By Ameya Vikram Mishra & Balram

Linguistic philosopher Buckminster Fuller famously observed that “synergy” is the only word in our language that means the behaviour of whole systems unpredicted by the separately observed behaviours of any of the system’s parts or sub-assembly of the system’s part. Insolvency resolution through mediation is an obvious context for giving meaning to this definition of “synergy” as it furthers commercial sense as opposed to expensive litigation, often followed by liquidation. 

Mediation offers several advantages in the process of insolvency resolution. It is a structured process where the mediator is responsible for engaging with various stakeholders and sustaining discussions between them. It allows the stakeholders to share their specific concerns and expectations from the resolution plan. This, in turn, allows them to share their capacity and constraints to compromise in a voluntary and risk-free process.

Why does India need to mediate insolvency disputes?

The synergy of mediation assists the parties in shifting from a claim-based resolution to an interest-based resolution that accommodates the needs of a varied group of stakeholders. Mediation cuts through the formal categorization of classes of creditors. This identifies particular needs of vulnerable categories of creditors who may not be in a position to wait or suffer an impairment, such as small businesses for whom the debtor is their only customer. 

As courts are not involved in a mediation process, it offers greater flexibility not only procedurally but also concerning substantive terms, combining informal and formal restructuring options [1]. This often leads to viable commercial arrangements between stakeholders, which increases the probability of value maximisation of the corporate debtor.

Similarly, mediation permits out-of-the-box remedies which facilitates a resolution plan which is more likely to be beneficial for all stakeholders than a conventional resolution/settlement plan comprising asset sales and business interest reconsolidation. Accordingly, a resolution plan reached through mediation (as opposed to an adversarial process) is often more likely to be enforced and complied with by the stakeholders.

As an illustration, under the Insolvency & Bankruptcy Code, 2016 (“IBC”), operational creditors do not form part of the committee of creditors and thus do not vote on resolution plans for the revival of the corporate debtor. However, they often comprise relevant groups such as suppliers and employees. Bringing their issues to mediation will allow them to be heard. The method, emphasizing compromise and win-win possibilities, can aid in relationship preservation instead of litigation. Even if mediation fails to result in a resolution, it can nevertheless promote communication and dialogue between disputing parties.

Mediation is already being used to settle post-resolution issues such as the distribution of a trust created for settlement of creditors in class action claims (such as allotment of property in a development project) and transnational claims—where courts in multiple jurisdictions are involved for settlement of claim and recovery of assets arising in liquidation for creditors located in their respective countries. 

What can India borrow from global practices?

India is one of many jurisdictions to confront this issue. The case for mediation in insolvency resolution is apparent from its adoption in various jurisdictions such as the United States, Singapore, Spain, the United Kingdom, and the European Union. Regulations for insolvency resolution in these jurisdictions incorporate mediation at multiple stages and as part of an array of resolution tools that strengthen an effective insolvency resolution framework. 

United States

Mediation in insolvency resolution has been used most extensively in the United States. Bankruptcy courts use their inherent powers under Section 105 of the Bankruptcy Code to make rules for mediation insolvency resolution. This effort was consolidated by the Alternative Dispute Resolution Act of 1998, which mandated rule-making by the federal and district courts to use ADR in "all civil actions including adversary proceedings in bankruptcy." Courts in the United States have set up court-annexed ADR programs in bankruptcy resolution, with mediator panels of experienced professionals. The court can mandate mediation under these rules. Mediation has been used for single creditor claims [2], large group claims [3], restructuring plan negotiations [4], and in resolving disputes arising from claims against the debtor [5], recovery of assets of the company [6], as well as in preference actions [7], future claims against the debtor[8], etc.

A provision similar to Section 105 of the Bankruptcy Code may also find a suitable place in India's insolvency law framework.

Singapore

Singapore endorsed mediation into the insolvency resolution process in 2017 to address the same problem. The committee constituted for this purpose had recommended that Judges encourage parties to consider mediation in insolvency disputes. To facilitate this process, existing institutional mediation centers should have a panel of mediators with experience in cross-border restructuring. 

Singapore utilized the existing infrastructure at Singapore Mediation Centre (SMC) and Singapore International Mediation Centre (SIMC) to turn them into a global mediation hub. In the case of Re IM Skaugen SE[9], the Singapore High Court emphasized the importance of mediation in insolvency resolution[10]. Establishing a mediation center like the one in Singapore will transform insolvency resolution in India.

Spain

Under the Spanish Insolvency Act, 2013, an insolvency mediator can be appointed in a pre-insolvency resolution process to resolve claims between the creditor and the debtor through the negotiation of a payment plan. If the mediation does not reach a settlement in two months, or on breach of the agreed plan, the insolvency mediator can request the start of insolvency proceedings before a court. A similar mechanism has been designed for small enterprises as well. 

The strict timelines for the mediation process must also be adopted in India to ensure that the sanctity of the process is not defeated. 

United Kingdom

The United Kingdom has a general policy on mediation as an adjunct to resolving all litigation before courts, including insolvency resolution. The Chancery Court Guide 2016, which sets out the procedures for the Chancery Division of the High Court, including the Bankruptcy Courts, requires the courts to, where appropriate, 'encourage the parties to use alternative dispute resolution,' including mediation and early neutral evaluation (ENE) during insolvency resolution. To enable mediation[11], the courts grant a stay on the proceedings, and the consent of all the parties generally guides the lengths of the stay. 

Such practices to promote mediation may also be considered to be adopted by Indian courts even in the absence of legislation. 

European Union

In the EU, mediation is used in structuring pre-insolvency workout plans, which are court proceedings aiming to finalize a restructuring agreement negotiated voluntarily and privately ('workout') but did not find the support of all required creditors. 

The European Commission Recommendations[12] on a New Approach to Business Failure and Insolvency also suggests that insolvency resolution should be undertaken through the use of a mediator on a case-by-case basis. The World Bank Principles for Effective Insolvency and Creditor Rights Systems[13] also urge mediation in the pre-insolvency resolution/ workout process. 

In addition to the foregoing, mediation to resolve insolvency disputes is also prevalent in jurisdictions such as France[14] and Belgium[15]. 

What can be changed in the existing IBC regime?

Mediation may be availed at various stages in the insolvency process by including specific provisions in the IBC. 

Recently, the Supreme Court of India, in Patil Automation Private Limited v. Rakheja Engineers Private Limited, held that the statutory pre-litigation mediation under Section 12A of the Commercial Courts Act of 2015 (“Act”) is mandatory. Any suit instituted violating the mandate of Section 12A must be visited with the rejection of the plaint under Order VII Rule 11 of the Civil Procedure Code, 1908. This power can even be exercised suo moto by the court. 

The CIRP under IBC is initiated on a single default without demonstrating the corporate debtor’s commercial insolvency. Therefore, it is submitted that a similar mechanism as specified in Section 12A of the Act should be incorporated in the IBC where both upon notice for payment of debt and after the filing of the CIRP application, the corporate debtor and the creditor in question can work to resolve the claims and disputes, if any, through mediation. Mediation at this stage of the proceedings may help eliminate insolvency applications intended for debt recovery, and invoking the full-fledged machinery of CIRP can be avoided.

In order to strengthen the mediation framework within IBC, it is indispensable that the National Company Law Tribunal (“NCLT”) is conferred with powers to refer a matter to meditation. In exercise of this power, NCLT can direct the promoters and erstwhile management of the corporate debtor to settle through mediation by way of a scheme or plan that accommodates these claims and evaluate it through each creditor or class of creditors. Where the corporate debtor is able to address the multiple claims of creditors, mediation assists in this endeavor, thus ensuring that only genuine cases of insolvency proceed to the resolution process. Mediation at this stage helps renew communications between the debtor and the creditors, including addressing the creditors' resentment of the default and likely impairment and enabling forward-looking arrangements between them.

In circumstances where it is clear that the CIRP has been initiated on account of a lack of cooperation between parties, the NCLT must attempt to refer the parties to mediation. This may be permitted even at appellate stages of the proceedings if required. This is especially important when the corporate debtor is commercially viable and can be run as a going concern.

Further, efficiency and efficacy being the hallmarks of ADR, the mediation process mustn’t be frustrated by undue delays. Thus, provisions for strict timelines for the mediation process, akin to amendments brought (in 2015 and 2019) to the Arbitration & Conciliation Act, 1996 (“Arbitration Act”), may be incorporated. A fast-track procedure envisaged under Section 29B of the Arbitration Act can also go a long way in ensuring the success of mediation in insolvency. 

Way Forward for India

India possesses the necessary legal mechanism to promote mediation in the form of Section 89 of the Code of Civil Procedure, 1908, which encourages the resolution of disputes through appropriate ADR methods, including mediation. Even the Companies Act 2013 specifies the establishment of a panel of mediators to which the NCLT may refer relevant matters. 

Nevertheless, the inclusion of necessary changes within the IBC remains a crucial decisive step for the success of mediation in this area of disputes. 

Besides legislative changes in the IBC, institutional capacity in terms of qualified mediators with experience in commercial disputes is equally necessary. Establishing the International Arbitration and Mediation Centre in Hyderabad is a welcome step. However, it is important that the government provides necessary administrative support to such initiatives. The market for insolvency experts has proliferated in India, and permitting mediation with the CIRP process will encourage many insolvency professionals to qualify as mediators and assume these responsibilities. 

The authors are presently working as Associate(s) in the office of Justice A.K. Sikri, International Judge, Singapore International Commercial Court and former Judge of the Supreme Court of India. The views/opinions expressed in the transcript are personal and do not represent the views of our employer or any other firm.

[1] See European Law Institute—Rescue of Business in Insolvency Law (2014-17), Available at: 

https://www.europeanlawinstitute.eu/fileadmin/user_upload/p_eli/Publications/Instrument_INSOLVENCY.pdf

[2] In re Sacred Heart Hospital of Norristown, 190 B.R. 38 (Bankr. E.D. Penn. Dec. 20, 1995).

[3] The Lehman Brothers case. See also, Nancy A Welsh, 'Integrating Alternative Dispute Resolution into Bankruptcy: As Simple (and Pure) as Motherhood and Apple Pie?', Nevada Law Journal, Vol 11:397, Spring 2011, p. 397, on the difficult decisions arising in mass claims against the debtor in bankruptcy. 

[4] In re Public Service Co. of New Hampshire, 99 B.R. 177 (Bankr. D.N.H. 1989).

[5] In re P.A. Bergner, Case Nos. 91-05501 to 05516, Order Approving Implementation of An Alternative Dispute Resolution Procedure Including Mandatory Mediation (Bankr. E.D. Wisc. Feb 11, 1993).

[6] See Dennis C. O'Donnell, Transnational Alternatives: Growing Role of Alternative Dispute Resolution in Transnational Insolvency Cases. This paper provides an account of using an Examiner as a mediator in the Eron bankruptcy and Lehman bankruptcy cases. Available at: https://www.iiiglobal.org/sites/default/files/transnationalalternativesgrowingrolesofalternativedisputeresolutionintransnationalinsolvencycases.pdf.

[7] In re Collins & Aikman Corp., 376 B.R. 815, 815-16 (Bankr. E.D. Mich. 2007).

[8] In re Piper Aircraft Corp., 376 B.R. 815, 815-16 (Bankr. S.D. Fla. 1994). Here future claims anticipated against the debtor company but not raised during the bankruptcy proceedings (that resulted in a resolution plan) were structured in trust. 100% of the claims that arose after the bankruptcy proceeding was settled through mediation.

[9] Re IM Skaugen SE, [2019] 3 SLR 979.

[10] The High Court held that, at para 98

"98. ….[T]he mediator can assist to iron out many of the wrinkles and creases that frequently erupt in a restructuring and which perhaps are not best resolved in the adversarial cauldron of the court. It is important that this be explored with vigour, as it seems to be as it seems to me to be self-evident that bridging differences and the trust divide is fundamental to a successful restructuring outcome…" 

[11] Including settlement conferences by the Judges, who will thereafter cease to hear the matter unless all parties agree. 

[12] European Commission Recommendations[12] on a New Approach to Business Failure and Insolvency, 12 March 2014, Vienna. Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32014H0135, last accessed on 13 October 2022.

[13] Available at:https://www.worldbank.org/en/topic/financialsector/brief/the-world-bank-principles-for-effective-insolvency-and-creditor-rights, last accessed on 13 October 2022.

[14] The French Commercial Code has a three-stage process for insolvency resolution using mediation. Under 'Mandat ad hoc', a mediator is appointed by the court at the request of the corporate debtor.

[15] Under the Belgium Act on the Continuity of Companies, a company intermediary assists in negotiating between the company and creditors to restructure debts.

By Jayant Mohan

In the case of Maharaja of Kolhapur Vs S Sunderam Ayyar,  the following issues arose and were decided:

a)        What is the status of the Raja's offspring by sword-wife mothers in this family? Are they legitimate or illegitimate? Are sword-wives a species of inferior wives or kind a of super concubines?

b)       Is the family, to which the late Raja of Tanjore belonged, a family of Kshatriyas or Sudras?

1. ‘Yaksha Prashnas’ or the vexed and unanswerable questions as stated above arose for the Indian Judges in pre-independence India with the interplay of the Indian Princes and Rulers Religious Beliefs, Customs with History and Legal System regarding Succession and Marriage Laws of the Maharajas and Princes. It is most interesting as to how the said issues were dealt with and judgment rendered by Secular Court of Law regarding Questions of Religion and History .

‘Yaksha’ in Vedic Mythology denotes ‘the benevolent spirit’. In Mahabharata the story of Pandavas at the end of their 12 year exile occurs known as ‘Yaksha Prashna’ which is a question-answer dialogue between Yudhishthira and the ‘Yaksha’ or ‘Noble Spirit’.

The story goes that the Pandavas were very thirsty in the middle of wild forests. Nakul, Sahdev, Arjun and Bhima went in search of drinking water. They reached a beautiful lake, each one after the other, and died after drinking water from the lake. They had ignored the warnings of the White Crane guarding the lake to first answer the questions and only then drink water.

Finally, when Yudhishthir reached the beautiful lake looking for his brothers, the White Crane reiterated the warning that anyone drinking water from the lake must answer his questions beforehand otherwise they will die. Yudhishthira agreed to answer the questions of the White Crane.  

Thereafter, the Crane turned into a ‘Yaksha’ or ‘Noble Spirit’ and started asking 125 questions on God, Religion, Philosophy and Dharma which Yudhishthira answered.

The Answers of Yudhishthira made the ‘Yaksha’ very happy and he     revived all the Pandava brothers back to life.   

Then, the Yaksha revealed his true form of Yama-Dharma or ‘God of Death’ being the father of Yudhishthira and blessed him that the Pandavas will be protected because the eldest Pandava follows the path of Dharma (righteousness) and deserves the title of ‘Dharma Raj’ or ‘Most Pious One’.

Similarly, ‘Yaksha Prashnas’ arose for adjudication before the Courts in colonial pre-independence India between Queens Proclamation in 1858 and 1947 when India became independent.

QUEEN VICTORIA’S PROCLAMATION OF 1858 AND RESPECT FOR LOCAL CUSTOMS

In the aftermath of the 1857 rebellion, the British Government passed the Government of India Act, taking over direct control of the administration in India from the East India Company.

Queen Victoria’s Proclamation held on 1^st November, 1858 at Allahabad granted to ‘the natives of our Indian territories’ the same rights as ‘all our other subjects’ and, among other things, promised to support religious toleration, to recognize the ‘customs of India’, to end racial discrimination and to ensure that ‘all shall alike enjoy the equal impartial protection of the law’.      

This respect for ‘Customs of India’ was a significant shift from the previous

policy of the doctrine of lapse being followed by Lord Dalhousie under the East

India Company Rule to annex the kingdoms of Indian Princes and Rulers who

did not have a proper male lineal heir to the Ruler.     

Under the Policy the British annexed the state of Satara, Jaitpur, Sambhalpur, Nagpur and most importantly Awadh (Oudh) between 1849  to 1856  which was one of the main causes of the Rebellion of 1857 against the Company Rule resulting in widespread violence and deaths of English persons, which  undermined British authority.     

Therefore, under the direct rule of Queen Victoria, the British Officials and the Administrators were very careful in dealing with the succession rights of Indian Rulers and Princes and the matters of succession were inevitably settled through the intervention of Courts.      

The interplay of the Indian Princes and Rulers’ religious beliefs and customs with the orders and proclamations issued by British administrators resulted in complicated legal status of the heirs and inheritance was always heavily contested in the Courts of Law.

The Law Courts were called upon to decide such complex historical, social and mythological questions like what is the ‘Caste’ or ‘Gotra’ of Rajas or ‘Validity of Sword Marriages’ etc.

THE CASE WHERE THE ISSUE WAS THE CASTE OF SHIVAJI THE GREAT

At the crossroads of history, law and religion was one such succession battle between various claimants to the private properties of the Raja of Tanjore which came to be decided by the Madras High Court in the case of Maharaja of Kolhapur Vs S Sunderam Ayyar decided on January 21,1924.

