UNIT-I

PROFESSIONAL PRACTICE AND ETHICS

Definition of Ethics

The discipline of dealing with what is good and bad, with moral duty and obligation • A set of moral
principles or values • The principle of conduct governing an individual or group • Webster’s Ninth
New Collegiate Dictionary

1.1 INTRODUCTION

Etymologically the term “ethics” correspond to the Greek word “ethos” which means character,
habit, customs, ways of behaviour, etc. Ethics is also called “moral philosophy”. The word “moral”
comes from Latin word “mores” which signifies customs, character, behaviour, etc. Thus ethics may
be defined as the systematic study of human actions from the point of view of their rightfulness or
wrongfulness, as means for the attainment of the ultimate happiness.

It is the reflective study of what is good or bad in that part of human conduct for which human has
some personal responsibility. In simple words ethics refers to what is good and the way to get it,
and what is bad and how to avoid it. It refers to what ought to be done to achieve what is good
and what ought not to be done to avoid what is evil. As a philosophical discipline, ethics is the study
of the values and guidelines by which we live.

It also involves the justification of these values and guidelines. It is not merely following a tradition
or custom.

Instead it requires analysis and evaluation of these guidelines in light of universal principles. As
moral philosophy, ethics is the philosophical thinking about morality, moral problems, and moral
judgements. Ethics is a science in as much as it is a set or body of reasoned truths organised in a
logical order and having its specific material and formal objects.

It is the science of what human ought to be by reason of what one is. It is a rational science in so
far as its principles are deduced by human’s reason from the objects that concern the free will.
Besides it has for its ulterior end the art by which human may live uprightly or comfortably to right
reason. It is a normative/regulative science in as much as it regulates and directs human’s life and
gives the right orientation to one’s existence.

Ethics is also theoretical and practical.

It is theoretical in as much as it provides the fundamental principles on the basis of which moral
judgements are arrived at. It is practical in as much as it is concerned about an end to be gained,
and the means of attaining it.
 Ethics is sometimes distinguished from morality. In such cases, ethics is the explicit philosophical
reflection on moral beliefs and practices while morality refers to the first-order beliefs and practices
about good and evil by means of which we guide our behaviour (e.g. music and musicology).

However, in most cases they are referred to as having the same meaning. Ethics is not merely a set
of ‘codes’. Ethics certainly deals with moral codes yet one cannot identify ethics to moral codes.
Ethics is not primarily to restrict one’s behaviour, rather to help one to find what is good and how
to get it. The obligatory character of ethical norms derives from the very purpose of ethical enquiry,
i.e. to discover the most ultimate principles of explanation or the most ultimate reasons why one
ought to do anything.

1.2 SCOPE OF ETHICS

Ethics deals with voluntary actions. We can distinguish between human actions and actions of
human: human actions are those actions that are done by human consciously, deliberately and in
view of an end. Actions of human may not be wilfully, voluntarily, consciously and deliberately done
but all the same they are done by human (e.g. sleeping, walking, etc.). It is the intention which
makes the difference between human action and action of human. In ethics we deal only with
human actions.

1.3 HISTORY OF ETHICS

Ethics is as old as humanity. The first ethical precepts were certainly passed down by word of
mouth by parents and elders, but as societies learned to use the written word, they began to set 3
down their ethical beliefs. These records constitute the first historical evidence of the origins of
ethics. In as much as it is the study of human behaviour, we cannot really trace the history of ethics.
However, as a systematic study of human behaviour, we can point out how ethics evolved as a
discipline.

It is not that we have first a straightforward history of moral concepts and then a separate and
secondary history of philosophical comment. To set out to write the history of moral philosophy
involves a careful selection from the past of what falls under the heading of moral philosophy as
we now conceive it.

We have to strike a balance between the danger of a dead antiquarianism, which enjoys the illusion
that we can approach the past without preconceptions, and the other of believing that the whole
point of the past was that it should culminate with us. However, we can observe a gradual
development in the ethical thought from the beginning to our day. In the Western Philosophy, the
history of ethics can be traced back to the fifth century B.C with the appearance of Socrates. As a
philosopher among the Greeks his mission was to awaken his fellow humans to the need for rational
criticism of their beliefs and practices.
It was the time when the philosophers began to search for reasons for established modes of
conduct. Socrates, in demanding rational grounds for ethical judgements, brought attention to the
problem of tracing the logical relationship between values and facts and thereby created ethical
philosophy. Plato’s theory of forms could be seen as the first attempt at defending moral realism
and offering an objective ground for moral truths. From the Republic on through the later dialogues
and epistles, Plato constructed a systematic view of nature, God, and human from which one
derived one’s ethical principles.

His main goal in his ethical philosophy was to lead the way toward a vision of the Good. Aristotle
differed from Plato in his method of inquiry and his conception of the role of ethical principles in
human affairs. While Plato was the fountainhead of religious and idealistic ethics, Aristotle
engendered the naturalistic tradition. Aristotle’s ethical writings (i.e. Eudemian Ethics, the
Nicomachean Ethics, and the Politics) constitute the first systematic investigation into the
foundations of ethics. Aristotle’s account of the virtues could be seen as one of the first sustained
inquiries in normative ethics. It was a clear mixture of Greco-Roman thought with Judaism and
elements of other Middle Eastern religions. The medieval period was dominated by the thoughts
of Christian philosophers and theologians like Augustine and Thomas Aquinas. The influence of
Christianity dominated the ethical scenario. So much so that during this period philosophy and
religion were nearly indistinguishable. The rise of Christian philosophy produced a new era of
history of ethics.

In St. Augustine, the most prominent philosopher of the early medieval period, ethics became a
blend of the pursuit of earthly well-being with preparation of the soul for eternal salvation. The
next towering figure of medieval philosophy is Thomas Aquinas. He brought about a true
reconciliation between Aristotelian science and philosophy with Augustinian theology. Aquinas
greatly succeeded in proving the compatibility of Aristotelian naturalism with Christian dogma and
constructing a unified view of nature, human, and God.

The social and political changes that characterized the end of medieval period and the rise of
modern age of industrial democracy gave rise to a new wave of thinking in the ethical field. The
development of commerce and industry, the discovery of new regions of the world, the
Reformation, the Copernican and Galilean revolutions in science, and the rise of strong secular 4
governments demanded new principles of individual conduct and social organization. Some of the
modern philosophers who contributed to the great changes in ethical thinking were Francis Bacon,
René Descartes, Thomas Hobbes, Gottfried Wilhelm Leibniz, Benedict de Spinoza, John Locke, David
Hume, Immanuel Kant, John Stuart Mill and Friedrich Nietzsche.

Further developments in ethical thinking in the west came with Karl Marx and Sigmund Freud. Here
we are not intending to give a detailed analysis of their contribution to ethics. However, the most
influential ethical thought during this period were the Utilitarianism, dominated by British and
French Philosophy (e.g. Locke, Hume, Bentham, Stuart Mill) and Idealistic ethics in Germany and
Italy (e.g. Kant, Hegel, Nietzsche).
 The contemporary ethical scenario is a further complex area of study. The contemporary European
ethics in the broadest sense attempts to cover a generous range of philosophies running from
phenomenology to theories of communicative action. The conditions of contemporary civilization
forced philosophers to seek for a genuine ground for ethics and moral life. In much of the English
speaking world G.E. Moore’s Principia Ethica (1903) is taken to be the starting point of
contemporary ethical theory. Others like Martin Buber, Gabriel Marcel, Emmanuel Levinas, Max
Scheler, Franz Brentano and John Dewey too have made significant contributions to the ethical
thinking in other parts of the world.

Professional ethics

Professional ethics encompass the personal and corporate standards of behavior expected
by professionals.

The word professionalism originally applied to vows of a religious order. By no later than the year
1675, the term had seen secular application and was applied to the three learned
professions: Divinity, Law, and Medicine. The term professionalism was also used for the military
profession around this same time.

Professionals and those working in acknowledged professions exercise specialist knowledge and
skill. How the use of this knowledge should be governed when providing a service to the public can
be considered a moral issue and is termed professional ethics.

It is capable of making judgments, applying their skills, and reaching informed decisions in situations
that the general public cannot because they have not attained the necessary knowledge and skills.
One of the earliest examples of professional ethics is the Hippocratic oath to which
medical doctors still adhere to this day.
Engineering is the process of developing an efficient mechanism which quickens and eases the work
using limited resources, with the help of technology. Ethics are the principles accepted by the
society, which also equate to the moral standards of human beings. An engineer with ethics, can
help the society in a better way.

Hence the study of Engineering ethics, where such ethics are implemented in engineering by the
engineers, is necessary for the good of the society. Engineering Ethics is the study of decisions,
policies and values that are morally desirable in engineering practice and research.

Morals

The word “Morality” originates from the Latin word “mos” meaning “custom”. Morals are the
principles or habits with respect to right or wrong of one’s own conduct. They are not imposed by
anyone. Morals are what you think is good and bad personally.

Though morals are not imposed, they can be understood as the preaching of our inner self.
Depending on a few factors, our mind filters things as good or bad. These are the ideas that help
frame our personality so that we can distinguish between what is right and what is wrong.

A moral is the code of conduct that you develop over time and set for yourself to follow, just like

Being good to everyone

Speaking only the truth

Going against what you know is wrong

Having chastity

Avoid cheating

Being a nice human being etc.

Morals are always defined by one’s own personality. Morals can be changed according to one’s
beliefs as they are completely dependent on one’s perception towards the ethical values.

Ethics

The word “Ethics” originates from the Greek word “ethos” meaning “character”. Ethics are a set of
rules or principles that are generally considered as standards or good and bad or right and wrong,
which are usually imposed by an external group or a society or a profession or so.

Ethics can be understood as the rules of conduct proposed by a society or recognized with respect
to a particular class of human actions or a particular group or culture. Ethics are dependent on
others definition. They may or may not vary from context to context.

Ethics in Engineering

Ethics are principles followed depending upon the moral responsibility that a person feels. The
study of related questions about moral ideals, character, policies and relationships of people and
organizations involved in technological activity, can be termed as Engineering ethics.

An engineer whether he works individually or works for a company, has to go through some ethical
issues, mostly under the conditions such as, conceptualization of a product, issues arising in design
and testing departments, or may be on the issues involving the manufacturing, sales and services.
Questions related to morality also arise during supervision and team works.

The ethical decisions and moral values of an engineer need to be considered because the decisions
of an engineer have an impact the products and services - how safe they are to use, the company
and its shareholders who believe in the goodwill of the company, the public and the society who
trusts the company regarding the benefits of the people, the law which cares about how legislation
affects the profession and industry, the job and his moral responsibilities and about how the
environment gets affected, etc.
Not only an engineer, but everyone has to follow a set of morals in order to keep away from getting
morally degraded. Our behavior should include the following −

Respecting others and ourselves.

Respecting the rights of others.

Keeping promises.

Avoiding unnecessary problems to others.

Avoiding cheating and dishonesty.

Showing gratitude towards others and encourage them to work.

Morality commands respect for persons, both others and ourselves. It involves being fair and just,
meeting obligations and respecting rights and not causing unnecessary harm by dishonesty and
cruelty or by hubris.

Steps to Deal with Issues

Whenever there occurs an issue, one should possess a few skills in order to sort out the problem.
The issues that engineers face, have to be dealt with patience and few moral goals have to be kept
in mind while dealing with such issues. They are as follows −

Moral Awareness − One should be able to recognize the moral problems and issues that occur in
Engineering. The analysis on the problem is necessary in order to differentiate and judge according
to ethics or according to the rules to follow.

Cogent Moral Reasoning − In order to come to a conclusion on an issue, the argument has to be
assessed and comprehended. The argument on both sides has to be considered with all the
probabilities and the nature of the argument should be logical and moral.

Moral Coherence − After having gone through all the logical and moral facts, consistent and
comprehensive view points are to be formed based upon a consideration of relevant facts.

Moral Imagination − The moral issues and the practical issues have to be dealt separately.
Alternative responses are to be found out for dealing with moral issues while creative solutions
should be found out for practical difficulties.

Moral Communication − The language to communicate about one’s moral views should be so
precise and clear, that the expression or words should not alter the original meaning.

Though one has all these moral goals, the ethical reasoning for achieving moral conduct with
responsibility and commitment is obtained by a few skills that are described below.

Important Skills for Ethical Reasoning

Let us now discuss the important skills for ethical reasoning −

Moral Reasonableness − The ability and willingness to be morally reasonable that one should have
while dealing such issues. Unless one is willing and improve such ability, justice cannot be done.

Respect for Persons − The persons involved in the issue, should be treated with genuine concern
by one. Such concern should also be there with oneself along with being there for others.

Tolerance of diversity − One should have a broader perspective towards ethnic and religious
differences that the people have. Every person differs with another when compared on grounds of
moral reasoning. The acceptance of those differences is really important.

Moral hope − The moral conflicts can be resolved by using better communication and having
rational dialogue which is evident-based and open-ended which is acceptable and appreciable by
both the parties.

Integrity − The moral integrity has to be maintained. Being honest and having strong moral
principles helps one to resolve an issue in an efficient manner. An individual also needs to consider
other’s professional life and personal convictions while solving a problem.

Personal ethics defined

Personal ethics are ethical principles that a person uses when making decisions and behaving in
both personal and professional settings. These ethics influence various aspects of a person’s life
and help individuals develop their work ethic, personal and professional goals, and values.
Individuals use their ethics to determine between right and wrong and influence how someone
behaves in challenging situations. Each person’s code of ethics varies, but many people share
common ethics such as honesty and respect.

Why are personal ethics important?

A person’s personal ethical principles are important for several reasons, including that they:

Allow leaders to more effectively lead their teams: When a leader regularly follows a predictable
and respectable code of ethics, their team is more likely to follow their lead and feel confident in
the contributions they make to the organization as a whole.

Instill a sense of trust and support in leaders: Leaders and other professionals who regularly behave
in the same way no matter the situation are more likely to be trusted and supported by colleagues
and employees. Individuals who follow a sound ethical code are easier to believe in and are more
likely to establish credibility among others.
Give individuals a solid basis of which to determine the most appropriate action in any given
situation: When a person has solid personal ethics, they are better able to make decisions and take
action in situations that may otherwise seem challenging.

Improve the decision-making process: A professional’s ability to make decisions is based on their
personal and professional ethics and what they believe to be good or bad. Having strong ethics
makes the decision-making process easier and more streamlined.

Set a standard of behavior: In the workplace and in life, ethics help establish an appropriate
standard of behavior for individuals. This behavior is called ethical behavior and refers to a person’s
ability to make sound decisions based on their ethical nature.

Support motivation: Individuals with strong ethics are often easily self-motivated and willing to go
the extra mile to accomplish a task or goal on time and in the correct manner.

Differences between personal and professional ethics

There are a few key differences between personal and professional ethics. The primary difference
is that a personal set of ethics refers to an individual’s beliefs and values in any area of life, while
professional ethics refers to a person’s values within the workplace.

An example of a personal code of ethics is as follows: A person chooses to return a wallet that they
found on the ground to lost and found rather than keep it for themselves due to their personal
ethic of honesty. In the workplace, an example of professional ethics would be the same person
returns a wallet to their coworker due to a code of conduct rule of no stealing.

Some people differentiate personal and professional ethics by viewing a personal ethical system as
a personal moral code or a person’s conscience, while professional ethics are viewed as a set code
of conduct that must be adhered to in the workplace.

Examples of personal ethics

The following are examples of a few of the most common personal ethics shared by many
professionals:

Honesty

Many people view honesty as an important ethic. This ethic transfers from an individual’s personal
life into their professional life and ensures they are truthful in all scenarios.

Loyalty

Loyalty is another common personal ethic that many professionals share. People who have a
personal ethic of loyalty demonstrate trustworthiness and fidelity in all of their dealings and can be
trusted by others to maintain their loyal behavior no matter the situation.

Integrity
Integrity refers to a person’s commitment to upholding their moral principles in any situation and
is an important component of trustworthy and sound relationships both in and out of the
workplace. People with integrity are reliable, responsible, and hold themselves accountable for
their actions.

Respect

People with sound personal ethics demonstrate respect for those around them both at work and
in their personal lives. They respect others’ autonomy, rights, and interests, and do not discriminate
based on someone’s religion, sex, or race.

Selflessness

People who are selfless put others first and do not act in selfish or self-serving ways. They consider
the needs and situations of others and prioritize these needs before their own.

Responsibility

Someone with a strong moral code is willing to take responsibility for their actions and make
changes or amends when necessary.

How to identify your personal ethics

The following are steps you can take to identify your unique personal ethical beliefs so you can
improve upon them and demonstrate them in your daily life:

Get clear on your priorities. Knowing what means the most to you can help you determine your
personal set of ethics. For example, if you regularly put others first, you likely have a personal ethic
of selflessness. Make a list of your personal priorities in life and see if you can connect each priority
with a unique ethic.

Write down your goals. Having a concrete idea of your personal and professional goals will help you
establish your unique ethics. For example, if your goal is to maintain honesty and integrity in
everything you do, these are likely two of your personal ethics.

Consider your practices and beliefs. What you believe in and the things you practice will shed light
on your unique ethics. For example, if you believe that one should be willing to take responsibility
for their actions no matter the situation, you likely have responsibility as a personal ethic.
What Is a Code of Ethics?
A code of ethics is a guide of principles designed to help professionals conduct business honestly
and with integrity. A code of ethics document may outline the mission and values of the business
or organization, how professionals are supposed to approach problems, the ethical principles based
on the organization's core values, and the standards to which the professional is held.

A code of ethics, also referred to as an "ethical code," may encompass areas such as business ethics,
a code of professional practice, and an employee code of conduct.

What is a professional code of ethics?

A professional code of ethics is a set of principles designed to help a business govern its decision-
making and distinguish right from wrong. Often referred to as an ethical code, these principles
outline the mission and values of an organization, how the professionals within the organization
are supposed to approach problems and the standards to which employees are held.

In some industries, such as finance or public health, specific laws dictate professional conduct. In
other industries, a code of ethics may be voluntarily adopted. For example, a business that doesn’t
necessarily focus on climate change might still detail its commitment to sustainability in its official
code of ethics.

Professional Codes of Ethics

Values and Ideals – The Cultural Building Blocks of Ethical Codes

This lesson defines and describes the differences between values, ideals, and principles and shows
how these concepts are culturally located. Examples provided show how a culture’s values and
ideals influence its principles, or guidelines for behavior.

Codes, Policies and Laws – Formalizing a System of Ethics

This lesson shows how policies are formalized into codes, policies, and laws. It differentiates
between the three based on their level of formality and structure as well as the extent to which
violators are punished for their behavior.

A (Brief) History of Codes of Ethics

This lesson gives a background to the use of formalized codes of ethics in business, starting in the
1980s. It shows the evolution of ethical codes and gives two examples to show how codes of ethics
are often highly situational.

Roles and Responsibilities of Codes of Ethics

This lesson talks about the role that ethical codes play in professional behavior. It shows students
how a code of ethics can be useful to a profession and the importance of all involved parties
understanding the role that the code is intended to play.

Shortcomings of Codes of Ethics

This lesson describes the potential negatives that can arise from utilization of a code of ethics. It
suggests that ethical training, rather than codes, is best suited to promoting ethical behavior in a
profession.

Conflict of Interest

A conflict of interest arises when what is in a person’s best interest is not in the best interest of
another person or organization to which that individual owes loyalty.

For example, an employee may simultaneously help himself but hurt his employer by taking a bribe
to purchase inferior goods for his company’s use.

A conflict of interest can also exist when a person must answer to two different individuals or
groups whose needs are at odds with each other. In this case, serving one individual or group will
injure the other.

In business and law, having a “fiduciary responsibility” to someone is known as having a “duty of
loyalty.” For example, auditors owe a duty of loyalty to investors who rely upon the financial reports
that the auditors certify. But auditors are hired and paid directly by the companies whose reports
they review. The duty of loyalty an auditor owes to investors can be at odds with the auditor’s need
to keep the company – its client – happy, as well as with the company’s desire to look like a safe
investment.

So, those of us who wish to be ethical people must consciously avoid situations where we benefit
ourselves by being disloyal to others.

Gift vs Bribe

What is the difference between an acceptable business gift and a bribe? What kind of norms and
structures should an organisation have in place to help its employees avoid ethical dilemmas and
make the right decision? (200 Words)
Difference between Business Gift and Bribe is subtle to understand.

Basic difference is : Gift is given to someone without any expectation in return. Value of gift are
often based on closeness in relation, time of gifting, economic condition of giver and receiver.

Bribe is given with expectation of favour toward giver. Its economic value are incoherent to
closeness in relation, timing (inappropriate timing) and costly. Business gifts may be a Costly Cricket
match ticket, desk clock, sweets or even a cash envelope. Timing of such gifts makes them bribe.
Suppose a gift from someone just before you are going to roll-out a tender, a calendar and desk
accessories with bold name of pharma companies to doctor. Such things are actually bribe and not
gift. Many MNC organisations have come up with norms and structures already. Some norms which
are still needed are:

Reporting to department about any gifts that is received from whom, value and date details. This
part is already applicable to judicial judges in India.

Any gifts above certain monetary values should be avoided.

No gifts received with brand name should be put on desk as it will tarnish the image of official/public
servant for lenient toward certain brand.

Provision of filing gift tax by receiver. IT department should tally the gift received as mentioned in
department books and filed by receiver. Failure to file tax for gift should be taken seriously.

Scrutiny of gifts received by officials regularly and checking of property declaration regularly.
Repeated gift from same person should be brought under Directorate Enforcement radar.

Bribes are complex thing for receiver because it puts him into moral dilemma for how to return the
favour and makes them corrupt once they receive.

Negligence

is a failure to exercise appropriate and/or ethical ruled care expected to be exercised amongst
specified circumstances. The area of tort law known as negligence involves harm caused by failing
to act as a form of carelessness possibly with extenuating circumstances. The core concept of
negligence is that people should exercise reasonable care in their actions, by taking account of the
potential harm that they might foreseeably cause to other people or property. ]

Someone who suffers loss caused by another's negligence may be able to sue for damages to
compensate for their harm. Such loss may include physical injury, harm to property, psychiatric
illness, or economic loss. The law on negligence may be assessed in general terms according to a
five-part model which includes the assessment of duty, breach, actual cause, proximate cause, and
damages.
DEFICIENCIES IN STATE OF THE ART

The state of the art (sometimes cutting edge or leading edge) refers to the highest level of general
development, as of a device, technique, or scientific field achieved at a particular time. However,
in some contexts it can also refer to a level of development reached at any particular time as a
result of the common methodologies employed at the time.

The term has been used since 1910, and has become both a common term
in advertising and marketing, and a legally significant phrase with respect to both patent
law and tort liability.

In advertising, the phrase is often used to convey that a product is made with the best or latest
available technology, but it has been noted that "the term 'state-of-the-art' requires little proof on
the part of advertisers", as it is considered mere puffery.[1] The use of the term in patent law "does
not connote even superiority, let alone the superlative quality the ad writers would have us ascribe
to the term".

V I GIL ME C HA NI S M

Preamble

Under Section 177 of the Companies Act, 2013, Our Company has designed a vigil mechanism for
the directors and employees to report genuine concerns in such manner as may be prescribed. Such
a vigil mechanism shall provide for adequate safeguards against victimization of persons who use
such mechanism and also make provision for direct access to the chairperson of the Audit
Committee in appropriate or exceptional cases.

Policy Objectives

The Vigil Mechanism aims to provide a channel to the Directors and employees to report genuine
concerns about unethical behaviour, actual or suspected fraud or violation of the Codes of Conduct
or policy. The Company is committed to adhere to the highest standards of ethical, moral and legal
conduct of business operations and in order to maintain these standards, the Company encourages
its employees who have genuine concerns about suspected misconduct to come forward and
express these concerns without fear of punishment or unfair treatment.
Definitions

“Protected Disclosure” means a written communication of a concern made in good faith, which
discloses or demonstrates information that may evidence an unethical or improper activity under
the title

“SCOPE OF THE POLICY” with respect to the Company. It should be factual and not speculative and
should contain as much specific information as possible to allow for proper assessment of the
nature and extent of the concern.

“Subject” means a person or group of persons against or in relation to whom a Protected Disclosure
is made or evidence gathered during the course of an investigation.

“Vigilance Officer/Vigilance Committee or Committee” is a person or Committee of persons,

nominated/appointed to receive protected disclosures , maintaining records thereof, placing the
same before the Audit Committee for its disposal and informing the person disclosing the result
thereof.

Scope

The Policy covers disclosure of any unethical and improper or malpractices and events which have
taken place/ suspected to take place involving:

Breach of Business Integrity and Ethics

Breach of terms and conditions of employment and rules thereof

Intentional Financial irregularities, including fraud, or suspected fraud

Deliberate violation of laws/regulations

Gross or Wilful Negligence causing substantial and specific danger to health, safety and
environment

Manipulation of company data/records

Pilferation of confidential/propriety information

Gross Wastage/misappropriation of Company funds/assets

Egibility

All Directors and Employees of the Company are eligible to make Protected Disclosures under the
Policy in relation to matters concerning the Company.

Procedure

All Protected Disclosures should be reported in writing by the complainant as soon as possible, not
later than 30 days after the complainant becomes aware of the same and should either be typed
or written in a legible handwriting in English. The Protected Disclosure should be submitted under
a covering letter signed by the complainant in a closed and secured envelope and should be super
scribed as “Protected disclosure under the Vigil Mechanism Policy” or sent through email with the
subject “Protected disclosure under the Vigil Mechanism Policy”.

The contact details of the Vigilance Officer are as under or contact the Chairman of the Audit
Committee in case the issue is not solved by the vigilance officer:- Name and Address - Chander
Kant Sharma (Whole Time Director and KMP) House no.-74, Asiad Vill Complex, New Delhi, 110049

On receipt of the protected disclosure the Vigilance Officer shall process the Protected Disclosure.

Investigation

All Protected Disclosures under this policy will be recorded and thoroughly investigated. The
Vigilance Officer will carry out an investigation either himself/herself or by involving any other
Officer of the Company/ Committee constituted for the same /an outside agency before referring
the matter to the Audit Committee of the Company. The Audit Committee, if deems fit, may call for
further information or particulars from the complainant and at its discretion, consider involving any
other/additional Officer of the Company and/or Committee and/ or an outside agency for the
purpose of investigation. The investigation by itself would not tantamount to an accusation and is
to be treated as a neutral fact finding process.

Decision And Reporting

If an investigation leads to a conclusion that an improper or unethical act has been committed, the
Chairman of the Audit Committee shall recommend to the Board of Directors of the Company to
take such disciplinary or corrective action as it may deem fit. Any disciplinary or corrective action
initiated against the Subject as a result of the findings of an investigation pursuant to this Policy
shall adhere to the applicable personnel or staff conduct and disciplinary procedures. A
complainant who makes false allegations of unethical & improper practices or about alleged
wrongful conduct of the Subject to the Vigilance Officer or the Audit Committee shall be subject to
appropriate disciplinary action in accordance with the rules, procedures and policies of the
Company.
Confidentially

The complainant, Vigilance Officer, Members of Audit Committee, the Subject and everybody
involved in the process shall, maintain confidentiality of all matters under this Policy.

