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A case for an anti-discriminatory maternity relief law to adoptive mothers in India

  • Shivam Tripathi

The Maternity Benefit Act, 1961[i]is the principal legislation governing maternity benefits in India. It was amended in 2017 to promote a holistic approach to maternity benefit in the country. The 2017 amendment[ii] was progressive in that it recognized the rights of adoptive and commissioning mothers[iii] to receive maternity benefits for the first time. However, the act under section 5(4)[iv] states that they are entitled to maternity leave for a maximum period of twelve weeks, less than half the maximum period of twenty-six weeks allotted to natural mothers[v]. In doing so, the legislative policy discriminates between a naturalmother and an adoptive or commissioning mother. Such an exception is not based on any reasonable ground and can result in having extremely adverse effects on the growth and development of the adopted child. So far as the state is concerned, it justifies this discriminatory stance as a mere provision aimed at reducing any undue pressure on the employer.

Section 5(4), of the said Act, also states that adoptive mothers are entitled to maternity benefit only if they are adopting a child below the age of three months, however, there are tangible barriers to adoption laws in India. The procedure is governed by the Juvenile Justice Act of 2015[vi], which categorizes children into three classes: an orphan, an abandoned child, and a surrendered child. In the case of an abandoned child, the police have to trace the parents, and if they are unable to do so within two to four months, only then can the child enter the system of adoption. In the case of a surrendered child, the parents are given sixty days to reflect on their decision – should they decide not to take back the child within the said time, the child is available for adoption. As a result, most children are well above three months of age by the time they are finally available for adoption.

In 2009 the Ministry of Personnel, Public Grievances and Pensions and the Department of Personnel &Training recognized the right of maternity benefits for adoptive mothers through an office memorandum[vii]. The memorandum states that a woman is entitled to maternity leave for 180 days (approx.twenty-six weeks) if a child up to the age of one year is adopted. These same rights were extended to the surrogate and commissioning mothers working with the Indian Government in 2016. This has led to the creation of two different regimes of maternity benefit: one for government employees and the other for the employees governed by the Maternity Benefit Act, 1961.

The courts in India have expanded the scope of Article 21 to the Constitution of India in line with the International Covenant on Economic, Social, and Cultural Rights which emphasizes the right to motherhood and the right of every child for full development.[viii]The Delhi High Court also in Rama Pandey v. Union of India[ix]also came to the conclusion that a woman cannot be discriminated against in the provision of maternity benefits whether they gave birth or obtained the baby through adoption or surrogacy. Further, the court stated that to distinguish between a mother who has a child through surrogacy or adoption and a mother who gives birth to a child, would insult womanhood and their intention to bring up a child as their own – clearly, there are internal juxtapositions even within the nation’s own legal system.

None of the international instruments to which India is a member[x] including the International Labour Organisation, provide for a separate system of maternity benefit to adoptive or commissioning mother. Additionally, Article 5 to the Convention on Elimination of all Forms of Discrimination against Women[xi] (CEDAW), mandates the elimination of discrimination based on the women’s reproductive role and recognizes maternity as a social function. It also reaffirms the women’s right to reproductive choices. Therefore, the Indian stance to provide only twelve weeks of maternity leave to adoptive and commissioning mothers can be said to be in contradiction to its international obligations.

One must highlight the fact that infancy is a crucial time for brain development.[xii] It is important that babies and their parents are supported during this time to promote attachment. Without a stable initial bond, children may suffer low self-esteem and a lack of identity development, which later may affect their academic performance. Adopted babies, in particular, may also face prenatal issues, due to the length of gestation or genetic vulnerabilities, i.e. while pre mature[xiii] babies are prone to chronic health issues, overdue babies[xiv] on the other hand are likely to suffer from behavioral problems, in both the cases extra care and attention is required. Existence of these conditions may adversely affect the child’s ability to adjust and develop a temperament therefore, they need extra support and care from their adoptive parents. Furthermore, while a biological child starts developing a bond with their mothers during the gestation period, the same does not happen with adoptive mothers or mothers who have given birth via surrogacy. These mothers can only start developing such a connection by providing infants a consistent, nurturing, and stress-free environment, and returning to work early impairs the development of such a bond which in turn affects the overall development of the child. Studies[xv] have proven that adoptive children are more susceptible to develop behavior problems, and the main reason is the lack of attachment and weak bonding with the adoptive family. Therefore, establishing a strong natural bond is quintessential for adopted children and children born out of surrogacy. Further, Article 5(b), CEDAW provides that the states are under an obligation to take appropriate actions to ensure full development of every child and that a child’s interest is a primordial condition in all cases.

Thus, it can be inferred that discriminating against a woman on the basis of her reproductive choices, is against the right to life enshrined under Article 21 of the Constitution of India, and it also violates the principles of international human rights law. Despite this, there are some regions like Haryana[xvi] and Chandigarh[xvii] that have adopted laws providing equal benefits to adoptive and commissioning mothers. However, the principle legislation still discriminates between a natural mother and an adoptive or commissioning mother, and as such a distinction should be rectified immediately.

The author is a fourth-year law student at MNLU, Nagpur.


[i]Maternity Benefit Act (1961), https://labour.gov.in/sites/default/files/TheMaternityBenefitAct1961.pdf

[ii]Maternity Benefit Amendment Act (2017), https://labour.gov.in/sites/default/files/Maternity%20Benefit%20Amendment%20Act%2C2017%20.pdf

[iii]Section 3(ba), Maternity Benefit Act, 1961, defines “commissioning mother means a biological mother who uses her eggs to create an embryo implanted in any other woman”.

[iv]Maternity Benefit Act 5 (1961),https://indiacode.nic.in/showdata?actid=AC_CEN_6_6_00024_196153_1517807324059&sectionId=42074&sectionno=5&orderno=5

[v]A natural mother here is referred to as, “a woman who gave birth to her biological child”

[vi]The Juvenile Justice (Care and Protection of Children) Act (2015), http://cara.nic.in/PDF/JJ%20act%202015.pdf

[vii]Enhancement of Child Adoption Leave from 135 days to 180 days and extension of the facility of Paternity Leave to adoptive fathers, Office Memorandum, Ministry of Personnel, Public Grievances and Pensions Department of Personnel Training, http://cara.nic.in/pdf/circular/Adoption%20leave.pdf

[viii]DevshreeBandhe v. Chhattisgarh State Power Holding Company Ltd., 2017(5)C GLJ340 (India).

[ix]Rama Pandey v. Union of India, 2015 SCC Online Del 10484 (India).

[x]India & ILO, Ministry of Labour & Employment, (Apr. 16, 2020) https://labour.gov.in/lcandilasdivision/india-ilo.

[xi]Convention on Elimination of all forms of Discrimination against Women art. 5, Dec. 18, 1979, https://www.ohchr.org/en/professionalinterest/pages/cedaw.aspx.

[xii]Hanan El Marroun, Post-term birth and the risk of behavioural and emotional problems in early childhood, 41 International Journal of Epidemiology, 773, (2012).

[xiii]What health challenges do preterm babies face?, World Health Organisation, (May 10, 2020) https://www.who.int/news-room/q-a-detail/what-health-challenges-do-preterm-babies-face.

[xiv]Adoption and stages of development, Child Welfare Information Gateway, (Apr. 16, 2020) https://www.childwelfare.gov/pubPDFs/f_stages.pdf.

[xv]Nicholas Zill, The Adoptive Difference: new evidences in how adopted children perform in school, Institute of Family studies (Mar. 28, 2018), https://ifstudies.org/blog/the-adoptive-difference-new-evidence-on-how-adopted-children-perform-in-school

[xvi]Grant of Maternity Leave to Commissioning Mother and Surrogate Mother, Government of Haryana, Finance Department, http://www.finhry.gov.in/FileUploads/Upload_d264f89d-b318-44fe-b0e4-290dcdd27aa6_.PDF.

[xvii]Grant of Maternity Leave to Commissioning Mother and Surrogate Mother, Chandigarh Administration, Department of personnel, http://chandigarh.gov.in/pdf/dop20-2269.pdf.

