MBL I YEAR – SA JUNE 2023

CONTRACT LAW - KEY

1. (i)

Rights of the Bailor:

1. Right to Receive Goods: The bailor has the right to expect the safe return of the goods or
RCTP property that were entrusted to the bailee. The bailee must return the goods in the same
condition as they were received, subject to any agreed-upon alterations. (S. 160)

2. Right to Compensation for Unauthorized Use: If the bailee uses the goods beyond the scope
of the bailment or without the bailor's permission, the bailor has the right to claim
compensation for any damage or loss caused as a result. (S. 154)

3. Right to Terminate the Bailment: The bailor has the right to terminate the bailment at any
time before the bailee takes possession of the goods or property. However, if the bailor
terminates the bailment after the bailee has already taken possession, they may be liable for
any resulting damages.

4. Right to Receive Profit or Increase from Goods Bailed (S. 163).

Duties of the Bailor:

1. Duty to Disclose Known Defects: The bailor has a duty to disclose any known defects or faults
in the goods or property being bailed. This duty is essential to ensure that the bailee is aware
of any potential risks or issues associated with the goods. (S. 150)
DCI
2. Duty to Compensate for Necessary Expenses: The bailor is responsible for reimbursing the
bailee for any necessary expenses incurred in the ordinary course of the bailment. These
expenses may include reasonable costs for the preservation or protection of the goods. (S.
158).

3. Duty to make good any loss to bailee caused by the bailor’s lack of entitlement to bail the
goods, receive them back, or give directions respecting them (S. 164).

Rights of the Bailee:

1. Right of Possession: The bailee has the right to possess and use the goods or property during
the term of the bailment as agreed upon by the parties.

2. Right to Receive Compensation: The bailee is entitled to receive reasonable remuneration or

PCL
compensation for their services, unless there is a specific agreement to the contrary.

3. Right of Lien: The bailee has a right of lien over the goods or property being bailed. This
means that the bailee can retain possession of the goods until they receive full payment for
any outstanding charges or fees related to the bailment. (S. 170)

Duties of the Bailee:

1. Duty of Care: The bailee has a duty to exercise reasonable care and diligence in handling the
goods or property. They must take all necessary steps to ensure the safety and preservation
of the goods during the bailment period. (S. 151)
 CRU 2. Duty to Return: The bailee has a duty to return the goods or property to the bailor upon the
expiry of the bailment period or when the purpose of the bailment is fulfilled. The goods
must be returned in the same condition as they were received, subject to any agreed-upon
alterations. The bailee is responsible for any loss, destruction of deterioration of the goods if
not returned at the proper time. (S. 160, S. 161)

3. Duty to Use the Goods as Agreed: The bailee must use the goods or property in a manner
consistent with the purpose and scope of the bailment. Any unauthorized use or deviation
from the agreed terms may lead to liability for the bailee. (S. 154)

1 (ii) DRROPPT

1. Definition:

Delivery - Bailment: Bailment refers to the delivery of goods by one party (bailor) to another party (bailee) for
SP a specific purpose, with the expectation of their return.
Return
- Pledge: Pledge, also known as pawn or hypothecation, involves the delivery of goods by a debtor
Security
(pledgor) to a creditor (pledgee) as security for the performance of a debt or obligation.

2. Purpose:

- Bailment: The purpose of a bailment is generally for safekeeping, transportation, repair, or some
STRO
other specified purpose. The bailor retains ownership of the goods throughout the bailment.

Security - Pledge: The purpose of a pledge is to provide security for the repayment of a debt or the fulfillment
of an obligation. The pledgee has the right to retain possession of the goods until the debt is repaid
or the obligation is fulfilled.

3. Transfer of Possession:

- Bailment: In a bailment, possession of the goods is transferred from the bailor to the bailee.
However, ownership remains with the bailor.

- Pledge: In a pledge, possession of the goods is transferred from the pledgor to the pledgee. The
pledgee has the right to possess the goods until the debt is discharged.

4. Ownership:

- Bailment: Ownership of the goods remains with the bailor throughout the bailment period. The
bailee has a possessory interest but not ownership rights.

- Pledge: Ownership of the goods remains with the pledgor. However, the pledgee has the right to
sell or dispose of the goods in the event of default by the pledgor.

5. Rights and Liabilities:

- Bailment: The bailee has a duty of care to exercise reasonable skill and diligence in safeguarding the
goods. The bailor has the right to receive the goods back in the same condition as they were
delivered.