Disqualifications

While it will be ensured that genuine complainants are accorded complete protection from any
kind of unfair treatment as herein set out, any abuse of this protection will warrant disciplinary
action. Protection under this Policy would not mean protection from disciplinary action arising out
of false or bogus allegations made by a complainant knowing it to be false or bogus or with a mala
fide intention. Complainants, who make any Protected Disclosures, which have been subsequently
found to be mala fide, frivolous or malicious, shall be liable to be prosecuted.

Communications

Directors and Employees shall be informed of the Policy by publishing on the notice board and the
website of the Company.

Retention of Documents

All Protected disclosures in writing or documented along with the results of Investigation relating
thereto, shall be retained by the Company for a period of 5(five) years or such other period as
specified by any other law in force, whichever is more.

Amendment

The Company reserves its right to amend or modify this Policy in whole or in part, at any time
without assigning any reason whatsoever. However, no such amendment or modification will be
binding on the Directors and employees unless the same is not communicated in the manner
described as above.

WHISTLE BLOWING

A whistleblower (also written as whistle-blower or whistle blower) is a person, usually an

employee, who exposes information or activity within a private, public, or government organization
that is deemed illegal, illicit, unsafe, or a waste, fraud, or abuse of taxpayer funds. Those who
become whistleblowers can choose to bring information or allegations to surface either internally
or externally.
Over 83% of whistleblowers report internally to a supervisor, human resources, compliance, or a
neutral third party within the company, with the thought that the company will address and correct
the issues.

Externally, a whistleblower can bring allegations to light by contacting a third party outside of the
organization such as the media, government, or law enforcement. The most common type of
retaliation reported is being abruptly terminated.

However, there are several other activities that are considered retaliatory, such as sudden extreme
increase in workloads, having hours cut drastically, making task completion impossible or otherwise
bullying measures. Because of this, a number of laws exist to protect whistleblowers. Some third-
party groups even offer protection to whistleblowers, but that protection can only go so far.

Two other classifications of whistleblowing are private and public. The classifications relate to the
type of organizations the whistleblower works in: private sector, or public sector. Depending
on many factors, both can have varying results. About 20% of whistleblowers are successful in
stopping the illegal behaviors, usually through the legal system, with the help of a whistleblower
attorney. For the whistleblower's claims to be credible and successful, the whistleblower must have
compelling evidence to support their claims, that the government or regulating body can use or
investigate to "prove" such claims and hold corrupt companies and/or government agencies
accountable. A whistleblower case would never continue on legally, or ever be reported via the
news, without substantial and compelling evidence.

What is a protected disclosure?

A protected disclosure is a qualifying disclosure that is made by a worker that they

reasonably believe shows serious wrongdoing within the workp lace. This will typically
relate to some form of dangerous or illegal activity that the person has witnessed at work,
where they “blow the whistle” to either their employer directly, a member of senior
management or the appropriate regulatory body.

Subject to the disclosure satisfying all of the relevant statutory requirements under the
Employment Rights Act (ERA) 1996, the worker will be protected by law from any form of
unfair treatment at work, including dismissal, because they have reported past, present or
even potential wrongdoing.

There are several common examples of complaints that fall within the scope of
whistleblowing law including, for example, the commission of a criminal offence such as
bribery and corruption, or where a company or organisation is deliberately breaching
obligations relating to health and safety at work.
What are the criteria to be a protected disclosure?

Not every concern raised or complaint made by a worker will count as whistleblowing. For
a whistleblowing disclosure to be classed as a protected disclosure under the ERA, all of
the following requirements must be met:

There must be a “qualifying disclosure” within the meaning of the ERA

This must be in the public interest

This must be made to an appropriate or prescribed person or body

A qualifying disclosure

A qualifying disclosure is defined under the ERA as any disclosure of information that, in
the reasonable belief of the worker making the disclosure, tends to show one or more of
the following:

That a criminal offence has been committed, is being committed or is likely to be committed

That a person has failed, is failing or is likely to fail to comply with any legal obligation to
which they are subject

That a miscarriage of justice has occurred, is occurring or is likely to occur

That the health or safety of any individual has been, is being or is likely to be endangered

That the environment has been, is being or is likely to be damaged, or

That information tending to show any matter falling within any one of the above has been,
is being or is likely to be deliberately concealed

To count as a qualifying disclosure, the information provided by the worker must relate to
one of these six types of relevant failure – from the commission of a crime to concealing
evidence relating to a wrongdoing – ‘and’ the worker must have a reasonable belief that
the information tends to show one of these failures has happened, is happening now or
believes will happen.

A worker need not necessarily be correct about their concerns or complaint, as long as they
have reasonable grounds for believing that the information disclosed is substantially true,
and that this belief was honestly held in all the circumstances prevailing at the time of the
disclosure. Protection is not afforded to those who make wild allegations or are merely
repeating gossip.

1. What is GST in India?

GST is known as the Goods and Services Tax. It is an indirect tax which has replaced many indirect
taxes in India such as the excise duty, VAT, services tax, etc. The Goods and Service Tax Act was
passed in the Parliament on 29th March 2017 and came into effect on 1st July 2017.

In other words,Goods and Service Tax (GST) is levied on the supply of goods and services. Goods
and Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that is levied
on every value addition. GST is a single domestic indirect tax law for the entire country.

Before the Goods and Services Tax could be introduced, the structure of indirect tax levy in India
was as follows:

Under the GST regime, the tax is levied at every point of sale. In the case of intra-state sales, Central
GST and State GST are charged. All the inter-state sales are chargeable to the Integrated GST.

Now, let us understand the definition of Goods and Service Tax, as mentioned above, in detail.

Multi-stage

An item goes through multiple change-of-hands along its supply chain: Starting from manufacture
until the final sale to the consumer.

Let us consider the following stages:

Purchase of raw materials

Production or manufacture

Warehousing of finished goods

Selling to wholesalers

Sale of the product to the retailers

Selling to the end consumer

Stakeholders involved in GST e-payments

Before understanding the process involved in e-payments, it is important to list the

stakeholders involved in this mode of payment. The following stakeholders will pay a key
role in establishing an effective e-payment network in the proposed GST scenario:

a) GSTN (Goods and Service Tax Network);

b) e- FPBs (Electronic Focal Point Branches) of authorized banks;

c) e-Kuber of RBI;

d) Central Accounts Section (CAS) of RBI, Nagpur;

e) e-PAOs (Electronic Pay and account Offices) / e-Treasuries of State Governments;

f) Pr. CCA, CBEC (Principal Chief Controller of Accounts) / Accountant General of the States;

g) Tax authorities of Centre and States.

UNIT II

CONTRACT
Contract

Contract is an agreement or set of promises giving rise to obligations that can be enforced or
recognized by law.

According to section 2(h) of the Indian Contract Act, 1872, contract is an agreement enforceable by
law.

An agreement becomes a contract when it satisfies all the essentials of a valid contract mentioned
in Section 10.

What is a Contract according to Indian Contract Act?

Indian Contract Act frames and validates the contracts or agreements between various parties.
Contract Act is one of the central laws that regulate and oversee all the business wherever there is
a case of a deal or an agreement. The following section will tell us what a contract is.

Contract Act

The Indian Contract Act, 1872 defines the term “Contract” under its section 2 (h) as
“An agreement enforceable by law”. In other words, we can say that a contract is anything that is
an agreement and enforceable by the law of the land.

This definition has two major elements in it viz – “agreement” and “enforceable by law”. So in order
to understand a contract in the light of The Indian Contract Act, 1872 we need to define and explain
these two pivots in the definition of a contract.

What is the nature of contract?

Essentials of a valid contract:

Two Parties: – A valid contract must include at least two parties identified by the contact. One of
these parties will propose and the other party will eventually accept it. Both parties should have
legal existence, e.g. must be companies, schools, organizations, etc. or natural persons.

Section 10 states conditions which are required for a contract to be valid.

Offer: Firstly, there must be an offer from either party, without an Offer a contract cannot arise.
However, in some cases, this principle could not be applied. For instance, Mulla talks about a
situation in which offer and acceptance could not be traced, for instance, a commercial agreement
reached after multiple rounds of negotiations.

Acceptance of the offer: Secondly, the Offer must be accepted and accepted by the person to whom
it was intended. So an offer by A to B has to be accepted by B only.
Offer and acceptance

Offer and Acceptance form the basis of a contract. There can be no contract unless there is an offer
and such an offer must be accepted. An Offer once accepted becomes a Promise .

Offer and Proposal are used simultaneously. Offer is used in British law, whereas Proposal is used
in Indian law.

Offer

An offer is the first thing for the formation of a contract. A person making an offer is called an
“offeror”/“proposer” and a person to whom the offer is made called an “Offeree” / “proposee”.

Chitty on Contracts, defines an offer as an expression of willingness to contract made with an

intention that is to become binding on the person making it as soon as it is accepted by the person
to whom it is addressed.

According to section2 (a) of the Contract act, an offer/proposal is:

When one person signifies to another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.”

Acceptance

As stated earlier, the second step in the formation of a contract is the acceptance of the offer.

Acceptance means when the person to whom the offer was made, has given his assent to such
offer– Section 2(b) of Contract Act.

Once the offer is accepted and such acceptance has been communicated, to the offeror, the parties
are bound by their respective promises. Just like an offer, even an acceptance can be revoked
before the communication of acceptance reaches the offeror.

CONSIDERATION-

An agreement by an incompetent person is not valid. A valid contract should be supported by

consideration.

Consideration means “something in return”.

It can be cash, kind or an act.

It can be past, present or future. it must be genuine and valid.

No Unlawful Considerations: – According to the Act, the consideration of an agreement is called

unlawful if: –
it is prohibited by law,

it is of such a nature that, if allowed, it will defeat the provisions of any law,

it is fraudulent,

it includes or means injury to the property of the person/other, and

the court considers it immoral.

A Contract is formed when a person, A, makes an offer to another person, B. When such Offer is
accepted by the other person, it becomes an agreement.

Consideration means value given for the performance of a promise. It need not necessarily be
money, however, it should be something which has been agreed by the parties and has some value.

Usually, a contract without consideration is void, however, exceptions to this rule are specified in
Section 25 of the Contract Act.

Pointers on valid Consideration

It has to be At the desire of the promisor, which means that it should originate from the promisor
out of his own accord and not at the instance of a third party.

Consideration could be:

Past Consideration, when the promisor has received consideration before the date of the
performance of the contract by any party. Eg. Advance money paid.

Present Consideration, when consideration is provided immediately when the contract is made or
executed. Thus it is also called “executed consideration.

Future Consideration, when consideration is paid after making of the contract. In consideration
given for ‘construction contracts’-Constructed building is given after the execution of the contract.

It must not be illegal or void or impossible to perform.

It must be real, not illusionary. Consideration can be tangible or intangible-e.g. Performance of

service like teaching, labour.

Free consent

According to section 10 of the contract act, a contract is valid if it was entered into by free consent
of the parties.

Section 14 of the contract act defined free consent as consent not given under coercion, undue
influence, fraud, misrepresentation and mistake.
The general averment that consent was not free is not maintainable. It must be proved that consent
was vitiated by any of the 5 elements mentioned in section 14.If consent manifests any of such
elements then the contract is voidable at the option of the party whose consent was obtained.

Intention to create legal relationship

Intention to create a legal relationship is one of the most fundamental aspects of the law. It is
defined as the intention to enter a legally binding agreement or contract, it implies that the parties
acknowledge and accept legal consequence in case of a breach of a contract. Intention to create
legal relations consist of readiness of a party to accept the legal consequences of having entered
into an agreement.

Capacity

Legal requirements for a person entering into a contract

Sec.11 of the Indian Contract Act, 1872 lists down the qualifications which enable a person in India
to enter into contracts-

A person should have attained the age of majority as per the law of the country of which he is a
citizen.

In India, the age of majority is governed by the Indian Majority Act, 1875. As per Sec. 3 of the Indian
Majority Act, 1875, an Indian citizen is said to have attained the age of majority upon completion
of eighteen years of age.

However, if a person is below the age of 18 years and a guardian has been appointed for him, he
shall attain majority at the age of 21 years.

A person should be of sound mind at the time of entering into a contract.

As per Sec. 12 of the Act, a person can be said to be of sound mind when he can assess, understand
his actions and realize the consequences of obligations imposed on him at the time of entering into
a contract.

A person should not be disqualified under any law to which he is subject.

Lawful object

According to section 10, consideration and object of the contract should be lawful and is an
essential element of a contract.

Accordingly, Section 23 defines unlawful consideration. Unlawful consideration and object is one
which is either,
forbidden by law;

or is of such a nature, that if permitted, then it would defeat the provisions of law;

or the purpose of the contract is fraudulent;

or involves or implies giving injury or damage to someone or to someone’s property; or

or the court considers it as immoral or against public policy.

If a contract shows any of these elements then it is unlawful and void u/s 23.

A contract is forbidden by law if it is either against any law, both substantive and procedural. E.g.
An agreement to sell liquor without a licence, despite the law mandating to have a licence. In a
particular case, the Plaintiff owner of a bar and having the licence to sell liquor transferred the
management of the bar and liquor sale to the defendant who had no such licence. The court held
that transferring business and sale of liquor to a person without the license, was prohibited by law
and thus cannot be enforced.

If a contract circumvents a provision of any law or defeats the purpose of the law (i.e it makes the
provision irrelevant), it shall be deemed to defeat the provision of that law.

If the consideration or object of the contract is to commit fraud, the contract is void. Thus if the
object of agreement is to deceive another person, the same is void.

Even if a part of a single consideration is unlawful, the agreement is void.

What are Illegal agreements?

There are certain agreements which are illegal in the sense that law prohibits the very act, doing of
which is considered as illegal.

For example:

an agreement to commit a crime or a tort.

an agreement to defraud public income.

Such an agreement are opposed to public policy. And the law prohibits the making of such
agreements. An illegal agreement may be distinguished from a mere “void” agreement which may
not be opposed to public policy.

For example: An agreement to do an impossible act is void which is not opposed to public policy.
An illegal agreement is one which is not permissible by law. An illegal agreement is void since very
beginning.

Contingent contracts
An absolute contract is one where the promisor performs the contract without any condition.
Contingent contracts, on the other hand, are the ones where the promisor performs his obligation
only when certain conditions are met.

For example, in a life insurance contract, the insurer pays a certain amount if the insured dies under
certain conditions. The insurer is not called into action until the event of the death of the insured
happens. This is a contingent contract.

Under Section 31 of the Indian Contract Act, 1872, contingent contracts are defined as follows:
“If two or more parties enter into a contract to do or not do something, if an event which is
collateral to the contract does or does not happen, then it is a contingent contract.”

Example: Peter is a private insurer and enters into a contract with John for fire insurance of John’s
house. According to the terms, Peter agrees to pay John an amount of Rs 5 lakh if his house is burnt
against an annual premium of Rs 5,000. This is a contingent contract.

Essentials of Contingent Contracts

1] Depends on happening or non-happening of a certain event

The contract is contingent on the happening or the non-happening of a certain event. These said
events can be precedent or subsequent, this will not matter. Say for example Peter promises to pay
John Rs 5,000 if the Rajdhani Express reaches Delhi on time. This is a contingent event.

2] The event is collateral to the contract

It is important that the event is not a part of the contract. It cannot be the performance promised
or a consideration for a promise.

Peter enters into a contract with John and promises to deliver 5 television sets to him. John
promises to pay him Rs 75,000 upon delivery. This is NOT a contingent contract since John’s
obligation depends on the event which is a part of the contract (delivery of TV sets) and not a
collateral event.

Peter enters into a contract with John and promises to deliver 5 television sets to him if Brazil wins
the FIFA World Cup provided John pays him Rs 25,000 before the World Cup kicks-off. This is a
contingent contract since Peter’s obligation arises only when Brazil wins the Cup which is a
collateral event.

3] The event should not be a mere will of the promisor

The event cannot be a wish of the promisor. Say for example Peter promises to pay John Rs 5,000
if Argentina wins the FIFA World Cup provided he wants to. This is NOT a contingent contract.
Actually, this is not a contract at all.
Peter promises to pay John Rs 50,000 if he leaves Mumbai for Dubai on August 30, 2018. This is a
contingent contract. Going to Dubai can be within John’s will but is not merely his will.

4] The event should be uncertain

If the event is sure to happen, then the contract is due to be performed. This is not a contingent
contract. The event should be uncertain.

Peter promises to pay John Rs 500 if it rains in Mumbai in the month of July 2018. This is not a
contingent contract because in July rains are almost a certainty in Mumbai.

Enforcement of Contingent Contracts

Sections 32 – 36 of the Indian Contract Act, 1872, list certain rules for the enforcement of a
contingent contract.

Rule # 1 – Contracts Contingent on the happening of an Event

A contingent contract might be based on the happening of an uncertain future event. In such cases,
the promisor is liable to do or not do something if the event happens. However, the contract cannot
be enforced by law unless the event takes place. If the happening of the event becomes impossible,
then the contingent contract is void. This rule is specified in Section 32 of the Indian Contract Act,
1872.

Peter promises to pay John Rs 50,000 if he can marry Julia, the prettiest girl in the neighborhood.
This is a contingent contract. Unfortunately, Julia dies in a car accident. Since the happening of the
event is no longer possible, the contract is void.

Rule # 2 – Contracts Contingent on an Event not happening

A contingent contract might be based on the non-happening of an uncertain future event. In such
cases, the promisor is liable to do or not do something if the event does not happen. However, the
contract cannot be enforced by law unless happening of the event becomes impossible. If the event
takes place, then the contingent contract is void. This rule is specified in Section 33 of the Indian
Contract Act, 1872.

Peter promises to pay John Rs 50,000 if the ship named Titanic which leaves on a
dangerous mission does not return. This is a contingent contract. This contract is enforceable by
law if the ship sinks making its return impossible. On the other hand, if the ship returns, then the
contract is void.

Rule # 3 – Contracts contingent on the conduct of a living person who does something to make the
event or conduct as impossible of happening

Section 34 of the Indian Contract Act, 1872 states that if a contract is a contingent upon how a
person will act at a future time, then the event is considered impossible when the person does
anything which makes it impossible for the event to happen.
Peter promises to pay John Rs 5,000 if he marries Julia. However, Julia marries Oliver. Julia’s act
thus renders the event of John marrying her impossible. (A divorce is still possible though but the
happening of the event is considered impossible.)

Rule # 4 – Contracts Contingent on an Event happening within a Specific Time

There can be a contingent contract wherein a party promises to do or not do something if a future
uncertain event happens within a fixed time. Such a contract is void if the event does not happen
and the time lapses. It is also void if before the time fixed, the happening of the event becomes
impossible. This rule is specified in Section 35 of the Indian Contract Act, 1872.

Peter promises to pay John Rs 5,000 if the ship named Titanic which leaves on a dangerous mission
returns before June 01, 2019. This contract is enforceable by law if the ship returns within the fixed
time. On the other hand, if the ship sinks, then the contract is void.

Rule # 5 – Contracts Contingent on an Event not happening within a Specific Time

Contingent contracts might be based on the non-happening of an uncertain future event within a
fixed time. In such cases, the promisor is liable to do or not do something if the event does not
happen within the said time. The contract can be enforced by law if the fixed time has expired and
the event has not happened before the expiry of the time. Also, if it becomes certain that the event
will not happen before the time has expired, then it can be enforced by law. This rule is specified in
Section 35 of the Indian Contract Act, 1872.

Peter promises to pay John Rs 5,000 if the ship named Titanic which leaves on a dangerous mission
does not return before June 01, 2019. This contract is enforceable by law if the ship does not return
within the fixed time. Also, if the ship sinks or is burnt, the contract is enforced by law since the
return is not possible.

Rule # 6 – Contracts Contingent on an Impossible Event

If a contingent contract is based on the happening or non-happening of an impossible event, then

such a contract is void. This is regardless of the fact if the parties to the contract are aware of the
impossibility or not. This rule is specified in Section 36 of the Indian Contract Act, 1872.

Peter promises to pay John Rs 50,000 if the sun rises in the west the next morning. This contract is
void since the happening of the event is impossible.

PERFORMANCE OF A CONTRACT
A contract is said to be discharged by performance when both the parties perform all the primary
obligations both express and implied which are set out under the contract. The obligation is
considered performed only if the performance complies with the standard
of performance required.

Performance, in law, act of doing that which is required by a contract.

Discharge of a contract

To discharge a contract is to end it. There are therefore as many kinds of the discharge as there are
different ways of ending a contractual obligation. Discharge of a contract refers to the way in which
it comes to an end.

When the contract is formed by agreement, it may also be discharged or terminated through
agreement, subject to the conditions of the contract. The agreement to extinguish or terminate the
contract itself becomes a binding contract if supported by consideration or made under seal. The
following are three main types of discharges:

A contract creates certain obligations on one or all parties involved. The discharge of a contract
happens when these obligations come to an end. There are many ways in which a contract is
discharged.

1] Discharge by Performance

When the parties to a contract fullfil the obligations arising under the contract within the time and
manner prescribed, then the contract is discharged by performance.

Example: Peter agrees to sell his cycle to John for an amount of Rs 10,000 to be paid by John on the
delivery of the cycle. As soon as it is delivered, John pays the promised amount.

Since both the parties to the contract fulfil their obligation arising under the contract, then it is
discharged by performance. Now, discharge by the performance of a contract can be by:

Actual performance

Attempted performance

As shown in the example above, actual performance is when all the parties to a contract do what
they had agreed for under the contract. On the other hand, it is possible that when the promisor
attempts to perform his promise, the promisee refuses to accept it. In such cases, it is called
attempted performance or tender.

2] Discharge by Mutual Agreement

If all parties to a contract mutually agree to replace the contract with a new one or remit or alter
it, then it leads to a discharge of the original contract due to a mutual agreement.
Example: Peter owes Rs 100,000 to John and agrees to repay it within one year. They document the
debt under a contract. Subsequently, he loses his job and requests John to accept Rs 75,000 as a
final settlement of the loan. John agrees and they make a contract to that effect. This discharges
the original contract due to mutual consent.

3] Discharge by the Impossibility of Performance

If it is impossible for any of the parties to the contract to perform their obligations, then the
impossibility of performance leads to a discharge of the contract. If the impossibility exists from the
start, then it is impossibility ab-initio. However, the impossibility might also arise later due to:

An unforeseen change in the law

Destruction of the subject-matter essential to the performance

The non-existence or non-occurrence of a particular state of things which was considered a given
for the performance of the contract

A declaration of war

Example: Peter enters into a contract with John to marry his sister Olivia within one year. However,
Peter meets with an accident and becomes insane. The impossibility of performance leads to a
discharge of the contract.

4] Discharge of a Contract by Lapse of Time

The Limitation Act, 1963 prescribes a specified period for performance of a contract. If the promisor
fails to perform and the promisee fails to take action within this specified period, then the latter
cannot seek remedy through law. It discharges the contract due to the lapse of time.

Example: Peter takes a loan from John and agrees to pay instalments every month for the next five
years. However, he does not pay even a single instalment. John calls him a few times but then gets
busy and takes no action. Three years later, he approaches the court to help him recover his money.
However, the court rejects his suit since he has crossed the time-limit of three years to recover his
debts.

5] Discharge of a Contract by Operation of Law

A contract can be discharged by operation of law which includes insolvency or death of the
promisor.

6] Discharge by Breach of Contract

If a party to a contract fails to perform his obligation according to the time and place specified, then
he is said to have committed a breach of contract.

Also, if a party repudiates a contract before the agreed time of performance of a contract, then he
is said to have committed an anticipatory breach of contract.
In both cases, the breach discharges the contract. In the case of:

an actual breach, the promisee retains his right of action for damages.

an anticipatory breach of contract, the promisee cannot file a suit for damages. It also discharges
the promisor from performing his part of the contract.

7] Discharge of a Contract by Remission

A promisee can waive or remit the performance of promise of a contract, wholly or in part. He can
also extend the time agreed for the performance of the same.

In example 3 above, Peter only repays a part of the money he owes to John. However, John agrees
to accept it as a final settlement of the debt. John’s act of remission discharges the contract.

8] Discharge by Non-Provisioning of Facilities

In many contracts, the promisee agrees to offer reasonable facilities to the promisor for the
performance of the contract. If the promisee fails to do so, then the promisor is discharged of
all liabilities arising due to non-performance of the contract.

Example: Peter agrees to fix John’s garage floor provided he keeps his car out for at least 6 hours.
Peter approaches him a few times but John is reluctant to get his car out. John fails to provide
reasonable facilities to Peter (an empty floor). This discharges him of all obligations arising under
the contract.

Remedies for Breach of Contract

The Indian Contract Act lays out all the provisions for the performance of a contract. It also
contains the provisions in case of breach of contract by either party. Let us take a detailed look
at the available remedies for breach of contract.

When a promise or agreement is broken by any of the parties we call it a breach of contract. So
when either of the parties does not keep their end of the agreement or does not fulfil their
obligation as per the terms of the contract, it is a breach of contract. There are a few remedies for
breach of contract available to the wronged party. Let us take a look.

1] Recession of Contract

When one of the parties to a contract does not fulfil his obligations, then the other party can rescind
the contract and refuse the performance of his obligations.

As per section 65 of the Indian Contract Act, the party that rescinds the contract must restore
any benefits he got under the said agreement. And section 75 states that the party that rescinds
the contract is entitled to receive damages and/or compensation for such a recession.

2] Sue for Damages

Section 73 clearly states that the party who has suffered, since the other party has broken promises,
can claim compensation for loss or damages caused to them in the normal course of business.

Such damages will not be payable if the loss is abnormal in nature, i.e. not in the ordinary course of
business. There are two types of damages according to the Act,

Liquidated Damages: Sometimes the parties to a contract will agree to the amount payable in
case of a breach. This is known as liquidated damages.

Unliquidated Damages: Here the amount payable due to the breach of contract is assessed by the
courts or any appropriate authorities.

3] Sue for Specific Performance

This means the party in breach will actually have to carry out his duties according to the contract.
In certain cases, the courts may insist that the party carry out the agreement.

So if any of the parties fails to perform the contract, the court may order them to do so. This is a
decree of specific performance and is granted instead of damages.

For example, A decided to buy a parcel of land from B. B then refuses to sell. The courts can order
B to perform his duties under the contract and sell the land to A.

4] Injunction

An injunction is basically like a decree for specific performance but for a negative contract. An
injunction is a court order restraining a person from doing a particular act.

So a court may grant an injunction to stop a party of a contract from doing something he promised
not to do. In a prohibitory injunction, the court stops the commission of an act and in a mandatory
injunction, it will stop the continuance of an act that is unlawful.

5] Quantum Meruit

Quantum meruit literally translates to “as much is earned”. At times when one party of the contract
is prevented from finishing his performance of the contract by the other party, he can claim
quantum meruit.

So he must be paid a reasonable remuneration for the part of the contract he has already
performed. This could be the remuneration of the services he has provided or the value of the work
he has already done.

Contract of Indemnity

The word indemnity means a protection against loss. Especially in the form of a promise to pay, or
payment for loss of money, goods, etc.
Under Indian Contract Act 1872 the concept of contract of indemnity is covered under section 124.