Inclusion of the death penalty in light of the POCSO (Amendment) Bill, 2019

  • Khushboo Sharma

Introduction

Crime against children has always been a reason for great distress. In India, the protection of child rights is regulated by the Protection of Children from Sexual Offences Act 2012[hereinafter referred to as the POCSO Act]. It is gender-neutral legislation which defines a child as any individual below 18 years of age. The POCSO Act seeks to protect children from acts involving sexual assault, including penetrative sexual assault, sexual harassment, use of children for pornographic purposes, and trafficking of children for sexual purposes.

On March 13, 2020, the center notified a new set of rules to effectively implement the amendments made in 2019to the POCSO Act. A few of the amendments include the provision of ‘Death Penalty’ as a punishment. In this article, the analysis focuses on how the effort to make the act more stringent by the inclusion of the death penalty, could prompt to be a fallacious argument in respect to act as a deterrent and to meet the standard of justice to reduce sexual offenses. For that purpose, the article has been divided into four parts. The first part discusses the point of debate. A critical analysis of the legal aspects involved in the issue has been provided in the second part which has been further divided into sub-parts that deal with the socio-legal aspect of the death penalty, the procedural lacuna involved, and the deterrent effect specifically in cases that fall under POCSO. The article concludes with certain suggestions that should be taken into consideration by the respective bodies.

POINT OF DEBATE

The government pronounced that 2019 amendments were introduced to discourage the trend of child sexual abuse and creating a deterrent effect by incorporating stringent penal provisions. This came up by looking at the tremendous rise in the child crime rates, especially after the Kathua gang rape and murder case. Thus, it was followed by an objective to safeguard the interest of vulnerable children in times of distress and protect their safety and dignity. As a consequence, the minimum punishment was changed to 20 years and the death penalty was introduced among other changes aimed at reducing the number of cases relating to child sexual abuse. While we are discussing the death penalty it is important to talk about Section 6 that allows a death sentence for all types of aggravated penetrative sexual assault by a person.

The Union justified the punishment by referring to the judgments of the Supreme Court wherein the court had held in Macchi Singh and others v State of Punjab and Devender Pal Singh Bhullar v State, N.C.T. of Delhi And Anr that the death penalty could be awarded only in the “rarest of the rare” cases. The intention behind the bill is creditable, however, it fails to consider the fact that the introduction of the death penalty in cases of child sexual abuse is a drastic step and might not lead to a deterrent effect.

REASONS WHY THE PROVISION OF DEATH PENALTY COULD BE COUNTER-PRODUCTIVE?

In the opinion of many, the death penalty serves as a retributive and deterrent measure and underlines the ‘tit for tat’ principle. One cannot deny the fact that the death penalty restricts people from committing offences at some level. However, the above stated seems to be bizarre when we look upon the reasons stated below.

SOCIO-LEGAL ASPECTS

The report of National Crime Records Bureau (NCRB) stipulates that in cases falling under POCSO, 94.6% of all the cases of sexual harassment and rape of children are committed by people who are known to the victim. This implies that the prospect of the death penalty being imposed might weigh upon the child who may not be comfortable with sending a known person to the hangman’s tree and this may prove to be a substantial burden on the child’s mind. Additionally, it is significant to argue here that the death penalty of the convict might give a fragmentary relief to the victim since a lot of victims go through the post crime victimization in society. This refers to the society’s contemptuous actions involving the “victim-blaming” phenomena. This forces the victim to go through another treachery of atrocious mental abuses, especially by its own people.

India is a comparatively socially backward country with most of its population having an orthodox mindset and to preserve the family’s reputation, family members could forbid children from exposing the offender.This might severely impact the number of cases being reported. The death penalty compounds opposition from family members as the family might not want that for a known person. A National Law School, Banglore survey depicts that in 67.5% cases, the alleged victim and the family members turned hostile and in mere 26.7% cases, these people agreed to testify against the accused. On another note, Advocate Shailabh Kumar suggests that the provision of the death penalty raises the probability of the accused murdering the victim to avoid getting caught.Thus, turning the case from “rape and leave” to “rape and murder”.

PROCEDURAL ISSUES

On another note, the provision of the death penalty fails to consider the fact that the inclusion of the death penalty would eventually weaken the child-friendly procedures. Section 33(2), the POCSO Act requires the special public prosecutor to convey to the special court the questions to be put to the child during the inquiry. However, the said provision is not duly recognized by the defense counsel and the child continues to be questioned by them. Therefore, the defense counsel to get away with the death penalty would tend to ask direct questions which might be embarrassing. It would add to the already existing trauma of the child.

Section 28(2) of Crpc, provides that to grant the death penalty, the order has to confirmed by the high court. This implies that even if the convict does not prefer an appeal then also the case would go to the high court. It has been observed that in 28.9% of the cases to which the trial court awarded the death sentence, only 4.3% of those cases qualified for the same when confirmed by the high court. This indicates that it would only lengthen the trials further. Also, courts look for stronger evidence when it comes to ordering the death penalty because the judges themselves do not agree to send someone to the gallows in the majority of the cases.This was reiterated in Raju v. State of Haryana wherein the SC commuted the death penalty to life imprisonment stating that it does not fall under the ‘rarest of the rare’ case. It can be asserted from the above-mentioned instances that the lengthy process of law provides adequate time to the accused to intimidate the victim and thus, to succeed in an attempt to backtrack their complaint which further leads to a reduction in the reporting of the cases.

DETERRENT EFFECT

Certainty plays a significant role in deterrence than severity. It specifically means that it is the certainty of being caught that averts an individual from doing wrong and not the stringency of a punishment. Incarceration as a method for incapacitation is when an individual is restricted to commit any crime by putting him behind the bars whereas when the individual apprehends the consequences of a crime on being caught before even committing it and thus, abstains from committing crimes in future, this is incarceration as deterrence. Indian laws manage to achieve the former but not the latter.

The Justice Verma Committee that was constituted after the brutal Delhi gang rape of 2012 also opposed the inclusion of the death penalty as a provision stating that the “death penalty to act as a deterrent is a myth”. Moreover, none of the studies that have been carried out documenting the relationship between the death penalty and crime rate have been able to show that the death penalty has proven to be more effective as a deterrent than any other punishment. This was reiterated in Triveniben v. State of Gujarat. Moreover, after the addition of the death penalty, punishments of lesser magnitude no longer feel like severe enough to the offenders, in this manner, leaving no sentiment of regret on their part and consequently, prompting the expansion in the crime percentages.

CONCLUSION`

The law must aim to pay heed to the fact that the vulnerabilities of a child differ from age to age. A child matures differently in terms of mental and psychological advancements. Thus, the mental capacity of an infant differs from that of a pre-teen to older adolescents. Therefore, the impact of the harm and abuse caused to them varies. The law must consider these factors and avoid treating 0-18 years as an unvarying group. Since the cause of rape is variable and subjective, the short term amendments could lead to some short term reduction. However, to get impactful results, the government must acknowledge the loopholes in enforcing the law and should take adequate action to close the widening gap between principle and practice rather than diverting the rage of the public.

The author is a first-year law student at NLIU, Bhopal.

The Conundrum Of Co-Existence Of Patents And Trade Secrets

  • Anamika Mishra & K.Amoghavarsha

1.  Introduction

Intellectual property rights have been characterized as a bundle of intangible rights ensuring the protection of commercially valuable insights. Patent and Trade secrets are two methods used by innovators and pioneers to protect their innovation. Patent and trade secret are the two significant strategies for ensuring the protection of innovation that underpins a competitive advantage. While this has been valid for quite a long time, the legal scenario where organizations must pick between them has changed drastically as of late. Organizations are frequently confronted with the issue of whether to protect the property through patent or save the data by means of a trade secret. There are huge contrasts between the sort and level of assurance gave by the patent law and the trade secret law that influence innovators’ decisions between the two.

Amidst all the COVID-19 related interruption, the Delhi High Court has rendered a significant decision in the case of John Richard Brady and Ors v. Chemical Process equipment’s P. Ltd[i] on the issue of the dilemma of interconnection and the relation of patents and trade secrets with potential expansive outcomes.

2.  Intersection Between Trade secret and patent

The Indian context about the relationship between patent and trade secrets has been different. In the case of Kewanee Oil Co. v. Bicron Corp[ii], it was held by the U.S. SC court that pre-emption pf such laws were concerned with the subjects and the laws are considered to be not preempted if the subject is secret and not in the knowledge of the general public in the business.

