Tag Archives: agreement

Essentials of an Agreement – To qualify as a mortgage

The essentials of an agreement, to qualify as a mortgage by conditional sale, can succinctly be broadly summarized. An ostensible sale with transfer of possession and ownership, but containing a clause for reconveyance in accordance with Section 58 (c) of the Transfer of Property Act, will clothe the agreement as a mortgage by conditional sale. The execution of a separate agreement for reconveyance, either contemporaneously or subsequently, shall militate against the agreement being mortgage by conditional sale. There must exist a debtor and creditor relationship. The valuation of the property, and the transactional value, alongwith the duration of time for reconveyance, are important considerations to decide the nature of the agreement. There will have to be a cumulative consideration of these factors, alongwith the recitals in the agreement, intention of the parties, coupled with other attendant circumstances, considered in a holistic manner. Vishal Tukaram Kadam v. Vamanrao Sawalaram Bhosale, 2017 (5) AWC 4821.


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Filed under Civil Law, Mortgage by Conditional Sale

Appointment of an Impartial Arbitrator

It is settled that in exercise of jurisdiction under Section 11 of the Arbitration and Conciliation Act, the Court is to enforce terms of agreement for securing appointment of arbitrator. However, it is not denuded of jurisdiction to follow a different course, for justifiable cause, by giving reasons. Different contingencies requiring such departure have clearly been noticed. The ultimate object is to secure appointment of an impartial arbitrator and secure speedy resolution of dispute by way of arbitration. The scheme underlying the Arbitration and Conciliation Act has to be construed by harmoniously interpreting its provisions. It is imperative for the court to examine qualification and impartiality of arbitrator as well as to secure speedy resolution of dispute. The terms of arbitration agreement providing for arbitrator to be named by designation cannot be read in isolation. It also cannot be construed in a manner inconsistent with the scheme of the Act. The question is answered holding that an application under Section 11(6) of the Arbitration and Conciliation Act would lie also in a case where arbitrator is named, by designation, where (i) arbitrator named is not impartial, or (ii) he lacks required qualification, or (iii) for any other justifiable cause to secure speedy resolution of dispute, by way of a reasoned order. M/s AARGEE Engineering and Company v. ERA Infra Engineering Ltd., 2017 (122) ALR 179.

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Arbitral Tribunal – Award of Interest

Section 31(7) of the Arbitration and Conciliation Act, by using the words “unless otherwise agreed by the parties”, categorically specifies that the arbitrator is bound by the terms of the contract so far as award of interest from the date of cause of action to date of the award is concerned. Therefore, where the parties had agreed that no interest shall be payable, the Arbitral Tribunal cannot award interest.
In Union of India v. Saraswat Trading Agency, (2009) 16 SCC 504, the Hon’ble Apex Court has observed in the said case that if there is a bar against payment of interest in the contract, the arbitrator cannot award any interest for such period. Union of India v. Bright Power Projects (I) Pvt. Ltd., 2015 (4) AWC 3862.

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Arbitration Agreement – Signature is Not a Formal Requirement

Section 7(3) of the Arbitration and Concilitaion Act states that the arbitration agreement shall be in writing, which is a mandatory requirement. Section 7(4) states that the arbitration agreement shall be in writing, if it is a document signed by all the parties. But a perusal of Clauses (b) and (c) of Section 7(4) would show that a written document which may not be signed by the parties, even then it can be arbitration agreement. Section 7(4)(b) provides that an agreement can be culled out from an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement.
Reading the provision it can safely be concluded that an arbitration agreement is provided by exchange of letters, telex, telegrams or other means of telecommunication. Section 7(c) provides that there can be an arbitration agreement in the exchange of statements of claims and defence in which the existence of the agreement is alleged by one party and not denied by the other. If it can be prima facie shown that the parties are at ad idem, then mere fact of one party not signing the agreement cannot absolve himself from the liability under the agreement. In the present day of E-commerce, in cases of internet purchases, tele purchases, ticket booking on the internet and in standard forms of contract, terms and conditions are agreed upon. In such agreements, if the identity of the parties is established, and there is a record of agreement it becomes and arbitration agreement if there is an arbitration clause showing ad idem between the parties. Therefore, signature is not a formal requirement under Section 7(4)(b) or 7(4)(c) or under 7(5) of the Act. M/s Govind Rubber Ltd. v. M/s Loids Dreyfus Commodities Asia P. Ltd., 2015 (108) ALR 735.

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Mortgage in the name of Minor

As per the Contract Act, 1872, it is clearly stated that for an agreement to become a contract, the parties must be competent to contract, wherein age of majority is a condition for competency. A deed of mortgage is a contract and it cannot be held that a mortgage in the name of a minor is valid, simply because it in the interest of the minor unless he/she is represented by her natural guardian or guardian appointed by the Court. The law cannot be read differently for a minor who is a mortgagor and a minor who is a mortgagee as there are rights and liabilities in respect of the immovable property would flow out of such a contract on both of them. Mathai Mathai v. Joseph Mary, (2015) 5 SCC 622.

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Filed under Contract Law, Mortgage

Jurisdiction of Arbitrators – Construction of Contract

In McDermott International v. Burn Standard Co., (2006) 11 SCC 181, it was held as under:
“It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the contract agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law.
Once, thus, it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award.”
In M.S.K. Projects (I)(JV) Ltd. v. State of Rajasthan, (2011) 10 SCC 573, the court held:
“If the arbitrator commits an error in the construction of the contract, that is an error within his jurisdiction. But of he wanders outside the contract and deals with matters not allotted to him, he commits a jurisdictional error. Extrinsic evidence is admissible in such cases because the dispute is not something whjich arises under or in relation to the contract or dependant on the construction of the contract or to be determined within the award. The ambiguity of the award can, in such cases, be resolved by admitting extrinsic evidence. The rationale of this rule is that nature of the dispute is something which has to be determined outside and independent of what appears in the award. Such a jurisdictional error needs to be proved by evidence extrinsic to the award. Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49.

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Principle of Business Efficacy

The principle of business efficacy is normally invoked to read a term in an agreement or contract so as to achieve the result or the consequence intended by the parties acting as prudent businessmen. Business efficacy means the power to produce intended results. The classic test of business efficacy was proposed in Moorcock, (1889) LR 14 PD 64 (CA). This test requires that a term can only be implied if it is necessary to give business efficacy to the contract to avoid such a failure of consideration that the parties cannot as reasonable businessmen have intended. But only the most limited term should then be implied – the bare minimum to achieve the goal. If the contract makes business sense without the term, the courts will not imply the same. It was held as under:
“ In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are businessmen; not to impose on one side all the perils of the transaction, or to emancipate one side from all the chances of failure but to make each party promise in law as much, at all events, as it must have been in the contemplation of both parties that he should be responsible for in respect of those perils or chances.” Satya Jain v. Anis Ahmed Rushdie, (2013) 8 SCC 131.

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