Law and Legal developments

Event Announcement: 6th NLSIR Symposium on Commercial Arbitration

2013-04-22T19:21:00.000+05:30

The National Law School of India Review (NLSIR) - the flagship journal of the National Law School of India University (NLSIU), Bangalore is pleased to announce the VI^th NLSIR Symposium on “Mapping the Future of Commercial Arbitration in India” scheduled to be held on May 18 and 19, 2013 at the NLSIU campus. The last three years have witnessed dynamic shifts in the law and practice of Arbitration in India. While there have been steps in the right direction, an unwieldy system continues to weigh down practitioners. Four years after first delving into the nuances of commercial arbitration in India, the Symposium hopes to assess the development of Arbitration law over the last few years.

Confirmed speakers for the symposium include renowned legal luminaries such as Hon’ble Mr. Justice (Retd.) S U Kamdar (Former Justice, Bombay High Court), Mr. Anirudh Krishnan (Advocate, Madras High Court), Mr. Ashwin Shanker (Advocate, Bombay High Court) Mr. Aditya Sondhi (Advocate, Karnataka High Court), Mr. Ajay Thomas (Registrar, London Court of International Arbitration, India), Mr. Vivekananda N. (Head (South Asia) & Counsel, Singapore International Arbitration Centre), Mr. Nangavaram Rajah (Nani Palkhivala Arbitration Centre), Mr. Promod Nair (Partner, J Sagar Associates), Mr. Shreyas Jayasimha (Partner, AZB & Partners), amongst others.

This year, the discussions will be divided into four panels:

Session I: The Implications of BALCO on Arbitration Practice
(Forenoon, May 18, 2013, Saturday)

Session II: Revisiting the Expansive Role of the Indian Judiciary and its Implications
(Afternoon, May 18, 2013, Saturday)

Session III: Determining the Governing Law of the Arbitration Agreement – Arsanovia and Beyond
(Forenoon, May 19, 2013, Sunday)

Session IV: The Way Forward: A Call for Institutional Arbitration?
(Afternoon, May 19, 2013, Sunday)

Registration fee for those who make an advance payment/bank transfer is Rs. 500 for students and Rs. 1000 for others. All those interested are requested to register at:https://docs.google.com/forms/d/1hXthITsHurIQBClJAkZkiKWdbjkXoKJ4MFRSI0VgGfU/viewform

The registration fee for those who register at the venue is Rs. 750 for students and Rs. 1250 for others.

For more details including the concept note and future updates please visit: http://www.nlsir.in/symposium.html.

For regular updates, also see our Facebook page: http://www.facebook.com/nlsir?fref=ts.

For further information, please contact Ashwita Ambast (Chief Editor): +91-9986478265; Sahil Kher (Deputy Chief Editor): +91-9739265715 or email us at mail.nlsir@gmail.com.

Book Notice: Intellectual Property Rights: Infringement and Remedies

2012-10-09T10:16:00.001+05:30

Mr. Ananth Padmanabhan, an Advocate practicing at the Madras Bar and a guest contributor to this blog, has authored a book, Intellectual Property Rights: Infringement and Remedies, which has been published by Lexis Nexis. The table of contents (seen on the Lexis webpage) indicates the thorough scope of the book. We will carry a more detailed review shortly.

Section 45 of the Arbitration and Conciliation Act: A Recent Dvelopment

2012-10-08T09:47:00.000+05:30

The Hon’ble Supreme Court in Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. (“Chloro Controls”) was called upon to answer important questions of law pertaining to section 45 of the Arbitration and Conciliation Act, 1996. The facts of the case concerned a joint venture agreement (“the principal agreement”) between an American company (Capital Controls (Delaware) Company Inc.), an Indian company (Chloro Controls India Pvt. Ltd.) and the director of the Indian company (Mr. M.B. Kocha). The principal agreement also provided for several ancillary agreements to be entered into between the Indian company, the group of companies to which the American Company belonged (the Severn Trent Group) and the director of the Indian company, amongst others. While the principal agreement contained an arbitration clause, some of the ancillary agreements did not. Further, not all the respondents in the original suit were parties to the arbitration agreement. The primary issue that arose was whether all the parties to the suit could be referred for arbitration under section 45 of the Act.

Section 45 of the Act reads as follows:

“Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.”

The portions underlined above are absent in section 8 of the Act. Thus, a bare perusal of the two provisions suggests that the nature of enquiry relating to an application under section 8 is different from that under section 45 of the Act. This distinction is crucial to determine the scope of observations made by the Court in Chloro Controls.

The Court, speaking through Swatanter Kumar J., framed the following four questions of law in this case:

What is the ambit and scope of Section 45 of the Arbitration and Conciliation Act, 1996?
Whether the principles enunciated in the case of Sukanya Holdings Pvt. Limited v. Jayesh H. Pandya is the correct exposition of law?
Whether in a case where multiple agreements are signed between different parties and where some contain an arbitration clause and others don't and further the parties are not identically common in proceedings before the Court (in a suit) and the arbitration agreement, a reference of disputes as a whole or in part can be made to the arbitral tribunal, more particularly, where the parties to an action are claiming under or through a party to the arbitration agreement?
Whether bifurcation or splitting of parties or causes of action would be permissible, in absence of any specific provision for the same, in the 1996 Act?

Scope of Enquiry in an Application Filed Under Section 45 of the Arbitration and Conciliation Act:

Before referring a matter for arbitration under section 45 of the Act, the Court must come to a conclusion that the arbitration agreement is not “null and void, inoperative or incapable of being performed”. In the event that the Court concludes that the agreement is indeed null and void, inoperative or incapable of being performed and rejects the application for arbitration, the order is appealable under section 50(1)(a) of the Act. However, if the Court comes to a conclusion to the contrary and refers the matter for arbitration, an issue that arises is whether the validity of the arbitration agreement can again be challenged before the arbitral tribunal on any of the grounds of invalidity mentioned in section 45.

The Court in Chloro Controls held that arbitral tribunal cannot review the decision arrived at by the Court on the validity of the arbitration agreement. In order to arrive at this conclusion, the Court relied heavily on S.B.P. & Co. v. Patel Engineering, where it was held that the decision of the Chief Justice or his designate on the validity of the arbitration agreement under section 11(6) of the Act is final and cannot be reviewed by the arbitral tribunal. Further, analysing the judgment in Shin-Etsu Chemical Co. v. Aksh Optifibre Ltd., the Court held that the issue of finality of a decision under section 45 was not answered in that case. However, the Court did not appreciate the fact that Shin-Etsu conclusively held (by a majority of 2:1 with Sabharwal J. dissenting) that in an application filed under section 45 of the Act, the Court is only required to enter into a prima facie enquiry as regards the validity of the arbitration agreement. In particular, if on such prima facie enquiry, the arbitration agreement is found to be valid, the Court is bound to refer the matter for arbitration. Thus, although admittedly the question of whether an arbitral tribunal can review a decision made by a Court under section 45 was not answered in Shin-Etsu, the scope of the enquiry under section 45 was conclusively determined.

On the basis of this reading of Shin-Etsu, it is evident that there is a difference in the scope of enquiry under section 11 and that under section 45 of the Act. According to the Court in Patel Engineering and several other cases that followed it, the Chief Justice of his designate is required to conduct a detailed enquiry as regards the validity of the arbitration agreement before the appointment of an arbitrator, as opposed to the prima facie enquiry to be conducted under section 45. In the light of this stark contrast between the scope of enquiry under the two provisions, it is respectfully submitted that the Court in Chloro Controls wrongfully relied on Patel Engineering to ascribe finality to the issue of validity of an arbitration agreement as determined by a court under section 45.

Correctness of the decision in Sukanya Holdings and the law on bifurcation of cause of action:

The Court clarified that the decision in Sukanya Holdings was not to be considered as that case arose under section 8 of the Act, and not under section 45. It also stated that unlike the facts in Sukanya Holdings where the subject-matter of the suit was broader than the subject-matter of the arbitration agreement, the present case involved a principal agreement and some ancillary agreements with a composite transaction between the same parties or parties covered by section 45.