In India with respect to trade secrets, there is no definite statutory protection for trade secrets. The Indian courts have instead taken an approach of common law by upholding trade secrets on the basis of common law and equity and breach of confidence which is on a similar footing with breach of a contract. An owner of a trade secret as a remedy can obtain an injunction which restrains the licensee from revealing the trade secret, compensation for any losses suffered in consequence of disclosing a trade secret. In the present case, Delhi HC resorted to a broader perspective regarding equitable jurisdiction and injunction was granted even in the absence of any contract.

3. Interpretation by the court

In a single judge decision, it was held that the patent and trade secret cannot be granted to the same product/process. The court stated that when a patent has been applied for and expired too, the invention comes under the public domain and henceforth, a claim for trade secret protection cannot be claimed.[iii]

The most important issue raised before the court was “whether an invention which does not qualify as patented product and has no property right therein, can acquire property rights by the third person entering into an agreement of exchange of Know-How and thus claiming confidentiality”.

The court said it cannot happen so. According to the Hon’ble court’s observation, for any product or process without a patent being applied for it, its know-how would be in the public domain. It was also opined by the court that in India, trade secrets and confidential information are not equivalent to property. There exists a criterion of sufficiency and best mode requirement in patents i.e. they require the complete disclosure of the product/process for it to be operated sufficiently and in its best possible mode[iv]. In addition to this, the compulsory licensing regime ensures that there is complete disclosure of the patent for the licensee to make the product/process.

As the plaintiffs in the above case did not have any subsisting protection of their patent in India and the patent had expired in the US, the court held that the product was in the public domain. The court said that the plaintiff was seeking a judicial creation of a monopoly for perpetuity which was impermissible and would be in complete contrast to the scope and objective of the Patent Act and violating public policy and judicial discipline.

This judgement has far-reaching consequences if it is applied beyond the facts of this case specifically. In the present times, trade secrets and patents are seen to be complementary to each other irrespective of the distinction. A single invention has various aspects and those aspects are protected in different ways i.e. some are protected via patent law and some by trade secrets depending on the specific aspect[v]. This is known as a layered protection model.

The finding of the court that “know-how” is in the public domain without any patent being applied thereon is in contrary to the position taken in previously, wherein it has been established that know-how is protected even if no patent has been applied for in respect thereof.[vi]

4. Conclusion

Earlier deciding whether to protect property through trade secret or patent (or both) used to be a genuinely clear exercise; or if nothing else we as a whole expected it was. Any transition initially feels disruptive but in any case, pendulums swing, and frameworks working in pressure normally come back to stability. Similarly, in this case, the change might be discomforting but will be stability in balancing the intersection of patents and trade secrets.

Regardless of the choice to use trade secret or patent for specific development and innovation, there is currently a more prominent need to focus on how information assets are managed. This is the fleeting property and requires a unique administration centre to ensure integrity, regardless of whether it is held as a trade secret or develops into a patent.

The authors are 3rd Year Students of NLU, Odisha


[i] 416 U.S. 470 (1974).

[ii] AIR 1987 Delhi 372.

[iii] Prof. Dr. Claudio De Simone & Anr v. Actial Farmaceutica, CS(OS) 576/2019.

[iv] Patents Act 1970 s.10(4).

[v] Michael R. Mcgurk & Jia W. Lu,The Intersection of Patents and Trade Secrets, 7 HASTINGS SCI. & TECH. L.J. 189 (2015).

[vi] Seager v. Copydex,1 WLR 923 (1967).

Section 41A- An Antithetical Disposition

  • Avishek Mehrotra & Renuka Mishra

INTRODUCTION

An arrest is the curtailment of liberty of an individual. The police being the bearer of the power to arrest must exercise it rationally and reasonably. The extraordinary discretionary powers vested in the police in matters of arrest were leading to substantial misuse of such powers. The same was acknowledged in the report of the National Police Commission (Pg 4, ¶ 3), as per which, most of the arrest conducted by the police was unjustified.  In order to curb such rampant misuse of powers of arrest, the 177th Law Commission report also accentuated an urgent need for curtailment of such powers. With this perspective, section 41A was incorporated by the Code of Criminal Procedure (Amendment) Act, 2008. However, the provision has proved to be harmful to the interest of the accused, whom it sought to protect. Instead of alleviating the power to arrest, it has been an addition to the armoury for the police officials. This antithetical nature of the incorporated provision is what the authors will primarily focus upon during this article.

WHAT IS SECTION 41A OF Cr. P.C.?

According to Section 41 A of the Code of Criminal Procedure (hereinafter, ‘Cr. P.C.’) if a police officer requires the attendance of any person who is not to be necessarily arrested under Section 41(1) or “against whom a reasonable complaint has been made, or credible information has been received, or a reasonable suspicion exists that he has committed a cognizable offence”, the officer can issue a notice for the same. The person to whom the notice is served is obliged to appear at the stipulated place and time. The person complying with the notice shall not be arrested unless otherwise deemed fit by the police officer for which the officer is duty-bound to record reasons in writing. Failure to comply with the notice is a ground for arrest. 

PREDICAMENTS UNDERLYING SECTION 41A

The said provision mandates the issuance of notice to the accused where the arrest of the person is not required as per section 41(1). There are, however, two anomalies which surface herein. Firstly, the legislative text of section 41(1) itself gives discretion to the police officer in matters of arrest, as is evident from the use of the word ‘may’ in the provision. Hence it is open for the police officer to determine whether a particular matter falls within the ambit of section 41(1) or 41A. Therefore, the provision which was incorporated to limit the power of arrest vested to police under 41(1) has left it upon the police officer himself to decide the applicability of the same. Thus, if the police officer deems the matter to be fit for arrest under section 41(1), he can still do so with no regards to the provisions of section 41A.

Secondly, the use of subjective terms in the provision such as “reasonable complaint”, “credible information”, “reasonable suspicion” opens room for abuse of such powers and leaving enormous scope for the police to exercise their discretion. Further, 41A(3) provides the police with an opportunity to arrest a person even after compliance with the notice if the police officer opines that the arrest is necessary. Also, the immediate discretion to decide compliance with the notice is vested in the police. This provision particularly increases the ambit provided to the police officers to arrest without a warrant – extending it to crimes which do not fall under the confines of section 41(1). The existing anomalies have not restrained themselves to legislative provisions, there have been numerous instances where misuse of the power vested under Section 41A has been alleged or proven.

In Tanuja Roy v. State of Assam and Ors., an FIR under section 420 and 406 being lodged against the petitioner, three policemen from the Dispur Police Station forcefully took her to the police station at 1:00 am despite resistance from the petitioner. She was detained arbitrarily, for long hours without being provided with any reason, subsequent to which notice was served to her under section 41A. The course of action adopted by the police in the present case was clearly unjustified. The Court came down heavily upon the Police Officials while holding their actions to be in contravention of section 46(4) [¶ 28] of the Cr. P.C. and not in line with what section 41A stipulates (¶ 22). In order to obviate the power under Section 41A of CrPC, the investigating agency may manipulate (¶ 6) the FIR. Even though the manipulation of FIR was not proven in the instant case, such activity is not entirely unprecedented (¶ 14). 

Several High Courts have labelled the procedures to be ‘stringently and mandatorily applied’ rather than leaving the same at the discretion of the police. The Apex Court also emphasized the need for maintaining a balance between individual liberty and upholding societal order. The misuse of the provision has been taken note of in the case of Amandeep Singh Johar v State of NCT of Delhi wherein an FIR was registered against the accused despite compliance with the notice. The Court in the said case laid down guidelines regarding the content of notice and procedure to be followed after its service. However, the judgment as laid down by the Court also provided a way for the investigating officer to lay down conditions other than those mentioned by the Court which necessarily had to be complied with, the failure of which would make an individual liable to be arrested as per Sec 41A (3) [¶ 15 (refer clause j)]. Thus, the problem remains unaddressed.

