a (HUF) Hindu Undivided Family or other members, where and the consideration is paid by known sources of such family
2. If property is held by people in fiduciary capacity for the benefit of another – this is largely the case in context of the following relationships, which will not be caught within the benami prohibition:
3. 1. Property held by trustees
   2. Property held by executors
   3. Property held by a partner of a firm or a director of a company
   4. Securities held by a depository participant as an agent of a depository under the Depositories Act, 1996.
4. Property purchased in the name of spouse or child, where consideration is paid by known sources.
5. Property purchased in the name of an individual’s brother or sister or lineal ascendant or descendant, where the names of them appear as joint owners in concerned documents and consideration paid by known sources of the individual.
6. Property purchased bona fide under a financial or loan arrangement.
7. Any transaction involving the allowing of possession of any property to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act, 1882 if:
8. 1. consideration for such property has been provided by the person to whom possession of the property has been allowed but the person who has granted possession thereof continues to hold ownership of such property;
   2. stamp duty on such transaction or arrangement has been paid; and
   3. the contract has been registered.

Note that the real intent of the parties is of prime importance to determine whether or not the transaction is a benami. If put to the application of strict definition many of the genuine deals may easily fit, however, the intent of the parties is a consideration against the strict application of the law.

How is action with respect to Benami transactions initiated?

Initiation by the designated Assistant/ Deputy Income Tax Commissioner

An Assistant or Deputy Income Tax Commissioner can be designated by the government initiate the proceedings, who has the power to conduct inquiry or investigation after the prior approval of an approving authority (typically an Additional or Joint Commissioner of Income Tax). Permission of the approving authority is also required for attachment of any property (in case there is a concern about the alienation of property) or for impounding documents.

The initiating officer can issue a notice to the holder of the benami property to issue a show cause as to why the property should not be considered as benami property. He can conduct inquiry or investigation of any person, place, property, assets, documents, books of account or other documents.

Adjudication by Adjudicating Authority

The Adjudicating Authority (the power is vested in Sessions Courts) may pass an order within a period of 1 year on whether the property is benami or not.  

The authorities are not bound by the Civil Procedure Code but must follow the principles of natural justice. Thus, every person who is alleged to have entered into a benami transaction will have an opportunity to present his or her case.

The Act empowers authorities with the following powers:

• Discovery and Inspection
• Enforcing the attendance of any person and examining him on oath
• Compelling the production of books and documents
• Issuing commissions
• Receiving evidence on affidavits
• Impound documents  

The Administrative Authority under the Act manages the process of confiscation of the property after an order is passed by the adjudicating authority. The authority gives a 7-day notice for the surrender of property. Failing voluntary surrender, the administrative authority can requisition police assistance for confiscation.

Collaboration by multiple authorities for the purpose of inquiry and investigation

Another interesting aspect is that Section 20 of the Act specifies the authorities which may assist in the inquiry process, and these span a huge gamut of regulators, namely:

1. Income Tax Authorities
2. Custom and Central Excise Department
3. Narcotic Drugs and Psychotropic Substance
4. SEBI officers
5. RBI officers
6. Police
7. Enforcement Officers of Foreign Exchange Management Act
8. Officers of the Stock Exchange

Criminal proceedings

The Adjudicating Authority only has the power to determine whether a transaction is benami and initiate attachment/ confiscation of property. However, criminal proceedings are to be initiated by one of the authorities mentioned above or an officer of the Central Government or State Government who is authorised by written order. Cognizance may be taken by a Sessions Court which has been especially designated in this regard. Note that criminal proceedings arise independent of civil proceedings and determination by the Adjudicating Authority for confiscation and attachment will not be a final determination for the purpose of criminal punishment – an independent determination by the criminal court in accordance with Criminal Procedure Code and the Indian Evidence Act will be made.     

Reward schemes for citizens for disclosure of benami transactions to tax authorities

The Income Tax Department launched new “Benami Transactions Informants Reward Scheme, 2018” (see the press release here) to encourage informants to disclose Benami transactions that they know about, and thus reduce black money or tax evasion.

Under the Benami Transactions Informants Reward Scheme, 2018, a person (including a foreigner) can get a reward up to INR 1 crore for giving specific information in the prescribed manner to the Joint or Additional Commissioners of Benami Prohibition Units (BPUs) in Investigation Directorates of Income Tax Department. The identity of the persons giving information will not be disclosed and strict confidentiality shall be maintained.

The full text of the scheme is available here.

Note that any proceeding, based on the information will be initiated by the Initiating Authority (mentioned above).

How to challenge the attachment of property

An attachment of property is undertaken at the stage of the inquiry. Along with attachment of property, documents and books of account can also be impounded.

An order of attachment prohibits transfer, conversion, disposition or movement of property.

Attachment is provisional at the stage of inquiry and can be undertaken by:

• Initiating Authority, with the approval of Approving Authority
• Adjudicating Authority directly

(See Sections 24 and 26)

The provisional order of attachment will expire after 90 days unless it is continued further.

Further, the adjudicating authority is required to provide an opportunity of being heard to the benamidar and any other person who claims to be the owner and can pass an order confirming or revoking the order of attachment, depending on whether it has found the property to be benami or not.

The simplest way to have an attachment of property vacated is to provide sufficient evidence to provide that the transaction is not benami.

How to challenge confiscation of property

The term attachment has been used in a ‘provisional’ context only, when the property is to be forfeited upon a determination by the adjudicative authority, the technical term used is ‘confiscation’. After confiscation, disposal of the property undertaken by the Income Tax department.

Appeals from a decision of the adjudicating authority (of confiscation) can be made to the Appellate Tribunal. The order of the Appellate Tribunal can be appealed at the High Court under Section 49 of the Act.

Were such investigative powers and consequences specified under the earlier version of the Act?

The 1988 Act did not specify a detailed definition or exclusions for benami transactions. A detailed investigative or adjudicative machinery was not prescribed either. Apart from forfeiture of property, there was simple imprisonment for 3 years or fine or both. Thus, there was an option for a criminal court to sentence an offender with imprisonment or fine.

In comparison, the 2016 Amendment prescribes mandatory rigorous imprisonment for entering into benami transactions and a mandatory penalty which is fairly hefty, at 25% of the market value of the property.

A detailed investigative process and adjudicative machinery are set up, and the government authorities who may assist in the process are also clarified. The law now has teeth.   

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

The post Benami Transactions and The Law appeared first on iPleaders.

This article is written by Jyoti Choudhary, student of diploma in Contract drafting from Lawsikho, here she discusses the major reasons of dispute in a Manufacturing Agreement.

INTRODUCTION

The Indian economy has grown fastest in the past few years itself. Many foreign businesses have started taking interest in investing in the Indian market and establishing their commercial activities in India. Some of the companies deal in manufacturing products like clothes, devices, machineries, drugs etc. When manufacturing companies come up with their own idea and designs, they may take external services from Original Equipment Manufacturers (‘OEMs’) for manufacturing some parts of the product like motor, engine, and tyres. For this purpose, the parties can enter into manufacturing or/and supply agreement.

WHAT IS MANUFACTURING AGREEMENT?

A Manufacturing agreement is a legal document which is executed by two parties i.e., Manufacturer and Owner. The Manufacturer promises to manufacture products for the Owner/buyer for consideration. Whilst drafting an agreement, the draftsman should include the entire process, design, quality standards, materials to be used, costs, payment, and delivery. This should also include date of execution, date of delivery, timelines for production, supplies, quality standard, number of experts and their qualifications, notices, norms and with standard regulatory and governance terms and conditions.

WHAT ARE THE VITAL POINTS FOR CONSIDERATION IN THE AGREEMENT?

It’s critical in the manufacturing industry to get on-time delivery of the products. This is one of the reasons why manufacturing agreement comes in handy. A manufacturing agreement will give the parties a clearer idea as to how to perform and cooperate efficiently. The terms of the agreement may change at the discretion and consent of each party. To avoid or minimize the dispute, the Manufacturing Agreement should answer the following questions:

• • What happens if the manufacturer has sent me goods with defects?
  • Who is responsible for damaged goods?
  • Will the manufacturer be able to use my design and intellectual property for other purposes?

• What are the manufacturer’s responsibilities to me?

These points may vary depending on the nature of the contract. However, dispute may arise between the parties under this agreement if the points are not taken into consideration.

TOP 5 REASONS FOR DISPUTE IN THE MANUFACTURING AGREEMENT

Company’s high-risk points:

Every company is different, be it fashion, pharmaceuticals or heavy machinery manufacturing companies that comes with a different kind of risk. For some company, the equipment used in the creation of the final product and their costs are considered as their high risk and same must be addressed in the agreement while drafting.

For companies having heavy productions every year, it is vital to meet the basic requirements of the customers, which involve the pricing, user-friendly gadgets, security, health, and social care.

There is a constant risk of competition in this industry. In the year of 2015, 98% of manufacturers were found to be incompetent to manage, complete, and integrate M&A and joint venture.

Other emerging and growing risks are cybersecurity, labor, pricing, technology, and competitive and regulatory risks.

Deficiency in the design of the products/Quality standard of the products manufactured by the Manufacturer:

Every industry has unique quality requirement or standards of compliance that regulate manufacturing.  Quality standards set out the priority areas for quality improvement in health and social care. Quality standards if provided clearly by the Owner in the manufacturing agreement with all the requirements can eliminate the risk of future dispute. So, when the parties entered into an agreement, the Manufacturer shall comply with the instructed standards of the agreement. However, when specified information has not been mentioned clearly in the agreement, there’s bound to have some mishaps.

Further, the dispute may also arise when the company enters into a contract with the Original equipment manufacturers but the product manufactured doesn’t meet the quality standards of the company. The company may ask for modification or compensation or cancellation of the order under the agreement.  

In M/S Michigan Rubber(I) Ltd vs State of Karnataka & Ors, the Appellant/Company challenged the order passed by the High Court of Karnataka wherein it was held that the Appellant was asked to supply the products as per the said pre-qualification criteria. The Appellant contended that they have successfully made the supply of products in previous three contracts. There was no complaint pertaining to short supply and quality. Hence, the impugned pre-qualification criteria shall be excluded from the tender bidding process. However, in instant case, the SC affirmed the pre-qualification criteria imposed by the HC and stated that contentions of the Appellant are baseless and unreasonable.

Warranty Obligations:

A good agreement will clearly explain the promises and obligations of the parties to the contract. That means focusing on what promises should suppliers make as to performance of the product?

What are your promises towards the customers in relation to the design, manufacture, function or life of your product? Is there any lacking in the contract with your answers to the previous questions? If yes, the parties shall require taking actions for alignment of the contract with the said requirement and promises. There should not be any miscommunication between the parties which may end up into a future dispute.

Often than not, parties do land up in disputes before the court, where parties do not give specifications as to who will be held responsible when executing the agreement. Here, the consumer will file complaint against the company which might put both the parties into years and years of dispute, and expensive arbitration proceedings. Most of the parties enter into a binding agreement for the sole purpose of not getting into the dispute in the future.

For example: ‘A’ purchased a motor vehicle of XYZ Ltd., a well-reputed company in the industry. The motor vehicle has a warranty of 2 years but after usage of 8 months, the vehicle caught on fire, which results in severe injuries to the consumer. ‘A’ filed a consumer complaint against XYZ Ltd. for having manufacturing defects and can ask for compensation. Now, in the Court, XYZ Ltd. may held responsible or waive their liability to pay compensation by stating that the manufacturing warranty was given by the Original Equipment Manufacturers. Is consumer entitled for the compensation? Who will be held responsible for such events? How much compensation is to be paid by the responsible party. If the agreement, more specifically, a warranty clause answers all these questions, there will be less chances of disputes between the parties. Here, when the products do not meet any or more of Consumer Guarantees, consumer will be entitled to some remedies against the suppliers and/or manufacturer as per the agreement.

IPR Ownership:

Intellectual Property right is any other property right. It is a category of property that includes intangible creations of human rights. The main intellectual property rights are patent, designs (registered or unregistered), trademarks and passing-off type rights and copyright and related rights.

In a good manufacturing agreement, intellectual property rights will be spelt out clearly as to who owns the intellectual property (IP) rights that are incorporated into the product or that are used to manufacture the product.  Let’s say, you’re designing a specific device for a customer’s manufacturing process. Your engineers are creating IP with respect to that design. Who owns that IP? Who gets to exploit it? These questions should be clearly defined within your contract, so it’s aligned with each party’s expectations.  The bottom line is that if IP is important to you, make sure your contract gives you the rights and protections you need.

In case of Bridgestone v. Bridestone, Delhi HC took serious action against Tolin Tyres for denying to export the tyres under trademark “BRIDGESTONE” in spite of constant requests. The Defendants herein held liable for an infringement of trademark and order of permanent injunction was passed against Defendant. The Defendant was also held liable to compensate the Plaintiff towards damages faced due to export of tyres under trademark ‘BRIDESTONE’.

Confidentiality:

When a party enters into a contract, where sensitive information is to be shared with the other party to achieve the purpose of the contract. The contract will spell out the set of information which are confidential and very important to the business. The parties agree to maintain the information secretive in pursuant to the agreement. So, the parties are restricted to share that information with anyone who are not party to the contract. This will ensure protection of the party from potential competitor or dispute.

     To avoid leaking the confidential information, the parties shall require adding non-disclosure clause. What is confidential? What information is confidential? When and where the information can be used? Who can use the information? What happen when either of the party shares this information outside? This clause should explain these questions in order to avoid future disputes and to have smooth transaction. In the event of breach, the party which infringes the contract must compensate the other party in a way which has been agreed by the parties in the contract.

For example: B Ltd is a truck manufacturing company, whereby tyres to be used in the finished products are to be supplied by the Original Equipment Manufacturer. In order to do so, B Ltd. entered into an agreement with OEM for manufacturing of tyres. In the agreement, parties shall agree not to disclose any confidential information, which have been defined under the agreement and the consequences in the event of breach.

RESOLUTION OF DISPUTE IN MANUFACTURING AGREEMENT IN INDIA

When entering into a contract, parties’ intention to create legal relation is an essential feature under Indian Contract Act, 1872. The existence of intention of party will depend on the nature and form of the contract and the contracting parties. In commercial agreements, there is rebuttable presumption that parties intend to create legal relations and conclude a contract. In case of dispute, the Court will look at the intentions of the parties.

In a landmark case of Balfour v Balfour, the Court gave attention to the importance of intention of the parties. In instant case, it was determined to be a social activity between the spouses. There was no intention to create a legal relation. Hence, the Court passed the judgment in favour of Mr. Balfour.

So, this can be applicable to cases where the agreement is not binding and not enforceable in the eye of law. But what happen when parties entered into an agreement which has legal enforceability? In such cases, parties may settle the matter among themselves or may appoint an arbitrator for amicable settlement under the agreement. In India, arbitration proceedings are are regulated under the Arbitration and Conciliation Act, 1996 and are the alternative of litigation for resolving sophisticated and modern engineering-based dispute. In arbitration proceedings, appointment of the arbitrator will be done with the consent of both the parties. Most of the arbitrators are either laymen or retired judge or lawyers, whoever being agreed by the parties of the agreement.

In Satyendra Kumar v. Hind Construction Ltd., AIR 1852 Bom. 227, it was held that ‘where the parties to dispute refer the matter to a person and such person holds a judicial inquiry in deciding that dispute and comes to a judicial decision, such a person is called an ‘Arbitrator’.

INFORMATION REQUISITION FORM FOR A MANUFACTURING AGREEMENT

The information which will be required to perform a legally binding manufacturing agreement:

CONCLUSION

Since the process of creation, execution, formation and performance of the contract is time consuming and a long-term transaction, the aim of the parties must be to create a legally binding agreement that aligned with the parties’ expectations and accurately sets out the parties’ business relationship. While reviewing the contract parties are require to carefully go through each and every clause stated therein and also keep in mind the company’s high risk points. A legally binding and carefully drafted contract shall provide protection and shield to the parties from every possible risk and can help in maximizing the benefits from it.

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

The post What are the Top 5 reasons for Dispute in a Manufacturing Agreement? appeared first on iPleaders.

This article is written by Rishabh Soni, law student, Amity law school Delhi. He discusses the contract of bailment and pledge.

What is bailment?

Bailment as defined in section 148 of the Indian contract act 1872 is the delivery of goods by one person to another for some specific purpose, upon a contract that these goods are to be returned when the specific purpose is complete. For example, A delivering his car for Service at the service center is an example of bailment. The person delivering the goods is known as bailor and the person to whom goods are delivered is known as bailee. However, if the owner continues to maintain control over the goods, there is no bailment

Illustration If A gives his car to B his neighbor for 10 days, but at the same time he keeps one key with himself and during this period of 10 days he used to take the car. Now this will not be a case of bailment as A is keeping control over the property bailed.

Essentials of Contract of Bailment

1. The existence of a valid contract:- The existence of a valid contract is a foremost condition in bailment which implies that goods are to be returned when the purpose is fulfilled. Finder of lost goods is also known as bailee although there may not be any existing contract between him and the actual owner.
2. Temporary delivery of goods:- The whole concept of bailment revolves around the fact that the goods are delivered for a temporary period and bailee cannot have permanent possession. Delivery of goods can be done through actual delivery or through constructive delivery which means that doing something which has the effect of putting the goods in possession of bailee or any other person authorized by him.
3. Return of specific goods:- The bailee is bound to return the goods to bailor after the purpose for which it was taken is over. If the person is not returning the goods then it will not be bailment.

Types of Bailments

Deposit:- It is the simple bailment of goods by one man to another for a particular use.

For example, A gives his computer to B for 7 days, it will be a case of a deposit

Hire:- It includes goods delivered to the bailee for hire.

For example, A gives his car to B for 7 days on rent of Rs. 700 per day, it will be a case of a hire

Pawn/ Pledge:- when goods are delivered to another person by way of security for money borrowed.

