Category: Blog

In the  last few  days many newspapers have been carrying articles on the woes of Non – Government Organisations (NGO’s) who have been left high and dry with the amendments (Foreign Contribution Regulation Amendment Act, 2020) (Amended Act) that the  BJP  led government has hurriedly passed, making life  difficult for them to receive foreign funds.

Historically, India at one point in time used to receive a lot of foreign funds and it was mainly for political and religious purposes and there was no regulation on receipt of such funds. In 2010, the UPA government brought in the Foreign Contribution Regulation Act 2010, restricting foreign contributions coming into India for political and religious activities.

Pursuant to the formulation of the above Act, it was mandatory for an NGO to register with the relevant authorities and due process had to be followed to receive funds from abroad. According to the Hon’ble Home Minister “The annual inflow of foreign contribution has almost doubled between the years 2010 and 2019, but many recipients of foreign contribution have not utilised the same for the purpose for which they were registered or granted prior permission under the said Act. Many of them were also found wanting in ensuring basic statutory compliances such as submission of annual returns and maintenance of proper accounts. This has led to a situation where the Central Government had to cancel certificates of registration of more than 19,000 recipient organisations, including non-Governmental organisations, during the period between 2011 and 2019.  Criminal investigations also had to be initiated against dozens of such non-Governmental organisations which indulged in outright misappropriation or mis-utilisation of foreign contribution, and therefore there was a necessity to bring in the Amendment Act”

A reading of the objects leads one to believe that to bring in transparency and accountability, the Government has proposed certain very important amendments. For example, including public servant, as a category which cannot receive foreign contributions.  Some of the other amendments include:

• Prohibition to transfer foreign contribution to other person: Earlier an NGO registered to receive Foreign Contribution could transfer funds to a non-registered organisation as well. Now there is a blanket ban on an onward transfer of funds from the receiving NGO to another other person;
• Restriction to utilise foreign contribution for administrative purpose- Expenses towards utilizing foreign contribution reduced to 20% from the existing 50%.
• Registration of certain persons with Central Government- Under this section the government has amended it to include the right to carry out a summary enquiry and pending such inquiry to stop the NGO from using such unutilized foreign contribution;
• Foreign contribution through scheduled bank – Earlier the person who was granted the certificate could open a bank account in any bank of his choice. He could open more bank accounts to utilize the foreign funds received by him through that main bank account.

The amendment strictly mentions that the person can receive foreign contribution only in an account designated as “FCRA Account”, which shall be opened by the person for the purpose of remittances of foreign contribution in such branch of the State Bank of India at New Delhi, as may be specified by the Central Government by notification.

However, he may open one or more accounts in other scheduled banks of his choice to which he may transfer the foreign funds received by him in the FCRA Account (SBI New Delhi) for utilizing it.

• 12 A- This is an addition to section 12 seeking Aadhar and other ID proofs of office bearers and directors;
• 13 – Extension of period upto which the Central Government can suspend the registration certificate : The amended Section 13 of FCRA provides the power to the Government to suspend the registration certificate (which means that foreign contribution cannot be received/ utilised) of a person for up to 360 days (which currently is 180 days) pending an inquiry for cancellation of FCRA registration.
• 14 Cancellation of certificate-This is an additional section which was not there earlier; where a person may be permitted by the Central Government, to surrender the Certificate granted if it is satisfied that the person has not contravened any of the provisions of the Act, and the management of foreign contribution and asset created out of such contribution has been vested in the authority as provided in sub-section (1) of section 15.
• Renewal of certificate-The amendment provides for the Central Government to make an inquiry to satisfy itself that the person who has applied for renewal has fulfilled all conditions specified in sub-section (4) of section 12, before renewing the certificate.

Whilst it is always good to bring in amendments to plug the loop holes, especially to keep a check on the foreign contributions coming into India, and therefore inclusion of provisions related to restricting administrative expenses to 20% and not permitting transfer of the funds is surely going to work towards transparency, it is definitely very difficult to understand how increasing bureaucracy helps brings transparency. Insisting on opening a bank account only with SBI New Delhi, right to summary Inquiry and seeking additional information and documents will only increase paperwork. The Government mentions that these amendments are being brought in, to ensure that NGO’s file annual returns etc, however none of the amendments are  with respect  to filing annual returns.

I believe that the first step any Government or law has to ensure is, to make it simple for the people and organisations, including NGO’s. Every law or amendment only adds additional paperwork and scares people taking up such activities proactively. Yes, foreign funds coming into the country for religious and political purposes must be stopped. However, India being a developing country I am sure  that foreign funds are very much needed for many other activities, by bringing in so many new processes, NGO’s will be crippled and shy to take up such activities which are much needed for India. Is it very difficult to bring in transparency and accountability, without increasing bureaucracy?

For those of us involved in regular business transactions as a part of our professions, even a normal exchange of goods or services often makes us wish that we had had a contract in writing with the opposite party. This is usually because most of us believe that several kinds of transactions work well on trust, but when things are ambiguous or go awry, we realize that a written document should have been in place and regret avoiding one to begin with. Thus, while written contracts are usually circumvented in day-to-day business transactions to do away with complications or avoid “bad blood”, one usually ends up creating more by choosing not to have them!

This article will give you a brief insight on the importance of having written contracts in business transactions under Indian laws.

Let us first briefly visit the provisions of the primary law in India which govern contracts – their creation, interpretation and enforcement – namely, the Indian Contract Act, 1872. This law defines a contract as “an agreement enforceable by law”. Some of the essentials which are required to be fulfilled under this law for an agreement to be a valid contract are:

• An offer by one person;
• An acceptance of the offer by the other persons;
• The capacity of all the parties to contract;
• A lawful consideration;
• A lawful object; and,
• The agreement not being expressly declared void by a law.

Each of the above requirements have been explained in detail under the Indian Contract Act, 1872.

Once the requirements for the existence of a valid contract as enumerated under this law have been fulfilled, the parties are said to have concluded a contract – a legal concept creating a legal relationship and capable of legal enforcement.

As can be seen from the conditions stated above, it is not necessary that the terms of the contract have to be written. Oral contracts are also recognised under this law and are common enough in business transactions. However, oral contracts can be disadvantageous in several ways, the most important ones being:

• The terms of an oral contract are deduced from the conduct of the parties. Many a time, the actual conduct of the parties to a contract may be different from the terms actually agreed upon and hence, the interpretation of the contract may be totally different from what the parties had originally intended;
• Certain provisions such as consequences in case of breach of contract, time for performance and manner of performance may be left open to interpretation by a third party in the absence of a written contract, thus leaving room for incorrect interpretations or unintended consequences.

It is therefore in the best interest of the parties (irrespective of whether such party is an individual or a business establishment) that an oral contract be avoided and that the contract be reduced in writing. Such a contract should address not only the commercial terms agreed between the parties, but also the essential legal provisions from the perspective of the law applicable to a particular transaction. For example, in executing a sale deed or an agreement to sell or lease deed, it is important that the commercial terms agreed amounts to a valid contract under the above-mentioned law and such terms are also as per the provisions laid down in the Transfer of Property Act, 1882.

Another strong argument in favour of executing written contracts is that it ensures that most of the terms agreed between the parties are clearly stated in the contract. It is important that the terms are kept simple and lucid, are not ambiguous and are detailed to the extent possible. By ensuring the above, the parties to a contract will, to a large extent, be in a position to ensure that the contract (if disputed and if judged by a competent court or an arbitrator) is given an interpretation as close to the terms intended and agreed by the parties as possible.