The Hon’ble Supreme by taking cognizance of the importance of liberty of an individual be it an accused or convicted in the landmark judgments of Jogindar Kumar and D.K. Basu laid down the guidelines to be followed while arresting an individual under Sec 41 of Cr. P.C. However, there exists a dichotomy in the nature of arrest under that of section 41 and 41 A of Cr. P.C. as these guidelines do not apply to arrests made under section 41A. Given the sorry state of affairs in the exercise of power by the police under Sec 41A, there is a pressing need to extend the applicability of these guidelines to police officers exercising discretion under Section 41A. 

SUGGESTIONS/RECOMMENDATIONS

Given the existing anomalies in the impugned provision, there is ardent need for limiting the discretion vested in the police. The authors would like to humbly put forth some suggestions in light of the aforementioned predicaments:

  1. Objectivity – There is a lack of legislative or judicial guidelines demarcating the situations where notice must be issued and where the arrest is necessary. Further vesting the discretion upon the police through the use of subjective words like “reasonable complaint”, “credible information”, “reasonable suspicion” leaves scope for misuse and must be done away with.
  2. Accountability of police – There should be an agency to keep a check on the working of the police and investigate complaints against police officials to curb the ongoing misuse of powers by the officers. 

3. Adherence to D.K. Basu and Joginder Kumar – Even in matters of arrest under section 41A, guidelines laid down in these judgments must be complied with.

The authors are 3rd Year Students of Symbiosis Law School, Pune.

Revisiting Advertisement Laws Through the Lenses of Virtual Advertising

  • Shubham Gupta

INTRODUCTION

Advertisement is the promotion of a product, services, and brand to a targeted sample space to engage the interest of the masses. The field of advertisement is evolving with technological empowerment. Advertisements come in a lot of forms, from written to interactive videos.  In the current outbreak of COVID’19 pandemic, advertisement is one of the strongest hit industries. This industry depends on the economical aspects of other industries. In these times of turmoil all the other industries are facing economical trauma, most of the organizations have stopped or not-renewed their contract with the advertisement agencies. The sports events which greatly contribute towards these agencies are waiting for their fate. Additionally, these agencies are dependent on the physical presence of staff and interpersonal connections, and still rethinking the way to protect their drowning economy.

This brings our attention to the regulations regarding advertisements. In India advertisements are regulated by the “Advertisement Standard Council of India”. TheASCIhas adopted “a code for Self- Regulation in Advertising” (ASCI Code) which applies to everyone concerned with the advertisement. Although India has a separate body for regulating advertisement yet India lacks in regulating dynamicity in the field of advertisement.

VIRTUAL ADVERTISING

One of the grey areas in India, regard to the advertisement is Virtual Advertising.  It is a method of using digital technology in a pre-recorded or a live show to insert virtual images. It is a new way of targeting a specific audience even in the events which involve international interest. In this method, the advertisement hoardings which exist in the playfield are changed at the time of broadcasting it to different corners of the world. For instance, in a match between India and Australia taking place in Australia the advertisements for the hoardings will be changed when it will be broadcasted in India. The concept behind the same is that Indians having nothing to do with local brands existing in Australia.

Virtual advertising creates an impression in the mind of the people that such hoarding is actually there in the field. The major controversy is the extent of manipulation it can cause. Sometimes even the hoarding inserted in the background is also virtually created and none is there in reality. The major use of Virtual Advertisement is in the field of sporting events as it involves venture with other countries and creates more scope of diversity in the sample space. The regulation in this regard is therefore necessary as it has the potential to damage the quality of the game by manipulating the frame by bombarding it with advertisements. This model has great potential but requires proper guidelines for each game separately keeping in mind the placement and scope of advertisement in the frame.

LEGISLATIVE OVERVIEW

Despite the existence of various legislative provisions regarding advertisements, regulating it has always been a hot potato. The author believes the reason behind the same is the absence of uniform laws, rules, or code concerning the regulation of the field capable of reaching the masses. The industry since the beginning of the era of advertisement resisted creating a uniform code and a single regulator.

Although ASCI Code is recognized by various Indian laws and is adopted by the various advertising bodies yet this code is only to complement the legal controls under these laws and in no way is to replace or usurp them. There exist various other laws which in some way or the other have the capacity to regulate some parts of the advertisement. Some of which are elaborated further.

First, the “Press Council of India Act 1978”, it was brought into force to ensure and preserve freedom of speech and expression in newspaper and news agencies. Second, “Cable Television Network Rules, 1994” aims to provide cable services to the satisfaction of the subscribers and ensures no illegal usage of this cable television network. Third, “Code for Commercial Advertising on Doordarshan and All India Radio”, this act provides for laws concerning the general and special advertisement. Additionally, it regulates various body related to the advertisement. Fourth, “Electronic Media Monitoring Centre” (EMMC) its task is to monitor the content television. It reports the programs and advertisement which violates the code. Lastly, the “Code of Conduct of the News Broadcasters Association”, this code mentions standards and parameters in which the broadcasters should work.

The regulations provided above are mostly concerned with the advertisements that take place in television, newspaper, radio, and magazines. In the era of social media and online shopping, these regulations are obsolete. The approach of the judiciary in terms of the advertisement has also remained confined under the umbrella of the existing regulations and it has not ordered anything out of the box. Hence the legal position of India is nowhere close to regulating Virtual Advertisements.

BENEFITS AND STATUS QUO

In the current times, all the sporting events are barred hence all Indian sports associations including the Board of Control for Cricket in India have started to lose money. The cancellation of the Indian Premiere league was a big hit to the BCCI. To recover the loses, the need of the hour is virtual advertising. It increases the traffic and can cover masses of two countries increasing the sample space with a significant number. This will help the brands to come back in the game by showcasing the advertisements which are not actually there on there on the hoardings.  Recently, IPL chairman Brijesh Patel in the general council meeting spoke about the value of introducing Virtual Advertising. One BCCI official also mentioned “Virtual advertising images will be unique to regions. The ad image a fan is watching in India will be different from what a viewer in the US market would be watching. The board would stand to benefit monetarily if we can put it together soon”.

In these times when the economy is floating on the shoulders of digitalization, it is important for the sports associations to introduce their own guidelines in regard to virtual advertising. The sports associations being the autonomous bodies should not wait for the legislation regarding the same. This will help these associations to recover losses they’ve borne in these times of crisis. In the coming times when the government will approve of sporting events, there is a high probability of calling no audience in the stadiums. Hence this method of advertising will help them in recovering the previous loss and the losses which will occur because of the absence of the audience. Fédération Internationale de Football Association (FIFA) one of the largest sports associations in the world has brought up its own guidelines regarding virtual advertisements.

These guidelines impose various conditions to prevent the abuse of this technique to the detriment of the game. It is designed in a way that enables match organizers and national associations to be benefitted from its potential. Firstly, these guidelines restrict virtual advertising for any illegal act or an act which may constitute an illegal act. Secondly, all the concerned people related to the broadcasting, hosting, marketing rights should be well informed and contractually bound for its application. Thirdly, it will be applied during the transmission in the flat surfaces which in reality may or may not have been used for advertisement. Some surfaces are explicitly forbidden by these regulations like any area which does not exist and is specially created, any or all person in the stadium, any object either stable or movable which is not there for publicity, and in the air space above the stadium. Some surfaces are explicitly mentioned by these regulations which may be used for virtual advertisement. These areas include the field of play including the penalty area and the circle until the players enter or are present. Hence they can showcase the advertisements before the players enter, in the half time and the moment they leave the game. Lastly, these guidelines also have the provisions of disciplinary actions in case of no pursuance of these guidelines.

CONCLUSION

Through the analysis of advertisements laws through the lenses of virtual advertising it can be concluded that Indian regulations lack the structure of dynamism. The stringent and obsolete laws of India are not fit in the present era of digitalization and technological advancements. Virtual Advertisement is one of the emerging offshoots of advertisement and has the capability to create a dual economy by reaching multiple masses at the same time. The guidelines released by FIFA about virtual advertising can be held as a base for the Indian sports associations and hence they can frame these regulations on similar lines. It is high time that India changes its approach regarding the up-gradation of laws. The after-effects of the ongoing turmoil are going to be fatal in our economy. Hence all the approaches, rules, and regulation which might introduce new industry in the country should be considered for deliberations by the government.

The author is a 3rd Year law student at NLU Odisha.

Termination for Convenience clause in EPC Agreements: Need for a restrained invocation?