For example, A takes a loan from the Bank and keeps his papers of the house with a bank as security, it will be a case of pledge

Duties and liabilities of a bailor

1. The bailor is bound to disclose to the bailee, the faults in the goods bailed. which he knows and if he does not make such disclosures, he is directly responsible for damage arising to the bailee directly from such faults.

   Illustrations:- A delivers a car to B knowing that the brakes of the car very less. Now if any accident happens A will be liable for the same.

2. Bailor is also responsible to the bailee for any loss which the bailee may sustain by reason of the fact that bailor was not entitled to make EXPLAIN                          

1. To make the bailment
2. To receive the goods
3. To give directions respecting them Section 164

3. Duty to indemnify the bailee:- The bailor is duty bound to make good the loss

suffered by the bailee where he was compelled to return the goods before the expiry of the period of bailment

4. Duty to claim back the goods:- The bailor is bound to accept the goods upon being returned by the bailee in accordance with the terms of the agreement. If he refuses to accept it at a proper time, without any reasonable ground then he will be liable for any loss which may happen to the goods.

Bailee’s Rights

Lien

Particular lien Section 170 of Indian contracts act 1872

Lien is basically a right in one person to retain the property which is in his possession, belonging to another, until certain demands are satisfied. It includes those things where the bailee, in accordance with the purpose of bailment, rendered any service involving the exercise of labor or skill in respect of the goods bailed.

Illustration: If A gives a piece of cloth to tailor for stitching a suit. Then Taylor is entitled to keep the suit with him until A pays him for the cost of stitching.

For exercising this particular lien following factors are to be considered:

1. The bailee must have rendered some service involving labor or skill
2. The service must be in accordance with the purpose of the bailment.
3. This service must be with regard to the thing bailed.
4. There must be no contract to the contrary.

General lien

Section 171 of the Indian contract act 1872 deals with the general lien. A general lien is the right to retain the property of another for a general balance of accounts. It entitles a person in possession of goods to retain them until all claims or accounts of the person in possession against the owner of goods are satisfied.

An example of general lien can be Banker who is entitled to retain the goods until the person satisfies his debt with the bank.

Right against wrongful deprivation of or injury to goods Section 180–181

A bailee is having a definite right if he suffers an injury with respect to goods bailed from bailor. Moreover, if a third person wrongfully deprives the bailee of the use or possession of goods bailed he is entitled to such remedies as the owner might have in such a situation.

Bailee’s Liabilities

Care to be taken by the bailee –(Section 151 and 152)

The bailee is bound to take as much care of goods bailed to him as a man of ordinary prudence would have under similar circumstances and therefore he will not be liable for any loss, destruction or deterioration of the thing bailed if he has taken care. In the case of Calcutta Credit Corporation Ltd v. Prince Peter of Greece, it was held by Calcutta high court that the defendant has not taken reasonable care to prevent plaintiffs car from burning.  

The duty of the bailee to return the bailed goods (Section 160 and 161)

Bailee is under the duty to return or deliver goods according to the bailor’s direction as soon as the time for which goods were bailed has expired.

Bailee’s duty to deliver increase profit from the bailed goods to the bailor

In the absence of any agreement, bailee is bound to deliver to the bailor any increase in profit or any benefit which may have accrued from the goods bailed ( Section 161). In the case of Standard Chartered Bank v. Custodian, it was held by Supreme court that if Shares and debentures are pledged, bonus shares and dividend are also regarded as Part of it.

Pledge Section 172-179

The bailment of goods as security for payment of a debt or performance of a promise is called pledge. The bailor in case of a pledge is known as pawner and bailee as Pawnee.

A pledge is very likely as a bailment, but the characteristic feature of a pledge is that there is a delivery of the goods as security for a debt or promise.

For example, If A hands over his papers of the car to Y a bank as surety for the loan given, it is a case of a pledge. The most important element of a pledge is the actual or constructive delivery of goods pledged

Essentials of pledge

• Delivery of goods/ Title:-

Pledge is like a bailment and it also involves the delivery of goods from the pawnor to Pawnee. Delivery of goods also results in delivery of possession. For example, Delivery includes transferring of a document to the bank for taking a loan. This transaction will involve the delivery of goods. Morvi Mercantile Bank v. Union of India.

• Purpose of Pledge is always security for payment of debt:-

The purpose for which goods are bailed is that bailed goods should serve as security for the payment of debt or performance of a price. When goods are pledged, the Pawnee becomes a secured creditor.

Persons entitled to pledge

In normal cases, goods can be pledged by the owner or the person authorized by him, but in some exceptional cases, a person who is neither the owner nor have any authority from the owner of pledged goods, but having possession with the owner’s consent can make a pledge. These exceptions are

1. Pledge by a mercantile agent Section 178
2. Pledge by a person in possession under a voidable contract Section 178A
3. Pledge by a seller in possession after sale Section 30(1), Sale of goods act
4. Pledge by a buyer in possession after sale Section 30(2) Sale of goods act.

Rights of Pawnee

1. Right to retain the goods pledged Section 173 and 174
2. Right to recover extraordinary expenses incurred by pawnee Section 175
3. Rights of the suit to procure the debt, and sale of the pledged goods Section 176

Another important scenario may arise if the pledged goods are lost or damaged due to the fault of the Pawnee, for instance, he fails to take due care of the goods, then he will lose his claim against the pawner to that extent. For example, If A takes a loan of Rs 5,00,000 from B and gives his car worth Rs2,00,000 to B for a period of 5 years. Now during this time period if any damage is caused to the car then B will be liable for the same and he will be entitled to his money back based on this condition.

Conclusion

Now after analyzing the provisions of bailment and pledge in detail we have seen that the concept of bailment involves handing over the goods to another for a specific purpose whereas in pledge also goods are transferred, but not to fulfill a specific purpose but also to keep them as a security for repayment of debt.  

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This article is written by Asgar Ali, Deputy Manager, Safety and Training deptt., M/s ISGEC Heavy Engg. Ltd Yamunanagar, Haryana, pursuing Diploma in Industrial and Labour Laws by Lawsikho as part of his coursework. Here, he discusses the Fixed-term employment contract.

Introduction

In October 2016, the NDA Government allowed fixed-term contracts in cloth textile sector and afterwards, in the year 2017, the government allowed the same in leather footwear sector under MAKE IN INDIA Campaign as well as National Skill Development Mission. In the Year 2018, the government proposed to allow fixed-term employment in all sectors by proposing amendments in Industrial Employment (Standing Orders) Central Rules mandating that fixed term contract workmen shall get same wage rate, allowances, working hours and all other benefits likewise to permanent workmen in any Industry.

Now, For Employers, such types of contracts become easier due to relaxation from various compliances under contract labour laws.

The fixed Term Employment contract shall be beneficial for some workers in Information technology Sectors, Manufacturing sectors, Textile Industries, Automobiles sectors where their skill sets are quite high but available for limited duration due to sudden high / sudden less demand in the market. But there are always high probabilities of job insecurities due to the written agreement of employment for a fixed period

Benefits to workers employed under fixed-term employment contracts

The workers hired for a limited period i.e. for a fixed duration under fixed-term employment contracts shall be beneficial to them as compared to contract workers. He shall be eligible for getting all benefits which are available for any permanent workman for the same work content. There are some long term benefits available to a fixed term employee because the statutory benefits entitled are the same to both natures of employment.

Why fixed-term employment contracts required in the present situation?

Some industrial sectors like leather industries, textile market, food industries etc do not run smoothly throughout the years due to its nature of works and most significantly as per the need of consumers. Sometimes the demands go downwards due to no interest of consumers into the product supplied due to outdated fashion, sometimes due to no market demand but sometimes its demand goes quite high due to the sudden change in consumer behaviour for its need. In such situations, the employers look forward to get quality services from talented workforce within such short duration when the demand of their goods are high and in order to supply the on-time delivery, they give preference to fixed-term employment contracts because in such cases, there is No loss to employer and also there is no loss to the fixed term employees. If we look into the protection of workers by means of  statutory benefits then also it is provided under the Industrial Employment (Standing Orders) Central ( Amendment ) Rules, 2018 that:

• Working hours, wage benefits, allowances, gratuity etc shall be equal to that of a permanent worker.
• All statutory benefits shall be available likewise to permanent workmen proportionally according to the period of services rendered by him.
• The employer can hire a fixed term worker without any involvement of the contractor.

Can any employer convert his existing employee into a fixed term employee?

In Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018, Rule 3 A states that “ No employer shall convert the posts of permanent workmen existing to his industrial establishment “

For fixed term employee, there is no need to serve the termination notice or to pay in lieu of termination of services as it is a fixed term employment contract and such contracts can be renewed and extended by the employer based upon his business needs, but in case it is not renewed , the contract shall be understood as terminated

Power of government to prohibit employment of contract labour in any establishment

There is a provision in Contract Labour (Regulation and Abolition) Act, 1970 that the appropriate government holds the power to prohibit employment of contract labour in any establishment. Sometimes, contract labour can be hired in some establishments as well as some industries due to the pressure of trade unions as well as binding of government over industries to not to hire labour on a contractual basis. In such cases, the government evaluate the work and decides whether it is essential or not necessary, whether the full-time employees are required for such work or not.

Fixed-term employment contracts are like a facility provided to employers in seasonal sectors where demand, as well as supply, fluctuate as per the market situation and in such cases, the facility of fixed-term employment is far beneficial in comparison of contractual based employees or a badli worker. According to the Model Standing Orders given in the Industrial Employment (Standing Orders) Act, Badli worker is one who is appointed for the time being to do some work of regular nature when the person who has been doing that work goes on leave or is absent due to any reason. The job will cease to exist when the regular employee for whose absence he is appointed resumes duty. Since there is no major constraint to comply statutory requirement in case of fixed-term employment contract so in the present situation the employers prefer to opt for fixed-term employment contracts

After the demands of various trade unions the government ordered through a notification that No employer of any establishment or of any industry shall try to convert the posts of existing permanent workmen employed in that establishment  or industry on the date of commencement of Industrial Employment (Standing Orders) Central (Amendment Rules, 2018 as fixed-term employment thereafter

Difference between a contractual labourer and a Fixed Term Employee

There are some basic differences between the services of a contractual labourer and a Fixed Term Employee. The major difference is that employment contracts do not have an expiration date as they are continuous and can be ended by giving a notice which can be with reason and sometimes there may not be any reason. Sometimes under the employment contracts, any disciplinary action can be taken against any contract employee due to the breach of work-related rules. In such situations, if the contractor workmen have to be stopped from work and employer want to let him go then the employer has to pay him in the form of retrenchment compensation which can range from 01 months’ up to 3 months’ remuneration which depends upon the scale, size, and nature of Industry. Also, in some cases it is quite difficult to lay off the workmen without getting the permission of appropriate government as per applicable labour laws as under the act of Industrial Disputes act, 1947

On the other hand, the Fixed-term employment contract is comparatively easier as no such legal bindings are compulsory upon employers. As the fixed-term employment refers to fixed time period employment so it is economical, industry-friendly and more importantly, it is suitable to seasonal nature of work.

Which is best – a contractual labourer and a Fixed Term Employee?

There are several types of employment in today’s Market i.e. Full time, Part time, Freelancer, fixed term, permanent, casual etc and all these types have specific advantages, benefits and sometimes disadvantages or fewer benefits. The benefits or growth in employment types depends on many industrial and business factors, which affect the survival, profit, growth, stability, and goodwill of the organization. There are some HR Policies in many organizations which defines the value of different employment types and which are specifically needed for the smooth running of any business unit. The labour issues are more nowadays and the labour unions are more sensitive, Sometimes the move of associated labour union can affect the business growth of any industrial unit because when the Human resource of any organization is not in the suitability of any business Unit then all other resources shall be going wasted. It is the Human Resource which is most important resource for the survival and growth of a business unit and that’ why there are the strategies of HR department that what type of employment shall be beneficial for the growth of organization and on the other side, what benefits especially statutory benefits shall be given to people engaged to that establishment as per applicable rules. In today’s scenario the Fixed-term employment can be said as best keeping in view following positive aspects :

1. The employer can complete the short term targets due to easy availability of Fixed-term employees. On the other hand, the talent retains due to short term/fixed-term employment as per the need of time
2. The budget planning, Resource planning, on-time delivery of goods and delivery can be easy
3. The fixed term employees can be able to present good quality result due to the freedom of work have been given by the employer as per contract agreement. Thus it helps to make a quality image of fixed-term employees in the eyes of the employer and further business can be given to that fixed-term employees

It is  beneficial both to the employer as well as to Fixed-term Employee

But if we see the dark sides of Fixed-term employment then following are the drawbacks:

1. The recruitment  of Right employees for the right job at right salary become very difficult because in such case where the culture of fixed-term employment prevails the Human resource especially recruitment efforts becomes time-consuming and employee  retention becomes a big challenge for the industries/establishments
2. A permanent contract does not end by its own and in case the employer wants to change the working staff as the fixed-term employee, it becomes very expensive and can affect the business growth
3. Though Fixed-term employment provides flexibility for employing workmen sometimes it may not in the benefit of the organization as per market situation
   

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   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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This article is written by Sajjan Singh Chouhan, here he discusses the Presidential Power to Pardon in India.

Pardoning power is becoming an integral part of every country’s executive function. But this power is often becoming subject of debate and is criticized across the globe due to its abusive use in the past. Despite its popularity and usefulness, it is often criticized, the reason being the wide range of offenses categorized as pardonable and its effect on society. The critics make their assertions solid by citing the past instances of abusive use of pardons by presidents. Often the pardoning power is criticized on the basis of the doctrine of separation of power. Indeed their concerns are very true but they need to understand the importance and very necessity and the reasons for such arrangements in the Indian Constitution. Their concept regarding the president power are nearsighted and are mainly focusing on its effects rather than the benefits that can be derived out of it. This article centers on the development of pardoning power in the Indian Constitution and the debates over it in the constituent assembly. This article highlights the jurisprudence behind such powers. The researcher also tries to interpret the wordings of Article 72 of the Constitution of India. Further, this article throws light on the judicial review of pardoning power and its need in the present scenario. Finally, the article is concluded along with some suggestions which can be adopted to overcome the problem of abusive use of pardoning power.

Introduction

A criminal justice system is looked upon as providing justice in the society as well as to the victim and to the offender. But as every system is not perfect, so is the criminal justice system and sometimes the offender may not get what they morally or legally deserves. The rule of evidence may not always lead to the real truth of innocence or guilt. Sometimes the prosecution may abuse its authoritative power against an innocent accused. In these scenarios, ‘pardon’ proves to be a boon for these convicted persons. As Moore writes,

“a pardon is justified when the procedures miscarry, giving the state a legal, but not a moral, license to punish”.[2]

Pardon is the act of granting mercy. Pardon is defined as “ a decision taken by the government to absolve the crimes of a convict and free him/her from the prison sentence. All past records are treated as if they never occurred”.[3]

Usually, the head of the state is authorized with the power to grant pardon to a convicted person. In India, the power to pardon rests in the hands of President of India. Article 72 and 161 of Constitution of India empowers President and Governor respectively to grant pardons.[4][5] The scope of Article 72 is wider than Article 161. The Governor of a state is only empowered to grant pardon for violation of state laws and the limits to which the states executive power extends, also the pardon petition declined by him can be accepted by President. The petition pertaining to the death penalty can be handled only by the President.

Pardons granted may be of different kinds, it may be Absolute in which the offender is freed from all legal liabilities and all of his legal and civil rights are restored, which were suspended while he was convicted. It may be Conditional in which certain conditions need to be fulfilled before granting the pardon. In Partial pardons, certain punishment is reduced or even nullified by the President.

However, the power to pardon has become the subject of controversy nowadays. The power to pardon is often regarded as an intrusion into the functions of Judiciary. Pardoning power is criticized as a violation of the doctrine of separation of power. This power is criticized citing the huge abuse of power and granting of pardons in several instances only to big politicians, businessman, and powerful people. Moreover, the significance of pardoning power is reduced as the contemporary laws are already made in supportive of offenders. Further, in cases of the death penalty, Courts order it only in ‘ rarest of rare’ cases and with full diligence, so the probability of miscarriage of justice is very less(which is the basis of supportive reason for granting pardons).

Jurisprudence of Granting Pardons

The presidential pardon is the much-debated subject in the list of executive powers, but it is still holding tight and responding to every criticism, it is due to the fact that it is based on a sound philosophy. The philosophy on which the pardoning power is based is that every country with a criminal justice system must provide for the pardoning power, which may be exercised in various proper cases, a country without such power is considered to be imperfect and lack of political morality. The legitimate object of all punishment in the criminal justice system is of public good and is delivered on grounds of public welfare, so is the object of pardons i.e. public good. Granting of pardon frees a convicted person from all legal liabilities, which provides an opportunity for an individual to start a fresh life and is restored to his original position of innocence in the society. It may serve as a better method of reformation for convicted persons.

If it is considered that laws applied are just in every circumstance, then there would be no need for pardoning power[6] but this is an ideal situation and can’t be achieved in every circumstance. Sometimes due to false evidence and carelessness of prosecution an innocent becomes the prey of wrongful convictions and is punished accordingly, it leads to the miscarriage of justice and it can only be rectified by granting pardons. Even the administration of justice by Court is not necessarily always wise, so pardon is check entrusted with the executive for special cases.[7]  Sometimes hope plays as an important weapon to fight injustice. Sometimes the hope of a convicted person of getting pardons abides himself to behave properly in order to get the pardon. This further leads to changed and reformative behavior of the convicted person. Further, it is better to grant a pardon to a guilty person rather than sentencing an innocent person for whole life. As every system is full of errors, so is our justice system thus granting pardon helps in rectifying those earlier errors made while convicting a person. Once a person is sentenced with punishment by the court and all the judicial means to reduce or reconsider the sentence has been exhausted then, the pardon is the only means to secure justice by reducing or reconsidering the sentence. It is the means to mitigate the harsh justice done to a convicted person.

