Saturday, March 23, 2013

“Judicial Authority” under Section 8 of the Arbitration and Conciliation Act, 1996


Section 8 of the Arbitration and Conciliation Act, 1996 (“Act”) makes it mandatory for a “judicial authority” to refer the parties to arbitration given certain conditions are satisfied.[1] However, Act does not define as to what a “judicial authority” can be. Hence, confusion is inevitable as regard the authorities which can come under the ambit of this term.

Under Section 8, power is conferred not on an administrative authority, but on a judicial authority; and hence, such an authority has to act judicially while considering Section 8 of the Act.[2]If a body is acting judicially, then need of compliance with certain judicial principles becomes necessary, for eg., compliance with the principle of natural justice. It is in this light that one has to see the scope of the term “judicial authority”.

Term “Judicial Authority” would certainly include the court as defined in Section 2(e) of the Act. However, it would also include other courts and may even include a special tribunal like the Consumer Forum.[3]Inclusion of such term, and not the court per se, can also be attributed to the fact that least intervention should be done in matters related to arbitration.[4]

Supreme Court of India (“Supreme Court”), while deciding the case of Management Committee, Montfort Senior Secondary School v. Vijay Kumar, considered the scope of the term “judicial authority”.[5] In this case, court referred to an English judgment:

“In R. v. London County Council [(1931) 2 KB 215 : 100 LJKB 760 : 144 LT 464 (CA)] judicial authority was defined as under:
“It is not necessary that it should be a court in the sense in which this Court is a court; it is enough if it is exercising, after hearing evidence, judicial functions in the sense that it has to decide on evidence between a proposal and an opposition and it is not necessary to be strictly a court.”

It can be said that, as long as an authority is competent to exercise “judicial functions”, it can very well come under the ambit of Section 8. The interpretation of this term becomes important when one is concerned with “first statement on the substance of the dispute”. In other words, the important question is as to before which authority, or “judicial authority”, can a person waive his right by not challenging the action because of the presence of arbitration clause. There can be a situation where a defendant submits such a statement before an authority which is not judicial in nature. In such case, it would be hard to say that Section 8 of the Act would be applicable.


[1]See  Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234; Kalpana Kothari v. Sudha Yadav, (2002) 1 SCC 203; Rashtriya Ispat Nigam Ltd. v. Verma Transport Co., (2006) 7 SCC 275
[2] SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618
[3] Id; See also Fair Air Engineers Pvt. Ltd v. N.K. Modi (“the District Forum, State Commission and National Commission are judicial authorities, for the purpose of Section 34 of the Arbitration Act”)
[4] Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552, ¶ 125
[5] Management Committee, Montfort Senior Secondary School v. Vijay Kumar, (2005) 7 SCC 472

Wednesday, March 20, 2013

Settlement for waiving maintenance claim not to bar maintenance under Hindu Adoption and Maintenance Act, 1956



A recent ruling of the Supreme Court (“Nagendrappa Natikar Vs. Neelamma”), which is both cautionary and remedial in nature, has opined that giving up future claim for maintenance (“by a compromise settlement”) and the fact of it being accepted by the court under Section 125 of CrPC, would not preclude a wife from claiming maintenance Section 18 of Hindu Adoption and Maintenance Act, 1956. The main reason behind this is the tentative nature of the maintenance under Section 125 of CrPC. In this short judgment, Court held that:


“Section 125 Cr.P.C. is a piece of social legislation which provides for a summary and speedy relief by way of maintenance to a wife who is unable to maintain herself and her children. Section 125 is not intended to provide for a full and final determination of the status and personal rights of parties, which is in the nature of a civil proceeding, though are governed by the provisions of the Cr.P.C. and the order made under Section 125 Cr.P.C. is tentative and is subject to final determination of the rights in a civil court.”

“Section 25 of the Contract Act provides that any agreement which is opposed to public policy is not enforceable in a Court of Law and such an agreement is void, since the object is unlawful. Proceeding under Section 125 Cr.P.C. is summary in nature and intended to provide a speedy remedy to the wife and any order passed under Section 125 Cr.P.C. by compromise or otherwise cannot foreclose the remedy available to a wife under Section 18(2) of the Act.”