The decision was rendered on 21^st January, 1924 by the Madras High Court regarding succession of the magnificent Tanjore Fort and personal properties of the last Maharaja of Tanjore who had passed away in 1855.

The said first appeal arose from the decision of Subordinate Judge-Tanjore  dated  2^nd July, 1918 where amongst the 72 issues decided by the Judge were the  two questions mentioned in the beginning  which stand out for their unique complexity;

Sword Marriage’ was a prevalent form of marriage amongst the ruling Maharajas and Princes of India where many women were married to the sword or the dagger of the Raja, sword representing the Raja or the King. Such form of marriage was prevalent amongst the Kshatriyas because the sword or dagger was representative of the Kshatriyas whose profession was of arms. There was no giving away of the bride to the groom, treated to be an essential feature of marriage.

‘Sword Marriages’ were treated by the Pandits to be ‘Gandharva Marriage’ (a marriage importing amorous connection found on reciprocal desire) form, being that there was no giving away of the bride.

Recently, a popular Hindi movie ‘Bajirao Mastani’ on the romance between Bajirao Peshwa (1700-1740), the Maratha King, with Mastani (1699-1740), daughter of Maharaja Chhatrasaal of Bundelkhand, has been portrayed on screen. Mastani was the second wife of Peshwa. Many historians are of the view that Mastani was married to the sword of Bajirao Peshwa in Bundelkhand and later on was brought to Pune, the seat of Peshwa, to cohabit with him as his second wife.

The Bench which decided the Appeal before the Madras High Court comprised of the officiating Chief Justice Charles Gordon Spencer and Justice Kumaraswami Sastri. The most fascinating aspect of the process is how a British Judge (the officiating Chief Justice) decided the complicated issues pertaining to Indian history, mythology and religious beliefs and customs. Remarkable erudition, research and scholarship is evident from the reading of the decision. Justice Kumaraswami Sastri agreed with the opinion of Justice Spencer but wrote a separate judgment detailing separate reasons and supporting the conclusions of officiating Chief Justice.

The Judgment of Charles Gordon Spencer starts with the following line

“In A.D. 1674 during the reign of the great Mogul Emperor Aurangzeb, Ekoji alias Venkaji took Tanjore from its Nayak Rulers without firing a shot.

 ….In 1677 the forces of Ekoji and those of his half brother Sivaji came into conflict but by a compromise the former was allowed to retain Tanjore. In 1680 Sivaji got Tanjore and other territories ceded to him by the Bijapur Government, but in the same year Sivaji died and Ekoji retained his-hold on Tanjore.”

With the aforesaid Words, the Judgment proceeds to narrate the factual background which was the subject matter of the case being the ‘suit property’ namely the magnificent Tanjore Fort and Lands which were the personal properties of the Maharaja of Tanjore.

FACTUAL BACKGROUND OF THE CASE

On one side was the successors of Sivaji the great - the founder of the Maratha Empire in Deccan India represented through Maharaja of Kolhapur claiming the suit property. On the other side were the Successors of Ekoji (half brother of Shivaji) and Maharaja of Tanjore claiming rights by succession in the personal property of Ekoji. The successor of Ekoji being Last Ruler of Tanjore (Sivaji) passed away in 1855.

Since the last Maharaja of Tanjore did not have a male heir, he married 17 women in one day through ‘Sword Marriage’ in 1851 in a desperate attempt to get male heirs.

On October 29th, 1855, he left 15 Ranis, two legitimate daughters, a mother, 60 women living in a seraglio called the Mangala Vilas, of whom 40 aspired to be called sword wives in distinction to the dancing girls who were ordinary concubines, and 17 natural children begotten by the Raja through sword wives, six of these children being males

The British Government declared the Raja of the Tanjore State to have lapsed and vested with the Government of India as he did not leave behind a male heir.

As far as the personal properties of the Raja of Tanjore, namely the Tanjore Fort and the lands and other properties of the Maharaja of Tanjore were concerned, the Government of Madras issued a Government Order in 1862 handing over the Estate to be managed by the Widow of Raja of Tanjore namely Kamakshi Bai for management and control. The Government Order also mandated that on the death of the last surviving widow the Property will devolve upon the daughter of the Raja or failing her the next legal heir of the Raja.

Kamakshi Bai, the widow of the last Raja of Tanjore, died in 1912.

The receiver on July 8th, 1912, instituted this interpleader suit to decide who was entitled to take the estate making the adopted son's sons, the daughter's adopted grandchild, the sons and grandsons of the Raja by his sword wives, distant agnates including the Maharaja of Kolhapur, the descendants of the last ruler of Satara and of the Patel of Jinti, and remote bandhus, in fact all possible claimants, parties to the suit. The trial commenced on July 2^nd, 1917 before the Subordinate Judge, Tanjore and judgment was pronounced on July 1st, 1918, after voluminous evidence had been recorded and innumerable exhibits admitted.

How the issue of validity of Sword Marriages and rights of the Children born out of such marriages was decided 

While deciding on the vexed issue of validity of sword marriage and legitimacy of children born out of sword marriages, the court considered the voluminous evidence as well as primary sources of information such as historical accounts, treatises by scholars and literary and official accounts regarding practices and customs of ‘Sword Marriages amongst the Ruling classes’ was taken into account;

In the aforesaid background the issue of Caste of Ruler of Tanjore from Ekoji being half brother of Shivaji the Great came to be decided by the High Court. The Court relied upon evidence and materials to conclude ‘Sword Marriages’ were in fact a valid form of marriage but only amongst the Kshatriyas.

The High Court disagreed with the finding that Sword Wives was a valid form of marriage in the family of Raja of Tanjore but the status of Sword Wives was that of inferior wives. Therefore, the children born out Sword Marriages are ‘illegitimate’ and only entitled to be given shares reserved for illegitimate sons as per Hindu law and held that Sword Marriages were a valid form of marriage amongst Kshatriyas.

The High Court disagreed with the approach of the Subordinate Judge and held that there cannot be a half-way house regarding legitimacy and illegitimacy. Therefore, it is necessary to find whether the Sword Wives were regularly married or they were concubines whose offspring are illegitimate.

How the Issue of Caste of Shivaji the Great became an issue to be decided by the High Court

The validity of Sword Marriages and the right to inherit for offspring born out of such Sword Marriages will depend on the finding whether the fact that Raja of Tanjore belongs to Kshatriya caste or not since the first Raja of Tanjore i.e. Ekoji was the half-brother of Shivaji and both had common ancestors. Therefore, the issue of caste of Shivaji the Great arose and had to be decided upon.

Historical accounts record that Shivaji the great was the most Powerful Maratha Ruler in the Deccan. He was anointed/initiated by Gaga Bhat, a Brahmin from Benaras, at the age of 47 years in a regal ceremony for coronation of Shivaji the Great held at 6^th June, 1674 at Raigad.

While determining the caste issue, three historical facts had to be probed which had arisen from the material on record:

1. Gaga Bhat, a Brahmin from Benaras did the Upananyanam or thread ceremony thereby raising Shivaji to the rank of Kshatriya and conferring on him the title ’Chhatrpati” or “Chief, Head King of Kshatriyas”.

2. Origins of the Mahratta Clan who traced their lineage to the Rajput Rulers from Udaipur (Ranas of Mewar) and the Mahrathas’ claim that they descend from the Ranas of Mewar being the first 96 families who had initially migrated from Udaipur and settled in Deccan.

3. In performing the Upanayana Sanskar of Shivaji there was considerable opposition from other Brahmins and Pandits of the time who claimed that in Kaliyuga there are no kshatriyas because they were extinguished by the Sage Parshuram.

The Veracity of the aforesaid facts had to be ascertained from the proof and evidence on record which the court proceeded with in the following manner;

Upanayanam (Thread marriage) of Shivaji the Great

The Judgment notes from the Satara Gazetter and Kolhapur Gazeteer prepared by the Administrators recording the facts and history of the District and people regarding the Thread ceremony or Upanayanam of Shivaji the Great for which a Pandit from Benaras had been called and he raised Shivaji to the rank of Kshatriya after the Upanayana Ceremony.

“It is a matter of history that Sivaji paid four lakhs of rupees to Gaga Bhat, a Brahmin of Benares, in order to have his upanayanam (thread marriage) performed when he was 47 years of age, and to be raised to the rank of a Kshatriya at the time of his coronation. In the Kolhapur Gazetteer, page 72, it is stated that the descendants of Sivaji. claim to belong to the Kshatriya caste and say that their ceremonies are the same as those of Brahmins.”

The brilliance of the Judge is evident from the way this vexed issue of “Gaga Bhat – A Brahmin from Benaras having been prevailed upon to perform the Upanayam sanskar of Shivaji the Great Maratha Ruler has been dealt with. The Judge considers this one event has been described by three scholars from three different viewpoints in the judgment as follows;

1.  As per J Sarkar’s "Shivaji," pages 240-246, that Shivaji underwent a public purification for having omitted to observe Kshatriya rites for long. Thereafter a meeting of Brahmins was held who opposed Gaga Bhat to initiate Shivaji as they asserted that in Kaliyuga there was no true Kshatriya as Sage Parashuram had extinguished them. Gaga Bhat then proceeded to initiate Shivaji in modified form with Vedic mantras overcoming opposition.

2. Mr. Ben in his recent book called Siva Chhatrapati, published while these appeals were awaiting a hearing, that the argument that there were many Sudra kings without any knowledge of Kshatriya rites, though urged for the space of a year and a half, had no effect on Gaga Bhat but that he was finally prevailed upon to crown Sivaji by the plea that he was kind to his subjects, and maintained the true religion (pages 241-242).

3. Subasat's Bakar, page 114, that Gaga Bhat was satisfied by means of an emissary sent to Rajputana that Sivaji's ancestors came from Kshatriya families and that he was a Suddha (proper) Kshatriya is correct.

Despite the three versions of the same event as described by scholars having been noted by the Court it was found unnecessary to give an opinion on the issue of caste of Shivaji on this much vexed question in the following words:

 “assuming that Sivaji and his descendants are Kshatriyas, it does not follow that Ekoji, his half-brother, who did not go through the ceremonies of purification and coronation, as Sivaji did, and his descendants are anything more than Sudras”

 Therefore, the Court refrained from giving a finding regarding the Caste of Shivaji the Great – Founder of the Maratha Empire.

ORIGINS OF ANCESTRY OF THE MARATHAS BEING 96 FAMILIES DESCENDED FROM THE RANAS OF UDAIPUR

The Court noted the historical claim that Marathas had Migrated from Udaipur and were the Descendants of the Rana of Udaipur from Mewar State in Rajputana :

“The highest class of Mahrattas is supposed to consist of ninety-six families, who profess to be of Rajput descent and to represent the Kshatriyas of the traditional system.”

This theory of the origins of Marathas was considered from the stand point of various historical and literary accounts. Also, voluminous evidence was led before the Subordinate Judge who had rejected the theory of origin of Marathas from Rajputana. The Court was of the view that there is no basis to prove that the descendants of Ranas of Mewar had come to so much distance to the south and found an empire and following finding regarding origins of the Marathas from the Ranas of Mewar regarding  ancestors of  Rulers of Mahratta Empire and Tanjore State

“On the whole it must be said that historically, genealogically, geographically, socially and ceremonially, the claim of this family to be classed as Kshatriyas has failed and the lower Court's finding on this point must be confirmed.”

In the aforesaid manner the Court affirmed the finding of the Subordinate Judge Tanjore that the Maharaja of Tanjore was not Kshatriya by caste and the claim of successors to inherit the property from Sword Marriage was rejected.

WHETHER NO KSHATRIYAS EXIST IN KALIYUGA BECAUSE SAGE PARSHURAM HAD DESTROYED THEM

In opposition to anointing Shivaji as a Kshatriya, some Brahmins and objected that in Kaliyuga no Kshatriyas exist because Parshuram a Sage had destroyed all Kshatriyas. The said theory is rejected by the Court and concludes that Kshatriyas continue to exist relying upon the decision of Privy Council in Ma Yait v. Maung Chit Maung A.I.R. 1922 P.C. 197 that concept of Caste is dynamic and notes the evolution of Hindu castes by occupation, migration and intermarriage, and new castes have been evolved among the descendants of Hindus are to be considered as having retained in the Hindu religion, and observes that the formation of new castes is a process which is constantly going on.

CONCLUSIONS AND LESSONS IN JUDICIAL WISDOM

In my opinion the remarkable decision shows judicial statesmanship, wisdom and scholarship wherein the Hon’ble Judges had considered the complicated issues of religion and history being ‘Yaksha Prashnas’.

The Court adjudicated with wisdom, logic and legal reasoning on the sensitive issue of ‘caste’ of one of the icons of India - Shivaji who was the founder of the Maratha Empire.

The Judges showed considerable respect and sensitivity of the issue of caste of Shivaji and the far reaching implications it may have on the descendants of Shivaji the Great . Therefore, the Court in its wisdom refrained from recording a finding on whether the caste of Shivaji was Kshatriya or not because the same may cause prejudice to the descendants of Shivaji, i.e. Maharaja of Kolhapur and Satara branches of the family of Shivaji who were parties in the case .     

The Approach of the Court as observed from the decision is a shining example for Judges and Lawyers who are involved in deciding upon emotionally charged issues of life, religion and law with poise, dispassionate analysis based on logic and reasoning and most importantly keeping aware of the guiding light the golden words inscribed on the National Emblem of India - The Ashok Chakra with Three Lions namely:

                   Satyamev Jayate- Truth Always Prevails  

 _________________________________________________________

Jayant Mohan is an Advocate-on-Record in the Supreme Court. Practising since 2005, he has varied experience before the Apex Court in matters related to  Constitutional and Criminal law, more particularly PILs related to the Environment, Mining Laws and Criminal Cases. He  represents the State of Jharkhand before the Supreme Court.

By Chirag Singla

February 13, 2023 

The world of cryptocurrency was caught off guard when FTX exchange, one of the world’s largest cryptocurrency exchanges, filed a bankruptcy petition in the USA in November last year. This came as a shock because every crypto investor has a direct or indirect effect on their “crypto asset”. 

There are about 1.15 crore people in India who have invested in cryptocurrencies and as per a survey of Indian crypto exchange, the average investment by an individual is around Rs. 9000 in India. All things kept in mind, it is necessary to know what legal remedy one has in case an FTX-like crash happens in India. As we all know, India does not have any legal framework regarding cryptocurrency. Like SEBI regulates the stock market, we have to find legal recourse in laws which are in force. 

Before we delve further, it may be noted that nomenclature of cryptocurrency is “currency”. However, they are not “currency” as per existing Indian laws. At best they can be described as “digital products” or “digital assets”. 

In this article, we are only looking at leading crypto exchanges in India   (hereafter referred as “exchanges”). We will be dealing with their terms and conditions and what other legal recourse is available to an investor.  

T&Cs are boring, lengthy and full of legal jargon, but the truth is that they are the only agreement between the user and the company.

It may be a revelation to some of us that many crypto exchanges are not even based in India, i.e., they are not registered as a Company or LLC in India. This means any legal battle against them will be an uphill task.  Interestingly,some of them are based in Singapore. 

Although every cryptocurrency exchange in India advertises themselves as a “Top Exchange”, if we dig deeper in their T&C’s, they actually consider themselves as “merely a technology platform”.

Some of the top exchanges have a similar dispute resolution clause. Many exchanges provide for Conciliation, through which any user who has a grievance can send 60 days’ notice to the company to resolve their complaint. 

However, most exchanges provide for an Arbitration Clause.In simple words, Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court.

Although India has its own Arbitration Act and several domestic/international arbitration centres, some exchanges prescribe that every dispute should be referred to Singapore International Arbitration Centre (SIAC). For an investor, it is important to know that arbitration is an expensive process where there are different forms of fees like arbitrator’s fee, administrative fee and lawyer’s fee. For reference, the total fee for a dispute of a sum of under Rs. 30 lacs would be around 10,000 SGD in SIAC (approx. Rs. 6.5 lacs). It is a no-brainer that no small investor would opt for arbitration. These types of clauses are meant for larger businesses and not for individual investors. Clearly, the exchanges are showing their upper hand and dominant position while drafting such clauses to create hindrances for anyone who has a grievance against them. 

As some exchanges are based in Singapore, their T&Csprovide filing of claims before Small Claims Tribunal, Singapore. The Tribunal can adjudicate dispute sum of up to30,000 SGD (approx. Rs.18.5 Lacs). This clause may seem appropriate, however, it is not feasible for any Indian investor to approach the tribunal in Singapore.

So, what’s the recourse to a small investor who has not invested tens of lacs? Well, that’s where our current law comes into the frame. This is a point when we enter uncharted territory because our existing laws have not been tested against new-age technology disputes. 

In 2019, the new Consumer Protection Act came into force. The Legislature has added new facets to this law, one of which is defining what “e-commerce” means and further “Consumer Protection (E-Commerce) Rules, 2020” were notified in 2020 which prohibit unfair trade practices on e-commerce platforms. Any aggrieved user can file a consumer complaint before one of the Commissions formed under the Act. However, it must be noted that there is no precedent either by any High Court or the Supreme Court of Indiawhether such a complaint is maintainable or not.