A different school of thoughts has different views in regard to presidential pardons. The retributive thought of school believes that pardon is the only extra’ judicial remedy which can be used to rectify the errors of the criminal justice system. The school of thought based on rehabilitation and redemption have different justification and reasoning, they believe that it is not necessary that pardon’ should serve any judicial remedy, even though it should be regarded as an integral part of any justice delivery system in a country. On the other hand, redemptive philosophy believes that a person undergoes many changes in his behavior after conviction, and this changes could be considered by granting pardons and thus such cases may serve the purpose of delivering justice.

Presidential Power in India and Constitutional Assembly Debates

After independence in 1947, the framing of the constitution for India was started. Discussions on every subject matter was made and during the discussion, the provision for ‘mercy’ also formed part of it. It was Dr. Shyama Prasad Mukherjee who first referred to the president’s power to grant mercy and commute or remit punishment.[8] Another member was K.T Shah who sent a note which included ‘pardon convicted criminals’, and the power of it lies in the hands of the head of the state. For the first time the power of mercy, remission, and commutation were included in the recommendations of the committee on the Principle of Union Constitution and this was contained in clause 7(2)B of it.[9] This became part of a discussion in the constituent assembly on 31 July 1947. Meanwhile, Mr. B.L Mitter and some other representatives of princely states demanded such powers at the state level.[10] N Gopalswami Ayyangar discussed the need for such powers and moved an amendment to clause 7(2)B and said:

“I think, sir, the House will agree that, when we are setting up a Head of the federation and calling him the President, one of the powers that should almost automatically be vested in him is the power to pardon”.[11]

There were debates over the pardon power in case of death sentences and finally it was rested only with the president. The Articles containing powers of the pardon of president and governor were numbered as 59 and 141 respectively in the Draft Constitution and were sent for discussion. The war at Kashmir and the assassination of Mahatma Gandhi in 1948 affected the discussion and Article 59 and 141 were added to the Draft Constitution without further discussion. Finally, these Articles were renumbered as Article 72 and Article 161 in the revised Draft Constitution in November 1949 and remained same till the Constitution was finally adopted.

 Article 72

Before looking at the powers of pardon it is important to understand the wording of Article 72. Article 72 revolves around 3 words, ‘offence’, ‘punishment’ and ‘sentence’. The word punishment and sentence used are in relation to the offense committed and the person charged with. So the punishment or sentence which is to be pardoned should be of the offense committed and not of simple breach of a condition.[12]

The word offense is to be understood as defined in the General Clause Act,1897.[13] While defining sentence and punishment it is a common principle that a person can be punished or sentenced for an offense only when he has been convicted by the court for that offense. It is a common notion that a person is considered to be innocent until proven otherwise.[14] Thus a person can be granted pardon only if he has been convicted, otherwise there can be no punishment or sentence, hence no pardon. However, it was held in K.M Nanavati v. State of Bombay[15]that the power of pardon may be exercised at any point of trial, after a trial and even before a trial starts.

The other question arises is whether the sentence passed by tribunals comes under the purview of Article 72. The answer lies in the wording of the tribunal during the trial. Any violations of laws made by the tribunal are always considered as a breach of the condition rather than an offense. Hence there can be no pardon for a simple breach of conditions. This Article empowers to grant pardon only in cases which are described as an offense as per Indian Penal code and the person convicted is tried as per the code of criminal procedure. Any alleged act which does not fulfill the ingredients of offense as defined in the General Clause Act 1897, then the word punishment would not hold the same meaning as the word hold in Article 72.[16]

Judicial review of Presidential Pardon 

There has been constant debate as to whether the pardoning power is absolute in nature or is subjected to judicial review. Supreme Court has laid down various interpretations to it through various judgments. Supreme Court has several times declared the pardoning power as arbitrary in nature and laid down several guidelines for it.

In Maru Ram v Union of India[17], it was held by Supreme Court that Article 72 is to be exercised on the advice of central and state governments. The same stand was taken by Supreme Court in Dhanjoy Chatterjee v State of West Bengal.[18] Whether mercy is right or discretion was answered by the Supreme Court in Ranga Villas case. In this case, the petitioner challenged the rejection of the mercy petition by the President without citing a reason. SC dismissed the petition and held that the word “mercy” in itself signifies its discretionary nature. In Swaran Singh v state of U.P[19], Supreme Court interfered with the Governor granted mercy to a person convicted under charges of murder. The SC held that the order passed under Article 161 is absolute but “ if such power has been exercised arbitrarily, mala-fide or in absolute disregard of the “finer cannons of constitutionalism”, then the order cannot be granted and should be scrutinized by the court.[20]

In the landmark judgment Epuru Sudakar & Anr. V Govt. Of A.P & Ors., it was held that “it is a well-settled principle that a limited judicial review of the exercise of pardoning power is available to Supreme Court and pardoning grant can be challenged if it is done with mala-fide order, order on irrelevant considerations, or order suffering from arbitrariness.[21]

Conclusion

The researcher would analyze the issues discussed and would conclude it here.

Pardoning power is entrusted with the executive to keep checks on Judiciary and the power is without any limits. Looking at its discretionary nature to grant pardon by president there are high chances of abusive use of this power. Pardoning power is to rectify the errors made by Judiciary during the conviction of a person, so it proves to be playing a pivotal role in doing real justice and keeping checks on Judicial errors.

The process of granting of a pardon is very easy but due to the interference of politics, many petitions are delayed over a long time. These delays can be rectified by bringing an amendment to the laws of pardoning provision and setting up the time frame for disposal of any petition. Indeed this power is of great use if exercised with due diligence and wisely without any abusive use of it.

Looking at the discussion of Judicial review of pardoning power, researcher opined that the power to pardon should not be absolute and should be subjected to limited judicial review, but judiciary should not interfere much in the procedure of granting the pardon.

In India, pardoning power is having enough checks and balance, but it is time to be awake and pace up with time and bring some changes into the methods of the exercise of this power. The time till Judicial system attains perfection or achieve such level that it does not makes any mistakes, the pardoning power would serve to be an integral part of the justice system to prevent the miscarriage of justice.

[1] Author is a II year student at the Institute of Law, Nirma University Ahmedabad.

[2]Chad Flanders, ‘Pardons and the theory of the “second-best” vol. 65, Florida Law Review,(2013) p. 1566.

[3]Blacks Law Dictionary.

[4]Article 72, Constitution of India defines the power of President to grant the pardon.

[5]Article 161, Constitution of India defines the power of Governor to grant the pardon.

[6]The DIG of police, North Range, Waltair and Anr v D. Rajaram and Ors., MANU/AP/0612/1960

[7]S.C Jain, The constitution of India-select issues and perceptions,57, (Taxmann: New Delhi,2000)

[8]Nature, origin and development of pardons-an assessment, Shodganga, p 60.

[9]Ibid.

[10]Constituent Assembly Debates, vol. IV, p 956

[11]Constituent Assembly Debates, vol. IV, p 957.

[12]Ekta Bharati, ‘Presidents power to pardon’, vol. II, issue 2, JCIL p.7.

[13]Definition 38, The General Clause Act,1897 p.6.

[14]Article 372, Constitution of India.

[15]1961 SCR (1) 497.

[16]Maqbool Hussain v. State of Bombay, AIR 1953 SC 325.

[17]AIR 1980 SC 2147.

[18]1994 SCC (2) 220

[19](1998) 4 SCC 75.

[20]Pranjal Shekar, ‘Power of president to grant pardon: Indian Scenario’, lawctopus Academike, 2014

[21]‘Pardoning power of president and governor’ at Advocatekhoj.com

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This article is written by Uzair Ahmad Khan, Student, Teerthankar Mahaveer University, Moradabad. Here he has discussed top Arbitration Law in India.

Introduction

The area of arbitration is increasing day by day as many fresh law graduates and even practicing lawyer are inclining towards arbitration. Even eminent lawyer Mr.Fali S. Nariman in his recent speech at a seminar conducted by ICADR (The International Centre for Alternative Dispute Resolution) on “ Ethics in Arbitration” says the future of “Arbitration is bright, but only because the future of litigation is not”.

Tier 1 Arbitration firms

• Cyril Amarchand Mangaldas

It has been active in disputes relating to contractual litigation, insolvency and bankruptcy, infrastructure matters and demerger issues. The team is well known for its established track record appearing before the Supreme Court, regional High Courts, domestic and international arbitral forums, and regulatory tribunals.

• Dua Associates

Dua associates ranked tier 1 law firm in dispute resolution by the legal 500, the team is representing the Dow Chemical Company and Union Carbide Corporation before the Supreme Court of India in ongoing proceedings involving compensation sought by the Union of India and non-governmental organizations via a curative petition; the litigation pertains to the outcome of an industrial disaster in Bhopal in 1984.

• Economic laws practice

ELP is recognized internationally as a thought-leader in India for arbitration. The team is sought out for its knowledge and received tremendous appreciation from industry stalwarts as well as professionals for its Analysis of the Amendments to Arbitration and Conciliation Act, 1996.

They have represented clients in proceedings before various institutions such as the International Chamber of Commerce (ICC), London Court of International Arbitration (LCIA), LCIA India, Singapore International Arbitration Centre (SIAC), London Maritime Arbitrators Association (LMAA), The Grain and Feed Trade Association (GAFTA), Kuala Lumpur Regional Centre for Arbitration (KLRCA), etc. and also in Ad-hoc proceedings around the world, with amount in disputes ranging from a few millions to billions of dollars.

• HSA Advocates

HSA Advocates are one of the top tier firms in handling disputes with vast experience in sectors such as electricity, airport, oil and gas, roads and telecommunications. It has the most recommended Litigation, Arbitration and Dispute Resolution practice.

They are one of the top advisors in the area of commercial disputes, regulatory matters, and criminal proceedings. Their dispute & litigation lawyers have the expertise to identify and execute most appropriate business solutions to various legal disputes including pursuing or defending litigation, arbitration, mediation, and regulatory matters.

• Kachwaha & Partners

Kachwaha & Partners’ is also coming under the category of the tier 1 arbitration firm. Dispute resolution practice is a cornerstone area of strength for the firm. The team is expert at handling litigation and arbitration matters, notably in the construction, banking, and commercial sectors.  The arbitration practice is headed by Sumeet Kachwaha and highly regarded for his expertise in arbitration proceedings.

• L&L Partners Law Offices

L&L Partners Law Offices team is expert at handling the full range of commercial litigation and is noted for its extensive expertise in international commercial arbitrations. Its recent work includes acting for Felguera Gruas India in a contractual dispute relating to non-payment of dues and claims for damages.

Tier 2 Arbitration law firms

• AZB & Partners

It has been ranked tier 2 rank by the legal 500 in Dispute resolution category. AZB & Partners have excellent disputes practice and is well known for representing clients before the High Court and Supreme Court of India. Its clients are Tata Sons, Harper Collins Publishers (India), and Kochi Cricket.

• Dhir & Dhir Associates

Managing partners Alok Dhir and Maneesha Dhir are notable disputes practitioners, and Sachin Gupta heads the practice at Dhir & Dhir Associates. Its recent work includes representing the Save Avail Trust in an objection against the construction of an abattoir in Faridabad, on the grounds that the information provided for the construction was misrepresented.

• Bharucha & Partners

Bharucha & Partners has also labeled as tier 2 law arbitration firm by the legal 500. Its strong client roster of companies from the real estate, telecoms, and environment sectors. Recent disputes instructions include representing the Collage Group in relation to real estate development projects undertaken with the Unitech Group and the applicability of the Real Estate (Regulation and Development) Act 2016.

• LexCounsel

Members of LexCounsel regularly conducts arbitration and mediation, assisting clients to expeditiously resolve their disputes. It has seen a recent increase in property-related disputes and insolvency; for example, the team represented Luxconsult (Mauritius) before the Delhi High Court in a dispute regarding the construction of a university in Mauritius, and in another matter, the group acted for Horseshoe Entertainment in a contractual dispute with a joint venture partner.

• Phoenix Legal

The firm represents and advises clients in dispute resolution processes such as domestic and international arbitration, mediation and strategic advice on potential disputes. Its domestic and international arbitration practice is well-recognized. It includes advising on arbitrations under the Indian arbitration legislation (ad hoc arbitrations) to institutional arbitrations under the supervision of international arbitration centers such as SIAC, ICC, and LCIA.

Tier 3 Arbitration Firms

• Advani & Co

Advani & Co. is the oldest specialized arbitration practice in India. They have pioneered growth of arbitration law and practice in India for over four decades. It is also listed in Band 1 – All India Arbitration by  Chambers & Partners, 2018. The firm is noted for appearing in petitions against the Indian government, and representing clients before a range of institutions, including International Chamber of Commerce, the Singapore International Arbitration Centre, and the London Court of International Arbitration.

• BRUS CHAMBERS, Advocates & Solicitors

BRUS CHAMBERS, Advocates & Solicitors has been ranked as tier 3 in dispute resolution by the legal 500. Its disputes team is prompt, straight to the point’ and ‘up-to-date on industry knowledge’.

The firm has notable strength in assisting clients with enforcing foreign arbitral awards in India; Its recent work includes advising ONGC Videsh on an arbitration claim against the government of Sudan for recovering unpaid oil dues. Bonita Hathi and Shrikant Hathi are the key practitioners.

• DSK Legal

Managing partner Anand Desai heads the ‘excellent‘ practice at DSK Legal which has been especially active in the arbitration space, representing clients from the infrastructure, media, financial services, and real estate sectors. On the litigation front, the group is representing the State of Maharashtra and Public Works Department in a dispute against KS Chamankar Enterprises over land development agreements.

• Indus Law

Indus Law has arbitration proceedings across all practice areas, including advice in relation to injunctive relief from the courts prior to, during and post-arbitration proceedings and proceedings in court for enforcement of the arbitral award.

• Keystone Partners

Keystone Partners ‘ ‘excellent‘ team provides ‘comprehensive, consistent and quality advice‘ on disputes across a range of sectors. Pradeep Nayak is a key practitioner. Keystone Partners have Particular expertise in handling high-value construction arbitrations relating to the construction of dams, power plants, highways, nuclear plants, mixed development projects etc.

Tier 4 Arbitration firm

• Classic Law

The Firm has handled complex EPC related arbitration (domestic and international) and litigation across various courts in India. The Firm has extensive experience in debt recovery matters and enforcement of domestic and foreign awards with effective results.

The team has been actively dealing with contentious matters across a range of sectors including, insurance, aviation, infrastructure, consumer disputes, competition, telecom, employment, corporate, maritime, banking and finance, real estate, IPR, white collar offenses related disputes.

• Solomon & Co. Advocates & Solicitors

We have acted on many landmark litigation and arbitration matters in India including disputes relating to land, property, and inheritance, disputes among company shareholders, disputes relating to initiating or defending debt recovery proceedings, writ petitions, regulatory inquiries, tax matters, and others.

• Dhaval Vussonji & Associates

Dhaval Vussonji & Associates established themselves as one of the notable players in the field of dispute resolution and litigation. The dispute resolution practice extends to company law, real estate, family law, banking and finance, slum rehabilitation schemes, redevelopment projects, security enforcement, suits for specific performance of contracts and testamentary suits.

• Singhania & Co

Singhania & Co are proficient in representing parties in formal and informal arbitration, mediation, facilitation, summary jury trial, and other ADR processes. Their experience includes representation in court-sponsored facilitation and mediation, private arbitration proceedings and before international tribunals such as the International Court of Arbitration. Singhania & Co also assist with designing comprehensive ADR programs to reduce the time, cost and aggravation of repetitive, ongoing disputes.

• MZM Legal

MZM Legal has experience in dealing with complex, high-stakes disputes on a local, national and a multi-jurisdiction level, including large cross border disputes and international arbitration matters across countries such as the United Kingdom, United States of America, Bangladesh, Germany, South Africa, Kuwait, the and United Arab Emirates.

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This article is written by Prem Garg, here he has discussed Article 35 A of the Indian Constitution.

Introduction

Article 35A of the Indian Constitution was added by presidential order in 1954 on the aid and advice of the Jawaharlal Nehru cabinet. It was promulgated in consonance with Article 370 of the Constitution. It grants special status to J&K and empowers the Legislature of Jammu and Kashmir to define its ‘Permanent Residents’, their rights and privileges and imposing restrictions upon other persons.

History of Article 35A

Before independence, J&K was a princely state ruled by Maharaja Hari Singh and its citizens were referred to as the subjects of the state. In 1927 and 1932, Hari Singh passed State Subject order conferring rights and privileges only to those state subjects. It was passed due to the apprehensions of Dogras from Jammu that the influx of people from Punjab would render them to lose their lands and jobs.

After J&K’s accession to India, National Conference leader Sheikh Abdullah took over the reign form Hari Singh. Sheikh Abdullah and the then Prime Minister of India Jawaharlal Nehru entered into an agreement known as the Delhi Agreement of 1952.

Pursuant to the Agreement of 1952, the provision of the state deciding special rights and privileges on its people was added to the Constitution through the Constitution (Application to Jammu and Kashmir) Order, 1954, issued by the country’s first president, Rajendra Prasad, on May 14, 1954, through powers conferred by clause (1) of Article 370. It was intended to protect the State Subject order.

Who are the Permanent Residents of Jammu & Kashmir?

Section 6 under Part III of the Constitution of Jammu and Kashmir defines the Permanent Residents of Jammu and Kashmir. It states that:

(1)Every citizen of India shall be a permanent resident of the State, if on the fourteenth day of May 1954- 

       (a) he was a State Subject; or

     (b) having lawfully acquired immovable property in the State has been ordinarily resident in the state for not less than ten years.

(2) Any person who, before the fourteenth day of May 1954, was a State Subject and who had migrated after the first day of March 1947, to the territory now included in Pakistan, returns to the State under a permit for resettlement in the State.