Note: Under Indian Contract Act, 1872, Section 23 & 24 provides for the "unlawful". However, Court, in this judgment, has referred to Section 25 of the Act which provides for an agreement to be void if it is without consideration. Click here for the judgment





Monday, March 18, 2013

Regularisation of Co-terminus employment: Voilative of Article 14 and 16 of the Constitution


Co-terminus employment, in its essence, can be understood as the continuance of an employment contingent upon the employment tenure of any other person.[1]The question, whether such employees have a right to claim permanent employment, has recently been dealt by the Supreme Court of India (“Supreme Court”) in The Chief Executive Officer, Pondicherry Khadi and Village Industries Board & Ors v. K. Aroquia Radja & Ors.

In this case, after being persuaded by the Chairman, Pondicherry Khadi and Village Industries Board (“Board”), Government of Pondicherry (“Government”) appointed respondents on a co-terminus basis and their employment was to coincide with the tenure of the Chairman of the Board. The said condition was mentioned both in the approval order by the government and the terms of employment formulated by the Board. However, Chairman of the Board sent a proposal to the government for receiving Governor’s approval for the absorption of these employees (“respondents”) against certain vacant posts; but, the proposal was rejected by the government. Another similar proposal, this time directly to the Lt. Governor of Puducherry (“Governor”), was sent by Chairman of the Board. This time, proposal was approved by the Governor. In the meantime, Chairman of the Board resigned from the post. Since the Board did not complied with the approval of the Governor for the absorption of the respondents, the latter filed a writ petition before the High Court of Madras (“High Court”). Single judge Bench of the High Court decided the petition in favour of the employees, which was then confirmed by the Division Bench. Hence, this matter came before the Supreme Court.

While deciding this case, Supreme Court opined that the respondent (“respondents before the Supreme Court”) have been selected through the Employment Exchange or through any procedure in which they were required to compete against other eligible candidates.[2]Further, Supreme Court held that, factual position as regards co-terminus employment could not be placed before the Governor since proposal was not sent to him via government.[3] Supreme Court also emphasised the fact that Governor is supposed to act on the advice of the Council of Ministers.

Supreme Court referred to its judgment in State of Karnataka and Ors. Vs. Umadevi (3) and Ors. 2006 (4) SCC 1, wherein it held that lower bargaining power is not a sufficient ground for a deviation from constitutional scheme of appointment. Supreme Court, in this case, held that:

“Absorption, regularization or permanent continuance of temporary, contractual, casual, daily-wage or adhoc employees appointed/recruited and continued for long in public employment dehors the constitutional scheme of public employment is impermissible and violative of Article 14 and 16 of the Constitution of India”

Supreme Court also referred to the judgment in the case of State of Gujarat and Anr. Vs. P.J. Kampavat and Ors., 1992 (3) SCC 226, wherein court dealt with the similar situation of nature of a temporary employment.

Having considered above positions of law, Supreme Court, in The Chief Executive Officer, Pondicherry Khadi and Village Industries Board & Ors v. K. Aroquia Radja & Ors., allowed the appeals, i.e., which is against the co-terminus employees. It is because of the fact that their employment was co-terminus with the tenure of the Chairman of the Board. And since, Chairman has resigned from the post, the employment of the respondents can be terminated.



[1] It should also be the form of employment which can be in existence as long as a given “fact” is in existence, irrespective of whether such “fact” is the employment of another person or not. For example, an employment that is co-terminus with the existence of a project work.
[2] See Excise Superintendent Malkapatnam, Krishna District, A.P. Vs. K.B.N. Visweshwara Rao and Ors., 1996 (6) SCC 216 (which recognises the recruitment through the employment exchanges as the principle mode of recruitment)
[3] In Union of India Vs. Dharam Pal reported in  2009 (4) SCC 170, this court held that the requirement of being employed through proper channel could not be relaxed in an  arbitrary and cavalier manner for the benefit of a few persons.

Sunday, March 17, 2013

Madras High Court granted maternity leave to a “Surrogate Mother”


In an interesting move, Madras High Court (“High Court”), in K. Kalaiselvi v. Chennai Port Trust (W.P.No.8188 of 2012), has allowed a writ petition whereby it held that even a “surrogate mother” is entitled for a maternity leave under Rule 3-A of the Madras Port Trust (Leave) Regulations, 1987 (“Regulations”).