It also pertinent to note that if the parties do not detail out all the terms and conditions of the transaction in their contract, certain provisions of the Indian Contract Act may become applicable as the “default” terms. For example, if a contract between two parties does not have any terms on the termination of a contract and one of the parties is wishes to terminate the contract, then such a contract can be terminated by the party only by giving a reasonable notice of termination. This “reasonable notice” is not defined under the law and varies from case to case, being dependent on various factors circumstances, thus allowing the other party to dispute the quantum of notice given. Accordingly, to the extent possible, it is advisable that the parties to a contract detail most of the terms and conditions in the written contract itself instead of leaving such terms open to interpretation under the law.

Some of the clauses which are usually recommended be included in a written contract are:

• The goal or objectives that the parties intend to achieve through the transaction;
• The scope of work to be performed by a service provider in case of a services agreement and by parties in case of a cooperation agreement;
• The description of the goods to be sold (in case of a contract for the sale of goods) and terms governing the manner in which such sale is to be executed (such as delivery terms;
• The consideration agreed to be paid and terms of payment;
• The indemnities which each party would give the other as applicable;
• The limit of the liability of each person vis-à-vis the other party or a third party (for whom the project is to be performed, for instance)
• Grounds of termination of the contract;
• Jurisdiction;
• Governing law;
• Arbitration, if necessary;
• Depending on the nature of the contract, a contract also has to also be looked into from the perspective of applicable Indian laws, such Foreign Direct Investments, Companies Act, 1956, Foreign Exchange Management Act, 1999, Indian Contract Act, 1872, and applicable tax laws, if necessary.

An important point to note is that each business transaction is always different from the previous ones. A transaction for the sale of goods will entail a different set of obligations than one for the provision of services, and even different kinds of services involve different duties and rights in each case. Using a standard contract for different situations will often result in loopholes, ambiguities and complications. Therefore, for a complete, effective and reliable contract, the contract for each transaction should always be tailored to the unique needs of the parties and the type of relationship contemplated.

It is therefore clear that a written contract will hold the parties to a business transaction in good stead since their intentions and rights are clearly documented, helping to inspire trust in each other, confidence in the transaction as well as building and strengthening their relationship.

Disclaimer: We have in the above article provided certain information / suggestions / guidelines / tips on the importance of contracts in day-to-day business. The above information / suggestions / guidelines / tips are generic in nature and should not be acted upon unless a professionally qualified legal consultant has examined the requirements of the transaction and has advised that some of the above terms may be made applicable to a proposed transaction.The information provided is “as is,” and “as available”.

Acquisitions, purchases and investments are paths to the growth of an organization adopted in several fields. However, before an individual or a business organization considers partnering with another organization, considers buying out an organization or even considers buying immovable property, it is important that such individual or business organization carries out a due diligence of the organization or immovable property that it intends to acquire, invest in or buy.

Normally, the term “due diligence” includes both financial and legal due diligences. The buyer or investor undertakes both these due diligences through experts in the field to assess the situation, identify risks, lacunae or liabilities which the entity or property carry and analyze them, thereby helping the buyer or investor to make an informed decision and minimize their own liabilities in entering into the transaction.

We, in this article, are writing about the importance of conducting a legal due diligence in such transactions from an Indian legal perspective.

The term “legal due diligence” is not defined under Indian laws. However, the term “due diligence” generally means taking due care before undertaking any transactions. In other words it is the duty and obligation of a buyer, investor or a joint venture partner to, as a prudent person, carry out an investigation into the target entity, take due care while executing the transaction or purchase, and understand the risks and consequences of the matter before proceeding with the proposed transaction. As the cautious version of the age-old saying goes, “ignorance is no bliss” and the reader will do well to note that the buyer or investor will have to bear the risks, liabilities and consequences of the transaction. This is especially in view of the fact that the Indian courts do not take a lenient view of the woes of a buyer, investor or a joint venture partner who claims that it was not aware of certain issues or ignorant of the obligations to be performed by it in the transaction for the reason that the buyer or investor failed to carry out a basic investigation into the target entity before proceeding to transact with and who thus attempts to rely on its own omissions. .

It is therefore in the best interest of an individual or a business establishment interested in either merging, partnering with or acquiring another business entity, or in acquiring an immovable property, that it exercises due care by carrying out a detailed legal due diligence of such target company or a immovable property.

Listed below are some of the important issues that an individual or an organization would need to consider when merging, acquiring, or subscribing to the shares of a target company, or whilst acquiring an immovable property.

Important issues to be considered when an individual or a business organization is considering merging, acquiring, entering into a joint venture, or subscribing to the shares of the target organization, whether a Proprietary concern, partnership concern or a private or public limited company

A proper analysis of the target entity is of utmost importance to the investors to ensure that they are aware of the advantages and disadvantages of entering into such a transaction, the liabilities that they could be exposed to and to also evaluate the actual appropriate consideration payable for the specific transaction with the target entity.

Before undertaking a legal due diligence exercise, it is important for the investor to reflect upon what it intends to achieve with such take over, merger or joint venture with the target entity, i.e., the investor would need to be clear on the scope of the intended transaction. It is important to evaluate , for instance, whether the target entity owns any movable or immovable property and whether such property would be a part of the proposed transaction; whether the target entity owns any intellectual property rights(and if yes, whether such intellectual property rights would form a part of the proposed transaction); and whether the target entity has employees, (and if yes, whether all the employees will form a part of the proposed transaction or only a certain section of the employees involved).

Once the investor is clear on the intended final objective of such transaction and its scope, the main issues which would need to be identified and analyzed may be categorically deduced. It would then need to get into a detailed investigation of the target entity from, amongst others, the following perspectives (which would vary on a case-to-case basis):

• Investigation into the ownership of the shared of the target entity. This includes confirming if the shareholders have brought in the shareholding contribution, whether such shares have been properly allotted, etc.;
• Investigations into whether the target entity is in compliance with its statutory obligations under the Companies Act, 1956 of India where applicable, under the different labour laws of India with respect to its employees etc;
• Investigations with respect to the various laws under which the target entity is registered and its compliances vis-a-vis registrations under them;
• Investigations into the immovable property which forms a part of such transaction, if any;
• Investigations into the number of employees employed by the target entity and whether the target entity is in compliance with its statutory obligations vis-a-vis its employees;
• Investigations into the intellectual property rights such as trademarks, copyrights and patents owned by target entity;
• Investigations into whether any cases have been filed by and/or against the target entity and the consequences they would have target entity;
• Additional specific investigations as may be required on a case-specific basis with respect to the target entity.

Each of the above investigations would require the investor to look into various documents and seek clarifications from the target entity to be able to ascertain the consequences of such investigations and accordingly, the risk factors involved in proceeding with proposed transaction and would involve a detailed, technical study to reach a conclusion on each issue.

Important issues to be considered by an individual or business organization while purchasing an immovable property or entering into a transaction or investment involving immovable property

Detailed below is one of the aspects of an investigation which is very important, both for an investor transacting with a target entity which involves immovable property as well as from an independent perspective of an individual or organization intending just to purchase an immovable property.