Even though the validity of the decision in Sukanya Holdings was not in consideration in Chloro Controls, it is submitted that the Court’s reasoning is in consonance with the principles laid down in Sukanya Holdings. A brief outline of the principles in Sukanya Holdings would be of assistance here. The Court there held that a matter could not be referred for arbitration under section 8 if: 1) all the parties to the suit are not parties to the arbitration agreement or 2) the entire subject-matter of the suit is not subject to the arbitration agreement. The rationale was that a situation where multiple forums come to conflicting decisions on the same issue is undesirable. Thus, all the issues ought to be adjudicated upon by the same forum.

Now, let’s examine the reasons for which the Court in Chloro Controls held that all the parties in that case may be referred for arbitration of the entire dispute. As regards the subject-matter, the Court relied on the broad wording of the arbitration clause (especially the words ‘under and in connection with’) to hold that the agreement was comprehensive enough to include all disputes relating to the principal as well as the ancillary agreements. As regards the parties, the Court held that the fact that not all the parties were signatories to all agreements was insignificant because of the distinct nature of the transaction and the relationship between the various parties. The Court expressly stated even in such exceptional situations, non-signatory parties could be referred for arbitration if and only if they fell within the ambit of “any person claiming through or under him” in section 45 (para 95).

Thus, the test adopted by the Court was whether applying the broad wording of section 45, the issue could be decided in its entirety by the arbitral tribunal. It noted: “Even if different forums are provided, recourse to one of them which is capable of resolving all their issues should be preferred over a refusal of reference to arbitration.”

Thus, it is submitted that the law on bifurcation of cause of action is the same for both section 8 and section 45.

Recent AAR Rulings

2012-08-23T16:12:00.002+05:30

Some recent reports have pointed out that the Authority for Authority for Advance Rulings has once again sanctified the “Mauritius route”. While the law since Azadi Bachao Andolan’s case has upheld the sanctity of a tax residency certificate, the Revenue has not given up its efforts to find the “hidden reality” or “true facts”. The Revenue has also met with some success in its attempts, before the High Court (Aditya Birla Nuvo) and also the AAR (for example, see Re Groupe Industrial Marcel Dassault). Two recent rulings of the AAR – while on facts ruling in favour of assessee – do not really forestall the Revenue’s attempt to go behind a TRC.

In the case of Dynamic India Fund (AAR 1016/2010 dated 18^th July, 2012), it was contended that sale of shares in an Indian company by a company having a Mauritius TRC was not taxable in India. The Revenue’s objections were that the use of the Mauritius Company was for evading tax. Further, only 2 directors were from Mauritius, and three were from India. These objections were rejected not by a straight forward reference to the TRC, but because “there is no adequate (factual material to support this contention (that control vests in a non-Mauritius jurisdiction).”

Another ruling is in the case of Moody’s Analytic (AAR 1186 to 1189/2011 dated 31^st July 2012). In this case, the Revenue contended that the beneficial owner of shareholding was in Jersey, and not Mauritius. Accordingly, Mauritius treaty benefits were not permissible. Additionally, the Revenue argued that management and control of seller companies did not lay in Mauritius. It was argued that the decision of the Supreme Court in Vodafone has modified the ratio on the decision in Azadi Bachao Andolan. The AAR answered this contention not by rejecting it outright as a matter of principle, but only on the facts. The AAR held, “… on the conclusiveness of a tax residency certificate, it cannot be said that it has been shown that the effective management of the companies is not from where their Board of Directors function. Normally, the management of a company vests in its Board of Directors as authorized by the General Body. The role of Rishi Khosla highlighted by the Revenue is in respect of the sale transactions undertaken and in pushing them through. It does not appear to be a role in connection with the running of the businesses of the companies concerned. It is not shown that the management of the companies in Mauritius in general, is not with a Board of Directors of those companies sitting in Mauritius Khosla is a resident. Even if one were to take the Business Advisory Agreement relied on by the applicants with a pinch of salt, it cannot be said that the role played by Rishi Khosla in these transactions establish that the management and control of the Mauritian companies is with Rishi Khosla. It is therefore not possible to accept the contention of learned counsel for the Revenue that by applying the place of management test, the seller companies could be held to be non-Mauritian companies…”

The AAR then held, “There may be some substance in the argument of the learned counsel that this Authority has to consider only the negative, namely that the control of the companies is not in Mauritius and it is not necessary for this Authority to find positively that the control and management is with Rishi Khosla, before coming to a conclusion that the applicants are not entitled to claim the benefit of the India-Mauritius DTAC. But on the available fact, the presumption that the control and management of the companies rest with the Board of Directors cannot be said to have been rebutted by sufficient or cogent material I overrule the arguments in this behalf….” In other words, a TRC creates at best a rebuttable presumption, and is not conclusive. On the aspect that beneficial ownership of shares was in Jersey and not in Mauritius, the AAR rejected the argument clearly: “As things now stand, in such cases the theory of beneficial ownership has not prevailed over the apparent legal ownership. Company law also recognized the recorded owner of the shares and not’ the person on whose behalf it may have been held (even if, possible). I am, therefore, satisfied that this attempt of counsel for the Revenue must also fail.” In this background, the issues were answered in favour of the assessee.

Thus, while the importance of a TRC must be acknowledged, it is still not clear whether a TRC is absolutely conclusive. The rulings of the AAR would suggest that it is not. To what extent Vodafone has affected the correctness of the decision in Azadi on this point is a matter which will require further judicial examination, particularly in light of the arguments of the Revenue before the AAR in these two cases.

Another recent ruling of the AAR – not on the same issue – is that in Re Castleton Investment Ltd. The AAR has questioned the correctness of a number of its previous rulings (including Re Dana Corp and re Timken): this will be further considered in a subsequent post.

Agency: Ostensible Authority and Estoppel

2012-07-17T16:16:00.000+05:30

The Privy Council in Kelly v. Fraser, [2012] UKPC 25, recently revisited the issue of whether an agent can be said to have ostensible authority on the basis of his own representations.

Mr. Fraser, the Respondent, became the CEO of Island Life Insurance Company on 1^st February, 2000, and shortly after that became a member of the Salaried Staff Pension Plan (“SSP”) of the company. The SSP was operated under a trust deed, which vested the management of the plan to trustees. The trustees delegated day-to-day administration to the employee benefits division of the company. Mr. Fraser was initially employed by another company, and had contributed to that company’s pension scheme. He discussed with Mr. Masters, the Vice-President of Island Life’s employee benefits division, the possibility of a transfer of the accrued value of his entitlement from the other company’s scheme to SSP. Under SSP’s trust deed, such transfer was to be carried out “in a manner and on the terms and conditions determined by the trustees in their sole discretion… but if in the judgment of the trustees this is impractical, inadvisable or inexpedient, the benefits and amounts accrued to the contributor shall remain in the said other company pension plan…” A letter requesting approval for the transfer was sent to the trustees, but evidently, no further action was taken on the letter. It was admitted that the trustees were not aware of the application/letter. Subsequently, in December 2000, Mr. Masters wrote the Mr. Fraser, confirming that “the Trustees… have transferred…” the accrued benefits to the SSP. In reality the trustees had not. Subsequently, the SSP was to be wound up, and the issue arose as to whether Mr. Fraser’s entitlement to the corpus should be calculated on the basis of his ordinary contributions alone, or on the basis of the ordinary contributions plus the accrued benefits.

The short point was whether Mr. Master’s representation could act as an estoppel against the Trustees from subsequently denying that the transfer had occurred. It was admitted that only the Trustees had the authority to approve the transfer: Mr. Masters had no such authority. Equally, it was admitted that Mr. Masters had no actual authority to inform Mr. Fraser that everything was in order if it was not. The question therefore was whether Mr. Masters had the ostensible authority to tell Mr. Fraser that whatever steps needed to be taken to carry out the transaction had been duly performed, although he had no authority (actual or ostensible) to take those steps himself.