Facts:

Petitioner (K. Kalaiselvi), who was working as an Assistant Superintendent (Traffic Department) at Chennai Port Trust (“Trust”), entered into an arrangement with a multispecialty hospital for having a baby through surrogate procedure. Following the birth of the child, she applied for maternity leave and for the inclusion of the child in FMI card. However, in the absence of any provision relating to surrogate mother under the Rules, her application for maternity leave and inclusion of child in FMI card was rejected. Hence, she filed the petition before the High Court for directing the trust to grant her leave on equal footing under Rule 3-A of the Regulations, which provides leave benefit to adoptive parents.

It is also to be noted that the petitioner had removed her uterus due to some problem (she also lost her 20 year old son in an accident)

Issues before the High Court:

In the absence of any provision, whether a woman employee, working in the Chennai Port Trust, is entitled to avail maternity leave even in case where she gets the child through arrangement by “Surrogate parents”?

What is “Surrogacy”?

High Court, while deciding this case, referred to the judgment of the Supreme Court in Baby Manji Yamada v. Union of India wherin the scope of the term “surrogacy” has been defined.[1] Supreme Court, in this case, defined surrogacy as:

“Surrogacy is a well-known method of reproduction whereby a woman agrees to become pregnant for the purpose of gestating and giving birth to a child she will not raise but hand over to a contracted party. She may be the child's genetic mother (the more traditional form for surrogacy) or she may be, as a gestational carrier, carry the pregnancy to delivery after having been implanted with an embryo. In some cases surrogacy is the only available option for parents who wish to have a child that is biologically related to them.”

Further, Supreme Court, in this case, also defined several forms of surrogacy:

(i)                 Traditional Surrogacy (also known as “Straight Method”) – In this form of surrogacy, child is conceived with the intention of relinquishing the child to be raised by others.

(ii)               Gestational Surrogacy (also known as “Host Method”) – In this form of surrogacy, surrogate becomes pregnant via embryo transfer with a child of which she is not the biological mother.


(iii)             Altruistic Surrogacy – In this form of surrogacy, surrogate receives no financial reward for her pregnancy or the relinquishment of the child.

(iv)             Commercial Surrogacy – In this form of surrogacy, gestational carrier is paid to carry a child to maturity in her womb and is usually resorted to by well-off infertile couples who can afford the cost involved. This medical procedure is legal in several countries including in India

Apart from this judgment of the Supreme Court, counsel for the petitioner also referred to the judgment of Anna Johnson Vs. Mark Calvert et al (“Supreme Court of California, 5 Cal 4th 84), Article 25(2) of Universal Declaration of Human Rights, Article 17 and 33 of the Beijing Declaration and Platform for Action Fourth World Conference on Women, 1995 an Article 6 of the Convention on the Rights of the Child by United Nations General Assembly (“by a resolution on 20.11.1989”)

Can relief be provided to a “Surrogate Mother” in the absence of an express provision?

It is not disputed that no provision under the Regulations provides maternity to a “surrogate mother”. However, High Court, while relating a surrogate mother to an adoptive parent, held that the purpose of Rule 3-A of the Regulations is for proper bonding between the child and his/her parents. In both the situations (surrogate mother an adoptive parents), mother does not give birth to the child, yet the necessity of bonding with the child in the latter case has been recognise by the Central Government. Hence, in the opinion of the High Court, there is no reason why such benefit should not be provided to a surrogate mother as well.

While allowing the petition, reference was also made to the judgment of Supreme Court in Laxmi Video Theatres v. State of Haryana reported in (1993) 3 SCC 715[2]. In this case, Supreme Court held that a legislation, though may not include a particular word, should nonetheless be interpreted in a manner so as to accommodate the technological advancement. Reference was made with respect to Rule 3-A of the Regulations which provides benefit to the adoptive parents.

In the present case before the High Court, though leave for “surrogate mother” was not provided under the Regulations, it would be unjustifiable if maternity leave is not granted to her. This is because of the fact that reason for granting leave under Rule 3-A is to create a proper bond between mother and the child, which is applicable in the situation of surrogate mother as well. Consequently, High Court directed the respondent Trust to grant leave to the petitioner in terms of Rule 3-A of the Regulations.