  • Naman Katyal

Introduction

Termination for convenience clause refers to the exercise of the government’s right to bring to an end the performance of all or part of the work provided for under a contract prior to the expiration of the contract “when it is in the Government’s interest” to do so.

The idea developed as a potent tool by government agencies during the period of World War I to relieve the government of the risk of receiving futile goods, when the US Congress legislated for the government termination for convenience. The legislation provided that the government could terminate a contract for convenience by compensating the contractor for only the actual cost incurred and that there was no requirement by law to pay the contractor the loss of profits.

A subsequent decision in 1982 by the US Court of Claims in Torncello v. United States(‘Torncello’)provided some respite to the unnerved business community. The court held that the refusal to reimburse the lost profits could not be so generally justified and some change in circumstances must be shown in order to terminate the contract. The respite turned out to be short-lived and the successor court to the Court of Claims, the Federal Circuit in 1996 delivered the coup de grace against Torncello in Krygoski Construction Co. v. United States. The court elaborated on the justifications for such termination and pointed out how the key statements in Torncello were “dicta”, it also held that termination for convenience is improper only when the government acts in bad faith.

Developments in India

In the context of India, the courts and legislations haven’t dealt with ‘termination for convenience’ per se but Section 14(1)(c) of the Specific Relief Act, 1963 does state that contracts which are determinable in nature cannot be specifically enforced. The Delhi High Court in the case of Rajasthan Breweries Ltd. v. The Stroh Brewery Companyvery aptly put forwarded the meaning of determinable in the context of contracts;

determination is putting of a thing to an end… meaning thereby, all revocable deeds and voidable contracts may fall within “determinable” contracts and the principle on which specific performance of such an agreement would not be granted is that the Court will not go through the idle ceremony of ordering the execution of a deed or an instrument, which is revocable at the will of the executant.

The judgment rendered by the High Court consequently meant that determinable contracts may be explained as contracts that can be put to an end.

This effectively means that contracts incorporating termination for convenience clause cannot be specifically enforced. The reason being that various courts have held that an agreement incorporating a clause enabling either party to terminate the agreement unilaterally without any reason would be determinable in nature. In Indian Oil Corporation Ltd. v. Amritsar Gas Services, the Supreme Court held termination of a distributorship agreement by the Indian Oil Corporation for its convenience by giving thirty days’ notice without any reason to be determinable in nature. The court thus declined to order specific performance of the contract, it further declined compensation for the anticipated loss of profits claimed for the remaining distributorship period.

Unfettered use of termination for convenience clause by the government is detrimental for investments

In termination for convenience, the government finds a valuable asset to tackle hefty compensation and distressing litigation associated with terminating obsolete projects. Further,the public interest demands the government to cut on inapt expenses and termination for convenience clause allows for the same.

For the same reason, this clause has found copious use in several Engineering, Procurement, Construction agreements (‘EPC Agreements’) entered into by contracting government agencies of India. But, over time the invocation of the clause has turned unfettered. Politicians on being sworn into constitutional positions employ the clause at the drop of a hat to score political points without minding the ill effects on future investments.

Case in point: YS Jaganmohan Reddy was sworn as the Chief Minister of Andhra Pradesh in May 2019, and within six months of taking the oath, the Andhra Pradesh government shelved the ambitious Amaravati Start-Up Area project initiated by the previous government due it being ‘not feasible’. On similar lines, several other projects faced similar fate including LuLu Group’s planned International Convention Centre and other associated facilities in Visakhapatnam. Subsequent to this, the LuLu Group vowed to never invest in Andhra Pradesh, claiming it had incurred massive expenditure on initial developments and appointing international consultants and architects.

A fervent resolve to adhere to contracts is the need of the hour for government agencies in India. The recently released World Bank Ease of Doing Business rankings, 2020(‘rankings’)indicate the same. In the 2015 rankings, India’s overall rank was 142nd, while in the sub-category of enforcing contracts the rank was 186th. In the next five-years India could better its overall rank drastically and attained the 63rd rank in the overall category, while in the enforcing contracts sub-category, it could only achieve an awful 163rd rank.

The ranking is indicative of the government’s failure in the sphere of enforcement of contracts.

Denial of specific performance as a remedy is unjust

The passage of the Specific Relief (Amendment) Act, 2018 (‘Amendment Act’) has bought in several important changes in the civil dispute redressed mechanism in India. The foremost being the making of specific performance of a contract the rule instead of being an alternative as was the case before. Before the passage of the Amendment Act, the authority to direct the specific performance of a contract laid in the discretion of the court under Section 10 of the Act.

However, exceptions continue to exist. Section 14 of the Amendment Act specifies the contracts which cannot be specifically enforced; a contract which is determinable in nature is one such contract. Contracts incorporating termination for convenience clause being determinable in nature by virtue of Supreme Court judgments cannot be, therefore, specifically enforced.

Consequently, the only remedy that lies is to claim damages. However, the amount of damages compensated often turn out to be inadequate largely for two reasons.

First, the government agencies utilize their dominant position in relation to the contractors in framing the terms of the contract to the fullest of their advantage. Clause 21.6.2 of NITI Aayog’s Model Engineering, Procurement, Construction Agreement(‘Model Agreement’) indicates the same. The clause states that the contractor shall be only entitled to an amount equal to the (i) Valuation of Unpaid Works; (ii) the reasonable cost, as determined by the Authority’s Engineer of the Plant and Materials procured by the Contractor; (iii) the reasonable cost of temporary works, as determined by the Authority’s Engineer; and (iv) 10% of the cost of the works that are not commenced or not completed, in case the authority terminates the contract for its convenience.

Additionally, Clause 23.5 of the Model Agreement bars the claim of any consequential damages, including any loss of profit. This essentially limits the contractor’s ability to claim adequate compensation.

Second, it is not always possible to prove the amount of lost profits with certainty and this puts the contractor in an unfavourable position. Doctrines of causation and remoteness, foreseeability, and mitigation which restrict compensation, act as hurdles to calculation and in the grant of full compensation, and also increase litigation costs.

Further, even the courts manifest inclination to grant the amount of loss of profits without going into minute details. In the matter of Mohd. Salamatullah v. Govt. of A.P, the Supreme Court entitled the contractor to claim 15% of the contract price as loss of profits. The court further justified the calculation of the amount by the trial court even if the amount was calculated on the basis of guesswork. This could result in the inaccurate calculation and hence as a consequence, inadequate compensation.

The way ahead

At a time when substantial efforts to increase the inflow of FDI are being made, the uncalled for termination for the EPC Agreement stand the subsequent denial of specific remedy tends to damper the inflow of FDI.

While it is true that a government does have a key duty to guard itself against imprudent expenses and it must enjoy the authority to terminate agreements when they are not in the government’s best interest. But the government’s broad discretion to exercise its right to terminate should only be exercised in good faith and not merely to escape contractual obligations.

Termination in instances where the contract was illegally awarded in contravention of rules and regulations could be permitted whereas instances, where the termination clause is invoked only to drive political mileage, should be discouraged.

Further, the well-nigh irrefragable proof standard which presumes good faith on the part of government agencies in contract law makes it harder for the contractors to show bad faith on the part of government agencies. An acknowledgment that the government is subject to the same good faith duties as a private party would go a long way in attracting FDI.

the author is 2nd Year law student at GNLU, Gandhinagar

Navigating through the Murky Waters of Debt Recovery by Cooperative Banks

  • Urmil Shah

The Indian banking system presently consists of 1,544 urban co-operative banks and 96,248 rural co-operative banks and around 1,540 of these cooperative banks have a depositor base of over 8.60 crores. With the rising significance of cooperative banks in the country, the need for uniform regulation of banks has only been amplified. The Supreme Court’s judgment in Pandurang Ganpati Chaugule v. Vishwasrao Patil Murgud Sahakari Bank Ltd. is a way forward in upholding the statutory rights of cooperative banks to recover debt using the mechanism of enforcing of a security interest under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). Prior to the enactment of the Recovery of Debts & Bankruptcy Act, 1993 (RDB Act) which provided for debt recovery by filing applications before the Debt Recovery Tribunals, recovery of dues to banks was governed by the Civil Procedure Code, 1908 by way of civil suits. There was a need for quick resolution of non-performing assets and consequently, the formulation of SARFAESI Act was recommended by the Narasimham Committee keeping in mind the changing commercial practices in the banking and finance sectors. The Act empowers banks and financial institutions to obtain possession of the collateral securities and dispose of them without any intervention of courts within 60 days of failure of repayment by the borrower.

