India: Supreme Court says that mere reference to the 1940 Arbitration Act will not render the entire Arbitration Agreement invalid
In a recent judgement by the Supreme Court in the case of Purrushottam s/o Tulsiram Badwaik vs Anil, it held that mere reference to the Arbitration Act, 1940, will not render the entire Arbitration Agreement invalid.
India: Longer term for third party insurance
In this world full of uncertainties, individuals are often posed with the threat of changing scenarios. With a view to cover the losses caused by such events, insurance policies are taken up by people. Insurance is an indemnity contract where the insuring party undertakes to pay a specified amount on the occurrence of contingent event in order to diminish its impact. Different insurance policies are available like life, health, fire, marine, motor, etc.
Motor insurance safeguards the owner of the vehicle against the following:
- damages to his/her vehicle and
- pays for any Third-Party Liability determined as per law against the owner of the vehicle.
p>Third Party Insurance
The owner of the vehicle is liable for any injury or damage to third party life or property caused by or arising out of the use of the vehicle in a public place. Motor insurance covers the third-party liability as well. Third party insurance has the below stated features:
- Mandatory in terms of the Motor Vehicles Act, 1988 without which driving a motor vehicle in a public place is a punishable offence.
- Does not cover the injuries incurred to the insured;
- Protects the interests of the injured third party affected due the use of the vehicle of the insured;
In the news..
Considering the safety of third party-victims, the Insurance Regulatory Authority of India (hereinafter referred to as “IRDA”) based on recommendations of the Supreme Court panel has made it mandatory to extend the duration of motor third party insurance to five years for new two-wheelers and three years for a newly purchased car, September 1, 2018 onwards.
The damage premium would now be calculated by IRDA which was earlier determined by insurers.
Joint efforts for Joint Ventures
The modern-day business world is based upon multiple interdependent transactions. Often the parties team up with a view to work together for the common objective of earning profits. This arrangement benefiting the parties mutually has become a trending practice. One such mode is the formation of the Joint Ventures.
A joint venture (hereinafter referred to as “JV”) is a corporate structuring device whereby two or more parties join in to work for a commercial project. Based upon the intentions of the parties of the JV, it may be equity based or contractual, formed for perpetuity or specific time period. The entity which may be used for the purpose of joint venture include incorporated structures such as a company or a limited liability partnership or unincorporated structure like partnerships or strategic alliances.
Advantages of JV
JVs are highly beneficial corporate structures. Some of its benefits are listed below:
- The parties to the JV contribute in terms of inputs and jointly own and manage the JV;
- The parties share responsibilities and liabilities;
- More risk mitigation;
- JV allows greater access to the market and established contacts;
- There is increased technology transfer;
- There is recourse to greater expertise and knowledge;
- Flexible business diversification
Agreement between the parties
A JV is establishment when the parties to the same agree to mutually acceptable terms and conditions to carry out a business jointly which may be in the form of the Memorandum of Undertaking or Letter of Intent as agreed between the parties and comprising of rights and obligations of the parties, consequences of breaches, termination, terms of payment, exit clauses, dispute resolution, force majeure, etc.
Depending upon the corporate structure the JV may be governed under the provisions of the Companies Act, 2013 or the Partnership Act, 1932 or the Limited Liability Partnership Act, 2008.
The transactions of the JV determine the applicability of the remaining laws such as Income Tax Act, 1961; Foreign Exchange Management Act, 1999 (hereinafter referred to as “FEMA”); the Minimum Wage Act 1948; Industrial Disputes Act 1947; State-specific Shops and establishment legislation; Sale of Goods Act 1930; Competition Act 2002, etc.
Foreign – Indian JV
Any non-resident entity can set up a JV in India subject to the provisions of FEMA and Foreign Direct Investment (hereinafter referred to as “FDI”) guidelines laid down by the Government of India. The foreign entity can enter into an engagement with an Indian party through either Automatic (without any prior Government approval) or Approval route (with the approval of the Government) considering the nature of the business, money involved and the prevalent FDI policies. Following types of JVs are recognized in India:
- Entity which has more than 50% of the shareholding vesting with the Indian entity or it has the control over the board of directors – Domestic Entity;
- Entity where more than 50% shares or control over the board of directors is in the hands of the foreign entity – Foreign Entity;
- Entity which is equally owned and controlled by the foreign as well as the Indian entity in the ratio of 50:50 – Foreign owned Indian entity.
