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ARBITRATION CASES STUDY & SOME OF THE IMPORTANT JUDGMENTS UNDER THE ARBITRATION & CONCILIATION ACT, 1996

 

 

Law keeps changing and getting evolved with passage of time as the thinking of law makers, judicial officers’ changes and the situations change. What was good law once gets overruled by another law, but also there are various judgments which have withstood the test of time and the changed circumstances, One has thus to keep updated with not only the latest law but the law which is good law even today. Though the law is an ocean and there are innumerable judgments on every section of the Arbitration and Conciliation Act, I have in this article tried to high light some of the important judgments under the Arbitration & Conciliation Act, 1996, and related Acts in respect of issues which arise frequently in arbitral proceedings.

 

1. Indian Oil Corporation Vs. SPS Engineering Ltd.

(JT) 2011 (2) Supreme Court 553.

This judgment defines the jurisdiction of the Court and the Arbitrator by holding as to which forum has what powers. It has been held as under:-

“The issues (first category) which the Chief Justice/his designate will have to decide are:-

(a) Whether the party making the application has approached the appropriate High Court?

(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement?

Service of statutory notice to the respondent is mandatory for invoking the jurisdiction of the court for appointment of an arbitrator. If the notice is not shown to have been served, the petition is not maintainable.

The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) are:

(a) Whether the claim is a dead (long barred) claim or a live claim? (b)Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection?

22.3. The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are:

(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and exempted or excluded from arbitration?

 

(ii) Merits or any claim involved in the arbitration”.

 

2. P.R. Shah Shares & Stock Brokers Vs. B.H.H. Securities Pvt. Ltd.

2012 (1) Supreme Court Cases 594.

This case deals with the scope of interference by the Courts and it has been held that a court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or re-appreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34 (2) of the Act. However if there is total lack of evidence, the award is liable to be set aside.

 

3. Food Corporation of India Vs. Shanti Cereals Pvt. Ltd.

2010 (10) Arbitration Law Reporter 296 (Delhi) (DB)

In this case also the High Court has held that the forum to raise factual pleas and contentions in an arbitration matter is only the arbitral tribunal. It is against the propriety of the legal regime, as well as mandate of law set out in Section 34 of the Arbitration and Conciliation Act 1996 that the courts in objection (and more so in appeal under Section 37) should entertain the arguments that are purely factual in nature.

 

4. McDermott International Inc. Vs. Burn Standard Co. Ltd.

2006 (11) Supreme Court Cases 44

In this case various issues were involved and some of the important aspects are whether or not time was of the essence of the contract  which would essentially be a question of the intention of the parties to be gathered from the terms of the contract and that even where the parties have expressly provided that time is of the essence of the contract such a stipulation will have to be read along with other provisions of the contract and such other provisions may, on construction of the contract, exclude the inference that the completion of the work by a particular date was intended to be fundamental The Court further held that the terms of the contract can be express or implied and the conduct of the parties and the correspondence exchanged would also be a relevant factor in the matter of construction of a contract. The construction of the contract agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. This however does not mean that the Arbitral Tribunal can interpret the terms which on the face of it appear to be erroneous. The interpretation by the tribunal has to be a plausible interpretation.

 

5. Delhi Development Authority Vs. Durga Chand

AIR 1973 Supreme Court 2609

Many a time a term in a contract is open to two interpretations like whether a glass is half full or half empty and whether a door is half closed or half open. It is in these circumstances that the Courts have ruled that if there be admissible two constructions of a document, one of which will give effect to all the clauses while the other will render one or more of them nugatory it is the former that should be adopted.It  has been further  held that assuming that two interpretations of it are reasonably possible, the principle to apply would be that the interpretation favouring the grantee as against the granter should be accepted. It has further been held by the courts that if two interpretations are possible, the courts will not interfere with the one adopted by the arbitrator.

 

6. Union of India Vs. D.N. Revri & Co.

AIR 1976 Supreme Court 2257

On the question of interpretation of a contract the Supreme Court held that “It must be remembered that a contract is a commercial document between the parties and it must be interpreted in such a manner as to give efficacy to the contract rather than to invalidate it. It would not be right while interpreting a contract entered into between two lay parties to apply strict rules of construction which are ordinarily applied to a conveyance and other formal documents. The meaning of such a contract must be gathered by adopting a common sense approach and it must not be allowed to be thwarted by a narrow pedantic and legalistic interpretation”.

 

7. In respect of giving reasons in an award the courts have held that an Arbitrator when called upon to give a reasoned Award is still not required to write a detailed judgment as the Judges do. It is sufficient if he has indicated his trend and given outline to indicate the basis on which he has arrived at such figure. But there must be reasons as to why and how the Arbitrator is awarding and /or rejecting a particular claim. Merely giving the facts and the conclusion is not enough. The reasons as to why and how the conclusion is arrived at must be given otherwise the award will be set aside being without reasons.