The trustees relied on certain observations of Goff LJ (confirmed by Lord Keith in the House of Lords) in Armagas v. Mundogas, [1986] AC 717 to the effect that English law does not accept the general proposition that ostensible authority of an agent to communicate agreement by his principal to a particular transaction is different from ostensible authority to enter into that particular transaction. In other words, Armagas suggests that ostensible authority to communicate agreement is conceptually similar to ostensible authority to enter into the agreement: so if there is no authority to agree, there is no ostensible authority to communicate agreement either. There were some views to the contrary: First Energy v. Hungarian International Benk, [1993] 2 Lloyd’s Rep 194, Egyptian International v. Soplex, [1985] 2 Lloyd’s Rep 36. In First Energy, Evans LJ said that there is “no requirement that the authority to communicate decisions should be commensurate with the authority to enter into a transaction…”

After considering these cases in Kelly v. Fraser, Lord Sumption explained the position thus: “An agent cannot be said to have authority solely on the basis that he has held himself out as having it. It is, however, perfectly possible for the proper authorities of a company (or, for that matter, any other principal) to organise its affairs in such a way that subordinates who would not have authority to approve a transaction are nevertheless held out by those authorities as the persons who are to communicate to outsiders the fact that it has been approved by those who are authorised to approve it or that some particular agent has been duly authorised to approve it…” Armagas was explained as turning on its “complex and extraordinary facts”: in particular, the third party knew that the agent had no authority to do the specific act, which the agent held himself out as having the authority to do. Armagas was therefore treated as a case where the third party has been put on notice, and that case “is not authority for the broader proposition that a person without authority of any kind to enter into a transaction cannot as a matter of law occupy a position in which he has ostensible authority to tell a third party that the proper person has authorised it…”

By way of analogy, Lord Sumption pointed out that a company secretary does not have the actual authority which the Board of Directors has, but the secretary does have ostensible authority “by virtue of his functions” to communicate what the board has decided. The analogy is interesting: and gives rise to an additional debate. Is ‘authority by virtue of his functions’ another manner of saying ‘usual authority’ – and if that is so, is that better regarded as implied actual authority rather than ostensible authority? In Kelly’s case, it was admitted that there was no actual authority (whether express or implied) to communicate as they did – the point was solely pertaining to ostensible authority. Be that as it may, the Privy Council seems to have confirmed that there may be situations where an agent has the authority to communicate the acceptance of an agreement although he has no authority to agree. That communication may in turn give rise to an estoppel as against the principal.

This conclusion, reconciling Armagas and First Energy, has also found acceptance in other common law jurisdictions. Interested readers may refer to the judgment of Chan Sek Keong CJ in Skandinaviska Enskilda v. Asia Pacific Breweries, [2011] 3 SLR 540. Kelly v. Solari also has interesting observations on the issue of what constitutes “detrimental reliance” for the purpose of creating an estoppel: the Privy Council clarified that “the detriment need not be financially quantifiable, let alone quantified, provided that it is substantial and such as to make it unjust for the representor to resile. A common form of detriment, possibly the commonest of all, is that as a result of his reliance on the representation, the representee has lost an opportunity to protect his interests by taking some alternative course of action. It is well established that the loss of such an opportunity may be a sufficient detriment if there were alternative courses available which offered a real prospect of benefit, notwithstanding that the prospect was contingent and uncertain…” The advice of the Privy Council in Kelly is available on BAILII, and can be accessed here.

Call for Submissions: Indian Journal of Arbitration Law

2012-04-29T16:28:00.000+05:30

The following is a call for submissions by the Indian Journal of Arbitration Law:

The Indian Journal of Arbitration Law is a biannual, student reviewed e-journal launched by the Centre for Advanced Research and Training in Arbitration Law of National Law University, Jodhpur.

National Law University, Jodhpur, one of the premier national law institutions in India, is taking successful initiatives for the promotion of areas related to the specialized fields of law. To strengthen the promotion of knowledge, research and legal interaction in the subject of arbitration law, it has established the Centre for Advanced Research and Training in Arbitration Law. The Indian Journal of Arbitration Law is the one such initiative of this centre towards the development of this expert legal arena.

The Journal strives to inculcate the prevalent theories in the field of arbitration with their practical relevance. The editorial board seeks to achieve this feat by including contributions from individuals with varied expertise of practicing arbitration and by focusing on developing trends. In this regard, the board would give due emphasis to the rich thought processes of students of law, who bring to the forefront the innovative academic research currently underway in most law schools all over the world. Inclusion of changing regional trends will play a vital part in understanding the scope and extant of this discipline and would therefore find due importance in the Journal.

The Indian Journal on Arbitration is pleased to announce its inaugural edition, which is to be published in July this year.

The theme for the inaugural edition would be: “India's tryst with Arbitration: Are we heading in the right direction?”

The Board of Editors cordially invites original, unpublished submissions for publication in the following categories:

· Articles

· Notes

· Comments

· Book Reviews

For details regarding publishing policy and guidelines please visit http://nlujodhpur.ac.in/call_for_papers.php

Manuscripts may be submitted via email.

In case of any further queries, please contact the editors at: editor.cartal@nlujodhpur.ac.in

Last Date for Submissions: 15 June, 2012

NLSIR Symposium on Mergers and Acquisitions

2012-04-27T19:03:00.000+05:30

The National Law School of India Review (NLSIR) - the flagship journal of the National Law School of India University, Bangalore is pleased to announce the V NLSIR Symposium on "Corporate Mergers and Acquisitions in India: Recent Regulatory Changes" scheduled to be held on May 5 and 6, 2012 at the National Law School campus, Bangalore. Confirmed speakers for the symposium include renowned legal luminaries such as Hon’ble Mr. Justice V. Ramasubramanian (Judge, Madras High Court), Mr. Dhanendra Kumar (Former Chairman, Competition Commission of India), Mr. Uday Holla (Senior Counsel, Karnataka High Court), Mr. Nishith Desai (Nishith Desai Associates), Mr. V. Umakanth (Assistant Professor, National University of Singapore), Mr. Sandip Bhagat, Mr. Rajat Sethi (Partners, SNR), Mr. Somasekhar Sundaresan (Partner, J Sagar Associates), Mr. Ajay Vohra (Managing Partner, Vaish Associates), and Mr. K. Swaminathan (Director - Direct Tax and Transfer Pricing Litigation, Delloitte Haskins and Sells), amongst others.

This year, the discussions will be divided into four panels:

Session I: The Competition Regime Governing Transaction of Business in Combinations

(Forenoon, May 5, 2012, Saturday)

Session II: Takeover Regulation in India: Liberalisation with Caution

(Afternoon, May 5, 2012, Saturday)

Session III: Cross-border Mergers and India’s Taxation Regime

(Forenoon, May 6, 2012, Sunday)

Session IV: Companies Bill, 2011: Indian Company Law at the Cross-roads

(Afternoon, May 6, 2012, Sunday)

Registration fee for the symposium is Rs. 500 for students and Rs. 1500 for others.

For more details including the concept note, program schedule and online registration, please visit: http://www.nlsir.in/symposium.html.

For regular updates, also see our Facebook page: http://www.facebook.com/NationalLawSchoolOfIndiaReviewSymposium2012?ref=ts.

For further information, please contact Krishnaprasad K.V. (Chief Editor): +91-9916589670; Ashwita Ambast (Deputy Chief Editor): +91-9986478265 or email us at mail.nlsir@gmail.com.

"Team Poaching" and Springboard Relief

2012-02-13T17:27:00.002+05:30

The law relating to “team poaching” has come up for consideration in the past few years before the Courts. Typically, in such cases (where employees move en masse to a competitor) Courts are concerned with balancing the freedom of employees to leave employment and set up new ventures with the duty of fidelity owed to employers. Typically, the more senior the employer, the more onerous the duties he owes to his employer. If the employee concerned is also a director, questions of fiduciary duties, the no conflict/no profit rules etc. may also arise. Particularly in cases of team moves, Courts are also concerned to ensure that employees leaving en masse in a planned manner does not result in the new venture getting an unfair competitive lead over the employer. These issues were elaborately discussed at first instance recently in QBE Management v. Dymoke, [2012] EWHC 80 (QB). Justice Haddon-Cave summarized the law in this relation as follows (see para 169 onwards):

“(1) It is indisputable that an employee owes his employer a contractual duty of ‘fidelity’, but how far it extends will depend on the facts of each case (per Lord Green MR in Hivac v Park Royal [1946] Ch 169 at 174).