- Pledge: The pledgee has the right to retain possession of the goods until the debt is repaid. The
pledgor has the duty to repay the debt and redeem the goods.
 6. Transfer of Title:

- Bailment: A bailment does not involve the transfer of title to the goods. The bailor retains
ownership throughout the bailment period.

- Pledge: While possession of the goods is transferred to the pledgee, title to the goods remains with
the pledgor. The pledgee has a possessory lien over the goods.

7. Remedies for Default:

- Bailment: In case of default or failure to return the goods, the bailor may sue the bailee for
damages or recovery of the goods.

- Pledge: If the pledgor fails to repay the debt, the pledgee has the right to sell the pledged goods
and recover the amount owed from the proceeds.

2. (i)

Under Indian contract law, damages and penalties are treated differently in terms of their purpose,
enforceability, and calculation.

(a) Damages:

S73 Damages refer to the monetary compensation awarded to a party who has suffered a loss or injury
Compensationdue to a breach of contract. The objective of damages is to provide adequate compensation to the
adequate injured party and place them in the position they would have been in had the contract been
as performed
Direct performed. Under Indian contract law, parties are only liable for direct damages and not for indirect
or remote damages, which are excluded under S. 73.

Illustration:

Suppose Mr. A agrees to sell his car to Mr. B for a specified amount, with delivery scheduled for a
certain date. However, on the delivery date, Mr. A fails to deliver the car as promised. As a result, Mr.
B is unable to use the car and incurs additional expenses in arranging for alternative transportation.

In this case, Mr. B may seek damages from Mr. A to compensate for the additional costs incurred and
any other losses suffered due to the breach. The court will assess the damages based on the actual
loss suffered by Mr. B, taking into account the cost of arranging alternative transportation and any
other foreseeable losses directly caused by the breach.

(b) Penalties:
S74 Penalties are contractual provisions that specify a fixed sum of money to be paid by the defaulting
Fixed party in the event of a breach. Penalties aim to deter breaches and ensure compliance with
Deter
Punitive contractual obligations by imposing a punitive consequence on the defaulting party. S. 74 of the
Excessive Contract Act deals with penalties; the affected party shall be entitled to receive damages up to the
Refuse amount stipulated as penalty, subject to the test of reasonableness. If a penalty is deemed excessive
Resonable and disproportionate to the actual loss suffered by the innocent party, the court may refuse to
 enforce the penalty clause and instead award only reasonable compensation as damages, treating
the penalty amount as the upper limit of the possible damages that may be awarded.

Illustration:

Suppose Mr. X enters into a contract with Mr. Y to construct a house within a specified time frame.
The contract includes a clause stating that if Mr. X fails to complete the construction on time, he
must pay a penalty of Rs. 1,000 for each day of delay.

If Mr. X exceeds the agreed-upon construction period, he becomes liable to pay the penalty of Rs.
1,000 per day to Mr. Y as specified in the contract. The purpose of this penalty clause is to compel
Mr. X to complete the construction on time or face financial consequences.

2 (ii)

Compensate A contract of indemnity is a contractual agreement where one party (indemnifier) promises to
protection compensate the other party (indemnity holder) for any loss, damage, or liability incurred by the
Relationship indemnity holder as a result of a specified event or action. It is a contract that seeks to protect the
Damages for
loss, specified indemnity holder from potential losses and liabilities.
event

The relationship between a contract of indemnity and damages under Indian contract law is that the
indemnity holder may seek damages from the indemnifier in case of loss, damage, or liability
suffered. The indemnity holder can claim damages to recover the actual losses incurred as a result of
the specified event or action covered by the contract of indemnity.

Under the Indian Contract Act, 1872, the categories of loss that are recoverable in a contract of
indemnity include:

1. Actual Losses: The indemnity holder can claim damages for actual financial losses suffered due to
ACL the event or action specified in the contract of indemnity. This may include direct monetary losses,
such as costs incurred or amounts paid to third parties as a result of the indemnity holder's liability.

2. Consequential Losses: Consequential or indirect losses that flow from the specified event or action
may also be recoverable under a contract of indemnity. These losses are not directly caused but are
reasonably foreseeable consequences of the event or action. For example, loss of profits or business
opportunities due to the indemnity holder's liability.

3. Legal Expenses: The indemnity holder can recover reasonable legal expenses incurred in defending
against claims or actions arising from the specified event or action covered by the contract of
indemnity. This includes legal fees, court costs, and other related expenses.