 

8. Many a times the Employer acts as the judge in its own cause which is contrary to the principles of natural justice and the Supreme Court in the case J.G. Engineers Pvt. Ltd. Vs. Union of India 2011 (5) Judgments Today, Supreme Court 380 has held that in fact the question whether the other party committed breach cannot be decided by the party alleging breach. A contract cannot provide that one party will be the arbiter to decide whether he committed breach. That question can only be decided by an adjudicatory forum, that is a Court or an Arbitral Tribunal. In State of Karnataka Vs. Shree Rameshwara Rice Mills 1987 (2) SCC 160 the Supreme Court held that adjudication upon the issue relating to a breach of condition of contract and adjudication of assessing damages arising out of the breach are two different and distinct concepts and the right to assess damages arising out of a breach would not include a right to adjudicate upon as to whether there was any breach at all. This Court held that one of the parties to an agreement cannot reserve to himself the power to adjudicate whether the other party has committed a breach.

The Court further held that the powers of the State under an agreement entered into by it with a private person providing for the assessment of damages for breach of conditions and recovery of the damages will stand confined only to those cases where the breach of conditions is admitted or it is not disputed.

 

9. On the issue of liquidated damages some of the  principles culled out by the

Courts are as follows:-

 

i) Show cause notice must be issued before levy of L.D. ii) Right of hearing must be given to the other party.

iii) L.D. should not be levied mechanically upto the maximum amount without any basis and proper justification.

iv) The Employer must prove that it has suffered loss because of the alleged delay.

v) It must be proved that the other party has committed  breach justifying levy of L.D.

vi) L.D. cannot be levied retrospectively. Judgments in this behalf are

10. NCT of Delhi Vs. R.K. Construction Co.

2003 (1) Arb. L.R.465 (Delhi)

Held. “. However, in the present case, the Arbitrator has held that the work was delayed due to lapses on the part of the petitioner. The petitioner issued the letter of levy of compensation on 8.6.2001, i.e. after a period of four years and nine months after the contract ceased to be operative. The petitioner did not issue any notice under Clause 2 during the contract period nor any explanation has been given for the same.”

“. However, before levying the compensation, no show cause notice was given to the respondent.” Levy of L.D. was held not tenable.

 

11. Bharat Sanchar Nigam Ltd. Vs. Motorola India Pvt. Ltd.

AIR 2009 Supreme Court 357

Held. “Further, CGM Kerala Circle has already taken a decision as is evident from his letter dated 25th  of April, 2006, that the appellant was right in imposing liquidated damages and therefore, the question of such a person becoming an arbitrator does not arise as it would not satisfy the test of impartiality and independence as required under Section 12 of the Arbitration and Conciliation Act, 1996. Moreover it would also defeat the notions laid down under the principles of natural justice wherein it has been recognized that a party cannot be a judge in his own cause.

The Supreme Court further held that the provision under clause 16.2 that quantification of the Liquidated Damages shall be final and cannot be challenged by the supplier Motorola is clearly in restraint of legal proceedings under Section

28 of the Indian Contract Act. So the provision to this effect has to be held bad.

 

12. Indian Oil Corporation Vs. Lloyds Steel Industries Ltd.

2007 (4) Arb. L.R. 84 (Delhi)

Held. “. Notwithstanding the above, the petitioner still wants damages to be recovered from the respondent on the specious plea that liquidated damages mentioned in the contract are predetermined damages and, therefore, in view of provisions of Section 74 of the Indian Contract Act, the petitioner was entitled to these damages and it was not necessary for the petitioner to prove these damages. The legal position, as explained by the Supreme Court in ONGC Vs. Saw Pipes (supra) which has already been explained above, is not in doubt. However, it is only when there is a loss suffered and once that is proved, it is not for the arbitrator or the court to examine the actual extent of the loss suffered once there is a pre-estimation thereof. Moreover, the compensation, as stipulated in the contract, has to be reasonable. In a particular case where the defaulting party is able to demonstrate that delay/default has not resulted in any loss being suffered by the other party, then that party cannot claim the damages only because in the contract there is a stipulation regarding liquidated damages”. “ However, the stipulated sum has to be a genuine pre-estimate of damages likely to flow from the breach and is termed as „liquidated damages‟. If it is not genuine pre-estimate of the loss, but an amount intended to secure performance of the contract, if may be a penalty.” “ It is clear from the above that Section 74 does not confer a special benefit upon any party, like the petitioner in this case. In a particular case where there is a clause of liquidated damages the court will award to the party aggrieved only reasonable compensation which would not exceed an amount of liquidated damages stipulated in the contract. It would not, however, follow there from that even when no loss is suffered; the amount stipulated as liquidated damages is to be awarded. Such a clause, would operate when loss is suffered but it may normally be difficult to estimate the damages and, therefore, the genesis of providing such a clause is that the damages are pr-estimated. Thus, discretion of the court in the matter of reducing the amount of damages agreed upon is left unqualified by any specific limitation. The guiding principle is „reasonable