(2) The more senior the staff the greater the degree of loyalty, fidelity and diligence required (per Openshaw J. in UBS Wealth Management (UK) Ltd v Vestra Wealth LLP [2008] IRLR 965 at paragraph [10]).

(3) The first task of the court is to identify the nature of the employee’s obligations of fidelity and then to decide whether the employee’s activities are in breach (per Moses L.J. in Helmet Integrated Systems v Tunnard [2007] IRLR 126 at paragraph [32]).

(4) The mere fact that activities are described by an employee as ‘preparatory’ to competition does not mean that they are legitimate (per Moses L.J. I Helmet Integrated Systems v. Tunnard [2007] IRLR 126 at paragraph [28]).

(5) It is a breach of the duty of fidelity for an employee to recruit or solicit another employee to act in competition (see British Midland Tool v Midland International Tooling Ltd [2003] 2 BCLC 523).

(6) Attempts by senior employees to solicit more junior staff constitutes particularly serious misconduct (Sybron Corp v. Rochem Ltd [1984] Ch 112).

(7) It is a breach of the duty of fidelity for an employee to misuse confidential information belonging to his employer (see Faccenda Chicken Ltd v Fowler[1987] Ch 117).

(8) The court should ask whether the activities in which the employee is engaged affect his ability to serve his employer faithfully and honestly and to the best of his abilities (see Shepherds Investments Ltd v. Walters [2007] IRLR 110 at paragraph [131]).”

This general discussion of the duty of employees was supplemented by the following propositions, particular to “team moves” or “team poaching” (see para 170 onwards):

“In the context of 'team moves' or 'team poaching', four recent cases provide useful guidance and illustrations of what may constitute illegitimate conduct… In Shepherd Investments Ltd and Anr v Walters & another [2006] EWHC 836 (Ch), Etherton J. held that when former directors and employees set up a competing business, diverting business opportunities and misusing confidential information, they had acted in breach, not only of their fiduciary obligations, but also their implied obligation of fidelity, from the moment that they procured the services of attorneys in the Cayman Islands to set up the rival business. On the facts of that case, Etherton J, held that a former employee was also in breach of obligations as a fiduciary, whether or not he was to be regarded as a director, and that he was in breach of his duty of fidelity… In UBS Wealth Management v. Vestra Wealth LLP (supra) Openshaw J. said at paragraph 24: "I cannot accept that employees, in particular senior managers, can keep silent when they know of planned poaching raids upon the company's existing staff or client base and when these are encouraged and facilitated from within the company itself, the more so when they are themselves party to these plots and plans. It seems to me that that would be an obvious breach of their duties of loyalty and fidelity to [their employer]". In Kynixia v. Hynes [2008] EWHC 1495 Wyn Williams J. said at paragraph 283: "I simply do not see how one can be acting as a loyal employee when one knows that three senior employees (including oneself) may transfer their allegiance to a group of companies which includes a competitor and yet not only fail to divulge that knowledge but also say things which would have the effect of positively misleading the employer about that possibility." In Tullett Prebon plc v. BCG Brokers LP [2010] IRLR 648 Jack J. said at paragraphs 68-69: "[A] desk head must not do anything to assist the recruitment of his desk... Where a desk head decides that he is in favour of the recruitment of his desk and thereafter assists the recruitment in such small or large ways as may arise, he is in plain breach of his duty: he has crossed the line between observing his duty to his employer and acting in the interest of his employer's rival." The position as regards mutual soliciting by employees is usefully summarised as follows in Goulding on Employee Competition (2^nd Edition) at paragraphs [2.164] to [2.166]: "Discussions between employees as to proposed concerted competitive activity will rarely if ever be acceptable, given the near-inevitable damage to the employer as a result of such concerted activity. It remains possible that a discussion between close friends at a similar level within the business as to the potential of working together in the future would give rise to no breach. In such circumstances, neither employee would be soliciting the other and neither would be encouraging the other to terminate their employment with the employer. However, as set out in the British Midland Tool case, once an irrevocable intention to compete is formed, resignation and disclosure of the intention is probably the only certain means of avoiding a breach.”…”

What is also particularly interesting about this decision is that the Court found that the non-compete covenants in the employment contracts were not enforceable (see para 237): however, the Court in any case granted injunctive “springboard” relief to prevent the employees from gaining an unfair competitive advantage. This is an interesting point, and I am unaware of an Indian Court refusing to enforce contractual restrictive covenants (say, because of s. 27 of the Contract Act; but then substantially giving the same relief on other grounds). Another interesting point which comes up is this: to what extent is the duty of “fidelity” similar to a fiduciary duty? Justice Haddon-Cave approvingly refers to the following passage from Nottingham University v Fishel[2000] ICR 1461:

“... in determining whether a fiduciary relationship arises in the context of an employment relationship, it is necessary to identify with care the particular duties undertaken by the employee, and to ask whether in all the circumstances he has placed himself in a position where he must act solely in the interests of his employer.”

A more detailed discussion will follow subsequently.

New decision of Presumption of Resulting trust and Presumption of Advancement

2012-02-07T14:22:00.000+05:30

An extremely interesting discussion of the role of the “presumption of resulting trust” and the “presumption of advancement” is found in the decision of the Supreme Court of Western Australia (per Edelman J.) in Anderson v. McPherson (No. 2), [2012] WASC 19, available on AustLII here. Interested readers are referred to the discussion from paragraph 87 onwards.

Looking back at 2011: Income tax

2012-01-04T17:34:00.000+05:30

A post looking back at some important tax issues decided in 2011 is available on the indian Corporate Law blog, here.

Public Law Symposium at NLSIU, Bangalore

2011-11-23T01:58:00.001+05:30

The National Law School of India Review, the flagship journal of National Law School of India University, Bangalore is pleased to present the first NLSIR Public Law Symposium to be held on 10 December, 2011 at the National Law School campus. The theme of the symposium is "Adjudication of Socio-Economic Rights by the Indian Supreme Court", an issue which has seen significant legal developments in the recent past. The symposium will be attended by renowned legal luminaries including Justice Muralidhar, Mr. T. R. Andhyarujina, Mr. Shyam Diwan and Mr. Arun Kumar Thiruvengadam, amongst others.

The discussion will be divided into two sessions. In the first session (scheduled between 10.30 A.M.-12.30 P.M.) the panel will discuss the substantive adjudication of socio-economic rights undertaken by the Supreme Court concerning questions of the ever-widening ambit of Article 21 and the content of the new rights so evolved. The changing nature of the relationship between Part III and Part IV of the Constitution due to such expansion will form an important part of the session. The second session (scheduled between 1.30 P.M.-3.30 P.M.) will focus on the manner in which the Supreme Court has enforced these rights and consider the variety of procedural innovations employed for the same, including PILs and continuing mandamus.

The registration fee for the symposium is Rs. 500 for professionals. There is no registration fee for students. All those interested are requested to register their attendance at the following link: <https://docs.google.com/spreadsheet/viewform?formkey=dEdkRTJua21BY2R5Snh1UWl1QXRCREE6MQ>.

For any further details regarding the symposium, please contact Krishnaprasad K.V. (Chief Editor, NLSIR) at +91-9916589670 or Ashwita Ambast (Deputy Chief Editor, NLSIR) at +91-9986478265 or email us at mail.nlsir@gmail.com.

Lifting the Veil: England & India

2011-11-05T11:09:00.000+05:30

In this post on Indian Corporate Law, I have discussed two recent judgments – one of the Bombay High Court, another of the England & Wales High Court – on lifting the corporate veil. The two judgments are Great Pacific Navigation v. M.V. Tongli Yantai and Linsen International v. Humpuss Sea Transport.