In the news
The increasing number of JVs are indicative of the fact that more and more parties are willing to work with one another. Not being restricted to local parties, India is now witnessing rise in the number of JVs which are a collaboration of foreign and Indian entities.
On August 27, 2018, one of the leading farm and construction equipment maker of India — Escorts, joined hands with Japan’s largest mobile crane manufacturer — Tadano.  The said JV aims to manufacture rough terrain and truck-mounted cranes in India wherein the stakes held by the Indian entity are 49% while those held by the foreign entity are 51%. The JV would cater to an expanding market in the 20-80 tonnage category.
International Arbitration to unlock the Stalemates
While handling of business transactions with one another, we often come across a variation of viewpoints which result in strained relations and problems between parties. In such a situation, the legal system comes into play. The various modes of resolutions offered by the Indian legal framework are recourse to Courts or alternate dispute mechanisms including, conciliation, mediation and arbitration.
Arbitration the safe mode
Arbitration is a mode of settlement of disputes by mutual agreement, where the rights and obligations are determined by the self-appointed authority, in respect of their matter, and are binding on them. The authority involved in the dispute resolution amongst the parties may be a single Arbitrator or a panel of Arbitrators constituting a Tribunal thereby.
Arbitration may be carried out at domestic (which concern the parties residing in the same country) as well as international levels (where the parties reside in different countries).
In India, provisions regarding arbitration are monitored under the Arbitration and Conciliation Act, 2015 (hereinafter referred to as “the Act”).
The parties dealing in cross-border transactions are aware about the complexities involved in the nature of their commercial handlings. They, usually try to ensure that the differences amidst themselves are dealt with by the persons possessing adequate knowledge and requisite expertise in the arena. The parties take resort to international institutions, prescribing rules and procedures regulating to arbitration. Some such institutions are International Chamber of Commerce, International Centre for Alternative Dispute Resolution, etc.
In India, foreign awards, issued by the process of international arbitration are governed under Part II of the Act. As per Section 49 of the Act, where the Court is satisfied that the foreign award is enforceable according to the Act, the award shall be deemed to be a decree of that Court.
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Recently, disputes between Reliance Power Netherlands BV – a wholly owned subsidiary of Reliance Power (hereinafter referred to as “Reliance”) and Prestige Capital Holdings (a Seychelles-based company) & Kokos Jiang arose in respect to Reliance’s coal mines in Indonesia. The parties referred the matter to the Arbitration Tribunal constituted under Singapore International Arbitration Centre (hereinafter referred to as “SIAC”) rules in Singapore. SIAC, on August 21, 2018, passed an award of of USD 56 Million (INR 390 Crore approx.) in favour of Reliance.
The advent of globalization has lead to the increase in international trade. While more and more corporates conduct business overseas, they prefer to incorporate in their contractual terms the option of referring the dispute to international arbitration to unlock their stalemates.
India: Fantasy sports games as ‘games of skill’
In a landmark judgment, the High Court of Punjab and Haryana in the case of Shri Varun Gumber v. Union Territory of Chandigarh and others held that fantasy sports games that require considerable skill, judgment and discretion are ‘games of skill’ and do not amount to gambling. Further, an appeal against this judgment was subsequently dismissed by the Supreme Court.
Facts of the case in brief:
- >Mr. Varun Gumber (hereinafter referred to as the ‘Petitioner’) transferred an amount of INR 50,000 (USD 699 approx.) by his credit card to his own account opened on the Dream 11 website
https://fantasycricket.dream11.com.in for participating in various leagues created on the said website.
- The Petitioner created a virtual team of a Cricket match between Ireland and Afghanistan by choosing 11 out of the total players who were to play for the two countries.
- After forming a virtual team of 11 players as per his own selection, knowledge and judgment, the Petitioner joined various leagues selected by him and from the available deposit of INR 50,000 (USD 699 approx.) the Petitioner used INR 24,000 (USD 335 approx.) for playing in the leagues which he lost entirely at the end of the Cricket match.
- Further, the Petitioner made a similar virtual team for a football match between Manchester City and Middlesbrough wherein he used the rest of the deposit amount [INR 26,000 (USD 363 approx.)] to play in the leagues of his choice and similarly lost the rest of the deposit amount.
- The Petitioner then filed the petition claiming that he has been a victim of illegal gambling.
Salient points from the High Court’s Judgment:
- Playing of fantasy sports game by any participant/ user involves making a virtual team by him which would certainly require a considerable skill, judgment and discretion.