compensation‟. In order to see what would be the reasonable compensation in a given case, the court can adjudge the said compensation in that case. For this purpose, as held in Fateh Chand‟s case it is the duty of the court to award compensation according to settled principles. Settled principles warrant not to award a compensation where no loss is  suffered, as one cannot compensate a person who has not suffered any loss or damage. There may be cases where the actual loss or damage is incapable of proof; facts may be so complicated that it may be difficult for the party to prove actual extent of the loss or damage. Section 74 exempts him from such responsibility and enables him to claim compensation in spite of his failure to prove the actual extent of the loss or damage, provided the basic requirement for award of „compensation‟ viz. the fact that he has suffered some loss or damage is established. The proof of this basic requirement is not dispensed with by Section 74. That the party complaining of breach of contract and claiming compensation is entitled to succeed only on proof of „legal injury‟ having been suffered by him in the sense of some loss or damage having been sustained on account of such breach, is clear from Section 73 and 74. Section 74 is only supplementary to Section 73, and it does not make any departure from the principle behind Section 73 in regard to this matter. Every case of compensation for breach of contract has to be dealt with on the basis of Section 73.”……  “In a case when the party complaining of breach of the contract has not suffered legal injury in the sense of sustaining loss or damage, there, is nothing to compensate him for; there is nothing to recompense, satisfy, or make amends. Therefore, he will not be entitled to compensation. If liquidated damages are awarded to the petitioner even when the petitioner has not suffered any loss, it would amount to „unjust enrichment‟ which cannot be countenanced and has to be eschewed.”

 

13. B.W.L. vs. MTNL & Others

2000 (2) Arb.L.R. 190 Delhi

Held. “In order that clause 15 can be resorted to by the respondents to justify retention of any sums of money as liquidated damages, they would have to first prove, in terms of the opening words of clause 15.2 itself, that there was delay by the supplier in the performance of its obligations. None of clauses of the agreement clothe the respondents with the power to arrogate to this unilaterally arrive at the finding that delay has been caused by the petitioner. Therefore, even independent of Section 74 of the Contract Act and without reference to the decisions of the Apex Court interpreting this section; it is necessary that adjudication should take place on the question that who was responsible and liable for the delay.

 

14. DDA Vs. Construction & Design Services

165 (2009) Delhi Law Times 208

Held. “ On an overall consideration of the facts found, this Court is of the opinion that the plaintiff treated the condition, i.e. Clause 2 as a penal clause. The amount which can be recovered under the condition is based on exercise of discretion. Yet the order levying the compensation provides no clue what persuaded the decision maker to claim the maximum amount. This is the clearest indication that it was seen by the plaintiff as a penal clause, and operated as such.”

 

15. Indian Oil Corporation Vs. SPS Engineering Ltd.

(JT) 2011 (2) Supreme Court 553.

In contracts the Employers normally retain the power to with hold the amounts due to the party on a specious plea that the Employer  has some claim due to it from the other party. In the aforesaid case the Employer was trying to withhold awarded amount due to the contractor by raising a plea that they have a claim for damages against the contractor. The Court in this case held that the award amount due to the respondent under the award is an ascertained sum due, recoverable by executing the award as a decree. On the other hand the claim of the appellant for reimbursement of the extra cost for getting the work completed is a claim for damages which is yet to be adjudicated by an adjudicating forum. The appellant cannot therefore adjust the amount due by it under the award, against a mere claim for damages made by it against the respondent.

 

16. Pleadings form a very important aspect in any matter and care must be taken to ensure that the pleadings are very well drafted and contain complete factual aspects with brief description of the documents relied upon, the basis and the  justification for the claim. No evidence can be led nor can any arguments be advanced in case a plea has not been raised. The Supreme Court in the case of Ravinder Singh Vs. Janmeja Singh 2002 (8) SCC 191 held that it is an established proposition that no evidence can be led on a plea not raised in the pleadings and no amount of evidence can cure the defect in the pleadings.

 

17. Bharat Construction Co. Ltd. Vs. Union of India

AIR 1954 Calcutta 606

Held: “The pleadings have got to be scanned with extreme rigour in cases under the Arbitration Act and no party can be allowed to raise a point, if he has not given sufficient notice of it, in his affidavits.”

 

18. On the issue of using personal knowledge the Supreme Court in the case P.R. Shah Shares & Stock Brokers Vs. B.H. Securities Pvt. Ltd. 2012 (1) SCC held that an Arbitral Tribunal cannot of course make use of its personal knowledge of the facts of the dispute, which is not a part of the record, to decide the dispute. But an Arbitral Tribunal can certainly use its expert or technical knowledge or the general knowledge about the particular trade in deciding a matter. In fact, that is why in many arbitrations, persons with technical knowledge, are appointed as they will be well versed with the practices and customs in the respective fields. In this case the Arbitrators referred to the market practice, which the court held   cannot be considered as using some personal knowledge of facts of a transaction to decide the dispute.