Understanding Article 35A

Article 35A is not included in the 395 articles of the constitution, rather it is found in Appendix I in the Appendices of the Constitution, for it was not passed by the Indian Parliament. Despite the same, it is virtually included in Part III of the Indian Constitution. 

Following are the special rights and privileges which the Legislature of J&K has conferred only upon its Permanent Residents:

1. Employment under State Government;
2. Acquisition of immovable property in the State;
3. Settlement in the State; or
4. Right to scholarships.

This article further goes on to state that no such law legislated by the J&K Assembly shall be void on the ground of it being inconsistent with the Part III of the Constitution, i.e. inconsistent with the fundamental rights of the Indian citizens.

Arguments In Favour of 35A

1. Scrapping Article 35A would breach the Delhi Agreement 1952 which allowed the Presidential order of 1954 promulgating  Article 35A.
2. Art. 35A conspicuously states that such law shall not be void on being inconsistent with fundamental rights. This creates a restriction for challenging the same.
3. Scrapping it would create apprehension in the minds of Kashmiris that it might disturb the demography and majority of Kashmiri Muslims in the state and cease the special status of J&K.

Arguments against Article 35A

1. It was not added under Article 368 of the Constitution as it was passed in a Presidential order and was not laid down in the Parliament.
2. Indian citizens who are not the Permanent Residents of J&K are barred from buying any property in J&K. On the contrary, the Permanent Residents of J&K can buy property anywhere in India along with J&K. 
3. Persons who have been living for decades in J&K but who are not the residents of J&K can vote in the Lok Sabha elections, however, are barred from voting in State Legislative Assembly elections.
4. Students from other states cannot take admission in any College or University in J&K.
5. Hampers Industrialization and Privatization, for industrial and private sectors, are hard to be established in J&K due to restrictions in ownership.  
6. It is a gender-biased law. A Woman who is a permanent resident of J&K loses her permanent resident status if she marries a man who does not hold the Permanent Resident Certificate(PRC). Further PRC is not given to the children of such a woman, debarring them from inheritance. Whereas the same situation does not arise in the case of a man with PRC marrying a women without PRC.
7. Violative of the integrity of the nation as enshrined in the Preamble of Indian Constitution.
8. Violates fundamental rights of the Scheduled Castes and Scheduled Tribes who have been living in J&K for decades and generations. Valmikis and Dalits, who were brought to the state in the 1950s, were granted the PRC subject to the condition that they and their future generations would continue to serve as safai-karmacharis (scavengers).

Conclusion 

Article 35A is in limelight nowadays. Two wings have been created in the country. One in its support and the other against it. This matter is sub-judice in the Hon’ble Supreme Court of India. The Kashmiris feel that scrapping Article 35A would prejudice their identity as a Kashmiri and would disturb their privacy in Kashmir. Farooq Abdullah, National Conference Leader, says, “If 35A is abrogated, the revolt is going to be bigger.”

The other wing, comprising of the ruling party BJP and others believe that Article 35A should be scrapped to strengthen the unity and integrity of the nation. 

References

1. 1.VN Khanna, Foreign Policy of India(Vikas Publishing House Pvt Ltd,6^th, 2007)
2. 2.Dr. J.N. Pandey, Constitutional Law of India(Central Law Agency, Allahabad-2, 52^nd Edition,2015)
3. 3.https://www.livelaw.in/bjp-leader-moves-sc-seeking-scrapping-of-article-35a-read-petition/(Visited on March 2,2019).
4. 4.http://jklaw.nic.in/instrument_of_accession_of_jammu_and_kashmir_state.pdf (Visited on March 01, 2019)
5. 5.http://www.jklaw.nic.in/delhi1952agreemnet.pdf (Visited on February 28. 2019)
6. 6.http://jklegislativeassembly.nic.in/Costitution_of_J&K.pdf (Visited on March 01,2019)

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This article is written by Advocate Shamika Vaidya pursuing Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from Lawsikho.com. Here she discusses the Initial Public Offering.

Introduction

A private company is proscribed from having more than 200 shareholders. Private companies get listed so that it can extensively raise funds from the public. A listed company can trade its shares on the stock exchanges. Companies, like Reliance Power, have raised 11,560 crores in the past from Initial Public Offering. Many Private Equity /Venture Capital Investors who hold a considerable stake in the company looks forward to a company to go public for profitable exits as well. Nevertheless, there are a set of compliances that vis-a-vis follows this advantage

Pursuant to the Initial Public Offering, a company is converted into a public listed company and the shares of the company are traded on the stock exchanges. Through an IPO a company offers its shares to the public for the first time.

In an IPO, companies put forward the price/price band at which they would offer the securities to the public and the later then subscribes to the securities. The intermediaries appointment, compliances, disclosures are stated in the Securities Exchange Board of India (Issue of Capital and Disclosure Requirements), 2018.

There are two ways through which a company can undertake an IPO;

1. Book Building Process
2. Fixed Price Issue

Book Building Issue

• In the event a company is able to satisfy the requisite requirements as stated in the ICDR regulations, it can undertake an IPO through the book building process subject to certain conditions.
• In a book building issue, a price band is disclosed to the investors. The price is discovered through the process of book building.

Fixed Price Issue  

• Unlike the book building process, in a fixed price issue the investors are informed about the exact price at which the securities are offered. Therefore, the investors have no say in the price determination.
• Pursuant to the introduction of the book building issue most of the companies prefer the book building route and fixed price issue has become obsolete.

Eligibility for a company to undertake an IPO

• Regulation 6(1) of the ICDR states the minimum financial threshold to be eligible for the Initial Public Offering.

Net Tangible Asset         Three crore

Operating Profit               Fifteen crore

Net worth                         One crore

• The company should be satisfying the above threshold in the last three preceding years.
• In case, the company has changed its name in one last year, fifty percent of the revenue has to be earned from the activities by its new name.

• The net tangible assets held in the monetary asset cannot be more than fifty percent. In case it exceeds fifty percent, the excess monetary assets have to be utilized or committed to be utilized in business or projects.

• An issuer is not eligible to make an initial open offer if the issuer, its promoter group, promoters, directors or selling shareholders are debarred from accessing the capital market or if the promoters or directors are willful defaulters or fugitive economic offenders subject to certain conditions.
• If there are outstanding convertible security or any right which would entitle a person to receive equity shares on exercising the option.

Promoters’ holding

• The holding of the promoter of the issuer should be twenty-five percent of the post issue capital.
• In case, the promoter’s holding is less than 20% then alternative investment funds, foreign venture capital funds, scheduled commercial banks or public financial institutions or insurance companies can contribute to meet the shortfall.
• Having said that, these funds and institutes can contribute a maximum of ten percent of the post issue capital.
• If the promoters have to subscribe to the equity shares in order to meet the minimum promoter contribution then he has to keep his contribution in an escrow account with a scheduled commercial bank.
• The promoters have to fulfill the requirement at least a day prior to the date of opening of the issue.
• Regulation 15 (1) states the securities that are ineligible for the minimum promoters contribution.

Lock in periods

• The contributions in the minimum promoter contribution by the promoter along with AIF, VCF and other institutes who are eligible to contribute a maximum of 10% are subjected to a lock-up period of three years.
• Promoter holdings that are in excess than the minimum requirement are subjected to a lock-in period of one year pursuant to the allotment date.
• The lock-in period of the people other than the promoter of the pre-issue capital is locked in for the period for one year.
• This does not apply to equity shares allotted to the employees subject to some conditions
• Equity shares held by VCF, AIF Category I & II and Foreign Venture Capitalist are exempted from lock-in. Nonetheless, they are locked in for a period of one year from the date of purchase.
• Securities held by promoters that are locked in can be transferred to other promoters or any person from the promoters group.   

Intermediaries Involved

The following intermediaries are appointed during the Initial Public Offer;

1. Merchant Banker
2. Underwriters
3. Credit rating Agencies
4. Legal Advisors
5. Banker to the issue
6. Book Running Lead Managers
7. Stock Brokers
8. Registrar to the Issue
9. Compliance Officer
10. Syndicate Members  

Merchant Banker

• The company has to appoint one or more registered merchant bankers as lead managers to the issue. Merchant Bankers are entrusted with the responsibility of issue management.
• They have to perform their role in accordance with SEBI (Merchant Banker) Regulations, 1992. At the inception of the issue, the issue manager has to enter into an agreement with the issuer as provided by the regulation. The contents of the agreement are explicitly mentioned in Schedule II.  
• Regulation 64 casts an obligation on the lead manager pursuant to satisfying himself about the aspects of the issue. Form H Format of due diligence certificate filed by the lead manager for IDR issue.

Underwriters

• One of the concerns for the issuers is the inherent risk for in public offers. There is no way to gauge the outcome of the process as several variables are involved. The concept of underwriting was evolved recognizing the importance of risk mitigation.
• The obligations and eligibility of the underwriters are governed by the SEBI (Underwriters) Regulations 1993.
• An underwriting Agreement is entered between the Issuer Company and underwriter wherein the underwriter buys shares from the issuer in case the issue is not able to reach the mandatory subscription threshold for its success.

Credit Rating Agencies

• A credit rating agency assesses the financial strength of companies especially their ability to meet principal and interest payment on their debts.
• A unique letter based scores (AAA, +AAA) are used to indicate if debt is low or high.

Registrar to the Issue

Registrar to the issue deletes the invalid application and ensures that the refund is dispatched. He finalizes the list of eligible allottees’. Overall, the flow of applications from collecting, processing, basis of allotments and dispatch of security certificates. It should have connectivity with all depositories.

Syndicate Members

• The broking houses are responsible for the distribution and gathering of the applications and updating the data on the stock exchange on a regular basis in a book built issue.
• Syndicate members have to procure ASABA forms and submit them to Self Certified Syndicate Banks.

ASBA (Application Supported by the Block Amount)

• SEBI has enabled the investors to make payments through ASBA route. Under this option, the bank holds a lien on investor deposits. The amount remains in the saving account and the applicant receives interest on the blocked amount.
• The issuer has to provide  ASBA facility if the applicant is holding shares in dematerialized form.
• In ASABA facility one can give five IPO application through a single saving account.

Documents      

Draft Offer Document

• An offer document provides detailed information about operational and financials of the company. The document contains disclosures which enable applicants to take an apposite investment decision.

Red Herring Prospectus

• A Red Herring Prospectus is an offer document used for book built issue. As already discussed, the bookbuild issue does not offer a fixed price but merely price band, the RHP contains the price band.

Prospectus    

• An offer document circulated during the fixed price issue is known as a prospectus.

Listing Agreement

• A listing Agreement is entered between an issuer and stock exchanges where the shares of the company would trade pursuant to an IPO.
• It contains an exhaustive list of compliances and conditions that have to be complied and followed by the issuer.

Agreement with depository

The issuer has to enter into an agreement with the depositories as the investors can receive their securities in dematerialized form through any of the depositories.

Abridged Prospectus

• Abridged Prospectus contains disclosures that are specified in Schedule VI Part E.
• Applications distributed to people have to be accompanied by an abridged prospectus.

Allocation of the shares

• Rule 19 of Securities Contracts (Regulations) Rules, 1957 states that the minimum public shareholding in a listed company should be at least 25%.

Retail Investors                           not less than 35%

Qualified Investors                            not less than 15%

Non-Institutional Investors                not more than 50%

The issuer may make reservations on a competitive basis out of the issue size excluding promoters’ contribution in favor of the following categories of persons: a) employees;  b) shareholders (other than promoters and promoter group) of listed subsidiaries or listed promoter companies.

 Retail Institutional Investors (RII)

Retail Investors includes the public and the maximum amount of investment for them is 2 lakh rupees.

Qualified Institutional Buyer (QIB)

Qualified Institutional Buyers are defined in clause 2.2.2B (v) of the DIP Guidelines. Foreign Venture Capital Investors, Mutual Funds, Venture Capital Investors etc are few of the QIB.

Non-Institutional Investors (NII)

Resident Indian Individuals, HUF’s, companies, corporate bodies, societies and trusts investing more than  2 lakh fall under the category of Non-Institutional Investors.

Anchor Investors

• Regulation 2(c) defines Anchor investors as the qualified institutional buyer who makes an application of at least ten crore rupees in the book building process.
• InterGlobe Aviation had raised Rs. 832 crore from 43 anchor investors ahead of its IPO.
• Anchor allotment happens a day prior to the IPO. Roping in anchor investors gives comfort to the banker and security to other investors as a large number of the IPO gets covered before the opening day. Anchor Investors not only pool in good investments but are efficacious for subscriptions.

Procedure

Filing of Offer Document

• The issuer has to choose one of the stock exchanges to seek in principle approval for listing which has the power to grant or reject the approval.
• The issuer has to file three copies of the draft offer letter with SEBI along with the fees through the lead managers.
• Along with the offer documents the lead manager has to submit a certificate confirming agreement between him and the issuer and a due-diligence certificate.
• The draft offer document has to be filed with stock exchanges.
• SEBI may specify changes or issue observations on the documents. If certain changes are suggested by the Board then the same has to be incorporated.
• The document is then registered with the Registrar of Companies. Copies of the document are again sent to the stock exchanges and Board pursuant to the filing.

Pre-issue Advertisement

• The issuer has to make a public announcement in English, Hindi and Regional Language within two days from filing the draft letter of offer.
• The issuer has to disclose the floor price/price band two working days prior to the two working days in a book built issue if the same is not disclosed in the red herring prospectus.
• The draft letter of offer and the letter of offer is to be hosted on the website of the stock exchanges where the securities are proposed to get listed so that it is available for the public to comment.
• The lead manager has to file the comments by the public and the changes that the company incorporated.
• The stock exchanges and the lead managers have to provide copies of the draft to the public if requested by them.
• During the period the issue is open for subscription, no advertisement shall be released giving an impression that the issue has been fully subscribed or oversubscribed or indicating investors’ response to the issue.

Issue Marketing

• In order to market the issue, roadshows are conducted and pre-issue meets are arranged with media men and investor associations.
• A roadshow is a series of meetings and presentation that is given to potential buyers about the issue.

Security Deposit

• The issuer has to pay an amount which is equal to 1% of the issue size before opening the subscription list.
• The amount deposited is refunded to the issuer on the total completion of the issue or is forfeited in the case of default or non-compliance.

Bidding in case of Book Building Procedure

• Book building procedure is a price discovery mechanism. The investors have to bid in order to buy shares at price pursuant to the announcement of the price band through the Red Herring Prospectus.
• The applications of money and bids have to be submitted to the investment banker.
• The final price is determined by the weighted average of all the received bids. The applications of the bidders with bids lower than the cut-off price are rejected.
• The price difference of the application and cut-off price are refunded to the investors.

Issue

• The issue should open within a year from the date of issuance of the observations by SEBI.
• The issue is opened after at least three working days pursuant to registering offer document with RoC
• A public issue is kept open for three days; however, in case there is a revision in the price brand an additional three days is given. The total extensions cannot be for more than ten working days.
• The minimum application size is one lakh rupees per application.   
• The invites for the applications have to be in multiples of the minimum application size.

Allotment of the shares

Undersubscribed

• An IPO has to be subscribed at least 90% of the issue, the underwriters buy the securities that are needed to complete the threshold in case the total subscription does not reach the threshold.
• Despite underwriters coming into play, the subscription is not able to reach 90% then the issuer has to refund all the monies within fifteen days from the date of closure.

Oversubscribed

• In the event of oversubscription of the IPO, not everyone is successful in getting the allotment. The allotments happen on the pre-defined rules by SEBI.
• The IPO of Avenue Supermarket, the parent of DMART was oversubscribed for a whopping 104.48 times.
• PNB Housing Finance’s ₹3,000 crore offer in October last year received bids for 463.61 crore shares against the total issue size of 4.43 crore shares. Advanced Enzyme was oversubscribed 116 times      

Post Issue Advertisements

• Pursuant to the issue an advertisement is to be given with the important details regarding the issue. Regulation 51(1) explicitly states the topics which have to be mentioned. The advertisement has to be released within ten days from the date of completion in English, Hindi and regional language newspapers with wide circulation.
• The details have to be uploaded on the websites of the stock exchanges as well.

Release of the Subscription money

• Copies of listing and trading approvals have to be sent to the banker for them to release the money to the issuer.
• In case the issuer is unable to obtain requisite approvals the subscription money is refunded.

Conclusion

Investing in a listed company is preferred by investor due to easy exit opportunities. Listed companies are under obligation to give timely disclosures and follow all the compliances. This transparency boosts investments as it creates confidence amongst the investors. Further, a company can raise capital pursuant to the IPO through FPO and Private Placements. It can also delist itself from the stock exchanges.

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

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This article is written by Advocate Shamika Vaidya pursuing Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from Lawsikho.com. Here she discusses the Private Placement.

Introduction

In simple words, private placement can be explained as a means of raising capital by the companies without going for public issues. Public Issues like Initial Public Offering and Further Public Opening are means of raising capital by the companies.

However, undertaking them involves compliances, stringent procedures and disclosures. Moreover, not many companies are able to meet the thresholds to be able to undertake these issues. In such cases, companies find the route of the private placement to be convenient.

Objectives

Primarily, Private Placements are initiated for raising funds but that might not always be the case. Manier times private placements serve strategic objectives.

1. They can be undertaken to consolidate stakes of promoters or controlling stakeholders.
2. Inducting a business/strategy partner to further the business strategy.

Types of Private Placements

Private Placement in Listed Markets        

PIPE b) Institutional Private Placements c) Qualified Institutional Placements

Private Placement in Unlisted Companies

Private Equity b) Venture Capital

Private Placements in Listed Companies

Private Placement in Public Equity (PIPE)

The name itself triggers the question as to why a public listed company with access to a powerful source of the capital market to raise funds would need private placement. However, there are certain advantages even for a public listed company to raise capital through private placements.