It must be noted that Presiding Officers in consumer courts may not be well versed with all the technological advances with respect to cryptocurrencies. For resolving any crypto disputes, it would be imperative to have a specific adjudicating Authority/ Tribunal with Presiding Officers having deep technical knowledge and aware of nitty-gritties of the crypto world.  

The one thing which is clear from the above discussion is that the Parliament needs to formulate a specific legislation to govern the crypto backed products and services and form an Authority/Tribunal, so that any dispute can be expeditiously and effectively decided. Until then, please invest carefully.

Chirag Singla is an Associate at Seraphic Advisors, New Delhi. He can be reached at csingla@seraphicadvisors.com.

By Payal Chawla

December 9, 2022

There have been some significant judgements on the arbitrability of fraud recently i.e. - Rashid Raza v Sadaf Akhtar, Avitel Post Studioz Limited v. HSBC Pi Holdings (Mauritius) Limited and Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties (“Triad Judgements”). While these stopped short of explicitly overruling  A. Ayyasamy v A. Paramasivam, I argue that in fact Ayyasamy is implicitly overruled, and is no longer good law, in the wake of the observations in the Triad Judgments. 

In my view, fraud ought to have been arbitrable, and the controversy around it has been wholly unnecessary.  But, in order to understand how we got here, it is imperative to traverse the confounding history of arbitrability of fraud in England and in India.

A brief history of arbitrability of fraud in England

The journey begins with Russel v Russel, an English judgment delivered as early as 1880, and widely regarded as the authoritative word on arbitrability of fraud, in both India and England. The Chancery Division in Russel held that courts could decline reference to arbitration where there were serious allegations of fraud, and where the party against whom fraud was alleged, desired a public inquiry in order to clear allegations against their character. Interestingly, Russel was largely perceived as a pro-arbitration decision. Despite the fact that s. 14 of the (UK) Arbitration Act of 1934, which followed Russel, specifically empowered courts to refer disputes involving questions of fraud to courts for determination, judicial precedent initially remained pro-arbitration. This tussle between the statutory provisions and judicial pronouncements continued until 1979.

It was the decisive ruling in Paczy v Haendler & Natermann GmbH (No.1) that settled the debate and held that, even in cases of international commercial arbitrations involving allegations of fraud, the court had no discretion to set aside an arbitration agreement. This principle was later given statutory recognition in the (UK) Arbitration Act of 1996 in England. However, the statutory recognition remained limited to international commercial arbitration. As regards domestic arbitrations, the courts in the UK had more discretion. While s.86(2)(b) of the (UK) Arbitration Act, 1996 continued on the statute book, due to European Community law considerations which required equitable treatment of all nationalities, the statutory disparity in relation to the arbitrability of fraud in domestic and international commercial arbitrations were not enforced. In effect, it was mandatory for the courts in England to refer parties alleging fraud to arbitration, thereby bringing parity between international commercial arbitrations and domestic arbitration. 

Position in India & early rulings

There is and has never been any statutory bar on the arbitrability of fraud in India. The entire doctrine of non-arbitrability of fraud has been built through case law. One of the first cases that dealt with the arbitrability of fraud was Abdul Kadir Shamsuddin Bubere v Madhav Prabhakar Oak. In 1962, a three-judge bench of the Supreme Court in Abdul Kadir, relying on Russel, held that when serious allegations of fraud were made against a party, and such party was desirous of his name being tried in open court, the court would have sufficient cause not to make a reference to arbitration. 

Although this decision was “only an authority for the proposition that a party against whom an allegation of fraud is made in a public forum, (he) has a right to defend himself in that public forum”, it unfortunately became the authoritative precedent on arbitrability of fraud and the basis to deny reference to arbitration. Interestingly, in Abdul Kadir, the court referred the parties to arbitration,holding “that there are no such serious allegations of fraud in this case” and therefore the court’s observations were in obiter.

Paradoxically, while England treated Russel as a pro-arbitration judgement, in India it was largely seen as an authority against the arbitrability of fraud. It is also important to note that the decision in Abdul Kadir was in the context of s.34 of the (Indian) Arbitration Act, 1940(1940 Act), where the scope of judicial intervention was significantly more than the limited interference permissible under s.8 of the 1996 Act, as it originally stood and after it was amended.

In September, 2001, the 176th Law Commission Reportrecommended that, in cases of domestic arbitrations, courts should alone deal with cases where questions of “fraud arise or if serious issues of fact or law arise”. The Justice Saraf Committee, however, had taken a different view. On 22.08.1996, the Arbitration and Conciliation Act, 1996 come into force replacing The Arbitration Act, 1940. Section 8 of the 1996 Act replaced section 34 of the 1940 Act, taking away discretion from the courts, and making reference to arbitration mandatory.

Section 8 is Peremptory

While interpreting s.8 of the 1996  Act, the Supreme Court, held that s.8 (of the 1996 Act) was “peremptory” and it was “obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement”. With the inclusion of s.8 and the decisive ruling of Anand Gajapathi Raju the controversy regarding arbitrability of fraud ought to have been laid to rest and fraud made expressly arbitrable. 

Curiously, however, the reverse happened. A year later, the Madras High Court, in H.G. Oomor Sait v O. Aslam Sait, held that a civil court could refuse to stay a suit, even in regard to an arbitration agreement, on the basis of certain grounds available under the 1940 Act, as if the same continued to be available under the 1996 Act. This decision was incorrect because the discretion power of the courts under s.34 of the 1940 Act, had been curtailed by s.8 of 1996 Act. Further, the decision in Oomor Sait was clearly per incuriam as it failed to follow Anand Gajapathi Raju, despite referring to it. 

In 2003, the Supreme Court fortified the view of Anand Gajapati Raju. The court held - “If in an agreement [.] there is a clause for arbitration, it is mandatory for the civil court to refer the dispute to an arbitrator”. 

The setback - N. Radhakrishnan

This view suffered a serious setback in 2007, with the decision of the Supreme Court in N. Radhakrishnan v Maestro Engineers, which held that fraud was non-arbitrable. The court curiously relied on Oomor Sait, and held that issues involving “detailed evidence” could only be looked into by a civil court. The Supreme Court, agreeing with the Madras High Court, took the view that “allegations of fraud and serious malpractices” could only be enquired into by the court and not an arbitrator. 

The decision of N. Radhakrishnan was incorrect for several reasons. First, the ratio decidendi of N. Radhakrishnan was based on the aspect of “allegations of fraud and serious malpractices”, which according to the Supreme Court, was the basis of the underlying High Court’s decision in N. Radhakrishan. A perusal of the Madras High Court’s judgment in N. Radhakrishnan v Maestro Engineers will, however, reveal that the said decision did not deal with the question whether fraud was beyond the scope of arbitration. The High Court had merely dealt with the question of whether an application under s.8 of the Arbitration Act could be rejected when the evidence required to be examined was “detailed”. When the question as to whether issues of fraud could be referred to arbitration or not, had not arisen before the High Court, the Supreme Court ought not to have gone into that aspect at all. Therefore, the discourse and ruling on fraud in N. Radhakrishnan was without any basis and was unnecessary. Secondly, the court relied on a judgment of the High Court in Oomor Sait which had observed that the civil court could refuse reference to arbitration, if disputes involved “substantial questions of law” or “complicated question of fact” or “serious allegation of fraud” or “minute details of evidence” , the court could reject arbitration and such cases are “best left to the civil court” and that “the Arbitrator will not be competent to go into the said issues”,  because” the nature of the enquiry before an arbitrator is summary and Rules of procedure and evidence are not binding”. Such a proposition, even at the time when the decision of Oomar Sait was delivered was wholly incorrect. Thirdly, by 2006, the Supreme Court had the benefit of the 176th Law Commission Report, as well as the Justice Saraf Committee Report. Fourthly, the decision of N. Radhakrishnan on the scope of s.8 was per incuriam. The court in N. Radhakrishnan, referred to Hindustan Petroleum, but failed to distinguish it. Further, the court did not even mention Anand Gajapathi Raju. There is no doubt that N. Radhakrishnan was a serious setback to Indian arbitration. Sadly, the Supreme Court did not even notice the controversy before the High Court.

The 246th Law Commission Report

The 246th Law Commission in its report recognised that the issue of arbitrability of fraud was a vexed issue and had in the past been dealt with by various courts, with “conflicting decisions of the Apex Court”. The Law Commission doubted the correctness of N. Radhakrishnan. At paras 50 and 51 the Law Commission discussed the non-arbitrability of fraud and the distinction drawn by various courts between mere allegation of fraud and serious issue of fraud. At para 52, the Law Commission decisively stated that it “was important to set this entire controversy to rest and make issues of fraud expressly arbitrable and to this end” proposed amendments to s.16. The Law Commission recommended the inclusion of a specific section i.e. s.16(7) to make fraud, including “serious question of law, complicated questions of fact or allegations of fraud, corruption etc.” arbitrable.  The Law Commission also stated that this amendment was proposed in view of the N. Radhakrishnan judgment. 

The 2015 Amendments 

The 1996 Act stood amended with effect from 23.10.2015. Regrettably, despite the Law Commission’s recommendation, s.16(7) did not form part of the 2015 amendments. 

The court in Avitel surmised :  “Parliament may have felt, as was mentioned by Lord Reid in British Railways Board and Herrington, 1972 A.C. 877 [House of Lords], that it was unable to make up its mind and instead, leave it to the courts to continue, case by case, deciding upon what should constitute the fraud exception. Parliament may also have thought that section 16(7), proposed by the Law Commission, is clumsily worded as it speaks of “a serious question of law, complicated questions of fact, or allegations of fraud, corruption, etc.””

Why s.16(7) did not form part of the 2015 amendments, remains an enduring mystery, but s.8 was amended and made more restrictive; the scope of judicial intervention was limited to a finding that “prima facie no valid arbitration agreement exists”.  Therefore, even though s.16(7) was not specifically included in the amendment, this did not in any way signal that fraud was not arbitrable, or that serious issues of fraud were not arbitrable, because in fact the language of s.8 became stricter.

Swiss Timing and its importance 

Before proceeding further, it is important to discuss in detail the judgement of Swiss Timing v. Organising Committee. This judgement, to my mind, is the single most important judgment on arbitrability of fraud. To our misfortune, the judgment was delivered in the context of s.11 of ACA and in State of West Bengal v. Associated Contractors, the judgment was deemed not to have precedential value.  While, Swiss Timing was subsequently referred to, including in Ayyasamy, its principles were largely ignored on account of it not having precedential value. It would take Justice Nariman to resurrect the principles enunciated in this decision - but more about that later.  

Swiss Timing is perhaps the lone judgement that deals with the distinction of void and voidable agreements, and in this context, applies the law, quite correctly, with regard to arbitrability of fraud. 

“Often, the terms “void” and “voidable” are confused and used loosely and interchangeably with each other.”. In reality, however, the Contract Act, 1872 (“Contract Act”), makes a clear distinction between agreements that are void ab initio and contracts that are voidable at the instance of a party. 

An agreement that is void never translates into a contract. Examples of void agreements would be agreements entered into with minors, or where both the parties are under a mistake as to a matter of fact essential to the agreement, or “where the consideration or object of the contract is forbidden by law or is of such a nature that, if permitted, it would defeat the provisions of any law or where the object of the contract (sic) is to indulge in any immoral activity or would be opposed to public policy. Glaring examples of this would be where a contract is entered into between the parties for running a prostitution racket, smuggling drugs, human trafficking and any other activities falling in that category” or wagering contracts. 

On the other hand, a contract is voidable in certain instances under the Contract Act. In terms of ss.19 and 19A thereof, when consent to an agreement is caused by “coercion”, “fraud”, “misrepresentation” or “undue influence”, the contract is voidable at the option of the party whose consent was so caused. “Fraud” is defined in s. 17 of the Contract Act. While fraud vitiates free consent and makes a contract voidable, such a contract is not ab initio void. A party, whose consent was obtained via fraud, can choose to pursue with the contract.

The Contract Act clears the distinction between the two expressions. While S. 2(g) states “An agreement not enforceable by law is said to be void”, S.2(i) states -“An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract”. A voidable contract may become void, at the option of one party, but is not in the first instance void. Section 2(j) states, “A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable”.  

The proposition laid down by Swiss Timing was that a court must “refer the parties to arbitration, if the action brought in the subject of an arbitration agreement, unless it finds that prima facie no valid arbitration agreement exits”.  In other words, a court can only decline a reference to arbitration, if the underlying arbitration agreement is ab initio void.

When a court is presented with a case involving a void agreement  “it would be justified in declining reference to arbitration.”. “However, it would not be possible to shut out arbitration even in cases where defence taken is that the contract is voidable” (emphasis supplied)

The Ayyasamy decision 

In October 2016, the Supreme Court delivered an important judgment in A. Ayyasamy v A. Paramasivam(“Ayyasamy”). Unfortunately, while the court referred to Swiss Timing, it failed to rely on the principles enunciated by it, particularly with regard to the distinction between void and voidable agreements.  This would also have been in line with the recommendations of the 246th Law Commission Report. The Supreme Court in Ayyasami dealt with fraud in extenso, it touched upon the definition of fraud fleetingly, mentioning only some ingredients of fraud in the context of the Contract Act. While defining fraud, the court relied on the Black’s Law Dictionary and omitted to consider the comprehensive definition of fraud in s.17 of the Contract Act. Consequently, the entire aspect of void and voidable contracts was side-stepped, except for a passing observation by the court stating that where the arbitration clause is null and void, it “would include voidability on the ground of fraud.” Such a proposition, with respect, is incorrect as it conflates the issue of void and voidable contracts.

Further, Ayyasamy stated that the same “cannot be deemed to have overruled the proposition of law laid down in N. Radhakrishnan”. In fact, Swiss Timing never professed to overrule N. Radhakrishnan, and merely stated that N. Radhakrishnan was per incuriam (which it was) and in this regard observed - “The judgment in Hindustan Petroleum Corpn. Ltd., though referred to, has not been distinguished but at the same time is not followed also (sic). The judgment in P. Anand GajapathiRaju was not even brought to the notice of this Court. Therefore, the same has neither been followed nor considered. Secondly, the provisions contained in Section 16 of the Arbitration Act, 1996 were also not brought to the notice by this Court”. Interestingly, the court in Ayyasamy itself relies on Hindustan Petroleum Corpn. Ltd. and  P. Anand Gajapathi Raju which make Section 8 peremptory. In fact, the court in Ayyasamy recognised that the Supreme Court in Sundaram Finance Ltd. v. T. Thankam, had reiterated “the same position in regard to the mandate of Section 8”. 

The Supreme Court then held that in cases of “very serious allegations of fraud which make a virtual case of criminal offence or where allegations of fraud are so complicated”, reference to arbitration, by a court, may be denied.  The court also observed that “where there are serious allegations of forgery/fabrication of documents in support of the plea of fraud or where the fraud is alleged against the arbitration provision itself or is of such nature that permeates the entire contract, including the agreement to arbitrate, meaning thereby in those cases where the fraud goes to the validity of the contract itself the entire contract which contains the arbitration clause or the validity of the arbitration clause itself.”.

While Ayyasamy made a departure from N. Radhakrishnan and diluted its deleterious effects, the court held disputes where fraud is merely alleged, or it involves fraud simpliciter, would be arbitrable. Unfortunately, however, the court also held that issues relating to serious or complicated fraud were not arbitrable.  Making a distinction between fraud simpliciter and complicated fraud, the court observed - “It is only where there is a serious issue of fraud involving criminal wrongdoing that the exception to arbitrability carved out in N. Radhakrishnan may come into existence.”.

Though N. Radhakrishnan was considerably watered down, it was not overruled by Ayyasamy. It was an important opportunity lost. Ayyasamy added to the uncertainty: is serious fraud not arbitrable at all or only when there is “serious fraud with criminal wrongdoing”?And what happens if there is fraud simpliciter with criminal wrongdoing?

The aftermath of Ayyasamy

With N. Radhakrishnan, the floodgates of litigation were opened and the defence of fraud was “utilised by parties seeking a convenient ruse to avoid arbitration”. The uncertainty, unfortunately, continued even with Ayyasamy. Inclusion of elements of very serious allegations of fraud that make a virtual case of criminal offence and complicated fraud, the court left the door open for the astute lawyer to conflate the subjectivity of those words. Thus, the mere filing of a s.8 application could derail or at the very least delay the arbitration process. When the concurring judgment of Chandrachud J., in Ayyasamy relied upon approval on Fiona Trust and Holding Corpn. v Privalov that arbitration was permissible even in cases involving bribery, there was no reason why all disputes relating to fraud, simpliciter or complicated, ought not to have been a fortiori arbitrable.

In Ayyasamy, Sikri and Chandrachud JJ. gave separate but concurring judgments. It is, however, respectfully stated that the judgement is confusing as it contains too many propositions which can appear to be self-contradictory. It is difficult to cull out a clear ratio from this judgement and the High Courts, and even arbitrators, had no clear guiding principle.