 

19. Bharat Cooking Coal Ltd. Vs. L.K. Ahuja

2004 (5) SCC 109

The Arbitrators must confine themselves within the four corners of the contract and the law  and the Supreme Court in this case held that in cases where an arbitrator exceeds the terms of the agreement or passes an award in the absence of any evidence, which is apparent on the face of the award, the same could be set aside.

 

20. Many a time parties merely allege “fraud”. A bald allegation of fraud without any particulars or details cannot be looked into. The Supreme Court has held that while fraud unravels everything, and as a general proposition, the proposition is right, but fraud must necessarily be pleaded and proved See Gayatri Devi Vs. Sashi Pal Singh 2005 (5) SCC 521

 

21. Service of award is again an important aspect and it  must be ensured that it is served on the “party” and not on the counsel.   The court in the case Karamyogi Shelters Pvt. Ltd. Vs. Benarsi Krishna Committee 2010(3) Arb. L.R. 293 (Delhi) (DB)   held that service of the award on the advocate of the party is not sufficient compliance with the statutory necessity postulated by the Arbitration and Conciliation Act, 1996.

The Court further held that in view of Section 2(1)(h) of the Arbitration & Conciliation Act, 1996, there is no justifiable reason to depart from the precise definition of the word “party” which means a party to an arbitration agreement.

The word “Party” cannot take within its sweep an „agent‟ of the party which is incompetent to take the requisite action envisaged under the statute.

 

22. Bharat Sanchar Nigam Ltd. Vs. Haryana Telecom Ltd.

2010 (3) Arb. L.R. 460

In this case the award was sent to the Advocate and under certificate of posting which the court held not to be in compliance with the provisions of the Act meaning there by that the limitation for challenging the award will commence only from the time the award is sent to the “party” and not to its agent or counsel. As to what constitutes proper service of the award, the court has held as follows in the aforesaid case.

Held. “It seems to court that it is imperative that delivery/receipt of the arbitral award should be at the instance, responsibility and authority of the Arbitral Tribunal. In the case in hand, the arbitral award appears to have been dispatched under „certificate of posting‟ and not recorded delivery, and that too to the advocate of the appellants. „UPC‟ merely evidences the posting of a letter/envelop and not its service. In matters of moment, such as delivery/receipt of an arbitral award, the arbitral tribunal is duty bound to ensure that the award is actually delivered directly to the party concerned. It is court‟s fervent hope that the arbitrators and arbitral tribunals shall henceforward consider their judicial contract to have culminated only upon their being satisfied that each of the parties before them has actually been served with the arbitral award. If the recorded delivery is returned undelivered, the arbitral tribunal must dispatch it once again until it is served or there is sufficient reason to assume that it stands served.”

 

23. Claim for interest and award thereof is governed by Section 31 (7) of the Act. While interpreting this Section the Supreme Court in the case State of Haryana Vs. S.L. Arora & Company 2010 (3) C.G.L.J. 348 has held that compound interest is not payable as Section 31(7) makes no reference to payment of compound interest or payment of interest upon interest. Nor does it require the interest which accrues till the date of the award, to be treated as part of the principal from the date of award for calculating the post award interest. The use of the words  in clause (b) of sub section (7) of Section 31 clearly indicate that the Section contemplates award of only simple interest and not compound interest or interest upon interest. „A sum directed to be paid by an arbitral award‟ refers to the award of sums on the substantive claims and does not refer to interest awarded on the “sum directed to be paid by the award”. In the absence of any provision for interest upon interest in the contract, the Arbitral Tribunals do not have the power to award interest upon interest, or compound interest, either for the pre award period or for the post award period.

 

24. Sree Kamatchi Amman Constructions Vs. Divisional Railway Manager.

2010 (3) Arb. L.R. 442

In this case the Court held that Section 31(7) of the new Act by using the words “unless otherwise agreed by the parties” categorically clarifies that the arbitrator is bound by the terms of the contract insofar as the award of interest from the date of cause of action to date of award. Therefore, where the parties had agreed that no interest shall be payable, arbitral tribunal cannot award interest between the date when the cause of action arose to date of award.

 

25. The following judgments on the issue of claim for damages are illustrative of the principles for award of damages.

Narain Das R. Israni Vs. DDA 2005 (3) Arb. L.R. 455 (Delhi) This case dealt with the claim of  damages for prolongation of contract. The Employer submitted that the agreement contained in clause being Clause 10(CC) under which the claimant had been compensated and, thus, this amount could not be awarded. The Court negatived the said plea by holding that Clause 10(CC) applies only for claims for damages in respect of increase in labour rates and material rates for period beyond the original stipulated time of the contract and that does not mean that no other kind of escalation can be granted. In respect of the items provided for in Clause 10(CC), the same would be governed by the said clause, but the other items would have to be considered on the principles of Section 73 of the Indian Contract Act, 1872 as clause 10(CC) cannot take care of factors other than materials, labour and POL when there is inordinate delay on account of non fulfillment of contractual obligations by the Employer.

