Tag: #Contract

-Report by Arun Bhattacharya

In the matter of M/S WELL PROTECT MANPOWER SERVICES PVT. LTD. versus DELHI DEVELOPMENT AUTHORITY & ANR the High Court of Delhi on Wednesday 22^nd of February, reiterated the fact “it is now well settled that the power to blacklist the contractor is inherent in the party allotting the contract”. 

FACTS:

The petitioners were successful bidders regarding an e-tender floated by the respondent which dealt with engaging security guards and security personals for a period of one year. Agreement was signed between the parties and according to its terms a 2015 work order was to be followed in the present matter too but issue arose when a show cause notice was issued against the petitioners alleging a failure of submission of necessary training certificates thus violating the Private Security Agencies (Regulation) Act, 2005. With such allegations of the forefront, the petitioner had requested back the deposit money from the respondents along with a request to not take any action related to blacklisting or restraining them from further bidding. But the respondents had issued an order thereby blacklisting the petitioners who in turn filed the present writ petition challenging the same. 

PETITIONER’S CONTENTION:

The petitioner primarily highlighted the non-necessity of providing such training certificates with respect to the aforementioned work order and that the principles of Natural Justice was violated by the respondents while debarring the petitioners from further biddings. More so, the petitioner expressed dissatisfaction regarding the arbitrary and disproportionate decision to bar them for a period three years.

RESPONDENT’S CONTENTION:

The respondents while refuting all the claims of the petitioners stated that the requisite of training certificates were mandatory and perfectly in compliance with law prescribed and the work order provided. It was highlighted that the decision of blacklisting was taken on the basis of repeated failures on part of the petitioner who was unable to justify their position even after receiving repeated opportunities. Thus a breach of such contractual obligations was enough to justify their stand of debarring the petitioner.

JUDGEMENT:

The honorable court referring to multiple decisions like M/s Erusian Equipment & Chemicals Ltd. Vs. State of West Bengal and Another (1975) 1 SCC 70 and Joseph Vilangandan v. Executive Engineer (PWD) [(1978) 3 SCC 36] reiterated the stand taken by the Supreme Court that power to blacklist any party remains with the person providing such contract and that such decision of blacklisting shall remain beyond the purview of appellate judicial authorities, except in circumstances when the principles of natural justice are violated. The honoroble  court highlighted the inability or noncompliance on part of the petitioner regarding non submission of certificates which was a requisite according to law prescribed but also pointed out the arbitrariness on part of the respondents regarding the debarment of the petitioners for a period of three years. Such debarment could only have arisen in cases of grievous offences as prescribed by the Ministry of Finance. Therefore referring to certain other judgments by the same court, the Delhi High Court quashed the impugned order and disposed of the petitioner making room for fresh inquiry regarding the same matter. 

READ FULL JUDGEMENT: https://bit.ly/3IvVbtL

-Report by Shreya Gupta

In the case of UNIVERSITY OF DELHI Vs. M/S KALRA ELECTRICALS, the two parties Delhi University and M/S Kalra Electricals were the former was the petitioner and the latter was the respondent. The dispute between the parties arose from a work contract and the dispute was referred to the arbitration for settlement where the arbitrator ordered the petitioner to pay rupees 20 lakhs for other 44 contracts which were not referred to it.

FACTS:

The case was filed under section 34 of the Arbitration and Conciliation act, of 1966. The dispute arose from the work contract dated 09.06.2005. There was no dispute regarding the other 44 contracts between the parties. The dispute was regarding the sum of Rs. 92,101.25. It was referred to arbitration in view of clause 25.

PETITIONER’S CONTENTIONS:

The petitioner’s advocate contends whether the arbitral tribunal can provide relief for the case that has not been referred to it. She contends that the awarded sum was time-barred. She further states about section 34 of the Arbitration and Conciliation Act, 1966 which states that “the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside”. She contended that the relief provided under the other 44 contacts to the respondent was not disputed and the respondent would have filed a claim under it if that was the case.

The court has separated the subject work contract from all other contracts and therefore it was beyond the arbitral tribunal’s jurisdiction. She further in support stated some of the previous cases- Ssangyong Engineering and Construction Company Limited vs. National Highways Authority of India (NHAI), MSK Projects India (JV) Limited vs. the State of Rajasthan and Another, State of Goa vs. Praveen Enterprises, Alupro Building Systems Pvt Ltd vs. Ozone Overseas Pvt Ltd, Indus Biotech Private Limited vs. Kotak India Venture (Offshore) Fund (Earlier Known as Kotak India Venture Limited) and Others5 and DLF Home Developers Limited vs. Rajapura Homes Private Limited and Another.

RESPONDENT’S CONTENTION:

The respondent’s advocate stated that the arbitrator was well within his jurisdiction because the case arose regarding the other 44 contracts from the subject contract and that the petitioner paid for it maliciously. He stated that the assistant engineer gave the letter to the arbitrator to give orders for the other 44 contracts as well.