Equitable Set-off and Limitation

2011-10-07T17:39:00.000+05:30

A reader in his comments on a previous post pointed out that the 2004 Calcutta High Court decision in Peerless General Finance had stated that section 3 of the Limitation Act, 1963, does not affect an equitable set-off. This decision, however, had not taken into consideration an older line of authority (1915, Madras High Court, Chetty v. Desikar) which appears to hold that the statute of limitations does apply to equitable setoff. This contradiction raises an interesting issue: can an equitable set-off be raised in answer to a claim, even where the equitable set-off could not be pleaded as an independent claim on account of limitation?

On principle, the argument for allowing an equitable set-off to be pleaded would run thus: Limitation bars the remedy but does not extinguish the right. Equitable set-off is a substantive defence. As long as the right is not extinguished, there is no reason why equitable set-off should not be set up as a substantive defence. On the other hand, it might be contended that equitable setoff operates as a substantive defence on the basis that the two claims are so closely connected, that equity would regard them as one. Hence, when one claim is barred (as a matter of the right to recover, as opposed to a matter of the forum of recovery), equity may not regard the claims as being one. Further, equity must run according to the law and not in derogation thereof.

I have not come across any Indian authorities discussing the issue and the authorities in detail; however, there appears to be substantial discussion in relation to this issue in English law. Lord Denning MR in Henriksens Rederi v. Rolimpex (The Brede) [1974] 1 QB 233 stated, “In point of principle, when applying the law of limitation, a distinction must be drawn between a matter which is in the nature of a defence and one which is in the nature of a cross-claim. When a defendant is sued, he can raise any matter which is properly in the nature of a defence, without fear of being met by a period of limitation. No defence, properly so called, is subject to a time-bar. But the defendant cannot raise a matter which is properly the subject of a cross-claim, except within the period of limitation for such a claim.” However, in that case, the majority left this specific point open. Lord Denning’s view was, however, approved in Westdeutsche v. Islington Borough, [1994] 4 All ER 89; and then in Filross Securities Ltd v Midgeley [1998] EWCA Civ 1248.

[The decision of the House of Lords in Aries tankers v. Total Transport, [1975] 1 WLR 185, where the House held that a claim beyond time could not be pleaded as equitable set-off, is explained on the basis that in that case, the contract between the parties had incorporated Article III Rule 6 of the Hague Rules. The effect of Rule 6 is that the right itself is extinguished – so, Rule 6 is to that extent different from a mere limitation provision which only bars recovery.]

Links of Interest

2011-08-26T15:02:00.001+05:30

1. This article by Mr. V. Umakanth discusses put and call options in the context of securities regulation in India. From the abstract: “This article embarks on the modest task of mapping out the legal landscape that presently shapes the enforceability of put and call options in Indian companies. It seeks to review applicable legislation and analyze key judicial pronouncements that hold sway over the field. It finds that the current legal regime governing put and call options in investment agreements is fragmented and hazy and unnecessarily restricts the ability of investors in Indian companies to enter into such arrangements to protect their own interests. It calls for a reconsideration of the legal regime so that physically settled options that are customary in investment agreements may be treated as valid and legally enforceable…”

2. This post on the UKSC Blog discusses a recent decision of the UK Supreme Court, Belmont v BNY, where the Supreme Court has discussed the “anti-deprivation rule” in insolvency law. The rule is effectively that “There cannot be a valid contract that a man’s property shall remain his until bankruptcy, and on the happening of that event shall go over to someone else and be taken away from his creditors…” Ex p Jay; Re Harrison [1880] 14 Ch D 19. The Supreme Court has held that the rule applies only when there is a deliberate intention to evade insolvency laws, and does not hurt genuine commercial arrangements. Lord Mance’s judgment notes the background of the rules: “I am satisfied that there are, and ought to be, two principles in this area. One is the principle applied in British Eagle, which precludes a bankrupt from agreeing to distribute his, her or its property other than pari passu in bankruptcy (although it does not preclude creditors from agreeing inter se on the distribution inter se of their pari passu shares: In re Maxwell Communications Corpn plc [1993] 1 WLR 1402). The other is a concurrent principle, whereby dispositions of property on bankruptcy may be invalidated as being in fraud or an evasion of the bankruptcy laws… While the two principles are conceptually distinct, they are quite closely allied. British Eagle addresses what happens in bankruptcy. An anti-deprivation principle addresses what happens on bankruptcy. If contracting out of the statutory rule requiring pari passu distribution in bankruptcy is impermissible, it would be surprising if there were no concurrent principle capable of invalidating certain dispositions which, by removing property from the bankrupt on bankruptcy, had the same ultimate effect… “ He then laid down a three-fold test to apply in anti-deprivation cases: “The existence of a contractual scheme, which is said to create the relevant property interest, but at the same time to include provisions providing for its illegitimate deprivation on bankruptcy, raises several questions: First, how far did the scheme confer any property interest on the subsequently bankrupt party? Second, how far did it deprive him of any such property on bankruptcy? Third, in so far as it did deprive him of any such property on bankruptcy, did this amount to an illegitimate evasion of the anti-deprivation principle?”

3. In this post on Indian Corporate Law, I have discussed the judgment of the Bombay High Court in Retailers Association v Union of India, where the Court upheld the constitutional validity of service tax on renting of immovable property.

4. This post discusses a recent decision of the England & Wales High Court, where the Court held that members of an limited liability partnership do not as such owe fiduciary duties to one another.

5. This post on the Lex Arbitri blog discusses the historical development of arbitration law in India.

Call for Submissions: National Law School of India Review

2011-08-11T15:48:00.007+05:30

The National Law School of India Review is now accepting submissions for its upcoming issue - Volume 24(1).The National Law School of India Review (NLSIR) is the flagship law journal of the National Law School of India University, Bangalore, India. The NLSIR is a bi-annual, student edited, peer-reviewed law journal providing incisive legal scholarship on issues that are at the forefront of contemporary legal discourse. Over the last 20 years, the NLSIR has regularly featured articles authored by judges of the Indian Supreme Court, Senior Counsel practicing at the Indian bar, and several renowned academics.

The most recent issue of the NLSIR, Vol. 23(1), featured contributions by Mr. Justice Altamas Kabir (Judge, Supreme Court of India), Professor Christopher Forsyth (Cambridge University), Professor Julian Roberts (Oxford University), Professor Lea Shaver (Yale Law School), Professor Ariel Ezrachi (Director, University of Oxford Centre for Competition Law and policy) and Mr. K. Swaminathan (Head of the Direct Tax Practice at Lakshmikumaran & Sridharan) among several others. Moreover, in August 2009, NLSIR attained the unique distinction of being the only Indian student-run law journal to be cited by the Supreme Court of India, in Action Committee, Un-Aided Private Schools v. Director of Education. NLSIR has also recently been cited in Justice R. S. Bachawat's Law of Arbitration and Conciliation, a leading treatise on arbitration law in India.

Papers may be submitted as Long Articles (approximately 8000 words), Essays (approximately 5000 words) or Notes (approximately 2500 words). Submissions may be made to mail.nlsir@gmail.com. Queries regarding submission may be sent to the same email address. The last date for submissions is November 1, 2011. Formore information, please visit - www.nlsir.in.

Update

2011-05-23T15:22:00.000+05:30

I have posted a short note on Indian Corporate Law, dealing with some issues in MAT. The note is available here.

Event Announcement: NLSIR Symposium

2011-04-14T13:26:00.001+05:30

4th ANNUAL NLSIR SYMPOSIUM: INDIA’S TAXATION REGIME: PERSPECTIVES ON THE PROPOSED CHANGES

The Annual NLSIR Symposium has earned the reputation of being a unique forum for the consideration of contemporary legal developments having attracted leading practitioners such as Mr. Nishith Desai, Ms. Bijal Ajinkya, Mr. Sandeep Bhagat, Mr. Stephen York, Mr. Padam Khincha, Mr. Gourab Banerji, Mr. Arvind Datar, TP Ostwal and renowned academics including Mr. V. Umakanth, Assistant Professor, National University of Singapore, and Mr. Sandeep Parekh, Professor, IIM-A amongst others.