While purchasing an immovable property, an individual or business organization would need to look into the following documents:

• Title search of the property, right from the parent deed until the time the seller has come into possession of the property in question;
• Confirming that the property is free from all charges and encumbrances. This has to be done by going through encumbrance certificates issued by the appropriate authority. If the immovable property is owned by a company then in addition to the above charge documents filed with the Registrar of Companies also needs to be checked;
• Copy issued by the relevant municipal authorities showing the seller as the owner of the property. Such a document is known a Khata in Karnataka and a Patta in Tamil Nadu;
• Confirmation on the nature of property being purchased,i.e., if the property can be used for residential or business purposes, as the case may be. If the buyer intends to purchase an agricultural property, then an investigation would need to be carried out from the perspective of the specific law applicable to the state to check whether the individual or business organization can purchase agricultural land in such state;
• In case of the property having a building on it, the buyer would need to confirm that the building has been approved by an appropriate authority and the constructed building is as per approved plan;
• If the seller is a company then in addition to the above documents it would be advisable in general to do a check of the following::

• List of shareholders;
• List of directors;
• Bank details;
• Three years’ balance sheet;
• Share certificates;
• Details of shares transfers, if any, etc.

The above list of documents to be looked into is a preliminary generic list – the documents to be seen when buying an identified property could vary depending on the facts and circumstances in each case.

In addition to the above, it is also advisable to carry out a physical inspection and investigation of the property in question to confirm the actual built up area of the building in question, the actual measurement of the land, etc.

It is very important to note that carrying out a proper title search and confirming that the property does not suffer from any inherent defects in title or is not charged to a third party is of utmost importance. Failure on the part of the buyer to conduct a proper due diligence on the property in question could have a long-lasting adverse effect in terms of the buyer’s ownership over the property in question and consequently, its right to sell the same to a third party free from charges, liens and encumbrances.

Carrying out a legal due diligence is therefore in the best interests of an investor or buyer to thoroughly acquaint itself with the ins and outs of the target entity of the property, analyze the risks and liabilities of the transaction (and thereby, the prudency of the decision to transact) and take all steps necessary to avoid such liabilities and future difficulties which may arise from not having carried out a thorough investigation.

Disclaimer: As already stated above this article is just to bring to the notice of the readers the importance of conducting legal due diligences in certain transactions and to give a brief overview of the issues to be looked into before undertaking such transaction. The above information / suggestions / guidelines / tips are generic in nature and should not be acted upon unless a professionally qualified legal consultant has examined the requirements of the transaction and has advised that some of the above terms may be made applicable to a proposed transaction.

Further we shall not be held responsible or liable for any losses or damages (direct, indirect, punitive, incidental, special, consequential damages or any damages whatsoever including, without limitation, damages for loss of use, data or profits and irrespective of whether it is based on contract, tort, negligence, strict liability or otherwise, even if we have been advised of the possibility of damages) caused to any person or entity on account of such person or entity acting upon the information provided in this article without seeking the advice of a professional legal consultant. The information provided is “as is,” and “as available”.

We are writing this article to elaborate, both to the employer and the employee, the need under Indian laws to have an employment agreement in writing at their workplaces.

At the outset, it is important to understand that Indian laws specifically take care of the interests of one section of the employees, viz. the ‘workmen’. A workman has been defined under the Industrial Disputes Act, 1947 as any employee who carries out:

• Skilled;
• Unskilled;
• Operational;
• Manual;
• Clerical; or,
• Supervisory work; however, persons performing supervisory work and either (i) earning above INR 10,000 per month, or (ii) exercising functions mainly of a managerial nature do not fall within the category of a workman.

Most labour laws in India are workman-centric and concentrate on governing the basic terms and conditions of their employment, including terms of their dismissal and disciplinary proceedings. However, it is always a good idea to incorporate these and certain additional terms, if necessary, in a written appointment letter or employment issued to such an employee.

Since sufficient laws are in place protecting the rights of a workman, care needs to be taken by the employer in ensuring that the terms stated in the appointment letter do not conflict with the provisions of law while preparing the appointment letter/employment agreement for the Workmen. For example it may be relevant to note that a termination simplicitor (termination of employment by issuing a written notice without assigning any reasons) cannot be enforced against a workman under certain circumstances.

All other employees fall, by default, in a category commonly referred to as the ‘managerial category’. The terms of their employment (including appointment, remuneration, dismissal and other obligations of both parties) are, not being specifically detailed under law, contractual in nature and it is therefore vital that they be detailed out in a separate agreement between the employer and employee in as comprehensive a manner as possible.

In light of the fact that Indian law permits a great degree of freedom to contracting parties to agree on the terms of their relationship and considering that Indian courts are required to interpret contracts during litigation in case terms are not detailed, it is of utmost importance for the employer as well as the employee (whether a workman or a manager) to record the terms of the employee’s service in writing. The parties must also ensure that the terms of the contract do not contradict the provisions of any law.

Another reason for recommending that such a document be executed between the employer and the employee is to ensure that both the parties at the time of appointment (and thereafter) are clearly aware of the rights, obligations and liabilities that each party is exposed  to vis-a-vis the other party as long as such a relationship subsists. A written contract has thus the advantage of certainty and a detailed contract can be instrumental in avoiding ambiguity between the parties, avoiding the incidence of conflict in the relationship of employment.

Further, there is a statutory obligation on the employer under various Shops and Commercial Establishment laws of different states in India to issue an appointment letter or an employment agreement to its employees, clearly detailing out the terms and conditions on which the employee will be employed in the company.

Accordingly, it is in the best interests of both the employer and the employee that a document which comprehensively details the terms and conditions of the employee’s appointment in the Company be executed in writing between them.

Disclaimer: As already stated above this article is aimed at bringing to the notice of the readers the importance of entering into employment agreements. The above information / suggestions / guidelines / tips are generic in nature and should not be acted upon unless a professionally qualified legal consultant has examined the requirements of the relationship and has advised that some of the above terms may be made applicable to a proposed relationship of employment.

 Further we shall not be held responsible or liable for any losses or damages (direct, indirect, punitive, incidental, special, consequential damages or any damages whatsoever including, without limitation, damages for loss of use, data or profits and irrespective of whether it is based on contract, tort, negligence, strict liability or otherwise, even if we have been advised of the possibility of damages) caused to any person or entity on account of such person or entity acting upon the information provided in this article without seeking the advice of a professional legal consultant. The information provided is “as is,” and “as available”.

With thousands of intelligent and qualified women in India entering the workforce in nearly every field and industry, both in the public and private sectors, every year, one of the questions that takes precedence above all others is that of gender discrimination and sexual harassment at the workplace.

India’s progress in this regard has been a slow one – despite having signed the first of several international treaties addressing the rights of women several decades ago, including the Convention on the Elimination of All Forms of Discrimination Against Women in 1980, a comprehensive law on the issue of sexual harassment of women at the workplace has yet to come into force in the country.

This article attempts to briefly trace the history of sexual harassment law in India, examining the roles of both the judiciary and legislature in the producing the existing sexual harassment law in India.

Judicial Activism in Matters of Sexual Harassment in India

In the absence of affirmative action on the part of the Parliament in specifically legislating on sexual harassment at the workplace, it was finally the Indian judiciary which had to fill in the lacunae. Of primary importance is the judgment of the Hon’ble Supreme Court of India in Vishaka & Ors. v. State of Rajasthan & Ors. [AIR 1997 SC 3011]. Delivering this judgment in 1997 on a writ petition brought by social workers and NGOs further to the brutal gang rape of a social worker in a village in Rajasthan, the Hon’ble Court noted that the matter had been brought before it specifically to deliver ‘gender justice’ and address the need for rules to tackle sexual harassment at the workplace in the absence of a law to deal with this issue.