As per this section contract of Indemnity means ‘A contract by which one party promises to save
the other from the loss caused to him by the conduct of the promisor himself or by conduct of any
other person’.

As per this provision loss may be caused, either-

By the conduct of the promisor himself or

By the conduct of any other person

Is insurance contract, Contract of indemnity?

In India-

In India insurance contract does not covered by definition of section 124.

In England-

Under English law indemnity carries a much wider meaning. It includes a contract to save the
promise from a loss, whether it is caused by human agency or any other event like an accident and
fire.

Contract of Guarantee-

Contract of Guarantee is defined under section 126 of India Contract Act.

It reads as-

“A contract of guarantee is a contract to perform the promise or discharge the liability, of a third
person in case of his default.”

The section further provides that-

The person who gives the guarantee is called the “surety”, the person in respect of those defaults
the guarantee is given called “principal debtor”, and the person to whom guarantee is given is called
the “creditor”.

The object of contract of guarantee is to provide additional security to the creditor in the form of a
promise by the surety to fulfill a certain obligations, in case the principal debtor fails to do that.

In every contract of guarantee there are three parties, the principal creditor, the principal debtor
and the surety.

There are three contracts in the contract of guarantee.

Firstly, principal debtor himself makes a promise in favor of creditor to perform a promise.
Secondly, the surety undertakes to be liable towards the creditor if the principal debtor makes a
default.

Thirdly, an implied promise by the principal debtor in favor of surety that in case the surety has to
discharge the liability of the default of the principal debtor, the principal debtor shall indemnify the
surety for the same.

Main features of Contract of Guarantee-

The contract may either oral or written. However in English law contract of guarantee should be in
writing only.

The contract of guarantee presupposes a principal debt or an obligation to be discharged by the

principal debtor. But if no such principal debt there is a promise by one party in favor of another
for compensating in certain situation, and the performance of this promise is not dependent upon
the default of somebody else, it is a contract of indemnity.

Benefit to the principal debtor is sufficient consideration. It is not necessary that there should be
direct consideration between the creditor and the surety it is enough that the creditor had does
something for the benefit of the principal debtor.

Consent of surety should not have been obtained by misrepresentation or concealment of any
material facts concerning the transaction.

Difference between Contract of Indemnity and Guarantee-

There are two parties in a contract of indemnity. However, there are three parties in contract of
guarantee.

Contract of indemnity consists of only one contract. In contract of guarantee there are three
contracts.

The object of contract of guarantee is the security of the creditor. The contract of indemnity is made
to protect the promise against some likely loss.

In contract of guarantee the liability of the surety is only a secondary one. But in contract of
indemnity, indemnifier is a primary one. He undertakes to be liable when the contemplated
situation is there.

In a contract of guarantee after the surety had discharge his liability and paid to the creditor, he
steps into shoes of the creditor and he realize the payment made by him, from the principal debtor.
In a contract of indemnity the loss falls on the indemnifier and therefore after the indemnifier had
indemnified the indemnity holder he cannot recover the amount from anybody.

In England a contract of guarantee should be in written. Whereas a contract of indemnity may be

either oral or in writing. There is no such distinction in India. Same may be either oral or written.
Creation of Agency

Agency system is very popular in the current business scenario. There are two parties in the agency
system one is the principal and another the agent. An agent is a person acting on behalf of his
principal. It’s a connecting link between the principal and the third party. Herein we will discuss the
creation of agency under the Indian Contract Act, 1872.

Creation of Agency

A contract of agency may be express or implied. Consideration is not an essential element in the
agency contract. Agency contract may also arise by estoppel, necessity or ratification.

Types of an Agency Contract

1. Express Agency

2. Implied Agency

a. Agency by Estoppel (Section 237)

b. Wife as Agent

c. Agency of Necessity (Sections 188 and 189):

d. Agency by Ratification (Sections 169-200):

1. Express Agency

A contract of agency can be made orally or in writing. Example of a written contract of agency is
the Power of Attorney that gives a right to an agency to act on behalf of his principal in accordance
with the terms and conditions therein.

A power of attorney can be general or giving many powers to the agent or some special powers,
giving authority to the agent for transacting a single act.

2. Implied Agency

Implied agency arises when there is any conduct, the situation of parties or is necessary for the
case.

a. Agency by Estoppel (Section 237)

Estoppel arises when you are precluded from denying the truth of anything which you have
represented as a fact, although it is not a fact.
Thus, where P allows third parties to believe that A is acting as his authorized agent, he will be
estopped from denying the agency if such third-parties relying on it make a contract with an even
when A had no authority at all.

b. Wife as Agent

Where a husband and wife are living together, we presume that the wife has her husband’s
authority to pledge his credit for the purchase of necessaries of life suitable to their standard of
living. But the husband will not be liable if he shows that:

(i) he had expressly warned the tradesman not to supply goods on credit to his wife; or

(ii) he had expressly forbidden the wife to use his credit; or

(iii) he already sufficiently supplies his wife with the articles in question; or

(iv) he supplies his wife with a sufficient allowance.

Similarly, where any person is held out by another as his agent, the third-party can hold that person
liable for the acts of the ostensible agent, or the agent by holding out. Partners are each other’s
agents for making contracts in the ordinary course of the partnership business.

c. Agency of Necessity (Sections 188 and 189):

In certain circumstances, a person who has been entrusted with another’s property may have to
incur unauthorized expenses to protect or preserve it. This is called an agency of necessity.

For example, a sent a horse by railway. On its arrival at the destination, there was no one to receive
it. The railway company, is bound to take reasonable steps to keep the horse alive, was an agent of
the necessity of A.

A wife deserted by her husband and thus forced to live separate from him can pledge her husband’s
credit to buy all necessaries of life according to the position of the husband even against his wishes.

d. Agency by Ratification (Sections 169-200):

Where a person not having any authority act as agent, or act beyond its authority, then the principal
is not bound by the contract with the agent in respect of such authority. But the principal can
ratify the agent’s transaction and accept liability. In this way, an agency by ratification arises.

This is ex post facto agency— agency arising after the event. By this ratification, the contract is
binding on principal as if the agent had been authorized before. Ratification will have an effect on
the original contract and so the agency will have effect from the original contract and not on
ratification.

Indian Sale of Goods Act, 1930

The Indian Sale of Goods Act, 1930 is a Mercantile Law, which came into existence on 1 July 1930,
during the British Raj, borrowing heavily from the Sale of Goods Act 1893. It provisions for the
setting up of contracts where the seller transfers or agrees to transfer the title (ownership) in the
goods to the buyer for consideration. It is applicable all over India, except Jammu and Kashmir.
Under the act, goods sold from owner to buyer must be sold for a certain price and at a given period
of time. The act was amended on 23 September 1963, and was renamed to the Sale of Goods Act,
1930. It is still in force in India, after being amended 1963 and in Bangladesh as the Sale of Goods
Act, 1930 (Bangladesh).

Important Terms: Sale of Goods Act, 1930

Buyer and Seller

Buyer [Section 2(1)]

The definition of the ‘buyer’ is stated under Section 2(1) of the Act. It defines Buyer as a person
who either buys or agrees to buy certain commodities. In the contract of sale, the Buyer is one of
the parties to the contract.

Seller [Section 2(13)]

On the contrary, the Act defines ‘seller’ as a person who either sells or agrees to sell particular
commodities under Section 2(13). The Seller becomes the other party to the contract. The existence
of both the parties i.e. the Buyer and the Seller must be there to enter into a contract of sale.

The conjoint reading of the above two sections give us a conclusion that to be recognized as a Buyer
or Seller under the Act, it is not necessary to actually transfer the goods. Even if you agree or
promise to buy or sell the goods you would be considered and identified as a Buyer or Seller as per
the Act.

Goods [Section 2(7)]

The dictionary meaning of the term goods is merchandise or possession. The term “Goods” is one
of the crucial clauses in the Contract of Sale.

According to Section 2(7) of the Act, “goods” include-

Any movable property except actionable claims and money;

Stock and shares;

The growing crops, standing timber, grass;

The things that are attached or forming part of the land which is agreed to be severed from the
land before the sale. It has been held in the State of Maharashtra v. Champalal Kishanlal
Mohta that things which are attached to land are the subject matter of the contract of sale if they
are severed before the sale.

For eg: A resort was offering stay along with food at a consolidated charge. If customers do not take
food, the rebate on food is not allowed as the supply of food does not come under the definition
of “goods” as per the Act.

Types of goods

The classification of goods in terms of business law can be quite ticklish to understand. Section 6 of
the Act describes the types of goods. The goods are classified into existing goods, future goods, and
contingent goods. Let’s study all three briefly.

Existing Goods

If the goods are physically present at the time of contract and are in the legal possession or owned
by the seller during the formulation of the contract of sale is referred to as existing goods. The
existing goods are further classified into:

Specific Goods [Section 2(14)]: Referring to Section 2(14) of the Act, the goods that are specifically
identified and agreed upon to be transferred at the time of the formation of the contract are called
specific goods.

Illustration- ‘A’ wants to sell his HP Laptop of a particular model number and advertises the same.
‘B’ agrees to purchase the laptop. Both entered into the contract of sale. Here the laptop is a specific
good.

Ascertained Goods: The Act does not define the ascertained goods but is conferred by judicial
interpretation. The goods are said to be ascertained wherein some or whole part of goods is
identified and set aside for the purpose of the contract. Such goods are specifically earmarked for
sale.

Unascertained Goods: The goods that have not been specifically identified to be sold are known as
unascertained goods. For example, from 1000 quintals of wheat, the seller agreed to sell 500
quintals. Here the goods are not specified. The seller has the liberty to choose from the bulk.

Future Goods [Section 2(6)]

The goods which are not in existence and to be manufactured or produced or acquired by the seller
after entering into the contract of sales are considered as future goods. It must be noted that there
can only be an agreement to sell contracts as there can be no actual sale in respect of future goods.
This is defined under Section 2(6) of the Sale of Goods Act.

Illustration – Amit is a manufacturer of chairs. Shyam ordered Amit to manufacture 200 units of
chairs of specific design and they made an agreement for the same. This is the sale with respect to
future goods.

In the case of Union of India v. K.G. Khosla & Co. Ltd, goods were manufactured according to the
specification mentioned in the contract. Therefore, the goods are “future goods” within the
meaning of Section 2(6) of the Act.

Contingent Goods [Section 6(2)]

According to Section 6(2), the sale of certain goods which depend upon happening or non-
happening of certain events is termed as contingent goods. For instance, ‘A’ has agreed to sell ‘B’
certain goods at a particular date if the former receives the goods from the manufacturer before
the said date. This agreement is based on contingencies, hence such goods are called contingent
goods.

Delivery [Section 2(2)]

By delivery of goods we mean, the voluntary transfer of the possession of goods from one person
to the other. The transfer of possession is the end result of the whole delivery process. It is not
necessary that the person to whom the goods are delivered is a buyer, he can be any other person
authorized by the buyer. The definition of the term delivery is defined under Section 2(2) of the
Act.

Kinds of Delivery

Actual Delivery

Constructive Delivery

Symbolic Delivery

There are different forms of delivery of goods according to the Sale of Goods Act, 1930:

Actual Delivery

Actual delivery takes place when the goods are physically handed over to the buyer or any person
authorized by him. Say for example A, the seller of furniture handed over the ordered furniture to
B, the case is of actual delivery of the goods.

Constructive Delivery
In the case of constructive delivery, the transfer of goods can be done without a change in the
possession or custody of goods. Acknowledgment and attornment can be called constructive
delivery.

Constructive delivery can be effected in the following ways:

Wherein the seller agrees to hold the sold goods as a bailee.

Wherein the buyer who is in the actual possession of goods as a bailee of the seller holds the goods
as his own after the sale.

Where a third party like transporter or agent, agrees to hold the goods for the buyer.

Symbolic Delivery

Symbolic delivery is made wherein the goods are heavy and bulky and it is difficult to hand over the
goods to the buyer physically. In this situation, the delivery is made by indicating or giving a symbol
that the goods are under the possession of the buyer. For example, the delivery of the keys of the
warehouse where the goods are kept is considered to be the symbolic delivery. A document like a
bill of lading must be given to the buyer to make him entitled to hold the delivered goods.

Conditions and Warranties

The Sale of Goods Act, identifies the terms, “Conditions and Warranties” as being of a prime
significance in a contract of sale.

A stipulation in a contract of sale with reference to goods which are the subject thereof may be a
condition or a warranty.

– Sec. 12, The Sale of Goods Act, 1930

A stipulation is a prerequisite or a provision or qualification that is attached to a contract.

A stipulation may be condition or warranty depends upon its importance in relation to a contract.

A stipulation which is essential to the main purpose of a contract is known as a condition.

A stipulation which is collateral to the main purpose of the contract is a warranty.

The conditions and warranties may be express or implied.

Express conditions and warranties are those, which the parties agree expressly, i.e. orally or in
writing.

Implied conditions are those, which are implied by the law in the absence of any agreement to the
contrary.

Implied Conditions
Following are the implied conditions which are contained in the Sales of Goods Act:

Implied condition as to title (Sec. 14 A)

Implied condition in a sale by description (Sec. 15)

Implied condition in sale by sample (Sec. 17)

Implied condition in a sale by sample as well as by description (Sec. 15)

Implied condition as to fitness or quality (Sec. 16)

Implied Condition as to merchantability (Sec. 16)

Implied condition as to wholesomeness

Implied condition as to title

“In the case of sale, it is implied that the seller has the right to sell the goods as he is the rightful
owner/authorized agent. In the case of an agreement to sell, the seller has the right to sell the
goods at the time of sale.”

This term ensures that the buyer can terminate the contract if the seller does not have the rightful
ownership or authority to sell the goods.

Case law: Rowland bought a second hand car from Divall, a car dealer. After a few months, the
police took the car away as it was a stolen one. The Court observed that it was a breach of condition
as to title as Divall had no right to sell the car. It was held that Rowland could recover full price of
the car from Divall. (Rowland v. Divall)

Implied condition in sale by sample

Where a sample of the ordered product is provided to the buyer, and the parties treat the sample
as of a standard quality for the sale, there is a condition that the goods will conform to the sample.
Such sale is termed as a ‘sale by sample’.

In the case of a contract for sale by sample, there is an implied condition:

that the major part of the product shall correspond with the sample in quality;

that the buyer shall have the opportunity of comparing the major part of the product with the
sample;

that the goods shall be free from any defect, making them unmerchantable, which would not be
apparent from a reasonable examination of the samples.
Case law: Ruben agreed to buy some rubber material from Fair Bros. The sample of the rubber was
shown to Ruben. On receiving the material, Ruben found that the measurement of the rubber
material was different from that of the sample. The Court observed that the measurement of the
rubber was part of its quality. It was held that the goods did not correspond to the sample. (Ruben
Ltd. V. Fair Bros.)

Implied condition in a sale by sample as well as by description

When the sale is by sample as well as by description, it is not sufficient that the bulk of the goods
correspond with the sample only and not with the description. Thus, the bulk of goods should
correspond with both, the sample as well as the description.

Implied Warranties

Whenever a product is sold, it is assumed that there are certain Warranties that are given by the
seller. It is a warranty which the law implies into the contract of sale. It can be stated that it is the
stipulation, which has not been included in the contract of sale in express words.

It may be noted that sometimes there is a conflict between the express and the implied warranties.
In such cases, the express terms shall prevail and the implied terms shall not be considered.

Warranty as to quiet possession [Sec. 14(b)]

Warranty as to the non-existence of encumbrances [Sec 14 (c)]

Warranty as to quality and fitness by usage of Trade [Sec 16(3)]

Warranty to disclose dangerous nature of goods

Warranty as to quiet possession

There is an implied warranty that the buyer shall have and enjoy, quiet possession of the goods.
The breach of this warranty gives the buyer a right to claim damages from the seller.

Case law: Burmingham sold a second-hand radio to Mason, who spent Rs.100 on the repairs of this
radio. This radio was seized by the police as it was a stolen one. Mason filed a suit against
Burmingham including the cost of repairs. It was held that Mason was entitled to recover the same.
(Mason v. Burmingham)

Warranty as to non-existence of encumbrances

There is an implied warranty that the goods are free from any charge or encumbrance in favour of
any third person if the buyer is not aware of such charge or encumbrance. The breach of this
warranty gives the buyer a right to claim damages from the seller.

Example: Ramesh borrowed Rs.5000 from Shankar and hypothecated his radio with Shankar as
security. Later on, Ramesh sold his radio to Subodh who bought the same in good faith. Here,
Subodh can claim damages from Ramesh because his possession is disturbed since the radio had
been kept with Shankar.

Warranty as to quality and fitness by usage of Trade

This relates to the quality or fitness for a particular purpose which may be attached by the usage of
trade.

Example: Mohan buys 100 shares through a share broker. Later he requests for those shares to be
registered in his name. However, the shares are received by him without registration and are
marked as ‘bad delivery’. Mohan can claim the damages from the broker because in accordance
with the trade usage, it is the responsibility of the broker to ensure that there is no loss caused as
a result of ‘bad deliveries’ of the shares purchased through him.

Warranty to disclose dangerous nature of goods

In the case of goods of dangerous nature, the seller must disclose or warn the buyer of the probable
danger. If the seller fails to do so, the buyer may make him liable for breach of implied warranty.

What is Performance of Contract of Sale?

The Sale of Goods Act 1930 states under Sec 31 that, “It is the duty of the seller to deliver the goods
and the buyer to accept and pay for them, in accordance with the terms of the contract of sale.”

The performance of a contract of sale defines a simple transaction where the seller delivers the
goods in exchange for a payment made by the buyer. Sections 31 to 40 of the Sale of Goods Act,
1930 state the rules and regulations that govern the sale of goods and their delivery.

Let’s define delivery, buyer, seller and their duties.

Definition of Delivery

Under Section 2 (2) of the Sale of Goods Act, 1930, the delivery meaning has been stated as,

“voluntary transfer of possession of goods from one person to another.” The transfer of goods from
one person to another will be considered a delivery under a sale of goods act only when:

The transfer of goods is voluntary

The transfer is not done by means of theft, fraud or force

Mere possession of good does not constitute a valid delivery of goodsDuty of the Buyer and the
Seller

It is the duty of the seller to deliver the goods as per the contract of sale. It is the duty of the buyer
to accept the goods and make a payment as per the contract of sale.
Payment and Delivery are Concurrent

The payment and delivery of goods are concurrent conditions. The seller of the goods should be
ready to make the delivery of goods in exchange for a payment and the buyer must be ready to
make the payment for the delivery of goods unless agreed otherwise.

Rules Regarding the Delivery of Goods

Delivery

The delivery of goods can be done by putting the goods in the possession of the buyer or any other
person authorized by the buyer to hold the goods on his behalf.

Partial Delivery of Goods

Partial delivery of goods made as progress towards full delivery has the same effect as full delivery,
for the purpose of passing the property in the goods. Partial delivery done with the intent of
severing it from the whole does not constitute as the delivery of the remaining goods.

Buyer Must Apply for Delivery

The buyer of the goods must apply to the seller for the delivery of goods unless otherwise stated in
the terms, where terms of delivery meaning is the conditions mentioned in the contract.

Place of Delivery

Both the buyer and the seller must agree to terms of delivery, express or implied, at the time of
drawing up the contract of sale. If no such terms and conditions have been specified in the contract:

Delivery of goods to be sold is done at the place where they are at the time of sale

Delivery of goods to be sold is made at the place at which they are at the time of the agreement to
sell. If the goods are not in existence at that time, they are delivered at the place of manufacture.
Time of Delivery

If the time of delivery of goods has not been specified in the contract, it must be made within a
reasonable time.

Goods in Possession of Third Party

If the goods are in possession of a third party at the time of sale, then the third party must
acknowledge to the buyer that the goods are being held on his behalf.

Time for Tender of Delivery

The demand for delivery must be made at a reasonable hour unless otherwise specified in the
contract.

Delivery Expenses

The expenses incurred for putting the goods in a deliverable state must be borne by the seller unless
otherwise stated in the contract.

Delivery of Wrong Quantity of Good

Goods for delivery means the goods sent by the seller at the time of delivery. If the seller sends a
lesser or a larger quantity of the goods for delivery than what is specified in the contract, the buyer
has a right to reject the delivery of goods. If the buyer delivers a mix of goods where some parts
are not as per the contract, the buyer has the right to reject the goods that are not in accordance
with the contract.

Solved Example

John Agrees to Sell 100 kgs of Potatoes to Smith. At the Time of Delivery:

John Sends 60 kgs of Potatoes and 60 kgs of Tomatoes to Smith

John Sends 120 kg of Potatoes to Smith

Can Smith Refuse to Take the Delivery of the Goods?

Ans. In the above scenarios, since the delivery of goods is not according to the contract, Smith can
exercise the following options:

When the seller has sent a mix of goods:

The buyer can reject the complete order since it is not as per the contract

The buyer can accept the delivery of 60 kgs of potatoes

When the seller has sent a larger quantity than specified in the contract:

The buyer can reject the complete order since it is not as per the contract

The buyer can accept the delivery of 60 kgs of potatoes

The buyer can accept the entire 120 kgs at the rate specified in the contract
UNIT III

ARBITRATION

Alternative Dispute Resolution (ADR) Mechanisms

ADR is a mechanism of dispute resolution that is non adversarial, i.e. working together co-
operatively to reach the best resolution for everyone.

ADR can be instrumental in reducing the burden of litigation on courts, while delivering a well-
rounded and satisfying experience for the parties involved.
It provides the opportunity to "expand the pie" through creative, collaborative bargaining, and
fulfill the interests driving their demands.

There are four types of Alternative Dispute Resolution methods:

Conciliation

Mediation

Arbitration

Adjudication.

The above-mentioned modes are explained below.

Conciliation

It is an ADR technique in which a third party, generally known as a conciliator, helps the parties
involve to reach proper issues, produce options, give advice and try to conclude/resolution by the
of an agreement.

As conciliator is involved in this method, he/she may have expertise in one of the subject matter
and gives advice to the parties and come to a resolution for disposal of the case. A conciliator can
be a voluntary, court-approved, or as per mention in a contract. However, the person appointed as
a conciliator cannot give decisions or judgment regarding the dispute he/she dealing with.

A conciliator can have sessions face-to-face or telephonic conversation and may hold separate time
for each party to have a session with them.

Mediation

It is an ADR process in which a third party is making a mediator which helps the parties to know
about the specific issues, to develop options, and by themselves come to a dispute resolution.

It can only assist them in their issues and problems, but, cannot give their advice or opinion
regarding the issues raised and can also not give any decision or judgment in the case.

A mediation period is always taking place face-to-face between the parties involve and one or more
than one mediator is present. During mediation, the parties are asked to directly communicate,
give their opinion, and come to a resolution. They may ask, for a separate session with the mediator,
at any point in time. From time to time they will take a break and discuss the advice given by one
party and can also ask for assistance and clarification if they want.

As a conciliator, a mediator can also be voluntary, court-approved, or as per mention in a contract.

Most of the time, he/she is the person appoint by the government or approve by the court.

Arbitration

Arbitration is an ADR process in which an independent third party, an arbitrator, is appointed in

front of whom the parties present their arguments and evidence; as a result of which the person
appointed gives a binding decision. Arbitration is more useful in cases where there is more
technicality & parties are more confident than on an open court.
The process of Arbitration is more formal and structured in contrast to what is there in conciliation
& mediation. It’s somewhere like a Court because, in the end, the arbitrator who deals with the
case gives a binding decision for both parties.

Adjudication

Adjudication is also a part of the ADR process in which an independent third party, refer as Judge
or Adjudicator, listens to the arguments of both sides and gives a decision. It involves a faster
process, usually of 28 days, for both parties to put forward their issues and case in a form of
response or notice. As it is a more formal type of process, the contract between the parties provides
the option of how an adjudicator should be chosen i.e., by professional bodies.

The major aspect of adjudication is the speed and the time-effective cost procedure which is
followed, like that in an arbitration process. It is more like a court type of situation. Generally, it has
no drawbacks but lack of proper evidence may lead to injustice with the parties and the amount
invested is also non-recoverable. Both points should be kept in mind while going for this mode of
ADR.

Alternative Dispute Resolution System-Meaning, Scope and Types

Arbitration is no more and less than litigation. These parts and apply where the place of arbitration
is in India. It shall not affect any other law for the time being in force in India. The part except: sub
section (1) of section 40, section 41, and section 43 shall apply to every arbitration under any other
enactment for the time being in force. Arbitrator is called upon to find the facts, apply the law,
Grand relief to the disputed parties. In any agreement in force between India and any other country
these parts shall applied to all arbitration to all proceedings relating thereto. Arbitration and
conciliation is a civilized way of resolving issues which avoid court proceedings. comprehensively
cover domestic arbitration and conciliation. To make provisions for arbitration which: fair, efficient,
and capable of meeting the needs. Objective to remain arbitration Tribunal within the limits. To
minimise the supervisory role of courts.

Advantages of ADRs

Alternative dispute resolution (ADR) procedures have several advantages:

Reduced time in dispute- It takes less time to reach a final decision.

Reduced costs in relating to the dispute resolution- It requires less money i.e. it is cheap.

Flexibility-Parties have more flexibility in choosing what rules will be applied to the dispute. They
have the freedom to do so.
Produce good results- settlement rates of up to 85 percent.

Improved satisfaction with the outcome or manner in which the dispute is resolved among
disputants.

Increased compliance with agreed solutions.

A single procedure– Parties can agree to resolve in a single procedure a dispute involving
intellectual property.

Party autonomy- Because of its private nature, ADR affords parties the opportunity to exercise
greater control over the way their dispute is resolved than would be the case in court litigation. In
contrast to court litigation, the parties themselves may select the most appropriate decision-
makers for their dispute. In addition, they may choose the applicable law, place and language of
the proceedings. Increased party autonomy can also result in a faster process, as parties are free to
devise the most efficient procedures for their dispute. This can result in material cost savings.

Neutrality– ADR is neutral to the law, language and institutional culture of the parties, thereby
avoiding any home court advantage that one of the parties may enjoy in court-based litigation.

Confidentiality- ADR proceedings are private. Thereby, the parties can agree to keep the actions
confidential. This allows them to focus on the merits of the dispute without concern about its public
impact.

Finality of Awards- Unlike court decisions, which can generally be contested through one or more
rounds of litigation, arbitral awards are not normally subject to appeal.

Enforceability of Awards- the United Nations Convention for the Recognition and Enforcement of
Foreign Arbitral Awards of 1958, known as the New York Convention, generally provides for the
recognition of arbitral awards on par with domestic court judgments without review on the merits.
This greatly facilitates the enforcement of awards across borders.

Preserves relationship- Helps people cooperate instead of creating one winner or one loser.

Disadvantages of ADR

Some disadvantages of alternative dispute resolution are:

It can be used as a stalling tactic.

Parties are not compelled to continue negotiations or mediation.

Does not produce legal precedents.

Exclusion of pertinent parties weakens final agreement.

Parties may have limited bargaining power. Parties do not have much of a say.

Little or no check on power imbalances between parties.