Advantages to the Company

• Going for an FPO involves a plethora of compliances, disclosures and is altogether a time-consuming procedure.
• Speculations in the market can result in low valuation in the capital market when the market is bleak. In such a situation private placement provides the best solutions to raise capital with good valuation.
• The investors investing through private placements are well educated and informed investors who look forward to long term holdings are ready to invest in the company with higher valuation if they see the significant future value.
• It is surreal for a company to go for an FPO after its valuation is eroded pursuant to an IPO.

Advantages to the Investors

• Investors are able to capture a good stake in the companies at attractive prices when the company raises capital during bleak markets.
• There is a lesser regulatory framework compared to the traditional routes
• There are easy exit opportunities in the listed companies.
• Investors can invest in the bearish market in attractive prices and later sell the stake at high prices during the bull cycle.

Private Placements  

• Regulation 14(2)(a) of Companies (Prospectus and Allotment of Securities) Rules, 2014 states that a special resolution by the shareholders of the company is necessary in order to initiate the process of private placement.
• For the purpose of invitation for non-convertible debentures, a special resolution one a year for all the offers during the year is sufficient.
• The offer for Private Placement is made only to selected people who are recognized by SEBI.
• Not more than 50 of these people can participate in the procedure. These number does not include QIB.
• Any company who intends to make an offer to subscribe to securities needs to send placement offer form along with Form PAS-4 to the identified persons either in electronic mode or writing.
• No person other than the addressee can fill up the application.
• The company has to maintain a record of the private placement offer in form PAS-5
• A company cannot advertise publicly or through agents or distribution channels about an issue.

Registrar

• A copy of the complete record of private placement along with placement offer form is to be filed with Registrar and stock exchange in case the company is listed and along with requisite fee.
• Pursuant to the allotment of the securities, a return of allotment has to be filed within fifteen days which includes the details of the allottees.

• A company can only utilize money raised through private placement when allotment is made and the return of allotment is filed with the Registrar.

Applicants

• Persons willing to subscribe have to apply in the private placement along with subscription money, the mode of payment cannot be in cash.
• If the private placement is not in accordance with the SEBI regulations then it will be considered as on public offer and Securities Contracts (Regulation) Act, 1956 will be applicable.  
• In case of any default in contravention, the promoters of the company are subjected to a fine of 2 crores or the money raised through the placement whichever is lower. Moreover, the company has to refund all the money with interest to the subscribers.
• The company has to allot securities within a period of sixty days from the date of receipt of application money. In case the company is not able to do so then it is liable to repay the money with interest of twelve percent per annum.
• A fresh offer cannot be initiated unless allotment to the prior issue has been given or the offer is abandoned.

Institutional Private Placement

Rationale

• Minimum Public Holding was introduced through the Securities Contract Act which mandated the listed companies to maintain a minimum public holding of 25%.
• Companies are fined or even delisted if they do not comply with this norm and moreover is not an uncommon affair. Institutional Placement is an efficacious way to increase public holding.
• Institutional Placement is an exclusive placement for the Qualified Institutional Buyers in off-market mechanism.
• Institutional Placements can be either through the new issue of shares or Offer for Sale.
• Firstly, the placements offer the shares only to a fixed number of investors which would otherwise be floated in the secondary market. In such an instance there is a high possibility of erosion of the share value. Secondly, the shares are offered to the group of people who have an appetite for large holdings.
• Institutional Placements are useful during divestments of Public Sector Undertaking shares by the government and for the dilution of the promoters stake.

Statutory Framework

• A special resolution by the shareholders is mandatory for carrying out institutional placement program.
• The offer document has to be registered with the Registrar of Companies and file a company with a stock market. A soft copy of the offer document has to be filed with SEBI.
• The merchant banker has to submit a due diligence certificate Form A schedule VI
• The allocation of the securities in an IPP is made through; proportionate basis, price priority basis, any other criteria mentioned in the offer document.

Allotment

• Minimum 25% of the securities have to be allotted to the Mutual Funds & Insurance companies.
• The bids have to be accepted using ASABA facility only.
• The minimum number of allottees for each offer of eligible securities made under the institutional placement programme shall not be less than ten: Provided that no single allottee shall be allotted more than twenty-five percent.
• The aggregate of all the tranches of institutional placement programme made by the eligible seller shall not result in an increase in public shareholding by more than ten percent. or such lesser percent. as is required to reach minimum public shareholding.
• The issue shall be kept open for a minimum of one day or the maximum of two days.
• The allotted securities are locked in for the period of one year from the date of allocation and can only be sold on the recognized stock exchange.

Qualified Institutional Placements

Rationale

• Listed companies can raise capital through Qualified Institutional Placements which are exclusively for the qualified institutional buyers. The fundamental difference between PIPE and QIP is that the later is only reserved for a category of investors.
• Pursuant to the Initial Public offer, companies may require capital for their growth, diversification or other strategic reasons. The Regulations are well equipped to aid companies in doing so through procedures like (FPO) Further Public Offer.
• Typically, listed companies prefer the route of Qualified Institutional Placements as a means to raise capital.
• Unlike FPO which involves inherent risk, intricacies, and compliances, price discovery in QIP is efficient as the bidding happens with less number of investors.
• Moreover, the allotments can be discretionary and it offers an excellent opportunity to contact eligible investors who are interested in long term investments.

Qualified Institutional Buyer is defined under 2(ss) of the ICDR Regulations and includes

• Foreign venture capital fund, alternative Investment Fund, mutual funds.
• Category I and II of Foreign Portfolio Investors.
• Pension Funds, Insurance Funds, and Provident Funds.
• Public Financial Institution and Development Financial Institutions

Regulation 2(tt) of the ICDR Regulations defines Qualified Institutional Placement as a private placement of eligible securities to QIB.

Regulation 172 of the ICDR Regulation states the eligibility conditions for QIP

• A Special Resolution by the shareholders is necessary. Resolution is not necessary if the placement is for the purpose of complying the minimum public shareholding.
• Securities that are to be allotted have to be listed on the recognized on the stock exchange for at least a period of one prior to the placement.
• A subsequent QIP can be made only pursuant to six months from the date the prior QIP
• The promoters and director should not be a fugitive economic offender.
• The issuer cannot make a subsequent QIP for a period of six months from the date of prior QIP.
• Regulation 178 states that the securities allotted under the placement cannot be sold by the allottee by other means than a recognized stock exchange for a period of one year.

Allotment

• QIP are made on the basis of placement documents which contain information and disclosures (Schedule VII of the ICDR Regulations).
• The placement document is circulated only to the select investors. The same is updated on the stock exchange websites with a disclaimer that the offer is only for a category of investors.
• Regulation 177 states that the tenure of the convertible securities cannot exceed sixty months from the date of allotment.
• The allotted securities can only be sold by the allottee on the recognized stock exchange and not by any other means for a period of one year.

•         Minimum number of allottees

1.   2  Allottees                                Issue size ≤ two hundred and fifty crore
2.   5 Allottees                                Issue size > two hundred and fifty crore

• A single allottee cannot be allotted securities more than fifty percent of the issue size. A single allottee may mean buyers belonging to the same group or under the same control.
• Any QIP related to the promoter of the issuer cannot be alloted with the securities.
• If any of the QIP have certain rights under the share purchase agreement or veto rights then they are also deemed to be related to the promoter;
• Mutual Funds have to be allotted minimum of 10 %.

Merchant Bankers

• A Merchant Banker can be appointed as a lead manager.
• If any of the Merchant Banker is an associate they need to disclose the same.
• The Merchant Banker carries out due diligence to check whether the company is complying with the necessary regulations.
• The Merchant banker is obliged to furnish Preliminary Placement document and due-diligence certificate to the stock exchanges where the shares of the company are listed.

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

The post Private Placement under Companies Act appeared first on iPleaders.

This article is written by Srishti Chawla, a 5th-year student at Amity Law School, Noida.

Introduction

Black laws dictionary defines the term guarantee as the assurance that a legal contract will be duly enforced. A contract of guarantee is governed by the Indian Contract Act,1872 and includes 3 parties in which one of the parties acts as the surety in case the defaulting party fails to fulfill his obligations. Contracts of guarantee are mostly required in cases when a party requires a loan, goods or employment. The guarantor in such contracts assures the creditor that the person in need may be trusted and in case of any default, he shall undertake the responsibility to pay. Thus we can say contract of guarantee is invisible security given to the creditor and shall be discussed further

What is a contract of guarantee?

Section 126 of the Indian contract act defines a contract of guarantee as a contract to perform the promise or discharge the liability of the defaulting party in case he fails to fulfill his promise.

Thus here we can infer that there the 3 parties to the contract

Principal Debtor – The one who borrows or is liable to pay and on whose default the guarantee is given

Creditor – The party who has given something of value to borrow and stands to receive the payment for such a thing and to whom the guarantee is given

Surety/Guarantor – The person who gives the guarantee to pay in case of default of the principal debtor

Also, we can understand that a contract of guarantee is a secondary contract that emerges from a primary contract between the creditor and the principal debtor.

Illustration

Ankita advances a loan of INR 70000 to Pallav. Srishti who is the boss of Pallav promises that in case Pallav fails to repay the loan, then she will repay the same. In this case of a contract of guarantee, Ankita is the Creditor, Pallav the principal debtor and Srishti is the Surety.

A contract of guarantee may either be oral or written. It may be express or implied from the conduct of parties.

In P.J. Rajappan v Associated Industries(1983) the guarantor, having not signed the contract of guarantee, wanted to wriggle out of the situation. He said that he did not stand as a surety for the performance of the contract. Evidence showed the involvement of the guarantor in the deal and had promised to sign the contract later. The Kerala High Court held that a contract of guarantee is a tripartite agreement, involving the principal debtor, surety and the creditor. In a case where there is evidence of the involvement of the guarantor, the mere failure on his part in not signing the agreement is not sufficient to demolish otherwise acceptable evidence of his involvement in the transaction leading to the conclusion that he guaranteed the due performance of the contract by the principal debtor. When a court has to decide whether a person has actually guaranteed the due performance of the contract by the principal debtor all the circumstances concerning the transactions will have to be necessarily considered.

Essentials of a Contract of Guarantee

1) Must be made with the agreement of all three parties

All the three parties to the contract i.e the principal debtor, the creditor, and the surety must agree to make such a contract with the agreement of each other. Here it is important to note that the surety takes his responsibility to be liable for the debt of the principal debtor only on the request of the principal debtor. Hence communication either express or implied by the principal debtor to the surety is necessary. The communication of the surety with the creditor to enter into a contract of guarantee without the knowledge of the principal debtor will not constitute a contract of guarantee.

Illustration
Sam lends money to Akash. Sam is the creditor and Akash is the principal debtor. Sam approaches Raghav to act as the surety without any information to Akash. Raghav agrees. This is not valid.

2) Consideration

According to section 127 of the act, anything is done or any promise made for the benefit of the principal debtor is sufficient consideration to the surety for giving the guarantee. The consideration must be a fresh consideration given by the creditor and not a past consideration. It is not necessary that the guarantor must receive any consideration and sometimes even tolerance on the part of the creditor in case of default is also enough consideration.

In State Bank of India v Premco Saw Mill(1983), the State Bank gave notice to the debtor-defendant and also threatened legal action against her, but her husband agreed to become surety and undertook to pay the liability and also executed a promissory note in favor of the State Bank and the Bank refrained from threatened action. It was held that such patience and acceptance on the bank’s part constituted good consideration for the surety.

3) Liability

In a contract of guarantee, the liability of a surety is secondary. This means that since the primary contract was between the creditor and principal debtor, the liability to fulfill the terms of the contract lies primarily with the principal debtor. It is only on the default of the principal debtor that the surety is liable to repay.

4) Presupposes the existence of a Debt

The main function of a contract of guarantee is to secure the payment of the debt taken by the principal debtor. If no such debt exists then there is nothing left for the surety to secure. Hence in cases when the debt is time-barred or void, no liability of the surety arises. The House of Lords in the Scottish case of Swan vs. Bank of Scotland (1836) held that if there is no principal debt, no valid guarantee can exist.

5) Must contain all the essentials of a valid contract

Since a contract of guarantee is a type of contract, all the essentials of a valid contract will apply in contracts of guarantee as well. Thus, all the essential requirements of a valid contract such as free consent, valid consideration offer, and acceptance, intention to create a legal relationship etc are required to be fulfilled.

To know more about the essentials of a valid contract, please read this

6) No Concealment of Facts

The creditor should disclose to the surety the facts that are likely to affect the surety’s liability. The guarantee obtained by the concealment of such facts is invalid. Thus, the guarantee is invalid if the creditor obtains it by the concealment of material facts.

7) No Misrepresentation

The guarantee should not be obtained by misrepresenting the facts to the surety. Though the contract of guarantee is not a contract of Uberrima fides i.e., of absolute good faith, and thus, does not require complete disclosure of all the material facts by the principal debtor or creditor to the surety before he enters into a contract. But the facts, that are likely to affect the extent of surety’s responsibility, must be truly represented

Kinds of guarantee

Contracts of guarantees may be classified into two types: Specific guarantee and continuing guarantee. When a guarantee is given in respect of a single debt or specific transaction and is to come to an end when the guaranteed debt is paid or the promise is duly performed, it is called a specific or simple guarantee. However, a guarantee which extends to a series of transactions is called a continuing guarantee (Section129). The surety’s liability, in this case, would continue till all the transactions are completed or till the guarantor revokes the guarantee as to the future transactions.

Illustrations

a) S is a bookseller who supplies a set of books to P, under the contract that if P does not pay for the books, his friend K would make the payment. This is a contract of specific guarantee and K’s liability would come to an end, the moment the price of the books is paid to S.

b) On M’s recommendation S, a wealthy landlord employs P as his estate manager. It was the duty of P to collect rent every month from the tenants of S and remit the same to S before the 15th of each month. M, guarantee this arrangement and promises to make good any default made by P. This is a contract of continuing guarantee.

Continuing guarantee

A continuing guarantee is defined under section 129 of the Indian Contract Act,1872. A continuing guarantee is a type of guarantee which applies to a series of transactions. It applies to all the transactions entered into by the principal debtor until it is revoked by the surety. Therefore Bankers always prefer to have a continuing guarantee so that the guarantor’s liability is not limited to the original advances and would also extend to all subsequent debts.

The most important feature of a continuing guarantee is that it applies to a series of separable, distinct transactions. Therefore, when a guarantee is given for an entire consideration, it cannot be termed as a continuing guarantee.

Illustration

K gave his house to S on a lease for ten years on a specified lease rent. P guaranteed that S, would fulfill his obligations. After seven years S stopped paying the lease rent. ‘K sued him for the payment of rent. P then gave a notice revoking his guarantee for the remaining three years. P would not be able to revoke the guarantee because the lease for ten years is an entire indivisible consideration and cannot be classified as a series of transactions and hence is not a continuing guarantee.

Revocation of Continuing Guarantee

So far as a guarantee given for an existing debt is concerned, it cannot be revoked, as once an offer is accepted it becomes final. However, a continuing guarantee can be revoked for future transactions. In that case, the surety shall be liable for those transactions which have already taken place.

A contract of guarantee can be revoked in the following two ways-

1) By giving a notice (Section 130)

Continuing guarantees can be revoked by giving notice to the Creditor but this applies only to future transactions. Just by giving a notice the surety cannot waive off his responsibility and still remains liable for all the transactions that have been placed before the notice was given by him. If the contract of guarantee includes a clause that a notice of a certain period of time is required before the contract can be revoked, then the surety must comply with the same as said in Offord v Davies (1862).

Illustration

A guarantees to B to the extent of Rs. 10,000, that C shall pay for all the goods bought by him during the next three months. B sells goods worth Rs. 6,000 to C. A gives notice of revocation, C is liable for Rs. 6,000. If any goods are sold to C after the notice of revocation, A shall not be, liable for that.

2) By Death of Surety(Section 131)

Unless there is a contract to the contrary, the death of surety operates as a revocation of the continuing guarantee in respect to the transactions taking place after the death of surety due to the absence of a contract. However, his legal representatives will continue to be liable for transactions entered into before his death. The estate of deceased surety is, however, liable for those transactions which had already taken place during the lifetime of the deceased. Surety’s estate will not be liable for the transactions taking after the death of surety’even if the creditor had no knowledge of surety’s death.

Period of Limitation

The period of limitation of enforcing a guarantee is 3 years from the date on which the letter of guarantee was executed. In State Bank Of India vs Nagesh Hariyappa Nayak And Ors, against the advancement of a loan to a company, the guarantee deed was executed by its directors and subsequently a letter acknowledging the load was issued by same directors on behalf of the company. It was held that the letter did not have the effect of extending the period of limitation. Recovery proceedings instituted after three years from the date of the deed of guarantee were liable to be quashed.

Rights of a Surety

After making a payment and discharging the liability of the principal debtor, the surety gets various rights. These rights can be studied under three heads:

(i) rights against the, principal debtors.
(ii) rights against the creditor, and
(iii) rights against the co-sureties.

(i) Rights against the Principal Debtor

1) The right of surety on payment of debt or the Right of subrogation(Section 140)

The right of subrogation means that since the surety had given a guarantee to the creditor and the creditor after getting the payment is out of the scene, the surety will now deal with the debtor as if he is a creditor. Hence the surety has the right to recover the amount which he has paid to the creditor which may include the principal amount, costs and the interest.

2) The right of Indemnity(Section 145)

In every contract of guarantee, there is an implied promise by the principal debtor to indemnify the surety, and the surety is entitled to recover from the principal debtor whatever sum he has rightfully paid under the guarantee. This is because the surety has suffered a loss due to the non-fullfillment of promise by the principal debtor and therefore the surety has a right to be compensated by the debtor

Illustration
Luthra and co has taken a loan from Khaitan and co where Amarchand acts as security on behalf of Luthra. Khaitan demands payment from Amarchand and on his refusal sues him for the amount, Amarchand defends the suit having reasonable grounds for doing so, but he is compelled to pay the amount of the debt with costs. He can recover from Luthra the amount paid by him for costs, as well as the principal debt.