In this judgment, analyzing provisions of international conventions as well as the Constitution of India, the Hon’ble Court laid down certain basic guidelines formulated to deal with the issue of sexual harassment designed to form a part of the law of the land until the Parliament passed a comprehensive law
to deal with this issue which are reproduced below.
(taken from http://www.iiap.res.in/files/VisakaVsRajasthan_1997.pdf):

1. Duty of the Employer or other responsible persons in work places and other institutions:

It shall be the duty of the employer or other responsible persons in work places or other institutions to prevent or deter the commission of acts of sexual harassment and to provide the procedures for the resolution, settlement or prosecution of acts of sexual harassment by taking all steps required.

2. Definition:

For this purpose,sexual harassment includes such unwelcome sexually determined behaviour (whether directly or by implication) as :

a) Physical contact and advances;

b) a demand or request for sexual favours;

c) sexually coloured remarks;

d) showing pornography;

e) any other unwelcome physical, verbal or non – verbal conduct of sexual nature.

where any of these acts is committed in circumstances whereunder the victim of such conduct has a reasonable apprehension that in relation to the victim’s employment or work whether she is drawing salary, or honorarium or voluntary, whether in Government, public or private enterprise such conduct can be humiliating and may constitute a health and safety problem. It is discriminatory for instance when the woman has reasonable grounds to believe that her objection would disadvantage her in connection with her employment or work including recruiting or promotion or when it creates a hostile work environment. Adverse consequences might by visited if the victim does not consent to the conduct in question or raises any objection thereto.

3. Preventive Step:

All employers or persons in charge of work place whether in the public or private sector should take appropriate steps to prevent sexual harassment. Without prejudice to the generality of this obligation they should take the following steps:

(a) Express prohibition of sexual harassment as defined above at the work place should be notified, published and circulated in appropriate ways.

(b) The Rules/Regulations of Government and Public Sector bodies relating to conduct and discipline should include rules/regulations prohibiting sexual harassment and provide for appropriate penalties in such rules against the offender.

(c) As regards private employers steps should be taken to include the aforesaid prohibitions in the standing orders under the Industrial Employment (Standing Orders) Act, 1946.

(d) Appropriate work conditions should be provided in respect of work, leisure, health and hygiene to further ensure that there is no hostile environment towards women at work places and no employee woman should have reasonable grounds to believe that she is disadvantaged in connection with her employment.

4. Criminal Proceedings:

Where such conduct amounts to a specific offence under the Indian Penal Code or under any other law, the employer shall initiate appropriate action in accordance with law by making a complaint with the appropriate authority. In particular, it should ensure that victims, or witnesses are not victimized or discriminated against while dealing with complaints of sexual harassment. The victims of sexual harassment should have the option to seek transfer of the perpetrator or their own transfer.

5. Disciplinary Action:

Where such conduct amounts to misconduct in employment as defined by the relevant service rules, appropriate disciplinary action should be initiated by the employer in accordance with those rules.

6. Complaint Mechanism:

Whether or not such conduct constitutions an offence under law or a breach of the service rules, an appropriate complaint mechanism should be created in the employer’s organization for redress of the complaint made by the victim. Such complaint mechanism should ensure time bound treatment of complaints.

7. Complaints Committee:

The complaint mechanism, referred to in (6) above, should be adequate to provide, where necessary, Complaints Committee, a special counsellor or other support service, including the maintenance of confidentiality.

The Complaints Committee should be heated by a woman and not less than half of its member should be women. Further, to prevent the possibility of any undue pressure or influence from senior levels, such Complaints Committee should involve a third party, either NGO or other body who is familiar with the issue of sexual harassment.

The Complaints Committee must make an annual report to the Government department concerned of the complaints and action taken by them.

The employers and person in charge will also on the compliance with the aforesaid guidelines including on the reports of the Complaints Committee to the Government department.

8. Workers’ Initiative:

Employees should be allowed to raise issues sexual harassment at workers’meeting and in other appropriate forum and it should be affirmatively discussed in Employer – Employee Meetings.

9. Awareness:

Awareness of the rights of female employees in this regard should be created in particular by prominently notifying the guidelines (and appropriate legislation when enacted on the subject ) in a suitable manner.

10. Third Party Harassment:

Where sexual harassment occurs as a result of an act or omission by any third party or outsider, the employer and person in charge will take all steps necessary and reasonable to assist the affected person in terms of support and preventive action.

11. The Central / State Governments are requested to consider adopting suitable measures including legislation to ensure that the guidelines laid down by this order are also observed by the employers in Private Sector.

12. These guidelines will not prejudice any rights available under the Protection of Human Rights Act, 1993.

As seen above, these guidelines touched upon some major aspects of the matter of sexual harassment, some of which are enumerated below:

·         The definition of sexual harassment is a broad and inclusive one, bringing into its purview both the public and the private sector;

·         The employer has the obligation, amongst others, to publish a clearly-formulated policy on sexual harassment;

·         Disciplinary action and, if required, criminal proceedings must be instituted by the employer against the person against whom a complaint of sexual harassment has been made;

·         The employer is also mandated to address and assist in the prosecution of cases of sexual harassment by third parties against its employees and, if necessary, constitute complaints committees to address such complaints.

The Need for a Comprehensive Law on Sexual Harassment at the Workplace

The Hon’ble Court limited itself to briefly stating these guidelines as the first step in formulating legal rules to tackle sexual harassment. They were therefore brief, succinct and basic, the intention of the Hon’ble Court clearly being to provide a foundation upon which it hoped the Parliament would build a detailed and thorough law to address this issue, a temporary refuge until a permanent shelter was constructed by the law-makers.

After the passing of this judgment, these guidelines formed the law on sexual harassment at the workplace in India. Many employers formulated policies on sexual harassment and addressed complaints according to mechanisms based on these principles.

Despite this, many companies and places of work failed to implement these guidelines effectively since the guidelines lacked strong provisions for their enforcement. Thus, the need for a comprehensive and elaborate law on sexual harassment in order to efficiently combat cases of sexual harassment was greatly felt. Accordingly the government was forced to formulate a law to this effect, which we have mentioned in the section below.

The Prohibition of Sexual Harassment of Women at the Workplace Bill, 2010 – Building on the Foundation Laid Down in Vishaka

The Indian Parliament has now formulated the Prohibition of Sexual Harassment of Women at the Workplace Bill, 2010 (hereinafter ‘the Bill’). This Bill has been approved by both the Houses of Parliament but, as on the date of this article, is yet to receive the assent of the President and be notified.