JUDGEMENT:

The court stated that the payment of Rs. 93,033 is not due and is in order and so DU should deduct any amount in payment to KE. The court ordered DU to make the pending payments of 20lakh at 9% per annum interest to KE from the date of raising the bill to the date of actual payment. The court stated that the award of Rs. 20 lakhs regarding the other 44 contracts were out of the arbitral jurisdiction and is set aside. The court further stated that the arbitrator fell foul of Section 34 (2) (a) (ⅳ) which is impermissible in law as it caused patent illegality. The order of arbitration was set aside from the other contracts and was followed for the subject contract. The court stated in its order “I find that since there is no fraud committed by KE and since the contracts are not inter-related it was wrong and illegal on part of DU to withhold the amount of Rs 20 Lakh in 44 contracts for settling an amount of Rs.92,033/- or Rs. 93,688/-or even both related to just one or two contracts”.

–Report by Nawvi Kamalnathan

The petition was filed under Article 136 of the Indian Constitution in the name of M/S Indian Medicines Pharmaceuticals Corporation Ltd Versus Kerala Ayurvedic Co-Operative Society Ltd. & Ors. to be heard before Judges on the matter concerning tenders as the preferable method to procure contracts with the state over other discretionary and arbitrary methods which tend to be violative of Fundamental rights guaranteed under the constitution of India.

FACTS:

The first respondent herein this case is Kerela Ayurvedic Co-operative Society Limited, which is a licensed Ayurvedic and Unani drugs Manufacturer, filed this suit to contest the judgment passed by the High court of Lucknow Bench, Allahabad judicature in favour of the Indian Medicines Pharmaceutical Corporation Limited (IMPCL) and the state.

In the year of 2014, the GOI launched NAM to promote the department of AYUSH, Ministry of Health, and Family Welfare to procure a cost-effective medical system and services. In the Operation Guidelines of the same, it is provided that 75% of the admissible assistance shall be aided by the Central Government and 25% of that remaining shall be taken care of by the respective states. The UP-stateAYUSH society initiates its purchases from a single vendor IMPCL, and the purchase order is given to them without any tendering process just based on nomination.

In a petition filed by the first respondent against the appellant, they sought a decree to procure Ayurvedic Medicines under the AYUSH program through tenders. The High court held the method of procuring medicines is illegal. Therefore, the appellant was directed to invite tenders for competitive rates thus initiating the supply of quality drugs.

PLAINTIFF’S CONTENTIONS:

Mr. Naresh Kaushik, the learned counsel appearing on behalf of the Appellants contested that IMPCL has been in the picture to cater to the needs of the Central Government to procure quality medical drugs, and thereby, the GOI holds around 98.11% of its shares. One of the prime reasons to supply drugs at an affordable price is the unique organizational setup and the prices of the drugs are vetted by the union Ministry of Finance.

IMPCL has a drug testing laboratory that is certified since it’s a government manufacturing company. Also, the Ministry of AYUSH has at various times recommended the purchase of medicines from IMPCL. Paragraph 4(vi)(b) mentions the phrase ‘at least’ that can be inferred to provide a minimum benchmark for procurement and not the upper limit.

It was further contended that the procurement of medicines may be made through tenders in cases where the property is planning to dispose of and in this case, there is no reason.IMPCL is not a private entity, so, there is no scope for monopoly, when the sale is not initiated in the open market.

DEFENDANT’S CONTENTIONS:

Whereas on the other hand, Mr. Kaleeswaram Raj, the counsel appearing on behalf of the respondents contended that Para 4(vi) provides only the establishment to procure medicines and does not address the question of whom and how. The mention of the phrase ‘or’ in para 4(vi) can be inferred to indicate that all are equally eligible to supply medicines.

UP State cannot arbitrarily fix one particular party to be eligible to procure medicines and all the entities mentioned in the para shall be recognized on an equal footing. Thus, initiating purchases in a fair process that shall enable all entities for an equal opportunity to secure orders.

There is no warrant for procurement of medicines to be obtained only from IMPCL and the prices shall be vetted by the Department of Expenditure, Ministry of Finance but it does not have the power to determine the prices of Ayurvedic medicines. So, the National Pharmaceutical Pricing Authority should be the authority for determining the prices of medicines.

JUDGEMENT:

The court observed from the precedents that the state while entering a contract shall not stand on the same foot as a private person, thus, it can’t act arbitrarily while dealing with the public be it in matters of jobs or contracts. It is also essential that the state and all its instrumentalities have to conform to COI to guarantee Fundamental Rights to its citizen.

In answering the question of whether the tender is a constitutional requirement the court has pointed out certainly more than once in many of its cases that Government contracts must be initiated transparently. The first cum first service policy is arbitrarily alienating resources and this is not a preferred method of allocation.

The court considered that tender allows negotiation with a private enterprise. The reason for the public auction being reasonable is that it allows a transparent process for the public and the procurement of any goods can be made at their best quality and price. The deviation of tender should not violate Article 14 and must be fair and reasonable.

The intervention application filed in the court has the scope only to interpret para 4(vi)(b) of the Operational Guidelines and the court finds that there were no records to show that other manufacturing entities of drug suppliers cannot supply better drugs. Therefore, the appeal stands disposed of.