Scope of “Banking” – Colourability of Union Legislature?

The term “cooperative banks” was not codified under the original Banking Companies Act, 1949 which led to a furore between the Legislature and Judiciary only to be settled by way of harmonious construction in present judgment as the Union Legislature was given the authority to enact laws only in respect to “banking” functions of banks. The legislative framework for the regulation of cooperative banks in the Banking Regulation Act, 1949 (BR Act) was envisaged for the first time by the Banking (Amendment) Act, 1965 w.e.f. 1966 and the Presidential recommendation to the Notes on Clauses made it clear that Part V was added to govern “banking” activities of central co-operative banks, state co-operative banks and primary co-operative banks. The dispute, which also forms a subject-matter to the present case, arose as the State Legislature under Entry 32, List II was given the sole authority to enact laws for “incorporation, management and winding up of co­operative banks” and a conjoint reading of Section 22 and Part V inferred that the Union Legislature violated the spirit of federalism.

Section 6 of BR Act provides an exhaustive list of ancillary functions that can be performed by banking companies, in addition to the primary function of credit creation; the conflict, however, arose as to whether the term would encompass the function of debt recovery which is not expressly provided under sub-clause (a) – (o). The dictum in Greater Bombay Co-Op. Bank Ltd vs M/S United Yarn Tex. Pvt. Ltd., in context of RDB Act, was overturned where it was held that the field of co­operative societies cannot be covered under Entry 45 for want of explicit provision. Considering the modern demands of trade and commerce, the term couldn’t have been afforded a rigid contour, although as envisaged by the drafters of the BR Act, and thus a purposive interpretation was adopted to include the functions of debt recovery by cooperative banks. The Union Legislature has the legislative competence to setup special mechanism for debt recovery by banks as the definition of “banking company” in the SARFAESI Act stems from Section 2(1)(c) of BR Act which is broad enough to encapsulate cooperative banks so as to aid them in their debt recovery operations.

Debt Recovery under SARFAESI Act- The Pith & Substance of Ex Abundati Cautela

Although there is the existence of cooperative tribunals under the state cooperative societies legislation for debt recovery; however, for procedural aid to cooperative banks, the Ministry of Finance and Company Affairs by way of a Government Notification in 2003 utilized the residuary clause under the SARFAESI Act, to allow the access to security enforcement mechanism under section 13(4) by making the RDB Act inapplicable. Questioning the vires of such notification, Gujarat High Court in Administrator, Shri Dhakari Group Cooperative Cotton Seal v. Union of India, relying on the Greater Bombay ratio struck down the notification. Consequently, in a bid to reinstate the existing position, the Union Legislature passed the Amendment Act, 2013 and included the definition of multi­-state co­operative bank within the SARAESI Act u/s. 2(c)(iva) which was held constitutional by the same court

In cases of legislative overlaps between List I and List II, the dominant legislation can be determined by way of liberal construction, having regards to the nature and extent of encroachment. Considering the object, scope and the mischief that the SARFAESI Act tries to resolve by providing an additional remedy to cooperative banks for efficacious and expeditious recovery such that their legitimate dues do not remain pending on account of the backlog of cases before the civil courts or DRTs, even if the Union Legislature while exercising its functions incidentally trenches into the unchartered territory, amount not amount to incompetence. Despite, the existence of alternative remedies of cooperative tribunals and DRTs available to cooperative banks, the 2003 notification and 2013 amendment are constitutional as there are in pith and substance to the power under Entry 45.

Conclusion – The Way Forward

The Supreme Court has ensured that the cooperative banks do not suffer the wrath of misinterpretation of the clear legislative will over their regulatory status as it will now result in quicker recoveries and better safety of deposits. To provide deep and pervasive control of RBI over cooperative banks in light of recent PMC Bank and CKP Bank scams on account of mismanagement and deregulation, the Union Legislature to come up with the Draft Banking Regulation (Amendment) Bill, 2020 which has envisaged operation of provisions pertaining to the supersession of the board of directors and winding up of cooperative banking companies. The competence of the Union Legislature in light of conflicting jurisprudence and the attempt to settle the debate by the Pandurang Ganpati judgment remains to be seen.

The author is a 3rd Year student at AURO University

NAFED v. ALIMENTA SA: The Saga of Foreign Award Enforcement Continues

  • Ashika Jain and Lakshay Garg

Introduction

The biggest conundrum in the enforcement of the Arbitration award in India started with a 2012 landmark judgment whereby the Supreme Court in Balco case held that part 1 of the act[i] would not be applicable to foreign seated arbitrations. Thereby drawing a clear demarcation between Indian and foreign seated arbitrations.

For the last few decades, there has been ambiguity contemplating the enforcement of arbitral awards on the ground of Public Policy. The apex court has laid down several rules in the preceding cases, yet these rules cannot be applied as a straight-jacket formula. In a recent judgment of the Apex court, wherein enforcement of a foreign arbitral award was challenged on the grounds that it encroaches upon the Public Policy principle, the court pronounced the judgment which is likely to revolutionize and reconstruct the Public Policy test.

Evolution of “Public Policy” Throughout Landmark Judgements

The test for what constitutes public policy has gone through sundry screenings. The touchstone to determine the same has been evolved after a plethora of judgments by the apex court. Yet, there is no one size fits all policy, as each case requires the Court to play according to the factual matrix. The issue pertaining to the ambit and determination of “public policy” came before the court in the Renusagar Case.[ii] The court explicated that a violation of Indian law is not a sufficient ground to attract the defence of the public policy. Subsequently, in the ONGC case[iii], the apex court expanded the ambit of the test thereby upholding that the award shall not infringe the statutory provisions of Indian law or terms of the contract. Violating them would be considered as patently illegal. Thereafter, with the ruling in Venture Global[iv], the foreign arbitral awards became amenable to challenge and subject to the broader test of “public policy” as enunciated in the ONGC case. These three cases namely ONGC, Bhatia International[v] and Venture Global opened the floodgates for the petitions to challenge an arbitral award under Section 34 of the Arbitration Act.  In Phulchand[vi] case, the Supreme Court took a step further, holding that even if the award attains finality, the parties have the power to re-enter the matter, thereby expanding the scope of “public policy” in such a way that the expressions under section 34 and section 48 became synonymous.

Factual Matrix of the Case

On 12 January 1980 NAFED entered into a contract with Alimenta, whereby it agreed to ship 5,000MT groundnuts for the year 1979-1980. However, due to unfavorable weather conditions, the crops failed and NAFED could supply only 1,900MT during the said period. It was agreed that the remaining quantity would be supplied in 1980-1981 and subsequent amendments were made to the contract in order to facilitate the same. A distinguished provision under the contract was Clause 14, which provided that the agreement would be cancelled in case of an export ban by an executive or legislative act of the government of India. NAFED was a canalizing agency for the government of India and it had to obtain prior permission from the government in order to carry forward any export from the previous year. When NAFED applied for permission, the government denied the same. Treating the non-shipment of the remaining commodity as default, Alimentacommenced arbitration proceedings before FOSFA. NAFED approached the High Court and Supreme Court to restrain the arbitration proceeding against it. Finally, in 1987, the Supreme Court assigned the parties to the arbitration pending before FOSFA.

Judgment

The Court held that NAFED was merely a canalizing agency for the Government of India. It required express permission from the government in order to carry forward the exports and could not do so on their own accord. Since the refusal of the government was covered by clause 14 agreement, the said agreement became impossible to perform[vii] and was liable to be cancelled.

The court discussed at length on whether the matter falls under section 32 of the contracts act or under Section 56 of the act. The court followed the ratio laid in Satyabhadra Ghosh[viii] case in which it was held that terms according to which the contingencies occurring would make it stand discharged, the dissolution of the contract would take place as per terms mentioned in the contract. Such a case would be outside the purview of Section 56. The court opined that if the parties do contemplate the possibility of an intervening circumstance, but expressly stipulate that the contract shall stand regardless, a case of the frustration of contract cannot be made. Since clause 14 provided that in case of any legislative or executive interference, the unfulfilled part will stand cancelled, and section 32 would operate.