The Bill has essentially been commended for being a broad in its scope. A reading of the Bill shows that the Legislature has essentially retained the principles and ideas of the guidelines laid down by the Hon’ble Supreme Court in India and has elaborated on the mechanism for enforcement and implementation of the law. Some of the salient features of this Bill, are:

·         The definitions of the terms “employer”, “workplace” and “employee” are very wide and inclusive, thus allowing for this law to throw its net wide and bring within its purview several kinds of places of employment (including domestic dwellings and places travelled to in the course of employment) and kinds of employees (such as trainees and volunteers) both in the public and private sectors. For instance, a “workplace” has been defined to include the following:

“(i) any department, organisation, undertaking, establishment, enterprise, institution, office, branch or unit which is established, owned, controlled or wholly or substantially financed by funds provided directly or indirectly by the appropriate Government or the local authority or a Government company or a corporation or a cooperative society;

(ii) any private sector organisation or a private venture, undertaking, enterprise, institution, establishment, society, trust, nongovernmental organisation, unit or service provider carrying on commercial, professional, vocational, educational, entertainmental, industrial or financial activities including production, supply, sale, distribution or service;

(iii) a house or dwelling place;

(iv) any place, vehicle either by air, land, rail or sea visited by the employee arising out of, or during and in the course of, employment;”

The unorganized sector is also brought within the definition of the workplace and the Legislature has also taken pains to list several occupations which would fall within the definition of “unorganized sector”;

·         The Bill provides for two kinds of committees to address complaints of sexual harassment at the workplace – the employer-constituted Internal Complaints Committee and the District Officer-constituted Local Committee. Complaints may be made to the Local Committee in cases where the Internal Complaints Committee has not been constituted by the employer or in cases where the person complained against is the employer himself. The constitution of the Committees has also been addressed, ensuring that they are headed by women and that not less than half of the members are women. The National and State Commissions for Women have also been empowered to receive complaints;

·         The Bill provides for a time-bound mechanism for the carrying out of enquiries by the Complaints or Local Committee into complaints received by them. In this regard, they have been empowered to provide interim relief to the complainant, such as granting leave to or transferring the services of the complainant;

·         Various kinds of disciplinary and legal action which may be taken against a person found guilty of sexual harassment have been enumerated;

·         The Bill also contains penal provisions in case of any contravention of the orders of the District Officer with respect to orders of action against the person complained against and the payment of compensation to the aggrieved woman;

·         Duties of an employer and a District Officer vis-à-vis sexual harassment have additionally been listed.

Thus, it is evident that the Parliament built on the principles of the guidelines laid down is Vishaka and laid down the scope of the law, mechanism for redressal of complaints and an effective means of enforcement of its provisions with penal consequences.

The Bill consolidates, elaborates and improves on the Vishaka guidelines in several ways as stated below:

·         The Bill provides for a Local Committee in addition to the employer-created Internal Complaints Committee. It also speaks about  appointing a District Officer to constitute such Local Committee to register complaints. The Bill ensures that the aggrieved woman has the option of approaching an impartial forum with her complaint, ensuring that acts of further victimization are reduced and impartial justice is delivered;

·         The Bill lays down a time limit for carrying out enquiries into complaints of sexual harassment, to ensure a speedy redressal;

·         The Bill provides for the involvement of the National and State Commissions for Women in several ways, including receiving complaints and over-seeing the implementation of this law;

·         The Bill states a number of remedies which the District Officer may order (where no disciplinary or service rules exist at the place of employment) in case the person complained against is found guilty. In addition to suspension or termination of employment, the Bill also provides for (i) payment of compensation to the victim; (ii) revocation or suspension of licenses of the guilty; (iii) the cessation of benefits under a Central or State-sponsored scheme. The Bill therefore provides for additional deterrent and punitive punishments for the commission of acts of sexual harassment;

·         The Bill provides for confidentiality of information on proceedings and the identity of the complainant, to the extent that the Bill specifically excludes  any information on the complainant, the relief sought etc. being provided even if requested under the Right to Information Act;

·         In order to avoid being abused, this Bill also provides for action to be taken against a complainant in case of false complaints;

·         In terms of criminal action, in addition to assisting the complainant in filing a criminal complaint, the employer has also the duty to himself initiate criminal proceedings against the person complained against after the conclusion of the enquiry in cases where it his employee or without waiting for the conclusion of the enquiry, where it is a third-party.

The Bill contains several provisions which would facilitate the prevention and prosecution of acts of sexual harassment at the workplace and its notification would thus afford relief to thousands of women across the country.

However, this law does not deal with cases of sexual harassment of men at the workplace. This is a great lacuna in this law and leaves no remedy for men being harassed. It is therefore advisable for companies and employer to formulate similar policies to deal with cases of sexual harassment of men as well.

September 2012 update: This Bill has been passed by the Lok Sabha.

Disclaimer: As already stated above this article is aimed at bringing to the notice of the readers the law on sexual harassment in India. The above information / suggestions / guidelines / tips are generic in nature and should not be acted upon unless a professionally qualified legal consultant has examined the requirements of the relationship and has advised that some of the above terms may be made applicable to each case.

The information provided is “as is,” and “as available,” and meant for information only.

It is very common to hear the word “Lease” or “Leave and License” being used by someone known to us in our daily lives. Whilst most of us know the essential meaning of these terms, most people may not be aware of the actual rights transferred under such arrangements.

We have attempted, in this article, to bring to the notice of the readers the legal meaning of these terminologies, the rights and liabilities of a lessor and a lessee and the concept of lease vis-à-vis that of a leave and license under Indian law.

Lease of Immovable Property

Leases are governed by the provisions of the Transfer of Property Act, 1882. As per Section 105 of this law, the lease of an immovable property is a transfer of a right to enjoy the property for a certain period of time or in perpetuity and for a certain price (in cash or in kind) paid or agreed to be paid over a period of time by the lessee to the lessor on such terms agreed between the parties.

This legal arrangement therefore confers rights and imposes duties on both the lessor and the lessee of the property. We will now explore some of these rights and liabilities of each person.

Rights and Liabilities of the Lessor

As per Section 108 (A) of the Transfer of Property Act, 1882, the rights and liabilities of a lessor include:

• Disclosing to the lessee material defects, if any, in the leased property;

• Putting the lessee in possession of the leased property on his request;

• Allowing the lessee to peacefully hold and enjoy the leased property on his paying the rents reserved to him on time and performing the contract binding on him.

Rights and Liabilities of the Lessee

As per Section 108 (A) of the Transfer of Property Act, 1882, the rights and liabilities of the lessee include the following:

• Any accession made to the leased property shall be comprised in the lease;

• The right to determine the lease if the leased property is destroyed substantially and becomes unfit for the purpose it was leased for due to any “Act of God”, provided the injury occurred is not due to the wrongful acts of the lessee;

• The right to carry out any repairs to the leased property and thereafter recover the amount spend for such repairs from the monthly rent payable by him, if the lessor neglects to carry out such repairs on time as requested by the lessee;

• If the lessor neglects to make any payment which he is bound to make within a reasonable time, the lessee has the the right to make such payments and recover the same with interest from rent payable to the lessor;

• The right to remove all articles from the leased property even after determination of the lease and during the lessee’s possession in the leased property, provided the lessee leaves the property in the state which he has received it;

• The lessee is entitled to all the crops planted or sown by the lessee upon the leased property and he may carry them after termination of the lease and while he is in the possession of the leased property;

• The right to sub-lease/sub-let, or transfer absolutely or by way of mortgage, the leased property to any other third party subject to their being no restriction of any kind to it in the contract. Even after such sub-lease/sub-let the lessee will still be liable to all its liabilities under the lease deed;

• The lessee is bound to disclose to the lessor all or any facts pertaining to the leased property of which the lessor is not aware and which materially increases the value of such interest;

• The lessee is bound to pay the rents on time;

• The lessee is also bound to keep the leased property in good condition and, after termination of the lease, to restore the property as it was at the time when he was put in possession, subject to reasonable wear and tear;

• The lessee is bound to allow the lessor and his agents to enter the leased property at all reasonable times and inspect the premises thereof and give notice of any defects caused by the lessee or his agents to the leased property. The lessee is bound to make good such defects within three months of such notice;

• The lessee is bound to keep the lessor informed of any proceedings made to recover the leased property or any pat thereof or any encroachment made upon or any interference by the third party to the leased property;

• The lessee is bound to use the leased property only for the purpose it is leased for and to not carry out any illegal or any non-permissible business on such property;

• The lessee is bound to put the lessor in possession of the property on determination of the lease.