May not protect parties’ legal rights. The rights of the parties may not be protected by alternative
dispute resolution.

Your case might not be a good fit– Alternative dispute resolutions resolve only issues of money or
civil disputes. Alternative dispute resolution proceedings will not result in injunctive orders. They
cannot result in an order requiring one of the parties to do or cease doing a particular affirmative
act.

There are limits to the discovery process– You should also be aware that you are generally
preceding without the protections offered parties in litigation, such as those rules governing
discovery. Courts generally allow a great deal of latitude in the discovery process, which you will
not have in an alternative dispute resolution.

There is no guaranteed resolution. With the exception of arbitration, alternative dispute resolution
processes do not always lead to a resolution.

Arbitration decisions are final. With few exceptions, the decision of a neutral arbitrator cannot be
appealed. Decisions of a court, on the other hand, usually can be appealed to a higher court.

Participation could be perceived as weakness. While the option of making the proceeding
confidential addresses some of this concern, some parties still want to go to court “just on
principle.”

The case might not be a good fit-Alternative dispute resolutions generally resolve only issues of
money or civil disputes.

There are limits to the discovery process-One should also be aware that he is generally proceeding
without the protections offered parties in litigation, such as those rules governing discovery.

ARBITRATION

The Legal Services Authorities Act was passed in 1987 to encourage out-of-court settlements, and
the new Arbitration and Conciliation Act was enacted in 1996.

Procedure for plea-bargaining was included in the Code of Criminal Procedure in 2005. {Plea-
bargaining is best described as a "pre-trial negotiation between the accused and the prosecution
during which the accused agrees to plead guilty in exchange for certain concessions by the
prosecution."}

LokAdalat or "people's court" comprises an informal setting which facilitates negotiations in the
presence of a judicial officer wherein cases are dispensed without undue emphasis on legal
technicalities. The order of the Lok-Adalat is final and binding on the parties, and is not appealable
in a court of law.

The Arbitration Act, 1940 and1996 – Contrasting Scenarios

The basic difference in 1940 and 1996 Act was that in the former one a party could commence
proceedings in court by moving an application under Section 20 for appointment of an arbitrator
and simultaneously could also move an application for interim relief under the Schedule read with
Section 41(b) of the 1940 Act. The later one does not contain any provision similar to Section 20 of
the 1940 Act but the court can pass orders even before the commencement of the arbitration
proceedings. Another difference was that in the former act, there was no requirement to give
reasons for an award until and unless agreed by the parties to arbitration. However, in the later
Act, the award has to be given with reasons, which minimized the Court's interpretation on its own.
There were changes with respect to the award passed by the arbitral tribunal in the 1940 and 1996
Act.

The 1996 Act since its enactment faced many challenges and the Courts brought out what was
actually intended by the Legislation, the Courts clarified the said Act and the intention by various
landmark judgments. In particular, the landmark case of Bharat Aluminium Co., saw at least three
phases before the Hon'ble Supreme Court of India since the year 2001 till now i.e 2016 carrying
from two Hon'ble Judges to the Constitution Bench.

In the first case, the Hon'ble Supreme Court was of the view that Part I is to apply also to
international commercial arbitrations which take place out of India, unless the parties by
agreement, express or implied exclude it or any of its provisions, it was also held that the Arbitration
Act of 1996 was not a well drafted act and had some lacunas.

UNCITRAL MODEL LAW

The Model Law is designed to assist States in reforming and modernizing their laws on arbitral procedure
so as to take into account the particular features and needs of international commercial arbitration. It
covers all stages of the arbitral process from the arbitration agreement, the composition and jurisdiction
of the arbitral tribunal and the extent of court intervention through to the recognition and enforcement
of the arbitral award. It reflects worldwide consensus on key aspects of international arbitration practice
having been accepted by States of all regions and the different legal or economic systems of the world.

Arbitration And Expert Determination

It provide a comprehensive set of procedural rules upon which parties may agree for the conduct
of arbitral proceedings arising out of their commercial relationship and are widely used in ad hoc
arbitrations as well as administered arbitrations.

The UNCITRAL Arbitration Rules were initially adopted in 1976 and have been used for the
settlement of a broad range of disputes, including disputes between private commercial parties
where no arbitral institution is involved, investor-State disputes, State-to-State disputes and
commercial disputes administered by arbitral institutions. In 2006, the Commission decided that
the UNCITRAL Arbitration Rules should be revised in order to meet changes in arbitral practice over
the last thirty years. The revision aimed at enhancing the efficiency of arbitration under the Rules
without altering the original structure of the text, its spirit or drafting style.
The UNCITRAL Arbitration Rules (as revised in 2010) have been effective since 15 August 2010. They
include provisions dealing with, amongst others, multiple-party arbitration and joinder, liability,
and a procedure to object to experts appointed by the arbitral tribunal. A number of innovative
features contained in the Rules aim to enhance procedural efficiency, including revised procedures
for the replacement of an arbitrator, the requirement for reasonableness of costs, and a review
mechanism regarding the costs of arbitration. They also include more detailed provisions on interim
measures.

Extent of Judicial Intervention In Arbitration

The evolution of arbitration law in India has a long-running history. Modern Arbitration was first
introduced during British India in 1772 through the Bengal Regulations. However, the eventually
Arbitration and Conciliation Act, 1996 came into being. In the initial stage, when a dispute arises
with regard to the appointment of an arbitrator, necessarily requires the court’s intervention.
During the proceedings, the court’s intervention is required to assist the proceedings. The court
can provide assistance by providing interim protection or otherwise. Finally, when the arbitral
award is declared, judicial intervention is required for either the enforcement of the award or to
challenge it.

Legislative intent behind the 1996 Act

The 1996 act only came into being after two ordinances were passed after the New Economic Policy
of 1991 was functioning.[1] The scheme of the 1996 act is such that the supervisory role of the
courts in the arbitration proceedings and arbitral awards would be reduced. It is mentioned in the
preamble of this Act that it’s based on the UNCITRAL Model Law. However, not all safeguards
provided by the UNCITRAL Model Law were incorporated in this Act. Under Article 16 of the Model
law provided that Arbitration Tribunals may rule in its own Jurisdiction and jurisdictional issues
were to be decided as preliminary issues by the arbitral tribunal, before appealing to the Court. This
was eliminated from the Act.

It is provided under the Model Law that court has the power to grant an interim measure of
protection if it depends upon where the arbitration is being held and whether it is in the place in
which the court is situated. However in the 1996 Act in order to curtail the court a certain section
was introduced. Section 2(2) was introduced as opposed to Article 1(2) of the Model Law, to exclude
such power of the court.

Judicial intervention in Arbitration Law

Three ways in which judicial intervention in arbitration takes place:-

Before proceedings- Section 5 of the 1996 act

During proceedings- Section 9 of the 1996 Act

After proceedings- with regard to arbitral awards

Judicial intervention before Arbitration Proceedings

The extent of judicial intervention statutorily permitted is laid under Section 5 of the Arbitration
and Conciliation Act, 1996. Interestingly this section is analogous to Article 5 of UNCITRAL Model
Law. It is also inspired by the English Arbitration Act 1996 as well. However, a significant amount of
unnecessary judicial intervention is practiced in reality while applying the Arbitration Law.

The construction of Section 5 of the Act makes it pretty clear that the legislature wanted to limit
the role of Court in arbitration. Parties are given autonomy over the court’s intervention in order
to achieve the two-fold objective of expediting justice and economic resolution of disputes.
Disputes can be resolved by either Domestic or International commercial arbitration.

Section 5 starts with a Non- obstante clause. This eliminates the possibility of intervention by
courts. The term “no judicial authority” is wide enough and the Act also ensures by using the word
“shall intervene” that there is no judicial discretion involved.[3] A certain extent of judicial
intervention is allowed in order to kick start the arbitral process only. Judiciary just plays an
administrative role and not a judicial one. The Act provides exceptions to the non-obstante clause
by including words like “except where so provided in this part”. The SC explained the same in Secur
Industries Ltd V. Godrej and Boyce Mfg. Co. Ltd.

The SC in Surya Dev Rai V. Ram ChanderRai[5] observed that “If it intervenes in pending proceedings
there is bound to be a delay in termination of proceedings. If it does not intervene, the error of the
moment may earn immunity from correction……..Thus, the power is there but the exercise is
discretionary which will be governed solely by the dictates of judicial conscience enriched by the
judicial experience and practical wisdom of the Judge”.

Judicial intervention during Arbitration Proceedings

There are various sections involved where the judiciary steps in during proceedings as well. Section
9 of the Act lays down interim measures that can be granted by the Court. Section 17 of the Act on
the other hand empowers arbitral tribunals to make orders as per the section. Section 9 confers
the same powers to judicial authorities and courts. However, the purpose of both sections is
absolutely different.

Implications of Section 9 of the Act- Interim measure by Court

The power conferred by Section 9, to courts is mandatory in nature. It is not subject to the
autonomy of the parties in dispute. Interim measures are not a substantive relief. An application
under Section 9 is not a suit and the relief sought under it is not a right arising out of the contract.
The role of the court is such that it only protects the rights of adjudication before an arbitral tribunal
from being frustrated.

Now one of the challenges that props up is as under Section 17 of the Act shows the lack of any
suitable legislative mechanism in the Act itself for the enforcement of interim orders of the arbitral
tribunal. The Delhi High Court in the case of Sri Krishan v. Anand attempted to suggest amendments
to section 17 which would give more authority and security to the interim measures by arbitral
tribunals. So that parties don’t need to show up to the court to challenge the same.

In M/s. Sundaram Finance Ltd., V. M/s. N.E.P.C. India Limited the N.E.C.P could not have
approached the Civil Court to sought relief in order to facilitate delay in the proceedings pending
adjudication before the arbitrator. The court explained that the provisions under Section 9 of the
Act have been laid down to facilitate the smooth sailing of arbitral proceedings. Unscrupulous
parties involved can’t utilize it to misuse this section so as to hamper the progress of the
proceedings. This case, however, did not deal with judicial intervention with arbitral awards.

In the case ITI Ltd V. Siemens Public Communications Network Ltd it was held that the provisions
of the Civil Procedure Code, 1908 which lays down rules for interim injunctions by the court, has to
be kept in mind while deciding an application under Section 9. This shows that the arbitral
provisions are not independent and have to look up to courts in order to serve its own purpose.

After proceeding - Judicial Intervention with regard to Arbitral Award

One of the most significant provisions of the Act is Section 34. This Section lays down the
permissible grounds upon which an arbitral award can challenge. The Court doesn’t entertain
appeal over arbitral awards. This section is also a testament to the limited scope of judicial
intervention that is statutorily allowed.

Sections 34 encompass 4 important sub-sections that lay down the permissible grounds for setting
aside an arbitral award. Presently, the pendency of a petition under this section renders an arbitral
award unenforceable. The SC in National Aluminum Co. Ltd. v. Pressteel& Fabrications, criticized
the present situation and has suggested certain amendments.

International Commercial Arbitration

International commercial arbitration is a means of resolving disputes arising under international
commercial contracts. It is used as an alternative to litigation and is controlled primarily by the
terms previously agreed upon by the contracting parties, rather than by national legislation or
procedural rules. Most contracts contain a dispute resolution clause specifying that any disputes
arising under the contract will be handled through arbitration rather than litigation. The parties
can specify the forum, procedural rules, and governing law at the time of the contract.

Arbitration can be either “institutional” or “ ad hoc .” The terms of the contract will dictate the type
of arbitration. If the parties have agreed to have an arbitral institution administer the dispute, it is
an institutional arbitration. If the parties have set up their own rules for arbitration, it is an ad hoc
arbitration. Ad hoc arbitrations are conducted independently by the parties, who are responsible
for deciding on the forum, the number of arbitrators, the procedure that will be followed, and all
other aspects of administering the arbitration.
The types of law that are applied in arbitration include international treaties and national laws, both
procedural and substantive, as well as the procedural rules of the relevant arbitral institution.
Previous arbitral awards carry persuasive authority, but are not binding. Scholarly commentary, or
“doctrine,” may also be applied.

Arbitration Agreement
The formation of an arbitration agreement takes place when two parties, enter into a contract and
in which, the contract states that any dispute arising between the parties have to be solved without
going to the courts with the assistance of a person, who would be a neutral person, a third party,
appointed by both of the parties, known as the Arbitrator, who would act as a judge. The arbitrator
so appointed should have been previously mentioned in the contract that they made. They should
also state who should select the arbitrator, regarding the kind of dispute the arbitrator should give
decisions on, the place where the arbitration would take place. Furthermore, they should also state
the other kinds of procedures mentioned or that has to be required during an arbitration
agreement.

The parties are generally required to sign an Arbitration Agreement. The decision taken by the
arbitrator regarding any issue, is binding on both the parties, as stated by the agreement. In any
event, where one party decides that an agreement must be made prior to entering the contract, it
can be stated that the agreement was made to deviate from the hassles of the court. These
agreements are like contingent contracts, which means that these agreements shall only come into
force or become enforceable if any dispute happens, and on the basis of the same dispute between
two parties mentioned in the contract. It also takes place or is enforceable in the light of any dispute
that arises between the parties to the contract.

Essentials of an Arbitration Agreement

There must be a dispute that should take place, only then the agreement will be valid. The presence
of a dispute amongst the parties is an essential condition for the contract to take place. When the
parties have already settled the dispute, in no case, they can invoke the arbitration clause to refute
the settlement.

Another essential is the written agreement. An agreement related to the arbitration must always
be in writing. An arbitration agreement will be considered as a written agreement when:

It has been signed by both parties and it is in the form of a document.

It can be the exchange of the telex, the letters, the telegrams, or any other means of communication
which provides the record of the exchange and the agreement for arbitration.
There must be an exchange of statements between the parties that gives the statement of claim
and defence in which the existence of the agreement of the arbitration is agreed by one of the
parties and which is not defined by the other party.

The third essential intention. The intention of the parties while forming the contract is of utmost
importance and it forms the basis of the agreement. There have been no prerequisite citations of
terms such as an “arbitrator” or “arbitration” to be made in the agreement. Therefore, it is
necessary to note that the intention of both parties plays a very important role in such an
agreement. However, one must keep in mind that even if the words have not been mentioned, the
intention must show that both the parties have agreed to come to the terms with the Arbitration
Agreement.

The fourth essential element is the signature of the parties. The signature of the parties is an
essential element to constitute an arbitration agreement. The signature can be in the form of a
document signed by both the parties to the contract which comprises all the terms and conditions,
or it can also be in the form of a document which is signed by only one party to the contract which
contains the terms and acceptance by the other party to the contract. It will be sufficient if one
party puts up a signature in the agreement and the other party accepts that.

In the landmark case of k.k. modi v. k.n. modi and Ors. (1998) 3 SCC 573, it was held by the Hon’ble
Supreme Court that the following attributes must be present in an arbitration agreement:

The agreement must state that the decision of the tribunal will be binding upon by both the parties.

That the jurisdiction of the tribunal on the rights of the parties should be decided by both the parties
consensually or from an order obtained by the Court which states that the proceeding shall be
made through arbitration.

The tribunal has the right to determine the rights of the parties by being fair and just.

The agreement that the parties will refer to the tribunal must be enforceable by law.

The agreement must state that any decision made by the tribunal on the dispute must be
formulated prior to the time when the reference is made.

Kinds of Arbitration
Arbitration is a way to resolve disputes between the parties outside the courts and it is an
alternative method of dispute resolution. There are two types of agreements under the arbitration
process. The one is the agreements which states that, if any dispute arises then, it will be settled
through the means of the arbitration process and other agreements which are entered after the
disputes arise which states that the parties mutually agree to settle the dispute amongst
themselves through the process of arbitration. The arbitrator is the authorized person who resolves
the disputes between the parties and renders the arbitration award. The decision of the arbitrator
is final and legally binding on both parties. Arbitration can be classified into two types, voluntary or
mandatory arbitration or binding or non-binding. Arbitration can be made compulsory only when
it is mentioned in legislation or when the parties impose on each other and enter into an agreement
that all the future disputes be settled through arbitration. The arbitration which is not binding is
similar to the ADR mechanism that is mediation in which the decision cannot be imposed on the
parties. In arbitration, there are limited rights given to parties for review and appeal of the award
given by the arbitrator.

TYPES OF ARBITRATION:

Domestic arbitration

International arbitration

Domestic arbitration: The arbitration which happens in India and both the parties to the dispute
also belongs to India and the dispute is decided concerning the substantive law of India. In this type
of arbitration process, the dispute must arise in India, and parties are subjected to the Indian
jurisdiction.

International arbitration: The arbitration which takes place within the territory of India or outside
India or it has any element which has foreign origin is termed as international arbitration. The facts
and circumstances of the disputes between the parties decide that of which origin the law should
apply to the dispute.

Generally, in India the types of the arbitration process are classified into three:

Ad hoc arbitration

Institutional arbitration

Fast track arbitration

Ad hoc arbitration refers to the process in which the parties mutually arrange the arbitration for
the settlement of the dispute. The parties are free to submit their own set of rules and procedures
as they don’t have to follow any set guidelines of any arbitration institution. The essence of the ad
hoc arbitration is the geographical jurisdiction.

Institutional arbitration refers to the arbitration process which is carried out by an arbitration
institution. These institutions have their own set of rules and give a framework for the arbitration
to settle the dispute between the parties. It has its form of administration to assist in the process.

Fast track arbitration is the remedy to the lengthy and tedious process of arbitration. The time is
the main essence of fast track arbitration. In this process, all the methods which consume time in
an arbitration process have been removed and the process is made much simpler. The arbitration
process is also called private process as it is not similar to the court proceedings it takes place
privately.
Validity of the Arbitration Agreement

I. Concept

1. Arbitration is a creature of contract. As with every other type of contract, it must satisfy a number
of conditions in order to be valid. Without a valid arbitration agreement, no arbitration can take
place or award can be rendered. In other words, a valid arbitration agreement is the cornerstone
of any arbitration proceedings.

2. The starting point to analyze the conditions that any arbitration agreement must fulfill to be valid
is the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1959 (the “NY
Convention”). Under the NY Convention, the contracting States undertake to recognize an
arbitration agreement when the following requirements are complied with: the agreement is in
writing, it deals with any existing or future disputes in connection with a defined legal relationship,
whether contractual or not, it concerns a matter capable of settlement by arbitration, the parties
to the arbitration agreement have legal capacity under the law applicable to them, and the
agreement is valid under the law which the parties have chosen and, if there is no such choice,
under the law of the seat of the arbitration (in the terms of the NY Convention “under the law of
the country where the award was made.”).

3. The UNCITRAL Model Law on International Commercial Arbitration 1985 with amendments
adopted in 2006 (the “UNCITRAL Model Law”) lists the exclusive grounds for annulment of an
award. It is particularly important for the purpose of this commentary to refer to Article 34.2(a)(i),
which establishes that an arbitration award may be set aside if the party making the application
furnishes proof that

(i) He Or She Was Under Some Incapacity, Or

(Ii) The Said Agreement Is Not Valid Under The Law To Which The Parties Have Subjected It Or,
Failing Any Indication Thereon, Under The Law Of The Seat Of The Arbitration.

4. Below We Will Briefly Consider The Formal And Substantive Requirements Of Any Valid
Arbitration Agreement.

5. Both The Ny Convention12 And Most National Arbitration Laws Establish As A Formal
Requirement That The Arbitration Agreement Be In Writing.

6. On The One Hand, Pursuant To The Ny Convention, The Term “Agreement In Writing” “Shall
Include An Arbitral Clause In A Contract Or An Arbitration Agreement, Signed By The Parties Or
Contained In An Exchange Of Letters Or Telegrams.”
7. On The Other Hand, Most Of The Domestic Arbitration Laws Take A Broad View Of What
Constitutes A Written Document, Encompassing Telexes, Emails And All Other Means Of
Communication Which Generate A Record.15 The Uncitral Model Law Follows A Similar Approach.

8. The Substantive Requirements Of Any Arbitration Agreement Have Been Set Out In Section I

9. Generally Applicable Principles Of Contract Law Also Apply To Arbitration Agreements. Thus,
These Agreements Are Subject To The Substantive Requirements For Validity That Are Commonly
Applied To Any Type Of Contract. Article Ii.3 Of The Ny Convention Provides That An Arbitration
Agreement Shall Not Be Recognized Or Enforced If It Is Found That It Is “Null And Void, Inoperative
Or Incapable Of Being Performed.”

10. First, Any Valid Arbitration Agreement Must Reflect The Conscious, Mutual And Free Will Of The
Parties To Resort To Arbitration And Not To Other Means Of Dispute Resolution, Including State
Courts. The Consent Of Both Parties To Submit Their Dispute To Arbitration Is The Cornerstone Of
Arbitration.

11. In Addition, The Infringement Of Other Rules Of Contract Law May Also Constitute A Ground
For The Annulment Of An Arbitration Agreement.

12. Finally, The Ny Convention Suggests That There Are Categories Of Issues That Are Not Abatable
And Also Constitute A Ground For The Annulment Of An Arbitration Agreement.

13. In Order To Avoid Potential Lengthy Discussions About The Validity Of An Arbitration
Agreement, It Is Important That:

The Agreement Be In Writing, Meaning —According To Article II(2) Of The NY Convention— “An
Arbitral Clause In A Contract Or An Arbitration Agreement, Signed By The Parties Or Contained In
An Exchange Of Letters Or Telegrams” It Be As Ample As Possible, Dealing With Any Existing Or
Future Disputes In Connection With A Legal Relationship25 (Standard Clauses Tend To Use Very
Broad Language) The Parties Check In Advance That It Concerns A Matter Capable Of Settlement By
Arbitration It Be Analyzed In Advance That The Parties To The Arbitration Agreement Have Legal
Capacity Under The Law Applicable To Them And The Agreement Be Valid Under The Generally
Applicable Principles Of Contract Law, With Special Consideration For The Law That The Parties
Have Chosen And, If There Is No Such Choice, The Law Of The Seat Of The Arbitration.

Reference to Arbitration
Section 7 defines an Arbitration Agreement wherein parties agree to submit all/any of disputes
whether contractual or not in a written format for purposes of evidence, in same or separate
Agreement intended to apply to main contract. Section 8 states reference to Arbitration by a
Judicial Authority before which matter is brought that is originally covered under Arbitration. Either
Party to the Arbitration Agreement or claiming under him, upto submission of 1st statement on
substance of dispute proves existence of a valid Arbitration Agreement. Judicial Authority on being
satisfied of such presence of Agreement on same subject is bound to send the other party for
Arbitration. Arbitration may be initiated, continue and Award passed even while such application
is pending before Judicial Authority.

It is to be noted that the language of Section 8 is mandatory after fulfilling conditions prescribed. It
diverges from Model Law, Geneva Convention and New York Convention as Judicial Authority
instead of Courts is used and that merit-based analysis of legality is not provided to any Judicial
Body. Words “Prima Facie” indicate that not to delve into a detailed examination of Arbitration
Agreement or Clause, rather observe its sufficiency to refer to Arbitration. As clearly mentioned,
reference of disputes whether contractual or not can be made, i.e. not limited solely to commercial
ones but be extended to certain civil disputes as well. Arbitration Agreement, in essence, being a
contract has to impliedly comply with capacity and validity preconditions of the Indian Contract Act.
Locus Standi requirement has been a bit relaxed and that a non-signatory can also be a party in
Arbitration Proceedings, provided proves himself to be a necessary and proper party.

Interim Measures by Court

A court shall have the same power of issuing an interim measure in relation to arbitration
proceedings, irrespective of whether their place is in The conditions set forth in article 17, I are
intended to limit the number of circumstances in whichthe court may refuse to enforce an interim
measure. It would not be contrary to the level of harmonization sought to be achieved by these
model provisions if a State were to adopt fewer circumstances inwhich enforcement may be
refused. the territory of this State, as it has in relation to proceedings in courts. The court shall
exercise such power in accordance with its own procedures in consideration of the specific features
of international arbitration.

Arbitral tribunal appointment

An arbitral tribunal or arbitration tribunal, also arbitration commission, arbitration committee or
arbitration council is a panel of unbiased adjudicators which is convened and sits to resolve a
dispute by way of arbitration. The tribunal may consist of a sole arbitrator, or there may be two or
more arbitrators, which might include a chairperson or an umpire. Members selected to serve on a
arbitration panel are typically professionals with expertise in both law and in friendly dispute
resolution (mediation). Some scholars have suggested that the ideal composition of an arbitration
commission should include at least also one professional in the field of the disputed situation, in
cases that involve questions of asset or damages valuation for instance an economist.

The parties to agree on arbitration are usually free to determine the number and composition of
the arbitral tribunal. Many jurisdictions have laws with general rulings in arbitration, they differ as
to how many arbitrators should constitute the tribunal if there is no agreement. In some legal
systems, an arbitration clause which provides for an even number of arbitrators is understood to
imply that the appointed arbitrators will select an additional arbitrator as a chairperson, to avoid
deadlock arising.[citation needed]

Proceedings
Ad hoc arbitration proceedings are those in which the arbitrators are appointed by the parties
without a supervising institution, relying instead on the rules as been agreed upon by the parties
and or procedural law and courts of the place of arbitration to resolve any differences over the
appointment, replacement, or authority of any or all of the arbitrators; and institutional arbitration
proceedings are those in which the arbitrators are appointed under the supervision of professional
bodies providing arbitration services, such as the American Arbitration Association (which conducts
international proceedings through its New York-based division, the ICDR), the Australian Fair Work
Commission, the LCIA in London or the ICC in Paris. Depending on their establishing statutories or
treaties, these kind of institutions can be capable of supervising the appointment of arbitration
commissions in one country or on an international scale. This type of arbitration avoids the need
for parties to involve local courts and procedures in the event of disagreement over the
appointment, replacement, or authority of any or all of the arbitrators.

Permanent arbitration committees tend to have their own rules and procedures, and tend to be
more formal. They also tend to be more expensive, and, for procedural reasons, slower.

Appointment
The parties are generally free to determine their own procedure for appointing the arbitrator or
arbitrators, including the procedure for the selection of an umpire or chairperson. If the parties
decline to specify the mode for selecting the arbitrators, then the relevant legal system will usually
provide a default selection process. Characteristically, appointments will usually be made on the
following basis:

If the tribunal is to consist of a sole arbitrator, the parties shall jointly appoint the arbitrator not
later than (for example) 28 days after service of a request in writing by either party to do so.

If the tribunal is to consist of three arbitrators:

each party shall appoint one arbitrator not later than (for example) 14 days after service of a
request in writing by either party to do so, and the two so appointed shall forthwith appoint a third
arbitrator as the chairperson of the tribunal.

If the tribunal is to consist of two arbitrators and an umpire- each party shall appoint one arbitrator
not later than (for example) 14 days after service of a request in writing by either party to do so,
and the two so appointed may appoint an umpire at any time after they themselves are appointed
and shall do so before any substantive hearing or forthwith if they cannot agree on a matter relating
to the arbitration.
Most arbitration clauses will provide a nominated person or body to select a sole arbitrator if the
parties are unable to agree (for example, the President of the relevant jurisdiction's Bar Association,
or a recognised professional arbitration organisation such as the LCIA, or a relevant professional
organisation). In default of such a provision, where the parties are unable to agree, an application
for an appointment is usually made to the court.