The court examined section 7 of the Foreign Awards Act, 1961. It is trite law that what constitutes public policy has not been defined and the principles governing public policy are capable of modification and expansion[ix]. The court, therefore, held that since the permission to export was denied by the Government of India, the contract became void. Further, the performance of the contract despite the refusal to export would be in contravention to the Export Control order, making this action against the public policy of India.

Comment

The present case concerns itself with the enforceability of Foreign Award where the Supreme Court relied predominantly on the factual matrix and decided the case based on merits. The court rectified the erroneous belief of the Arbitral Tribunal and affirmed the appellant’s claim that the ban on the export of the commodity was not a self-imposed ban, but one imposed by the government. Hence, the situation would be dealt with in accordance with clause 14 of the agreement. Furthermore, it opined that the government was well within its powers when it objected to the supply and declined the permission to ship the remaining quantity of the commodity.

Analysis and the Road Ahead

The present decision relied upon the test set out in Renusagar, which can be considered as a good law insofar as enforcement of an Award with regard to public policy is concerned. The resolved position while determining a public policy defence, permissible under section 7 (1)(b)(ii) of the Foreign Awards Act, is that the scope of such defence needs to be construed narrowly. In the present case, the court differed from this notion and broadened the scope for interpreting what constitutes Public Policy.  The Court thoroughly scrutinized the facts of the dispute and concluded that the shipment could not be exported due to want of Government approval. This opened the gateway that helped in determining whether a specific aspect of an award transgressesIndian Public Policy.

The key issue (with respect to public sector undertakings)is whether the executive acts of the government can be construed as a change in law, or whether when such a direction is breached, it constitutes sufficient grounds for invoking public policy principle. Furthermore, the probability of such a decision giving rise to a cause of action for bilateral treaty arbitrations is of great importance and therefore requires a microscopic analysis.

The Public policy works as a strategy for the parties and is brought into the arguments in order to create a basis for challenging the enforcement of an award in the country. It is true that adherence to the public policy shall be ensured in cases where it is warranted. On the hind side, it is undeniable that its interpretation should be laid on the strictest grounds possible. An undefined and wide interpretation would only paint the enforcement mechanism of arbitral awards in a bad light. There are numerous issues where one party relies on a government directive as a defence for non- performance. It will be an interesting scenario to observe as to whether this judgment will have any ripple effect on those disputes.

Another interesting element, in this case, was the distinction laid by the court between Section 32 and Section 56 of the Contract Act, 1872. It has been observed that at times parties bring the case for the frustration of contract under section 56 of the Act, whereas it is later observed that according to the facts, the case should have been brought under section 32 of the Act. It is suggested to the parties that that in cases where the contract agreement is based on contingency i.e. occurrence of some event renders the contract void, section 32 will come into force and none of the parties will be held liable for the damages. This accurate observation may go a long way in getting some clarity on where the said sections will be applicable. For instance, in this pandemic-stricken situation (where force majeure claims have become the norm), the decision in the present case along with the decision in Energy Watchdog case[x] provides for the much-needed direction to concretize the test for force majeure.

The authors are law students at GNLU, Gandhinagar.


[i] Bharat Aluminium Company V. Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552.

[ii]Renusagar Power Co. Ltd. V. General Electric Company 1994 Supp (1) SCC 644.

[iii]ONGC v. Saw Pipes (2003) 5 SCC 7058.

[iv] Venture Global V Satyam Computers (2008) 4 SCC 190.

[v]Bhatia International v. Bulk Trading SA (2002) 4 SCC 105.

[vi]Phulchand Exports Limited V. O.O.O. Patriot (2011) 10 SCC 300.

[vii]Ram Kumar v. P.C. Roy & Co. (India) Ltd., AIR 1952 Cal. 335 (338).

[viii]Satyabhadra Ghose v. MugneeramBangur, 1954 AIR 44.

[ix]Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156.

[x]Energy Watchdog v. Central Electricity Regulatory Commission (2017) 14 SCC 80.

Put Option Holders from the Scope of Financial Creditors – A Persisting Dilemma

  • Mudit Jain and Anjali A.

Introduction to the conundrum

The Supreme Court recently pronounced in Anuj Jain v. Axis Bank Ltd. & Ors., 2020 SCC Online SC 237, (hereinafter “Anuj Jain”), that third party security transactions would not amount to “financial debt” within the meaning of Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (“IBC”). The blanket verdict leaves the “put option” holders in a state of dilemma.

“Put option” has been defined by the Supreme Courtin Securities and Exchange Board of India v. Rakhi Trading Pvt. Ltd., (2018) 13 SCC 753,asa contract between a buyer and the seller, which “gives the buyer the right, but not obligation to sell a given quantity of underlying asset at a given price on or before a given future date.” The option holder pays a premium to the effect that when he exercises his option, the writer of the option is obliged to purchase the asset from the option holder. Thus, the decision in Anuj Jain has a direct impact on the interests of the “put option” holders.

Put Option Holders qualify as Financial Creditors

The Supreme Court, in Anuj Jain as well as in Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors., (2019) 4 SCC 17, had enunciated the meaning and role of “financial creditor” as envisaged in the code. The Court stated that there is no figment of doubt that a “financial creditor” is envisioned to hold a unique position in the functional existence of the corporate debtor insofar as he is a person directly engaged in the functioning, sustenance and growth of the corporate debtor. It was succinctly observed that a “financial creditor” is a person whose interests are inherently plaited in the health and well-being of the corporate debtor.

The Apex Court went on to observe that though a third party security holder is a secured creditor, he would stand outside the purview of a “financial creditor” because he only has a  security interest  over the property and  does not have direct involvement with the finances and growth of the corporate debtor. This being said, the Court drew such a distinction on the grounds that a mere security interest holder does not have any stake in the corporate debtor’s growth, rejuvenation, revival and/or equitable liquidation.

The IBC defines a “financial creditor” as any person to whom a “financial debt” is owed and thus it becomes pertinent to understand the meaning of “financial debt”.

The Apex Court drew a distinction between a mere debt and a “financial debt” by noting that for a debt to be qualified as a “financial debt” there should be a consideration for the time value of money, which, the Court observed, is absent in case of third party security transactions. Wherefore, it was concluded that a third party security would fall within the meaning and scope of debt but not a “financial debt”.

However, it is noteworthy that Anuj Jain was primarily focussed on mortgage debts whereas a “put option” should be understood as an exceptional form of third party security akin to a contract of guarantee having a specified price, tenure and rate of return attached to it. It is to be noted that certain specific third party security holders such as holders of “put option” fall directly within the ambit of “financial creditors” as they facilitate the existence and operation of a corporate entity by supplying the essential glucose in the form of funds. 

Put Option as a Contract of Guarantee

Per Sections 5(8)(f) and (i) of IBC, a “financial debt” includes any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing, and also the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in clause (8). 

The Bombay High Court, in Vandana Global Ltd. v. IL&FS Financial Services Ltd., [2018] 207 CompCas 668 (Bom), (hereinafter “Vandana Global”), held:

“Thus necessarily the ingredients of a contract of guarantee are clearly present in the option agreement which are reflected from the unambiguous nature of … the “Put Option” whereby the appellant has irrevocably, absolutely and unconditionally without demur or protest agreed to make payment of the exercise price to the respondent. If this be the case, then considering the provisions of Section 126 of the Contract Act, it is imperative to accept the ‘option agreement’ as a ‘contract of guarantee’. There can be no other interpretation.”

A bare perusal of Section 126 of the Indian Contract Act, 1872, clarifies that in every contract of guarantee the essential element is to perform the promise or discharge the liability of a third person in case of a default.

In Union Bank of India v. Era Infra Engineering Pvt. Ltd., C.A. No. 997(PB)/2018 in C.P. No. IB-190(PB)/2017, the National Company Law Tribunal (“NCLT”) placed firm reliance on Vandana Global and reiterated that a “put option” in a tripartite loan transaction satisfies all the ingredients of a contract of guarantee and hence, is within the scope of “financial debt” as defined in Section 5(8)(i) of IBC. Also, the NCLT reconfirmed that “financial debt” would include any transaction having a commercial effect of borrowing. Thus, a deed of guarantee or a loan agreement providing for a guarantee in the form of a “put option” clearly indicates the existence of commercial effect of borrowing as it facilitates the loan transaction.

