Monthly Archives: September 2018

Applicability of Arbitration & Conciliation Act, 1996

Sub-section (1) of Section 85 of the Arbitration and Conciliation Act, 1996 repealed three enactments including the Arbitration Act, 1940. Sub-section (2) stipulates, inter alia, that notwithstanding such repeal, the repealed enactment, namely, the 1940 Act would continue to apply in relation to arbitral proceedings which had commenced before the 1996 Act came into force unless the parties were to agree otherwise. The second limb of first clause of said sub-section (2) further stipulates that notwithstanding such repeal, the provisions of the 1996 Act would apply in relation to arbitral proceedings which commenced on or after the 1996 Act came into force.

As is clear from MMTC Ltd. v. Sterlite Industries (India) Ltd., (1996) 6 SCC 716, what is material for the purposes of the applicability of the 1996 Act is the agreement between the parties to refer the disputes to arbitration. If there be such an arbitration agreement which satisfies the requirements of Section 7 of the 1996 Act, and if no arbitral proceeding had commenced before the 1996 Act came into force, the matter would be completely governed by the provisions of the 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 the 1996 Act consistent with the basic intent of the parties as discernible from the arbitration agreement to refer the disputes to arbitration.

In situations where the relevant clause made reference to the applicability of “the provisions of the Indian Arbitration Act and Rules made thereunder” as was the case in MMTC Ltd. v. Sterlite Industries (India) Ltd., (1996) 6 SCC 716, on the strength of Section 85(2)(a) the governing provisions in respect of arbitral proceedings which had not commenced before 1996 Act had come into force would be those of the 1996 Act alone. On the same reasoning even if an arbitration agreement entered into after the 1996 Act had come into force were to make a reference to the applicable provisions of those under Indian Arbitration Act or the 1940 Act, such stipulation would be of no consequence and the matter must be governed under the provisions of the 1996 Act. An incorrect reference or recital regarding applicability of the 1940 Act would not render the entire arbitration agreement invalid. Such stipulation will have to be read in the light of Section 85 of the 1996 Act and the principles governing such relationship have to be under and in tune with the 1996 Act. Purushottam v. Anil, (2018) 8 SCC 95.

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Transfer of – Right, Title or Interest in Tangible Property

It is a settled principle of law that a person can only transfer to other person a right, title or interest in any tangible property which he is possessed of to transfer it for consideration or otherwise. In other words, whatever interest a person is possessed of in any tangible property, he can transfer only that interest to the other person and no other interest, which he himself does not possess in that tangible property. So, once it is proved that on the date of transfer of any tangible property, the seller of the property did not have any subsisting right, title or interest over it, then a buyer of such property would not get any right, title and interest in the property purchased by him for consideration or otherwise. Such transfer would be an illegal and void transfer. In such eventuality and subject to any terms and conditions, if agreed between the parties, a buyer will have a right to claim refund of sale consideration from his seller, which he paid for purchase of the property under the law of contract. The reason is that the contract to purchase has failed and, therefore the parties have to be restored back to their original positions, which existed at the time of execution of the contract. Eureka Builders v. Gulabchand¸(2018) 8 SCC 67

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Valid Arbitration Agreement – Pre-Requisites of

Para 22 of the judgment in P. Dasaratharama Reddy Complex v. State of Karnataka, (2014) 2 SCC 201 is important and sets out from K.K. Modi v. K.N. Modi, (1998) 3 SCC 573 as to what are the valid pre-requisites for a valid arbitration:

“One of the questions formulated by the Court was whether clause 9 of the memorandum of understanding constituted an arbitration agreement and whether the decision of the Chairman, IFCI constituted an award. It was held as under:

“(1) The arbitration agreement must contemplate that the decision of the tribunal will be binding on the parties to the agreement,

(2) That the jurisdiction of the tribunal to decide the rights of the parties must derive either from the consent of the parties or from an order of the court or from a Statute, the terms of which make it clear that the process is to be an arbitration,

(3) The agreement must contemplate that substantive rights of parties will be determined by the agreed tribunal,

(4) That the tribunal will determine the rights of the parties in an impartial and judicial manner with the tribunal owing an equal obligation of fairness towards both sides,

(5) That the agreement of the parties to refer their disputes to the decision of the tribunal must be intended to be enforceable in law and lastly,

(6) The agreement must contemplate that the tribunal will make a decision upon a dispute which is already formulated at the time when a reference is made to the tribunal.

The other factors which are relevant include, whether the agreement contemplates that the tribunal will receive evidence from both sides and hear their contentions or at least give the parties an opportunity to put them forward; whether the wording of the agreement is consistent or inconsistent with the view that the process was intended to be an arbitration, and whether the agreement requires the tribunal to decide the dispute according to law.