Normally a well drafted arbitration clause will also make provision for where a party to the dispute
seeks to cause delay by refusing to make or agree an appointment. Often this will allow the "non-
defaulting" party to appoint a sole arbitrator and for the arbitration to proceed on that basis.

Challenge to arbitral Tribunal

The parties have freedom to decide the challenge procedure.

When a person is approached for his possible appointment as arbitrator, he/she shall disclose in
writing (in form specified in Sixth Schedule) any circumstances, such as existence either direct or
indirect, of any past or present relation with or interest in any of the parties or in relation to the
subject matter in dispute, whether financial, business, professional or other kind, which is likely to
give rise to justifiable doubts as to his independence or impartiality; and which are likely to affect
his ability to devote sufficient time to the arbitration and in particular his ability to complete the
entire arbitration within a period of 12 months. The obligation of disclosure continues throughout
the arbitration proceeding.

The Fifth Schedule gives guiding criteria to determine whether circumstance exist to give rise to
justifiable doubts as to independence and impartiality of the arbitrator.

A party may challenge appointment of an arbitrator only for the reasons of which he becomes
aware after the appointment is made.

Section 12(5) provides that any person whose relation with parties or counsel of subject matter of
dispute falls within Seventh Schedule shall be ineligible. This is notwithstanding any prior
agreement to the contrary. However, the parties may waive the applicability of this provision by
express agreement in writing, subsequent to disputes have arisen.

Section 13 provides that the parties are free to agree to the procedure to challenge an arbitrator.
A party can challenge an arbitrator within 15 days after becoming aware of the constitution of the
tribunal or becoming aware of the circumstances of the challenge. The challenge has to be by way
of written application stating the reasons to the tribunal.

On receipt of the application, the tribunal can either withdraw or shall decide the challenge unless
other side agrees to the challenge. If the challenge is not successful, the tribunal shall proceed with
arbitration and shall pass award. Once the award is made, the party making the challenge can file
application under Section 34 for setting aside of the award.
The mandate of the arbitrator terminates if he becomes de jure or de facto unable to perform his
functions of for other reasons fails to act without undue delay and he withdraws from his office or
the parties agree to such termination. The mandate also terminates where the arbitrator withdraws
from the office or the parties agree to such termination.

If the controversy still remains, subject to parties’ agreement, a party may apply to Court to decide
the termination. On termination of mandate, a substituted arbitrator shall be appointed according
to the to the rules that were applicable to the appointment of earlier arbitrator. On replacement
of arbitrator, any previous hearing may be repeated at the discretion of arbitrator.

Jurisdiction of Arbitral Tribunal

1) Ruling on Jurisdiction – Anew power has been conferred on the Arbitral Tribunal and this power
is the power to decide on its own jurisdiction. This power is similar to the inherent power of a court.
The power to decide on its own jurisdiction includes the power to decide upon any objection
regarding – a) existence of the Arbitration Agreement b) validity of the Arbitration Agreement.

2) Status of Arbitration Clause - In deciding upon any objection regarding the existence or validity
of an Arbitration Agreement. The following two points have been clearly laid down – a) An
Arbitration Clause in an agreement or contract shall be treated as independent of the other terms
of the agreement. In other words an Arbitration Clause has been conferred an independent status.
b) The invalidity of the contract which contains the Arbitration Clause shalln’tentain (resulting) that
the Arbitration Clause is also null and void. This means that the death of the contract willn’t
automatically result in the death of the Arbitration Clause. The Arbitration Clause in a contract has
often being referred to as collateral or ancillary contract to the Main Contract.

3) Time to raise objection regarding jurisdiction – If a party wants to challenge or raise a plea
regarding the jurisdiction of arbitral tribunal he must do so with in a certain time i.e.- not later than
submitting his first statement of defense.

4) Time to raise objection regarding scope of authority – if a party feels that the Arbitral Tribunal is
exceeding the scope of its authority, a party may raise a plea or objection against this. He must do
so with in a certain time i.e. as soon as the party finds the tribunal exceeding its scope of authority.

5) Admission of later plea – if a party has an objection - a) regarding jurisdiction of Arbitral Tribunal
or b) regarding the Tribunal exceeding the scope of its authority, But he doesn’t raise the objection
on time; the Arbitral Tribunal may allow the party to raise the objection later if the Tribunal is
satisfied that the delay is justified.

6) Consequence of plea – if any party raises a plea regarding jurisdiction or scope of authority of
the Arbitral Tribunal – it shall be decided upon by the Arbitral Tribunal

7) Consequence of Rejection of Plea – if the Arbitral Tribunal rejects the plea of a party (2 kinds of
pleas) – then the Tribunal shall continue with the Arbitral proceedings and deliver the Arbitral
Award.
8) Remedy of Aggrieved party – if a party raises a plea and the tribunal rejects it, the aggrieved
party can have the Arbitral Award set aside under Section 34.

In most legal systems, the arbitral tribunal is able to rule upon its own jurisdiction (often referred
to as the doctrine of "Kompetenz-Kompetenz" in international law). This enables the arbitral
tribunal to determine for itself whether:

An arbitration agreement is valid,

Whether the tribunal has been properly constituted under applicable law, and

What matters are to be determined by the arbitration under the agreement.

The doctrine, although european in origin, has been recognised at common law,[13] and has now
been widely codified into national law.

Power of the arbitral tribunal

1. At any time in the proceedings, the Arbitral Tribunal may attempt to settle the dispute between
the parties, including by addressing them to the Mediation Service of the Chamber of Arbitration
of Milan.

2. The Arbitral Tribunal may issue all urgent and provisional measures of protection, also of
anticipatory nature, that are not barred by mandatory provisions applicable to the proceedings.

3. Where multiple proceedings are pending before the Arbitral Tribunal, the Tribunal may order
their consolidation, if it deems them to be connected.

4. Where the same proceedings concern several disputes, the Arbitral Tribunal may order their
separation.

5. If a third party requests to join a pending arbitration or if one of the parties to the arbitration
seeks a third party’s intervention, the Arbitral Tribunal shall decide the application after consulting
the parties, taking into consideration all relevant circumstances of the case.

Grounds of challenge
(1) When a person is approached in connection with his possible appointment as an arbitrator, he
shall disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or
independence. An arbitrator, from the time of his appointment and throughout the arbitral
 proceedings, shall without delay disclose any such circumstances to the parties unless they have
already been informed of them by him.

(2) An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as
to his impartiality or independence, or if he does not possess qualifications agreed to by the parties.
A party may challenge an arbitrator appointed by him, or in whose appointment he has
participated, only for reasons of which he becomes aware after the appointment has been made.

Procedure

Matters of procedure are normally determined either by the law of the seat of the arbitration, or
by the tribunal itself under its own inherent jurisdiction (depending on national law). Procedural
matters normally include:

Mode Of Submitting (And Challenging) Evidence

Time And Place Of The Hearing

Language And Translations

Disclosure Of Documents And Other Evidence

Use Of Pleadings And/Or Interrogatories

Use Of Legal Advisors

The Appointment Of Experts And Assessors

Court assistance
Court assistance in taking evidence the arbitral tribunal or a party with the approval of the arbitral
tribunal may request from a competent court of this State assistance in taking evidence. Part One.
UNCITRAL Model Law on International Commercial Arbitration 17 The court may execute the
request within its competence and according to its rules on taking evidence.

Distinction between arbitration, mediation and conciliation

Basis for Comparison Arbitration Conciliation Mediation

Meaning Arbitration is a dispute Conciliation is a method Mediation is a process of
settlement process in which an of resolving dispute resolving issues between
impartial third party is wherein an independent parties wherein a third
appointed to study the dispute person helps the parties party assist them in
and hear both the parties to to arrive at the arriving at an
arrive at a decision binding on negotiated settlement. agreement.
both the parties.

Enforcement An arbitrator has the power to A conciliator does not The decision made by
enforce his decision. have the power to the mediator is not
enforce his decision. enforceable like an
arbitral award.

Regulated by The Arbitration and Conciliation Arbitration and Code of Civil Procedure,
Act, 1996 Conciliation Act, 1996 1908

Prior Agreement Required Not Required Not Required

Available for Existing and future disputes. Existing disputes. Existing disputes.

Example Damages in case of breach of Resolving disputes Commercial transactions

contract, matters of the right to
the office, time barred claims
etc.
between contractors and in patents, trademark
subcontractors etc. licenses, Joint ventures
and R & D Contracts,
music and film contracts
etc.

Confidentiality in arbitration:
Confidentiality and privacy are often touted as major benefits of arbitration in resolving disputes
compared to litigation, which is neither private nor confidential. In civil courts, proceedings and
documents are generally open to the public and this would be unappealing to parties who desire
to keep certain information away from public scrutiny, be they allegations arising from disputes or
commercially sensitive information.

Privacy in arbitration means that third parties and strangers will be excluded and have no access to
the arbitration proceedings without the consent of parties. confidentially in arbitration refers to
the fact that the proceedings, materials disclosed or created during proceedings and the arbitral
award cannot be disclosed by the tribunal, parties, their representatives, witnesses or any other
individuals attending without the consent of the parties.

Privacy and confidentiality are interrelated concepts. If an arbitration hearing is open to strangers
then it would be quite impossible to maintain its confidentiality. If it is conducted in private but
attendees are free to disclose what transpired to others, then the privacy of the proceedings would
be pointless.

While many may assume and believe that confidentiality applies to arbitration, there are exceptions
to the general rule.

Confidentiality and privacy are often touted as major benefits of arbitration in resolving disputes
compared to litigation, which is neither private nor confidential. In civil courts, proceedings and
documents are generally open to the public and this would be unappealing to parties who desire
to keep certain information away from public scrutiny, be they allegations arising from disputes or
commercially sensitive information.

Privacy in arbitration means that third parties and strangers will be excluded and have no access to
the arbitration proceedings without the consent of parties. Confidentially in arbitration refers to
the fact that the proceedings, materials disclosed or created during proceedings and the arbitral
award cannot be disclosed by the tribunal, parties, their representatives, witnesses or any other
individuals attending without the consent of the parties.

Privacy and confidentiality are interrelated concepts. If an arbitration hearing were open to
strangers then it would be quite impossible to maintain its confidentiality. If it is conducted in
private but attendees are free to disclose what transpired to others, then the privacy of the
proceedings would be pointless.

While many may assume and believe that confidentiality applies to arbitration, there are exceptions
to the general rule

Resort to arbitral or judicial proceedings cost .

The parties shall not initiate, during the conciliation proceedings, any arbitral or judicial proceedings
in respect of a dispute that is the subject- matter of the conciliation proceedings except that a party
may initiate arbitral or judicial proceedings where, in his opinion, such proceedings are necessary
for preserving his rights.
Dispute resolution boards
One of the reasons that mechanics liens are such a great construction payment remedy is that a
lien filing will typically be enough to force payment, making litigation unnecessary. Even
the threat of a mechanics lien (in the form of a Notice of Intent) typically speeds up payments.
Everyone hates litigation – even more than they hate liens. It’s risky, expensive, and at the end of
the day, often it’s only the lawyers who win.

To avoid litigation, many construction contracts call for mediation or arbitration. But there’s
another form of alternative dispute resolution that’s especially effective in the construction
industry – the use of a Dispute Resolution Board or “DRB.”

DRBs work for a number of reasons. First, they work because both parties agree to let a neutral
third party (the Dispute Resolution Board) either make a decision or recommendation on how to
resolve the dispute. You may be thinking “Wait, that’s just the same as a mediator or arbitrator.”
But hold on! DRBs are more involved.

Beginning with the contracting stage, all the way through completion – the members of the Dispute
Resolution Board are involved and understand the ins and outs of the projects well as the
relationships of all parties. They typically even perform walk-throughs to check on the job. Because
the third party in this situation is simultaneously impartial and intimately informed with the project,
it’s easier to come to a fair result on disputes.

The real magic with Dispute Resolution Boards is their preventative value. According to the Dispute
Resolution Board Foundation, 60% of projects utilizing a DRB have no disputes at all. Further, 98%
of the disputes that reach the Dispute Resolution Board don’t go on to further litigation or
arbitration.

Why’s that? There are a number of factors that could move the needle in either direction here, but
importantly, utilizing Dispute Resolution Boards sets the tone from the start of a project.
Expectations are clear, and so is the method to resolve construction disputes.

Lok-Adalat Dispute Resolution Mechanism In India

LokAdalat is one of the alternative dispute redressal mechanisms, it is a forum where
disputes/cases pending in the court of law or at pre-litigation stage are settled/ compromised
amicably. LokAdalats have been given statutory status under the Legal Services Authorities Act,
1987. Under the said Act, the award (decision) made by the LokAdalats is deemed to be a decree
of a civil court and is final and binding on all parties and no appeal against such an award lies before
any court of law.

If the parties are not satisfied with the award of the LokAdalat though there is no provision for an
appeal against such an award, but they are free to initiate litigation by approaching the court of
appropriate jurisdiction by filing a case by following the required procedure, in exercise of their
right to litigate.

There is no court fee payable when a matter is filed in a LokAdalat. If a matter pending in the court
of law is referred to the LokAdalat and is settled subsequently, the court fee originally paid in the
court on the complaints/petition is also refunded back to the parties. The persons deciding the
cases in the LokAdalats are called the Members of the LokAdalats, they have the role of statutory
conciliators only and do not have any judicial role; therefore they can only persuade the parties to
come to a conclusion for settling the disputeoutside the court in the LokAdalat and shall not
pressurize or coerce any of the parties to compromise or settle cases or matters either directly or
indirectly.

The LokAdalat shall not decide the matter so referred at its own instance, instead the same would
be decided on the basis of the compromise or settlement between the parties. The members shall
assist the parties in an independent and impartial manner in their attempt to reach amicable
settlement of their dispute.

LokAdalat is a system of a dispensation of justice which has come into existence to grapple with the
problem of giving cheap and speedy justices to the people. LokAdalat as the very name suggests
means people’s court. Lok stands for people and the Adalat means court.

Nature and Scope: Generally speaking, LokAdalat is not a court in its accepted connotation. The
difference between LokAdalat and law court is that the law court sets at its premises where the
litigants come with their lawyers and witnesses goes to the people to delivers justice at their door
step. It is a forum provided by the people themselves or by interested parties including social
activities or social activist legal aiders, and public spirited people belonging to every walk of life. It
is just a firm forum provided by the people themselves for enabling the common people to ventilate
their grievances against the state agencies or against other citizens and to seek a just settlement if
possible.

The basic philosophy behind the LokAdalat is to resolve the people dispute by discussion,
counseling, persuasion and conciliation so that it gives speedy and cheap justice, mutual and free
consent of the parties. In short it is a party’s justice in which people and judges participate and
resolve their disputes by discussion, persuasion and mutual consent.

Types of cases at LokAdalat: The types of cases dealt with generally are:

Mutation of land cases.

Compoundable criminal offences.

Family disputes.

Encroachment on forest lands.

Land acquisition disputes.

Motor accident claim, and

Cases which are not sub-judice.

UNIT-IV

Engaging of Labour and labour & other construction –related laws

Companies engage contract labour to keep the head count low and for the scalability and flexibility
it provides in management of workforce. Though employment of contract labour in India has
attracted debates, it has become a significant and growing form of employment, engaged in
different occupations including skilled, semi skilled and unskilled jobs across sectors. While
engaging contract labours, companies need to exercise caution and need to understand the laws
that govern their relationship with the contract labours. In this article we would discuss the
fundamentals of engaging contract labour and the pitfalls that can be avoided to have a congenial
environment in the company.

“Contract labour” can be distinguished from “direct labour” in terms of employment relationship
with the principal establishment and the method of wage payment. A workman is deemed to be a
contract labour when he/she is hired in connection with the work or “contract for service” of an
establishment by or through a contractor. They are indirect employees; persons who are hired,
supervised and remunerated by a contractor who, in turn is compensated by the establishment. In
either form, contract labour is neither borne on pay roll or muster roll or wages paid directly to the
labour. (Report of the National Commission on Labour, 1969) The Contract Labour (Regulation &
Abolition) Act, 1970 (Act) permits companies and establishments in the manufacturing and services
sectors to engage contract labour through contractors. Such an engagement can be only for work
that do not form part of the core operations, which is guided by the memorandum of association
of the company. Prior to the enactment of the Act, in the case of Standard Vacuum Refinery
Company v. Their Workmen (1960), the Supreme Court of India had observed that contract labour
should not be employed where: (i) The work is perennial and must go on from day to day; (ii) The
work is incidental to and necessary for the work of the factory; (iii) The work is sufficient to employ
considerable number of whole time workmen; and (iv) The work is being done in most concerns
through regular workmen.

The Act allows the government to prohibit employers from employing contract labour in its core
process after examining whether

The Work Performed By Contract Labour Is Permanent In Nature;

The Process Or Operation Is Incidental Or Necessary For The Employer;

Such Process Or Work Is Ordinarily Performed By Regular Employees Of Other Similar

Employers; And Sufficient Number Of Whole-Time Employees Can Be Deployed To Perform The
Work. Therefore, Contract Labours Are Generally Engaged For Support Services Like Housekeeping,
Gardening, Security, Catering, Maintenance, Transport, Etc.

Role of labours in civil engineering

Civil engineering labourers perform routine tasks in connection with the building and maintenance
of roads, railways, dams and other civil engineering projects.

Tasks:

Main Tasks include -

Digging And Filling Holes And Trenches Using Hand Held Tools

Shovelling And Spreading Gravel And Related Materials

Trimming And Cutting Rocks And Concrete And Bitumen Surfaces Using Jack-Hammers

Loading And Unloading Construction Materials, Excavated Material And Equipment And
Transporting Them Around Construction Sites Using Wheelbarrows And Hand Trucks

Cleaning Worksites And Removing Obstructions.

Methods of engaging labour

Introduction

Companies engage contract labour to keep the head count low and for the scalabilityand
flexibility it provides in management of workforce. Though employment of contract labour in India
has attracted debates, it has become a significant and growing form of employment, engaged in
different occupations including skilled, semi skilled and unskilled jobs across sectors. While
engaging contract labours, companies need to exercise caution and need tounderstand the laws
that govern their relationship with the contract labours. In this article we would discuss the
fundamentals of engaging contract labour and the pitfalls that can be avoided to have a congenial
environment in the company.

Contract Labour: on rolls

“Contract labour” can be distinguished from “direct labour” in terms of employment relationship
with the principal establishment and the method of wage payment. A workman is deemed to be a
contract labour when he/she is hired in connection with the work or “contract for service” of an
establishment by or through a contractor. They are indirect employees; persons who are hired,
supervised and remunerated by a contractor who, in turn is compensated by the establishment. In
either form, contract labour is neither borne on pay roll or muster roll or wages paid directly to the
labour. (Report of the National Commission on Labour, 1969)

The Contract Labour (Regulation & Abolition) Act, 1970 (Act) permits companies and
establishments in the manufacturing and services sectors to engage contract labour through
contractors. Such an engagement can be only for work that do not form part of the core operations,
which is guided by the memorandum of association of the company. Prior to the enactment of the
Act, in the case of Standard Vacuum Refinery Company v. Their Workmen (1960), the Supreme
Court of India had observed that contract labour should not be employed where:

(i) The work is perennial and must go on from day to day; (ii) The work is incidental to and necessary
for the work of the factory; (iii) The work is sufficient to employ considerable number of whole time
workmen; and (iv) The work is being done in most concerns through regular workmen.

The Act allows the government to prohibit employers from employing contract labour inits core
process after examining whether

(I) The Work Performed By Contract Labour Is Permanent In Nature;

(II) The Process Or Operation Is Incidental Or Necessary For The Employer;

(III) Such Process Or Work Is Ordinarily Performed By Regular Employees Of Other Similar
Employers;

(Iv) Sufficient Number Of Whole-Time Employees Can Be Deployed To Perform The Work.
Therefore, Contract Labours Are Generally Engaged For Support Services Like Housekeeping,
Gardening, Security, Catering, Maintenance, Transport, Etc.

labour sub-contract

Intent & coverage: The Act provides for regulation of the employment of contractlabour and its
abolition under certain circumstances. It covers every establishment in which 20 or more workmen
are employed on any day of the preceding 12 months as contract labour and every contractor who
employs or who employed on any day of the preceding 12 months, 20 or more contract employee.
It does not apply to establishments where the work is of intermittent and casual nature unless work
performed is more than 120 days and 60 days in a year respectively.

Advisory Boards: The Act provides for setting up of Central and State Advisory Contract Labour
Boards by the central and state governments to advise the respective governments on matters
arising out of the administration of the Act.

Registration & licenses: The establishments covered under the Act are required to be registered as
principal employers with the appropriate authorities. Every contractor is required to obtain a
licence and not to undertake or execute any work through contract labour, except under and in
accordance with the licence issued in that behalf by the licensing officer. The licence granted is
subject to conditions relating to hours of work, fixation of wages and other essential amenities in
respect of contract as prescribed in the rules.

Facilities to contract labours: The Act has laid down certain amenities to be provided by the
contractor to the contract labour for establishment of canteens and rest rooms, arrangements for
sufficient supply of wholesome drinking water, latrines and urinals, washing facilities and first aid
facilities have been made obligatory. In case of failure on the part of the contractor to provide these
facilities, the principal employer is liable to provide the same.

Piece rate work

The contractor is required to pay wages and a duty is cast on him to ensure disbursement of wages
in the presence of the authorised representative of the principal employer. In case of failure on
the part of the contractor to pay wages either in part or in full,the principal employer is liable to
pay the same.
Offences: For contravention of the provisions of the Act or any rules made there under, the
punishment is imprisonment for a maximum term up to 3 months and a fine up to a maximum of
Rs. 1000. In case of a company, the company as well as every person in-charge of and responsible
to the company for the conduct of its business at the time of the commission of the offence shall
be deemed guilty.

Registers & displays: Principal employer and contractor have the responsibility to maintain registers
and records of contract labours, work performed by them, wages, and other particulars as specified
in the Rules. Notices are also to be exhibited within the premises regarding hours of work, nature
of duty and other information as prescribed under the Rules.

Abolition of contract labour: After consultation with the Central Board or State Board, government
can prohibit, by notification in the official gazette, employment of contract labour in any
establishment in any process, operation or other work. The guidelines for deciding upon the
abolition of contract labour in any process, operation or other work in any establishment are

– (i) Conditions of work and benefits provided to the contract labour; (ii) Whether the work is of a
perennial nature; (iii) Whether the work is incidental or necessary for the work of an establishment;
(iv) Whether the work is sufficient to employ a considerable number of whole- time workmen; (v)
Whether the work is being done ordinarily through regular workman in that establishment or a
similar establishment.

Compliances under the Act

The Act requires both the principal employer and the contractor to implement their respective
statutory obligations. In a factory, the owner or occupier or manager is considered a principal
employer; but in an establishment or a company, the person who is in control and supervision of
establishment or company will be the principal employer. Principal employer is the one who
employs contract labour through a contractor. Contractor undertakes to perform a job for the
principal employer through contract labour other than mere supply of goods or articles of
manufacture or supplies contract labour for any work of the principal employer & includes a sub-
contractor.

The Act mandates that the principal employer should be registered and the contractor have a valid
license prior to engaging contract labours. In Workmen of Best & Crompton Industries Ltd. v. Best
& Crompton Industries Ltd., the Madras High Court has held that the principal employer must
engage contract labour through a contractor who has a valid license, because an invalid license of
a contractor would imply direct employment of contract labour by the principal employer. Further,
such a license of the contractor is job specific, non-transferable for any other job and indicative of
the maximum number of contract labours to be engaged.
The Act puts onus on the contractor for providing all statutory benefits to contract labour with the
rider that in case the contractor fails to do so, the obligation would fall on the principal employer.
This position was clarified by the Supreme Court in People’s Union for Democratic Rights v. Union
of India, wherein it was held that if the contractor fails to fulfil its duties under the Act then the
principal employer shall be under an obligation to provide all amenities and benefits prescribed
under the law to contract labour deployed at its establishment. Therefore, it becomes necessary
for the principal employer to witness disbursement of wages to the contract labour by the
contractor, collect all the necessary documents that establishes that the statutory benefits are
being made available to the contract labours by the contractor. Though registers like muster roll,
wage register, etc., are largely to be maintained by the contractor, principal employer is also
required to keep copies of such records and also additionally display the details regarding the
nature of duties of work, work hours, etc.

Precautions while engaging contract labour

Prior to engaging a contractor labour, it is crucial for the principal employer to register it with the
authorities. Secondly, it should verify the licenses of the contractors. Thereafter, the principal
employers must execute contract with the contractors with the terms of engagement. No contract
labour should be made to work on the core areas of the company. The contractor should not be an
employee of the principal employer. Principal employer should not exercise direct control
(including matters of payments, discipline and removal/termination) and supervision (principal
employer has a right to assess the abilities and skills of the workers employed by the contractor to
ensure the quality of service provided under the contract, without actually managing or directing
such contract labour) over the contract labours and that should be done by the contractors.

In Haldia Refinery Canteen Employees Union & Others v. Indian Oil Corporation Limited, the
Supreme Court laid down certain guidelines for engaging contract labour: (i) Principal employer
must not interfere with the contractor for engaging contract labour and contractor must have free
hand; (ii) Wages should be disbursed by the contractor, principal employer must only witness; (iii)
Contractor is liable to pay all statutory benefits such as provident fund contributions, leave salary,
medical benefits, and observe statutory working hours for its employees and maintain records
thereof; (iv) Contractor is responsible for proper maintenance of registers, records and accounts
for compliance with statutory provisions/obligations; (v) Principal employer should avoid managing
the contract labour; (vi) Contractor is liable to defend/indemnify the principal employer from any
liability or penalty which may be imposed by authorities for any violation by the contractor of such
laws, regulations and also against all claims, suits or proceedings.
Conclusion

Essentially, the principal employer needs to be diligent and exercise precautions while engaging
contract labours. In case the compliances specifically in relation to the mandatorily benefits
payments are not done by the contractors, the onus of making payments falls on principal
employer. Contract labours are engaged to make the processes simpler with the intention to
manage the workforce in an easier way. However, lack of due diligence can land companies into
troubles. Though engaging contract labours should always be done by way of executing a contract
with the contractor, exercising due diligence would be of great significance as contractual
safeguards may not offer sufficient protection to principal employers.

Industrial Disputes Act, 1947

The Industrial Disputes Act, 1947 extended to the whole of India and regulated Indian labour law
so far as that concerns trade unions as well as Individual workman employed in any Industry
within the territory of Indian mainland. Enacted on 11 March 1947 and It came into force 1 April
1947. It was replaced by the Industrial Relations Code, 2020.

It an act to make provision for the investigation and settlement of industrial disputes, and for
certain other purposes. The objective of the Industrial Disputes Act is to secure industrial peace
and harmony by providing mechanism and procedure for the investigation and settlement of
industrial disputes by conciliation, arbitration and adjudication which is provided under the
statute. The main and ultimate objective of this act is "Maintenance of Peaceful work culture in
the Industry in India" which is clearly provided under the Statement of Objects & Reasons of the
statute.