[1] (2008) 13 SCC 518
[2] Reference was also made to The Senior Electric Inspector and others Vs. Laxmi Narayan Chopra, AIR 1962 SC 159

Enforceability of Shareholders Agreements: In Relation to Articles of the Company


Enforceability of private arrangements entered into by shareholders often become a bone of contention in corporate disputes. Following is an attempted analysis of the judicial trend in that regard in this country. While referring to the judgments, it is important to look into the factual matrix of the cases, as the reasoning would vary depending upon the nature of the company (private or public) and the status of the agreements (whether or not incorporated in the Article). Rhodes scholar and subsequently Vinerian scholar designate V. Niranjan did a brilliant and elaborate analysis of this issue in the Indian Corporate Law Blog (http://indiacorplaw.blogspot.in/2010/09/rangaraj-madhusoodhanan-conflict-and.html). I've reproduced the article below with some minor alterations and additions.

1. Introduction
Contracts among shareholders of a company are termed as “shareholders agreements” (SHA). Usually, the company is also a party to these agreements (but this may not always be the case) which confer rights and impose obligations over and above those provided by company law. The agreements provide for matters such as restrictions on transfer of shares (right of first refusal, right of first offer), forced transfers of shares (tag-along rights, drag-along rights), nomination of directors for representation on boards, quorum requirements and veto or supermajority rights available to certain shareholders at board level or shareholder level. Hence, broadly, Shareholders Agreements provide stipulations either for transferability of shares (restriction, forced transfer, etc) or they provide conditions which govern the administration of the company.

2. Judicial Trend on Enforceability of Shareholders Agreements.

2.1. Shareholders Agreements dealing with Transferability of Shares.
As mentioned earlier, Shareholders Agreements may either contain provisions on transferability of shares or deal with aspects of corporate governance (voting rights, quorum, etc). However, most of the judgments delivered by the courts in India are on situations wherein SHAs have dealt with transferability of shares under Section 111A of the Indian Companies Act.

2.1.1. Stage 1: Non Enforcement due to absence of provisions in Articles.
Initially, the Indian courts did not favour complete freedom of contract in the case of shareholders agreements. Courts either refused to recognize clauses in shareholders agreements or, even when consistent with company legislation, enforced such clauses only if they were incorporated in the articles of association.

(Niranjan's analysis extracted from his post in the Indian Corporate Law Blog link to which is mentioned above)
"The landmark judgment in this regard is V.B. Rangaraj v. V.B. Gopalakrishnan, AIR 1992 SC 453, [1992] 73 Comp. Cas. 201, often cited in the context of shareholders’ agreements. The defendant in that case was a private limited company, and in time, its sole shareholder came to be a family that consisted of two branches. The principals of each branch orally agreed in 1951 that the proportion of shareholding of their respective branches would not change, and provided, for this purpose, that any member of a branch who wished to sell his shares must first offer the shares to his own branch. After referring to the decision of the Supreme Court in Kalinga Tubes, common law decisions and scholarly opinion, Sawant J. held that shares are “freely transferable” and that “a private agreement that imposes … restrictions not stipulated in the articles of association…” is “not binding either on the shareholders or on the company. Hence, in this judgment, the Apex Court refused to enforce shareholders agreement which provided for restriction in transferability, as it had not been stipulated in the Articles. The statutory ground of the decision was S 82 which provides that shares in a company constitute movable property “transferable in the manner provided by the articles of association”.
The Rangaraj rule was reiterated in Mafatlal.

(Niranjan's analysis extracted from his post in the Indian Corporate Law Blog link to which is mentioned above)
Ø  "Mafatlal Industries Ltd. v. Gujarat Gas Co. Ltd., [1999] 97 Comp. Cas. 301 (Gujarat High Court)
In 1999, an eminent judge of the Gujarat High Court heard Mafatlal, where the defendant was a public limited company. The plaintiff had sold 3.87 % of the equity in that company to an FII with a pre-emption right, who later disposed of a part of those, shares in the open market. The plaintiff relied on the right of pre-emption to invalidate the subsequent sale by the FII, and argued, interestingly, that “free transferability of shares refers to absence of restrictions which may be imposed by third parties, but it cannot exclude the right of a shareholder to impose restrictions on himself in the matter of transfer of shares to another person.” This argument was rejected by M.B. Shah J., who pointed out that the “ratio in the case of V.B. Rangaraj will apply with much greater force to the case of a public company”."
2.1.2. Stage 2: Enforcement despite absence of provisions in Articles.
Subsequently, the courts moved on from taking the Rangaraj rule as a blanket provision on enforcement of shareholders agreement, to applying it on given factual scenarios. The judgments which distinguished Rangaraj are the following:

(Niranjan's analysis extracted from his post in the Indian Corporate Law Blog link to which is mentioned above)
Ø  "M.S. Madhusoodhanan and Anr. v. Kerala Kaumudi (P) Ltd. and Ors. 2004) 9 SCC 204
In 2002, the Supreme Court decided Madhusoodhanan. The case arose out of a complex family dispute in Kerala, and specifically out of a karar (agreement) that provided in Clause 2 that “there would be no change in the existing share structure” (among the family) of a private company. Clause 2 also provided that the shares of two members would pass to Madhusoodhanan in a certain percentage on their death. Ruma Pal J. distinguished Rangaraj and Kalinga Tubes on the basis that this restriction was not on a share as a class, but on specific, identified shares between specific, identified members, to which the company need not be a party. Whether the decision is consistent in its entirety with Rangaraj is a matter of disagreement, especially as to the clause that there would be no change in the existing share structure – a provision similar to the requirement in Rangaraj that the shareholding pattern of the two branches would remain constant. Therefore, even if the company is not a party to the shareholders agreement, that by itself does not prevent the shareholders, inter se, from enforcing their agreement in relation to the transfer of shareholding.
However, it is clear that it is not authority for the general proposition that a private arrangement is legal under existing Indian law, but at best for the proposition that a transaction between identified members imposing a restriction on identified shares is legal.
Ø  This brings us to the two Bombay High Court decisions. In Western Maharashtra Development Corpn. Ltd. v. Bajaj Auto Limited, [2010] 154 Comp. Cas. 593 Chandrachud J. noted that the karar in Madhusoodhanan had dealt with specific, identified shares between identified members, followed Rangaraj, and declared that a right of pre-emption is contrary to s. 111A. That has now been overruled in Messer Holdings [2004] 121 Comp. Cas. 335.  In Messer, Khanwilkar J. makes three points – first, that the legislative history of s. 111A shows that the intention of the legislature was to fetter the actions of the Board of Directors, not individual shareholders; secondly, that Madhusoodhanan is authority for the general proposition that “consensual arrangements between particular shareholders relating to their specific shares do not impose restriction on the transferability of shares”; and thirdly, that “freely transferable” in s. 111A only means that “both seller and purchaser must agree to the terms of the sale”. It was further held that this need not be embodied in the articles of association.
In paragraph 55, Khanwilkar J. held as follows:
…“freely transferable” in Section 111A does not mean that the shareholder cannot enter into consensual arrangement/agreement with the third party (proposed transferee) in relation to his specific shares If the company wants to even prohibit that right of the shareholders, may have to provide for an express condition in the Articles of Association or in the Act and Rules, as the case may be, in that behalf.
The rule in Rangaraj was that a restriction on the transfer of shares is “unenforceable unless contained” in the Articles of Association. If Messer Holdings is good law, the rule is that a restriction on the transfer of shares is “enforceable unless barred” by the Articles."

It is important to note that Messer is at present in appeal before the Apex Court.

2.2. Shareholders Agreements dealing with issues of Corporate Governance.
These agreements have acquired popularity in the Indian context only over the last two decades or so. Therefore, courts have not been presented with sufficient opportunities to decide upon the enforceability of their provisions. Where courts have indeed ruled on such agreements, it has often been in relation to agreements merely stipulating transferability of shares and not on issues of governance. However, there have been three judgments of the Delhi High Court which have dealt with the issue of enforceability of agreements in relation to issues other than transferability.
Ø  Spectrum Technologies USA v. Spectrum Power Generation Company. 2000(56)DRJ405
In this case the Respondent Company contended that they would not be bound by the Promoters Agreement as they were not a party to it. The Delhi High Court refused to entertain the plea because the company had passed a board resolution to implement it in the Articles and taken such steps which were required of the Agreement, hence expressing their intent to abide by its terms. The provisions of the Agreement were also not inconsistent with the Articles or memorandum although the provisions of the promoters’ agreement were never incorporated in the Articles.
Para 22.
“We are unable to agree with the submission advanced on behalf of SPGL that adoption and revocation of the said promoters’ agreement by SPGL are irrelevant to the issue on hand. As regards the three decisions referred to above, in none of these decisions the company had agreed to amend its Articles of Association to bring them in conformity with the promoters’ agreement and, Therefore, they being distinguishable are inapplicable to the facts of the present case. “