–Report by Nawvi Kamalnathan

In the case of The Chief Engineer, Water Resources Department and Others (hereinafter referred to as appellants) Versus Rattan India Power Limited through its Director and Others (hereinafter referred to as respondents) the important issue of, the party signing the contract is entitled to the amount of consideration or not was dealt with by the Supreme Court.

FACTS

The respondent has entered into a contract with the appellant to Pay the sum of Rs.1,00,000/- for irrigation restoration charges reserved for irrigation purposes. The same consideration was agreed to be paid on the date of signing the contract. A writ petition filed before the High Court of Bombay directed the respondent to pay Rs 50,000/- per hectare by reducing the irrigation restoration charges affecting the total liability reduction.

The appellant sought an appeal as per the Irrigation Department of the State of Maharashtra. As per the circular, no water shall be utilized for other purposes unless an agreement is entered into by the concerned government and the industry. Water usage for industrial purposes is seen as a loss of water rather than being directed to agricultural purposes.

APPELLANT’S CONTENTIONS

The substance of the argument made by the learned counsel appearing on behalf of the appellant was that the contract is sacrosanct in nature. The impugned order entered by the respondent and the appellant for accepting the irrigation restoration charges shall not be entitled to be challenged.

DEFENDANT’S CONTENTIONS

On the other hand, the counsel appearing on behalf of the respondent contended that the rate prevailing in the in-principle approval granted by the high-powered committee is directly linked to the approval or sanction was applicable and the appellant could have levied the charges.

The government circular shall apply prospectively and not to ongoing contracts. If the circular is given a retrospective effect, it would certainly undermine it.

JUDGEMENT

The respondent is not justified in levying the charges when he agreed to pay the same while entering into a contract he issued an undertaking to pay the specific sum within the specific time period. The agreement and undertaking shall be stopping the respondent from challenging the irrigation restoration charges.

The rights and liabilities of the parties are standing crystallized from the date when entered into the contract. The in-principle approval granted in favour has been cancelled as they failed to execute an agreement with the appellant. Also, the central government undertaking was given an exemption as the power produced from it shall be used for public benefit. In comparison to all other parties, the respondent has been drawing high amounts of water, especially from an area scarce of water resources.

However, the records before the court state only two instalments being paid by the respondents, and therefore, the court directed the respondents to pay the balance amount with interest from the date of instalment fell from the date of the impugned order.

In conclusion, the Hon’ble Supreme Court of India allows the Civil Appeal arising from the special leave petition and sets aside the impugned judgment passed by the High Court of Bombay, and directs the parties to bear their own costs.

–Report by Harishri

In the case of The Chief Engineer, Water Resources Department & Ors. Versus Rattan India Power Limited through its Director & Ors., the appeal was filed by the State of Maharashtra against the judgement of the Division Bench of the High Court of Judicature at Bombay, whereby the High Court has reduced the ‘irrigation restoration charges’ that the Respondent has contracted to pay.

Facts:

The State of Maharashtra came up with a circular prescribing that when water is diverted for non-irrigation purposes, then the entity using such water shall pay 50,000 per hectare irrigation restoration charges. It also prescribed that no water shall be diverted unless an agreement is entered into between the concerned industry and the government.

Sophie Power Company Ltd. Intended to set up a thermal power plant. A communication was sent by the respondent to the Maharashtra Industrial Development Corporation to confirm the availability of 240 million litres of water per day to facilitate smooth running. Pursuant to the application made by SPCL granted approval for the usage of water. This was subject to SPCL paying capital contributions and irrigation restoration charges. The Vidarbha Irrigation Development Corporation granted final approval for the usage of water. SPCL was directed to pay Rs.100000 per hectare. The respondent sent a letter to the government against the levy of higher charges. Later, the charge was increased to Rs.100000 per hectare by the government. Ultimately, the Appellant and Respondent entered into a water supply agreement to pay Rs. 100000 as in 5 instalments. Six months after signing the agreement, he initiated a writ petition before the High Court of Judicature of Bombay at Nagpur to direct him to pay irrigation restoration charges at Rs.50000 per hectare. It was held that it would be appropriate for the rate prevailing as of the date of the grant of in-principal approval.

Appellant’s Contention:

The appellant contended that the order is against the agreement dated 22.05.2012 entered into between the appellant and the respondent. It is submitted that after accepting Rs.100000 as irrigation restoration charges, the respondent is not entitled to challenge it. The essence of his contention was that a contract is sacrosanct and must be respected.

Respondent’s Contention:

The respondent contended that the irrigation restoration charge is directly linked to the date of approval and the relevant date since the circular dated 21.02.2004 was applicable. The appellant could have only levied Rs.50,000 per hectare. Also, similarly placed companies were given the relief that the Respondent was seeking. It was also contended that the undertaking given by the respondent after signing the agreement was not unconditional. It was subject to numerous representations by the respondent for the reduction of the irrigation restoration charge. The Government Circular will apply prospectively and will not apply to ongoing contracts.