The triad judgments

Rashid Raza is the first of the three judgements. It is an important judgement in so far as it provides the necessary clarity to Ayyasamy, and in this regard states that “the law laid down in A. Ayyasamy’s case is in paragraph 25 and not in paragraph 26”. 

The court also set out a “Two working test” formula for making a distinction between serious allegations of forgery/fabrication on the one hand and “simple allegations” on the other -  i.e. “does this plea permeate the entire contract and above all, the agreement of arbitration, rendering it void, or (2) whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implications in the public domain”.

Almost a year later, Justice Nariman authored the Avitel judgement. This is a significant judgement. The Court, albeit sitting in a combination of two judges, observed that they were “inclined to adopt” the “reasoning” of the single judge in Swiss Timing as it had “strong persuasive value”. The court recognized that even while, Swiss Timing, cannot be deemed to have precedential value, all the same N. Radhakrishna had been “found to be wanting” and had been “tackled on the judicial side”.

Although the court in Avitel does not return a finding specifically with regard to “void” and “voidable” in the context of fraud, the court does mention both ss.17 and 19, and in fact quotes the sections in their entirety. More interestingly, the court relying on Fazal D. Allana v. Mangaldas M. Pakvasa highlights a very important distinction between contracts that are obtained by fraud or cheating, and contracts whose performance is vitiated by fraud or cheating. The former category would be hit by s. 17 of the Contract Act and the latter by the tort of deceit. According to the court – “Both kinds of fraud are subsumed within the expression “fraud” when it comes to the arbitrability of an agreement which contains an arbitration clause.

On the same date as Avitel, Justice Nariman, sitting in a combination of three judges also authored and delivered the judgement in Deccan Papers Mills. The court affirmed the judgment in Avitel, and thereby the principles enunciated therein.  The court reiterated the “law on invocation of (the) “fraud exception” as laid down in Avitel. The court also reiterated that “N. Radhakrishnanas a precedent, has no legs to stand on”, thereby casting the final (and much-needed) death knell to N. Radhakrishnan.

Though the court in Deccan Paper dwells into the aspect of void and voidable contracts, it does so on a completely different aspect i.e. s. 31 and 39 of the Specific Relief Act, 1963. 

Analysis of the Triad judgments

Paragraph 25 of Ayyasamy speaks of at least seven propositions to ascertain when fraud may be arbitrable, while Rashid Raza points only to two. It then begs the question - is the remainder of para 25, which is not in line with the two-test formula, overruled?

There are other difficulties with the two-test formula. The two-test formula as a general proposition of arbitrability is sound. In other words, if the two-test formula simpliciter read: 1) if a contract is void, particularly the arbitration encapsulated there, 2) deals with aspects of rights in rem, such a dispute would not be arbitrable – then the two-test formula would be a good working test. 

There is also no quarrel with the second test i.e. that  if fraud inter se between parties touches has implications in the public domain (in other words impacts rights in rem),  such a dispute would not be arbitrable.

It is the first test in the context of fraud that is problematic – primarily because an allegation of fraud would not render an agreement void ab initio. It would merely make the contract in question voidable.

It is my respectful submission that fraud cannot render an arbitration agreement (or the main agreement) void at the prima facie stage and therefore by sequitur at the stage of ss. 8 or 11 of the ACA. At the cost of repetition, an allegation of fraud (including serious fraud) would merely render a contract voidable.

Further, the court in Avitel upholds both Swiss Timing and Ayyasamy. The judgments of Swiss Timing & Ayyasamy are mutually destructive and cannot be reconciled. 

While the Triad judgements have moved the needle forward and narrowed the scope of the court’s interference in relation to arbitrability of fraud, they have not gone the distance and expressly overruled Ayyasamy and made fraud expressly arbitrable. This, in my view, ought to have been done for the following reasons.

Difference between void and voidable 

The court’s decision in Swiss Timing is sound and well-reasoned. When a consent is alleged to be vitiated by fraud (or misrepresentation/coercion), the contract in question is voidable at the instance of the party making the allegation. Such a party then has the option of either insisting on performance and seeking restitution, or terminating the contract. Even in case of the latter, where a party opts to avoid the contract, the contract would not ipso jure become void.  The onus to traverse the journey from voidability to void, would require the party alleging the fraud (misrepresentation/coercion), in most circumstances to lead evidence, and for the court to adjudicate thereon after the appreciation of evidence. This is not within the scope of a prima facie enquiry permissible under ss. 8 or 11.  Cases “where the Court can come to a conclusion that the contract is void withoutreceiving any evidence”, would be few and isolated”, and the court in such instances would be “justified in declining reference to arbitration”. 

It is also settled law and one that has recently been reiterated that “Prima Facie examination is not (a) full review but a primary first review to weed out manifestly and ex facie non-existent and invalid arbitration agreements and non-arbitrable disputes”. . It has also been held that “Sections 8 and 11 of the Arbitration Act are complementary provisions” and that “Section 11 does not prescribe any standard of judicial review by the court for determining whether an arbitration agreement is in existence. Section 8 states that judicial review at the stage of reference is prima facie and not final”.

However, cases where “the Court can readily conclude that the contract is void upon a meaningful reading of the contract document itself”, would be within the scope of judicial enquiry at the stage of ss. 8 and 11. More recently, in the matter of M/s N.N. Global Mercantile (P) Ltd. v Indo Unique Flame Ltd., a three-judge bench has categorically held – “In the case of voidable agreements, such disputes would be arbitrable, since the issue whether the consent was procured by coercion, fraud, or misrepresentation requires to be adjudicated upon by leading cogent evidence, which can very well be decided through arbitration.” The court in N.N. Global recognises that Avitel has cited Swiss Timing with approval.

Complicated fraud and fraud simpliciter

The distinction between complicated fraud and fraud simpliciter is an artificial one, and which has no basis in statutory law. It has no basis under the Contract Act or criminal law.  In fact, any notion of complicated/simpliciter fraud is perilous for  litigants – a finding at the prima facie stage by a court of fraud being complicated, serious and/ or simple could prejudicially affect the merits of a case. While the court in Rashid Raza has prescribed a two-pronged test for determining the difference between complicated fraud and fraud simpliciter, closer introspection will reveal that the test prescribed by the court has nothing to do with fraud complicated or simpliciter. 

Co-existence of criminal proceedings and arbitration/ appreciation of Voluminous evidence

There is no reason why a criminal proceeding and arbitral proceedings could not co-exist. Further, an arbitral set up is more conducive to evidence appreciation. The court in N.N. Global has  observed that the criminal “aspect of fraud, forgery or fabrication” can only be adjudicated only by a court of law “as it is in the realm of public law and could result in conviction. Undoubtedly criminal prosecution of fraud has to be dealt with in a court of law. However, civil aspects of fraud can be dealt with by arbitration”

In fact, “there is no inherent risk of prejudice to any of the parties in permitting arbitration to proceed simultaneously to the criminal proceedings”. Chandrachud J. in Ayyasamy, observes - “The existence of dual procedure; one under the criminal law and the other under the contractual law is a well-accepted legal phenomenon in the Indian jurisprudence”. Chandrachud J.  also agrees and holds that “allegations of criminal wrongdoing or of statutory violation would not detract from the jurisdiction of the arbitral tribunal to resolve a dispute arising out of a civil or contractual relationship”. When criminal and civil proceedings can co-exist, there is no reason why arbitral proceedings cannot simultaneously co-exist with criminal proceedings. Most arbitrators in important and complex arbitrations are retired judges of the Supreme Court or the High Courts or people well trained in conducting arbitrations. 

In N.N. Global, in the context of “voluminous and extensive evidence”, the court observed – “The ground that allegations of fraud are not arbitrable is a wholly archaic view, which has become obsolete and deserves to be discarded”, since in “contemporary arbitration practice, arbitral tribunals are required to traverse through volumes of material in various kinds of disputes such as oil, natural gas, construction industry, etc.”

Vitiation must permeate to the arbitration agreement

The inclusion of the words “arbitration agreement” in s.8 are deliberate and based on the doctrine of separability already embodied in s.16. Chandrachud J. in Ayyasamy observes - “The arbitration agreement between the parties stands distinct from the contract in which it is contained, as a matter of law and consequence. Even the invalidity of the main agreement does not ipso jure result in the invalidity of the arbitration agreement”. From a perusal of s.8, it is evidently clear that reference to arbitration under s. 8 can only be shut out by a court, if the arbitration agreement is not valid, or in other words is void. 

Relying on Buckeye Check Cashing, Inc v Cardegna, Chandrachud J. further states just because there is a challenge to a contract by a party, “but not specifically (to) its arbitration provisions, those provisions are enforceable apart from the remainder of the contract”. Chandrachud J rightly observes “Section 16 empowers the arbitral tribunal to rule upon its own jurisdiction, including ruling on any objection with respect to the existence or validity of an arbitration agreement”. 

This principle is now fortified by the first part of the two-pronged test of Rashid Raza i.e that the “ plea permeate the entire contract and above all, the agreement of arbitration, rendering it void”, and by the observations of a three-judge bench in N.N. Global.

In effect, therefore, unless the arbitration agreement is rendered void, the court must refer parties to arbitration. In essence, the very basis to arbitrate is lost, and there is no arbitration agreement, as separable from the main agreement that survives.  

Conclusion

To conclude, the two-pronged test laid out in Rashid Raza is in fact the omnibus test for the court in any challenge to arbitrability under s. 8 or s.11. If the subject matter of the dispute touches a right in rem, the same would not be arbitrable. Or if the arbitration agreement, dehors the main contract it is embodied in, is void, which the court can discern on a prima facie enquiry, the dispute would not be arbitrable, since the basis to arbitrate no longer obtains. In essence, the above test has contained the enquiry of a court in ss 8 and 11 to arbitrability, and not to the suitability of the subject of the dispute.

“Fraud” finds no place in this test, since an allegation of fraud under s17 read with s. 19 of the Contract Act only makes a contract voidable, and not ab initio void. A court cannot envisage an enquiry into voidable contracts, since “mini trials” are not permissible under ss 8 and 11. Whether it was intended or not, in view of the two test formula, the distinction between serious fraud and fraud simpliciter also no longer obtains. 

Further, in view of the two test formula read in conjunction with the observations of Swiss Timing which were upheld in Avitel, and reiterated in N.N. Global the ratio of Ayyasamy is no longer good law. However, to remove the ambiguity that still surrounds arbitrability of fraud, it is time for the Supreme Court to decisively rule,and make fraud expressly arbitrable. 

Payal Chawla is a practising advocate and founder of JUSCONTRACTUS, a New Delhi-based all-women law firm specialising in arbitration and commercial laws.

Taking a look at the historic pre-independence custody battle for a minor Jiddu Krishnamutry, who later became a world-renowned guru, from  his adoptive mother Annie Besant.

By Jayant Mohan, Advocate

December 1, 2022

Jiddu Krishnamurti,world-renowned modern-day guru from India, was known for his unconventional views on life and spirituality. Rebellious and free thinking,Krishnamurti was born in 1876 in Madras,India. As a guru he preached freedom from the conditioning imposed by society on the individual and emphasised on finding one’s own path through the practice of awareness and raising the consciousness.

Krishnamurti had numerous followers across the world, many of them highly placed persons in their respective fields like scientists,mathematicians and inventors.

He lived till the age of 90 and passed away in 1986 in Ojai, California where he was living the last years of his life, leaving behind a rich legacy of spiritual traditions and a huge number of followers.

Unconventional as the path of Jiddu Krishnamurti was, so was his childhood and education resulting in a most sensational and controversial Court Case in Madras in the year 1912 regarding the custody of  Krishnamurti who was then a minor.

The case was titled Mrs Annie Besant vs G Narayaniahand the decision rendered by the Division bench of the High Court of Judicature at Madras on 29^th October,1913.

The controversial case consistently made headlines in newspapers because of the parties being famous personalities and the clash of ideas involved in the case. 

Background of the Case

The drama of the case was in the backdrop of the Theosophical Society which was established by Col Olcott ,Madam Blavatsky and C W Leadbeater in the USA in 1875. Theosophical Society preached metaphysical ideas and  thoughts heavily derived from  ancient Hindu and Buddhist religion and philosophy.

In India,Annie Besant, an English woman, was one of the leaders of the theosophical movement and was the president of the Theosophical Society of India.

To add colour to the drama, Annie Besant despite being  English was one of the founders of the Home Rule Movement along with Bal Gangadhar Tilak, agitating freedom from British Rule for India .

She was invited to give various lectures on theosophy across the world and was a very well-known public figure.

GS Arundale, a graduate of the Cambridge University and founder of the Central Hindu University at Benaras, being an ardent theosophist was also involved in the case in support of Annie Besant .

Sir C.P. Ramaswamy Aiyar,the stalwart lawyer from Madras, represented the father and won the custody case.During the case he started to admire Annie Besant and joined the Home Rule League  with her for the self-determination of Indians.

The stalwarts and leaders of the country became involved in the fascinating human story of an ordinary father unable to provide expensive English education to his sons (whose mother had passed away in their infancy).The father had given the custody of the minor boys to Annie Besant in the hope of a better life for his sons. Later, on coming to know  that the boys were facing  indecent acts by close associate of Annie Besant,C W Leadbeater, the father, had filed  the suit  for custody of his sons from Annie Besant .

The custody case was very controversial and the press not only in India but across the world reported extensively on the case.

Headline in Australian newspaper The Truth(1914)

David Vs Goliath Story with a Twist

This court case had a slight twist from the Biblical story of Goliath- a giant warrior  battling  a much smaller shepherd boy, David. David shoots him with a stone and a sling right between the eyes. Goliath topples over, and David kills him.

Annie Besant was the President of the Theosophical Society having world renown and fame. The Plaintiff father was of limited means and  working as a correspondence clerk in the office of the Society.

The approach of the British Judges in dealing with such complicated issues of personal law and conduct of seemingly infallible individuals of such high stature made it a heady mix of religion, philosophy, law,in the background of British colonial life.

The brief facts of the case would show the conflict situation between the parties as follows.

Brief Facts of the Case:

G Narayaniah filed a suit for custody of his two sons aged 14 and 11 under the Guardianship and Wards Act,1890(as applicable to British India)from Annie Besant before the District Court.The Suit was subsequently transferred to the High Court of Judicature at Madras under Letters Patent jurisdiction being original jurisdiction meaning that the suit was tried before the High Court .

Plaintiff G Narayaniah, a retired government servant, was employed as a senior correspondence clerk with the Theosophical Society at its Headquarters in Adyar, Chennai. He shifted his residence along with his two minor sons Krishnamurty and Nityanand in the premises of the Society and was given accommodation rent free as part of his employment benefit.

J Krishnamurty (left),CW Leadbeater(Middle) and Annie Besant(right)

C W Leadbeater had  first noticed the elder boy Krishnamurty as having exceptional qualities and divine powers and informed Annie Besant about the boy. Annie Besant agreed to adopt the boy Krishnamurty and his brother Nityanand.  Besant believed that Krishnamurty was a gifted human being and Leadbeater and Besant would nurture the young prodigy who will be the future ‘Jesus Christ’ or ‘Lord Maitreya’.

Thereafter as per the arrangement between Besant and the father,Leadbeater was to be the spiritual guide and preceptor for the boys and in the interest of their better future Besant adopted the boys. The boys were to receive an English education at Oxford and also follow the spiritual practices and tenets of Theosophy .

Thereafter Annie Besant left India with the boys for England.

On 7^th February,1912 the plaintiff was dismissed from his office of Secretary in the Society because he was enquiring about the incident of indecent behaviour by Leadbeater with the boys.As per the Plaintiff the minor boys were being subjected to indecent acts by Leadbeater. Therefore, in view of the inability of Besant to stop Leadbeater from committing indecent acts with the minor boys, the Plaintiff claimed the custody of the boys.

In October 1912 the defendant Annie Besant returned to India without the boys and thereafter the suit was filed by the Plaintiff for custody of his  minor sons.

The Suit was filed before the District Judge under the Guardianships and Wards Act,1890 but was transferred to the High Court of Judicature at Madras in its Letters Patent Jurisdiction.

The Single Judge of the Madras High Court allowed the Suit and directed handing over the custody of the minor sons to the father.

An Appeal was filed before the Division bench of the Madras High Court which upheld the order passed by the Single Judge by means of the Judgment and Order dated 29^th October,1913

Issue Before The Court

The Legal Issue before the Court was:

‘Whether the father having delegated his rights of custody of the two minor boys to defendant could have subsequently revoked the custody of the rights over the sons’

The Division bench as well as Single Judge of the Madras High Court held that delegation of rights is revocable though there may be circumstances which lead the court to hold that delegation ought not be revoked.

The Court considered various pronouncements of the English Courts as well as various High Courts of India regarding the rights of the father for the control of the children and accepted and applied the succinct statement of Law provided in the Halsbury’s laws of England  vol 17 pg 107;

“After surrender by him(the father) of the custody has actually taken place,he can recover the custody unless his doing so would be injurious to the interests of the child.”

Therefore,‘interest of the child’ was the primary consideration for the custody issue to be decided and various other issues.