In Bihar State Mineral Development Corporation v. Encon Builders (India) (P) Ltd., (2003) 7 SCC 418, it was held that a clause which is inserted in an agreement for the prevention of a dispute, will not be an arbitration agreement. Shyam Sunder Agarwal v. P. Narotham Rao, (2018) 8 SCC 230.

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No Right to Forfeit the Sum – In the Absence of Forfeiture Clause

A right to forfeit being a contractual right and penal in nature, the parties to a contract must agree to stipulate a term in the contract in that behalf. A fortioti, if there is no stipulation in the contract of forfeiture, there is no such right available to the party to forfeit the same.

The learned author Sir Kim Lewison in his book The Interpretation of Contracts (6th Edn.) while dealing with the subject “Penalties, Termination and Forfeiture Clauses in the Contract” explained the meaning of the expression “forfeiture” in these words:

“A forfeiture clause is a clause which brings an interest to a premature end by reason of a breach of covenant or condition, and the court will penetrate the disguise of a forfeiture clause dressed up to look like something else. A forfeiture clause is not to be construed strictly, but is to receive a fair construction.”

In Doe D Davis v. Elsam, 1828 M&M189 : 173 ER 1126, Lord Tenterden held as under, :

“I do not think provisos of this sort are to be construed with the strictness of conditions at common law. These are matters of contract between the parties, and should, in my opinion, be construed as other contracts.”

Equally well settled principle of law relating to contract is that a party to the contract can insist for performance of only those terms/conditions, which are part of the contract. Likewise, a party to the contract has no right to unilaterally “alter” the terms and conditions of the contract and nor they have a right to “add” any additional terms/conditions in the contract unless both the parties agree to add/alter any such terms/conditions in the contract.

Similarly, if any party adds any additional terms/conditions in the contract without the consent of the other contracting party then such addition is not binding on the other party. Similarly, a party, which adds any such term/condition, has no right to insist on the other party to comply with such additional terms/conditions and nor such party has a right to cancel the contract on the ground that the other party has failed to comply with such additional terms/conditions. Suresh Kumar Wadhwa v. State of M.P., (2017) 16 SCC 757.

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Subletting or Sub-tenancy

Sub-tenancy or subletting comes into existence when the tenant gives up possession of the tenanted accommodation, wholly or in part and puts another person in exclusive possession thereof. This arrangement comes about obviously under a mutual agreement or understanding between the tenant and the person to whom the possession is so delivered. In this process, the landlord is kept out of the scene. Rather, the scene is enacted behind the back of the landlord, concealing the overt acts and transferring possession clandestinely to a person who is an utter stranger to the landlord, in the sense that the landlord had not let out the premises to that person nor had he allowed or consented to his entering into possession over the demised property. It is the actual, physical and exclusive possession of that person, instead of the tenant, which ultimately reveals to the landlord that the tenant to whom the property was let out has put some other person into possession of that property. In such a situation, it would be difficult for the landlord to prove, by direct evidence, the contract or agreement or understanding between the tenant and the sub-tenant. It would also be difficult for the landlord to prove, by direct evidence, that the person to whom the property had been sublet had paid monetary consideration to the tenant. Payment of rent, undoubtedly, is an essential element of lease or sub-lease. It may be paid in cash or in kind or may have been paid or promised to be paid. It may have been paid in lump sum in advance covering the period for which the premises are let out or sublet or it may have been paid or promised to be paid periodically. Since payment of rent or monetary consideration may have been made secretly, the law does not require such payment to be proved by affirmative evidence and the court is permitted to draw its own inference upon the facts of the case proved at the trial, including the delivery of exclusive possession to infer that the premises were sublet.” Flora Elias Nahoum v. Irdish Ali Laskar, (2018) 2 SCC 485.

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Pure Question of Law – Can be Raised at Any Stage

The importance of pleading in a legal proceeding, particularly in a writ petition, cannot be overstated. It is true that if facts on which a party wants to rely are not properly articulated, it has the effect of taking the other side by surprise. But law also recognizes an exception to this rule in respect of an issue relating to a point of law. The reason for making a departure for such issues based on pure questions of law is not very far to seek. When a party to a proceeding makes a factual statement that has either to be controverted or admitted or otherwise dealt with by the opposite side. In either case facts involved in a case do not emerge on their own nor can they be taken cognizance of unless specially pleaded.

But a point of law emerges from the facts pleaded. A court can also take into cognizance legal issues arising out of the factual conspectus of the case without necessarily requiring the parties to plead the same separately. The consistent judicial pronouncements on the issue make it clear that even without a formal pleading, a point of law can be taken into cognizance and adjudicated upon by a court if no denial on fact is necessary. A party is not entitled to rely on a point of law, he can also take it even before the highest court for the first time. A pure question of law can be urged at any point of time before any forum provided it does not require any further adjudication of any disputed fact.