A reading of the above shows that in a lease arrangement, the lessee is given the right to enjoy the property without any disturbance or hindrance from the lessor during the agreed term. In addition to those listed above, the lessee and lessor are also entitled to certain other rights.

While a lease grants a certain interest and rights in leased property in favour of the lessee, another manner in which a right may be given in an immovable property is through a “leave and license” arrangement, also called a “license”. A license is a mere “right to use” which is transferred to the licensee herein. We have, below, briefly introduced the concept of a “license” as defined under law and endeavoured to bring to the notice of the readers the basic differences between a “lease” and a “leave and license” under Indian law.

License of Immovable Property

As per Section 52 of The Easements Act, 1882, the license of an immovable property is a mere grant of right by the licensor to the licensee to enjoy the licensed property, and which in absence of such right, would be unlawful, and such right does not amount to an easement or an interest in the licensed property. Another important aspect of a license is that anyone who has any interest in the property can license the property – it need not necessarily be the owner of the property in question.

Right and Liabilities of a Licensor

As per Section 52 of The Easements Act, 1882, the rights and liabilities of the licensor includes:

• Disclosing to the licensee any defect in the property licensed which may affect the licensee and which the licensee is not aware of;

• Not to do anything likely to render the licensed property in a state which may affect the licensee. If the licensor transfers such affected property the licensee is not bound by such license.

Rights and Liabilities of a Licensee

As per Section 52 of The Easements Act 1882, the rights and liabilities of the licensee includes:

• Being bound to leave the licensed property within a reasonable time and to remove all his goods placed on the licensed property on determination or earlier termination of the license;

• Being entitled to the refund of the consideration paid by him on the termination or determination of the license.

While some of the rights and liabilities of a lessor and lessee are similar to the corresponding rights and liabilities of a licensor and licensee, some of the important differences between a lease and a license are as follows:

Lease of Immovable Property	License of Immovable Property
The lessee is given the exclusive possession of the leased property	The licensee is given a mere right to use and occupy the licensed property for a period of time
It is a transferable right i.e., if the lessor sells the leased property to any third party during the continuance of the lease the purchaser is bound by the existing lease deed	It is only a personal right i.e., if the licensor sells the licensed property to any third party the leave and license agreement (if any) automatically gets terminated
If the lessor has to enter the leased premises for any inspection or repairs, he can only after giving a prior notice and obtaining the prior approval from the lessee	The licensor is free to enter his licensed premises at any point of time
Lessee under certain circumstances may be considered as a tenant and has all the rights as per the applicable tenancy laws	Licensee is not considered as a tenant and is not covered under any tenancy laws
Normally the stamp duty applicable to a lease is high	Stamp duty may be lesser than the Lease, however in certain states (for example in Maharashtra) a license exceeding a certain period is considered as a lease and the same stamp duty as a lease is applicable to it.

It is therefore in the best interest of the owner of a property in question and the person taking such property on lease or leave and license to firstly understand whether they would like to lease or license a property and thereafter enter into a detailed lease or leave and license agreement, as the case may be, to ensure that their rights and liabilities are protected as per the provisions of law.

Disclaimer: This article is to bring to make a reader understand the meaning of a lease and leave and license and the rights and liabilities that is given under law. The above information / suggestions / guidelines / tips are generic in nature and should not be acted upon unless a professionally qualified legal consultant has examined the requirements of the transaction and has advised that some of the above terms may be made applicable to a proposed transaction.

The information provided is “as is,” and “as available” and the information provided may include inaccuracies or typographical errors. 

This article is intended to give the readers an insight on the provisions of law on certain restrictions which may have been imposed on a person in India during or after his or her employment with an organisation.

In this regard, we are specifically referring to several instances where we may have come across a clause in our employment contracts which imposes an obligation on the employee to not compete with the activities of the company in which he or she is employed with, during and after his or her employment. Another commonly found restraint is the obligation to keep proprietary information of the employer confidential during and after his employment.

Section 27 of the Indian Contract Act, 1872 states that “… every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind is void in law…”. The only exception to this provision is “…an agreement not to carry on business of which goodwill is sold”. A reading of this section makes it amply clear that any clause in any agreement which restrains a person from exercising his lawful profession, trade or business is void in law.

Having stated the provisions of law, we would now proceed to examine the clauses which are in restraint of trade and which are commonly found in employment contracts.

Non-Compete Clauses

This clause normally imposes a restriction on the employee to not take employment with another employer during the term of his employment and further, not to compete with the business of the organisation in which he is employed with during the course of his employment and thereafter. What needs to be considered in such cases is to what extent such a clause is void in law. The India courts look at the restrictions mentioned by us above from two different perspectives – firstly, the effect of restrictions during employment and secondly, the effect of these restrictions after the termination of the employment.

Normally, negative covenants operating during the period of the contract of employment which require an employee to serve his employer exclusively during the term of his employment are not considered void in law. Similarly, an obligation on the employee not to carry on competitive activities during his employment is not considered void in law as long as such restriction is reasonable in law.

However, where a restraint is put on an employee to not be employed with a competitor after he leaves the services of the company or to not start a business which may compete with the business of the employer will be void in law, being in direct violation of the provision of law mentioned above.

The above being the legal position, the Hon’ble Supreme Court of India inNiranjan Shankar Golikari v. Century Spinning And Manufacturing Company Limited [AIR 1967 SC 1098] has held that where a contract contains a negative covenant restraining an employee from taking up employment with a competitor for a certain fixed term of his employment and the employee leaves the company before such a term expired then the negative covenant can be enforced to the extent of the unexpired part of the terms of service which would be essential for the fulfillment of a contract. In other words, if an employee has agreed to be in the services of a company for a certain period of time and he has also agreed not to work with a competitor during this period, then if such an employee leaves the services of the company on his own accord before the expiry of such term then the negative covenant would be operative against him for the unexpired period of a fixed term agreed to be served by him.

Confidentiality Clauses

Contrary to post-termination non-compete clauses, a clause restraining an employee from disclosing confidential or proprietary information of the company after he leaves the services of the company and which does not restrain the employee from practicing his trade, business or profession is valid and enforceable in law. In 2009, the Government of India has introduced a provision for protection of confidential and proprietary information in The Information Technology Act, 2000 (through an amendment to this Act) whereby any person having access to confidential information under a contract who intentionally and knowingly discloses such information to a third party which causes wrongful loss or gain loss to the party disclosing such information would be punished with imprisonment or a fine or both.

In addition to the above, a person violating the obligations imposed upon him under a contract to keep information disclosed under a contract may also be sued for:

• Compensation under Section 73 of the Indian Contract Act, 1872;
• Criminal breach of trust under Section 405 of the Indian Penal code.

However, it is important to note that the questions of whether or not the necessary circumstances required to be satisfied to grant relief have been fulfilled in a case and the extent of relief or compensation allowed in each case will be determined by the Indian courts on a case-to-case basis.

To conclude, one can understand that whilst most restrictions imposed on an employee during his employment are valid and enforceable in law, any restrictions imposed on an employee after the termination of his employment and which in any manner restricts the employee from practicing his trade, business or profession is not valid and cannot be enforced under Indian laws.

Disclaimer: As already stated above, this article is aimed at bringing to the notice of the readers the law on post-termination employment restrictions in India. The above information / suggestions / guidelines / tips are generic in nature and should not be acted upon unless a professionally qualified legal consultant has examined the requirements of the relationship and has advised that some of the above terms may be made applicable to each case.