- The participant/ user has to assess the relative worth of each athlete/ sportsperson as against all athletes/ sportspersons available for selection.
- The participant/ user is required to study the rules and regulations as well as the strengths and weaknesses of athletes/ sportspersons.
- The success in Dream 11’s fantasy sports basically arises out of the users exercising superior knowledge, judgment and attention.
- There is an element of skill and its predominant influence on the outcome of the Dream11 fantasy game.
- Fantasy sports games will not fall within the activity of gambling for the invocation of the Public Gambling Act, 1867, and thus, the Respondent company is exempt from the application of provisions, including the penal provisions, under the Public Gambling Act, 1867.
- Gambling is not a trade and thus, is not protected by Article 19(1)(g) of Constitution of India and thus, the fantasy games of the Respondent company cannot be said to be falling within the gambling activities as the same involves the substantial skills which is nothing but is a business activity with due registration and paying the service tax and income tax. Thus, they have protection granted by Article 19 (1)(g) of Constitution of India.
Appeal against the High Court decision:
An appeal against the Punjab & Haryana High Court’s decision was filed in respect of which the Supreme Court passed an order dismissing the appeal on September 15, 2017.
It is pertinent to note that dismissal of appeal by the Supreme Court means that the format of fantasy sports game evaluated and commented upon by the High Court of Punjab and Haryana holds good in law. However, this
does not mean that all the fantasy games ever developed would be games of skill. Further, it is worth mentioning that despite the dismissal of this appeal, the Supreme Court can in future take up the issue of whether a particular fantasy sports game is a ‘games of skill’ or not.
Shri Varun Gumber v. Union Territory of Chandigarh and others, CWP No.7559 of 2017 decided on April 18, 2017.
Diary No(s). 27511/2017 (Arising out of impugned final judgment and order dated 18-04-2017 in CWP No. 7559/2017 passed by the High Court Of Punjab & Haryana At Chandigarh).
India: Restrictions on the import of Biofuels
In the modern world, there is an increased demand for energy sources in order to fulfil the needs of the technologically advanced world. With the awareness of the damage caused to the environment by the exhaustion of the limited non-renewable sources of energy, the modern world is witnessing a shift towards renewable sources of energy including biofuels.
Biofuels resources for energy
‘Biofuels’ are liquid or gaseous fuels produced from biomass resources and used in place of, or in addition to, diesel, petrol or other fossil fuels for transport, stationary, portable and other applications. These are efficient sources which can satisfy these energy requirements in an environmentally stable and cost-effective manner thereby reducing dependence on import of fossil fuels.
The Government of India formulated National Policy on Biofuels, 2018 (hereinafter referred to as “the policy”) which focuses on economic growth and human well-being. Recognizing the fact that energy is a critical input for socio-economic development, the policy aims at efficiency and security in order to provide access to optimally utilized environment friendly resources for energy generation.
The Policy aims to bring about promotion of the cultivation, production and use of biofuels to increasingly substitute petrol and diesel for transport and be used in stationary and other applications, while contributing to energy security, climate change mitigation, apart from creating new employment opportunities and leading to environmentally sustainable development.
In furtherance of the same, the Government has issued a notification dated August 21, 2018 whereby restriction has been imposed on the import of biofuels (hereinafter referred to as “notification”), only for the non-fuel purpose on an actual user basis for the following biofuels-
- Ethyl alcohol and other denatured spirits,
- Petroleum oils and oils obtained from bituminous minerals (other than crude) and preparations not elsewhere specified or included, containing weight 70% or more of petroleum oils or oils obtained from bituminous minerals (basic constituents of preparations containing biodiesel other than waste oils)
- Biodiesels or mixtures not contain or comprising of less than 70% by weight of petroleum oils and oils obtained from bituminous minerals
Earlier, the import of these items was duty free, but now the same will only be allowed for the non-fuel purpose on an actual user basis indicative of a ‘Free’ to ‘Restricted’ approach.
Impact of the notification
Restriction to the import of biofuels appears to be in consonance with the objective of the policy keeping up the pace of developments in the field of biofuels as well as the ongoing concerns of the Government including Make in India, Swachh Bharat Abhiyan, Skill Development. This policy is expected to entail the benefits such as import reduction, cleaner environment, employment generation, waste to wealth creation as well as providing additional income to the farmers by utilization of the agricultural biomass produced during crop cultivation.