The laws apply only to the organised sector. Chapter V talks about the most important and often
in news topic of 'Strikes and Lockouts'. It talks about the Regulation of strikes and lockouts and
the proper procedure which is to be followed to make it a Legal instrument of 'Economic
Coercion' either by the Employer or by the Workmen. Chapter V-B, introduced by an amendment
in 1976, requires firms employing 300 or more workers to obtain government permission for
layoffs, retrenchments and closures. A further amendment in 1982 (which took effect in 1984)
expanded its ambit by reducing the threshold to 100 workers.

The Act also lays down:

The provision for payment of compensation to the workman on account of closure or lay off or
retrenchment.
The procedure for prior permission of appropriate Government for laying off or retrenching the
workers or closing down industrial establishments

Unfair labour practices on part of an employer or a trade union or workers.

Applicability

The Industrial Disputes Act extends to whole of India and applies to every Industry and its various
industrial establishment carrying on any business, trade, manufacture or distribution of goods
and services irrespective of the number of workmen employed there in.

Every person employed in an establishment for hire or reward including contract labour,
apprentices and part-time employees to do any manual, clerical, skilled, unskilled, technical,
operational or supervisory work, is covered by the Act.

This Act though does not apply to persons mainly in managerial or administrative capacity,
persons engaged in a supervisory capacity and drawing > 10,000 p.m or executing managerial
functions and persons subject to Army Act, Air Force and Navy Act or those in police service or
officer or employee of a prison.

Related Sections of The Act

Section 1 : Short title, and commencement

Important Definitions

Section 2A : Appropriate Government

Any industry carried on by or under the authority of the Central Govt, or by a railway company
or a Dock Labour Board, or the Industrial Finance Corporation of India Ltd, or the ESIC, or the
board of trustees of the Coal Mines PF, or FCI, or LIC or in relation to any other industrial dispute,
the state Government.

Section 2J : Industry

The definition of Industry under the Act is taken from the Supreme Court's judgment in
Bangalore water Supply and Sewerage Board v. A. Rajappa.

Triple Test formulae The organization is Prima Facie an industry if it is

1. A systematic activity

2. Organized by co-operation between an employer and an employee

3. for the production of goods and services calculated to satisfy human wants and wishes. (not
spiritual or pious in nature but inclusive of material things or services geared to seek celestial
bliss)

Section 2BB: Banking company

Section 2G : Employer

Section 2J : Industry

Section 2K : Industrial dispute

Section 2A : Industrial dispute between individual and employer

Section 2KA: Industrial establishment or undertaking

Section 2KK: Insurance company

Section 2LA: Major port

Section 2LB: Mine

Section 2N : Public utility service

Section 2O : Railway Company

Section 2RR: Wages

Section 2S : Workmen (Including an Apprentice)industrial act

Collective Bargaining; Industrial Employment (Standing Order) Act, 1946

Earlier the economic law of demand and supply in the labour market settled mutually beneficial
bargain between the employer and the workman. It was taken as granted that such a bargain
would secure fair terms and conditions of employment to the workmen.

They had an abiding faith in the unity of this law. But the working of this law has belied their faith.
Later workmen found that they did not possess adequate bargaining strength to secure fair terms
and conditions of service, they organized themselves in trade unions and insisted on collective
bargaining with the employer. The advent of trade unions and collective bargaining created new
problems for maintaining industrial peace and production for the society.

Workmen started putting forth their demands. Recognizing the rough deal that was being given
to the workers by employers who would not define their conditions of service and the
inevitability of industrial strife in such a situation, the legislature made an attempt to intervene
by introducing the Industrial Employment (Standing Orders) Bill, 1946.
Experience has shown that 'standing orders' defining the conditions of recruitment, discharge,
disciplinary action, holidays, leave, etc., go a long way towards minimizing friction between the
management and workers in industrial undertakings.

Discussion on the subject at the tripartite Indian Labour Conference revealed a consensus of
opinion in favor of legislation. The Bill accordingly seeks to provide for the framing of 'standing
orders ' in all industrial establishments employing one hundred or more workers.In the first
instance, the Act will apply to the categories of industrial establishments specified in clause (2)(e),
which include, besides factories and railways, mines, quarries and oil fields, tramway or motor,
omnibus services, docks, wharves and jetties, inland steam vessels, plantations and workshops.
Government will be competent to extend the Act to other classes of industrial establishments or
to grant exemptions where necessary, by notification.Within 6 months from the date on which

The Act becomes applicable to an industrial establishment the employer is required to frame
draft 'standing orders' and submit them to the Certifying Officer for certification. The draft should
cover all the matters specified in the Schedule to the Act and any other matter that Government
may prescribe by rules. The Certifying Officer will be empowered to modify or add to the draft
standing orders so as to render them certifiable under the Act. It will not be his function (nor of
the Appellate Authority) to adjudicate upon their fairness or reasonableness. There will be a right
of appeal against the decisions of the Certifying Officers.The Industrial Employment (Standing
Orders) Bill, 1946 was passed by the legislature and it received the assent on 23rd April, 1946. It
came on the statute book as the Industrial Employment (Standing Orders) Act, 1946 (20 of 1946).

LIST OF AMENDING ACTS AND ADAPTATION ORDERS

1. The Indian Independence (Adaptation of Central Acts and Ordinances) Order, 1948

2. The Adaptation of Laws Order, 1950

3. The Part B States (Laws) Act, 1951 (3 of 1951)

4. The Industrial Disputes (Amendment and Miscellaneous Provisions) Act, 1956 (36 of 1956)

5. The Industrial Employment (Standing Orders) Amendment Act, 1961 (16 of 1961)

6. The Industrial Employment (Standing Orders) Amendment Act, 1963 (39 of 1963)

7. The Central Labour Laws (Extension to Jammu and Kashmir) Act, 1970 (51 of 1970)

8. The Industrial Employment (Standing Orders) Amendment Act, 1982 (18 of 1982)
Industrial employment (standing orders) act 1946
The Act makes it obligatory for employers of an industrial establishment where 100 or more
workers are employed to clearly define the conditions of employment, by way of standing orders
/ services rules and to make them known to the workmen employed. However in the State of
Haryana, the Act applies to an industrial establishment where 50 or more workmen are employed
or were employed in the preceding 12 months.

The employer is required to prepare draft standing order, which he proposes to adopt and submit
the same to the Certifying Officers for certification in accordance with the provisions of Section
3 of the Act. The employer is required to act in conformity with the certified standing orders in
dealing with the day today affairs of the workmen. Certified standing orders have the force of
the law like any other enactment. Where the number of workmen is less than 50 the Model
Standing Orders provided in Schedule I of the Rules will be applicable.

Administrative Machinery
The Joint Labour Commissioner has been appointed Certifying Officer for the purpose of
certification of the proposed standing orders of the respective areas under their control.
Industrial Tribunal-I is the Appellate authority under the Act.

Procedure

On receipt of five copies of the draft under Section 3 and the statement of description of
workmen employed in the establishment under Rule 5 the Certifying Officer shall forward a copy
there of to the trade union, if any or the workmen, or where there is no such trade union, then
to the representatives of the workmen duly elected by the workmen in accordance with the
provisions of Rule 6 of the Rules. After giving both the parties a notice of fifteen days will afford
an opportunity of being heard and explain the implications of the provisions. After due
consideration and rectification if necessary the Certifying Officer shall certify the draft and
provide the parties with a copy each of the certified draft.

Penalty

The Act provides that in case the employer fails to submit the draft standing orders, a fine up to
Rs. 5,000/- can be imposed and in case of contravention of the standing orders, a fine up to Rs.
100/- and in case of continuance of the offence, further fine up to Rs. 25/- for each such day can
be imposed.

The Workmen's Compensation Act,1923

The compensation act for workmen was formed after it came into notice that the labourer s were
becoming exposed to the danger by using more sophisticated and advanced
machinery.According to the compensation act of 1884, the employer would take responsibility
for thecompensation of its workmen only when some major or fatal accidents occur on road.
However,in 1885, the mining and factory inspectors realized that this Fatal Act, 1885, is not
sufficient.

The Government gave it a hearing ear, when the Legislative Assembly members,
representativesof employer, experts in medicine, workers, and insurance experts formed a
committee thatprovided a report that led to the Workmen’s Compensation Act, 1923.

When this act was passed, it put a stop and provided relief to the workers who would have
gonethrough the processing of court that is generally expensive. It was an effort to
seekcompensation whenever they encounter some injury during employment.

Scope of Workmen’s Compensation Act

The workmen’s compensation act, 1923, is applicable for those workers who are working withan
industry that is mentioned in the act. Under this act, the protection of workmen from injuriesand
losses caused through an accident in course of and arising out of the employment subjectto
specific expectations as mentioned in the act.
The objective of the Workmen's Compensation Act

The Workmen’s Compensation Act, 1923 was majorly formed to provide compensation to
theworkmen at the time of an accident.

The act mentions that it is the duty and responsibility of the employer to include the welfare of
the workers when an injury is the result of the employment in the same way the employer has
reserved the right of making profits. The main aim of this act is to ensure that the workmen have
sustainable life even after encountering an employment-related injury.

The Liability of the Employer for Compensation

To make the employer pay the compensation at the time of injury or death suffered by the
employee or workman should be a consequence of some accident in course of or out of his/her
employment depends on the following four conditions:

The causal connection between the accident and the injury (which is personal injury is caused to
a workman while he/she is on work).

The probability is based on the reason that work has contributed because of personal injury. The
accident and injury that is caused during the employment course.

The applicant who proves that the accident or injury occurred during work and its results strain
that has aggravated or contributed to the injury.

Applicability of the Workmen’s Compensation Act

This act is applicable across India except for Jammu and Kashmir. This act does not apply to
theareas that are covered by the Employees State Insurance Act, 1948. The Rules for Workmen’s
Compensation HaveChanged in 2020There is good news for the workers as the Central
Government has changed the rules for thecalculation of the compensation of the employees
under the Workmen's Compensation Act,1923. The notification for the same has sent on
3rdJanuary 2020 in which the amount of the wages, which were considered previously for
compensation’s calculation was Rs.8, 000, are nowincreased to Rs.15, 000 as per the Ministry of
Labour and Employment.

Since 2010, the Workmen's Compensation Act, 1923 was known as the Employee’sCompensation
Act. It offers compensation to the employees who suffer or die total or partialdisablement
because of an accident while on work. The compensation is paid by the employerand an
employee who is eligible to get compensation from ESIC cannot claim compensationunder the
Employee’s Compensation Act, 1923.

Conditions When Employer is Not Liable to Pay Compensation

According to the workmen's compensation act, an employer has to pay the compensation to
itsemployee when he/she encounters some personal injury due to an accident that arose
duringan employee's employment. An employer is not liable for paying the compensation if:
An injury that doesn’t result in partial or total disablement of the employee for more than three
days.

Any injury that does not result in permanent total disability or death because of an accident in
the influence of drugs or drink.

If an employee meets with an accident that is caused because of wilful disobedience of the rules
by him/her and wilful safety guard removal.

Calculation of the Compensation

The calculation of compensation as per the act is performed according to the provisions
underSection four of the Workmen’s Compensation Act:

In Case of an Accident that Results in Permanent Total Disablement: In this case, an amount equal
to 60% of injured employee’s monthly wage into the relevant factor or Rs.1, 20, 000, whichever
is more is given.

When an Accident Results in Death: An amount that is equal to 50% of the monthly wage of the
deceased employee into the relevant factor or an amount equal to Rs.1, 20, 000, whichever is
more.

Note: According to the new rule mentioned by the government, Rs.15, 000 is considered aswage
for computation under the workmen's compensation act, 1923. The relevant factor here
isprovided in Section IV of this Act

The Building & Other Construction Workers (Regulation of Employment

&Conditions of Service) Act,1996 and rules 1998
An Act to regulate the employment and conditions of service of building and other construction
workers and to provide for their safety, health and welfare measure and for other matter
connected therewith or incidental thereto.

The Union Cabinet approved the Amendment to the Building and Other Construction Workers
(Regulation of Employment and Conditions of Service) { BOCW (RECS)} Act, 1996 and Building and
Other Construction Workers’ Welfare Cess Act, 1996 and the introduction of the Building and
Other Construction Workers Related Laws (Amendment) Bill, 2012 in Parliament in its ensuing
session.

This amendment will streamline the process of the registration of the construction workers. The
State Welfare Boards will be able to consolidate their finances and incur expenditure on
administrative and other purpose for smooth functioning of the Board. The amendments will
facilitate speedy implementation of these Acts by the Central and the State Governments.
The provisions in the Amendment are given below :

1. Empower the Central Government to specify the maximum cost of construction by notification,
in place of the present limit of Rs.10 lakh, which shall fall within the definition of establishment
under the BOCW (RECS) Act.

2. The prerequisite condition of engagement of ninety days for registration of workers under the
BOCW (RECS) Act is proposed to be done away with. Moreover, in order to extend benefits to
the workers, who are engaged in building and construction work after attaining the age of sixty
years, the criteria of upper age limit of sixty years is proposed to be done away with.

3. To empower the Central Government to notify such percentage of total expenditure, in place
of existing 5 percent during the financial year, for meeting administrative expenses by the State
Building and Other Construction Workers Welfare Board.

4. To empower Central Government to appoint such number of Director Generals not exceeding
10 to coordinate with the Central Government in carrying out its responsibility of laying down
the standard of inspection and to exercise the power of an inspector.

5. To empower the State Governments to file complaints for contravention of provisions of the
Act.

6. To prescribe a time limit of 30 days for cess collecting authorities to deposit cess to the State
Building and Other Construction Workers Welfare Board.

7. To constitute a Committee consisting of Secretary (Labour), Secretary (Finance), Secretary

(Planning) and Secretary (Social Welfare) of the State for performing the functions of the State
Building and Other Construction Workers Welfare Board till such time a Board is formally
constituted by the State Government.

An Act to provide for the levy and collection of a cess on the cost of construction incurred by
employers with a view to augmenting the resources of the Building and Other Construction
Workers 'Welfare Boards constituted under the Building and Other Construction Workers
(Regulation of Employment and Conditions of Service) Act, 1996. Levy and collection of cess.–

There shall be levied and collected a cess for the purposes of the Building and Other Construction
Workers (Regulation of Employment and Conditions of Service) Act, 1996, at such rate not
exceeding two per cent. but not less than one per cent. of the cost of construction incurred by
an employer, as the Central Government may, by notification in the Official Gazette, from time
to time specify.

The cess levied under sub-section (1) shall be collected from every employer in such manner and
at such time, including deduction at source in relation to a building or other construction work of
a Government or of a public sector undertaking or advance collection through a local authority
where an approval of such building or other construction work by such local authority is required,
as may be prescribed.
The proceeds of the cess collected under sub-section (2) shall be paid by the local authority or
the State Government collecting the cess to the Board after deducting the cost of collection of
such cess not exceeding one per cent. of the amount collected.

Notwithstanding anything contained in sub-section (1) or sub-section (2), the cess leviable under
this Act including payment of such cess in advance may, subject to final assessment to be made,
be collected at a uniform rate or rates as may be prescribed on the basis of the quantum of the
building or other construction work involved.

Furnishing of returns.–

Every employer shall furnish such return to such officer or authority, in such manner and at such
time as may be prescribed.

If any person carrying on the building or other construction work, liable to pay the cess under
section 3, fails to furnish any return under sub-section (1), the officer or the authority shall give
a notice requiring such person to furnish such return before such date as may be specified in the
notice.

Assessment of cess. –

The officer or authority to whom or to which the return has been furnished under section 4 shall,
after making or causing to be made such inquiry as he or it thinks fit and after satisfying himself
or itself that the particulars stated in the return are correct, by order, assess the amount of cess
payable by the employer.

If the return has not been furnished to the officer or authority under sub-section (2) of section 4,
he or it shall, after making or causing to be made such inquiry as he or it thinks fit, by order,
assess the amount of cess payable by the employer.

An order of assessment made under sub-section (1) or sub-section (2) shall specify the date
within which the cess shall be paid by the employer.

Power to exempt. –

Notwithstanding anything contained in this Act, the Central Government may, by notification in
the Official Gazette, exempt any employer or class of employers in a State from the payment of
cess payable under this Act where such cess is already levied and payable under any
corresponding law in force in that State.

Power of entry. –

Any officer or authority of the State Government specially empowered in this behalf by that
Government may-

with such assistance, if any, as he or it may think fit, enter at any reasonable time any place where
he or it considers it necessary to enter for carrying out the purposes of this Act including
verification of the correctness of any particulars furnished by any employer under section 4;
do within such place anything necessary for the proper discharge of his or its duties under this
Act; and

exercise such other powers as may be prescribed.

Interest payable on delay in payment of cess. –

If any employer fails to pay any amount of cess payable under section 3 within the time specified
in the order of assessment, such employer shall be liable to pay interest on the amount to be
paid at the rate of two per cent. for every month or part of a month comprised in the period from
the date on which such payment is due till such amount is actually paid.

Penalty for non-payment of cess within the specified time. –

If any amount of cess payable by any employer under section 3 is not paid within the date
specified in the order of assessment made under section 5, it shall be deemed to be in arrears
and the authority prescribed in this behalf may, after making such inquiry as it deems fit, impose
on such employer a penalty not exceeding the amount of cess:

Provided that, before imposing any such penalty, such employer shall be given a reasonable
opportunity of being heard and if after such hearing the said authority is satisfied that the default
was for any good and sufficient reason, no penalty shall be imposed under this section.

Recovery of amount due under the Act.–

Any amount due under this Act (including any interest or penalty) from an employer may be
recovered in the same manner as an arrear of land revenue.

Appeals. –

Any employer aggrieved by any order of assessment made under section 5 or by an order
imposing penalty made under section 9 may, within such time as may be prescribed, appeal to
such appellate authority in such form and in such manner as may be prescribed.

Every appeal preferred under sub-section (1) shall be accompanied by such fees as may be
prescribed.

After the receipt of any appeal under sub-section (1), the appellate authority shall, after giving
the appellant an opportunity of being heard in the matter, dispose of the appeal as expeditiously
as possible. (4) Every order passed in appeal under this section shall be final and shall not be
called in question in any Court of law.

Penalty. –
Whoever, being under an obligation to furnish a return under this Act, furnishes any return
knowingly, or having reason to believe, the same to be false shall be punishable with
imprisonment which may extend to six months, or with fine which may extend to one thousand
rupees, or with both.

Whoever, being liable to pay cess under this Act, wilfully or intentionally evades or attempts to
evade the payment of such cess shall be punishable with imprisonment which may extend to six
months, or with fine, or with both.

No Court shall take cognizance of an offence punishable under this section save on a complaint
made by or under the authority of the Central Government.

Offences by companies. –

Where an offence under this Act has been committed by a company, every person who, at the
time the offence was committed, was in charge of, and was responsible to, the company for the
conduct of the business of the company, as well as the company, shall be deemed to be guilty of
the offence and shall be liable to be proceeded against and punished accordingly:

Provided that nothing contained in this sub-section shall render any such person liable to any
punishment if he proves that the offence was committed without his knowledge or that he had
exercised all due diligence to prevent the commission of such offence.

Notwithstanding anything contained in sub-section (1), where an offence under this Act has been
committed with the consent or connivance of, or is attributable to any neglect on the part of, any
director, manager, secretary or other officer of the company, such director, manager, secretary
to other officer shall also be deemed to be guilty of that offence and shall be liable to be
proceeded against and punished accordingly.

RERA act 2017

Real Estate Regulation Act (RERA) Rules came into effect from 1st May, 2017. This is good news
for home buyers who have been cheated by real estate developers and agents. RERA Rules would
help to protect Home Buyers and provide Transparency between buyers, real estate developers
and agents. What does these New Rules from RERA talk about? How does such Real Estate
Regular Act Rules help to boost real estate sector? Which are those points buyers should know
from these new Real Estate Regular Act Rules 2017

Real Estate Regulation Act was formulated by Govt. of India in the aim to keep transparency
between buyers and real estate developers and agents. Many developers have been cheating in
several ways to buyer and none of the current real estate rules are helping the buyers. These
new rules would come into effect from 1st May, 2017. These new rules would help buyers in
several ways. However, buyer needs to understand about these rules and the precautions he
need to make while buying the projects.

12 Key Points from Real Estate Regulation Act (RERA)

1) These new rules are formulated by Govt. of India as model law, however given flexibility to
States to modify / add their own rules. Since the land belongs to State, this flexibility is given to
the States.

2) Currently 6 states have formulated the law including Gujarat, Odisha, Andhra Pradesh, Madhya
Pradesh, Uttar Pradesh and Bihar. Means these states are ready to go with the new rules. Other
state would be joining this law very soon.

3) RERA protects buyers in the real estate projects. They are the king now.

4) As per Real Estate Regulation Act, real estate developers and agents need to register with State
Real Estate Regulatory Authority by 30th July. They would then come under the purview of RERA
act. When you buy a property consider checking this aspect so that you are protected from now
on.

5) As per RERA, Real Estate Developer need to deposit 70% of the funds collected from buyers in
separate bank account created for the projects. They need to use these funds only for the
construction of the projects to see timely completion of the projects. Any deviation in this would
attract penalty including imprisonment.

6) New Projects should obtain all approvals before the launch of the project. Currently buyers
are cheated saying all approvals are in “closure” stage, then later on saying there is delay in
getting approvals and delaying in the project. Any false statement regarding this would attract
penalty including imprisonment.

In case, real estate developer wants to make any structural changes after the start of the project,
it needs to take 2/3rd of the buyers consent. Without such consent, no structural changes can be
made.

8) Real Estate Developer would be penalized including imprisonment upto 3 years in case of any
delay in the projects or incase he makes any change to what has been promised in the project.

9) Real Estate Developer should provide all project details on Real Estate Regulator website and
provide regular updates on construction progress.

10) Should rectify the defects bought buy buyer to the notice by the promoter within 5 years
from the date of the possession.
11) In case of delay in the possession from developer side, they need to pay 2% interest above
SBI Lending rate to the buyer.

12) As per RERA guidelines, developer should sell the projects only based on carpet area where
buyer can use. In case of defaulter they would be imprisoned for 3 years.

NBC 2017

National Building Code of India covers the detailed guidelines for construction, maintenance and
fire safety of the structures. National Building Code of India is published by Bureau of Indian
Standards and it is recommendatory document. Guidelines were issued to the States to
incorporate the recommendations of National Building Code into their local building bylaws
making the recommendations of National Building Code of India as mandatory requirement.

This office has also issued advisories on 18th April, 2017 to all the State Governments to
incorporate and implement the latest National Building Code of India 2016 Part – IV “Fire & Life
Safety” in their building bye-laws.

Role of Fire Service in India broadly is extinguishing fire and protecting life and property in case
of fire. Fire Service role has changed dramatically in the last few years. Some changes were
influenced by external forces, while the impetus for others was the organization itself. All these
changes have increased the risk of the profession.

The fire service now responds to hazardous material incidents, advanced emergency medical
situations, high angle rescue and confined space rescue incidents, trench and collapse
operations, underwater rescue and more.

It has been said that "when the experts panic, they call the fire department." In the immediate
aftermath of any disaster coordinated search and rescue efforts are critical to saving lives and
property. Past experience has shown that in the exigencies of disasters, whether it be a large
scale or comparatively smaller ones the armed forces are frequently called upon to assist the civil
authorities.
However, the mobilization and deployment of armed forces for search and rescue delays
response time which is critical for the survival of disaster victims. It is necessary that districts
and States should have their own arrangements for carrying out search and rescue operations
immediately after a disaster. Enhancement of search and rescue capabilities of the State and
districts for quick response will save lives. This can be achieved with the minimum of additional
cost by developing the Fire Services as multi hazard response units.
UNIT V

LAW RELATING TO INTELLECTUAL PROPERTY

Introduction to Intellectual property

Intellectual property (IP) is a term referring to creation of the intellect (the term used in studies
of the human mind) for which a monopoly (from greek word monos means single polein to sell)
is assigned to designated owners by law. Some common types of intellectual property rights (IPR),
in some foreign countries intellectual property rights is referred to as industrial property,
copyright, patent and trademarks, trade secrets all these cover music, literature and other artistic
works, discoveries and inventions and words, phrases, symbols and designs. Intellectual Property
Rights are themselves a form of property called intangible property.

Although many of the legal principles governing IP and IPR have evolved over centuries, it was
not until the 19th century that the term intellectual property began to be used and not until the
late 20th century that it became commonplace in the majority of the world.

What is a property?

Property designates those things that are commonly recognized as being the possessions of an
individual or a group. A right of ownership is associated with property that establishes the good
as being "one's own thing" in relation to other individuals or groups, assuring the owner the right
to dispense with the property in a manner he or she deems fit, whether to use or not use, exclude
others from using, or to transfer ownership.`

Properties are of two types - tangible property and intangible property i.e.
Tangible Property is one that is physically present and the other which is not in any physical form.
Building, land, house, cash, jewelry are few examples of tangible properties which can be seen
and felt physically.

Intangible Property - On the other hand there is a kind of valuable property that cannot be felt
physically as it does not have a physical form.

Intellectual property is one of the forms of intangible property which commands a material value
which can also be higher than the value of a tangible asset or property.

What is Intellectual Property?

Intellectual property is an intangible creation of the human mind, usually expressed or translated
into a tangible form that is assigned certain rights of property. Examples of intellectual property
include an author's copyright on a book or article, a distinctive logo design representing a soft
drink company and its products, unique design elements of a web site, or a patent on the process
to manufacture chewing gum.

What is Intellectual Property Rights?

Intellectual property rights (IPR) can be defined as the rights given to people over the creation of
their minds. They usually give the creator an exclusive right over the use of his/her creations fora
certain period of time.

Intellectual property (IP) refers to creations of the mind: inventions, literary and artistic works
,and symbols, names, images, and designs used in commerce.

Types of Intellectual Property

The term intellectual property is usually thought of as comprising four separate legal fields:

Trademarks

Copyrights

Patents

Trade secrets
Trademarks and Service Marks: A trademark or service mark is a word, name, symbol, or device
used to indicate the source, quality and ownership of a product or service. A trademark is used
in the marketing is recognizable sign, design or expression which identifies products or service
of a particular source from those of others. The trademark owner can be an individual, business
organization, or any legal entity. A trademark may be located on a package, a label, a voucher or
on the product itself. For the sake of corporate identity trademarks are alsobeing.

General Logos:

The Trademark Registration Logo

In addition to words, trademarks can also consist of slogans, design, or sounds. Trademark
provides guarantee of quality and consistency of the product or service they identify. Companies
expend a great deal of time, effort and money/ in establishing consumer recognition of and
confidence in their marks.

Federal Registration of trademarks:

Interstate use of trademarks is governed by federal law, namely, the United States Trademark
Act (also called the Lanham Act), found at 15 U.S.C 1051et seq. In the United States, trademarks
are generally protected from their date of first public use. Registration of a mark is not required
to secure protection for a mark, although it offers numerous advantages, such as allowing the
registrant to bring an action in federal court for infringement of the mark.