 

26. K.N. Sathyapalan Vs. State of Kerala

2007(13) SCC 43

Held “Ordinarily, the parties would be bound by the terms agreed upon in the contract, but in the event one of the parties to the contract is unable to fulfill its obligations under the contract which has a direct bearing on the work to be executed by the other party, the arbitrator is vested with the authority to compensate the second party for the extra costs incurred by him as a result of the failure of the first party to live up to its obligations.”

 

27. Anurodh Construction Vs. DDA

2005 (Suppl.) Arb.L.R. 258 ( Delhi )

Held “The damages are liable to be awarded once it is found that it is the respondent who is responsible for the delay and such damages can be awarded under Section 73 of the Contract Act. Use of Clause 10(CC) which is utilized in other contracts by DDA itself, can be said to be a good parameter and methodology to calculate such damages and the same cannot be faulted.”

 

28. Paragon Construction India Pvt. Ltd. Vs. Union of India.

2008(101) Delhi Recent Judgments 633.

Held:  “ In view of these decisions, it is clear that the claimant‟s claim cannot be blocked out merely upon a reading of the said clause 10(CC) of the contract between the parties. As made clear in the award itself, the petitioner was claiming the amount under claim no.1 not upon an application of clause 10(CC) but dehors the same and by way of damages under Section 73 of the Indian Contract Act, 1872. That being the case, I am of the view that the award is liable to be set aside in respect of the conclusion of the learned arbitrator with regard to claim no.1. However, the petitioner would have to establish, through evidence, the extent of damages it has suffered. This cannot be gone into by this court at this stage because no such material is available to this court. Consequently, the award in respect of the claim no.1 is set aside and the parties are directed to go in for arbitration afresh in respect of this claim. It shall be open to the parties to lead evidence with regard to this claim.”

 

29. The general trend is that the Employers do not grant the extension and/or make the payment unless the other party gives declarations about no further claim or such like a declaration. The Supreme Court has dealt with this aspect in the following cases.

Bharat Coking Coal Ltd. Vs. Annapurna Construction.

AIR 2003 Supreme Court 3660

Held. “Only because the respondent has accepted the final bill, the same would not mean that it was not entitled to raise any claim. It is not the case of the appellant that while accepting the final bill, the respondent had unequivocally stated that he would not raise any further claim. In absence of such a declaration, the respondent cannot be held to be estopped or precluded from raising any claim.”

 

30. Ambica Construction Co. Vs. Union of India

Judgments Today 2006 (10) SC 629

In this case, the following clause came up for interpretation before the Supreme

Court.

“43(2) Signing of “No claim” Certificate. The contractor shall not be entitled to make any claim whatsoever against the Railways under or by virtue of or arising out of this contract, nor shall the Railways entertain or consider any such claim, if made by the contractor, after he shall have signed a “No Claim” certificate in favour of the Railways, in such form as shall be required by the Railways, after the works are finally measured up. The contractor shall be debarred from disputing the correctness of the items covered by “No Claim Certificate” or demanding a reference to arbitration in respect thereof”.

The Supreme Court held as follows.

“ From the submissions made on behalf of the respective parties and in particular from the submissions made on behalf of the appellant, it is apparent that unless a discharge certificate is given in advance, payment of bills are generally delayed. Although Clause 43(2) has been included in the General Conditions of Contract, the same is meant to be a safeguard as against frivolous claims after final measurement. Having regard to the decision in the case of

Reshmi Construction‟s (supra), it can no longer be said that

such a clause in the contract would be an absolute bar to a contractor raising claims which are genuine, even after the submission of such “No Claim Certificate.”

 

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TO PARTNER OR TO ACQUIRE?

Cross-border alliances between companies are a fact of modern business. Such alliances are particularly relevant today because the ability to create and sustain global collaborations are vital for companies to compete and be profitable.

Two commonly recognized forms of collaborations are joint ventures and acquisitions.

In India, a joint venture is generally understood as a technical and financial collaboration between two existing companies. Typically, in a joint venture, one foreign company comes together with an Indian company to form a third Company, either a private or public limited company, and hold agreed portions of its share capital. On the other hand, an acquisition is a complete takeover of a company, either through a purchase of shares, assets or the entire business.

As joint ventures and acquisitions differ greatly in their utility, one of the most important decisions for any company is whether or not a joint venture will be best suited to achieve its corporate goals, as opposed to an acquisition or simple organic growth. A company that needs international technology which has not been implemented in India can consider creating a joint venture with a foreign company that has such technology. On the other hand, an acquisition may be better for a company that seeks to gain market share or an exclusive distribution channel.