Ø  Modi Rubber Ltd. v. Guardian International Corp. 2007(2)ARBLR133(Delhi)
In this case the Petitioner and Respondent entered into a shareholders’ agreement to collaborate and promote a joint venture company for the production and marketing of float glass. Subsequently the financial status of the petitioner company drastically deteriorated and it was declared to be a ‘sick company’ by the BIFR. As a result, the respondent proposed to set up a wholly owned subsidiary, without the consent of the petitioner, in breach of clause 14 of the Shareholders Agreement. The Respondent argued that since the said clause was not incorporated in the Articles of the joint venture company, they were not to abide by it. The Delhi High Court negating the argument ruled in favour of the petitioners and prevented the respondent from proceeding towards setting up of the said subsidiary. However, it seems from the order, that the Shareholders Agreement was enforced despite not being incorporated in the Articles because the said clause was merely a non compete clause and had nothing to do with the administration of the company. In fact, Sr. Arun Jaitley, senior counsel for the appellant, sought enforceability of the agreement on the aforementioned ground.
Para 61.
“Mr. Arun jaitley, learned senior counsel for the petitioner, has urged that clause 14 of the SHA did not relate to a matter effecting the affairs of the joint venture.”
Para 68.
“The instant case is certainly not concerned with any restriction or stipulation relating to management of the affairs of GGL, the joint venture. The agreement between the parties relates to an agreement not to enter into such business which is the same as or similar to the business of GGL, the company that is the joint venture. There is a fundamental difference between such an agreement as against an agreement relating to restriction on transfer of share holding or functioning as directors of a company which would be governed by the Companies Act and the Articles of Association of the company.”
Hence, According to the judgment, the demarcation of shareholders agreement on the basis of what they ought to achieve is irrelevant and whether they deal strictly with transferability or governance, they must not be in conflict with the Articles.
Ø  Premier Hockey Development v. Indian Hockey Federation 2011(2)ARBLR492(Delhi)
The Shareholders Agreement required a minimum quorum requirement which was not met. The petitioner contended that such requirement was invalid since the said provision was not incorporated in the Articles. Reliance was placed on the Rangaraj judgment by the petitioners. The court negating the contention held in favour of the Respondents while distinguishing Rangaraj on the following grounds:
a. The petitioner company, unlike in Rangaraj, was a party to the agreement.
Para 36.
“Pertinently, the position in the case in hand is materially different from that before the Supreme Court in Rangaraj (supra). The Petitioner company is a party to the Subscription and Shareholders Agreement dated 31.12.2004.”
b. the petitioners could not show any clause in the SHA which were in conflict with the articles.
Para 39.
“In the present case as well, there is no Article pointed out by the Petitioner, in the Articles of Association of the Petitioner company, which conflicts with Articles 10.3.2 and 10.3.3 of the Subscription and Shareholders Agreement.”
However, as mentioned earlier, the relevance of the above judgments may be limited to the extent that it is only a High Court decision and the extensiveness of the principle cannot be taken for granted unless the Supreme Court echoes that view.
3. Analysis of the judgements.
An analysis of the above judgements on the issue of shareholders agreement seem to be that they shall be enforced, even if not incorporated in the Articles, provided they are not in conflict with it.
As regards enforceability against the company:
a. they shall be enforced if the company is a party to it.
b. they shall not be enforced if the company isn’t a party (Rangaraj hasn’t been overruled), provided the company hadn’t expressed its willingness to amend its articles to implement it in its Articles (such as passed a Board Resolution). This follows from the Spectrum ruling.
As regards enforceability against the parties:
they shall be enforced even if the company isn’t a party to it or even if it is not incorporated in the Articles, provided they are not in conflict with the Articles or any statutory provision. (Modi Rubber, Messers Holdings).
The Present Position in light of the Vodafone Verdict:
The Supreme Court’s judgment in Vodafone (2012) is of enormous importance to a number of branches of Indian law. The relevant para in context of shareholders agreement is reproduced below:
SHAREHOLDERS' AGREEMENT
154. shareholders' Agreement ( for short SHA) is essentially a contract between some or all other shareholders in a company, the purpose of which is to confer rights and impose obligations over and above those provided by the Company Law. SHA is a private contract between the shareholders compared to Articles of Association of the Company, which is a public document. Being a private document it binds parties thereof and not the other remaining Advantage of SHA is that it gives greater flexibility, unlike Articles of Association. It also makes provisions for resolution of any dispute between the shareholders and also how the future capital contributions have to be made. Provisions of the SHA may also go contrary to the provisions of the Articles of Association, in that event, naturally provisions of the Articles of Association would govern and not the provisions made in the SHA.
155. The nature of SHA was considered by a two Judges Bench of this Court in V.B. Rangaraj v. V.B. Gopalakrishnan and Ors. MANU/SC/0076/1992 : (1992) 1 SCC 160. In that case, an agreement was entered into between shareholders of a private company wherein a restriction was imposed on a living member of the company to transfer his shares only to a member of his own branch of the family, such restrictions were, however, not envisaged or provided for within the Articles of Association. This Court has taken the view that provisions of the Shareholders' Agreement imposing restrictions even when consistent with Company legislation, are to be authorized only when they are incorporated in the Articles of Association, a view we do not subscribe.