Applications for federal registration of trademarks are made with the PTO. Registration is a fairly
lengthy process, generally taking anywhere from twelve to twenty-four months or even longer.
The filing fee is $335 per mark (Present $225 per class) per class of goods or services covered by
the mark.

A trademark registration is valid for 10 years and may be renewed for additional ten year periods
thereafter as long as the mark is in used in interstate commerce. To maintain a mark the registrant
is required to file an affidavit with the PTO between the fifth and sixth year after registration and
every ten years to verify the mark is in continued use. Marks not in use are then available
toothers.

A properly selected, registered and protected mark can be of great value to a company or
individual desiring to establish and expand market share and better way to maintain a strong
position in the marketplace.

Copyrights: Copyright is a form of protection provided by U.S. law (17 U.S.C 101 et seq) to the
authors of "original works of authorship" fixed in any tangible medium of expression. The manner
and medium of fixation are virtually unlimited. Creative expression may be captured in words,
numbers, notes, sounds, pictures, or any other graphic or symbolic media. The subject matter of
copyright is extremely broad, including literary, dramatic, musical, artistic, audiovisual, and
architectural works. Copyright protection is available to both published and unpublishedworks.

Copyright protection is available for more than merely serious works of fiction or art. Marketing
materials, advertising copy and cartoons are also protectable. Copyright is available for original
working protectable by copyright, suchas titles, names, short phrases, or lists of ingredients.
Similarly, ideas methods and processes are not protectable by copyright, although the expression
of those ideas is.

Copyright protection exists automatically from the time a work is created in fixed form. The
owner of a copyright has the right to reproduce the work, prepare derivative works based on the
original work (such as a sequel to the original), distribute copies of the work, and to perform and
display the work. Violations of such rights are protectable by infringement actions. Nevertheless,
some uses of copyrighted works are considered “fair use” and do not constitute infringement,
such as use of an insignificant portion of a work for noncommercial purposes or parody of a
copyrighted work.

Definition:

General Definition of copyright “Copyright owner”, with respect to any one of the exclusive rights
comprised in a copyright, refers to the owner of that particular right.

Examples:

1. Writings

2. Paintings

3. Musical works

4. Dramatics works

5. Audiovisual works

6. Sound recordings

7. Photographic works

8. Broadcast

9. Sculpture

10. Drawings

11. Architectural works etc.

Federal Registration of Copyrights: The works are protected under federal copyright law from the
time of their creation in a fixed form. Registration, however, is inexpensive, requiring only a $30
(present$85) filing fee, and the process is expeditious. In most cases, the Copyright Office
processes applications within four to five months.
Copyrighted works are automatically protected from the moment of their creation for a term
generally enduring for the author’s life plus an additional seventy years after the author’s death.
The policy underlying the long period of copyright protection is that it may take several year for
a painting, book, or opera to achieve its true value, and thus, authors should receive a length of
protection that will enable the work to appreciate to its greatest extent.

Patents: A patent for an invention is the grant of a property right to the inventor, issued by the
United States Patent and Trademark Office. Generally, the term of a new patent is 20 years from
the date on which the application for the patent was filed in the United States or, in special cases,
from the date an earlier related application was filed, subject to the payment of maintenance
fees. U.S. patent grants are effective only within the United States, U.S. territories, and U.S.
possessions. Under certain circumstances, patent term extensions or adjustments may
beavailable.

The right conferred by the patent grant is, in the language of the statute and of the grant itself,
“the right to exclude others from making, using, offering for sale, or selling” the invention in the
United States or “importing” the invention into the United States. What is granted is not the right
to make, use, offer forsale, sell or import, but the right to exclude others from making, using,
offering for sale, selling or importing the invention. Once a patent is issued, the patentee must
enforce the patent without aid of the USPTO.

There are three types of patents:

Utility patents may be granted to anyone who invents or discovers any new and useful process,
machine, article of manufacture, or composition of matter, or any new and useful improvement
thereof.

Design patents may be granted to anyone who invents a new, original, and ornamental design
for an article of manufacture; and

Plant patents may be granted to anyone who invents or discovers and asexually reproduces any
distinct and new variety ofplant.

Federal Registration of Copyrights: Patents are governed exclusively by federal law (35 U.S.C 100
et seq). To obtain a patent, an inventor must file an application with the PTO (the same agency
that issues trademark registration) that fully describes the invention. Patent prosecution is
expensive, time consuming and complex. Costs can run into the thousands of dollars, and it
generally takes over two year for the PTO to issue apatent.
Patent protection exists for twenty years from the date of filing of an application for utility and
patents and fourteen years from the date of grant for design patents. After this period of time,
the invention fall into the public domain and may be used by any person without permission.

The inventor is granted an exclusive but limited period of time within which to exploit the
invention. After the patent expires, any member of the public is free to use, manufacture, or sell
the invention. Thus, patent law strikes a balance between the need to protect inventors and the
need to allow public access to importantdiscoveries.

Trade Secrets: A trade secret consists of any valuable business information. The business secrets
are not to be known by the competitor. There is no limit to the type of information that can be
protected as trade secrets;

For Example: Recipes, Marketing plans, financial projections, and methods of conducting
business can all constitute trade secrets. There is no requirement that a trade secret be unique
or complex; thus, even something as simple and nontechnical as a list of customers can qualify as
a trade secret as long as it affords its owner a competitive advantage and is not
commonknowledge.

If trade secrets were not protectable, companies would no incentive to invest time, money and
effort in research and development that ultimately benefits the public. Trade secret law thus
promotes the development of new methods and processes for doing business in the marketplace.

Protection of Trade Secrets: Although trademarks, copyrights and patents are all subject to
extensive statutory scheme for their protection, application and registration, there is no federal
law relating to trade secrets and no formalities are required to obtain rights to trade secrets.
Trade secretsare protectable under various state statutes and cases and by contractual
agreements between parties.

For Example: Employers often require employees to sign confidentiality agreements in which
employees agree not to disclose proprietary information owned by the employer.

If properly protected, trade secrets may last forever. On the other hand, if companies fail to take
reasonable measures to maintain the secrecy of the information, trade secret protection may be
lost. Thus, disclosure of the information should be limited to those with a “need to know” it so
as to perform their duties, confidential information should be kept in secure or restricted areas,
and employees with access to proprietary information should sign nondisclosure agreements. If
such measures are taken, a trade secret can be protected inperpetuity.

Another method by which companies protect valuable information is by requiring employee to

sign agreements promising not to compete with the employer after leaving the job. Such
covenants are strictly scrutinized by courts, but generally, if they are reasonable in regard to time,
scope and subject matter, they are enforceable.

Agencies Responsible For Intellectual Property Registration

United States Patents and Trademark Office:

The agency charged with granting patents and registering trademarks is the United States Patent
and Trademark Office (PTO), one of fourteen bureaus within the U.S. Department of Commerce.
The PTO, founded more than two hundred years ago, employs nearly 700 (present 1000 employs)
are working. At present it is located in 18 building in Arlington, Virginia. Its official mailing address
is Commissioner of Patents and Trademarks, Washington, DC 20231.

The PTO is physically located at 2900 Crystal Drive in Arlington, Virginia. Its web site is and offers
a wealth of information, including basic information about trademarks and patents, fee
schedules, forms, and the ability to search for trademarks and patents. Since 1991, under the
Omnibus Budget Reconciliation Act, the PTO has operated in much the same way as a private
business, providing valued products and services to customers in exchange for fees that are used
to fully fund PTOoperations.

It uses no taxpayer funds. The PTO plans to move all of its operations to Alexandria, Virginia, by
mid-2005. The PTO is one of the busiest of all government agencies, and as individuals and
companies begin to understand the value of intellectual property, greater demands are being
made on thePTO.

Legislation passed in 1997 established the PTO as a performance-based organization that is

managed by professionals, resulting in the creation of a new political position, deputy secretary
of commerce for intellectual property. In brief, the PTO operates more like a business with
greater autonomy over its budget, hiring, and procurement. U.S patents issued its first patent in
1790. Since 1976 the text and images of more than three million are pending for registration.
The PTO is continuing its transition filing for both trademarks and from paper to electronic filing
for both trademarks andpatents.

The PTO is led by the Under Secretary of Commerce for Intellectual Property and Director of the
United States Patent and Trademark Office (the “Director”), who is appointed by the President.
The Secretary of Commerce appoints a Commissioner for Patents and a Commissioner for
Trademarks. Citations to many cases in this text will be to “U.S.P.Q”., a reference to United States
Patent Quarterly, a reporter of cases decided by the Trademark Trial and Appeal Board (TTAB) as
well as patent and copyrightcases.

International Organizations, Agencies And Treaties

There are a number of International organizations and agencies that promote the use and
protection of intellectual property. Although these organizations are discussed in more detail in
the chapters to follow, a brief introduction may behelpful:

International Trademark Association (INTA) is a not-for-profit international association

composed chiefly of trademark owners and practitioners. It is a global association. Trademark
owners and professionals dedicated in supporting trademarks and related IP in order to protect
consumers and to promote fair and effective commerce. More than 4000 (Present 6500 member)
companies and law firms more than 150 (Present 190 countries) countries belong to INTA,
together with others interested in promoting trademarks. INTA offers a wide variety of
educational seminars and publications, including many worthwhile materials available at no cost
on the Internet. INTA members have collectively contributes almost US $ 12 trillion to global GDP
annually. INTA undertakes advocacy [active support] work throughout the world to advance
trademarks and offers educational programs and informational and legal resources of global
interest. Its head quarter in New York City, INTA also has offices in Brussels, Shanghai and
Washington DC and representative in Geneva and Mumbai. This association was founded in 1878
by 17 merchants and manufacturers who saw a need for an organization. The INTA is formed to
protect and promote the rights of trademark owners, to secure useful legislation (the process of
making laws), and to give aid and encouragement to all efforts for the advancement and
observance of trademark rights.

World Intellectual Property Organization (WIPO) was founded in 1883 and is specialized agency
of the United Nations whose purposes are to promote intellectual property throughout the world
and to administer 23 treaties (Present 26 treaties) dealing with intellectual property. WIPO is one
of the 17 specialized agencies of the United Nations. It was created in 1967, to encourage creative
activity, to promote the protection of Intellectual Property throughout the world. More than 175
(Present 188) nations are members of WIPO. Its headquarters in Geneva, Switzerland, current
Director General of WIPO is Francis Gurrytook charge on October 1, 2008. The predecessor to
WIPO was the BIRPI [Bureaux for the Protection of Intellectual Property] it was established in
1893. WIPO was formally created by the convention (meeting) establishing the world intellectual
Property organization which entered into force on April 26 1970.

Berne Convention for the Protection of Literary and Artistic Works (the Berne Convention) An
International copyright treaty called the convention for the protection of Literary and Artistic
works signed at Berne, Switzerland in 1886 under the leadership of Victor Hugo to protect literary

and artistic works. It has more than 145 member nations. The United States became a party to
the Berne Convention in 1989. The Berne Convention is administered by WIPO and is based on
the precept that each member nation must treat nation must treat nationals of other member
countries like its own nationals for purposes of copyright (the principle of “nation treatment”).
In addition to establishing a system of equal treatment that internationalized copyright amongst
signatories, the agreement also required member states to provide strong minimum standards
for copyrights law. It was influenced by the French “right of the author”.

Madrid Protocol It is a legal basis is the multilateral treaties Madrid (it is a city situated in Spain)
Agreement concerning the International Registration of Marks of 1891, as well as the protocol
relating to the Madrid Agreement 1989. The Madrid system provides a centrally administered
system of obtaining a bundle of trademark registration in separate jurisdiction. The protocol is a
filing treaties and not substantive harmonization treaty. It provides a cost-effective and efficient
way for trademark holder. It came into existence in 1996. It allows trademark protection for more
than sixty countries, including all 25 countries of the EuropeanUnion.

Paris Convention The Paris convention for the protection of Industrial Property, signed in Paris,
France, on 20th March 1883, was one of the first Intellectual Property treaties, after a diplomatic
conference in Paris, France, on 20 March 1883 by Eleven (11) countries. According to Articles 2
and 3 of this treaty, juristic (one who has through knowledge and experience of law) and natural
persons who are either national of or domiciled in a state party to the convention. The
convention is currently still force. The substantive provisions of the convention fall into three
main categories: National Treatment, Priority right and CommonRules.

An applicant for a trademark has six months after filing an application in any of the more than
160 member nations to file a corresponding application in any of the other member countries of
the Paris Convention and obtain the benefits of the first filing date. Similar priority is afforded for
utility patent applications, although the priority period is one year rather than six months. The
Paris Convention is administered by WIPO.

North American Free Trade Agreement (NAFTA) came into effect on January 1, 1994, and is
adhered to by the United States, Canada, and Mexico. The NAFTA resulted in some changes to
U.S. trademark law, primarily with regard to marks that include geographical terms. The NAFTA
was built on the success of the Canada-U.S Free Trade Agreement and provided a compliment to
Canada’s efforts through the WTO agreements by making deeper commitments in some key
areas. This agreement has brought economic growth and rising standards of living for people in
all three countries.

General Agreement on Tariffs and Trade (GATT) was concluded in 1994 and is adhered to by most
of the major industrialized nations in the world. The most significant changes to U.S intellectual
property law from GATT are that nonuse of a trademark for three years creates a presumption
the mark has been abandoned and that the duration of utility patent is now twenty years from
the filing date of the application (rather than seventeen years from the date the patent issued,
as was previously the case).
Intellectual Property Treaties

Paris Convention For The Protection Of Industrial Property

The Paris Convention for the Protection of Industrial Property, signed in Paris, France, on March
20, 1883, was one of the first intellectual property treaties. It established a Union for the
protection of industrial property. The Convention is still in force. After a diplomatic conference
in Paris in 1880, the Convention was signed in 1883 by 11 countries: Belgium, Brazil, France,
Guatemala, Italy, the Netherlands, Portugal, El Salvador, Serbia, Spain and Switzerland.

As of December 2011, the Convention has 174 contracting member countries, which makes it
one of the most widely adopted treaties worldwide. Notably, Taiwan and Kuwait are not parties
to the Convention.

The Paris Convention is administered by the World Intellectual Property Organization (WIPO),
based in Geneva, Switzerland. The Convention applies to industrial property in the widest sense,
including patents, marks, industrial designs, utility models (a kind of “small patent” provided for
by the laws of some countries), trade names (designations under which an industrial or
commercial activity is carried on), geographical indications (indications of source and
appellations of origin) and the repression of unfair competition. India’s membership into the
convention came into force on December 7, 1998.

Berne Convention For The Protection Of Literary And Artistic Works

The Berne Convention for the Protection of Literary and Artistic Works, usually known as the
Berne Convention, is an international agreement governing copyright, which was first accepted
in Bern, Switzerland in 1886. The Convention rests on three basic principles and contains a series
of provisions determining the minimum protection to be granted, as well as special provisions
available to developing countries which want to make use of them.

The three basic principles are the following:

Works originating in one of the contracting States (that is, works the author of which is a national
of such a State or works which were first published in such a State) must be given the same
protection in each of the other contracting States as the latter grants to the works of its own
nationals (principle of “national treatment”).

(b) Such protection must not be conditional upon compliance with any formality (principle of
“automatic” protection).

(c) Such protection is independent of the existence of protection in the country of origin of the
work (principle of the “independence” of protection). If, however, a contracting State provides
for a longer term than the minimum prescribed by the Convention and the work ceases to be
protected in the country of origin, protection may be denied once protection in the country of
origin ceases. As of March 2012, there are 165 countries that are parties to the Berne Convention.
India’s membership into the convention came into force on April 1, 1928.

The Patent Cooperation Treaty (Pct)

The Patent Cooperation Treaty (PCT) is an international treaty administered by the World
Intellectual Property Organization (WIPO). The treaty was done at Washington on June 19,1970.
The PCT makes it possible to seek patent protection for an invention simultaneously in a large
number of countries by filing a single "international application” with a single patent office (i.e.
receiving Office). The PCT system simplifies the process of multi-national patent filings by
reducing the requirement to file multiple patent applications for multi-national patent rights. The

PCT international applications do not result in the issuance of “international patents” and the
International Bureau (IB) does not grant patents. The decision on whether to confer patent rights
remains in the hands of the national and/or regional patent offices, and the patent rights are
limited to the jurisdiction of the patent granting authority. The PCT procedure consists of an
international phase and a national/regional phase. The PCT international application process
starts with the international phase and concludes with the national/regional phase. The total
number of PCT filings (international patent applications filed through the Patent

Cooperation Treaty) in 2010 was approximately 164,300.

Patent Law Treaty

The Patent Law Treaty (PLT) was adopted on June 1, 2000 at a Diplomatic Conference in Geneva.
The purpose of the PLT is to harmonize and streamline formal procedures in respect of national
and regional patent applications and patents. With a significant exception for the filing date
requirements, the PLT provides maximum sets of requirements which the Office of a Contracting
Party may apply: the Office may not lay down any additional formal requirements in respect of
matters dealt with by this Treaty. This means that a Contracting Party is free to provide for
requirements that are more generous from the viewpoint of applicants and owners, but are
mandatory as to the maximum that an Office can require from applicants or owners. India is not
a contracting party to this treaty.

Importance OfIntellectal Property Rights:

Protecting Intellectual PropertyRights

Technology has led to increase awareness about the IP

Some individuals and companies offeronlyknowledge. Thus, computer consultant, advertising

agencies, Internet companies, and software implementers sell onlybrainpower.

Domain names and moving images are also beprotected

More than fifty percent of U.S. exports now depend on some form of intellectual property
protection.

The rapidity with which information can be communicated through the Internet has led to
increasing challenges in the field of intellectualproperty.

The most valuable assets a company owns are its Intellectual propertyassets.

Companies must act aggressively to protect these valuable assets from infringement (breaching,
violation of law) or misuse byothers.

The field of intellectual property law aims to protect the value of suchinvestments.

Definition of Trademark:

The modern definition of trademark is that “it is a word, name, symbol, or device or a
combination thereof, used by a person [including a business entity], or which a person has a
bonafide intention to use, to identify and distinguish his or her goods from those manufactured
by others and to indicate the source of thosegoods.”

Atrademark,trademark,ortrade-mark isarecognizablesign,designorexpression
whichidentifiesproductsorservices ofaparticularsourcefromthoseofothers.The trademark
ownercanbe an individual,business organization, or any legal entity. A
trademarkmaybelocatedonapackage,alabel,avoucherorontheproductitself.For the sake of
corporate identitytrademarks are also being displayed on company buildings.

Atrademarkisdesignatedbythe followingsymbols

™ (foranunregisteredtrade mark,thatis,a markusedto promoteorbrand goods)

â(foranunregisteredservicemark,thatis,amarkâ, superscript SMusedto promote

orbrandservices)

® (fora registeredtrademark)
What is Trademark

A trade mark (popularly known as brand name) in layman’s language is a visual

symbolwhichmaybea wordsignature,name,device,label,numeralsor combination of colors used
by one undertaking on goods or services or other articles of commerce to distinguish it
from othersimilargoodsorservicesoriginatingfroma differentundertaking.

Theselectedmarkshouldbecapableofbeingrepresentedgraphically(that isin the paperform).

Itshouldbecapableofdistinguishingthegoodsorservicesofone undertakingfromthoseofothers.

Itshouldbeusedorproposedtobeusedmarkinrelationtogoodsor
servicesforthepurposeofindicatingorsoastoindicateaconnectionin
thecourseoftradebetweenthegoodsorservicesandsomepersonhave therighttousethe
markwithorwithoutidentityofthatperson.

Trade Marks are distinctive symbols, signs, logos that help consumer to
distinguishbetweencompetinggoodsorservices.Atradenameisthenameofan
enterprisewhichindividualizestheenterpriseinconsumer’smind.Itislegallynot linked
toquality,butlinked inconsumer’smindtoqualityexpectation.

KeyFeaturesofTrademark

TrademarkmustbeDistinctive

TrademarkmustbeusedinCommerce

TypesOfTrademark

TradeMark-Atrademarksisaword, Name, Symbol, andDevise isusedto identifyand

distinguishone’s goodorservicesandto indicatetheirsource.

ServiceMark– AServiceMarkisreferstoanintangibleservice,incommon
serviceusagethetermTradeMarkisoftenisusedtorefertomarksforboth goodsandservices.

CollectiveMark–ACollectiveMarkisoneusedbyacollectivemembership organization, suchasa

labourunion,fraternity,professionalsociety,toidentify
thatthepersondisplayingthemarkisamemberoftheorganizations.

Ex:FUTUREFARMERSOFAMERICAandAMERICANBARASSOCIATION
marksindicatemembershipincertainorganizations.

CertificationMark– CertificationMarksis aword, name, symbol, devise are combinationof,used by

a personother thanitsowner tocertify thatgoodsor services have certain features in regard to
quality, material, mode of manufacture orsome other characteristic.

Ex:GoodHousekeeping

Table: 2.1

Types ofMark Example

Trade Mark COMET(For Cleanser)
Service Mark HYATT(ForLodgingServices)
Collective Mark AMERICAN BAR ASSOCIATION
Certification Mark UNION MADE(For Clothing)

For Example: the word: COCA-COLA, the stylized WAVE DESIGN, and the slogan “THINGS GO
BETTER WITH COKE”. All of these marks are used on one product and all are protected by the
Coca-Cola Company. On some occasions, companies use house marks to establish recognition in
a wide range of products or service.

Purpose And Function Of Trademark

Trademarks perform two critical functions in the marketplace: they provide assurance that goods
are of a certain quality and consistency, and they assist consumers in making decisions about the
purchase of goods.The main purpose of trademark is to show the difference about the quality of
goods and service

For Example: If a trademark such as NIKE could be counterfeited (imitating) and used by another
on inferior merchandise (goods), there would be no incentive for the owners of the NIKE mark to
produce high-quality shoes and to expend money establishing consumer recognition of the
products offered under the NIKE marks.

Thus, protection of trademarks results in increased completion in the marketplace, with both the
producer of goods and services and the consumer as the ultimate beneficiaries. Business benefit
because they can reap the rewards of their investment in developing and marketing a product
with one fearing another business will deceive consumer by using the same or a confusingly
similar mark for like goods, and consumers benefit because they are able to identify and purchase
desired and quality goods.

The value inherent in achieving consumer loyalty to a particular product or service through the
maintenance of consistent quality of the products or service offered under a mark is called
goodwill.

They identify one maker’s goods or services and distinguish them from those offered byothers

They indicate that all goods or services offered under the mark come from a single producer,
manufacturer, or“source”

They indicate that all goods or services offered under the mark are of consistent qualityand

They serve as an advertising device so that consumers link a product or service being offered with
a mark

Functions Of Trade Mark:

Trademarkperformsfourfunctions–

Itidentifiesthe goods/orservicesanditsorigin;

It guaranteesits unchangedquality;

Itadvertisesthegoods/services;

Itcreatesanimageforthegoods/services.

TradeMarkslawofIndia

TheTradeMarksAct,1999andtheTradeMarksRules,2002governthe lawrelatingtoTradeMarksin
India.

The TradeMarks Act, 1999 (TMA) protects the trademarks and their infringement can be
challenged by a passing off or/and infringement action.TheActprotectsatrademarkforgoods
orservices,onthebasisof eitheruseorregistrationoronbasisofbothelements.

WhocanapplyforTrademark?
 Anypersonclaimingtobetheproprietorofatrademarkusedorproposedto beusedbyhim
mayapplyinwritinginFormTM-1forregistration. The application shouldcontain the trade mark,
the goods/services, name and address of applicant and agent (if any) with power
ofattorney,periodofuse ofthemarkandsignature.
TheapplicationshouldbeinEnglishorHindi.Itshould befiledat theappropriateoffice.

Marks NotRegisterable

The use of whichwouldbe likelyto deceive orcause confusion.

Amarktheuseofwhichwouldbecontrarytoanylawforthetimebeingin force

Amarkcomprisingorcontaining scandalous orobscene matter

A markcomprising or containing any matter likely to hurt the religious susceptibilities ofanyclass
orsection

Amarkwhich wouldbedisentitledto protection in court of law

Amarkwhichisidenticalwithordeceptivelysimilartoatrademarkalready registeredinrespect ofthe

same goods orgoods of the same description

Awordwhichistheacceptednameofanysinglechemicalnameorchemical compoundinrespect
ofchemical substances.

Ageographicalnameorasurnameorapersonalnameoranycommon abbreviation thereof orthe

name of a sect,caste ortribe inIndia.

Besides others.

Acquisition Of Trademark Rights

In most foreign countries, trademark rights arise from registering the mark with a governmental
entity. The law in the United States is quite different: trademark rights arise from adoption and
use of a mark. A person using a mark may have valid and enforceable rights in a mark even though
the mark is not registered with the PTO, such an owner will have priority even over a subsequent
user who has secured a federal registration for a mark with the PTO. The “use” required to
establish trade mark rights is more than token use, it must be public use, while actual sales of
products or services are not required, a certain level of presale activity is required.

For example: Sales within a company or to personal friends are insufficient to show use, while
soliciting [plead for something] and accepting order is usually sufficient to show commercial use.
Thus, a person using a mark may have valid and enforceable rights in a mark even though the
mark is not registered with the PTO. Such an owner will have priority even over a subsequent
user who has secured a federal registration for a mark with thePTO.

Establishing a date of first use is critical for a trademark owner because priority of trademark
rights is measured form this date. If one party first used of mark on September 15, 2015 and
another first used a similar mark on October 15, 2015, the prior, or senior, user will be able to
preclude the junior userfrom using a confusingly similar mark.

For a mark to be registrable, it must be based on use in commerce, meaning the type of commerce
that can be regulated by Congress. Generally, the use is based on interstate commerce or
commerce between states (although it could be based on commerce between the United State
and a foreign country). A purely intrastate use does not provide a basis for federal registration of
a mark. A purely intrastate use does not provide a basis for federal registration of a mark. The
requirement of interstate (within one state) commerce is satisfied if the goods or services are
advertised in more than one state, offered to citizens of more than one state, or offered on the
Internet, which is considered use in commerce because it is available to a national audience
through the use of telephonelines.

The general rule is that acquisition of trademark rights stem from use, there is one exception to
this rule: the intent-to-use application. Until 1989, the United States was one of only two
countries in the world that required that a mark be in actual use before an owner could file an
application to register it. After an applicant had begun using the mark and then filed an
application, the PTO might refuse registration of the mark on the basis it was confusingly similar
to a prior mark or was subject to some other defect. The applicant would then have invested
substantial money and time in developing the mark, in using it in commerce, marketing and
advertising, and in applying for registration, only to be told the mark was unregistrable. To
remedy this situation,the Trademark Law Revision Act of 1988allowed persons to file applications
for marks based on a bona fide intent to use the mark in commerce in the future. If the PTO
determines the mark is unregistrable, the applicant will not have expended any sums other than
the PTO filing fee and can readily file another application for a new mark.Once the mark proceeds
to registration, priority is measured from the date the intent-to-use-application was filed, even
though that filing date may precede actual use in commerce by more than three years.