The recoverability of loss depends on the terms of the contract and the principles of contract law,
including the principle of compensatory damages, which seeks to place the indemnity holder in the
position they would have been in had the specified event or action not occurred.
 3.

Joint promisors are parties who make a joint promise or undertake a joint obligation to perform a
contractual duty. The Indian Contract Act recognizes the concept of joint and several liability for joint
promisors under S. 42-45. This means that each joint promisor is individually liable for the full
performance of the promise.

Key points regarding the position of joint promisors: JCR

1. Joint Liability: Joint promisors are jointly liable, which means that the promisee can enforce the
Any/all promise against any or all of the joint promisors. The promisee can choose to hold all the joint
collective promisors responsible collectively or pursue any one of them for the full performance of the
promise.
Share 2. Contribution among Joint Promisors: If one joint promisor fulfills the promise entirely, that
equitably promisor has the right to claim contribution from the other joint promisors for their respective
shares of the liability. This principle ensures that the burden of performance is shared equitably
among the joint promisors.

Remaining 3. Release of One Joint Promisor: If the promisee releases one of the joint promisors from liability,
liable the release does not discharge the other joint promisors. The remaining joint promisors will still be
liable for the performance of the promise.

S45 Joint promisees are parties to whom a joint promise is made. They have joint rights and interests in
Each can the performance of the promise. Each joint promisee is entitled to enforce the promise and claim the
joint rights
benefits collectively or individually. S. 45 of the ICA addresses this.

Key points regarding the position of joint promisees: JSR

All. Each 1. Joint Rights: Joint promisees have joint rights, which means that all the promisees must act
together to enforce the promise. Each promisee can enforce the promise on behalf of all the joint
promisees.
Seperate rights2. Separate Rights and Interests: While joint promisees have joint rights, they also have separate and
must share individual rights and interests in the performance of the promise. If one joint promisee receives the
benefit of the promise, that promisee cannot claim the entire benefit for themselves but must share
it with the other joint promisees.

remaining 3. Release of One Joint Promisee: If the promisor releases one of the joint promisees from their
can enforce obligations, the release does not affect the rights of the other joint promisees. The remaining joint
promisees can still enforce the promise and claim their share of the benefits.

Surety Where one joint promisor is acting as a surety for the other, the surety assumes a secondary liability.
Primary liable This means that the surety is primarily liable for the performance of the promise in case of default by
choice the principal promisor. The promisee has the option to proceed against either the principal promisor
surety pays
then claim
or the surety promisor in case of default. The promisee can choose to enforce the promise against
extent the principal promisor first or directly proceed against the surety promisor to recover the debt. If the
surety promisor fulfills the promise on behalf of the principal promisor, the surety has the right to
claim contribution from the principal promisor. The surety is entitled to recover the amount paid
 from the principal promisor to the extent of the entirety of the principal promisor's share of liability.
This is dealt with in Ss. 43 and 132 of the ICA.

4.

Difference between a Stranger to the Contract and a Stranger to Consideration under Indian Law:

Party 1. Stranger to the Contract: A stranger to the contract refers to a person who is not a party to the
involved contract. They are neither involved in the formation of the contract nor have any direct rights or
rights obligations arising from it. As a result, a stranger to the contract generally does not possess any
exceptions
benefit
enforceable rights under the contract. There are certain exceptions, eg under a contract providing a
eg: mpf benefit to a third party, such third party has the right to sue to obtain that benefit; a contract in
still has claim connection with marriage settlement, partition or other family arrangements may give non-parties
can sue the right to enforce the agreement; contracts entered into by agents, where the principal even if not
a party to the same has a right to sue under it; the assignment of a debt or actionable claim to a third
party which allows them the right to sue the original debtor; etc.

not provided 2. Stranger to Consideration: A stranger to consideration is a person who has not provided any
desire consideration for the contract. However, S. 2(d) ICA allows for the consideration for a contract to, at
possible the desire of the promisor, be provided by the promisee or any other person – thus it is possible for a
yet have rightsparty to the contract to be a stranger to consideration yet have all the rights available to a party to
enforce
the contract, including the right to sue to enforce its terms.