Decision:

The bench was not satisfied with the approach adopted by the High Court when the respondent himself wilfully and deliberately entered into an agreement knowing the legal and business consequences. The High Court has committed an error in entertaining a fresh writ petition, which effectively claimed the same reliefs as the previous one. It also has committed a mistake in supplanting its view over that of the contract. The bench also directed that the balance amount due payable towards the irrigation restoration charge shall be paid by the respondent on or before 30.06.2023. Further, interest @ 12% p.a. shall be payable from the date the instalment fell due till the date of the impugned order. The bench allowed the civil appeal and set aside the impugned final judgement.

INTRODUCTION

An organization is a fake individual running for the satisfaction of a reason, however, on occasion, there are circumstances that could prompt its defeat and when an organization wraps up it is possibly removing the work of everybody related to it and is likewise influencing the economy of the country in a negative manner. Thusly, every conceivable step is taken to stay away from this from occurring yet when it couldn’t be stayed away from and indebtedness procedures of an organization are going to initiate, the exchanges made and the agreements went into by the organization preceding the initiation of such bankruptcy procedures are judged and the ones that are viewed as unsafe for the organization and individuals related with it or are violative of the interests of the debt holder or the lender are proclaimed to be void. The cycle is known as evasion of pre-insolvency procedures. The indebtedness and chapter 11 regulations have sorted out an approach to adjusting the privileges of both borrowers as well as lender. Lenders of the element reserving an option to guarantee the levy from the home of the debt holder can not maneuver the borrower toward auctioning off the resources like land, shares and different resources or going into an agreement that isn’t leaning toward the interests of the indebted person and is in any case violative of his privileges or interests.

UNCITRAL MODEL

The Uncitral model under section 2 of its regulative aide accommodates the evasion of specific exchanges with respect to an indebted person to guarantee the equivalent treatment of the multitude of lenders and insurance of the privileges of the borrowers in order to not get controlled by any of the leaders to go into an agreement for the exchange of any of the resources at a worth lower than that of its genuine worth. One more point of view on the equivalent is keeping away from bias with respect to the borrower, the debt holder could favour a lender over the others and could go into an agreement with him in regards to the exchange of a resource when they become mindful of the forthcoming bankruptcy procedures. Consequently, these exchanges that are placed preceding the initiation of the bankruptcy procedures are dropped or are considered to be incapable to guarantee the security of freedoms of each and every elaborate party. Various purviews have put together their indebtedness regulations with respect to the Uncitral model anyway there are qualifications that could be tracked down between the laws of various nations. The Indebtedness and Chapter 11 code, 2016 arrangements with the avoidable, otherwise called weak exchanges under sections 43 to 51. The kinds of exchanges that are avoidable under the IBC are:

• Preferential transactions
• Undervalued transactions
• Extortionate credit transactions.

The previously mentioned exchanges are to stay away from the debt holder during the significant period which is two years in the event of a connected party and one year in different conditions going before the bankruptcy beginning date according to section 46 of the IBC, 2016.

EVASION PROCEDURES

The Uncitral Model Regulation is intended to help States to outfit their bankruptcy regulations with a cutting-edge legitimate system to all the more really address cross-line indebtedness procedures concerning debt holders encountering extreme monetary misery or insolvency. The regulative aide is reliable of 4 sections on indebtedness regulation covering the goals, primary issues, components accessible for the goal of the debt holder’s monetary challenges, the beginning, the disintegration of the indebtedness procedures, evasion of procedures, cross-boundary bankruptcy regulations, other like arrangements that require consideration exhaustively. The regulative aide section 2 accommodates the privileges of a borrower, wherein it is expressed that where the debt holder is a characteristic individual, certain resources are for the most part prohibited from the bankruptcy domain to empower the debt holder to protect its own freedoms and those of its family and it is positive that the option to hold those barred resources be clarified in the indebtedness law.

CRITERIA

• Objective Rules: The emphasis is on the goal questions, for example, whether the exchange occurred inside the suspect period and whether the exchange proved any of various general qualities set out in the law.
• Emotional Rules: Emotional methodology is more case explicit, the inquiries that would emerge would resemble whether the expectation to conceal the resources from the loan bosses was there, and when did the borrower become indebted whether it was at the hour of the exchange or whether it was after the transaction.
• Mix Of The Two: The bankruptcy laws of greater parts of the states are more emotionally driven, but it is joined with a time span inside which the exchange probably happened. In India, for instance, the significant period is 2 years in the event of a connected party and 1 year if there should arise an occurrence of some other loan boss.

CONVENTIONAL COURSE OF BUSINESS

A differentiation is drawn between what might be considered as an everyday practice or normal exchange in a business and what is remarkable and ought to be stayed away from as a piece of avoidable exchange. An earlier lead of the debt holder could assume a part here alongside customs and ordinary practices as continued in the business. The states are allowed to take both of the standards as a base to accommodate the avoidable exchanges as referenced previously mentioned.

EVASION ACTIVITIES ALL OVER THE PLANET

As expressed over, the Uncitral model is just giving a manual for the states to form legitimate evasion activities, various purviews follow the different arrangements of staying away from power, and after ordering them comprehensively we can come to an end result that there are single set and twofold arrangement of staying away from powers, common regulation nations, for example, France and Spain are devotees of a single bunch of keeping away from powers, while customary regulation nations follow two-fold arrangement of staying away from powers, nations, for example, UK and USA, the twofold arrangement of keeping away from powers are underestimated exchanges and unlawful inclinations.