Minimal or token use cannot serve as the basis for securing or maintaining a registration,
ensuring that an owner does not reserve or “warehouse” a mark by making only sporadic use of
it with the intent to block others from using it rather than having a true commercial intent to
exploit the mark for sales. The PTO desires to clear its records of unused marks, or “deadwood”,
so that such unused marks may be available by others. The use required is “bonafide use of a
mark in the ordinary course of trade, and not made merely to reserve a right in a mark”, 15 U.S.C
1127.

The extendoftrademark rights is affectedbyseveral factors.Theseinclude:

Distinctiveness of the mark.

The date of first use incommerce.

The geographic areawhere the markis used.

The registration ofthe mark.

The goods orservicesassociated with the mark.

Common Law Rights, Federal Registration Under The Lanham Act, Laws And Treaties Governing
Trademarks, And State Trademark Rights

Common Law Rights

The United States, trademark rights arise from use of a mark. It is not necessary to secure
permission or registration from any governmental entity to acquire trademark rights. A party
who is using a mark without any such governmental registration is said to have a common law
trademark, it can be enforced in any geographical area in which the mark isused.

Federal Registration

Although there is no requirement that a trademark owner apply for a secure federal registration
of mark with the PTO, registration on the PTO’s Principal Register does offer several advantages:

Nationwide constructive use effective from the filing date of the application (the public assumed
to have notice that the registrant has nationwide priority in the use of its mark as of thisdate)

Nationwide notice to the public of an owner’s claim to a mark, thereby precluding a later user
from claiming it used a mark in good faith in a remote territory and should be able to continueuse;

The ability to bar importance of goods bearing infringingtrademarks

The right under the Paris Convention to obtain a registration in various foreign countries based
upon the U.S.registration;

The right to bring an action in federal court for trademark infringement and recover lost profits,
damages, costs, and possibly triple damages and attorney’sfees
Incontestable status of the registration after five years of continuous use subsequent to the
registration

The right to use the registration symbol with themark

A possible basis to claim priority to an Internet domain nameand

Prima facie (literally, “on its face”) evidence of the validity of the registration, the registrant’s
ownership of the mark, and the registrant’s exclusive right to use the mark in connection with
the identified goods andservices.

Laws and Treaties Governing Trademark

There are several laws and treatiesgoverning trademark,including the following:

Lanham Actthe federal statute governing trademark rights is the Lanham Act(also called the
United States Trademark Act and found at 15 U.S.C § 1051 et seq.), enacted in 1946 and named
for Congressman Fritz Garland Lanham (D.Tex.), the then chair of the House Patent Committee
(which also proposed legislation relating to trademarks) who introduced the legislation. In
addition to providing for federal trademark protection, the Lanham Act also includes statutes
prohibiting unfair competition. The Lanham Act has been amended numerous times. Perhaps the
most significant amendment occurred with the Trademark Law Revision Act of 1988, which
provided the following two critical changes: allowing for a trademark application based on the
applicant’s intent to use a mark in the future. Rules of practice and procedure relating to
trademarks are found at Title 37 of the Code of Federal Regulation (C.F.R).

North American Free Trade Agreement (NAFTA) came into effect on January 1, 1994, and is
adhered to by the United States, Canada, and Mexico. The NAFTA resulted in some changes to
U.S. trademark law, primarily with regard to marks that include geographical terms. The NAFTA
was built on the success of the Canada-U.S Free Trade Agreement and provided a compliment to
Canada’s efforts through the WTO agreements by making deeper commitments in some key
areas. This agreement has brought economic growth and rising standards of living for people in
all three countries.

Madrid Protocol It is a legal basis is the multilateral treaties Madrid (it is a city situated in Spain)
Agreement concerning the International Registration of Marks of 1891, as well as the protocol
relating to the Madrid Agreement 1989. The Madrid system provides a centrally administered
system of obtaining a bundle of trademark registration in separate jurisdiction. The protocol is a
filing treaties and not substantive harmonization treaty. It provides a cost-effective and efficient
way for trademark holder. It came into existence in 1996. It allows trademark protection for more
than sixty countries, including all 25 countries of the EuropeanUnion.
Trade-Related aspects of Intellectual Property Rights (TRIPs) is an internationalagreement
administered by the World Trade Organization (WTO) that sets down minimum standards for
many forms of intellectual property (IP) regulation as applied to nationals of other WTO
Members. It was negotiated at the end of the Uruguay Round of the General Agreement on
Tariffs and Trade (GATT) in 1994.

The Doha declaration is a WTO statement that clarifies the scope of TRIPS, stating for example
that TRIPS can and should be interpreted in light of the goal "to promote access to medicines for
all." Specifically, TRIPS requires WTO members to provide copyright rights, covering content
producers including performers, producers of sound recordings and broadcasting organizations;
geographical indications, including appellations of origin; industrial designs; integrated circuit
layout-designs; patents; new plantvarieties; trademarks; trade dress; and undisclosed or
information. TRIPS alsospecify enforcement procedures, remedies, and dispute
resolutionprocedures.

Trademark Law Treaty Implementation Act (TLTIA) effective in late 1998 simplified several
requirements relating to trademark registration and maintenance.

For example: at present, the applicant need only submit one specimen showing how a mark is
used rather than three, as was previously required. Additionally, a trademark applicant need no
longer state the manner in which the mark is used. Finally, TLTIA established a six month grace
period for filing a renewal for a trademark registration.

Federal Trademark Dilution Act The Federal Trademark Dilution Act of 1995is a United
Statesfederal law which protects famous trademarks from uses that dilute their distinctiveness,
even in the absence of any likelihood of confusion or competition. It went into effect on January
16, 1996. This act has been largely supplanted by the Trademark Dilution Revision Act of 2006
(TDRA), signed into law on October 6,2006.

Anticybersquatting Consumer Protection Act. 15 U.S.C. § 1125(d), is an American law enacted in

1999 that established a cause of action for registering, trafficking in, or using a
domainname confusingly similar to, or dilutive of, a trademark or personal name. The law was
designed to thwart “cybersquatters” who register Internet domain names containing trademarks
with no intention of creating a legitimate web site, but instead plan to sell the domain name to
the trademark owner or a third party. Critics of the ACPA complain about the non-global scope
of the Act and its potential to restrict free speech, while others dispute these complaints. Before
the ACPA was enacted, trademark owners relied heavily on the Federal Trademark Dilution Act
(FTDA) to sue domain name registrants. The FTDA was enacted in 1995 in part with the intent to
curb domain name abuses. The legislative history of the FTDA specifically mentions that
trademark dilution in domain names was a matter of Congressional concern motivating the Act.
Senator Leahy stated that “it is my hope that this anti-dilution statute can help stem the use of
deceptive Internet addresses taken by those who are choosing marks that are associated with
the products and reputations ofothers”.

Categories OfMarks

Although marks can consist of words, symbols, designs, slogans, or a combination thereof, not
every term is protectable. Even among marks that are protectable, some marks are stronger than
other. In determining strength of marks, courts recognize several categories of marks. In
ascending order of strength and protectability, the five categoriesare:

A Generic Mark Generic "marks" are devices which actually name a product and are incapable of
functioning as a trademark. Unlike descriptive marks, generic devices will not become a
trademark even if they are advertised so heavily that secondary meaning can be proven in the
mind of consumers. The rationale for creating the category of generic marks is that no
manufacturer or service provider should be given exclusive right to use words that generically
identify a product. A valid trademark can become generic if the consuming public misuses the
mark sufficiently for the mark to become the generic name for the product. The prime examples
of former trademarks that became the generic name for a product are ASPIRIN, XEROX
andCELLOPHANE.

A Descriptive mark (or more properly, "merely descriptive marks") are devices which merely
describe the services or goods on which the mark is used. If a device is merely descriptive, it is
not amark at all, since it does not serve to identify the source of the goods or services. No
trademark rights are granted to merely descriptive marks. Misdescriptive marks are equally
weak. As explained in connection with suggestive marks above, descriptive marks are often
difficult to distinguish from suggestive marks. Suggestive marks require some imagination,
thought, or perception to reach a conclusion as to the nature of the goods. Descriptive marks
allow one to reach that conclusion without such imagination, thought or perception. Putting this
distinction into practice can be very difficult. Merely descriptive marks can be registered federally
on the Supplemental Register (see the Bit Law discussion on federal registration of trademarks
for more information). The descriptive mark will not register inPTO until the consumer links the
mark with a single source. That learned association is called Secondary meaning or acquired
distinctiveness. The PTO assumes that secondary meaning has been acquired after five years of
consecutive and exclusive use of a mark. Secondary meaning can be demonstrating a significant
level of advertising, sales an consumer survey evidence, to prove that when consumer encounter
a mark.

For Example: The following imaginary marks could be considered merely descriptive for
computerperipherals:
FAST BAUD for modems (describing the quickness of themodem);

104 KEY for computer keyboards (describing the number of keys on akeyboard);

LIGHT for portable computers (describing the computer's weight);and

TUBELESS for computer monitors (even if misdescriptive for a monitor that contains tubes).

A Suggestive mark are marks that suggest a quality or characteristic of the goods and services.
Despite the fact that suggestive marks are not as strong as fanciful or arbitrary marks, suggestive
marks are far more common due to the inherent marketing advantage of tying a mark to the
product in a customer's mind. Suggestive marks are often difficult to distinguish from descriptive
marks (described below), since both are intended to refer to the goods and services in question.
Suggestive marks require some imagination, thought, or perception to reach a conclusion as to
the nature of the goods. Descriptive marks allow one to reach that conclusion without such
imagination, thought or perception. Putting this distinction into practice clearly is one of the most
difficult and disputed areas of trademarklaw.

The following marks can be considered suggestive:

MICROSOFT (suggestive of software for microcomputers)

NETSCAPE (suggestive of software which allows traversing the "landscape" ofthe

Internet)

SILICON GRAPHICS (suggestive of graphic orientedcomputers)

Arbitrary Marks An arbitrary mark utilizes a device having a common meaning that has no relation
to the goods or services beingsold.

Examples of arbitrary marks include:

APPLE (forcomputers)

LOTUS (forsoftware)

SUN (forcomputers)
CROWN (ForTelevision)

Fanciful Marks are devices which have been invented for the sole purpose of functioning as a
trademark and have no other meaning than acting as a mark. Fanciful marks are considered to
be the strongest type of mark. Examples of fanciful marksare:

EXXON, KODAK and XEROX.

Protectable Matter

Slogans, Letters and Numbers

A word or other groupings of letters is the most common type of mark For Examples: APPLE,
SILICON, GRAPHICS, NETSCAPE, IBM, NBC. Slogans from advertising campaigns are also used as
trademarks. Example slogans which have strong trademark rights attached For Example:

Nike

Alphanumeric symbols (letters and numbers) may be protectable as long as they are not merely
descriptive. If the numbers or letters describe something about the product or service offered
under the mark, however, they will not be registrable unless proof of secondary mining is shown.
Thus, the mark “VT220” for computer hardware peripherals was held merely descriptive and
unregistrable because “VT” Video Terminal and 220 was a mere model number.

Logos and Symbols

Logos are probably the next most common form of mark. A logo can be described as a design
which becomes a mark when used in close association with the goods or services being marketed.
The logo mark does not need to be elaborate; it need only distinguish goods and services sold
under the mark from other goods and services. Examples of logo marks are:

McDonald's double arches:

NBC's peacock style design:

Apple Computer's Apple:

Names of performing Artists

A mark that merely serves to identify an artist or entertainer is not registrable. However, if the
owner of the mark has controlled the quality of the goods or services, and the name of the artist
or group has been used numerous times on different records (thereby representing an assurance
of quality to the public), the name may be registered as a trademark, Thus, GOO GOO DOLLS and
BOB BYLAN have been registered for musical soundrecordings.

Domain Names

Domain names, for example, www.ibm.com, are registrable as trademark or service marks only
if they function as an identification of the source of goods and service. Thus,
www.oakwood.comhas been registered for real estate leasing service and www.eilberg.com was
refused registration because the mark merely indicated the location on the Internet where the
applicant’s web site appeared and it did not separately identify the applicant’s legal services.
Another complication with domain name registration is that the PTO has held that businesses
that create a web site for the sole purpose of advertising their own products or services cannot
register a domain name used to identify that activity. Thus, www.amazon.comis registered for
providing online chat rooms and bulletin boards. It is not registered in connection with offering
books or other goods forsale.

Shapes and Containers

A product or container shape can also serve a source identifying function and therefore can be
an enforceable trademark. A product or container shape may also be subject to a design patent
(see the BitLaw discussion of design patents to see an analysis of the similarities and differences
between design patents and trademark protection for product shapes). Historically, trademark
protection was not granted to product shapes until the consuming public recognized the shape
as indicating the source of the product. In other words, the product shape was required to obtain
secondary meaning. However, recent court decisions may mean that an inherently distinctive
product shape can be a protectable trademark even before secondary meaning is obtained.
Examples of product shapes and configurations that likely enjoy trademark status include:

Coca-cola Bottle

Apple’s Ipod

Trade Dress

Trade dress is the overall commercial image (look and feel) of a product or service that indicates
or identifies the source of the product or service and distinguishes it from those of others. It may
include the design or configuration of a product; the labeling and packaging of goods; and/or the
décor or environment in which services are provided. Trade dress can consist of such elements
as size, shape, color and texture to the extent such elements are not functional. In many
countries, trade dress is referred to as “get-up” or “product design”. Only nonfunctional trade
dress can be protected. Because trade dress is often protected through the law of unfair
competition.

Color

The color of an item can also function as a trademark. The Supreme Court held in the 1995 case
ofQualitex Co. v. Jacobson Products Co., 115 S.Ct. 1300 (1995) that the green-gold color of a dry
cleaning press pad can function as a trademark. Before this decision, the argument was often
made that color alone could not be considered a trademark, since granting trademark status to
colors would soon lead to the depletion of the number of colors available for an object. The Court
in Qualitex rejected arguments based on this depletion theory, reasoning that alternative colors
would usually be available for competitors. In those cases where alternative colors were not
available, courts could deny trademark protection in those circumstances where color depletion
may actuallyoccur

Fragrances, Sounds, and Moving Images

A sound can also be a trademark or a service mark. The three tone chime of NBC has been
registered as a service mark. Sound trademarks recently were in the news when Harley-Davidson
announced that it was attempting to register the exhaust sound of a Harley- Davidson motorcycle
with the U.S. Patent and Trademark Office (USPTO). Harley-Davidson was reacting to moves by
competitors to duplicate the Harley sound in competing motorcycles. Hearings in front of the
USPTO have been scheduled to determine whether Harley-Davidson can register the sound. A
fragrance can function as trademark if it is distinctive and not functional. For example: in Inre
Clarke, 17 U.S.P.Q.2d 1238 (T.T.A.B.1990), a floral fragrance was allowed as a trademark for
sewing thread and embroidery yarn and was not functional when used in connection with those
goods. The roar of the MGM lion and Woody Woodpecker’s distinctive laughare also registered.
Finally, the Internet has given rise to applications for marks that consist of moving images, such
as Microsoft company’s spinning EXPLORER GLOBE.

Design and Ornamentation

A design can function as a trademark as long as it is distinctive rather than merely functional or
ornamental. Some designs are protected on their own, such as Nike’s famous “swoosh” design,
the alligator that appears on shirts, and Betty Crocker’s spoon. If the design is merely back ground
material, however, and does not create a separate commercial impression, or if it consists solely
of some simple geometric shape, such as an oval or square, it cannot be protected without proof
of secondary meaning. For example, the PTO refused registration of two parallel colored bands
placed at the top of socks as pure ornamentation. Merely decorative subject matter and pure
ornamentation cannot be registered because they do not identify and distinguish goods or
services and thus cannot function astrademark.

Serialized Literary and Movie Titles

The title of a single book or movie title is generally not protectable. The title of a serialized work,
such as THE BRADY BUCH or NEWSWEEK, however, can be protected as a trademark or service
mark.
Insignia

Flags, coats of arms, and other insignia of the United States or any state or any foreign nation
cannot be registered.

Picture and Drawings

Pictures or drawings of a character or scene are often used as trademarks or service marks.

Corning's Pink Panther

Sun Microcomputer, Inc.'s Duke

MSN's Butterfly

Apples Automator

Selecting And Evaluating A Trademark

Selecting a Mark

The selection of mark occurs in a variety of ways.

Companiesholdcontestsandencouragesemployeestocreateamarkforanewproduct line or
service
Companies engage sophisticatedresearch

Branding firms that will conduct surveys and create a mark and a logo or design for thecompany.

There are name creation software programs that help individuals and companies createmarks

Once the mark is selected, it must be screed and evaluated for use and registrability, if failed then
it leads to wastage in expenditure of time and money in advertising, using, and applying for a
mark that is rejected for registration by the PTO or, in the worst case scenario, might subject the
owner to damages for trademark infringement and unfaircompetition.

Reviewing a Proposed Mark

Once a mark is selected, it should be carefully scrutinized to ensure that it will not be excluded
from protection under the Lanham Act.

Firstly they have check whether the mark contains scandalous (giving offence to moral
sensibilities and injurious toreputation)

Whether consent from a living person will berequired,

Whether the mark isgeneric,

Whether it is statutorilyprotected

Whether the mark is descriptive of some feature of the goods and services offered under
themark,

It also see that the mark includes foreignterms

Many law firms specializing in trademark work use a questionnaire form or data sheet to gather
questionnaire form or data sheet to gather basic information from clients about theirmarks

The Trademark Search

Scope of search

There are a variety of sources that can be reviewed to locate potentially conflictingmarks

There are literally millions of marks registered or applied for at the PTO, and thousands of
journals,
trademagazines,directories,telephonebooks,Internetsources,staterecords,andstatetrademark
registrations that might contain other marks or business names, a computer assisted or online
search is the most effective method of searching.

Both LEXIS and WESTLAW, the computer-assisted legal research system, offer access to vast
databases that may point outconflicts.

One of the best known databases is TRADEMARKSCAN product OF Thomson &Thomson.

Conducting the trademark search

The trademark searching is a two-step process:

A preliminary searchis conducted of the records of the PTO to make a quick determination as to
whether the mark may be available or whether there is conflict that would preclude use of the
mark. It is also called a knockoutsearch.

If the results of the preliminary or knockout search indicate a mark may be available, a
comprehensive search of other sources (including state trademark records, telephone
directories, Internet records, and trade journals) is thenconducted.

Step One: The Preliminary Search

There are a variety of sources that can be used to conduct an initial trademark search, including
online subscription services, CD-ROM, the Patent and Trademark Depository Libraries, and the
PTO website search services. Following are some resources commonly used for conducting a
preliminary search: Electronic Database and CD-ROM

TRADEMARKSCAN is a database owned by Thomson & Thomson, a renowned trademark search

firm, which provides information on all active registered trademarks and service marks. The
TRADEAMRKSCAN database is primarily used as a quick screening tool to determine the
availability of a newmark.

DIALOG is another database offered by Thomson & Thomson. Its database includes trademarks
from the United States plus numerous foreign countries as well as patent and copyright
information. It provides online training and practice and free practice searching at the following
web site: http://training.dialog.com/onlinecourses/trademarks/.

SAEGIS is an entire suite of services provided by Thomson & Thomson that allows online
worldwide trademark searching as well as searching of domain name registries and websites to
locate common law uses of proposedmarks.
TRADEMARK.COM is an online search service offered by Micro Patent LLC, offering a variety of
searchable databases, including federal marks, and common law uses of potentially conflicting
marks.

LEXIS and WESTLAW, the computer-assisted research system, offer access to vast trademark
databases that may disclose potentially conflicting marks.

Many law firms subscribe to one or more of these services so they can perform an initial screening
search in-house.

PTO Web Site : Perhaps the easiest and least expensive way to conduct a very preliminary search
is to review the records of the PTO (http://www.uspto.gov) and it free public searching called
Trademark Electronic Search System (TESS).

Step Two: The Comprehensive Search

A separate professional trademark search firms are existing for the companies when their need
of searching the trademark. These companies review the records of the PTO (go through existing
and pending application) , review state trademark office records for state trademark registration,
and they perform a “common law” search of various journals, directories, press releases, domain
names and Internet references to locate unregistered names and mark.

These professional search firms can save considerable time and money and more importantly,
provide a more thorough search than that which an individual can conduct on his or her own,
they also check for identical and phonetically equivalent marks for similar goods and services and
will also check for foreign equivalents. They will charge for the searching of the marks. The
reportis typically divided into three sections: results gained from reviewing PTO registrations and
applications; results gained from reviewing state trademark records; and the common lawresults.

TRADEMARK REGISTRATION PROCESSES

Preparing the application

Once a mark has been selected and evaluated for use and registrability, an application for
federal registration of the /mark should be prepared andfiled.

An application is provided byPTO

The name of theapplicant

The citizenship of theapplicant

The address of theapplicant

The address of theapplicant

An identification of the goods and or services offered under themark

A drawing of themark

A verification or declaration signed by the applicant or agent orattorney

The application is based on actual use of the mark or the owner’s intent to use themark.

The process of moving an application through the PTO is called prosecution [(law) the institution
and conduct of legal proceedings against a defendant for criminalbehavior]

The application must be inEnglish.

Electronically filed application are provided by thePTO

Self application is also be prepared as the letter size (namely 8 ½ inches by 11 inches) paper,
typewriter, double-spaced, with margins of at least 1 ½ inches at the left and top of thepages.

The application should be written on only one side of thepaper.

The filing and prosecution of trademark application are governed by the TMEP [Trademark
Manual of ExaminationProcedure]

The PTO introduced on electronic filing system in1998.

The Trademark Electronic Application System [TEAS]. Permits applicants to file numerous
documentselectronically.

PTO considers the electronically filed document aftertransmission.

The applicant

The mark can be made only by the owner of the mark or, in the case of intent –to-use application,
by a person who has a bonafideto use the mark incommerce.

Application may be natural persons or business entities such as corporation, partnership,

association, unions or other organization.

Government entities such as nations, states municipalities and other governmentalbodies.

The applicant name must be in correct legalform

A mark should be identified in the application by the name set forth in its articles ofincorporation.

Clients often make mistakes in their corporate names or in thepunctuation

The certificate of registration will issue in the name of the application as set forth in
theapplication

If the application is a person or business that conducts business under a fictitious [fake] business
name, the application will berejected.

The applicant is a partnership

For example: “Balboa Gardens Partnership”, the application should be made by the partnership
itself and the state in which the partnership wasorganized.

A trademark or service mark application is usually filed in the name of oneparty.

The PTO has been reluctant [unwilling] to accept application by jointapplicants.

A joint venture or a partnership cannot be jointapplicants

Identification of Goods or Services

The application must identify the goods and/or services offered or to be offered under the mark
that is the subject of the application. Careful consideration must be given to drafting this part of
the application. Goods and services are categorized by the PTO into forty-five separate classes,
called International Classes because many other nations use this same classification system
established by WIPO. Until 1973, the PTO used a different classification scheme, called the United
States Classification Scheme. Each class requires a filing fee of $335.

A detailed listing of the International Classes with numerous examples is found in Chapter 1400
of TMEP, available on the PTO’s web site. If a mark is used for more than one class of goods or
services, the applicant may either file a combined application, listing all of the goods and services.
Some attorneys prefer to file separate application believing that a defect in regard to one class
of goods or services in a combined application will hold up registration for the mark in allclass.

The PTO requires that the identification of goods or services be as clear, accurate and concise as
possible. Once the application filed, no other item can be added in the process of registration, a
separate application should be applied.

Registration

A registration will issue about twelve weeks after publication in the officialgazette
If no notice of opposition is filed to theapplication

For an ITU [Intent-to-Use] application registration will occur after publication in the official
Gazette.

The PTO will issue a certificate of registration for themark

The term of the registration is presently ten years from the date the mark is registered [for
registration issued before November 16, 1989, the term is twentyyears]

“TM” for Trademark & SM for servicemark.

criteria of infringement

Infringement refers to the violation of a law or a right. Infringement may refer to: Infringement
procedure, a European Court of Justice procedure to determine whether a Member State has
fulfilled its obligations under Union law.

To determine if an alleged infringement is fair use, courts consider (1) the purpose and character
of use; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion
used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the
potential market for or value

These three factors are:

Quantum of the work copied.

Purpose of copying the work.

The likelihood of competition between the two works.

The key requirements for taking an action against copyright infringement include:

Proof of ownership of copyright.

Substantial similarity between the original and the infringed copy.

Copying amounts to improper appropriation.

Trademark infringement in India is defined under Section 29 of the Trademarks Act, 1999. Simply
put, when an unauthorized person uses a trademark that is 'identical' or 'deceptively similar' to
a registered trademark, it is known as infringement.
Piracy in internet:

Piracy, act of illegally reproducing or disseminating copyrighted material, such as computer

programs, books, music, and films. Although any form of copyright infringement can and has
been referred to as piracy, this article focuses on using computers to make digital copies of works
for distribution over the Internet.

Example : Piracy is defined as attacking and robbing a ship at sea, or stealing someone else's
intellectual property. Robbing a ship at sea is an example of piracy. Downloading a copyrighted
song off the Internet is an example of piracy. ... The unauthorized publication, reproduction, or
use of a copyrighted or patented work.

Remedies and procedures:

Remove the Incentive. One of the most-effective ways of dealing with piracy is by removing the
incentive for the consumers to look for pirated content. Effectively this can be characterised by
offering a good product and a good user experience at a fair price.

3 Effective Ways to Combat and Address Digital Piracy

Educate your audience. Because pirating has become such a norm, not many realise it is an illegal
thing to do. ...

Use anti-piracy services. There are various anti-piracy services out there you can use to fight
digital piracy. ...

Make it easy to access legal content.

What is the punishment for piracy in India?

Piracy is a criminal act and the Government of India has finalised some punishment for the same.
As per the Cinematograph Act of 2019, if any individual is found recording a film without the
written consent of the producers, he or she can face a jail term of up to 3 years and slapped with
a fine of Rs 10 lakhs.

Law relating to patents under patents Act 1970:

The Patents Act 1970 had a very limited scope of protection wherein the essential elements of
invention were new, useful and manner of manufacture. ... The Act defines 'capable of industrial
application' in relation to an invention as capable of being made or used in an industry.

According to Section 2(j) of the Indian Patents Act, 1970 an invention means "a new product or
process involving an inventive step and capable of industrial application.", such invention
protected under the patent law refers to patented.

Persons entitled to apply for patents—(1) Subject to the provisions contained in section 134, an
application for a patent for an invention may be made by any of the following persons, that is to
say,— (a) by any person claiming to be the true and first inventor of the invention; (b) by any
person being the assignee of ..

Who can apply for a patent? A patent application can be filed either by true and first inventor or
his assignee, either alone or jointly with any other person. However, legal representative of any
deceased person can also make an application for patent. 16.

Certain things can never be patented, regardless of how well they meet these four standards.
They include the elements, theoretical plans, laws of nature, physical phenomena, and abstract
ideas. ... Otherwise, the USPTO will not grant the patent even if you're trying to patent a great
idea.

Mathematical or business method or a computer program per se or algorithms. literary,

dramatic, musical or artistic works, cinematographic works, television productions and any other
aesthetic creations. Mere scheme or rule or method of performing mental act or playing game.
Presentation of information.