Structurally, a joint venture offers significant contractual support in respect of coordination and co-operation with a partner and, at the same time, alleviates the integration challenges presented by an acquisition. Instances when a joint venture is preferred to an acquisition are:

  1. When the assets are difficult to separate. Assuming that a company manufactures two different products from one factory. If an acquirer were to buy out such a company, it will be saddled with assets that it does not need. Therefore, if a joint venture is arranged, the required assets can be structured to flow into the joint venture company without the other undesired assets.
  2. When a full acquisition will increase management costs. In a corporate acquisition, the acquirer acquires an existing corps of employees having their own routine and culture. Integrating such employees can prove difficult.
  3. When valuation is difficult. A joint venture is an effective and easy solution when the valuation of a target company is difficult.
  4. When legal or regulatory constraints make an acquisition difficult. Generally, joint ventures have lesser regulatory constraints easier to put in place. Assuming that a joint venture is the preferred mode of alliance, one issue that must be dealt with at the contracting stage is control and management of the joint venture company. The shareholders’ agreement can prescribe the number of directors on the board, the quorum for board meetings and general meetings, the mode of day-to-day management of the company, the procedure to be followed on the bankruptcy of a joint venture partner, etc. To prevent a deadlock, the chairman of the board of directors can be given a casting vote.

Protecting confidential information is very important in joint ventures. To protect sensitive business information from being divulged to others, confidentiality and non-disclosure agreements must be entered into prior to commencing negotiations.

Relevant clauses should also be incorporated in the shareholders’ agreement. Indian courts enforce such agreements and grant injunctions on adequate proof of breach or proposed breach. In many instances, companies route their investments into an Indian joint venture company through an offshore tax jurisdiction. India has double taxation avoidance agreements (“DTAA”) with many countries. Many foreign companies route their investments through Mauritius because under the India-Mauritius DTAA, a Mauritius resident does not pay any capital gains tax on a transfer of shares of an Indian company. Cyprus is another offshore destination gaining popularity.

On the flip side, a joint venture is also susceptible to various other hazards such as misappropriation of knowledge, hold-up by the joint venture partner, etc., which may make an acquisition more attractive. Structuring an acquisition so as to optimize tax and operational benefits is extremely important. For example, amalgamating two companies by following the procedure under the Indian Companies Act,  can save capital gains tax that may otherwise be applicable on an asset or share acquisition deal. However, the court procedure can be long drawn and requires compliance of a number of procedural formalities. Likewise, although a share purchase transaction can be completed fairly quickly, it requires a much higher level of due diligence on the company because, effectively, the buyer of the shares becomes the owner of the company and inherits all its liabilities also. As such, no compromise should be made on due diligence, and it is imperative to require the seller to resolve all company compliance matters before closing. An asset purchase transaction attracts capital gains tax on the assets, and is usually the easiest to close. An acquisition of a listed company can trigger the Securities Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the “Takeover Regulations”), as amended from time to time. If this occurs, the Takeover Regulations have to be followed and an open offer has to be made to at least 20% of a target company’s existing shareholders. In a buoyant stock market, it can, sometimes, be difficult to successfully close an open offer. Further, in cross-border acquisitions, it is important to comply with the government’s foreign investment regulations. Various industry sectors in India such as telecommunication, banking, insurance, aviation, defence, etc. are restricted to foreign investment, and compliance of sectoral caps and sector specific guidelines are imperative. The Vodafone-Hutchison deal is a classic example of the importance of complying with foreign investment regulations and obtaining the requisite government approvals at the very beginning. Otherwise, the foreign investor runs a high risk of post-closing scrutiny. On the anvil is a competition law, similar to the Hart-Scott-Rodin Act in the US and EU competition legislation. Once notified, most mega mergers that have an adverse effect on competition or cross a certain turnover threshold in India or abroad will have to be reported to the Competition Commission (“CC”). The CC will have to assess the impact of the merger on competition and public interest in India, and will have the authority to either approve or disapprove it.

Therefore, the decision between a joint venture and an acquisition should be an informed one based on objective business criteria.

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Protect Your Ideas with IP Laws!

God gifted a wonderful thing called Brain to Man and Mother Nature endowed him with the abundant physical and biological resources on the earth. Man started creating his own world by application of his brain or mind and by utilization of these natural resources. Man has also been bestowed with imagination and creativity. With his imagination and creativity, he has been producing various articles or products for his needs, comfort and convenience. In the earlier era, the creations and inventions by him fell in a public domain. These were the common properties. Anybody could use and copy these creations and inventions without any restriction, reservation or payment. However, with the passage of time, the importance and value of these creations was realized. The commercial aspect started playing a significant roll in these creations. By end of Twentieth Century, the things created and invented by the human mind were recognized as an intellectual property of the owner .The owner’s right over these properties was accepted and is known as an

Intellectual Property Right (commonly called I.P.R.). A new set of laws called Intellectual Property Right Laws, were enacted to protect these property rights. These I.P.R. laws provided a protection to the owners under different categories and names like Patents, Industrial designs, Copyrights, Trade- Marks etc.

Why Intellectual Property Rights?

The intellectual property rights were essentially recognized and accepted all over the world due to some very important reasons. Some of the reasons for accepting these rights are:-

  1. To provide incentive to the individual for new creations.
  2. Providing due recognition to the creators and inventors.
  3. Ensuring material reward for intellectual property.
  4. Ensuring the availability of the genuine and original products.