(ii) Rights against the Creditor

1) Right to securities given by the principal debtor(section 141)

On the default of payment by the principal debtor, when the surety pays off the debt of the principal debtor he becomes entitled to claim all the securities which were given by the principal debtor to the creditor. The Surety has the right to all securities whether received before or after the creation of the guarantee and it is also immaterial whether the surety has knowledge of those securities or not.

Illustration 
On the guarantee of Priya, Anita lent rs 100000 to Sita. This debt is also secured by security for the debt which is the lease of Sita’s house. Sita defaults in paying the debt and Priya has to pay the debt. On paying off Sita’s liabilities Priya is entitled to receive the lease deed in her favor.

2) Right to set off

When the creditor sues the surety for the payment of principal debtor’s liabilities, the surety can claim set off, or counterclaim if any, which the principal debtor had against the creditor.

(iii) Rights against the Co-sureties

1) Release of one co-surety does not discharge others (Section 138)

When the repayment of debt of the principal debtor is guaranteed by more than one person they are called Co-sureties and they are liable to contribute as agreed towards the payment of guaranteed debt. The release by the creditor of one of the co-sureties does not discharge the others, nor does it free the released surety from his responsibility to the other sureties. Thus when the payment of a debt or performance of duty is guaranteed by co-sureties and the principal debtor has defaulted in fulfilling his obligation and thus the creditor compels only one or more of the co-sureties to perform the whole contract, the co-surety sureties performing the contract are entitled to claim contribution from the remaining co-sureties.

2) Co-sureties to contribute equally (Section 146)

According to Section 146, in the absence of any contract to the contrary, the co-sureties are liable to contribute equally. This principle will apply even when the liability of co-sureties is joint or several, and whether under the same or different contracts, and whether with or without the knowledge of each other.

Illustration
A, B, C, and D are co-sureties for a debt of Rs. 2,0000 lent by Z to R. R defaults in repaying the loan. A, B, C, and D are liable to contribute Rs. 5000 each.

3) Liability of co-sureties bound in different sums(Section 147)

When the co-sureties have agreed to guarantee different sums, they have to contribute equally subject to the maximum of the amount guaranteed by each one.

Illustration
A, B and C, sureties for D, enter into three separate bonds, each in a different penalty, A for Rs. 10,000, B for Rs. 20,000 and C for Rs. 40,000. D makes default to the extent of Rs. 30,000. A B and C are liable to pay Rs. 10,000 each. Suppose this default was to the extent of Rs. 40,000. Then A would be liable for Rs. 10,000 and B and C Rs. 15,000 each.

Discharge of Surety from Liability

Under any of the following circumstances a surety is discharged from his liability:
i) by the revocation of the contract of guarantee,
ii) by the conduct of the creditor, or
iii) by the invalidation of the contract of guarantee

We have already discussed above the first circumstance in which how a surety can be discharged i.e by Revocation of the Contract of Guarantee. This includes by giving notice or death or the surety.

(ii) Conduct of the Creditor

1) Variance in terms of the contract(Section 133)

When a contract of guarantee has been materially altered through an agreement between the creditor and principal debtor, the surety is discharged from his liability. This is because a surety is liable only for what he has undertaken in the guarantee and any alteration made without the surety’s consent will discharge the surety as to transactions subsequent to the variation.

Illustration

A becomes surety to C for B’s conduct as a manager in C’s bank. Afterward, B and C contract, without A’ s consent, that B’ s salary shall be raised, and that he shall become liable for one-fourth of the losses on overdrafts. B allows a customer to over-draw, and the bank loses a sum of money. A is discharged from his suretyship by the variance made without his consent and is not liable to make good this loss.

2) Release or discharge of the principal debtor(Section 134)

A surety is discharged if the creditor makes a contract with the principal debtor by which the principal debtor is released, or by any act or omission of the creditor, which results in the discharge of the principal debtor.

Illustration
A supplies goods to B on the guarantee of C. Afterwards B becomes unable to pay and contracts with A to assign some property to A in consideration of his releasing him from his demands on the goods supplied. Here, B is released from his debt, and C is also discharged
from his suretyship. But, where the principal debtor is discharged of his debt by operation of law,
say, on insolvency, this will not operate as a discharge of the surety.

3) Arrangement between principal debtor and creditor

According to section 135 when the creditor, without the consent of the surety, makes an arrangement with the principal debtor for composition, or promise to give him time to, or not to sue him, the surety will be discharged.
However, when the contract to allow more time to the principal debtor is made between the creditor and a third party, and not with the principal debtor, the
surety is not discharged (Section 136).

Illustration
C, the holder of an overdue bill of exchange drawn by A as surety for B, and accepted by B, contracts with M to give time to B, A is not discharged.

4) Loss of security(Section 141)

If the creditor parts with or loses any security given to him at the time of the guarantee, without the consent of the surety, the surety is discharged from liability to the extent of the value of the security.

Illustration
A, as surety for B, makes a bond jointly with 3 to C to secure a loan from C to B. Later on, C obtains from B further security for the same debt. Subsequently, C gives up further security. A is not discharged.

(iii) By Invalidation of the Contract

A contract of guarantee, like any other contract, may be avoided if it becomes void or voidable at the option of the surety. A surety may be discharged from liability in the following cases:

1) Guarantee obtained by misrepresentation(Section 142)

When a misrepresentation is made by the creditor or with his knowledge or consent, relating to a material fact in the contract of guarantee, the contract is invalid

2) Guarantee obtained by concealment(Section 143)

When a guarantee is obtained by the creditor by means of keeping silence regarding some material part of circumstances relating to the contracts, the contract is invalid

3) Failure of co-surety to join a surety(Section 144)

When a contract of guarantee provides that a creditor shall not act on it until another person has joined in it as a co-surety, the guarantee is not valid if that other person does not join.E

Extent of a surety’s liability

In the absence of a contract to the contrary, the liability of a surety is co-extensive with that of the liability of the principal debtor. It means that the surety is liable to the same extent to which the principal debtor is liable.

Illustration
A guarantees to B the payment of a bill of exchange by C, the acceptor. On the due date, the bill is dishonored by C. A is liable, not only for the amount of the bill but also for any interest and charges which may have become due on it.

Conclusion

The contract of guarantee is a specific contract for which the Indian Contract Acy has laid some rules. As we have discussed, the basic function of a contract of guarantee is to protect the creditor from loss and to give him confidence that the contract will be enforced with the promise of the surety. Every contract of guarantee has three parties and there exist two types of guarantees i.e specific guarantee and continuing guarantee. The type of Guarantee used depends on the situation and the terms of the contract. The surety has some rights against the other parties and liability of the surety is considered to be co-extensive with that of the principal debtor unless it is otherwise provided by the contract. In case the contracts are entered into by misrepresentation made by the creditor regarding material circumstances or by concealment of material facts by the creditor, the contract will be considered invalid.

The post What is Contract Of Guarantee appeared first on iPleaders.

This article is written by Srishti Chawla, a 5th-year student at Amity Law School, Noida.

Introduction

We already know that a contract requires a certain set of basic essentials that must be fulfilled in order to make a contract legally enforceable. But even when the parties to the contract have fulfilled these essentials, its validity can be questioned if the contract is not fulfilled in due time and in the manner prescribed in the contract. In all Commercial contracts for example construction contracts, it is of utmost importance that a contract is completed in due time because a delay in its performance might frustrate the whole objective of the contract making the promisee subject to losses. Although it is on the discretion of the parties to decide the time, and place of the contract but once decided it becomes necessary to comply with such terms.

We will now discuss the rules regarding time, place and manner as specified in sections 46-50 of The Indian Contract Act, 1872.

Rules Regarding Time and Place of Performance of Contract

1) When no application is to be made by the promisee and no time is specified – Section 46

In situations where there is no time period specified for the performance of the contract and the promisor has to perform the contract without any request by the promisee, in such a case the promisor must perform the contract within a “reasonable time”.

Here reasonable time means a fair amount of time that is required to do something conveniently and as soon as the circumstances permit. Hence here time is not important since a specified date for completion is not mentioned but this does not mean that the promisee does not have the right to have the contract performed by the promisor.

Also, the term reasonable time depends on the facts and circumstances of the case and will also depend on the nature of the transaction.

Illustration
Srishti takes a loan of Rs 10,000 from Shivani and says that she will return it to her when she receives her next salary. Here the reasonable time for performance of the contract is after Srishti receives her next salary.

2) When time and place of performance is specified but no application is to be made by the promisee- Section 47

When the terms of the contract say that the promisor has to perform the contract without any request by the promisee, on the place specified by the promisee and on the exact date specified by him.
In case no specific time is mentioned then the promisor should deliver the goods during the usual hours of business.

Illustration
Ankita promised to deliver goods to Ira on an advance payment of Rs 10,000. Ira made the payment and asked Ankita to deliver the goods on 13th of the same month at her office at Tis Hazari. Since the time is not specified, she should deliver it between 10 am and 5 pm, assuming those are the regular court timings.
If Ankita attempts delivery after the business hours, then Ira has the right to not accept the goods and ask Ankita to deliver again during business hours.

3) When Performance is to be made on a proper place and time but an application is to be made by the promisee to the promisor for its performance- Section 48

When the terms of the contract say that a performance of a contract has to be made on a particular day but the promisor will only do so when the promisee makes an application to the promisor on that specific day for performance. Hence, here since it is specifically mentioned in the contract that the promisee has to request the promisor for performance on that specific day, he must do so at the proper place and during the usual business hours as specified by him.

Illustration

Manu agrees to supply Nishant 50 cartons of alcohol on 3rd November at his office. As per terms of the contract, Nishant would have to request Manu for performance. Thus on the due date and within usual business hours, Nishant should request Manu regarding a time and place for the supply of goods.

4) Where no place is fixed and no application has to be made to the promisor by the promisee- Section 49

When the terms of the contract does not specify the place where the goods have to be delivered and that no request has to be made by the promisee for the performance of a contract, in such a situation it is the duty of the promisor to request the promisee of a place reasonable to both where the goods can be delivered and then accordingly perform the contract.
The place for the performance of goods implies both the delivery and payment of goods.

Illustration
Sheela entered into a contract for supplying 100 cartons of Gram Flour to Anu on 5th September at a specific price. On the due date of performance, Sheela must apply or request Anu for determining a reasonable place and also make the payment at the same place.

5) When the performance has to be made in the time and manner as specified by the promisee- Section 50

A contract can also exist in which the promisor agrees to perform the contract in a manner and at a place and time prescribed by the promisee.

Illustration
Prankur’s son is in the hospital and needs money for his son’s operation. Harshil owes money to Prankur and agrees to repay him in at any place or time decided by Prankur. In this case, Prankur has the liberty to ask for the performance of the promise in any manner and at any place or time suited to him.

The consequence of Failure to perform the contract at a fixed time when the time is essential

Section 55 of the Indian Contract Act,1872 deals with the effect of failure to perform the contract at a fixed time when the time is essential.

• If an act is not done within the stipulated time, the contract becomes voidable at the option of the promisee provided the Intention of the parties was that time should be of the essence of the contract.

Thus whether time was the essence of the contract depends on the intention of the parties and also on the nature of the contract.

In Bhudra Chand v. Betts(1915) the defendant promised to deliver an elephant to the plaintiff for the capture of a wild elephant as a part of Kheda Operations. The contract provided that the elephant would be delivered on the 1st of October, 1910, but the defendant obtained an extension of the time till 6th Oct and yet did not deliver the elephant till 11th. The plaintiff refused to accept the elephant and sued for damages for the breach. It was held that the plaintiff was entitled to recover damages since it was proved that time was the essence of the contract since the defendant had tried to obtain an extension of time.

• This section says that if it was not the intention of parties to make time of the essence of the contract, the contract does not become voidable by the failure to perform the contract on or before the specified time but the promisee is entitled to claim compensation for any loss caused by the default
• Finally, the section goes on to say that if time is intended to be of the essence by the parties but performance is accepted on some other time other than the time agreed, compensation cannot be claimed by the promisee unless he gives such a notice to the promisor.

In the case of State of Kerala v. M.A Mathai(2007), it was held that if there are any delays in the performance of reciprocal obligations by an employer, the contractor gets the right to avoid the contract but if he does not avoid the contract and accepts the belated performance, he cannot claim compensation for any loss sustained to him due to delay in performance, unless he gives a notice of the same to the delaying party.

The intention of the parties

In Indian law, the question of whether the time is of the essence of the contract or not is determined by the intention of the parties.

The intention of the parties can be determined from:

(a) The express words used in the contract
(b) The nature of the contract itself
(c) The nature of the property which forms the subject matter of the contract
(d) The surrounding circumstances

It has been held in the case of China Cotton Exporters v. Beharilal Ramcharan Cotton Mills Ltd (1961) that in commercial contracts time is ordinarily of the essence of the contract.
Thus It is ordinarily presumed that except in commercial contracts, time is not of the essence in other contracts. This presumption can be rebutted by showing the intention of the parties.

For example, Time is presumed not to be of the essence in contracts relating to immovable property, but of the essence in contracts of renewal of leases.

In M/S Citadel Fine Pharmaceuticals vs M/S Ramaniyam Real Estates Pvt. Ltd. and Ors. (2011), It was held that time was the essence of the contract which was specifically mentioned in clause 10 and the consequences of non-completion are mentioned in clause 9. So, from the express terms of the contract and the commercial nature of the transaction and the surrounding circumstances make it clear that the parties intended time to be of the essence of the contract.

However, merely specifying the time at which the contract has to be performed does not make time the essence of the contract. In order to determine this the terms and conditions of the agreement should be read carefully. If the contract in its terms provides that time is the essence of the contract, but other terms of the agreement show that the parties did not intend time to be of the essence, the court has held that time is not of the essence.

For Example, in the Case of Hind Construction Contractors v. State of Maharashtra (1979) the Appellant entered into a contract with the respondent on July 2, 1955, for some construction work with the condition that the contract should be completed within 12 months from the commencement of the work. The Appellant could not complete the work within the stipulated time and the Respondent canceled the contract with effect from August 16, 1956. The Appellant contended that time was not of the essence and further on account of several difficulties, such as excessive rains, lack of proper road and means of approach to the site, the completion was delayed. The Supreme Court, in deciding that time was not of the essence in relied on two clauses in the contract –
1. First, there was a power to grant an extension of time on reasonable grounds by the respondent on an application by the appellant. Even though the appellant made an application for extension, the respondent revoked the contract which was wrong.
2. Second, there was a provision to recover penalty/compensation from the appellant at specified rates during the time the work remains unfinished.
These two provisions, as per the court, exclude the inference that time was intended to be of the essence of the contract.

Time Can Be Made Essence By Notice

When time is not of the essence in a contract, it can be made so by giving notice to the promisor. The notice must contain clearly that it wants to make time as the essence of the contract and the necessary implications if it is not adhered to. The promisor can also be intimated through the notice that default in the compliance with the terms will lead to the cancellation of the contract. The party serving the notice must himself be bound by it.

Extension of time

Since one party to the contract cannot unilaterally vary the terms of the contract, he also cannot extend the time without the consent of the other party through an agreement, Therefore, time for performance can be extended only by an agreement arrived at between the promisor and promisee. Thus if one party requests the other party for extension of time but the other party does not communicate his acceptance, the time cannot be extended in such a case.

Conclusion

What we gather from the provisions of law relating to time as the essence of contracts is that what matters most in such cases is the intention of the contracting parties. The intention can either be expressed in the contract or can be inferred by the nature of the transaction. If in the terms and condition of the contracts the parties have no intention that time should be of the essence of the contract does not become voidable by the failure to do such thing at or before the specified time but the promise is entitled to compensation from the promisor for any loss occasioned to him by such failure .when the time is the essence of the contract, non performance of the contract in time would frustrate the purpose which the parties have in mind and therefore if in such a case, there is a delay in the performance by one party, the other party has a right to avoid the contract.

The post Time and Place of Performance of Contract appeared first on iPleaders.

This article is written by Paritosh Patel pursuing Diploma in Entrepreneurship, Arbitration and Business law from LawSikho, He is BBA, LLB graduate from Auro University, Surat and currently practicing at District, Sessions, Fast-Track, Family and Consumer Courts, Surat. Here he has discussed the top 5 cities in India in terms of real state transaction.

Introduction

Before heading straight to real estate transactions, first, we need to look at how the real estate sector became one of the most globally recognized sectors. There are mainly four types of sub-sectors:

1. Commercial
2. Hospitality
3. Housing
4. Retail

Even though all the sub-sectors are differently operated, they go along hand in hand. The rise of any one sector is accompanied by the rise of other sectors. The real estate sector is third of the 14 major sectors that contribute towards the nation’s economy. This sector also brings in most non-resident Indian (NRI) investments, be it for the long-term or short term. Cities preferred by this NRI are ranked below:

1. Bangalore
2. Ahmedabad
3. Pune
4. Chennai
5. Goa
6. Delhi
7. Dehradun

It is expected that the real estate sector in India will race to a market size of US$ 1 trillion by the end of 2030 from currently US$ 120 billion and contribute a total of 13 percent of the country’s economy. Major sectors like retail, IT, e-commerce and consulting are known to have registered huge demand for commercial space in the last couple of years. According to data released by Department of Industrial Policy and Promotion (DIPP), the construction development sector in India has received Foreign Direct Investment (FDI) equity inflows to the tune of US$ 24.87 billion in the period April 2000-June 2018.

Here are the major developments and investments in the real estate sector:

1. The new government initiative of launching new houses among the major seven cities will increase 32 percent year on year by 2019 end.
2. The Embassy Office Parks announced in September 2018 that they would generate approx. Rs 52 billion through India’s first Real Estate Investment Trust (REIT) listing.
3. One Indiabulls in Chennai of Indiabulls Real Estate was acquired by Blackstone Group in May 2018 for Rs. 900 Crore.
4. DLF invested a huge amount of money acquiring 11.76 acres of land in February 2018 for an estimated amount of Rs. 15 billion for its expansion in Gurugram, Haryana.