INDIAN PERSPECTIVE

The indebtedness and insolvency code is a moderately new regulation and is impacted by the precedent-based regulation nations with regard to evasion abilities. sections 43-51 arrangement with the evasion procedures wherein agreements on the move of resources or property could be the subject of aversion procedures. Aversion of exchanges and statements of agreements went into the gatherings as invalid and void could be of any agreement, in regards to the exchange of any property or resource. A land contract is no exemption, the instance of Jaypee Infratech Restricted Versus Pivot Bank Restricted is the ideal illustration of evasion of an exchange that depends on the move of an unflinching property.

In the very recent case, Jaiprakash Partners Restricted (JIL), which is the holding organization of Jaypee infratech restricted set up the previously mentioned auxiliary as a particular reason vehicle for the development of a freeway and went into a concurrence with the Yamuna Turnpike Modern Improvement Authority. For this reason, advances were taken from different banks altogether, selling the land and 51% shareholding of JIL. Later on, JIL was pronounced to be a non-performing resource by a portion of its loan specialists and NCLT passed a request under section 7 of the IBC, 2016 to start the indebtedness procedures after the appeal was recorded by IDBI bank with respect to something similar. The selected IRP documented an application in regards to the exchanges went into by the corporate borrower that has made a responsibility on the steady property possessed by the corporate debt holder and in that application such exchanges were professed to be special, underestimated, and fake. The application was tended to and permitted. An allure was documented by the lenders to save the NCLT orders. The issues in this way, looked at by the high court were as follows:

• Whether the exchanges went into by the account holder underestimated, special and fraudulent?
• Whether the respondents were monetary leaders given the way that the property was sold to them?

SECTION 43 COMPLIANCE

The NCLT saw that the land was sold to dupe the moneylenders. At the hour of entering the exchanges, the borrower was at that point confronting a monetary crunch and the lenders knew about the indebted person’s situation at the hour of going into the home loan contract. In this manner, the settling authority was of the view that the borrower was attempting to make a deceitful exchange during the sundown time frame and the sole target of the debt holder was to produce some money, consequently not falling inside the classification of customary course of business. The re-appraising expert then again, held that section 43(2) was not drawn in and the home loan was made in the common course of business. Likewise, the exchanges were not underestimated or particular and the arbitrating authority has no ability to make orders in regards to something similar. Taking everything into account, the peak court held that the debt holders had gone into a special exchange. The high court maintained the choice of NCLT and held that Section 43 hit the current case. The three overlay test is expected to be passed by an interpretation to turn into a particular exchange under this section, i.e,. Satisfying the prerequisites of sections 43(4) and 43(2), and shouldn’t fall under the special cases referenced in section 43(3). Subsection 2 section 43 discusses the exchanges in which the corporate debt holder will be considered to have been given an inclination.

SECTION 45 COMPLIANCE

One more kind of exchange that can be stayed away from is given under section 45 of the code is the underestimated exchange. In the aforementioned instance of Jaypee infratech, the IRP was of the view that the exchanges are special as well as underestimated, it was eventually held that the exchange was truth be told underestimated. An underestimated exchange is one in which the corporate debt holder has paid a sum lesser than the real worth of the resource. The referenced case is additionally an illustration of exchanges that could be kept away from on the ground that they are duping the loan bosses. section 49 of IBC manages the arrangement of swindling the loan boss. In the event that the corporate account holder has made an underestimated exchange deliberately, this arrangement would be drawn in.

IBC ACCOMMODATION

Finally, the IBC accommodates one more sort of avoidable exchange, which is exploitative credit exchange. section 50 discusses exploitative exchanges. Any exchange that is negative to the corporate account holder and is made when the indebted person was helpless is considered an exploitative exchange. There can be circumstances like the agreement was either endorsed by the borrower without pursuing or it was intentionally made to incline toward the loan boss as the account holder would sign the agreement being defenseless at that point.

CONCLUDING REMARK

We have laid out that specific exchanges are avoidable and consequently announced void assuming the topic of interest of either the indebted person or some other bank the firm is involved. The locales across the world have chosen various perspectives in regard to the regulations overseeing such procedures. Notwithstanding, the exchanges and agreements that went into are to be judged cautiously. The chance of them being made as a standard course of business exists. Land contracts particularly, the land is one of the most significant resources of any business that could turn into an obvious objective by the loan bosses who wish to hurt the indebted person by removing it at a lower cost simultaneously the borrower likewise could go into an exchange including land with hostility. In this way, the aversion procedures are to be painstakingly analyzed and afterward kept away from to save the interests of the multitude of involved parties.

REFERENCES

1. UNCITRAL Model Law on Cross-Border Insolvency available at https://uncitral.un.org/en/texts/insolvency/modellaw/cross-border_insolvency
2. https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/05-80722_ebook.pdf page 136 point 151
3. https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/05-80722_ebook.pdf page 138 point 158
4. https://staging.hcourt.gov.au/assets/publications/judgments/1948/012–Downs_Distributing_Co._Pty._Ltd._V._Associated_Blue_Star_Stores_Pty._Ltd._(In_Liquidation)–(1948)_76_CLR_463.html
5. https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/05-80722_ebook.pdf page 137 point 157
6. UNCITRAL legislative guide on insolvency law part 2 https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/05-80722_ebook.pdf page 167 point 20

This article is written by Saumya Tiwari, Student of Graphic Era University, Dehradun.