Kinds Of Intellectual Property Rights:

The knowledge of intellectual property rights is must to a common man. A common man everywhere and every time come across the things created, invented, discovered and produced by some human mind. A design of a house, the material used in a house , its furnishings like a carpet, sofa, fridge ,television, telephone, paintings, photographs, wall clock, the articles of daily use like a pens, books, the newspapers ,tissue papers, shoes etc ; the things that are worn by him like Jeans ,T-shirts , trousers, hats ties , shoes etc ; the items of conveyance like cycles, cars, bikes etc…The list is endless! Almost all the things that surround a common man are one way or other, property intellectual properties of some one. Somebody has spent his time, money and energy to invent and create them. Therefore, these all common things are intellectual property of someone and are protected by law.

These items of intellectual properties can be classified into two main categories:

  1. Industrial Property items
  2. Copyright and related rights items.

The industrial properties items include all sort of inventions, trademarks, industrial designs, and geographic indicators of source. The copyrights and related rights items include all literary works which range from articles, news-paper items, novels, story books, poetry books etc… The drawings, photographs, paintings, architectural design, music, dance, films and artistic performances.

The industrial property items are found all around us. All inventions are covered under this category. An invention has been defined as a process or a product which provides a new way of doing some thing or provides a new solution to a problem. Inventions are protected by the Patents. The owner of inventions can get his invention registered under a Patent. A Patent is granted for a period of 20 years form the date of filing the application of patent. After this period the invention is available to all for commercial exploitation and it becomes public property.

Some of the products we use in daily life are protected by Trade-mark laws. A Trade- mark can be patented like invention and industrial designs. The trade mark can be combination of words, letters, numbers, drawings, images, symbols, and even sounds. The trademarks not only protect the owner rights but also required for consumer to have confidence in the product purchase by him. The reputation and quality are also associated with trade-marks. The trade-marks are generally registered for seven years but they can be renewed indefinitely by applying again and paying the required fee.

A design is the aesthetic or the ornamental aspect of an article. The design can be two-dimensional like patterns, lines or colors. They can be three-dimensional like surface or shape of an article. These designs are made to look things attractive and beautiful. They also have commercial value. Due to these reasons, the industrial design is protected. One has to register this design against limitation and un-authorized copying. The protection is provided for five years and it can be renewed for fifteen years.

Some of the products we use have association with geographical indicators of source. The things like Basmati rice of Dehradun, Champagne of France, Darjeeling tea etc. are the product which can be protected by laws and international agreements because they are the geographical indicators of source.

The Copyrights are provided for items like literary, musical, artistic works like songs, musical scores, poetry, paintings, sculpture, films, architecture, maps, technical drawings; computer programs, data base etc are provided to the creators. Copyrights provide exclusive right to the creator to use or authorized other to use their workers. The reproduction in various forms, copying, printing, recording, public performance or adaptation are prohibited. This right provides economic right to the creator that is the financial benefit for a lasting period of fifty years after the creator’s death.

A common man comes across literary, artistic, musical works in his daily life. The literary works include novels, short stories, screen play, nonfiction works, news papers, history, biography, magazine, articles, encyclopaedias; dictionaries, computer programs, data bases, and others published works. The artistic works which are important to a common man include paintings, drawings, lithograph, etching, photographs, sculpture, films, videotapes, videodisk etc. The musical works include songs, lyrics, recorded on a compact disk, broadcasted on radio or performed in public are covered 100 years copy rights. The architectural works includes the designs, drawing and plans. The furniture is protected under industrial design whereas toys are protected under industrial design and copy frights.

Even the traditional craft items like hand- woven articles like carpets, cotton bed covers can also be registered for protection as an Industrial design. The protection of indigenous and traditional knowledge, folklore, culture and innovations are the some of the latest entries in the field of intellectual properties rights.

(Written & Published on September 2007 By Mr. Samar Inam Khan at http://legalexpertsindia.blogspot.com)

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What is so Good in The Arbitration and Conciliation (Amendment) Bill, 2018

Introduction:
The Arbitration law takes many turns in past few years, in recent years ADR proceedings became much needed tool for every company and therefore the Act changed and amended many times.

Presently The Arbitration and Conciliation Amendment Bill, 2018 seeking number of important changes to the Arbitration and Conciliation Act, 1996.

The Bill has been introduced following the recommendations of a High-Level Committee constituted by the Central Government under the Chairmanship of Justice (Retd.) B. N. Srikrishna. The mandate of the Committee was, inter alia, to examine measures to strengthen arbitral institutions in India and suggest ways to improve the efficiency of the arbitral framework in India.

The overall intent of the Bill is laudable, but the Bill is something like a mixed blend, it is good, not so good and bad signs.

Several provisions depart from the recommendations of the Committee and if accepted, would mark a regressive step in the goal to make India a global arbitration hub.

Some key issues with the Bill are discussed below:

Major Changes
• The central feature of the Bill is that institutions are expected to replace courts fully in the procedure for appointment of arbitrators. As per the proposed amendments, if the Supreme Court or any High Court has designated an institution then that court does not have jurisdiction to entertain an appointment application under Section 11 of the Act.