Further we shall not be held responsible or liable for any losses or damages .The information provided is “as is,” and “as available,” and the information provided may include inaccuracies or typographical errors.

All copyright and other intellectual property in the contents of this article vest solely with the author. Any unauthorized reproduction, copying of the whole or a part of this article without the prior written consent of the author or any other violation of the rights of the author of any nature whatsoever is prohibited and shall be liable for appropriate legal action.

In a civil appeal brought before it, a Division Bench of the Supreme Court of India (consisting of Raveendran, J and Patnaik, J), examined the highly interesting question of the validity of an arbitration clause contained in agreements which may be insufficiently stamped and/or not registered when compulsorily registrable.

In addition to pronouncing decisions on the validity of such clauses, the Hon’ble Court also laid down a step-by-step procedure to be followed by Indian courts in determining whether or not such clauses are valid in cases which come before them.

This case is of particular interest to persons who include arbitration clauses in agreements and seek to then enforce them and draws attention to the importance of stamping and registering a document in accordance with the law and the legal effect of not doing so.

Scope of this Case Note

In the instant case, the Hon’ble Court explored several issues including the above-mentioned questions and others, such as whether an arbitration clause contained in one agreement signed between parties would be applicable to another agreement between the same parties but which did not contain its own arbitration clause.

This case note seeks only to state and discuss those facts and pronouncements of the Hon’ble Court on the questions of the binding nature of an arbitration clause contained in an agreement which is insufficiently stamped or which, being compulsorily registrable, has not been registered.

Details of the Case and the Parties

Judgment in Civil Appeal No. 5820 OF 2011 [Arising out of SLP [C] No.24484/2010]

M/s. SMS Tea Estates Pvt. Ltd. (Appellant) versus M/s. Chandmari Tea Co. Pvt. Ltd. (Respondent)

Date of the Judgment: 20^th July 2011

Facts of the Case

The Appellant filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (the “Arbitration Act”) for the appointment of an arbitrator. The brief facts (reproduced almost verbatim from the judgment) are as follows:

On 7.10.2006 the Appellant requested the Respondent to grant a long term lease in respect of two tea estates of the Respondent. A lease deed dated 21.12.2006 was executed between the Respondent and Appellant under which Appellant was granted a lease of the two estates for a term of 30 years (the “Lease Deed”). Clause 35 of the Lease Deed provided for settlement of disputes between the parties by arbitration.

As the estates were hypothecated to United Bank of India, on 27.12.2006, the Respondent requested the said bank for issue of a no objection certificate for entering into a long term lease. The Bank sent a reply dated 17.7.2007, stating that it would issue a no objection certificate for the lease, if the entire balance amount due to the Bank was deposited by 14.8.2007.

Prior to the execution of the Lease Deed, on 29.11.2006, the Respondent had offered to sell the two tea estates to the appellant for a consideration of INR 4 Crore. The Appellant agreed to purchase them subject to detailed verification. The Appellant wrote a letter dated 27.6.2007 to the Respondent agreeing to purchase the estates. The appellant invested huge sums of money for improving the tea estates in the expectation that it would either be purchasing the said estates or have a lease for 30 years. The Respondent however abruptly and illegally evicted the Appellant from the estates and took over their management in January 2008.

The Appellant thereafter wrote a letter dated 28.3.2008 to the Respondent expressing its willingness to purchase the said two estates for a mutually agreed upon consideration and also discharge the liability towards the bank. The Appellant issued a notice dated 5.5.2008 calling upon the Respondent to refer the matter to arbitration under Section 35 of the Lease Deed. The Respondent failed to comply. According to the Appellant the dispute between the parties related to the claim of the Appellant that the Respondent should either sell the estates to the Appellant, or permit the Appellant to continue in occupation of the estates for 30 years as lessees or reimburse the amounts invested by it in the two estates and the payments made to the Bank.

The Respondents opposed the said application. The Respondents contended,inter alia, that the unregistered lease deed dated 21.12.2006 for thirty years was invalid, unenforceable and not binding upon the parties, having regard to Section 107 of Transfer of Property Act 1882 (“TP Act”) and Section 17 and Section 49 of the Registration Act, 1908 (“Registration Act”); that the Lease Deed was also not duly stamped and was therefore invalid, unenforceable and not binding, having regard to Section 35 of the Indian Stamp Act, 1899 (“Stamp Act”); that Clause 35 providing for arbitration, being part of the said lease deed, was also invalid and unenforceable. The respondent denied that they had agreed to sell the two tea estates to the applicant for a consideration of INR 4 Crore. It contended that as the lease deed itself was invalid, the appellant could not claim appointment of an arbitrator under the arbitration agreement forming part of the said deed.

Views of the Hon’ble High Court of Guwhati

The learned Chief Justice of Guwahati High Court dismissed the Appellant’s application by order dated 28.5.2010 holding that the Lease Deed was compulsorily registrable under Section 17 of the Registration Act and Section 107 of the TP Act, and as the Lease Deed was not registered, no term in the said lease deed could be relied upon for any purpose and therefore Clause 35 could not be relied upon for seeking reference to arbitration. The High Court also held that the arbitration agreement contained in Clause 35 could not be termed as a collateral transaction, and therefore, the proviso to Section 49 of the Registration Act would not assist the Appellant.

This decision was challenged in this appeal to the Supreme Court.

Issues for Consideration by the Hon’ble Supreme Court of India

The Hon’ble Court had, inter alia, the following issues to consider:

1.        i.            Whether an arbitration agreement contained in an unregistered (but compulsorily registrable) instrument is valid and enforceable?
2.      ii.            Whether an arbitration agreement in an unregistered instrument which is not duly stamped, is valid and enforceable?

Relevant Provisions of Law

For the convenience of the reader, we are stating below some of the relevant legal provisions mentioned above and relevant to the case at hand:

The Arbitration and Conciliation Act, 1996

Section 11 of this Act pertains to the appointment of the arbitrators in a dispute between parties or, in case of a failure by the parties to so appoint an arbitrator, the taking of necessary measures by the Chief Justice (or a person designated by him) in regard to the appointment of arbitrators.

Section 16 of this Act pertains, inter alia, the competence of arbitral tribunal to rule on its jurisdiction and states that “… the arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,–

(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and (b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.”

The Transfer of Property Act, 1882

Section 107 of this Act states that “… a lease of immovable property … for any term exceeding one year … can be made only by a registered instrument.”

The Indian Stamp Act, 1899

Section 33 of this Act states that “… every person having by law or consent of parties, authority to receive evidence … before whom any instrument, chargeable, in his opinion, with [stamp] duty, is produced or comes in the performance of his functions, shall, if it appears to him that such instrument is not duly stamped, impound the same.”

Section 35 of this Act states that “… no instrument chargeable with [stamp] duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument is duly stamped.” This section also provides that such an instrument may be produced in evidence on payment of duty with which it is chargeable together with a penalty.

The Registration Act, 1908

Section 17 of this Act mandates that instruments relating to the lease of immovable property for any term exceeding one year shall be registered.

Section 49 of this Act provides that no document which is required to be registered under Section 17 or any provision of the Transfer of Property Act, 1882 shall:

1.        i.            affect any immovable property comprised therein;
2.      ii.            confer any power to adopt; or,
3.   iii.            be received as evidence of any transaction affecting such property or conferring such power;

unless it has been registered.

However, this section also makes an exception to the above rule and states that an unregistered document affecting immovable property and required to be registered may be used for the following purposes:

1.        i.            it may be received as evidence of a contract in a suit for specific performance; or,
2.      ii.            it may be received as evidence of any collateral transaction to required to be effected by registered instrument.