CITATION

(1862) 11Cb (NS) 869, EWHC CP J35; 142 ER 1037

APELLANT

Bindley

RESPONDENT

Paul felthouse

DECIDED ON

8 th July 1862

COURT

Court of Exchequer chamber

JUDGES

Willies, byles and Keating JJ

AREA OF LAW

Acceptance

BACKGROUND

Uncle felthouse was quite interested with his nephew’s horse. So, he sends a letter to his
nephew as a proposal to buy the horse which stated: “if I hear no more about him, I’ll
consider the horse is mine for 30.15 shilling”. The nephew received the letter of Mr Felthouse
and decided to sell his horse to him. But he failed to respond to the offer. Suddenly, the
nephew faced an auction of the property and told the auctioneer, Mr.bindley to auction all his
property except the horse. On the day of auction, Bindley forgot to spare the horse from the
auction. As the horse was a good breed it had a great demand in the auction and Mr. Bindley
accidently sold the horse to another person for 33 shillings. When felthouse came to know
about the incident he sued the auctioneer under the tort of conversion (usage of someone
else’s property inconsistently with their right). This made felthouse to prove the contract
valid by showing that the horse was his property. Bindley stated that Mr. Felthouse doesn’t
have any ownership over the horse even though the nephew had an interest to sell the horse.

Since it wasn’t communicated properly, the contract doesn’t seem to be valid. The major
issue raised in this case was whether the silence or failure to reject an offer amounts to
acceptance. The court finally ruled that felthouse did not have any ownership over the horse
as there was no acceptance from his nephew’s side. This is a landmark case in the history of
contract law which states that no one can necessitate anyone to make a decision on to reject
or accept an offer and it also states that mere silence does not amounts to acceptance.

FACTS

1 Paul felthouse send a proposal to his nephew John felthouse in the form of a letter to
buy his horse, which stated: “if I hear no more about him, I’ll consider the horse is
mine for 30.15 shilling”.
2 Despite having the intention to sell the horse, the nephew never had accepted the
proposal. So, he told the auctioneer, Bindley to exempt the horse from the auction.
3 Mr. Bindley forgot about the condition and sold the horse for 33 shillings to another
person.
4 Paul felthouse sued Bindley under the tort of conversion by stating the horse as his
own.

ISSUE

1. Whether there exists any valid contract between the uncle felthouse and his nephew.
2. Whether the silence or failure to convey the rejection of an offer amounts to acceptance of the proposal.

JUDGEMENT

It was held by the court was there wasn’t any valid contract existed between felthouse and his
nephew. Despite having an intention to sell the horse, there wasn’t any acceptance to the
proposal from his nephew’s side. A proposal will only get emanated as a contract where there
is an acceptance to the proposal. Hence it was stated that silence or failure to convey the
rejection of a proposal will not amounts to acceptance of the offer.

RATIO DECENDI

1. You cannot exert your decisions on an unwilling party.
2. Silence or failure to convey rejection of an offer will not amounts to acceptance.
3. You cannot assume acceptance if there is no notification of acceptance or implied acceptance through action present.

CONCLUSION

The case Felthouse v. Bindley was a turning point in the history of contract law. In this case it
was proved that there wasn’t any contract between the uncle and his nephew.it thus proved
that silence will not amount to an acceptance to a contract.

This article is written by Nourizen Nizar, student of Government Law College, Ernakulam, Kerala

What are Swap contracts?

In the year 1982, Swap Contracts were introduced when the World Bank and IBM entered into an agreement. Swap contracts are one of the four types of financial derivative contracts, where two counter-parties exchange the cash flow of one party for those of the other party’s cash flow for a fixed period.

To understand the system of swap contracts, let us assume that there are two parties. A, who lives in India, goes to the market and notes that the cost of a Samsung mobile is Rs.40000 and the cost of an iPhone is Rs.65000 and B, who resides in the USA goes to the market and notes that the same model of phone that A checked is available for Rs.65000 and Rs.40000 for Samsung and iPhone respectively. Now, these two parties decided to enter into a contract to exchange their commodities and reduce their purchasing cost. This arrangement is defined as swap agreement.

These swap agreements are useful for the financial institutions who want to convert their floating rate to a fixed rate and vice versa. These contracts are executed through a swap bank that works as a matchmaker and assists the transactions between the parties.

Types of contracts

Countless swap agreements exist in the financial ecosystem. Here, we will discuss most commonly used variations:

1. Interest Rate Swap: Interest rate swap is one of the most commonly used methods in financial derivatives. These swaps do not include the retail investors and the contracts are of an OTC nature and are executed between businesses and financial institutions.