Conclusion:

To guarantee enforcement, while it is not necessary that the provisions of the shareholders agreement are to be incorporated in the Articles, it is certainly to be ensured that such provisions are not in conflict with the Articles.

Friday, March 15, 2013

Section 26 of the Specific Relief Act, 1963: Rectification of an Instrument and Undue Influence


Section 26 of the Specific Relief Act, 1963 (“Act”) provides the means to rectify a contract or any other instrument which, by mutual mistake or fraud, does not express the real intention of the parties. However, when an agreement provides for the entire subject matter and does not show any sort of ambiguity, applicability of this section will not arise.[1]

On 12th March, 2013, Supreme Court (“Court”), in Joseph John Peter Sandym (“Appellant”) v. Veronica Thomas Rajkumar & Anr (“Respondent”), had to decide a question concerning the applicability of Section 26 of the Act. In this case, deceased father executed two registered settlement deeds thereby transferring two houses in favour of the appellant and the respondent (“they are siblings”). On an allegation by the appellant that wrong houses have been provided to them, contesting parties executed an “unregistered deed” for exchanging the houses. Since respondent did not give effect to this unregistered deed, appellant filed a suit before the trial court. During the pendency of the suit, father of the contesting parties executed a rectification deed by which allotment of houses to the parties was changed. Following this, decision of the trial court, which was decreed in favour of the appellant, was overruled by the High Court. Against this, appellant filed an appeal before the Supreme Court.

Supreme Court, while determining the scope of Section 26 of the Act, held that it does not have a “general application”, and can be attracted only in a limited number of cases.

“The relief of rectification can be claimed where it   is   through   fraud   or   a   mutual   mistake   of   the  parties   that   real   intention   of   the   parties   is   not   expressed   in  relation to an instrument”[2]

Admissibility of an “unregistered instrument”

While deciding the outcome of the case, court also dealt with the question of admissibility of an unregistered instrument. In doing so, court referred to the case of State of Bihar & Ors. v. Radha Krishna Singh & Ors., AIR 1983 SC 684, wherein it was held that:

“Admissibility of a document is one thing and its probative value quite another - these two aspects cannot be combined. A document may be admissible and yet may not carry any  conviction and weight of its probative value may be nil.”[3]

Onus of “Proof”

In this case, Court was also of the view that onus of proving the validity of an instrument is on the one (“plaintiff”) who produces it, and not on the other party (“defendant”).[4] As far as fiduciary relationship is concerned, the   burden   of   proving   the   absence   of   fraud, misrepresentation   or   undue   influence   is   upon   the   person   in   the dominating position.[5]

Undue Influence

Court also dealt with the issue of undue influence in this case. While doing so, court referred to Afsar Shaikh & Anr v. Soleman Bibi & Ors, AIR 1976 SC 163 wherein the it had laid down the conditions before which one can allege the presence of undue influence.

“..if   a   person   seeking   to   avoid   a  transaction on the ground of undue influence  proves-
(a)   that   the   party   who   had   obtained   the  benefit was, at the material time, in a position to dominate the will of the other conferring  the benefit, and
(b) that the transaction is unconscionable,
the burden shifts on the party benefiting by  the   transaction   to   show   that   it   was   not induced by undue influence. If either of these two conditions is not established the burden will not shift

With regard to undue influence, court, in case of Afsar Shaikh, referred to a judgment of Privy Council wherein it was held that if the transaction appears to be unconscionable, then the burden is on the person exercising dominating will to disprove the existence of undue influence.[6] Burden, in this situation, can be understood as the burden to provide the absence of undue influence. However, the first thing to be considered is the relation of the parties and not the unconscionable transaction.