To decide upon what course of action would be in the best interest of the child, the Court considered various facts and issues. A very interesting issue was whether deification of the child would cause harm to the growth of the child which was dealt with in the following manner:

a) Deification of the Child

The 10^th Issue before the Single Judge regarding welfare of the child was

“Has the defendant stated that the elder boy is going to be Lord Christ or Lord Maitreya?”

The finding of the Learned Judge was in the affirmative.

The defendant denied in her evidence that she had ever said that she believed  that the elder boy was to be Lord Christ or Lord Maitreya but she having said that believed that the body would be the vehicle for his re-incarnation.

Krishnamurty was made the head of an Order called ‘Star of the East’ and underwent two ceremonies for initiation. Respectable people prostrated before the elder son.

The Court recorded a finding that far from stimulating the moral and intellectual capabilities of the boy, the deification might have the opposite effect on the him.

The Court also noted the fact that Leadbeater professes to have certain peculiar  powers in this respect and that through his influence the defendant was induced to take interest in the boys. Therefore, he desired to take the children under his own control and out of that of the plaintiff whom he regarded as an obstacle in his path.

This led to the issue of misconduct and indecent acts committed by Leadbeater with the minor boys.

b) Allegations of Misconduct and Indecent Acts against Mr CW Leadbeater

While dealing with the sensitive issue,the court also noted that Annie Besant and C W Leadbeater were closely associated in theosophical work and were in strong sympathy with one another.

Annie Besant’s regardfor and trust in Leadbeater was unqualified except with regard to certain opinions which she condemned as mischievous. 

The Judge noted the evidence that Leadbeater held opinions and continued to hold such opinion which could be described as certainly immoral and as such unfit to be the tutor of the boys.

Leadbeater claimed power to detect impure thoughts which would render him a highly dangerous associate for children.

There were two charges made against Leadbeater by the plaintiff, one was made in para 5 regarding unnatural act and gross indecency .

Although Leadbeater was not a party to the case,Annie Besant defended Leadbeater with extreme zeal and ability.The Court held that the charge regarding unnatural act and gross indecency was not proved.

The second charge made in the plaint by the father regarding conduct of Leadbeater was held to have been proven. As per Leadbeater, he was teaching the boys how to bathe like an English gentleman in the bathroom. This act was witnessed by the servant Lakshman and Mrs Van Hook the housekeeper both of whom confirmed that Leadbeater was not wearing any clothes and the boys were alone with him in the bathroom.

The Court held thatthe conduct of the Leadbeater was not criminal and unnatural acts and indecency were not proved.

The Court relied upon the testimony of Laxman who was summoned as court witness and confirmed the fact that Leadbeater was doing certain improper things in a compromising position with the boy in the bathroom and Mrs Van Hook also deposed that it was most improper for Leadbeater who was above 60 years of age to be giving bath to young boys in the bathroom.

In the judgment of the Court his behaviour in connection with the boys was extremely unseemly and indecorous. Hence, the misconduct against Leadbeater was found to be proved .

Once having concluded that Leadbeater had acted in an improper manner with the boys and Annie Besant failed to stop him from conducting himself improperly with the boys, the issue of whether the custody should be restored  to the father came up and the Court had to do a delicate end difficult balancing act.

A Delicate and Difficult Balancing Act

The Court was to balance the factors namely relative advantages for the boys in remaining in England continuing with the education at Oxford under the guardianship and custody of Annie Besant on one hand; On the other side whether the minor boys were to be restored to the care and custody of their father

Factors in Favour of Giving Custody to the Father:

The Court recorded the following findings:

Nothing in the father’s character which disqualified him from being given the custody of the boys. He was a respectable Hindoo gentleman and a retire Government servant.He was deemed fit to be appointed as the Asst Corresponding Secretary of Esoteric Section of Society.Plaintiff was in sympathy with the entire tenets and beliefs of the Society of which the defendant was the President.

Factors in favour of continuing the Education in England:

- The boys were getting the best physical training

- The best available tutors at Oxford were teaching the boys

-Regarding the elder boy, the defendant stated that she wanted him to lead the life of an undergraduate with certain restrictions

-Regarding the younger child, it was considered desirable that he should take  a degree for the purpose of competing in the Indian Civil Service examination.

However, the question that arose was how far a life of celibacy and the incident of initiation would be compatible with a successful career in the Indian Civil Services.

Whether these factors would aid or burden the member of Indian Civil Service is a question which was posed by the court but not answered.

Operative Portion of the Order:Taking an overall view of the matter and balancing the factors of the welfare of the child in the light of legal principles, the Division Bench did not disturb the direction of the Single Judge that the father was substituted as the guardian of the boys and a direction as issued to the Defendant to hand over the custody of the boys to the father to make the decree effective.

The Judges hearing the Appeal showed remarkable judicial statesmanship and sensitivity to the complex factors regarding the welfare of the minor boys in the backdrop of the bitter dispute between the father and the adoptive mother .

The High Court confirmed the direction given by the Trial Court  to hand over custody to the father.

Appeal to the Privy Council

Annie Besant challenged the decision of the Division bench of the Madras High Court before the Privy Council against the Decision passed by the Judgment of the High Court of Judicature at Madras.

The Decision of the Privy Council the Final Court of Appeal in British India was delivered on 25^th May,1914 in the case titled Annie Besant Vs G Narayaniah and Ors.

In a very short judgment the Privy Council held that the suit as filed by the plaintiff was not maintainable because it was impossible to hold that the minors who had left India with a view of being educated in England and going to the University of Oxford were ordinarily residents of district Chingleput, Madras. Therefore, the Suit could not have been filed before the District Judge at Madras.

The Board noted that the prayers made in the Suit were a direction to the defendant to take possession of the persons of the minors in England,bring them to India and hand them over to their father.

Considering the nature of relief sought, the defendant in order to comply with the decision would, if the minors refused, open her to the writ of Habeas Corpus.

As per the Privy Council the boys’ wishes must have been ascertained by the Madras High Court as to whether they want to continue their education in England or go back to India to be in custody of the father.

The minor boys Krishnamurty and Nityanand filed Intervention before the Privy Council and were represented through a Counsel who informed the Board of the boys’ wishes.

In view of the statement made on behalf of the minors,  the Privy Council held that the direction to the defendant to take the boys back to India cannot be lawfully carried out without the consent or without an order from the Court exercising jurisdiction of the Crown over the minors in the country.

The Appeal was allowed and Annie Besant won the custody battle decisively from the Privy Council in London.

Thereafter,Krishnamurty completed his education and continued to work under Besant for Theosophical Society .

Conclusion

On 3^rd August,1929 at Ommen Star Camp, Holland all  the leading theosophists of the world gathered.At the public event J Krishnamurthy was to be proclaimed as Maitreya or the Coming of Jesus Christ i.e. the  World Teacher project under  the Organisation Star of the East of which J Krishnamurthy was the head.

To the shock of Annie Besant and about 3,000 followers J Krishnamurty dissolved the Organisation Star of the East and gave the following speech

“I maintain that truth is a pathless land and you cannot approach it by any path.

Whatsoever by any religion any sect.

This is my point of view and I adhere to that absolutely  and unconditionally.

Truth being limitless,unconditional, unapproachable by any path whatsoever cannot be organised nor any organisation should be formed to lead or coerce people along any particular path.”

In this David Vs Goliath Fight where unlike David, the father-Plaintiff could not defeat Annie Besant the-Goliath but Krishnamurty the son decisively finished the battle and dissolved  the very organisation  he was to head concluding all issues and arguments decisively against the Theosophical Society and Annie Besant .

------------------------------------------------------------------------------------------------

Jayant Mohan is an Advocate-on-Record in the Supreme Court. Practising since 2005, he has varied experience before the Apex Court in matters related to  Constitutional and Criminal law, more particularly PILs related to the Environment, Mining Laws and Criminal Cases.He  represents the State of Jharkhand before the Supreme Court.

By Chirag Singla and Akash Kumar

November 16, 2022

The Indian Judicial system is overburdened with numerous cases which have cascading effects on the entire country. Mechanisms like arbitration, mediation, conciliation, and negotiation can be used to attain the goal of expeditious and party-centric dispute resolution. To attain the goals, the legislature has time and again tried to find ways to incorporate Mediation with the existing recourse available to the parties in case of dispute settlement. One such example is the Commercial Courts Amendment Act, 2018. Here, the legislature has made pre-litigation mediation a mandatory step that needs to be exhausted before instituting a suit under the Commercial Courts Act. Pre-litigation mediation can be construed as an amicable process whereby the parties come together to settle their dispute with the aid of an impartial mediator before the institution of a suit.

It is in this spirit that to facilitate the parties in expeditious resolution of disputes, a two-judge bench of the Supreme Court in the case of Patil Automation Pvt. Ltd. Vs. RakhejaEngineers Pvt. Ltd upheld that the statutory pre-litigation mediation under section 12A of the Commercial Courts Act, 2015 is mandatory and any suit instituted violating the mandate of section 12A must be rejected. 

DECODING THE JUDGMENT

In the case of Patil Automation Pvt. Ltd. Vs. Rakheja Engineers Pvt. Ltd. (supra) the respondent had filed a Suit for recovery before the Additional District Judge, Faridabad. The appellant filed an application contending that the suit was filed without adhering to Section 12A of the commercial Courts act. In reply, the respondent contested the matter contending that the suit was not barred for non-compliance with Section 12A of the Act. The seminal question which arose for consideration before the Court was whether the statutory pre-litigation contemplated under Section 12A of the Commercial Courts Act, 2015 as amended by the Amendment Act of 2018 is mandatory. The Hon’ble Supreme Court dealt with it in a two-fold manner.

The Object of the Law and the Legislative Intent behind Section 12A :

The Court examined the object and legislative intent behind Section 12A and read it with rule 3 which is made for the mediation process. The Court held that language of Section 12A and strict timelines as provided in the rule pointed out that the legislature intends to make mandatory in nature. The Court further emphasized the point that the language used in Section 12A is imperative in nature. Even by going through the sublime object of the Act, the Court fully reinforced its opinion that the pre-litigation mediation is intended to produce results, which has a direct bearing on the fulfillment of the noble goals of the Lawgiver. Moreover, the settlement under section 12A of the Commercial Courts Act is accorded the status of an award under the Arbitration & Conciliation Act, it unerringly points to the object of the legislature to make pre-litigation mediation compulsory.  

Whether the Provision of Section 12A is Mandatory in Nature :

To determine whether section 12A is mandatory, the Court relied on the case of Sharif-ud-Din Vs. Abdul Ghani Lone. In this case, it has been held that, if the object of the law is defeated by non-compliance with the provision, then it would be regarded as mandatory. In the present case if the pre-litigation mediation is not complied with then the whole object of the Amendment Act would be frustrated. Therefore, the Court declared that the provision of Section 12A of the Commercial Courts Act is mandatory in nature. 

 The Hon’ble Supreme Court, while dealing with the question of the mandatory nature of Section 12A, referred to the analogy drawn in the case of Bihari Chowdhary and Anr. vs. State of Bihar and Ors and stated that since the pre-requisite for filing a suit against the government or public servant is mandatory by the grace of section 80 CPC therefore the pre-requisite for filing a suit under Commercial Courts Act must also be mandatory and 12A must be complied with before institution of a suit.  

The author herein believes that the Hon’ble Supreme Court has erred in drawing the analogy from Section 80 of the Civil Procedure Code, which lays down the provision with respect to the mandatory notice given before the institution of a suit. The Court failed to realize that the interpretation given to Section 80 is with respect to the suit filed against the government and public officials. Whereas section 12A of the Commercial Courts Act deals will commercial disputes which can also be between two private parties. The rationale behind the mandatory nature of the notice under section 80 of the Code of Civil Procedure is not apt for interpreting Section 12A of the Commercial Courts Act. The object behind the notice under section 80 is to provide an opportunity for the government or public officer to thoroughly investigate the legal proposition and settle the claim put forth by the plaintiff. The time of two months given under section 80, is to enable the government to assess the matter objectively and seek proper legal advice. The legislative intent behind this provision is to save the expenditure of the public exchequer and give apt time to the government to try and settle the claims and not to indulge in litigation thereby saving on public money and time. In the case of section 12A of the Commercial Courts Act, the same analogy cannot be ascribed because the intent of mandatory nature of Section 80 is in furtherance of public money and time whereas, the intent of mandatory nature of Section 12A is with respect to expedite the resolution of the dispute and to ease the burden of the Courts. 

Furthermore, the Hon’ble Supreme Court used the golden rule of interpretation, which is interpretation in conformity with the plain language to interpret the provision of Section 12A of the Commercial Courts Act.

Moreover, the Hon’ble Supreme Court also settled the legal position with respect to the manner in which Section 12A would operate. The Court held that amendment of Section 12A will be applied prospectively, however, this judgment would be effective from 20.08.2022 so that the stakeholders become completely aware. The Court also explained how certain situations would be dealt with. These situations are as follows:

1. In case the plaint is rejected for non-compliance and no steps have been taken within limitation period, the matter cannot be reopened on basis of the prospective effect of this judgement.

2. If upon rejection of plaint, a fresh suit has been filed the benefit of prospective effect of this judgement would not be available to the plaintiff

3. In case the jurisdictional High Court has already made Section 12A mandatory and a suit is filed without adhering to Section 12A, then this judgement would not be applicable   

While determining a similar question of law, the Delhi High Court, in the case of Bolt technology Vs. Ujoy Technology Pvt. Ltd placed reliance on the judgment of Patil Automation Pvt. Ltd. Vs. Rakheja Engineers Pvt. Ltd. (supra) on the point of object of the Act and how Section 12A would operate. The High Court concluded that an application under Order VII Rule 11 ought to be dismissed for non-compliance with the provision of section 12A of the Commercial Court Act unless the relief sought is urgent in nature. 

CONCLUSION

The intention of the legislature is clear from the moment section 12A was introduced. However, owing to the different interpretations of High Courts, this amendment never got its teeth. By this judgment, the Hon’ble Supreme Court has given impetus to this section by making it mandatory. The Court has also held how the section would apply prospectively and explained certain situations. This new strategy aims to handle a problem at its early stage by preventing a conflict from progressing to the point where a lawsuit ever needs to be launched. 

******

Chirag Singla is an Associate and Akash Kumar is an intern at Seraphic Advisors, Advocates & Solicitors, New Delhi.

By B S Mahajani

November 9, 2022

Hon’ble Mr. Justice D.Y. Chandrachud has assumed the office of the Chief Justice of India  from today. He will have a tenure of two years as the CJI, which is fairly long. In these two years, he will have to deal with some of the pressing issues faced by the Indian Judiciary, as summarised in this write up.

1.0       Huge pendency of cases across the board:

1.1       It is a known fact that there is huge pendency of cases in all courts. As per the figures available from the official websiteecourts.gov.in, in 39 High Courts (establishments) there are 5.95 Million cases pending & in 3429 District & Taluka courts there are 42.71 Million cases pending as on today.

1.2       Normal reaction to this would be that the high number of vacancies in various courts are responsible for the huge pendency of cases. However, in my opinion, following illustrative reasons are more responsible for this age-old problem than the vacancies of judges.

a)   Vacation system in the courts:

 Apart from regular holidays, the courts in India have seven to eight weeks’ vacation during a year. This system eithershould be abolished or reduced by at least 50%.

It is amazing to note that the vacation mood sets in one or two weeks prior, which has a crippling effect on the functioning of the courts. Such colossal waste of time has to stop, if we want to get rid of the huge pendency.

b)  Poor or no system for Appraisal of Performance of judges:

There is no mechanism for monitoring a judge’s performance. It is totally a grey area.There is no fear of losing job unlike in other government departments. In the lower / district judiciary, there is an increasing trend that judges do not hear the matters so that they do not have to pass orders/ judgments.

Concrete steps need to be taken to make judgesaccountable. It is high time that mediocrity is replaced by meritocracy in our judiciary.

c)   Transfer of judges done without reviewing pendency of their judicial work:

Invariably judges are transferred without taking into account pending judicial work left by them. Many times, it is observed that a judge whose transfer is due, either does not hear the arguments or if he hears the matter, he will not pass final orders/ judgments. As a result, whenthe new judge takes over, the Advocates have to get the matters heard afresh.Due to this, the matters are dragged on & on. There should be system in place to ensure that the transferee judges do not leave pending/ part heard matters.

d)  Adjournment culture:

The infamous adjournment culture of our judiciary has to be ended. There are many cases pending, for non- prosecution by the Plaintiffs/ Complainants etc. There should be system of imposing heavy costs on such litigants/ lawyers, who are not serious about conducting the cases lodged by them. In High Courts also, many petitions are admitted but how many of them are heard finally & disposed of?

e)   Frivolous & vexatious litigations: 

There are many frivolous & vexatious litigations/ PILs etc. lodged in various courts. Although, of late, the courts impose costs, still, the ratio is much less than desired. Abuse of legal process/ courts must be viewed seriously & courts should not be made instruments to settle personal scores / hidden agenda of litigants. 