Let us consider an example, Company A, a newly incorporated company with no financial standing in the market, approaches the bank for a loan and the bank says that they will provide the loan but at a variable rate of interest. On the other hand, Company B, which has an excellent financial standing in the market, approaches the bank for a loan. The bank agrees to give the loan at a fixed interest rate with the same time and notional principle. Now, the companies observe that the interest rate for Company A is going to increase and the interest rate for Company B is going to drop, but due to the fixed rate of interest, the Company would still be paying more. Hence, both the companies agree and swap their interest rate nature and are executed between businesses and financial institutions.

Consider another example, where Company A is newly incorporated and does not have any financial standing in the market. It approaches the bank for a loan and the bank says that they will provide the loan but at a variable rate of interest. On the other hand, Company B, which has an excellent financial standing in the market, approaches the bank for a loan. The bank agrees to give the loan at a fixed interest rate with the same time and notional principle. Now, the companies observe that the interest rate for Company A is going to increase and the interest rate for Company B is going to drop, but due to the fixed rate of interest, the Company would still be paying more. Hence, both the companies agree and swap their interest rate.

2. Currency Swap: Currency swap agreements are used by financial institutions that are planning to expand their businesses internationally and require financing. Through swap contracts, the companies get a more favourable loan rate from their local banks as compared to the banks from that country and minimise the risk associated with the currency fluctuation. It involves the exchange of the principal amount along with the interest payments from one currency to another.

For example, an India based company “X” is planning to enter the Australian market and simultaneously, an Australia based company “Y” is planning to diversify their portfolio by purchasing a company in India. For company X, the expansion would require a funding of $22 million and for Y the acquisition would require the same amount of loan. Now, the Indian banks might give Company X a loan at 9% but for Company Y, it will be at 12%. Likewise, Australian banks will give a loan to Company Y at 9% but for Company X it will be at 11%. However, both companies could have an advantage if they borrow in their domestic currencies and enter into a swap contract. In this way, the companies will receive the desired foreign currency at a cheaper loan and the risk factor for currency fluctuation will reduce.

3. Debt-Equity Swap: Debt-Equity Swap agreements are one of the recent additions. They are used to trade the debt or obligations of a company for something that has an equivalent value such as equity, bonds or stocks. This type of contract is used to maintain the debt to equity ratio of the company to keep a good credit rating in the market. The debt-Equity swap value depends on the market rates but the lender may provide a much higher exchange offer. 

For example, Company X suffers a drop in the revenue because of the economic crisis and it has the potential to avoid going bankrupt but due to cash flow problems, they will not be able to make the scheduled instalment. So they approach the bank and offer them 5% equity in exchange for the remaining loan. This swap is called the debt-equity swap.

4. Commodities Swap: Commodities swaps are used to hedge the fluctuation in the commodities pricing and set a fixed price. This will benefit both the buyer and sellers in the market as there will be a fixed selling price and buying price. Generally, it is always the cash flow that swap and not the actual commodities.

For example, if a company is purchasing 1000 gallons of oil and has agreed to pay a fixed price of $2 per gallon, then, at the time of payment if the price increased by 20 cents, the company would be paying $200 extra if the price was not fixed. Now, if the price drops by 20 cents the company will have to pay $200 more. Hence, if the price of the commodities that a company uses as input is floating then the profits of that company will also be volatile, that is the reason the companies prefer to enter into the commodities swap agreements.

Applications of Swap

There are various applications of swaps in the financial markets. Some of them are :

1. Hedging of Risk: The most important and primary application of swaps is to hedge risk. For instance, Company A is in a contract with a floating interest rate and has reasons to believe that in near future the interest rates will increase significantly. So to save themselves from higher interest rates, the company has to exchange the floating interest rate for a fixed interest rate.

Similarly to hedge against the fluctuation in currency exchange, the enterprises involved in international business enter into currency swaps.

2. Low borrowing rate: The comparative advantage that one company has is exchanged with the advantages possessed by another company. Hence, both the companies are benefitted from the swap and the purchasing cost is significantly decreased.

3. Access to the International market: The companies enter the foreign markets by using the swap system which will help them in avoiding the fluctuation in financial transactions. For instance, if a company of Canadian origin wants to invest in a business entity in the Indian market, they will enter into an interest rate swap agreement with an Indian company, as the rate of interest for a domestic company would be lower compared to that for the company itself.

4. Avoiding bankruptcy: Using the debt-equity swap, a company can save itself from declaring bankrupt. For example, if a company suffers a revenue drop due to a crisis and the cash flow is not enough to pay company’s regular expense, they can offer the bank equity in their company in exchange for the loan to get approved.

Usage

Commercial and comparative advantages are the two basic categories in which swap contracts are used. When a company enters into an agreement where they have to pay a certain interest rate which can be fixed or floating rate, then swaps can reduce the risk of fluctuation in the financial market. Companies that are planning to enter a new market can have a comparative advantage by using the currency swap agreements.

For example, if Indian company wants to expand its business in Malaysia, it is more likely for the company to get a favourable agreement in India. So, by entering into a currency swap, the company can have the finances it needs to expand its business in Malaysia without paying extra interest rates.