This year, the NLSIR Symposium is themed on “INDIA’S TAXATION REGIME: PERSPECTIVES ON THE PROPOSED CHANGES”. The first of the four sessions will deal with the implications of the anti-avoidance measures incorporated in the Direct Taxes Code Bill. The DTC introduces one of the most sweeping GAARs - treating tax avoidance almost on par with tax evasion. Whether the distinction between tax avoidance and tax evasion will continue to be retained after the coming into force of GAAR – and if so, how it will apply in practice – is an open question which the Symposium seeks to address as also the structuring of business transactions in light of GAARs and its impact on DTAAs. The second session aims at addressing taxation of e-commerce. Tax treatment of such transaction, i.e. whether source based or residence based taxation is to be followed assumes crucial importance. It also seeks to reflect upon issues involving taxation of software transactions and whether taxation should be in the nature of sales tax or service tax. The third session focuses on some of the contentious issues in indirect taxation today. The first is the hotly debated GST. Another controversial issue which this Session addresses is in reference to the interpretation and implications of Part XIII of the Indian Constitution and Art. 301’s interpretation and interplay with the rest of the provisions in Part XIII which has given rise to significant controversy over the years. The fourth and the final session addresses the future of India’s Tax regime. With provisions such as taxing FIIs through the capital gains, the new Branch Profit Tax etc., it is clear that the government is seeking to cast a wide net to pull in revenue from multiple fronts through DTC and such changes are sought to be analyzed in this session.

This years' Symposium is scheduled on the 16th and 17th of April 2011, and will be held at the International Training Center, National Law School of India University, Bangalore. The banquet will be at the Chancery Pavilion. The line-up of speakers includes partners of India's top law firms such as AMSS, AZB, SNR and Khaitan, senior advocates and judges.

Those interested in attending the Symposium can visit the NLSIR website (www.nlsir.in) for further details. Please register on the website (http://www.nlsir.in/symposium.html) or e-mail us (mail.nlsir@gmail.com). All registered delegates will be awarded a certificate of participation.

We look forward to seeing you at the Symposium!

Regards,

Editorial Board of the National Law School of India Review

SEBI Act: Exclusion of Jurisdiction and Tort Claims

2011-02-19T00:53:00.000+05:30

I have posted a short note on the Indian Corporate Law blog arguing that one of the claims made by Mr. Sandeep Parekh in his expert witness statement before US Courts in not correct as a matter of law. The issue is this – does the SEBI Act bar jurisdiction of civil courts to hear tort claims? In my view – no; in Mr. Parekh’s view, yes. Mr. Parekh’s reasoning is based in a large part on the judgment of the Bombay High Court in Kesha Appliances; I argue that the case is clearly distinguishable.

Mareva Injunctions revisited

2011-02-18T19:43:00.001+05:30

The legal tests for grant of a Mareva injunction or a freezing order are more detailed than the usual enquiry in grant of injunctions. These detailed factors (set out in Gee & Andrews, ‘Mareva Injunctions – Law and Practice’, 6^th edition, para 12.039) have been reaffirmed by the England & Wales High Court recently in Irish Response v. Direct Beauty Products [2011] EWHC 37 (QB).

In a sense, these may well be seen as factors which go to the ‘irreparable injury’ and ‘balance of convenience’ requirements for grant of injunctions. However, the standard interim injunction principles of American Cynamid v. Ethicon [1975] 1 All ER 504 have been held to be inapplicable to Mareva injunctions: Polly Peok International v. Nadir. In view of this, the approval of the detailed factors from Mr. Gee’s work is most helpful. As the learned Judge in Irish Response stated, “The critical difference between a decision as to whether to grant an ordinary injunction, applying the criteria identified in American Cyanamid Co. v. Ethicon Ltd., and a freezing order is that, whereas in the case of an ordinary injunction, once it has been demonstrated that there is a serious question to be tried and that damages would be an inadequate remedy, the question is where does the balance of convenience lie, in the case of a freezing injunction the issue, after "a good arguable case" has been shown and it has been demonstrated that there is a real risk that, absent the grant of an injunction, any judgment would go unsatisfied, is whether it is just and convenient to grant the injunction…”

The factors useful in this analysis of when a Mareva injunction is appropriate can be found in paras 31-33 of the judgment in Irish Response.

In Indian law, there does not appear to have been too much of discussion on the legal tests to be applied in granting a Mareva injunction. The Supreme Court in MVAL Qamar v. Tsavliris Salvage in obiter seems to have approved a couple of New Zealand decisions on the point. The Bombay High Court has recently stated, “A freezing of assets, known as "Mareva Injunction" is well known concept in English Law (Mareva Companies Naviera SA V. International Bulk Carries SA (1980) 1 All ER 213), as well as, recognized in India. (Venture Global Engineering Vs. Satyam Computer Services Ltd. & Anr., (2008) 4 SCC 190…” This Calcutta High Court judgment also has some discussion about the concept where it distinguishes a Mareva injunction from an attachment before judgment under the Code of Civil Procedure. The applicable legal tests in India are still unclear – readers are invited to point out any specific set of tests approved by the Indian courts in this regard.

Nomination and Succession: The Importance of the Statutory Language

2011-02-17T11:19:00.000+05:30

I had earlier highlighted a judgment of the Bombay High Court in Harsha Nitin Kokate. I had stated:

“The Bombay High Court in Harsha Nitin Kokate v. The Saraswat Co-operative Bank has held that the position of a nominee under Section 109A of the Companies Act, 1956 is not merely that of a trustee for the estate of the deceased, but “on the death of the share holder, the nominee would become entitled to all rights in the shares to the exclusion of all other persons…” Until now, the law in relation to nomination was controlled by the decision of the Supreme Court delivered in the context of Section 39 of the Insurance Act, Sarabati Devi v. Usha Devi. This judgment had then been cited by various High Courts in a non-insurance context. Kokate appears to restrict Sarbati Devi to insurance law only; and holds that Section 109A of the Companies Act lays down a different principle…”

The underlying reasoning of the High Court was based on the text of Section 109A of the Companies Act. The Supreme Court in a matter concerned with Section 45ZA of the Banking Regulation Act, 1949, has however reached a different conclusion. The Court, in Ram Chander Talwar v. Devender Kumar Talwar, Civil Appeal 1684 of 2004, (2010) 159 Comp Cas 646 (SC), has held:

“Section 45ZA(2) merely puts the nominee in the shoes of the depositor after his death and clothes him with the exclusive right to receive the money lying in the account. It gives him all the rights of the depositor so far as the depositor's account is concerned. But it by no stretch of imagination makes the nominee the owner of the money lying in the account. It needs to be remembered that the Banking Regulation Act is enacted to consolidate and amend the law relating to banking. It is in no way concerned with the question of succession…”

The question which then arises is whether this would mean that the reasoning in Kokate is no longer good law. The answer to this turns on whether there is a material difference between the relevant sections.

The Supreme Court in Talwar’s case was concerned with Section 45ZA(2) of the Banking Regulation Act, which states:

“(2) Notwithstanding anything contained in any other law for the time being in force or in any disposition, whether testamentary or otherwise, in respect of such deposit, where a nomination made in the prescribed manner purports to confer on any person the right to receive the amount of deposit from the banking company, the nominee shall, on the death of the sole depositor or, as the case may be, on the death of all the depositors, become entitled to all the rights of the sole depositor or, as the case may be, of the depositors, in relation to such deposit to the exclusion of all other persons, unless the nomination is varied or cancelled in the prescribed manner.”

The Bombay High Court in Kokate’s case was concerned with Section 109A(3) of the Companies Act, 1956, which states:

“(3) Notwithstanding anything contained in any other law for the time being in force or in any disposition, whether testamentary or otherwise, in respect of such shares in, or debentures of, the company, where a nomination made in the prescribed manner purports to confer on any person the right to vest the shares in, or debentures of, the company, the nominee shall, on the death of the shareholder or holder of debentures of the company or, as the case may be, on the death of the joint holders become entitled to all the rights in the shares or debentures of the company or, as the case may be, all the joint holders, in relation to such shares in, or debentures of the company to the exclusion of all other persons, unless the nomination is varied or cancelled in the prescribed manner.”