2.0       Need to introduce reforms in system of Judicial Appointments: 

The Court innovated the apparatus and apparition of the collegium wresting to itself the power of appointments and transfers. This is clearly opposed to the intent of the Constitution. The collegium system is being sought to be elevated to a status higher than the law and the Constitution.The present system of collegium (i.e. Judges appointing judges) is a stark disaster and an illegitimate judicial creation. Hence it should be scrapped at the earliest.

The SC has been tirelessly advocating bringing transparency in appointments of other institutions of our country. Then, why should judiciary be spared from such pathbreaking measures.

If we intend to bring credibility & efficiency in judiciary, these are some of the important & much needed measures.

3.0       Upgradation of infrastructure of Courts ~ Training of Judicial Officers:

a)   Although many effective measures are taken to upgrade the infrastructure of courts across the country, there is still much to do. It is astonishing that in India, there are still many courts in remote areas where basic necessities of water, toilets etc. are not provided.

b)   Mr. Justice Chandrachud, as Chairman of E-Committee/ e-courts has done remarkable work to digitize court infrastructure.However, there are still many judges at the district level who are interested in adapting themselves to the need of the hour. Not only is the status of cases not updated, the orders passed by the courts are also not uploaded.

c)   The Court staff (including lower judicial officers) need exhaustive training in this regard so as to make our courts effectively digital.

The above are some of the challenges which need to be addressed with a definite plan &in a time-bound manner, to improve the justice delivery system.Rather, in my view the CJI designate hasa very good opportunity to chart a course of action to make Indian Judiciary world class, especially when Indian Judiciary will celebrate its 75th year in 2025.

Best Wishes to Hon’ble Justice Chandrachud for a successful stint as the 50th CJI.

B. S. Mahajani is an Advocate based in Mumbai with over 30 years’ experience.

By Vipul Lamba

October 10, 2022

We all live in an economic world where our focus is to build our business and profession and take it to new heights. But one of the major concerns of all the businesses, startups and professionals is how to deal when a client / debtor / customerasks for credit, as most of the times we aren’t able to do the necessary exercise of due diligence about such client / debtor / customer either on account of lack of ignorance, negligence, lack of knowledge and resources, or with a narrow objective of improving our sales and turnovers. Unlike banks or big corporates, the primary focus of medium scale businesses, startups and professionals is to bring in business without much focus on the financial standings of clients. Lack of such required due diligence, many a times, leads to mounting of huge bad debts or delay in payments which acts as a slow poison for any business and adversely impacts future growth of resources and opportunities. A German proverb appropriate to mention here is: ‘HE WHO IS QUICK TO BORROW IS SLOW TO PAY’.

Asking for a debt to be repaid is an uncomfortable but sometimes necessary part of being a business owner. These following steps may help as a guide for recovering an overdue payment :-

a. Always Raise Tax Invoice:

Whenever, you provide any service or supply goods / products to any client / debtor / customer, first and foremost step to be taken is to consideration is to always raise an ‘Invoice’ against such supply of goods or serviceand charge applicable tax onto the Client. After supplying of such goods or services, it is advisable to always take an acknowledgement on such invoice from your Client. The company seal / stamp of your client along with the signature of the authorized person also becomes important in case your client is a company or an entity having separate corporate legal personality.

Raising an invoice and charging the applicable tax on the same, will make the amount to be recovered a legally enforceable debt and acknowledgement of receiving on the invoice confirms that client has accepted such goods or service being provided or supplied under the terms and conditions of such Invoice.

It is also advisable to put points / highlights / clauses in respect of interest on delayed payments, place of delivery and jurisdiction of courts as per your convenience. Although such highlights may not sound very important on ears but plays very important role in case of any future recovery proceedings.

b. Continuous Follow Ups

This, can be done through sending continuous letters through speed posts, emails, WhatsApp Chats for confirming the amount due and for confirming the amount due. Once a confirmation of an outstanding amount is received, the confirming party becomes liable to pay for the debt and cannot afterwards take a contrary stand. 

c. Send a Demand Letter

If the Client is still dilly dallying from making the payments due, send a written Demand Letter to the Client directing the Client to clears the dues within the prescribed time, otherwise he would have to face the legal consequences. 

WHAT TO DO WHEN THE PARTY REFUSES TO PAYITS DUES AND REMEDIES AVAILABLE THROUGH COURTS

a. CIVIL SUIT FOR RECOVERY UNDER ORDER 37 OF CODE OF CIVIL PROCEDURE, 1908

The most common civil remedy for recovering of money is suit for recovery of money under Order 37 of the Civil Procedure Code, 1908.  The Suit under Order 37 of the Civil Procedure Code is called Summary Suit, which can be filed when there is written agreement between the parties and acknowledgement of debt by the other party. Once the Suit is instituted in the Court, and the Court has issued a summons to the Defendant, then the defendant has to make an appearance within 10 days in the Court and if the Defendant fails to make appearance then the Court assumes that the plaintiff’s allegations are true and accordingly awards the plaintiff. If the defendant makes an appearance, then the defendant has to satisfy that he has a defence and only when the Court is convinced that there are some triable issues, then only leave to defend is granted otherwise the Suit is Decreed in favour of the Plaintiff.

b. COMMERCIAL SUIT UNDER COMMERCIAL COURTS ACT, 2015 

Commercial Dispute as defined under Commercial Courts Act, 2015 are the Suit which arises out of Commercial Transactions between the parties and includes ordinary transactions of merchants, bankers, financiers and traders, agreements relating to immovable property used exclusively in trade or commerce, agreements for sale of goods or provision of services. Thus, for recovery of money arising out of commercial transactions, the Commercial Suit are maintainable over other types of recovery suits. Under this type of suit also the disposal is summary in nature and the Court only goes into the trial or evidence only when it appears that there are issues which can be resolved after the parties lead the evidence, otherwise Court give its Judgment after going through the pleadings and documents filed in support of the pleadings by both the parties. 

c. SECTION 138 OF NEGOTIABLE INSTRUMENTS ACT: DISHONOURMENT OF CHEQUE

Giving goods and Services on Credit after taking the Blank Signed Cheques from the parties, is most prevalent practice for giving the goods or services on credit. Once the Cheque issued by a party Dishonours for any reason including but not limited to insufficient funds, payment stopped by the Drawer or for any other reason, then the issuing party is liable to prosecuted for an Offence under Section 138 of the NI Act, which in itself is a penal provision and issuer of the Cheque if found guilty may be punished for the imprisonment which may extend to two years along with the fine which may be double the amount of Cheque dishonoured. For instituting a Cheque Bounce case under Section 138 of the NI Act a defined procedure has to be followed. Firstly, a legal notice for dishonourment of the Cheque has to sent to the drawer within 30 days of the dishonourment of the Cheque and then if no payment is received within 15 days of the receipt of the legal demand notice, then the Complaint has to be filed in the Court within 30 days from the date of expiry of 15 days. The recovery of money through dishonoured Cheque is the fastest way to recover as the drawer has fear of imprisonment and in 90% of the Cases the drawer of the Cheques settles the dispute and makes the payment. 

Hope this Article is helpful in letting you know how to safeguard your money and how to get the same recovered through Court of Law. 

Vipul Lamba is advocate practicing in various Courts of Delhi. He specialises in Civil matters pertaining to Property Laws, Recovery of Money, Commercial Disputes, Arbitration and Cheque Bounce Matters. He can be contacted at vipul_lamba@hotmail.com and 9911725864.

By Dr. Raju Narayana Swamy, IAS

October 3, 2022

Cloud Computing : The Concept

​Cloud computing involves a subscription based service that satisfies computing and storage needs from a virtually unlimited hardware and communication infrastructure which is managed by a third-party provider. Put it a bit differently, cloud computing occurs when an internet connection delivers hardware power and software functionality to users regardless of where they are or which computer they are using. NIST (National Institution of Standards and Technology) defines it as “Cloud is a model for enabling convenient, on demand network access to a shared pool of all configurable computing resources (storage, networks, services, servers and applications) that are easily released and rapidly provisioned with minimum management effort.” Needless to say, the five critical characteristics that form the hallmark of the above standard definition are – on demand self service, broad network access, rapid elasticity, resource pooling and measured services. By contrast, the Gartner Group defines cloud computing as a style of computing in which massively scalable IT – related capabilities are provided as a service using internet technologies to multiple external users.

​Clouds are essentially data centres or server farms on which software and data can be remotely stored, instead of on- site. It is a natural evolution of distributed computing and the general variation of virtualization and service oriented architecture (SOA).  Cloud computing activities are often described as falling into one or more of the following service categories:

a) Infrastructure as a Service (IaaS): raw computing resources such as processing power and storage.

b) Platform as a Service (PaaS): platforms for developing and deploying software applications (Google App Engine is a classic example)

c) Software as a Service (SaaS): end user applications

Apart from the above three service models, there are four deployment models too – public, private, hybrid and community. The essential characteristics of all these models are

​(I)​Pay as per use

​(II)​Use it as and when required

​(III)​Services provided by a third party service provider

​(IV)​No change in the ownership of the main property.

Rationale behind cloud computing

​The genesis  of cloud computing days back to the early 2000s when organizations started spending money to set up their IT infrastructure for improvement of business by purchasing own dedicated server. As the day progressed, these servers became virtual and easily available publicly through internet. Thus the cloud was born as a model that is easily manageable, accountable and configurable. Perhaps the best example of this kind of service is one that is almost ubiquitous now : web-based email services like gmail and hotmail. From legal research to word processing, file storage and movie viewing, computer users are able to take advantage of the cloud for a variety of tasks –some mundane and some others extremely sensitive and highly technical (storing and securing personal information for millions of credit card subscribers or health records for insureds being classical examples). Google has introduced Google Chrome OS, an operating system designed to function almost completely through the cloud providing essentially remote computing software that can be updated automatically through the web.

​No discussion on cloud computing will be complete without the case study of Animoto – a software provider that converts personal photos into music videos it developed a Facebook application that took the company from 25000 users to 2,50,000 users in three days . At its peak, Animoto was signing up 20000 new users per hour. It launched the service with five virtual servers and by the end of three days expanded to 3500 servers. Animoto’s ability to scale up at such an incredible rate was accomplished by using a cloud provider that was able to add resources as demand for product increased. Mention also needs to be made of the increasing popular concept of netbooks – low cost light weight laptop computers with reduced hardware capacity and processing power – that provide users with vast resources because the cloud is fully accessible. Today companies such as Google, Facebook and Microsoft who need to process large quantities of data operate numerous massive cloud data centres that may each occupy tens of thousands of square feet and contain thousands of computers. Like Feynman’s Los Alamos team – narrated in his wonderful auto biography “Surely You’re Joking, Mr Feynman” – these computing complexes provide computing as a service for many people.

What Cloud Computing can offer us : the next generation of internet.

​The existing internet provides us content in the form of videos, emails and information served up in webpages. With cloud computing, the next generation of internet will allow us to “buy” IT services from a web portal, drastically expanding the types of merchandise available beyond those on e-commerce sites such as eBay. We would be able to rent from a virtual store front the basic necessities to build a virtual data center – such as CPU, memory and on top of that the middleware necessary : web application servers, databases, enterprise server bus etc as the platforms to support the applications we would like to either rent from an independent software vendor or develop ourselves. Together this is what we call “IT as a Service” (ITaaS) bundled to us – the end users – as a virtual data center.

Advantages of Cloud Computing

​Cloud computing offers the following advantages:

a) Scalability in terms of resources : A company can start small and increase its hardware resources as it needs.​

b) Flexibility in terms of the different software packages and operating systems

c) Pay – as – you – go  economic model borrowed from utility computing

d) Consolidation of System Maintenance and Management : this overhead is shifted from cloud users to its providers

e) Reliability : The system’s fault tolerance is managed by the cloud providers and users no longer need to worry about it

f) High utilization and reduced carbon footprint as typically a large number of custom servers is consolidated into a smaller number of shared servers.

Legal Issues

​Cloud computing service providers – whether global or regional – will inevitably run up against international law, particularly data protection law and privacy regulations. Each country has its own set of laws – some being dramatically more stringent than others  . There are no laws unique to the cloud. But the cloud brings with it some legal issues which while not applying only to the cloud are perhaps now uniquely important to those operating or using a cloud-based service. The most important among these pertains to sovereignty on the internet: location and use of data. A key question with any cloud computing service is “where is the data stored or processed?”. The reality in this regard is that even the cloud service provider may not know where the data is residing.

Unlike a fixed server in the office or at a data centre, data in the cloud could potentially be located anywhere in the world – even in multiple data centres in multiple copies worldwide. Read these with the fact that cloud computing services involve processing of masses of data that is often commercially sensitive, confidential and “personal information” and the picture is complete. To put it a bit differently, sending and processing data around the globe could in the process fail to comply with data protection and privacy laws in various countries. The EU for example provides a strict legal regime under the EU Data Protection Directive where unless certain steps are taken, companies can be prohibited from transferring personal information to countries that do not give the same level of protection. If a European company is processing data on the cloud and is processing personal information in the EU, it may not be complying with EU laws if data is moved to countries outside the EU.  

The classic case of Microsoft Corporation Vs US District Court

​No discussion on the legal issues pertaining to cloud computing can be complete without a reference to the Microsoft Corporation case. Microsoft is a major player in the cloud industry with a 12% market share. Their innovation – Office 365- is a highly popular cloud based office software and email platform.

​It all started in 2013 when the Justice Department asked for access to the email account contents and Microsoft refused that query with a response that data which are not stored in US is outside of US jurisdiction. In 2014, the US District Court for the Southern District of New York issued a search warrant (under the SCA 18 USC) seeking access to the contents therein whose data was stored in Ireland. Francis M.J, the US judge issued the warrant since he believed that the government presented enough evidence to support the belief that the mail account was being used for narcotics trafficking. Microsoft delivered all contents of the mail account whose data were stored in locations inside US, but advised that the most valuable data were located in their Irish based storage and that to provide the same they would need to transfer the data from Irish based storage to US based storage which they declined to do. Instead they requested for revocation of the warrant. But the District Court denied the motion to quash and ruled Microsoft to be in civil contempt.

​Microsoft‘s contention was that a warrant intrinsically includes territorial restrictions and hence in the present case does not cover Europe. The government on the other hand argued that the warrant was applied as a compelled disclosure similar to a subpoena. Therefore the actual physical location of the object is of no consequence if it is under the control of Microsoft and can be delivered by them.

​Upon having their motion to quash the warrant dismissed, Microsoft appealed to the US Court of Appeals. The Court deduced that the warrant is against extra territoriality as it may bring international conflicts. Since Microsoft satisfied the warrant by providing all data that were stored in US and only refused to provide data stored outside US territory, the Court of Appeal lacked authority to enforce the warrant. Thus the US Court of Appeals (2015) reversed the District Court’s dismissal of the request to quash the warrant.

​The aforesaid case has had profound implications on the future of internet privacy, ethics in technology, respecting other countries borders and user’s privacy. It needs special mention here that Microsoft successfully illustrated that no matter how big or small the case is, the company take privacy of users very seriously. However the persistent nature of US government’s attempts to access user’s data without their consent has sent shivers down many spines. In a kneejerk response, many users have signed cloud service contracts with oversees cloud providers. Another situation is for users to encrypt their data. Mention must be made here of the Open Whisper Systems encryption algorithm which is known for its high reliability. In fact, the algorithm is so reliable that governments would not bother to request access to the users’ data as they know that even if the data is supplied, encryption will mean that it is not possible to view the contents. Add to these the fact that many countries have decided to pass “data localization laws” and the picture is complete.

​The US case is not the first one wherein Microsoft was requested to provide users’ data nor will it be the last time. For instance, in 2013, Brazil asked Microsoft for the same kind of access, but it was for access to Skype application data located outside of Brazil. Microsoft refused to provide the data. The result was that the Brazilian authorities arrested the local manager of Microsoft in January 2014.

​The EU, it needs to be mention here, takes this kind of transaction very seriously. An example is a case wherein the European authorities found that by virtue of a US court’s order, the Belgium based branch of an international bank and the SWIFT (Society for Worldwide Interbank Financial Telecommunications) provided some financial  transaction data of a European citizen to the US government. Belgium found this act to be a violation of EU privacy law. SWIFT was forced to change its network structure in order to remove any possible future transfer of European data to outside of EU unless it complied with EU data privacy legislation.

Issues pertaining to Lock In

​A major concern of cloud computing is lock in which refers to the complexity to switch from one cloud service provider to another. Needless to say, it increases dependency on the service provider.

Questions that arise in this context are:-

a) Is the data portable between service providers ?

b) If service providers change, can the records be accessed ?

c) What are the obligations on each party regarding an exit plan?

Vint Cerf, the computer scientist who is often called the father of the internet, has identified the issue of moving data between clouds as one of vital importance. According to him, developing intercloud standards and protocols so that data does not get caught in one cloud is the equivalent now of the issues faced in 1973 when networks could not communicate with each other. 