Position under Indian Law:

Sufficiency: (a) Sufficiency of Consideration: Under Indian contract law, consideration must be sufficient but need
adequate
not be adequate. It means that the consideration does not have to be of equal value to the promise
equal
nominal made. As long as there is some valid consideration, even if it is nominal or of minimal value, it is
sufficient 2-25 generally considered sufficient to support the validity of a contract. (explanation 2 to S. 25 ICA)

Exceptions 25 (b) Exceptions to the Requirement for Consideration: Indian law recognizes certain exceptions where
a contract may be enforceable even without consideration. S. 25 ICA provides:

i. Contracts of Natural Love and Affection: Contracts made out of natural love and affection,
typically between close family members, may be valid without any consideration. The relationship
itself serves as the basis for enforceability. However, such agreements must be in writing and must
be registered under the applicable law in order to be considered valid contracts. (S. 25 (1) ICA)

ii. Completed Gift: A gift made voluntarily, without any consideration, where the donor intends to
transfer ownership of a property or right to the recipient, is enforceable without consideration.
(Explanation 1 to S. 25 ICA)

iii. A Promise in exchange for a voluntary act: a promise to compensate, wholly or in part, a person
who has already voluntarily done something for the promisor, or something which the promisor was
legally compellable to do, is valid even in the absence of consideration (S. 25 (2) ICA).

iv. Acknowledgement of Debt: A promise, made in writing and signed by the person to be charged
therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a
debt of which the creditor might have enforced payment but for the law for the limitation of suits,
will be valid even in the absence of consideration. (S. 25 (3) ICA)
 5(i)

(i) Offer and Acceptance under the Indian Contract Act:

1. Offer: An offer is a proposal made by one party, known as the offeror, to another party, known as
the offeree, expressing the intention to enter into a contract. It signifies the willingness of the offeror
to be bound by certain terms and conditions if the offeree accepts the proposal. An offer must be
clear, definite, and communicated to the offeree. An offer may be withdrawn at any time before
acceptance is received, or may lapse by expiry of time, by the failure of the acceptor to fulfil a
condition precedent, or by the death or insanity of the offeror (s. 5 and 6 ICA)

Section 2(a) of the Indian Contract Act defines a proposal as "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 the act or abstinence, he is said to make a proposal."

Example: A seller advertises a car for sale at a specified price. The advertisement constitutes an offer
to sell the car to any person who is willing to pay the advertised price.

2. Acceptance: Acceptance is the unconditional and unqualified agreement by the offeree to the
terms of the offer. It indicates the offeree's willingness to be bound by the offeror's proposal,
creating a valid contract between the parties. Acceptance must be communicated to the offeror in
the manner specified or implied by the offer. Acceptance may also be done by performing the
conditions of the offer or accepting any consideration for a reciprocal promise that is offered with a
proposal (S. 8 ICA).

Section 2(b) of the Indian Contract Act defines acceptance as "when the person to whom the
proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when
accepted, becomes a promise."

Example: The offeree communicates their agreement to purchase the car at the specified price to the
seller. This communication constitutes acceptance of the offer.

In summary, an offer is a proposal made by one party to another, expressing the intention to enter
into a contract, while acceptance is the unconditional agreement by the offeree to the terms of the
offer. Both offer and acceptance must be clear and communicated. The Indian Contract Act defines
offer and acceptance under Section 2(a) and Section 2(b) respectively. An offer plus acceptance
amounts to an agreement under the ICA; an agreement that is valid under the provisions of S. 10 ICA
is a contract.

5 (ii)

Difference between an Agreement, a Contract, a Void Contract, a Voidable Contract, and an

Agreement that is Void Ab Initio:

Mutual und (a). Agreement: An agreement is a broader term that refers to a mutual understanding or
offer/accept arrangement between two or more parties, which may or may not create legal obligations. It consists
enforceable
of an offer and acceptance between the parties on specific terms. An agreement may or may not be
may/maynot
enforceable as a contract, depending on the presence of essential elements.
 Example: Two friends agree to meet for dinner at a certain restaurant. This agreement does not
create legal obligations, but it represents a mutual understanding between them.

enforceable (b) Contract: A contract is a legally enforceable agreement that creates rights and obligations
essential elem between the parties involved. It requires the presence of essential elements such as offer,
legal remedy acceptance, consideration, intention to create legal relations, capacity, free consent, and lawful
writing object and consideration. A contract can be enforced through legal remedies in case of a breach.
Contracts do not need to be in writing to be enforceable unless otherwise specified by the law.