The state governments along with the full support of the Government of India have taken up many initiatives and schemes to encourage the development of the real estate sector. The biggest among this initiative might be the Smart City project and the plan is to build a total of 100 smart cities, this obviously generates ample of opportunities for the real estate companies.

Some other initiatives by the Govt. of India to encourage the real estate sector are mentioned hereinafter:

1. More than 6.85 million houses are directly sanctioned under the Pradhan Mantri Awas Yojana (PMAY).
2. An outlay of Rs 60,000 crore was approved for the creation of houses under the National Urban Housing Fund in February 2018.
3. The Govt. of India enforced Real Estate (Regulation & Development) Act, 2016 from May 2016. This act has changed the dimensions of how the real estate sector previously functioned. The act has brought transparency and has norms to protect all the stakeholders. Additionally, the Act has ensured speedy execution of disputes. The image below shows RERA’s current footprint on the nation
4. Deduction till 100 percent in profits for affordable housing construction:

The finance minister proposed this scheme for a 100 percent reduction in profits for flats till 30 square meters in the four major cities and till 60 square meter in other cities. This projects should be completed within a span of three years after the approval is granted.

The latest Union Budget gave direct tax exemption to the lowest (most needy) income earners. The Government of India also came up with the new Credit Linked Subsidy Scheme (CLSS) for middle-class people with a provision of Rs. 1000 Crore.

1.Subsidies for first-time buyers

The Union Budget proposed an additional deduction in the interest of up to Rs. 50,000 per year for the first time buyers in loans amounting to Rs. 35 lakhs. This scheme has influenced sales of the home in non-metro cities.

2. Changing arbitration norms

The Government of India has cleared reforms for speedy resolutions of disputes. The speedy resolutions are aimed to improve the cash flow for large developers who are exposed to infrastructure and government contracts.

1. Exemption from service taxes on affordable houses.
2. Goods and Services Tax (GST) implementation:

GST has simplified the entire Indian tax system. The sector is still awaiting for norms over which items will fall under “sin” and “common use”.

3. Demonetisation of currency notes

Demonetisation of the currency notes of Rs. 500 and Rs. 1000 notes by the government have seen significant reforms. If we look at the positive aspects of this move in the long term, this move along with RERA will bring India to the international level for doing business which will result in more cash flow.

I hope now it is clear over what are the factors that have influenced the real estate sector. Now let’s have a look over the top 5 cities in India in terms of real estate transactions.

In the past couple of decades, India has witnessed an upward trend in the service sectors, like Telecom, Insurance, IT and ITES, Banking and Finance. This has grown demand for offices and commercial places in the country. Given below are the top 5 cities in their ranking order:

1.Bangalore

The Silicon Valley of India is the biggest hub of the IT sector. Areas like Bommasandra, Peenya, and Malleswaram are the manufacturing hubs. The metro and monorail developments have seen reduced in travelling time of the people. All in all, the growth in IT parks, manufacturing hubs, SEZ and good transport facilities have seen developers coming up with new projects for residential purposes.

2.Hyderabad

Hyderabad has the largest workforce and the best-suited climate for workers. Sectors like pharma, IT, telecom and manufacturing sectors have seen immense rise which has resulted in the growth of demand for residential property and this has made it one of the top cities. Gachibowli, Hafeezpet, Manikondam Nanakramguda are the most recognized areas among investors.

3.Chennai

The capital of Tamil Nadu is well connected by air, road, and sea. This has always been an advantage for businessman, and so Chennai is considered as the trade hub. Sectors like Automobile, Education, IT are very well established here. Chennai is the biggest city in South India and has seen a constant migration over the years. Chennai has witnessed a steep growth in terms of real estate and promises good Return on Investment (ROI).

4. Pune

Over the last couple of years, the city has witnessed many transactions in the fields of Automobile, IT and ITes and Finance sectors. Pune is considered to be the next big automobile, education and IT hub. Growth in various sectors has seen a steady growth in demand for residential and commercial accommodations.

5. Ahmedabad

Another growing city riding on the back of older textile, chemical industries, automobile sector along with the new manufacturing and IT sectors. The newly proposed Outer Ring Road along with the hugely anticipated GIFT city project is seen as a new investment destination.

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

The post Top 5 Cities in India in Terms of Real Estate Transactions appeared first on iPleaders.

This article is written by Ramanuj Mukherjee, CEO, LawSikho.

If you are not a law student, still read on. You are going to relate to this. It may even help you to put your law school life into perspective.

1#

Language

The tool of the lawyer is language. If you are not good with language, if you do not know how to bend the words and sentences to serve your purpose effortlessly, then the only way to go is to learn the same.

You have to learn to use language – in written form, and in oral form too – and you have to learn how a language is a tool of power and persuasion.

I was in the 3rd year in law school when I first attended a class by NL Mitra, a stalwart who was the 2nd VC of NLS Bangalore and then started NLU Jodhpur. He also had a role to play in setting up the IP law school at IIT Kharagpur. He worked as a partner at a leading law firm after leaving NLU Jodhpur and occasionally offered some lectures in a few law schools.

Why does a law firm pay so much money to hire an NLU graduate? He asked us. We are better lawyers? We thought.

He said, “you are hired because you are better in English than the rest of the law students.” That was kind of shocking for us. However, this is also true, and I came to realize this over time.

However, it is not only English anymore. Compared to the NL Mitra days, the complexity of law practice has increased a lot and the level of expertise expected from law graduates has changed too. However, the basic requirement of amazing language skills has not changed.

You will never make it into a big law firm unless you speak and write flawless English. You will also never earn the respect of the bar as a counsel without great English skills. The elite and the hoi polloi in India are separated by the boundary of amazing language skills.

You will do absolutely fine as a lawyer in district courts even if your English is poor. You will manage decently well in High Courts even if your English is not perfect. However, you are not likely to make it into a good law firm or survive in one unless your English language skills are superlative. You will not attract marquee clients as a lawyer unless your English can be taken for granted.

You will be writing a lot and speaking a lot as a lawyer, so make sure that you are really good at it.

I studied in the vernacular medium until I went to NUJS. The English we learned in school was very basic. So I had to learn English on my own. This involved mugging up a dictionary, reading up books that covered things like vocabulary to style guides, immersion into the English language by only reading English books, newspapers, and watching English movies.

The total immersion technique of learning any language is very powerful. Stop talking, reading or listening to (as far as possible) in any language other than English for a year and see how fast and how far you go.

One of the most effective things I did to learn to speak English was the imitation of Hollywood movies. I would play a movie on my computer (that I had already watched once, usually James Bond movies), pause after every dialogue and repeat it loudly, imitating the way they said it on the screen, before playing the next dialogue.

It is a painful and lengthy process, requires a lot of patience, but the improvement is remarkable after a couple of weeks.

Anyhow, find your way, but make sure your language skills are top notch.

Another major win for me was blogging. Learning to write well requires you to think in a structured manner. That helped me a lot as a lawyer and professional later in my life.

#2

Stress, depression, mental health issues

Growing up is not easy. And going to law school as a teenager or even in your early 20s is very hard. Excruciating most of the time.

You will probably have a lot of fun. You will go on adventures too. You will learn new things, see new places and have many new experiences that you will be glad about and proud of.

But you will also probably face extreme stress, unhealthy competitive behaviour, exclusion (elite groups in law school thrive on exclusion), ridicule for your any real or perceived shortcoming, bullying seniors, incompetent but vindictive teachers, various kinds of discrimination, favouritism, unfair treatment and situations, physical or mental harassment and so on.

It is quite certain that if something of this sort has not happened to you yet, it is only a matter of time. Don’t hold your breath though.

You need to be mentally prepared and robust. You need to have your friends, support system and people in your life who inspire you and uplift you.

You need to reject people who pull you down and want to keep you mediocre and ordinary. You need to find and spend more time with people who are on a personal journey of joy, happiness, and self-development.

The work stress I encountered in law school was unprecedented. I thought the class 12 board exam was hard. I had no idea how much more difficult first semester at NUJS will be.

I remember the feeling of carrying the Himalayas on my shoulders as I realized that I have to write 5 projects of 5000 words each, thoroughly footnoted, within a couple of months. How does one do that?

The thing about stress is that you need to accept it. You are not supposed to reject it or resist it if you want to grow. You are supposed to align yourself with the stress and push yourself in the same direction, jumping into action.

You learn such things over time. You have to learn it by doing it, and you will not learn from reading this. However, let me warn you fully.

I was depressed in law school for almost 2 years. I would not feel like talking to anyone. I stopped caring for or grooming myself. I felt hopeless and sad. I didn’t want to wake up in the morning. I missed classes. And I guess nobody could figure out because I had to keep my pride intact.

The way I got out of it was through physically invigorating activities, especially running. Even today, working out keeps me on top of my mental health. Hence, working out is strongly recommended. Don’t say you do not have time.

You should also use tools like affirmations and meditations. You can even program your mind for success while you sleep. Here is a video I recommend you to watch and then follow the instructions. This method works wonders for me these days.

Here is an amazing free meditation app I use almost every day. Look me up in it once you download and install it! Just search with my name.

Here, I have shared how Vipassana and other forms of meditation that can help you to become more effective.

If you already have depression or other mental health issues, consider seeing some qualified professionals, though be very careful about taking medicines. They should be a last resort after you have tried all other solutions and failed.

#3

Lack of social belonging and empowering environment

The years you spend in college are very important. This is not just a few years of your life. This is the time when you shape your self-image. Who are you in the world? Are you a winner or a loser? Are you a loner or a team player? Do you take initiative or do you want others to tell you what to do? Such characteristics get formed in the college years.

This is also a time when you realize that you are alone in the world. It is a part of growing up. As a younger kid, you are usually under the protective umbrella of your family, and your interaction with the outside world is limited. College is the time when most people begin to deal with the world on their own and step out of that protective influence of parents.

This is also the time when you want to belong and become part of something that is more than just you and your family. And it is not easy to find that. Most colleges fail to create environments where you can feel that you belong to something.

The Army does that. Good sports teams do that. It is also done by many theatre groups, political parties, and every other successful social/ volunteer-driven organizations. The young college kids are often the life-blood of these organizations.

It is important for you to find such groups or organizations that can empower you, make you feel at home, and give you a purpose. As young college kids with dreams in your eyes and boundless energy, you need direction and leadership from more mature people. You need mentors. Look out for them.

At the same time, know that you are likely to face exclusion by certain social groups, that derive their value or so-called “exclusivity” from excluding people they consider to be inferior. This is hurtful, but do not let such judgment define you. What these people think is of no consequence, and you will rise and grow much beyond such pettiness.

Do not let other people’s prejudice become your reality.

When I was in college, I faced a lot of ridicule and insults because I could not speak good English, I was from a small town and lower-middle-class family and did not understand the ways of the rich people, and was socially awkward and depressed. Imagine the person nobody wanted to invite to their birthday party. I was that person in my class.

And it made me angry. I was smart, I was strong, I was going to be great. I didn’t understand why I am not considered good enough. However, that social rejection was my rocket fuel. I wasn’t going to settle down with what I had. I was going to be the best.

And that is what I did. I learned that it is better to be interested than interesting. I started taking a genuine interest in other people. I started caring for others setting aside my own selfish interests and small complaints. From a person who was worried about my own social status and standing, I became someone who stands for others, and that changed everything forever for me.

I found communities outside college more than inside initially. Startup Saturday, where I met other entrepreneurs was one. Then there was also a blood donation organization I volunteered for. Then teaching for CLAT and blogging happened to me.

Suddenly I had a bunch of students to care for and lead to their success. I began to mentor juniors who needed guidance.

I went on to create my social circle and sphere of influence over the next few years, and it was much larger than just the college by the time I graduated. I created iPleaders and LawSikho, to which I and many others can belong to as a community. I am sure you will find your community too.

Until you do, please watch out. You do not want an environment that diminishes you, but one that empowers you. Some good places to try will be Art of Living, Landmark, ISCON, Salsa Socials, Spicmacay, MAD, Toastmasters.

You are also most welcome to become a part of the LawSikho community. We stand for continuous self-development and in the belief that through self-development we can become extraordinary lawyers.

#4

Low standards

This is one of the biggest dangers. In most law schools you are almost certainly going to encounter institutionalized mediocrity all around.  

Your curriculum will be mediocre. Your exams and assessment will be mediocre. Most of your teachers will be mediocre, just like the vast majority of your batchmates and seniors.

It doesn’t take much to pass your exams. It doesn’t take much to just survive and carry on. If you just do the minimum to survive, you will be fine for 5 years. And that is very, very dangerous.

If you do that, you are setting low standards for yourself. You are imbibing mediocrity that will define everything you will do in life.

This is not how you set yourself up for success. If you want success, you will need to set your standards really high.

Read the best books out there. Interact with the best lawyers, and see how they work. See how the best institutions in the country work. Watch the videos of amazing speakers on youtube. Follow the world’s topmost people on Twitter, LinkedIn and Instagram. The more you will expose yourself to the very best, the more you will imbibe high standards and will not be able to tolerate mediocrity, for either yourself or anyone else.

Low standards will destroy you. Do not let yourself be influenced by the low standards you see in your environment.

#5

Crisis of self-esteem

At least once during your college years, you are going to face a crisis of self-esteem. Who am I? What is special about me? Am I good enough? Whether I am going to be successful? Am I a good person?

You will find it hard to answer these questions. As you will face stress and challenges of a scale that you have never seen before, you are going to crumble. You will feel that there is no hope in the world and that the situation is crushing you.

One of the two things will happen at that time. You will either find an escape and distraction – such as drugs or alcohol. Every year a very large number of law students in law colleges across the country fall victim to this.

If you do not fall for this, or somehow get through such distraction or addiction, as you keep getting crushed by mounting pressure, you will discover immense inner strength. You will realize that you are who you decide to become. You will realize that no pressure is enough to crush you and that you can survive it all and grow stronger day by day.

And that is how every great lawyer ever has been forged.

How LawSikho can help you

At LawSikho, we are acutely aware of these challenges that every law student faces in law college, and we support our students to get through this minefield. Want to know how? Why don’t you schedule a call to chat with us?

Here are some courses from which you can benefit immensely. These courses will help you to set high standards, find your feet in college and earn the respect of your peers, take pride in your skills and knowledge, keep your brain engaged with new activities, learnings and assignments every week, and ensure that your mastery over legal language keeps growing as you work on assignments and get feedback and even write and publish articles.

Try out a course, and you will never be the same.

Upcoming courses:

• Diploma in Companies Act, Corporate Governance and SEBI Regulations | Fee: INR 23,600 | Last date of enrolment: 31st March, 2019 | Course Duration: 1 Year | Seats: 20 | To enroll: click here.

Executive Certificate Courses

• Certificate Course in Real Estate Laws | Fee: INR 10,000 | Last date of enrolment: 31st March, 2019 | Course Duration: 3 months | Seats: 20 | To enroll: click here.

• Certificate Course in Arbitration: Strategy, Procedure and Drafting | Fee: INR 10,000 | Last date of enrolment: 31st March, 2019 | Course Duration: 3 Months | Seats: 20 | To enroll: click here.

Test Preparation

• Judgment Writing and Drafting Course for Judicial Services | Fee: INR 9,900 | Course Duration: 2 Months | To enroll: click here. 

The post The Biggest Setbacks you will Encounter as a Law Student and How to Overcome them appeared first on iPleaders.

This article is written by Team LawSikho. This article discusses the Depository Receipts scheme of RBI.

The prevailing law for GDRs is the Depository Receipts Scheme, 2014 of RBI (RBIDRS 2014) (see here), which repealed the earlier Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 (FCCBDRMS 1993).

Who can issue depository receipts?

As per the FCCBDRMS 1993, only listed companies could make issuance of GDRs in foreign markets, but this situation has been altered. Now unlisted and even private companies in India can make depository receipt issuances abroad as per the RBIDRS 2014.

In which jurisdictions can depository receipts be issued?

As per Clause 2(g) of the RBIDRS 2014, a depository receipts can be issued in permissible jurisdictions, i.e. which is Financial Action Task Force compliant (see an exhaustive list of FATF-compliant members here) and is a member of the International Organization of Securities Commissions. As of the date of the notification, 34 jurisdictions have been notified as permissible jurisdictions in Schedule I of the RBIDRS 2014 itself, as follows:

1. Argentina
2. Australia
3. Austria
4. Belgium
5. Brazil
6. Canada
7. China
8. Denmark
9. European Commission
10. Finland
11. France
12. Germany
13. Greece
14. Hong Kong
15. China
16. Iceland
17. Ireland
18. Italy
19. Japan
20. Republic of Korea
21. Luxembourg
22. Mexico
23. Netherlands
24. New Zealand
25. Norway
26. Portugal
27. Russian Federation
28. Singapore
29. South Africa
30. Spain
31. Sweden
32. Switzerland
33. Turkey
34. United Kingdom
35. United States of America

Which securities can be issued under GDR?

As per RBIDRS 2014, any instrument that is considered as a security under Securities Contracts (Regulation) Act, 1956 can be the basis of a GDR issuance. Thus, shares, bonds, debentures Government securities, rights or interests in securities can all be the underlying basis of a GDR issuance.

What are Sponsored and Unsponsored DRs?

Depository receipt issuance can be led by a company itself, that is, the company’s shares are issued or existing company shares are created into depository receipts at the instance of the company. Alternately, an institution that validly holds shares of a company can create and issue depository receipts (unsponsored) at its own instance, without the involvement of the company and sell them to investors, which can be traded on a stock exchange. Thus, the types of Depository Receipt issuances are as follows:

A. Sponsored: Where the Indian issuer enters into a formal agreement with the foreign depository for creation or issue of DRs. A sponsored DR issue can be further classified as:

Capital Raising: The issuer issues new securities which are deposited with a domestic custodian

Non-Capital Raising: No fresh underlying securities are issued. Rather, the issuer gets holders of its existing securities to deposit these securities with a domestic custodian, so that DRs can be issued abroad by the foreign depository. Sponsored non-capital raising of DRs has been allowed in the DR Scheme, 2014.