Views of the Hon’ble Supreme Court of India on the Issues under Consideration

With regard to the first issue under consideration, i.e., “Whether an arbitration agreement contained in an unregistered (but compulsorily registrable) instrument is valid and enforceable”, the Hon’ble Court observed as follows:

The Hon’ble Court first noted that as per the provisions of Section 17 of the Registration Act and Section 107 of the TP Act, a document pertaining to the lease of immovable property for a period greater than one year is compulsorily registrable. The Hon’ble Court then proceeded to note the effect of non-registration of a document which is compulsorily registrable, given in Section 49 of the Registration Act – that the same could not affect any immovable property comprised therein, confer the power to adopt or be received as evidence as evidence of any transaction affecting such property or conferring such power. However, the document would be permitted to be used for two limited purposes – as evidence of a contract in a suit for specific performance and as evidence of any collateral transaction to required to be effected by registered instrument. The Hon’ble Court stated that a “collateral transaction” is one that affects the immovable property, but “… a transaction which is incidentally connected with that transaction.” The question, therefore, was whether a provision for arbitration in an unregistered document (which is compulsorily registrable) is a “collateral transaction”, so as to make it eligible to fall within the proviso of Section 49 of the Registration Act and be permitted to be received in evidence.

The Hon’ble Court proceeded to observe that an arbitration agreement contained in a contract was a collateral transaction, unrelated to the performance of the main contract. It then went to on explain that an arbitration clause contained in a main contract would be like two contracts combined in one – the first contract being for the main transaction contemplated by the contract and the second contract being the arbitration agreement. Thus, in the instant case of the lease deed, it was as if two contracts had been rolled into one – one regarding the lease of the immovable property of 30 years, which was compulsorily registrable and one for arbitration of disputes under the agreement, which is not compulsorily registrable under the Registration Act. In order to further support this interpretation, i.e., of the arbitration agreement forming a separate agreement from the main contract, the Hon’ble Court relied on the provisions of Section 16 of the Arbitration Act (mentioned above) which states that for the purposes of an arbitrator deciding on its jurisdiction, “… an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract.” The Hon’ble Court observed that therefore, “… even if a deed of transfer of immovable property is challenged as not valid or enforceable, the arbitration agreement would remain unaffected for the purpose of resolution of disputes arising with reference to the deed of transfer.”

The Hon’ble Court, however, distinguished this from cases where the main contract would be voidable at the option of a party under the provisions of the Indian Contract Act, 1872. In such cases, the invalidity which applies to the main contract may also apply to the arbitration agreement, if the reason for which the main contract may be invalid or voidable applies to the arbitration agreement as well. For instance, where the contract was entered into under coercion, and the party so coerced seeks to avoid the contract for this reason, it would apply to the arbitration clause as well.’

Based on the above reasoning, the Hon’ble Court concluded that considering the an arbitration agreement is, indeed, a collateral transaction and having regard to the exception stated in Section 49 of the Registration Act, “… an arbitration agreement in an unregistered but compulsorily registrable document can be acted upon and enforced for the purpose of dispute resolution by arbitration.”

With regard to the second issue under consideration, i.e., “Whether an arbitration agreement in an unregistered instrument which is not duly stamped, is valid and enforceable”, the Hon’ble Court observed as follows:

In order to decide on this issue, the Hon’ble Court certain relevant provisions of the Stamp Act (mentioned above), including Section 33 which mandates that any person who by law or consent of parties is authorized to receive evidence and before whom an instrument is produced which is not, in his opinion, duly stamped, then he in under an obligation to impound such instrument and deal with it in the manner prescribed under Section 38 of the Stamp Act. The Hon’ble Court also noted that Section 35 of the Stamp Act states that instruments not duly stamped cannot be produced in evidence and cannot be acted upon; however, this section also provides that the instrument may be produced in evidence after paying the duty chargeable on it and paying the penalty stated therein. It was particularly distinguished from Section 49 of the Registration Act in that this provision of the Stamp Act did not carve any exceptions (in the manner of Section 49 of the Registration Act) to allow unstamped or insufficiently stamped documents to be produced as evidence of a contract for obtaining specific performance or as evidence of a collateral transaction.

Accordingly, the Hon’ble Court stated that if any instrument comes before a court or an arbitrator alleging the existence of an arbitration agreement, it is under an obligation to check whether the same has been properly stamped and if not, then to impound the document and deal with it in the manner prescribed under Section 38 of the Stamp Act.

The Hon’ble Court therefore held that under such circumstances, the court cannot act upon the document or admit the same for evidence. However, if the adequate duty and penalty has been paid under Section 35 of the Stamp Act, then the document may be received in evidence.

Procedure to be Adopted where an Arbitration Clause is Contained in an Agreement which is not Registered (but Compulsorily Registrable) and/or which is not Duly Stamped

The Hon’ble Court also laid down a detailed procedure to be adopted where an arbitration clause is contained in an agreement which is not registered (but compulsorily registrable) and/or which is not duly stamped, which has been reproduced verbatim from the judgment of the Hon’ble Court below:

1.        i.            “The court should, before admitting any document into evidence or acting upon such document, examine whether the instrument/document is duly stamped and whether it is an instrument which is compulsorily registrable.
2.      ii.            “If the document is found to be not duly stamped, Section 35 of Stamp Act bars the said document being acted upon. Consequently, even the arbitration clause therein cannot be acted upon. The court should then proceed to impound the document under Section 33 of the Stamp Act and follow the procedure under Section 35 and 38 of the Stamp Act.
3.   iii.            “If the document is found to be duly stamped, or if the deficit stamp duty and penalty is paid, either before the Court or before the Collector (as contemplated in section 35 or 40 of the Stamp Act), and the defect with reference to deficit stamp is cured, the court may treat the document as duly stamped.
4.    iv.            “Once the document is found to be duly stamped, the court shall proceed to consider whether the document is compulsorily registrable. If the document is found to be not compulsorily registrable, the court can act upon the arbitration agreement, without any impediment.
5.      v.            “If the document is not registered, but is compulsorily registrable, having regard to section 16(1)(a) of the [Arbitration] Act, the court can de-link the arbitration agreement from the main document, as an agreement independent of the other terms of the document, even if the document itself cannot in any way affect the property or cannot be received as evidence of any transaction affecting such property. The only exception is where the respondent in the application demonstrates that the arbitration agreement is also void and unenforceable, as pointed out … above. If the respondent raises any objection that the arbitration agreement was invalid, the court will consider the said objection before proceeding to appoint an arbitrator.
6.    vi.            “Where the document is compulsorily registrable, but is not registered, but the arbitration agreement is valid and separable, what is required to be borne in mind is that the Arbitrator appointed in such a matter cannot rely upon the unregistered instrument except for two purposes, that is (a) as evidence of contract in a claim for specific performance and (b) as evidence of any collateral transaction which does not require registration.”

Impact on the Current Law

This landmark decision of the Supreme Court of India lays down important interpretations regarding the validity of arbitration clauses in documents which suffer from defects in terms of stamping or registration, when compulsorily registrable. It also lays down a procedure and guidelines to be followed in case such document come before the courts in cases where arbitration agreements are alleged to exist vis-à-vis receiving such documents in evidence.

Thus, this judgment provides a caveat to parties who want to ensure that arbitration clauses executed by them are valid and binding, and those intending to execute such agreements would do well to bear these rules in mind while drafting and executing contracts containing arbitration clauses.

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