It is arguable that there is a material distinction in the sections – the Banking Regulation Act merely speaks of a “right to receive” and grants “all the rights of the sole depositor”. On the other hand, the Companies Act speaks of a “right to vest” and grants “all the rights in the shares”. Indeed, a large part of the reasoning of the Bombay High Court was based on the meaning of the word “vest”, which is present in Section 109A(3) of the Companies Act but is absent from Section 45ZA(2) the Banking Regulation Act. Consequently, it is submitted that the reasoning of the Bombay High Court continues to be good in law; and the ultimate result must depend on the specific language used in the particular statutes; and no general principle can be drawn to describe the effect of all nominations irrespective of the relevant statute.

United Kingdom Supreme Court: Links of Interest

2011-02-14T14:46:00.001+05:30

The UKSC Blog, created by solicitors and barristers (Olswang and Matrix Law), appears to be an extremely valuable resource for practitioners interested in developments in the UK Supreme Court. It is similar to the SCOTUS blog (US Supreme Court). I strongly recommend the blog to those interested in key developments in the Supreme Court of the UK.

Much has been said in India in recent days about judicial accountability; and Lord Phillips of the UK Supreme Court recently delivered an address on the topic from a UK perspective. The address, “Judicial Independence and Accountability: A View from the Supreme Court”, is available here.

The United Kingdom Supreme Court recently delivered its decision in Global Process Systems v. Syarikat Takaful Malasia Berhard [2011] UKSC 5. The Court dismissed the appeals from the judgment of the Court of Appeal reported in [2009] EWCA Civ 1398. The case raised interesting questions in the law of marine insurance. In particular, issues relating to causation and “inherent vice” were examined in detail. A summary is available here. The decision is available here. Lords Saville, Mance, Collins and Clark gave detailed (though in substance similar) opinions, and Lord Dyson agreed with the reasons given by all four. All the four detailed opinions contain valuable analysis of the law on the point. The Court has suggested that for an “inherent vice” defence to succeed, the sole cause of the loss must be the vice, and no external element should play a role in the loss (for an explanation of the facts and the decisions, please see this summary). Lord Clarke stated, “…the distinction is between damage caused by any external occurrence and damage resulting solely from the thing itself.” [emphasis mine] Although the Court of Appeal has been affirmed, there may be some changes in the legal tests applied by the two appellate courts. I will examine this in detail subsequently.

Event Update: Christ University Conference on Constitutional Law

2011-02-14T14:07:00.000+05:30

I received the following note which may be of interest to readers:

School of Law, Christ University is organizing a two day National Conference on the “INDIAN CONSTITUTION IN THE 21^ST CENTURY: A CONCEPTUAL AND CONTEXUAL AUDIT to be held on the 24^th and 25^th of February, 2011. The Conference is broadly structured around four themes namely:

· Reframing the Constitution: Is it really a need of the hour?

· National Security and Constitutional Challenges

· Development and Constitutional Challenges

· Challenges to the Functions of the Organs of the State

The Conference brings a unique opportunity to share and explore new ideas, concerns and suggestions among academicians, practitioner, policy makers and students. So far the conference has received an overwhelming response in that there are over fifty papers that are expected to be presented on the conference days.

Programme Details:

The first day of the conference will see participation of eminent jurists, academicians and practitioners such as Justice Santosh Hedge, Former Judge, Supreme Court of India, Justice P.P. Naolekar. Former Judge, Supreme Court of India, Prof. V.S. Mallar, Chair Professor (M.K.Nambiar Chair on Constitutional Law) at NLSIU, Shri Uday Holla, Senior Advocate, Supreme Court of India and Shri Aditya Sondhi, Advocate, Supreme Court of India.

The second day of the conference will see presentations by several academicians and students across the country. Leading scholars working in this domain will be moderating each of the sessions on the second day.

Contact

Practitioners, academicians, policy makers and students are invited to register as delegates. The conference brochure is available here. Further details will be made available on request. Interested readers can contact the Conference Organizing Committee at this email.

Registration Fee

For academicians	750 INR
For two delegates	1000 INR
For students	500 INR

Supreme Court on Section 394: Sesa v. Krishna Bajaj

2011-02-10T12:33:00.000+05:30

My note on the decision of the Supreme Court of India in Sesa Goa v. Krishna Bajaj is available on the Indian Corporate Law blog here. In brief, the Supreme Court interpreted the Provisos to Section 394(1). Under the second Proviso, on a literal reading, a report by the Official Liquidator (that the affairs of the company are not be carried on in a manner prejudicial to the members/public interest) is required before a scheme for amalgamation can be sanctioned. The Supreme Court has however allowed such a scheme to be sanctioned despite holding that the report of the OL was vitiated.

Lucasfilm v. Ainsworth: Preview to a UKSC hearing

2011-02-10T01:48:00.001+05:30

We had earlier briefly discussed the decision of the England and Wales High Court in Lucasfilm v. Ainsworth, and important decision on the interplay between intellectual property and private international law. The case was decided by the Court of Appeal subsequently (in December 2009); but what makes the issue particularly relevant at present is that the UK Supreme Court will shortly be hearing an appeal from the Court of Appeal decision. This case raises highly important issues pertaining to conflict of laws, and we will be following the UK Supreme Court decision. By way of introduction to that discussion, this post briefly looks at the Court of Appeal decision (Lucasfilm v. Andrew Ainsworth, [2009] EWCA Civ 1328).

The case also raises several questions in intellectual property law; for the time being, we will skip those issues and turn to one of the private international law issues: can a foreign copyright be enforced in a domestic court? More particularly, as the Court framed the issue, “Must or should this court accept jurisdiction to enforce Lucasfilm’s US copyrights against Mr Ainsworth for what he has done and threatens to do by way of sales from here to the US?” The issue turns on subject-matter jurisdiction. The relevant facts were stated to be as follows:

“The starting point here is that it is now common ground or undisputed that Lucasfilm does have US copyrights and that Mr Ainsworth has infringed them. The acts which constitute infringement by US law were all actually done in or from the UK. They consist of sales to US customers in the US by despatch of products from the UK, advertising on the internet and the placing of advertisements in US publications. It would seem that questions of where the property passes, or where the contract was made, or what law governs it and the like are irrelevant under US law. They might not be if the position were the other way round (see e.g. Badische Anilin v Hickson [1908] AC 419 – under the old law no UK patent infringement by sale and despatch from Germany). It is not necessary to examine whether the concession of infringement according to US law is correct. What is to be noted is that the extent to which US copyright law extends "a long-arm" to acts in fact done only in this country is itself a question of American, not English law. Other foreign laws might extend an even longer arm: if they did it would make no difference if jurisdiction here is automatic and compulsory. The arguments for subject-matter jurisdiction fall under three heads: a) That the judgment in Owusu, Case C-281/02 compels it; b) That this court in Pearce v Ove Arup [2000] Ch. 403 decided that the English courts have subject-matter jurisdiction over all acts of infringement of copyright committed anywhere in the world; c) That, even if subject-matter jurisdiction is not compelled, the courts here have a discretion to accept jurisdiction and should do so as a matter of forum conveniens.”

Contention (a), based on Owusu, is a matter turning on EU law. Once more, I will skip this discussion, and instead turn to contention (b). Under common law, do domestic courts have subject-matter jurisdiction in respect of all acts of copyright infringement, including those concerning a foreign copyright? Mann J. in the High Court had held in favour of such jurisdiction, holding that he was “prepared to conclude that an English court can, and in an appropriate case should, determine at least questions of infringement of foreign copyright cases. Those cases will include cases where subsistence is not in issue. I would not, however, hold that questions of subsistence can never be decided here. In land cases incidental questions of title can apparently now be considered. I can see no reason why the same should not apply to copyright…”

The answer to the question turns on decisions going back to 1893, when the House of Lords decided the case of British South Africa v. Companhia de Mocambique, [1893] AC 602. In Mocambique, an action was brought in the English Courts in respect of trespass to land in South Africa. Lord Herschell drew a distinction between “matters which are transitory and those which are local in nature.” In respect of the latter, English Courts would not have jurisdiction. The decision was summaried in Dicey & Morris (Rule 79): “Subject to the exceptions hereinafter mentioned, the court has no jurisdiction to entertain an action for (1) the determination of the title to, or the right to the possession of, any immovable situate out of England (foreign land); or (2) the recovery of damages for trespass…” How does this apply to intellectual property? This will turn on the rationale behind the rule.