• It is clarified that the amendments to the Arbitration and Conciliation Act that were introduced with effect from 23 October 2015 will be purely prospective, i.e., the amended Act will only apply to arbitrations, and court proceedings relating to arbitrations, if the arbitration itself was commenced after 23 October 2015. This is deviation from the position of law as recently settled by the Supreme Court, but provides welcome clarity.

• The Arbitration Council of India has been established as the statutory authority to identify and grade qualifying arbitration institutions to be considered for designation by the High Court or Supreme Court for appointment of arbitrators.

• The proposed amendments recognise party autonomy in international commercial arbitration. Significantly:
* International commercial arbitrations (and domestic institutional arbitrations) are not bound by the arbitrator fees prescribed under the Fourth Schedule (subject to the exception mentioned below).
* The time limit for completion of the arbitration proceedings does not apply to international commercial arbitrations.

• The twelve-month time limit prescribed for completion of the arbitration proceedings will commence after exchange of pleadings is complete (for which a new time limit of 6 months has been introduced) even for domestic arbitrations. An arbitrator’s mandate can continue even after expiry of the time period pending the court’s consideration of an application made by parties for extension of time.

• In an application for setting aside an arbitral award, parties are restricted to proving their case by reference to documents produced in arbitration and on a plain reading, may not introduce any fresh evidence with their application. This curtails the scope of challenging arbitral awards and will promote finality of awards and greater respect for the arbitral process.

• A new, statutorily imposed requirement of confidentiality will now apply to arbitrations by default. However, there is some uncertainty regarding the extent to which confidentiality will apply to arbitral awards.

• It appears that only institutions which have a presence within their jurisdiction can be designated by a High Court (no such restriction placed on the Supreme Court). This may prejudicially affect smaller states which may not have an institution of repute.

• Institutions are to be graded by reference to infrastructure and “availability” within a jurisdiction. However, there is no reason why these factors are relevant if the only reason institutions are being referred to in the statute is to use them as appointing authorities rather than to administer arbitration.

• By deleting Section 6-A of the Act, there is presently no guidance available as to the scope of an institution’s enquiry while considering an appointment. Established institutions with substantial experience in acting as appointing authorities have devised clear rules as to their scope of enquiry. However, since there is no legislative clarity, this is likely to result in more litigation and will defeat the objective of speedily resolving applications for appointment.

• The proposed Arbitration Council of India is a purely government-appointed body. This significantly lowers its credibility, especially since the government is the biggest litigant in India.

• While the Bill makes provision for accreditation of arbitrators, the Act does not clarify the significance of such “accreditation”. It is not clear, for instance, whether only accredited arbitrators can be appointed by institutions.

• The Bill provides for introduction of the Eight Schedule which lays down qualifications of arbitrators. However, a notable omission in the Eight Schedule is foreign qualified lawyers. A plain reading suggests that they are not qualified to act as arbitrators even in international commercial arbitrations. This is not in keeping with current practices and will be a backward step in promoting international commercial arbitration.

• There appears to be some inconsistency as regards the application of the Fourth Schedule to international commercial arbitration. Contrary to Section 11(14), Section 11(3A) suggests that if no arbitral institution is designated and the Supreme Court is called upon to act as appointing authority, then the SC is bound by the Fourth Schedule even for international commercial arbitration.

• The Chief Justice of a High Court has the power to review the panel of arbitrators. It is unclear whether this power also extends to reviewing panel of arbitrators maintained by an institution, which would have a significant impact on the autonomy of such institutions.

• Qualification of Arbitrators: The Bill is extremely unclear as to the significance of the Eighth Schedule. A plain reading of the Schedule appears to suggest that ONLY such persons who meet those requirements are qualified to act as arbitrators. However, when read with Section 43F, it suggests that the requirements are only relevant at the stage of accreditation. This ambiguity throws open the door for challenge to arbitration awards which may be rendered by arbitrators who do not meet these qualification requirements.

• It is unclear whether the ACI will be performing the role of accrediting arbitrators. A combined reading of the various provisions appears to suggest that they only need to identify professional institutions who can provide accreditation of arbitrators, and review this accreditation/grading when felt relevant.

• The Arbitration Council of India is expected to maintain a depository of all arbitration awards. It is unclear how this would interplay with the requirement of confidentiality (for instance, are parties to redact confidential information?) and how ad hoc arbitrations which do not come through the system even for appointment of arbitrators will be captured.

Things Missed:
• The Act does not make any provision for emergency arbitration orders despite a specific recommendation to this effect and its prevalence in the present day.

• The Act has been amended to reduce the extent of court intervention in foreign seated arbitrations under Section 45. However, even as amended, the extent of court intervention is wider than that available for domestic arbitration. An opportunity was missed to harmonise the two or reduce the extent of court intervention in foreign seated arbitrations, which has been a frequently litigated issue that delays the arbitration process.

Conclusion

As the Bill is pending consideration, it is hoped that some of the above drawbacks and ambiguities that plague the Bill in its current form will be resolved.