Outcome of the case

After considering the above positions in relation to Section 26 of the Specific Relief Act, undue influence and onus of proof, Court, in Joseph John Peter Sandym v. Veronica Thomas Rajkumar & Anr, held that there was a presence of undue influence, In support of this, court confirmed the findings of the high court that at the time when exchange deed between the parties was executed, respondent was not married and was dependent on the appellant for sustenance. 



[1] Subhadra & Ors. v. Thankam,  AIR 2010 SC 3031
[2] Also see State of Karnataka & Anr. v. K. K. Mohandas & etc, AIR 2007 SC 2917
[3] Also see  Madan Mohan Singh &  Ors v. Rajni Kant & Anr, AIR 2010 SC 2933, H.Siddiqui (dead) by Lrs. v. A.Ramalingam AIR 2011 SC 1492; Laxmibai (dead) thr. Lrs. & Anr v. Bhagwantbuva (dead) thr Lrs. & Ors, JT 2013(2) SC 362
[4] See Thiruvengada   Pillai   v.   Navaneethammal   &   Anr,  AIR  2008   SC   1541; K. Laxmanan v. Thekkayil Padmini & Ors., AIR 2009 SC 951
[5] Krishna   Mohan   Kul  v. Pratima Maity & Ors.  AIR 2003 SC 4351
[6] Raghunath Prasad v. Sarju  Prasad,  (AIR 1924 PC 60)

Sunday, March 10, 2013

Sexual Harassment Bill, 2010: A Woman to be held liable for filing a false or malicious complaint


On February 26, 2013, Rajya Sabha passed The Protection of Women Against Sexual Harassment at Work Place Bill, 2010 (“Bill”). The Bill was passed by Lok Sabha in September last year. The long title of the Bill reads as:

“to provide protection against sexual harassment of women at workplace and for the prevention and redressal of complaints of sexual harassment and for matters connected therewith or incidental thereto.”

Interestingly, section 14 of the Bill makes a woman or a person, as the case may be, liable for filing of a false/malicious complaint or false/misleading document. Bill does not define the term “document”, and hence, assistance can be taken from General Clauses Act, 1897.[1]

Before an action can be taken under this clause, the internal committee or local committee should arrive at a conclusion that there has actually been a false/malicious complaint or false/misleading evidence. Section 4 of the Bill obliges an employer of a work place to constitute an “internal complaints committee”, which will have a woman as its presiding officer. In a situation when constitution of an internal committee a workplace is not feasible (“on account of less than ten persons being employed at such workplace or where the complaint is against the employer himself”), a “Local Complaints Committee” shall be constituted by the District Officer. Local Committee will also have a woman as its chairperson. Apart from the chairperson or presiding officer, as the case may be, these committees have substantial number of women as their members. In fact, presence of women in such committees is necessary for ensuring a fair deal for complainant.

Some have argued that inclusion of such a provision in the bill would discourage women from filing complaints. At the same time, some have argued that inclusion of it will prevent misuse of the bill. However, any conclusion in this regard can only be made once the act comes into use.
Bill also makes it clear that a mere inability to substantiate a complaint or provide adequate proof need not attract action against the complainant under Section 14. Once committee gives a verdict against the complainant, an action can be taken in accordance with the provisions of applicable service rules. In the absence of a service rule, Bill only provides “in such manner as may be prescribed”. Section 2(k) defines “prescribed” as “prescribed by rules made under this Act”.

An appeal can be made against the recommendations of the committee(s) under Section 14 to the court or tribunal in accordance with the provisions of the service rules applicable to the said person. In the absence of service rules, the person aggrieved may prefer an appeal in such manner as may be prescribed. However, an appeal shall be preferred within a period of thirty days of the recommendations.


[1] Section 3, General Clauses Act, 1897 (“Document" shall include any matter written, expressed or described upon any substance by  means of letters, figures or marks, or by more than one of those means which is intended to be  used, or which may be used, for the purpose or recording that matter.”)