Now, what is the rationale behind such a formulation? Is it a traditional “local action” rule, or is the rationale based on notions of non-interference with sovereignty of another state? It was contended before the Court of Appeal that the rationale was non-interference with sovereignty; but when validity of intellectual property itself was not in question, but merely infringement is, there is no question of interference with sovereignty. Hence, it was argued, the Mocambique rule should not be made applicable.

The Court of Appeal rejected this line of reasoning, and held that “Moçambique is not limited to claims about land, nor to claims about title or validity of the foreign right relied upon. Infringement of an IP right (especially copyright, which is largely unharmonised) is essentially a local matter involving local policies and local public interest. It is a matter for local judges…” After giving several reasons for this holding, the Court of Appeal also held that it did not find substance in the distinction made between validity and infringement in this context. It was observed:

“The supposed distinction is between a foreign court adjudicating on whether the grant of a right by a State was valid and adjudicating upon whether that right is infringed. The former is said to call in question a sovereign act, the latter not. But adjudicating on infringement will itself often require the foreign court to decide on the scope of the right granted by the foreign sovereign. In a patent case for example, the scope of the monopoly granted is often in question, quite apart from validity. Sometimes it is on the basis that if the patent is wide enough to catch the defendant it is invalid. Questioning the scope of a monopoly granted by a sovereign state in a foreign court therefore carries with it the foreign court ruling on the scope of a sovereign act, which is not different in kind from ruling on its validity”

On the basis of these (and other) reasons, it was held that English Courts had no subject-matter jurisdiction. The UK Supreme Court is likely to go into these issues in depth; and should it actually do so, one can expect a detailed conceptual analysis of interplay between the rules of conflict of laws and intellectual property.

Procedural Issues Concerning Challenge of an Arbitral Award

2011-02-06T18:53:00.005+05:30

Recourse against an arbitral award may be taken under section 34 of the Arbitration and Conciliation Act, 1996. Section 34(2) enumerates certain grounds on which an arbitral award may be challenged and restricts the basis for challenge to grounds mentioned therein. Section 34(3) prescribes the time-period for filing an application challenging an award. This post discusses several issues regarding the interpretation of section 34(3) that have come before courts.

Section 34(3) of the Arbitration and Conciliation Act reads as follows:

“An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award, or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:

Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months if may entertain the application within a further period of thirty days, but not thereafter.”

Evidently, the time period for filing an application challenging an award is three months and a further extension of thirty days may be granted by the Court in certain situations. An interesting issue that came for consideration was whether this period had to be strictly followed or whether an application challenging an award could be admitted after the expiry of this period, by relying on section 5 of the Limitation Act, 1963. The relevant portion of section 5 reads: “Any appeal or any application, other than an application under any of the provisions of Order XXI of the Code of Civil Procedure, 1908 (5 of 1908) may be admitted after the prescribed period, if the appellant or the applicant satisfies the court that he had sufficient cause for not preferring the appeal or making the application within such period...” This question was answered by the Supreme Court in Union of India v. M/s Popular Construction Co. : (2001) 8 SCC 470 : where it held section 5 of the Limitation Act to be inapplicable in instances where an application challenging an award is filed under section 34. The Court emphasised on the words “but not thereafter” used in the proviso to section 34(3), declaring that these words indicate that the application of section 5 is excluded in matters governed by section 34(3).

Thus, it is now established that an application challenging an arbitral award has to be necessarily filed within the time period prescribed in section 34(3). A crucial question that next arises is whether an application to amend the original application challenging an award, adding new grounds of challenge, can be made after the expiry of this time period. This question was first decided by the Bombay High Court in Vastu Invest & Holdings Pvt. Ltd. v. Gujarat Lease Financing Ltd. : 2001 (2) Arb. LR 315. Justice Srikrishna, delivering the judgment for the Court, held:

“In these circumstances, we are of the view that the Chamber Summons, if it was intended to raise an independent ground of challenge to the arbitral award, could not have been entertained after the period of three months plus the grace period of 30 days as provided in the proviso to sub-section (3) of Section 34. If, on the other hand, it was not intended to raise an independent ground, on the basis that the petition Itself contained the ground, the chamber summons was wholly unnecessary as necessary amplifications could be put forward during submissions.”

Therefore, the view adopted was that additional grounds for challenging an award could not be added after the time period prescribed in sub-section (3) had elapsed. This was followed in several other judgments of the Bombay High Court (Maharashtra Industrial Development Corporation v. Govardhani Construction Co., Jigar Vikamsey v. Bombay Stock Exchange). The issue came up before the Supreme Court in State of Maharashtra v. Hindustan Construction Co. : AIR 2010 SC 1299 in the context of an appeal under section 37 of the Arbitration Act. In this case, new grounds for challenge to an award were sought to be added in the memorandum of appeal. The High Court had dismissed the application for an amendment to the memorandum of appeal, holding that a ground not raised initially in the petition cannot be raised later - after the period prescribed in section 34(3) had expired. On appeal, the Supreme Court held:

“There is no doubt that application for setting aside an arbitral award under Section 34 of 1996 Act has to be made within time prescribed under Sub-section (3) i.e., within three months and a further period of thirty days on sufficient cause being shown and not thereafter. Whether incorporation of additional grounds by way of amendment in the application under Section 34 tantamounts to filing a fresh application in all situations and circumstances. If that were to be treated so, it would follow that no amendment in the application for setting aside the award howsoever material or relevant it may be for consideration by the Court can be added nor existing ground amended after the prescribed period of limitation has expired although application for setting aside the arbitral award has been made in time. This is not and could not have been the intention of Legislature while enacting Section 34.”

Interpreting Vastu, the Court said:

“...in our view, by `an independent ground' the Division Bench [in Vastu] meant a ground amounting to a fresh application for setting aside an arbitral award. The dictum in the aforesaid decision was not intended to lay down an absolute rule that in no case an amendment in the application for setting aside the arbitral award can be made after expiry of period of limitation provided therein.”

On facts, the Court dismissed the appeal and its observations in this regard are pertinent to note:

“The grounds sought to be added in the memorandum of arbitration appeal by way of amendment are absolutely new grounds for which there is no foundation in the application for setting aside the award. Obviously, such new grounds containing new material/facts could not have been introduced for the first time in an appeal when admittedly these grounds were not originally raised in the arbitration petition for setting aside the award.” (emphasis supplied)

According to Hindustan Construction's interpretation of Vastu, a situation may arise where new grounds may be added after the expiry of the 34(3) period if they do not amount to filing a fresh application. An amendment to the petition adding new grounds would be refused only in instances where the grounds sought to be added are ‘absolutely new grounds’. However, a correct reading of Vastu suggests that it only contemplated a situation where amplifications could be made to the existing grounds, that too "during submissions". Therefore, Hindustan Construction’s interpretation of Vastu is questionable.

Further, it is possible to argue that the observations of Justice Lodha in Hindustan Construction regarding the amendment to an application filed under section 34 constitute obiter dictum since the issue before the Court was amendment to the memorandum of appeal and not an amendment to the petition filed under section 34. In fact, the Apex Court upheld the High Court’s ground for dismissal viz. “the grounds of appeal which are now sought to be advanced were not originally raised in the arbitration petition and that the amendment that is sought to be effected is not even to the grounds contained in the application under Section 34 but to the memorandum of appeal”.

However, in light of the decision in Venture Global Engineering v. Satyam Computer Services : AIR 2010 SC 3371 : such a contention is difficult to sustain. In Venture Global, a Division Bench of the Supreme Court made a passing observation to this effect: “[T]his Court in Hindustan Construction made it clear that it cannot be the intention of the Legislature to shut out amendments, as a result of which incorporation of relevant materials in a pending setting aside proceeding is prevented... this Court opined that where application under Section 34 has been made within the prescribed time, leave to amend grounds, in such an application, if the peculiar circumstances of the case and the interest of justice so warrant, can be granted”.