India: Supreme Court says that mere reference to the 1940 Arbitration Act will not render the entire Arbitration Agreement invalid
- Purrushottam s/o Tulsiram Badwaik (herein after referred to as the “Appellant”) and Anil (herein after referred to as the Respondent) entered into a partnership agreement dated November 9, 2005. Clause 15 of the said partnership agreement was as under-
“15) That in case of any dispute between the partners as regards interpretation of this Deed or any other matter connected with the partnership business, the same shall be referred to for arbitration in accordance with the provisions of Indian Arbitration Act, 1940, and the decision of the Arbitrator shall be final and binding on all the partners.”
- In April 2014, the Respondents filed a civil suit for declaration, damages, accounts and permanent injunction against the Appellant.
- After receipt of the notice, the Appellant preferred an application under Section 8 of the Arbitration Act, 1996 (hereinafter referred to as the “1996 Act”) to refer the dispute to arbitration in the view of the aforementioned clause 15 of the partnership agreement.
- The Trial Court rejected the application and held that the aforesaid Clause 15 was vague, since there was no reference as to who the arbitrator should be, and how should the arbitrators be selected further. The dispute did not form subject matter of agreement within the meaning of Section 8 of 1996 Act.
- The Appellant then filed a civil revision application in the High Court. The High Court rejected the challenge and the dismissed the application relying on a portion of the decision of Supreme Court in Thyssen Stahlunion GMBH v. Steel Authority of India Ltd. The High Court took the view that the relevant Clause 15 indicated an agreement between the parties to refer the disputes to arbitration as per provisions of the Indian Arbitration Act, 1940, (hereinafter referred to as the “1940 Act”) although the Partnership Agreement was entered into much after the enactment of 1996 Act.
- The Appellant challenged the order of the High Court before the Supreme Court in this appeal.
Contentions of Appellant:
- It was contended by the Learned Counsel for the Appellant that the reference to the 1940 Act in the partnership deed dated November 09, 2005, has to be necessarily referred to the Arbitration process, as prevalent on the date of signing of the Agreement.
- It was further submitted that the mention of 1940 Act will not defeat the intention of the parties to go for arbitration as a dispute resolution mechanism.
- Mr. Amol Nirmalkumar Suryawanshi, the advocate appearing on behalf of the Respondents submitted, that the question as to whether the relationship between the parties would be governed by the 1940 Act or the 1996 Act was so fundamental, that any mistakes in that behalf would invalidate the entire arbitration clause and as such there could not be any reference to arbitration at all. Therefore, the Courts were justified in rejecting the submissions advanced by the Appellant.
- The Court held that all the requirements of an arbitration agreement as mentioned in Section 7 of the 1996 Act were satisfied in the present matter.
- While deciding the question as to whether the reference made to the 1940 Act will have any bearing, the Court considered Section 85 of the 1996 Act, wherein sub section (2) stipulates that “notwithstanding such repeal the provisions of 1996 Act would apply in relation to arbitral proceedings which commenced on or after 1996 Act came into force.”
- Relying on the
M.M.T.C. Limited v. Sterlite Industries (India) Ltd decision, the Court inferred that the date of commencement of the arbitral proceedings was crucial and if such commencement was after 1996 Act had come into force, the provisions of the 1996 Act would govern the situation.
- The Court opined that the correct approach would be in promoting the object of implementing the scheme of alternate dispute resolution, as submitted in MMTC Ltd. case. “It would be farfetched to come to the conclusion that there could be no arbitration at all” the Court further held.
- The Court took a view that for the purposes of the applicability of 1996 Act it is material that there is an agreement between the parties to refer the disputes to arbitration. If there is such an arbitration agreement which satisfies the requirements of Section 7 of 1996 Act, and if no arbitral proceeding had commenced before 1996 Act came into force, the matter would be completely governed by the provisions of 1996 Act. Any reference to 1940 Act, in the arbitration agreement would be of no consequence and the matter would be referred to arbitration only in terms of 1996 Act consistent with the basic intent of the parties to refer the disputes to arbitration.
- The Supreme Court thus set aside the order and judgement passed by the High Court and accepted the appeal preferred by the Appellant.
- It ordered that the matter will be dealt by the trial court in accordance with Section 8 of the 1996 Act for effectuating the arbitration agreement. It further directed the Chief Justice of the High Court to appoint a third arbitrator under Section 11(4)(b) of the 1996 Act due to the failure of the two appointed arbitrators (by the parties) to appoint the third arbitrator within thirty days from the date of their appointments.