Similarly, in the case of Pushpa Shah & Ors. v. IL&FS Financial Services Ltd. & Ors., [2019] 215 CompCas 391, where the share-purchase agreement was accompanied by a letter of undertaking to purchase the aforesaid shares at any time after a period of one year but before the end of three years from the date of investment along with a premium (effectively a “put option”), the National Company Law Appellate Tribunal (“NCLAT”) found the transaction to be facilitating a disbursement for consideration for the time value of money and having a commercial effect of borrowing.

Upshot

Ever since IBC was enacted, it has been reforming the financial markets and contributing positively towards asset value maximization and resolution of stressed assets. The code lays down a unique scheme by providing for two distinct classes of creditors, namely financial creditors and operational creditors. The “financial creditors” have been bestowed with a greater responsibility in the process of insolvency resolution. Thus, in order to further the object of the code, a clear demarcation is essential as to who shall come within the scope of the meaning of “financial creditors”.

Against this backdrop, a conflicting situation arose when the Supreme Court avowed a blanket exclusion of third-party security interest holders from “financial creditors” as defined in the code. The stance was taken without accepting or rejecting the lower court decisions on the exceptional and unique position of the “put option” holders and thus, incidentally encroaches upon their rights as well. Despite the flaw, this remains the governing law and thus, needs to be revisited.

The authors are 4th Year students at NUALS, Kochi

Take-Down Timeframes Under The Proposed Amendments To The Intermediaries Guidelines: A Reappraisal

  • Aditi Mozika

Introduction

Towards the end of 2018, the Ministry of Electronics and Information Technology (MeitY) proposed certain amendments to the Information Technology (Intermediaries Guidelines) Rules, 2011. These changes greatly modify the way in which the government visualizes user rights and intermediary liability in the digital sphere. One of the important amendments that have been proposed is that of a reduction in the take-down timeframe to 24 hours. While the rationale behind this measure- that of prompting swift action to remove harmful content- is appreciated, there are several concerns that have been raised with regard to this provision as well. This Article flags these concerns, examining the importance of framing an appropriate timeframe to prevent over-censoring of free speech online, and suggests some measures that ought to be implemented by the government to protect the stakeholders while ensuring take-down of harmful content.

Background

Intermediaries are platforms that facilitate the sharing of information through the internet. According to Section 2(1)(w) of the Information Technology Act, 2000, an intermediary includes telecom service providers, internet service providers, search engines, online payment sites, online market places, cyber cafes, among others. To be brief, almost every internet-based service provider falls under the ambit of this definition. The IT Act makes provision for intermediaries to avail safe harbor under Section 79 if they follow the rules provided in the Intermediaries Guidelines. These include observance of due diligence by filtering content, appointing grievance officers, providing information to government agencies, and monitoring user-generated content.

With the advancement of technology, the world also saw an increase in the circulation of propaganda, hate speech, and disinformation. These had severe consequences, extending to lynching and death in some cases. To curb this, governments took to strengthening their intermediary liability laws by adopting an interventionist approach that sought to impose more responsibility on intermediaries as a measure to check the spread of such information through various internet platforms. India has been keen on overhauling its safe harbour regime as well. To this end, the MeitY proposed certain changes to the Intermediaries Guidelines. However, the Draft Amendments seek to significantly revise the current model, crafting burdensome obligations for intermediaries to avail safe harbour provisions. They propose to impose the requirement of traceability of the originators of the content, which can have a chilling effect on free speech. Another important, yet neglected, amendment that has been proposed is that of a reduction in the take-down timeframe.

Take-down timeframes

The take-down timeframe is the period of time an intermediary is assigned to respond to a legal take-down order. According to Rule 3(8) of the Draft Amendments, the time-limit given to the intermediaries to respond to a legal content take-down request- also known as the turn-around time- has been reduced to 24 hours from the erstwhile duration of 36 hours. What this implies is that once an intermediary receives a take-down order from the government or the court, it would have to remove the concerned piece of content within 24 hours of receipt of the notice. In case they fail to do so, the safe harbour applicable to them under Section 79 would cease to apply. In addition to this direct consequence, a host of additional concerns vis-à-vis the reduction in timeframe have been raised.

Issues

First of all, the definition of the intermediary under the IT Act is extremely broad and includes entities ranging from search engines to cyber cafés. As such, regulation of a one-size-fits-all nature would be inefficient as different platforms have different capabilities and different resources available to them. Larger platforms with adequate technical architecture like YouTube or Facebook would face no difficulty in executing a legal take-down order within the given timeframe, but the case would be different for a smaller company. Likewise, a search engine could easily delink websites, but a cyber café would not be able to pursue a similar course in responding to an order.

Besides, failure to observe these rules invites harsh sanctions. In fact, safe harbour principles state that intermediaries would be exposed to the same level of liability as the person uploading the content in case they fail to remove the content. Such a consequence does not augur well for any kind of intermediary but poses a bigger threat to smaller companies. This is because a bigger intermediary may be able to endure a financial loss as a sanction for its failure to remove content, but smaller companies would possibly be crippled. This could also go on to eliminate competition from smaller companies in the long run.

In furtherance of the above, we must also create a distinction between different kinds of harmful content. This difference must also be acknowledged and incorporated in take-down laws. Several regulations, like the NetzDG, have attempted to frame regulations based on the nature of the content. On the other hand, the Indian law takes in an array of content that is deemed to be illegal, ranging from critical content that threatens ‘the sovereignty and integrity of India’ to subjective elements like ‘decency’. While the former category of content warrants immediate action, such an accelerated timeframe may not be justifiable, or rather, suitable, for the latter.

Second, intermediaries, under the threat of heavy criminal sanctions, would err on the side of the law. This means that owing to the fear of losing protection, intermediaries would make shorter, quicker and less nuanced decisions while determining whether a piece of content is illegal. They would prefer removing content that is lawful paying less heed to the technical requirements or the correct legal procedures in order to ensure that sanctions are not imposed on them. This imposes a grave risk of censorship of legitimate speech.

Third, intermediaries, acting hastily on account of the short turn-around time, may resort to over-removal of content or may not follow due process. This is because intermediaries would lack sufficient time to scrutinize a request properly and to ensure that all technical and legal requirements are adhered to.

In addition to these specific concerns, there are other issues that need to be addressed. The most important of these is that the current legal framework lacks proper procedural safeguards. The Indian law mandates content take-down, but there is no prescribed procedure through which a user is notified that such an action has been taken. There must be a notice mechanism put in place, as due process is an important legal principle that cannot be ignored.

Conclusion and recommendations

Popular communications applications have been a major source of abusive, threatening and terrorist content in India. In view of this reality, it becomes impractical to assert that the internet should be absolutely free from regulation. Yet, this concern should not supersede the need to protect human rights, including the freedom of expression. The proposed amendments indicate a departure from the current model of intermediary liability in India, by putting great pressure on online intermediaries to keep their platforms free of disagreeable. They also heavily foster issues of due process and opacity in the legal process of content take-down. Such regulations can lead to unintended consequences that have been highlighted above and therefore, the government needs to address this by taking necessary action.

First of all, the government must keep in mind the fact that there are vast differences between the various categories of intermediaries and the various types of content. Several jurisdictions have framed regulations operating on different timeframes, and it would be beneficial to the larger interest of the country to adopt such an approach. Some countries also require intermediaries to submit transparency reports, which help in providing knowledge of the effectiveness of turn-around times. This can help in introducing informed changes to the law. The government must provide research to rationalize their claim that a 24 hour period would be an optimal framework for all kinds of intermediaries, without distinguishing their size or services. The government could also consider having an independent regulator as a compromise between pure governmental and self-regulation. The regulator would, while assessing liability, take into account the nature of the intermediary as well as that of the content.

Governance of intermediaries necessarily requires varying levels of regulation, rooted in the different composition and technical architecture of these entities. It must be understood and accepted that moderation of content on the internet cannot be done using a single blanket formula, and more importantly, not at the cost of users’ freedom of speech and expression.

The author is a 4th Year Student at GNLU, Gandhinagar