B. Unsponsored: Unsponsored DRs are where any person other than the Indian issuer may, without any involvement of the issuer, deposit the securities with a domestic custodian in India. A foreign depository then issues DRs against such deposited securities. This is not a capital raising exercise for the Indian issuer, as the proceeds from the sale of the DRs go to the holders of the underlying securities. This can create incentives for financial intermediaries who hold shares to issue depository receipts offshore for secondary trading. In such situations, the Indian company will not earn any extra money as no investment is received into the company, but it creates an opportunity for offshore investors to gain exposure to the Indian market. This will help them diversify their portfolio and also engage in trading of shares.

We will be referring to sponsored depository receipt issuances in this course.

Parties

The parties that are involved in the issuance of the DRs and their roles are as follows:-

Issuing Company – It is the company which intends to raise its capital from foreign investors.

Eligibility under the DR Scheme, 2014:

1. a) Any Indian listed/ unlisted/ private/public company
2. b) any other issuer of permissible securities;
3. c) any person holding permissible securities;

which has not been specifically prohibited from accessing the capital market or dealing in securities.

Note: Permissible securities mean shares, scrips, bonds, debentures, derivatives, mutual fund units, government securities

Lead Manager – responsible for setting into motion the process of raising capitals by issuing DRs. They are responsible for drafting of various agreements that will be required by the company, drawing up various marketing strategies for the issue post Offer activities for the offer will involve essential follow-up steps, which include the finalization of trading and dealing of instruments and dispatch of certificates and demand of delivery of shares

Depository bank – Bank which holds the securities of the issuing company and transfer the same to the custodian banks. They decide the design of the DRs.

Custodian Bank – Domestic bank who holds the underlying shares/bonds against which the DRs are issued. They are banks defined under SEBI Custodian Regulation, 1996. New format of the return that is to be filed by the Domestic Custodian bank has been notified and is annexed here.

Investor – Ultimate buyer/ seller of the DRs

Process

The process of issuing GDRs by a company typically involves the following steps:

1. The domestic company enters into an agreement with the overseas depository bank for the purpose of issue of GDR, this is known as a Depository Agreement.
2. The overseas depository bank then enters into a custodian agreement with a domestic custodian bank.
3. The domestic custodian (which is an agent of the depository bank) holds the equity shares of the company.
4. On the instruction of domestic custodian, the overseas depository bank issues depository receipts (against the said equity shares) to foreign investors in foreign currency.

Listing Compliance

The listing norms are market specific and vary from the stock exchange to stock exchange. For example, listing norms and cost implications for Luxembourg Stock Exchange is comparatively relaxed than listing norms of the New York Stock Exchange. In the US, these norms vary upon the level of penetration by the issuer in the foreign markets. The three levels are:-

Level I – It warrants minimal disclosure from the issuer and the DRs are traded only on over the counter platform without listing on stock exchange. In an OTC market, dealers act as market makers by quoting prices at which they will buy and sell a security or currency. In general, OTC markets are therefore less transparent than exchanges and are also subject to fewer regulations.

Level II – Registration allows the issuer to list its ADRs on a major US stock exchange, namely the New York Stock Exchange (NYSE Euronext) or NASDAQ Stock Market, each of which has further reporting and disclosure requirements.

Level III – used not only to establish a trading presence but also to raise capital for the foreign issuer.

Global Registered Shares as the nomenclature indicates, it is that class of securities which trade on multiple stock exchanges in different currencies.

Voting Rights

Voting rights can be structured contractually – hence, the terms of issuance of depository receipt can determine whether voting rights will be exercised by the foreign shareholder or the depository.

They can be issued such that benefits accrue to the holder and any control rights will be exercised by the depository at the direction of the holder.

The position of voting rights is however little different with respect to unsponsored. The international practice is not to have voting rights but depository banks will have to formulate terms specially for Indian Markets to give voting rights to the unsponsored DR holders as well as the DR Scheme, 2014 makes it mandatory for unsponsored issuance.

Pricing of Depository Receipts

The RBI DRS 2014 states that permissible securities shall not be issued to a foreign depository at a price lower than what would have been permissible if the securities were issued to domestic investors under Indian law.

Difference between “1993 Scheme” and “2014 Scheme”

Under the 1993 Scheme, prior approval of the Ministry of Finance (MoF) was required for issuance of depository receipts. Under the 2014 Scheme, this is not required, except if issuance would require approval under the Foreign Exchange Management Act, 1999 (FEMA) for corresponding foreign investment.

Under the 1993 Scheme, depository receipts could only be issued by listed companies (i.e. which were already listed in Indian markets), but now private and unlisted public companies can issue depository receipts too.

Earlier, it was essential that depository receipt issuances needed to be ‘company sponsored’. but now any holder of securities can create depository receipts. The 2014 Scheme creates a provision for issuance of unsponsored depository receipts, that is, issuances which are led by financial institutions which hold the company’s shares and not at the instance of the issuer company.

Depository receipts can be created over any kind of security now within the meaning of Securities Contracts Regulation Act and not just shares. Hence, depository receipts can be created from fully convertible debentures as well.

Removal of government or RBI approval gives companies significant flexibility to issue depository receipts. Second, removal of the requirement to be listed in India enables companies to access foreign capital if they can enjoy a higher valuation from foreign public investors, or higher demand from sophisticated financial investors based offshore.

The effect of some of the other measures, such as depository receipt issuance of unconventional securities and unsponsored depository receipt issuances will need to be measured over time.

US Law Issue for ADRs

Under US law, you can have 3 kinds of ADR issuances:

• Level 1 Issuance – This issuance can be unsponsored and does not require company documents to be filed. Form F-6 (see here) needs to be filed, containing disclosures on the contractual terms of the depositary receipts, a format of the ADR,  copies of the depository agreement with the institution which is creating the depository receipts and certain legal opinions. No information about the company whose underlying securities are the basis of the depository receipts is required to be filed and hence the information is not available with SEC.
• Level 2 Issuance – Under a Level 2 issuance as well, money cannot be raised from American public investors by the company. A Level 2 issuance is only meant for security issuance and trading by American investors for securities that have already been issued by the Indian company. Further, these securities are to be traded in the over-the-counter market (this is a special system and separate from the exchange system for usual trading). In a Level 2 issuance, annual reports of the company in Form 20-F (see here) need to be filed in addition to Form F-6.
• Level 3 Issuance – If the company intends to raise capital from American public investors, then a Level 3 issuance is required. Naturally, these ADRs will be tradeable as well by the investors. In addition to a Form 20-F (annual statements of the company), registration statement with SEC needs to be filed in Form F-1 (see here), Form F-3 (see here), or Form F-4 (see here).  

Filings for Level 2 and Level 3 issuances are available on the SEC’s Edgar system (see here).

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This article is written by Ramanuj Mukherjee, CEO, LawSikho

A mentor can accelerate your growth.

A mentor gives you permission to try something big and fail at it if you have to and tells you that he is there to save you if you screw up.

A mentor nudges you and pushes you towards doing things you will not do on your own.  A mentor short circuits the mental processes that stop you from growing.

A mentor, however, can only give you what you are ready to take. Most people are not ready to let a mentor take the reins and lead them into something they are not capable of getting to on their own.

And it is fine. People take their time to get ready, to grow, to understand what success means for them.

I wanted to find a mentor since I was in high school. I did not. I used to write in my diaries every year that I want to find a mentor this year. It didn’t happen. I know now why. I was too stubborn to accept what anybody said to me. I was always right. I had my head up my ass.

How could I find a mentor?

It took a phenomenal coach, who I encountered at Landmark, to make me realize that. And this too happened only when I became coachable. Opened myself up to coaching. Following this, I found many mentors in my life, guiding me in different aspects.

I had a mentor in my martial arts training. I found business mentors. I found mentors who guided me in personal matters. Life changed!

How can you find mentors? I recommend informational interviews.

Here is what you do: approach 5 people like who you want to become 5 years down the line. They must be at least 5-7 years ahead of you in their career trajectory. Ask them for one on one meetings, or if a meeting is not possible, ask for a call.

You can ask for this meeting over an email, LinkedIn message or even WhatsApp if you have their number. You can follow up over a call. This is the crux of the message:

I am researching on xyz career and I have heard great things about your work. Would you give me 10 minutes of your time? I just want to ask you a few career-related questions and it would help me to strategize my career moves better. I will come to a place of your choice at a time of your choice.

That’s all. If you write to 10 people, 3-4 at least will respond. That’s enough success rate. I am ready to write to 10 people to get one yes. Mentally, you should be prepared for that too. If you can’t handle rejection and criticism in life, you will get nowhere.

Make sure you get to speak with at least 5 people in total, no matter how many doors you have to knock.

When you meet them, make sure you ask these 5 questions and write down the answers:

I want to become like you. This is where I am today (briefly describe where you are). What are the things you think I should start doing? What could I do to increase the chances of my success?

What are the biggest challenges and difficulties you have faced in your career journey? What were the big turning points?

What could accelerate my career growth? Any ideas?

What are the pitfalls and mistakes I need to avoid?

Can I call you once a month and update you about the things I am doing, and just get 5 minutes of advice?

That’s it. You need to follow up later with what you are doing as well. That is how you find mindblowing mentors.

In our LawSikho courses, you will get access to many mentors. They could be the teachers, could be our co-founders and various team leaders, or could be a co-learner in your course, who you could turn to mentorship for.

Also, our course comprises of material as well as assignments that will help you to go out find the right mentors. It’s very much part of the plan.

Want to discuss more about it? Schedule a call with us.

Here are some courses coming up by the end of March:

• Diploma in Companies Act, Corporate Governance and SEBI Regulations | Fee: INR 23,600 | Last date of enrolment: 31st March 2019 | Course Duration: 1 Year | Seats: 20 | To enroll: click here.

Executive Certificate Courses

• Certificate Course in Real Estate Laws | Fee: INR 10,000 | Last date of enrolment: 31st March 2019 | Course Duration: 3 months | Seats: 20 | To enroll: click here.

• Certificate Course in Arbitration: Strategy, Procedure, and Drafting | Fee: INR 10,000 | Last date of enrolment: 31st March 2019 | Course Duration: 3 Months | Seats: 20 | To enroll: click here.

Test Preparation

• Judgment Writing and Drafting Course for Judicial Services | Fee: INR 9,900 | Course Duration: 2 Months | To enroll: click here. 

The post Find a Mentor appeared first on iPleaders.

This article is written by Arijit Dey, pursuing a Certificate Course in Advanced Criminal Litigation & Trial Advocacy from LawSikho, as a part of his coursework. He is a 1st Year student, LLB, Campus Law Centre, Delhi University.

Being a very important part of the Indian Evidence Act 1872, Dying Declaration holds a very big weightage in the cases where the facts and the circumstances of the case are not holding up very well. In cases, it becomes a very important part on behalf of the prosecution.

It is based on the principle LETERM MORTEM which means, Words said before death, and in the legal term it is known as Dying Declaration.

Suppose an Incident has occurred, then the question which often arises in the mind of a layman is, who the best witness of the act? The 2 people that at first come to our mind is the accused ( who has committed the crime) and the victim (who was at the receiving end of the crime), but there is a catch over here too, and that is, both the statements of the accused and the victim as an evidence is not taken into consideration as it is a very common human nature that the accused will talk on his favour and the victim will talk on his favour leading to a very haywire situation and leaving the court unable to go to any conclusion and to resolve that situation a 3rd person is called into play who is known as the witness.

A Dying Declaration is generally used by the prosecution, but can also be used on behalf of the accused.

What if the crime takes place at a place where there is no one present anywhere near?

Some crimes are such that we don’t have any strong evidence against the accused to put him behind bars and the statement of the deceased that is, the dying declaration is such a device which is there with us as the only evidence. ­­

Dying declaration is considered to be a trustworthy piece of evidence as it is based upon the general belief that most people who know that they are about to die, do not lie or in simple words, it is said that no one would die with a lie. It is based on the principle “Nemo morituruspraesumiturmentire” which means, a man will not his maker with a lie in his mouth.

Forms of Dying Declaration

There is no fixed form of Dying Declaration that is admissible by the court provided that it must be functioning as a piece of evidence with proper identification. It is also not necessary to be a neatly structured one. In fact, a neatly structured declaration can also create suspicion in the mind of the court. Hence a declaration should be such, that the declarant is able to recollect the events as to result in his present state of affairs.

Question and Answers Form

As discussed above, Dying Declaration may be in oral or in writing. Any mode of communication is suitable for Dying Declaration but still the question and answers form is considered to be the most preferred form of recording a Dying Declaration and it is considered to be even better if it is in the form of narration as nothing is being prompted and everything is coming at the very moment from the mind of the person making it, but it must be noted that whenever it is being recorded in the form of questions and answers, it is reduced in writing and it is preferred to be written in a language which the patient understands and speaks. It has been put forward by the court that, a statement recorded in the form of a narrative is said to be more natural as it might give the version of the incident as perceived by the victim.

Signs and Gestures Form

Where the Dying Declaration was not recorded in Question and Answers form it was held that it could not be discarded for that reason alone.

It was held by the Apex court that, if the victim is unable to speak or write then he can make gestures of any sort, for example, nodding of his/her head, then even such kind of declaration will be considered to be valid and admissible. It was held in Nirbhaya case 2013 by a bench of 3 judges consisting of Justice Deepak Mishra, Justice R Banumathi and Justice Ashok Bhushan that it is not necessary for Dying Declaration to be in the form of questions and answers, but even gestures can be made admissible in court.

It was held by the full bench of Allahabad High court in the case of Queen-Empress vs Abdullah that “ If the injured person is unable to speak, he can make a dying declaration by signs and gestures in response to the question.”

Procedure of Recording Dying Declaration

There is no particular procedure for the recording of a Dying Declaration and it’s not strictly required to be recorded only by a magistrate. A Dying Declaration can be recorded by a doctor, magistrate, police officer or any other person but it’s just that, when a Dying Declaration is recorded by a competent magistrate, it is said to have more strength and reliability and thus would stand on a higher foot.

Fit State of Mind of the Declarant

It is important that the declarant was in a fit state of mind and was capable of making the statement at the time when it was being recorded. The mental condition of the declarant, his alertness, memory, and understanding of what all he is saying is usually looked upon and it is advisable for a Judicial magistrate to obtain a certificate from a trained medical practitioner.

In case of unavailability of a doctor, the person recording the statement can do any such thing to satisfy the above-mentioned factors before recording the statement. For eg. He should ask the declarant whether he is capable of making a declaration, He should ask simple questions at first to draw out answers from the declarant to know his state of mind etc. Hence the requirement of a medical certificate by a competent doctor is not necessary in every case.

Therefore the person recording a Dying Declaration should be satisfied that the declarant is in a fair state of mind and is capable of making such a statement.

Language of the Statement

It has been seen that there is no language as such that has been prescribed for recording the statement of the declarant but it is still advisable that the statement should be recorded in the language of the declarant or the language of the court.

Incomplete Statement

There is often an issue which arises where the deceased is giving the Dying Declaration but before completing the statement the declarant dies. When what will be the worthiness of such statement?

Regarding this, the apex court held that, If the deceased fails to complete the main statement then in that case a dying declaration will be unreliable, but, if the deceased has narrated the entire story but has failed to answer the last part say for example what more he wanted to say, then, in that case, the dying declaration then, in that case, can be relied upon.

Statement made to Relatives

The apex court held in the case of Barati vs State of U.P that, the dying declaration made to the relatives of the deceased can also be trusted when it has been properly proved. In this case the deceased was killed after acid was thrown on his face. He informed his brother and son in the beginning, then repeated the same thing at the police station and again at the hospital thus charging the accused. The statement was held to be worthy but it was added by the apex court in the latter cases that such statements cannot be rejected but should be clearly scrutinized.

Whether FIR can be Considered as Dying Declaration

Where an injured person lodged an FIR and then died, it was held to be relevant as a Dying Declaration by the Hon’ble Supreme Court of India, but where the patient remained admitted in the hospital for the adequate number of days, FIR was treated as dying declaration.

Will it be a Dying Declaration if the Declarant survives?

Death is a must for a Dying Declaration to be admissible. Death need not occur immediately but death must occur. If the declarant survives then the statement will be inadmissible as dying declaration but it can be relied upon as a witness in the court against the accused.

In Ramprasad vs the State of Maharashtra it was observed by the supreme court that, while making the statement, the declarant should have been under the expectation of death and if a person making dying declaration survives, then his statement cannot be used under section 32 of the Indian Evidence Act but it is statement in terms of section 164 of CrPC.

Also if the person making the statement is imbecile or a minor, the declaration will be inadmissible.

Multiple Dying Declaration

Where there were two dying declarations and there was an inconsistency between them plus there was no other evidence to support the prosecution claim,it was held that it’s not safe to convict the accused person solely on the basis of the declaration.

But where there were two statements recorded, one before the police and the other one before the magistrate, the two being similar in material facts, it was accepted as an evidence though there were some minor discrepancies.

Conclusion

Dying Declaration is a very important piece of evidence as it may be the last and most pertinent piece of evidence about the commission of the offense and it should be recorded very carefully keeping in mind what could possibly go wrong if in case of any error on the part of the court. Conviction can be solely based on it without any corroboration if it is true and voluntary and has the full confidence of the court. If dying declaration is suspicious or incomplete or differs from prosecution’s version then it cannot be acted upon

Certificate of the doctor should be obtained mentioning the fit state of mind of the declarant and the court should satisfy itself that there was no possibility of tutoring the declarant.

It is the duty of the court to satisfy itself of the truthfulness before it can proceed to convict the accused.

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

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