Hon’ble Apex Court in State of Madras v. K.M. Rajagopalan, AIR 1955 SC 817, had recognized this principle decades ago. Since then there has not been any deviation from this axiomatic principle. In Ariane Orgachem Private Ltd. v. Wyeth Employees Union, 2015 (145) FLR 985, the Hon’ble Supreme Court observed that a pure question of law for which no enquiry or proof is required can be raised at any stage. In fact, in that case the Hon’ble Supreme Court allowed a plea based on a point of law to be taken for the first time before the Supreme Court itself. Kolkata Municipal Corporation v. Union of India, 2018 (158) FLR 535.


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Owner of – A Motor Vehicle

As per the definition of the expression “owner” in Section 2(30) of the Motor Vehicles Act, it is the person in whose name the motor vehicle stands registered who, for the purpose of the Act, would be treated as “owner”. However, where a person is a minor, the guardian of the minor would be treated as the owner. Where a motor vehicle is subject to an agreement of hire purchase, lease or hypothecation, the person in possession of the vehicle under that agreement is treated as the owner. In a situation where the registered owner has purportedto transfer the vehicle but continues to be reflected in the records of the Registering Authority as the owner of the vehicle, he would not stand absolved of the liability. Parliament has consciously introduced the definition of the expression “owner” in Section 2(30) of the Motor Vehicles Act, making a departure from the provisions of Section 2(19) in the earlier 1939 Act. The principle underlying the provisions of Section 2(30) is that the victim of a motor accident or, in the case of a death, the legal heirs of the deceased victim should not be left in a state of uncertainty. A claimant for compensation ought not to be burdened with following a trail of successive transfers, which are not registered with the Registering Authority. To hold otherwise would be to defeat the salutary object and purpose of the Act. Hence, the interpretation to be placed must facilitate the fulfillment of the object of the law. Naveen Kumar v. Vijay Kumar, (2018) 3 SCC 1.

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Arbitration Clause – Incorporation in a Contract by reference

In M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd., (2009) 7 SCC 696, the scope and intent of Section 7(5) of the Arbitration and Conciliation Act, 1996 was summarized as follows:

  • An arbitration clause in another document, would get incorporated into a contract by reference, if the following conditions are fulfilled:
  • The contract should contain a clear reference to the documents containing arbitration clause,
  • The reference to the other document should clearly indicate an intention to incorporate the arbitration clause into the contract,
  • The arbitration clause should be appropriate, that is capable of application in respect of disputes under the contract and should not be repugnant to any term of the contract.
  • When the parties enter into a contract, making a general reference to another contract, such general reference would not have the effect of incorporating the arbitration clause from the referred document into the contract between the parties. The arbitration clause from another contract cannot be incorporated into the contract (where such reference is made), only by a specific reference to arbitration clause.
  • Where a contract between the parties provides that the execution or performance of that contract shall be in terms of another contract (which contains the terms and conditions relating to performance and a provision for settlement of disputes by arbitration), then, the terms of the referred contract in regard to execution /performance alone will apply, and not the arbitration agreement in the referred contract, unless there is a special reference to the arbitration clause also.
  • Where the contract provides that the standard form of terms and conditions of an independent trade or professional institution (as for example the standard terms and conditions of a trade association or architects association) will bind them or apply to the contract, such standard form of terms and conditions including any provision for arbitration in such standard terms and conditions, shall be deemed to be incorporated by reference. Sometimes the contract may also say that the parties are familiar with those terms and conditions or that the parties have read and understood the said terms and conditions.
  • Where the contract between the parties stipulates that the conditions of contract of one of the parties to the contract shall form a part of their contract (as for example the general conditions of contract of the Government where the Government is a party), the arbitration clause forming part of such general conditions of contract will apply to the contract between the parties.” Inox Wind Ltd. Thermocables Ltd., (2018) 2 SCC 519.

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Application for – Initiation of Corporate Insolvency Process


Section 9(1) of the Insolvency and Bankruptcy Code contains the conditions precedent for triggering the Code insofar as an operational creditor is concerned. The requisite elements necessary to trigger the Code are:


  • The occurrence of a default;
  • Delivery of a demand notice of an unpaid operational debt or invoice demanding payment of the amount involved; and
  • The fact that the operational creditor has not received payment from the corporate debtor within a period of ten days of receipt of the demand notice or copy of invoice demanding payment, or received a reply from the corporate debtor which does not indicate the existence of a pre-existing dispute or repayment of the unpaid operational debt.


It is only when these conditions are met that an application may then be filed under Section 9(2) of the Code in the prescribed manner, accompanied with such fee as has been prescribed. Under Section 9(3), what is clear is that, alongwith the application, certain other information is also to be furnished. Obviously, under Section 9(3)(a), a copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor is to be furnished. Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd. (2018) 2 SCC 674.