Concerns of data security

​Unlike the traditional model  wherein users had control over their data and could implement whatever safeguards they thought necessary to retain control, cloud users neither possess nor control their data. This raises serious apprehensions on the data security front. The issue vis-a-vis cloud computing is that the customer using the services is not aware what part of their data is getting saved on their device and what is getting saved on the cloud. In fact, data security in the context of cloud computing has to be analyzed in the backdrop of the triad concepts of confidentiality, integrity and availability. Confidentiality is the anticipation of intended or unintended unauthorized disclosure of contents whereas integrity guards both data and system against any illegal modification or deletion thereby ensuring originality and nonrepudiation of data. Availability on the other hand gives the assurance of trustworthy and timely access of information. This concern centres on critical applications and data being available. Well publicized incidents of cloud outages include gmail’s one-day outage in mid October 2008, Amazon S3’s over seven – hour downtime on July 20, 2008 and Flexi Scale’s 18 hour outage on October 31, 2008. Availability also means the extent to which user’s data can be recovered when accidents such as hard disk damage, fire and network failures occur. Viewed from this triad, the security issues in cloud computing can be categorized into three broad classes – traditional security concerns, availability issues and third party data control related issues. Common security concerns in the cloud are:-

a) Data breaches :- The chances of data breaches or losses increase in cloud environment. According to a research carried out by the Ponemon Institute titled “Man in Cloud Attack”, the likelihood of over all data breaches is three fold in a cloud environment.

b) Hijacking of Accounts:- Hackers having login information to remotely contact data in cloud can cause hijacking. Moreover they can manipulate data through captured credentials.

c) Denial of Service Attack:- it tries to make websites and servers unavailable to legitimate users.

d) Insider Threat:- Employees can utilize authorized access to misuse or access sensitive information.

e) Abuse of Cloud Service :- It affects both the service provider and its client

f) Insecure APIs (Application Programming Interfaces)

g) Malware Injection:- These are scripts/codes embedded deliberately into cloud service. Once executed, attackers can eaves drop and compromise integrity.

h) Side Channel Attacks:-An emerging concern for cloud delivery models using virtualization platforms is the risk of side channel attacks causing data leakage across co-resident virtual machine instances.

Transfer to public cloud involves a change of responsibility and giving accessibility of data to the provider. This can be ensured by building clauses in the contract with the provider which have appropriate provisions for security and help in maintaining legal protections for data stored. The user also must ensure foolproof services within their own systems. Issues like standard of the services being provided, the ownership of IP, service level agreements, liability regimes, warranties and indemnity provisions, confidentiality obligations and termination clauses must all find their places in the contract for cloud based services. Needless to say, the various requirements imposed by law will subsist in addition to the terms of the contract. A classic example in this regard is the provision regarding liability of the parties under the Australian Trade Practices Act.

​An interesting example of the inadequacy of standard terms and conditions                                                  to meet the expectations of a business user can be seen from a successful bid by Google to provide cloud based services to the city of Los Angels. The contract included unlimited damages for data breach, guarantees as to where the data will remain and penalties if the services are not available for longer than five minutes a month.

​​​No discussion on data security in the context of cloud computing will be complete without a reference to mash-up authorization. As adoption of cloud computing grows, more services performing mash-ups of data will be witnessed. A case study in this regard is provided by Facebook, the users of which upload both sensitive and non-sensitive data. This data is used by Facebook to present data to other users and this data is also utilized by third party applications. Since these applications are typically not verified by Facebook, malicious apps running in Facebook’s cloud can potentially steal sensitive data.

Problems vis-a-vis data privacy

​Privacy refers to the right of self determination. It is the ability of an individual or group to seclude information about themselves and thereby reveal them selectively. It has the elements of when, how and extent. A good reference for use in defining universal principles for the protection of personal data and privacy is the Madrid Resolution (2009). The basic principles that must govern the use of personal data include those of lawfulness and fairness, proportionality, purpose specification, data quality, openness and accountability. It needs to be mentioned here that there is a huge divide between developed and developing countries in terms of adequate legislation of protection of personal data.

​In the cloud, privacy means when users visit sensitive data, the cloud services can prevent potential adversaries from inferring the user’s behaviour by the user’s visit model. ORAM (Oblivious RAM) is a promising technology in protecting privacy in the cloud.

​ No discussion on confidential and sensitive data in the context of cloud computing can be complete without a mention of the Odense Municipality case. The view of the Municipality was that sensitive data about students and parents can be processed in Google Apps. However, the Municipality’s use of cloud computing to store sensitive information was rejected by the Danish Data Protection Agency (DDPA). The case confirms that a serious risk assessment must be made before switching to cloud services. It also points out that standards should play an essential role in fostering adoption thereof.

Issues pertaining to incomplete data deletion

​A major concern of cloud computing is that it is always possible that data has not been properly deleted and that multiple copies or traces may have been stored. When users delete their data with confirmation, all copies of data should be deleted at the same time. Cloud storage providers should ensure that the deleted data of users cannot be recovered and used by other unauthenticated users. This is particularly important in the backdrop of data recovery technologies that could recover data deleted by users from the hard disks. To avoid data be recovered and unauthenticatedly used, a possible approach is to encrypt the data before uploading to the cloud storage space. A classic example is FADE system which is based on technologies such as Ephemenzer.

Cloud service providers and liability for content

​Cloud providers are by no means exempted from any accountability if the material that users store in the service is the ground for a civil or criminal offence. The general rule in this regard is that the provider is exempt from liability for illegal or infringing content on its servers if the following two conditions apply:-

A) It has no part in determining the content of the transmission or it has no knowledge or control of illegal information stored on its servers and

B) It acts expeditiously to remove or prevent further storage and transmission of any illegal information it is made aware of.

The latter requirement is referred to as notice and take down obligation.

However due to the differences in the various regimes, the applicability thereof to cloud computing services must be evaluated on a case-by-case basis, depending on the provisions of the specific country and nature of the service provided on the cloud. In particular, cloud providers in EU and US can generally benefit from all the liability exemptions generically offered to ISPs (Internet Service Providers).

Concerns regarding IPRs

​These concerns are closely connected to the question: Who owns the data in the cloud? The answer lies in the observation that normal copyright rules apply if the data being stored in the cloud is fit for copyright protection (ie) it has some degree of novelty and is the product of author’s intellectual work. Thus the user of the cloud service can very well have the author’s right over the work. However, the cloud terms of service may include provisions according to which the provider has some power over the data stored in the cloud. This is not an actual copyright transfer, but the author might be limited in exercising his monopolistic rights over the copyrighted material. Ownership of IP can be eroded by a formal agreement or dedication of the work to the public domain, but in the cloud computing environment, mere uploading of information in a cloud platform does not entail losing IPRs. But it is important that the rights over the content in the cloud be kept well distinct from rights over cloud assets. By doing so, it is possible for the cloud customer to avoid undesired consequences such as loss of IPRs to the cloud provider. Conversely, the provider’s IPs need to be protected horizontally from unfair business practices by competitors and vertically from possible illicit behaviours by customers. Thus the provider will hold exclusive ownership over the rights used in providing the cloud service (ie) it owns IPRs to the software and the customer will be granted a license to use the technology. In the PaaS and IaaS delivery models, separation of ownership for applications developed by the customers and the tools used to develop them should be made clear in the contract terms. Mention also needs to be made here of the Japanese initiative towards introduction of a new form of IP protection for big data.

Concerns regarding bandwidth costs

​With cloud computing, companies can save money on hardware and software, but they could incur higher network bandwidth charges. Bandwidth cost may be low for smaller internet based applications, which are not data intensive, but could significantly grow for data-intensive applications.

Laws, Standards and Regulations pertaining to Cloud Computing

​These fall into four broad categories:-

a) Compelled disclosure to the government

Classic examples are

1) USA : Stored Communications Act (SCA), Electronic Communications Privacy Act (ECPA), National Patriot Act and Fair Information Practice.

2) UK : The Regulation of Investigatory Powers Act

3) Australia : Privacy Act in the APPs, APP12:Access  to Personal Information, Freedom of Information Act 1982

Moreover policies of national cryptography in UK, Singapore, Malaysia etc may allow a court order to access cryptography.

b) Regulations dictating how a cloud service provider protects customer data security

Examples are

1) USA : Gramm – Leach – Biley Act (GLBA), Health Information Technology for Economic and Clinical Health (HITECH), Family Educational Rights and Privacy Act (FERPA)

2) UK : Privacy and Electronic Communications (EC Directive), Data Protection Act and Directive

3) Australia : Privacy Act in the APPs, APP 11: Security of Personal Information

c) Relating to transfer, retention and privacy of data between the clients and the data storage provider

Examples are

1) USA : FTC Fair Information Practice, Payment Card Industry Data Security Standard (PCIDSS), Freedom of Information Act

2) UK : The Safe Harbor Agreement (defined in data transfer between USA and Europe)

3) Australia : Privacy Act in the APPs, APP 8 : Cross-border disclosure of personal information, Privacy Act 1988 – Section 16C, Privacy business resource & Sending personal information overseas

d) Relating to physical location of data storage servers

Examples are

1) USA : Payment Card Industry Data Security Standard (PCIDSS), NARA regulations

2) UK : Euro Data Protection Directive

3) Australia : Privacy Act in the APPs, APP 8 : Cross-border disclosure of personal information

The Legal Framework for Cloud Computing in India

​Cloud computing services that deal with personal or sensitive information need to comply with the requirements set out under the Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules 2011 relating to security, encryption, access to data subject, disclosure, international transfer and publication of policy statements. Thus a cloud computing service company before trading with “sensitive personal information” having a link to India has to make sure to be in observance with the aforesaid Rules as any non-compliance would invite penalties and imprisonment. Cloud service providers in India may also be required to comply with the Information Technology (Intermediaries Guidelines) Rules 2011.

​In addition to the IT Act and Rules, use of cloud computing in banking and insurance sectors is subject to specific restrictions. The RBI’s guidelines on Managing Risks and Code of Conduct in Outsourcing of Financial Services by Banks sets out specific requirements to be complied with by banks while engaging cloud service providers. These requirements inter alia relate to vendor selection, data security, form of agreement, business continuity and disaster recovery or management practices. On the other hand, the Insurance Regulatory and Development Authority of India’s Guidelines on Information and Cyber Security require insurers to comply with requirements in relation to data, application and network security, indent management and information security audit while using services from a cloud service provider.

Conclusion

​Cloud services are the best method to offer a dynamic and self adjustable computing and storage resource service to a wide range of clients – from residential users through small businesses to large multi-national organizations. A cloud is a pool of virtualized computer resources and can host a variety of different workloads, including batch-style backend jobs and interactive, nay user-facing applications. It supports redundant, self- recovering, highly scalable programming models that allow workloads to recover from many unavoidable hardware/software failures. However a word of caution is needed here – the cloud ecosystem must be designed to be secure, trustworthy and dependable. Cloud security faces different challenges and issues at various levels in the form of vulnerabilities and attacks – multitenancy, cloud secure federation, vendor lock in , loss of control, confidentiality, data integrity and privacy, data intrusion, virtualization vulnerabilities, cloning and resource pooling, UM hopping, XML signature attack, XSS attack, SQL injection attack and flooding attack, to name a few. Moreover, international law is not agile enough to compete with cloud computing developments. The onus therefore is on international cloud service providers to be familiar with data protection laws and policies of each country that they have a presence in – regardless of their essential understanding about the technology that they are providing via their platforms. In addition, the policies regarding data transfer between countries need to be seriously accounted for in their business plans.

Issues surrounding development of standards and best practices in the areas of interoperability, escrow and privacy need to be addressed along with questions as to whether adequate due diligence has been carried out along the chain of responsibility. Otherwise cloud service providers will be exposed to an avalanche of claims including those pertaining to liability for data mining and liability under securities laws for improper dissemination of investment information on social networking websites. The currently pending cases including class action litigations pertaining to Netflix Inc, Facebook “Beacon” Google “Buzz” should be eye openers in this regard. Mention also needs to be made here of the emergence of a parallel form of business called cloud brokering whose objective is to guide the potential enterprise in the choice of a cloud service provider, untwining the tangle of differential features. 

​In a de jure condendo perspective, a uniform legislative approach would be advisable. Internet services operate in a global market. Hence a unified approach – possibly one based on a WIPO treaty – would provide benefits to cloud customers by establishing uniform terms and conditions which drive consistency in the protection of data in the cloud. Opinions are galore that a “cyber seas” agreement may be the ideal vehicle for this kind of system because it provides a balance between a state’s ability to regulate the cloud and an over seeing international authority. Taking the prudent steps now to harness the cloud may in the near future allow the world to reflect on an entirely man-made global public utility and the beginnings of a truly cooperative world market. Needless to say, ultimately it is the users who will choose the model that makes the most sense given their needs – which may end up being a hybrid of cloud computing and the traditional model.

Dr Raju Narayana Swamy is the all India topper of the 1991 batch of the IAS and is presently posted as Principal Secretary to the Government of Kerala. He holds a B. Tech in computer science and engineering from IIT Madras and a Ph D from the Gujarat National Law University. A recipient of the prestigious Homi Bhabha Fellowship in Information Technology and Cyber Law, Dr Swamy was honoured by the IIT Kanpur with the Satyendra K Dubey Memorial Award in 2018.

References

1) Al – Khouri AM, Data ownership : who owns my data? Int J Manag Inf Technol 2007, 2(1); 1-8

2) Armbrust M, Fox A, Griffith R, Joseph AD, Katz R, Konwinski A et al, A view of cloud computing, Commun ACM 2010; 53(4);50-58

3) Azeez A, Perera S, Gamage D, Linton R, Siriwardana P, Leelaratne D et al, Multi-Tenant SOA Middleware for Cloud Computing in Proceedings of the 3rd International Conference on Cloud Computing (CLOUD)2010; 458-465, IEEE

4) Bartolini C L, El Kateb D, Le Traon Y, Hagen D, Cloud Providers Viability: how to address it from an IT and legal perspective ? in Altman J, Silaghi G C, Rana O F Editors Economics of Grids, Clouds, Systems and Services Vol 9512 Computer Communication Networks and Telecommunications, Springer International Publishing, 2016; 281-295

5) William Voorsluy, James Broberg and Rajkumar Buyya, Introduction to Cloud Computing in Cloud Computing: Principles and Paradigms (Wiley 2011)

6) Mark H. Wittow and Daniel J Buller, Cloud Computing: Emerging Legal Issues for access to data, anywhere, anytime in Journal of Internet Law, Aspen publishers 14(1),2010

By Kumar Shashwat

June 22, 2022

Character merchandising can be defined as the revision or secondary utilization, by the creator of an imaginary character or by a real human being or by one or several sanctioned third parties, of the indispensable personality characteristics (such as the name, image or appearance) of a  character in relation to a range of goods and/or services with an outlook to creating in potential consumers a yearning to get hold of those goods and to use those services because of the customers’ attraction with that character. It should already be highlighted that the person or legal entity which will systematize the merchandising activity (the merchandiser) will infrequently be the creator of the fictional character or the real person concerned. The various property or personality rights vesting in the character will be the subject matter of contracts (such as transfer or license agreements or product or service endorsement agreements), enabling one or more than a few involved third parties to be regarded as authorized users of the character. 

Registration of Character Trade Marks

The primary function of marks that are symbols in its real sense is to indicate the origin of the goods so that the consumers can distinguish who is responsible for the goods that are placed in public. On the one hand, the creator of the fictional characters is not themselves engaged in such merchandising activities. Still, they may want to procure the trademark rights for their characters in order to regulate and license their use for commercial or merchandising purposes. On the other hand, sportspersons, actors, and pop stars use their characters most rewardingly.

However, in English Law, the Trade Marks Act 1938 prohibits the use of the trademark for trafficking, dealing mainly in a commodity in the right and not primarily to indicate or identify merchandise in which the owner of the trademark is interested; do not contain such restrictions with respect to the registration of trademarks.

In Tarzan,[1] the candidates who were solely qualified to produce movies, records, and commercialization concerning the renowned anecdotal character Tarzan were denied enlisting the word Tarzan in relation to movies, attractive tape recordings, amusement toys and merchandise. The Court of Appeal held that since the word Tarzan was outstanding and was a piece of the dialect, it neglected to meet all requirements for enrolment as a developed or invented word. It was additionally held that the word had an immediate reference to the character and nature of the items since a film managing the endeavours of Tarzan would be portrayed as a “Tarzan” film, and the candidates’ different items were merchandise connected with Tarzan. Hence, the trademark was not considered to be fit for recognizing the candidates’ merchandise. Tarzan couldn’t be enlisted as a trademark because of the way that it spoke of the character and subsequently did not appear to show the origin of the items.

The idea that fame acts as the central impediment to getting the registration of a trademark was further explained in the Elvis Presley case[2]. The candidates, who were the legitimately perceived successors of any promoting exercises carried for the famous personality Elvis Presley, were denied enlisting of the words ” Elvis” and “Elvis Presley”, and the mark “Elvis A. Presley” regarding toiletries. The Court said that every one of the products for which enrollment was looked for was legitimately viewed as memorabilia since they were promoted principally because of their connection with the name and picture of Elvis Presley. It was in this manner held that the imprints were not unmistakable; buyers obtained stock identifying with Elvis Presley, not because they considered that Elvis Presley Enterprises showcased it, but since it conveyed the name or picture of Elvis Presley. The Court’s view was that the general population is occupied with acquiring the merchandise identified with a most loved name as a famous person and is not concerned whether licensees of such a big name create such items. Finally, the Court held that when a character is well known, it is exceptionally far-fetched that the check will mean the inception of the item.