Exiting a Swap Agreement

There are three frequently used ways to exit a swap contract before the expiration of the term period. They are:

1. Buy-out: With the consent of the counter-party the market value of the swap agreement can be calculated and the amount can be paid by the party and this way the company can exit the swap contract.
2. Sell the Swap: With the consent of the counter-party, the company can sell the swap to a third party at the current market value.
3. Offsetting Swap: A company can nullify the effect of a swap agreement by entering into a reverse swap contract. For example, if a company is in a swap where they receive a fixed interest rate, then they can enter into another swap with a third party to exchange the fixed interest with the floating interest rate.

The blog is written by Abhinav Bansal  ), B.A.LLB student at Trinity Institute of Professional Studies.

Edited by- Deeksha Arora

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Job ID 133382

Date posted 07/27/2021

Location : Gurgaon, India

Job Purpose and Impact

The Contracts Lawyer will be responsible to review, draft and negotiate variety of commercial contracts ranging from low to high complexity for the assigned areas. In this role, you will leverage the established forms, templates, playbooks and processes to review and draft standard and non-standard contracts, negotiate third party contracts and track legal matters and trends. You will partner with business team members, subject matter experts and other lawyers and paralegals who provide counsel related to a variety of contracts for the company.

Key Accountabilities

• Collaborate with members of the law team and clients to structure and execute variety of complex commercial transactions following the established procedures.
• Draft, review and negotiate legal documents including a wide variety of commercial contracts such as agreements relating to information technology, intellectual property, procurement, service, consulting, distribution, external manufacturing, sales, license and other legal agreements.
• Leverage systems for workflow management, tracking and communicating the status of legal matters.
• Apply general knowledge to support for the assigned contract categories, including template, playbook, quality control oversight and customer experience.
• Provide support on special projects as appropriate.
• Pursue professional development in support of the global contracts group, law and company priorities.
• Independently solve complex issues with minimal supervision, while escalating issues to appropriate staff.
• Other duties as assigned

Qualifications

MINIMUM QUALIFICATIONS

• Bachelor’s degree in a related field or equivalent experience
• Juris doctor or regional equivalent and licensed to practice law in current jurisdiction with an ability and willingness to be licensed in Minnesota
• Other minimum qualifications may apply

PREFERRED QUALIFICATIONS

• Minimum of  four related work experience
•  Detail-oriented professional with knowledge and experience in common law legal principles and contracts.
• Previous experience on contract drafting, review and negotiation.
• Experience working with information technology agreements.
• Experience with contract lifecycle management systems

How to Apply-

https://career2.successfactors.eu/sfcareer/jobreqcareer?jobId=133382&company=cargill&locale=en_US&utm_campaign=core_media&utm_medium=social_media&utm_content=job_posting&utm_source=LinkedInJobPostings&ss=paid&dclid=CjkKEQjwo4mIBhCljbuVu6ilqqQBEiQAkI1TG0vcAyfCFhhiiFhMJGQ1gF1eOYqXy7JIZn-RC3ulrjnw_wcB

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Case Number:

CA 1903

Equivalent Citation:

[1903] 1 K.B. 81

Bench:

Collins, M.R. and Methew, J. 

Decided on:

19 November 1902

Relevant Act:

The Partnership Act 1890

Brief Facts and Procedural History:

In this case the defendant company is a partnership company with two partners, Mr Houston and Mr Strong, who represented the company. Mr Houston took care of the functioning of the company and Mr Strong was a sleeping partner. Mr Houston, acting within the scope of his authority, bribed the clerk of the plaintiff’s company and induced him to commit a breach of contract with the plaintiff as a result of which the clerk divulged some of the secret, important information of the plaintiff’s company. This act of Mr Houston was done without Mr Strong’s knowledge. The information was used by Mr Houston in a way to make the plaintiff company, his competitor, suffer the loss. Plaintiff sued both the partners of the defendant company for breach of contract under vicarious liability. The trial court said that both the partners are liable for breach of the contract. The case went to the Court of Appeal.

Contention:

• Whether or not Mr Houston acted within the scope of his authority in obtaining the details of the plaintiff company?
• Whether or not Mr Strong is liable for the wrongful act committed by Mr Houston?

The ratio of the Case:

The defendant’s counsel argued that gaining information about your competitor’s business is something that a businessman can do and hence, it is legal. So, what Mr Houston did is legal and that he is not liable for the breach of contract. The court agreed with this argument of the defence counsel and stated that Mr Houston acted as an agent and it is done within the scope of his authority, it is illegitimate and amounts to a breach of contract. This was based on the board risk principle, according to which if the principal is the one who will benefit from the acts of the agent, then he is also liable for the risks the agent goes through, while he is performing the acts delegated to him. In this case, the clerk was an agent of Mr Houston and so he is liable for the risk the clerk incurred, that is, the breach of contract, while delivering the information Mr Houston has asked for.

The decision of the Court:

The Court of Appeal upheld the order of the trial court and said that both the partners of the defendant company, Mr Houston and Mr Strong, are guilty of inducing breach of contract, even though it was committed by only one of them.

This case comment is written by Santhiya V, a 3^rd year BBA LLB (Hons.) studying at Alliance University.

Editor- Deeksha Arora

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