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Custody of Child –Dispute in a Foreign Country

The state of law as approved in Nithya Anand Raghavan v. State¸(2017) 8 SCC 454 is that if a child is brought from a foreign country, being its native country to India, the Court in India may conduct (a) summary enquiry, or (b) an elaborate enquiry on the question of custody, if called for. In the case of a summary enquiry, the court may deem fit to order the return of the child to the country from where he/she has been removed unless such return is shown to be harmful to the child. Aximoatically thus, even in case of a summary enquiry, it is open to the court to decline the relief of return of the child to the country from where he/she has been removed irrespective of a pre-existing order of return of a child by a foreign court, in case it transpires that its repatriation would be harmful to it. On the other hand, in case of an elaborate enquiry, the court is obligated to examine the merits as to where the paramount interest and welfare of the child lay and take note of the pre-existing order of the foreign court for the return of the child as only one of the circumstances. As a corollary, in both the eventualities whether the enquiry is summary or elaborate, the court would be guided by the pre-dominant consideration of welfare of the child assuredly on an overall consideration on all attendant facts and circumstances.

In Surya Vadanan v. State of T.N., (2015) 5 SCC 450, two minor girls aged 10 years and 6 years respectively were British citizens by birth. Following intense matrimonial discords, the mother had left UK and had come to India with her two daughters. She also instituted a proceeding in the family court at Coimbatore seeking dissolution of marriage. It was held as under:

“However, if there is a pre-existing order of a foreign court of competent jurisdiction and the domestic court decides to conduct an elaborate enquiry, it must have special reasons to do so. An elaborate enquiry (as against a summary enquiry), it must have special reasons to do so. An elaborate enquiry should not be ordered as a matter of course. While deciding whether a summary or an elaborate enquiry should be conducted, the domestic court must take into consideration:

  • The nature and effect of the interim or interlocutory order passed by the foreign court.
  • The existence of special reasons for repatriating or not repatriating the child to the jurisdiction of the foreign court.
  • The repatriation of the child does not cause any moral or physical or social or cultural or psychological harm to the child, nor should it cause any legal harm to the parent with whom the child is in India. There are instances where the order of the foreign court may result in the arrest of the parent on his or her return to the foreign country. In such cases, the domestic court is also obliged to ensure the physical safety of the parent.
  • The alacrity with which the parent moves the foreign court concerned or the domestic court concerned, is also relevant. If the time gap is unusually large and is not reasonably explainable and the child has developed firm roots in India, the domestic court may be well advised to conduct an elaborate enquiry.”

Vis-à-vis the renditions in V. Ravi Chandran v. Union of India, (2010) 1 SCC 174, Shilpa Aggarwal v. Aviral Mittal, (2010) 1 SCC 591 and Arathi Bandi v. Bandi Jagadrakshaka Rao, (2013) 15 SCC 790, the Hon’ble Apex Court in Nithya Anand Raghavan v. State, (2017) 8 SCC 454, distinguished the facts involved therein from the one under its scrutiny. While underlining that the considerations which impelled the court to adopt its summary approach/jurisdiction in directing the return of the child to its native country, did not in any way discount or undermine the predominant criterion of welfare and interest of the child even to outweigh neuter or offset the principle of comity of courts, if disapproved the primacy sought to be accorded to the order of the foreign court on this issue of custody of minor in Surya Vadanan v. State of T.N., (2015) 5 SCC 450 though negated earlier in Dhanwanti Joshi v. Madhav Unde, (1998) 1 SCC 112 and reiterated that whether it was a case of summary enquiry or an elaborate enquiry, the paramount consideration was the interest and welfare of the child so much so that the pre-existing order of a foreign court could be taken note of only as one of the factors. The alacrity or the expedition with which the applicant/parent moves the foreign court or the domestic court concerned, for custody as a relevant factor was also not accepted to be of any definitive bearing. This notion of “first strike principle” was not subscribed to and further the extrapolation of that principle to the courts in India as predicated in Surya Vadanan v. State of T.N., (2015) 5 SCC 450 was also held to be in-apposite by adverting inter alia to Section 14 of the Guardian and Wards Act, 1890 and Section 10 of Civil Procedure Code.

In Nithya Anand Raghavan v. State, (2017) 8 SCC 454, while maintaining the custody of the child in favour of the mother in preference to the applicant father had required the mother to participate in the proceeding before the foreign court initiated by the respondent father therein. It was observed that the custody would remain with the respondent mother till it attained majority, leaving it at liberty then to choose its parent to reside with. Prateek Gupta v. Shilpi Gupta, (2018) 2 SCC 309.

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