Also, in the Diana case,[3] the executrices of the Estate of Diana, Princess of Wales connected to enlist as a trademark the words “Diana, Princess of Wales” for a wide variety of products and ventures. However, the application was rejected since it was held that the words Diana, Princess of Wales needed peculiarity. It was held that while most individual names might be considered to symbolize the inception of the merchandise, this is not the situation where an acclaimed name is worried; in such cases, it is conceivable that the name will serve to mean the topic of the items, rather than its beginning. It was further held that a normal customer would not expect that all memorabilia bearing the Princess’ name were marketed under the control of one undertaking in charge of their quality.

“Copyrights

Exactly when an anecdotal character is introduced in academic work, as a creative work, or an abstract work, it is spoken to by the gauges of copyright law. Usually, the makers of the works hold copyright over these characters. When these characters are a part of a film or the producer has copyrights over the character. Note that the copyright may not come to exist in any fictional character appearing in a copyrighted work without any other person’s information. For such a character to be freely secured under the degree of copyright certification, the character must be managed independently of the story, cartoon or movie that it belongs to. In this instance, Star India v. Leo Burnett, the above was noted:

“The fictional characters are generally drawings in which copyright subsists, e.g., cartoon, and celebrities are living beings who are otherwise very famous in any particular field, e.g., film stars, sportsmen. It is necessary for character merchandising that the characters to be merchandised must have gained some public recognition, that is, achieved a form of independent life and public recognition for itself independently of the original product or independently of the milieu/area in which it appears. Only then can such character be moved into the area of character merchandising. This presumes that the character has independently acquired such reputation as to be a commodity in its own right independently of the goods or services to which it is attached or the field/area in which it originally appears. It is only when this is established on evidence as a fact, that the claimant may be able to claim a right to prevent anyone else from using such a character for other purposes.”

Identity rights

The producer of a film won’t have full rights to exploit the characters that can’t be disengaged from the performer portraying the same. In such a case, the character benefits of the performing craftsman apply despite the producer’s copyrights. This, from time to time, offers a climb to a battle between the two sorts of rights. For example, there has been a conflict between a performing artist assuming the part of a well-known character Gutthi in an Indian TV show and a TV station, which is additionally the maker of the arrangement. Because of this conflict, the performing artist moved out of the show and went ahead to begin his new show on an alternate TV slot. The principal TV slot issued an open proclamation that the character Gutthi had been made for the first show. Thus, it has copyright over the same. The on-screen character issued another announcement declaring his identity rights and saying that it is he who has accomplished acknowledgement as and is constantly related to Gutthi. Inferable from this conflict of rights, none of the parties could utilize the character Gutthi in their separate shows amid the season of the conflict. Identity rights unmistakably apply in instances of superstar marketing. Copyright is relevant just to the degree there are photos of superstars, and they are to be popularized; the picture takers have rights over the photographic works.

Trademarks

Since the vital character components of fanciful and authentic people are utilized as a part of the connection to business articles, trademark law standards likewise come into light in instances of character promotion. For example, in India, a trademark is known as any gadget, heading, plan, mark, word, name, signature, and so on which is fit for a graphical representation and which ought to be equipped for recognizing merchandise and/or administrations of one gathering from those of the other. This broad clarification makes it conceivable to have any anecdotal or real individual’s crucial identity elements as trademarks. For example, the name of a character and his picture, signature, character outlines, voice, catchphrases he utilized, and so forth could be ensured under trademark law.

When it comes to craftsmanship, one needs to consider the most unmistakable identity properties that are celebrated and deserving of trademark security. Character promoting is the initial step for treating acclaimed anecdotal characters or genuine identities as exchange signs. Famous people additionally authorize their identity and name rights under the laws of passing off. For example, in a noteworthy case concerning the identity and trademark privileges of the well-known pop singer “Daler Mehndi”, the pop star and his partner, the offended party, could effectively uphold trademark rights over the name “Daler Mehndi” against the respondents who earned tremendous financial gains by the offering of toys in light of his identity. Even though the name of Daler Mehndi or his fundamental identity components were not enrolled as trademarks, custom-based law gives exclusive privileges to the pop star in his name and identity. The productive instance of passing off could be brought for the execution of customary law marketing rights by the proprietors of such characters in case crucial parts of their characters’ personalities are used without their endorsement. Getting statutory trademark security is also profitable in bringing actual blue instances of trademark infringement against manhandling. The proprietors of universally acclaimed characters like Batman, Harry Potter and so forth have likewise procured statutory rights by enlisting the characters’ names as trademarks in India. On the Indian side, the proprietors of the fictional character Munnabhai (that showed up in the motion picture titled “Munnabhai MBBS” and its continuation “Lage Raho Munnabhai”) have additionally enlisted such character name as a trademark.

[1] Tarzan Trade Mark  [1970] FSR 245, CA.

[2] Elvis Presley Trade Mark  [1997] RPC 543.

[3] Diana Princess of Wales Trade Mark  [2001] ETMR 25. See also the similar view of Isaac,B., ‘Merchandising or Fundraising? Trade Marks and the Diana, Princess of Wales Memorial Fund’ (1998) 20 European Intellectual Property Review 441.

Books:

1. Ahuja V K, Law Relating to Intellectual Property Rights (English), Lexis Nexis, 2nd Edition, 2013.

2. Wadehra B L, Law Relating to Intellectual Property (English), Universal Law Publication, 5th Edition, 2012.

3. Ananth Padmanabhan, Intellectual Property Rights HB (English), Lexis Nexis- New Delhi, 1st Edition (Hardcover), 2012.

Articles:

1. John Perry Barlow, The Economy of Ideas, Wired, Mar. 1994

2. Emem Uduak Udobong, Copyright infringement in the search engine, December 2005.

Kumar Shashwat is Founding Partner at Kumar & Singh Associates.

By Deo Prakash Singh

June 2, 2022

Disciplinary proceedings are the documented rules that define the relationship and control between a master and a servant. The power of the master to exercise control over the servant is to maintain and sustain the working environment at the workplace to achieve the dedicated goal and objectives. It signifies the obligation of the servant to obey and act in accordance with the code of conduct formulated by the master.

Disciplinary action is imposed by the employer on an employee against an act of misconduct  by ordering punishment. The proceedings are perhaps the most vast and litigated branches in India and are full of dilemmas and dogmas. Service matters have the maximum number of commentaries, statutes, rules and regulations. The author here tries to discuss disciplinary proceedings — how they are conducted in public service tribunals, the procedure through which cases filed, and how they are conducted.

The general conception that a government job, in contrast to a private job, is a safe and secure job that ensures uninterrupted pay, perks and other service benefits is a misnomer. The statement may be true to a considerable extent because of the play and importance of natural justice in conducting disciplinary proceedings in public service. But the master in this case is that the mighty state has the capacity to diminish the future prospects of a government delinquent employee. Not only this, in public service the government delinquent employee has no way except to knock the doors of the court which is a time-taking and expensive exercise that sometimes even remains undecided. During the pendency of the litigation the employee may be deprived of service benefits and promotions. It is very difficult to decide between the two — whether justice delayed is justice denied or justice hurried is justice buried. The principle of natural justice sometimes derails from its impregnated objective.

Natural Justice and Disciplinary Proceedings

The principles of natural justice, generally, are taken care of while conducting disciplinary proceedings.

Article 311 of the Constitution of India guarantees the protection of rights of civil servants against arbitrary dismissal, removal and reduction in rank. This protection is not available where the employee has been convicted of a criminal charge or the competent authority is satisfied that compliance with the rules of natural justice is not reasonably practicable or the President or the Governor is satisfied that holding of an enquiry is not expedient in the interest of the security of the state. This is one of the express exceptions referred to in Article 310 and not subject to any control by any other provision of the Constitution. This provision in the Constitution aims at providing security of tenure to a government servant. This shield is a security to the extent of providing certain safeguards which have been made conditions precedent for dismissal or removal or reduction in rank of a government servant.

It is established that the principle of natural justice mainly comprises of following two rules:

(I) no person is to be condemned without hearing

(II) no person shall be a judge of his own cause

These two are the basic features. It means that fairness in conducting the proceedings shall be the essence of practice and the delinquent employee should be treated fairly which may culminate into punishment. The fairness principle requires a tribunal to proceed and hear the aggrieved employee on the points of law and procedure of fairness to protect the rights ensconced in the law book.

Elements of Disciplinary Proceedings

The proceedings are conducted under the domestic jurisdiction of the employer. To hold an enquiry into the misconduct of the employee is the most important feature and a precondition to the imposition of any punishment on a public servant. It is a universal principle and procedure because of the fact that almost all government servants and employees of statutory corporations or government companies are governed by rules which generally provide for a detailed procedure to be followed before imposing any punishment.

A departmental proceeding is a quasi-judicial proceeding and hence the enquiry officer’s performance a quasi-judicial function. The articles of charges levelled against the delinquent employee must be found to have been proved. The enquiry officer is duty-bound to arrive at a finding upon taking into consideration the materials brought on record by the parties. The proceeding has to be conducted against any person in a strict adherence to the statutory provisions and the principles of natural justice. The charges would be specific, definite and distinct setting out the details of the incident which forms the basis of the charges. No enquiry can be sustained on vague charges. The enquiry has to be conducted fairly, objectively but not subjectively. The findings should not be unreasonable and perverse nor the same should be based on conjectures and surmises. The court is very a specific on proof and suspicion. Every act or omission on the part of the delinquent employee cannot be a misconduct. The authority must record reasons for arriving at the findings of fact in the context of the statute defining the misconduct. Evidence adduced should not be perfunctory. Even if the delinquent employee does not take the defence or raise any protest, that does not absolve the inquiring   authority from being vitiated for the reason particularly in respect of an order involving adverse or penal consequences.

Central Civil Services (Classification, Control and Appeal) Rules, 1965 under Rule 11 enumerated major and minor penalties and the procedure to conduct the disciplinary proceedings. It has also provided, under many decisions of the Government of India, the difference and definition of major and minor penalties in which major penalty shall be in case of grave and serious charges.

Administrative Tribunals

The Law provides for the establishment of Administrative Tribunal for the Union and the states specifying the jurisdiction and powers of such tribunals, procedure to be followed by the tribunals and excludes the jurisdiction of all courts except the Supreme Court.

The law also provides that the president in case of Union and the Governor in case of a state may make rules and regulations of services and posts in connection with the affairs of the state to such services.

Here it is important to include that only government servants throughout a state can file their respective cases in the tribunal to get their grievances redressed. It means that the tribunals are vested with the authority to hear the grievances of the employees of the state/Union only whereas further the employees working with private companies or organisations which are not owned by the state can only file their cases under industrial disputes in labour courts and industrial tribunals.

Preliminary Enquiry

Normally the disciplinary authority appoints a preliminary enquiry officer to look into the alleged charges against the government servant and if the preliminary enquiry officer is prima facie guilty of the alleged misconduct, he may prepare a charge-sheet of the same and produce it before the disciplinary authority. The proceeding may not be known to the delinquent employee. The disciplinary authority on the basis of the charge-sheet submitted by the preliminary enquiry officer proceed to initiate departmental enquiry and it may start afresh and may not be from the point where the preliminary enquiry officer left. It is an established rule that the preliminary enquiry officer cannot be appointed as enquiry officer in the full-fledged enquiry as he may be prejudiced to the delinquent employee because he had already framed a charge-sheet against him in the preliminary enquiry.

Procedure To Conduct Enquiry In Case Of Major Penalty

The appointing authority/ disciplinary authority has to issue in order to initiate the disciplinary proceedings against the government servant. Sometimes the Governor of the state has to do the same as he is being the appointing authority of the specified government servants. The disciplinary authority may himself enquire into the charges or appoint an officer subordinate to the enquiry officer to enquire into the charges. The charge-sheet shall be approved by the disciplinary authority. The charges should be precise and clear to facilitate the government servant of the facts and circumstances against him. The documentary evidences and the names of witnesses proposed should prove the same along with oral evidence.

The delinquent government servant shall be required to submit a written statement of his defence in person within a specified time period mentioned in the book of rules preferably within 15 days from the date of issue/receipt of the order. The government servant shall have to state that whether he desires to cross examine any witness mentioned in the charge-sheet or whether he desires to produce some new or extra evidence. He shall also be informed that in case a written submission is not filed within the specified date it will be presumed that he has none to furnish and the enquiry officer shall proceed to complete the enquiry ex parte.

It has also been decided by a court judgement that after the charge-sheet is given to the employee, an oral enquiry is must and notice should be given to the employee intimating him about the date, time and place of enquiry. It has also been laid down in this case that if an opportunity to the employee to produce witnesses or to rebut the evidence against him is not given then the whole enquiry is liable to be quashed ab initio and the punishment on the basis of such enquiry report shall not be sustainable.

It is settled law that the documents relied in support of the charges have to be proved in departmental enquiry by the enquiry officer in the presence of the delinquent employee. The government servant is also at liberty to ask for documents in case they are mentioned in the charge-sheet. But is the same have not been annexed with the charge-sheet, then opportunity of inspection has to provided.

Per contra if the charged government employee admits the charges, the enquiry officer shall submit his report to the disciplinary authority without further proceedings in enquiry but where the charged government servant denies the charges, the enquiry officer shall proceed with the enquiry to call on the witnesses as per the rules framed under the law in the presence of the government employee who shall be given the opportunity to cross examine such witnesses. After recording the aforesaid evidence, the enquiry officer records oral evidence if the charged government servant desired so in his written defence submission. The enquiry officer may ask what he pleases at any time from any witness or from the person charged with a view to discover the truth or to obtain proof. The disciplinary authority may appoint a presenting officer to present the facts of charges from the government side whereas the charged government servant too can take help of a retired government employee or legal practitioner if the enquiry officer gives his consent for it.

When the enquiry is complete, the enquiry officer shall submit its enquiry report to the disciplinary authority along with all records. The report shall consist of sufficient record of brief facts, the evidence and statement of findings on each charge with reasons thereof but the enquiry officer shall not make any recommendation about the penalty. The enquiry officer shall have to submit his final report within six months from the date of issuance of the order by the disciplinary authority and he is bound to adhere to the time-limit. In any case the total time-limit to complete a disciplinary proceeding should not exceed 18 months from the date of initiation of the proceedings, i.e., from the date of issuance of the framing of charges letter.

If there is vigilance angle, the advice of CVC shall be sought and the time limit for the advice shall be maximum 30 days. For the second advice from the CVC, the same time-limit of 30 days shall be available. Similarly the time limit for concurrence from the UPSC shall be 30 days.

Stage of Tribunal

The cause of action arises due to the impugned punishment order by the disciplinary authority against the delinquent employee and here the role of lawyers come into play to represent the petitioner/the applicant under section 19 of the Administrative Tribunal Act, 1985. Before bringing a case of disciplinary proceeding to the tribunal, the aggrieved employee against whom an adverse order has been passed has to make representation to the appellate authority against the order. It is only after the representations remain unanswered by the authorities or if the delinquent employee has not been satisfied then he can bring his case to the tribunal. The government servant challenges an adverse order as bad order in the tribunal.

The aggrieved employee says in his submissions in the court that the proceeding conducted against him were unjust, unwarranted, malicious and/or arbitrary and the charges levelled against him are unjustified and against the principles of natural justice. The petitioner prays to quash the impugned order as if it had never been passed so that he may be entitled to all consequential service benefits to which he is entitled.

The petitioner may pray for interim relief but the interim relief sought should be different from the final relief. It is prayed in the court that if the impugned order is left to stand it will do irreparable loss to the petitioner.

Conclusion 

Disciplinary action cannot be based on breach of statutory rules or administrative actions which do not supplement rules or are inconsistent with them. Before initiating any disciplinary proceeding the master must be prima facie satisfied that the employee has committed some misconduct. The misconduct must be committed during the tenure of the service. An allegation of misconduct against an officer in relation to his quasi-judicial functions cannot be made merely on the basis that he made a mistake of judgement while passing the order. This is because the administrative adjudication also requires to perform their functions without fear or favour which may be defeated by the constant threat of disciplinary proceedings. 

Disciplinary proceedings cannot be initiated only on the basis of suspicion. There must be a reasonable basis. Those disciplinary proceedings shall be quashed if the exercise of power was not bona fide, e.g. anonymous complaints, biased preliminary enquiry and disregard to the directions of the Chief Justice by the full court. Similarly, if an employee is allowed to retire on attaining the age of superannuation even after initiation of disciplinary proceedings, major management cannot be imposed on him thereafter except under rare circumstances since retirement results in severance of relationship of master and servant. 

Deo Prakash Singh an Advocate practicing at the Patna High Court.