Example: A person enters into a written agreement with a builder to construct a house. The
agreement includes all essential terms and conditions and is legally enforceable.

valid but void (c). Void Contract: A void contract is a contract that is valid at the time it was entered into, but due to
frustrated some change in circumstances, becomes void at the time for performance. This includes contracts
enforced that are frustrated due to impossibility of performance. A void contract cannot be enforced and the
returned
parties thereto have no rights under it, but a party that has gained a benefit under a contract that
becomes void will need to return the same.

Example: A contract under which a painter agrees to personally paint a portrait of the client, while
valid and enforceable at the time it was entered into, becomes void when the painter subsequently
meets with an accident and loses the use of his hands.

rescind (d) Voidable Contract: A voidable contract is an agreement where one or both parties have the
affirm or voidable
option to either enforce or rescind the contract due to certain legal grounds. The party with the right
remedies
to rescind can choose to affirm the contract or declare it voidable and seek remedies for the other
party's breach.

Example: A contract entered into by a minor is voidable at the option of the minor, meaning they can
choose to affirm or void the contract upon reaching the age of majority.

void beginning(e). Agreement that is Void Ab Initio: An agreement that is void ab initio is an agreement that is
never existed considered void from the very beginning. It is treated as if it never existed, and the parties have no
oblegation legal rights or obligations arising from it.

Example: An agreement made by a person who is of unsound mind and lacks the capacity to contract
is void ab initio.

6.

Fraud (S. 17):

 Under Indian contract law, fraud refers to the intentional and deliberate misrepresentation of facts
with the intent to deceive the other party and induce them to enter into a contract. The key
elements of fraud include:

False Representation: One party makes a false representation of material facts, either through words,
actions, or silence when there is a duty to speak.

Knowledge of Falsity: The party making the false representation knows that it is false or is reckless
about its truthfulness.

Intent to Deceive: The fraudulent party intends to deceive the other party, leading them to enter into
the contract based on the false representation.

Example: A seller intentionally misstates the condition of a property by concealing significant

structural damage, with the intention of inducing the buyer to purchase it.

Remedies for Fraud:

Under Indian contract law, the party whose consent has been obtained through fraud has the
following remedies:

Rescission (S. 19): The defrauded party can choose to rescind (cancel) the contract and seek
restitution by returning any benefits received. However this is subject to the Exception to S. 19 which
NA in states that if such consent was caused by silence, fraudulent within the meaning of section 17, the
silence
S19 contract, nevertheless, is not voidable, if the party whose consent was so caused had the means of
discovering the truth with ordinary diligence.

Specific Performance (S. 19): In certain cases, the innocent party may seek specific performance to
enforce the contract as initially agreed, rather than opting for rescission.

Damages (S. 73): The defrauded party may claim damages to compensate for any losses suffered due
to the fraud, including actual damages.

Misrepresentation (S. 18):

Under Indian contract law, misrepresentation refers to the making of a false statement by one party
to another, inducing them to enter into a contract. The key elements of misrepresentation include:

False Statement: One party makes a false statement of fact, either innocently (without knowledge of
its falsity) or negligently (without reasonable grounds for believing its truthfulness).

Inducement: The false statement induces the other party to enter into the contract.

Example: A seller mistakenly represents that the property has uninterrupted water supply, but it
occasionally faces water shortages due to municipal issues.

Remedies for Misrepresentation:

Under Indian contract law, the innocent party whose consent has been obtained through
misrepresentation has the following remedies:

Rescission (S. 19): The innocent party can seek rescission of the contract, restoring both parties to
their pre-contract position. However this is subject to the Exception to S. 19 which states that if such
 consent was caused by misrepresentation, the contract, nevertheless, is not voidable, if the party
whose consent was so caused had the means of discovering the truth with ordinary diligence.

Damages (S. 73): The innocent party may claim damages for any losses suffered due to the
misrepresentation, aiming to be put in the position they would have been in had the
misrepresentation not occurred.

Specific Performance (S. 19): In certain cases, the innocent party may seek specific performance to
enforce the contract as initially agreed, rather than opting for rescission.

7. (i)

Contingent Contracts (S. 31):

Perforemance Contingent contracts are those in which the performance of the contract depends on the occurrence
Specific event
or non-occurrence of a specific event. The essential elements of a contingent contract include the
definititon
not in control definition of the event, the uncertainty of its occurrence, and its impact on the contract's
capable performance. For a contingent contract to be valid, the event must be uncertain, it should not be at
the control of either party, it must be capable of occurring or not occurring, and the object of the
contract should not solely be to create a win-loss framework depending on the uncertain event.

Example: A agrees to sell their car to B if B's team wins the championship. The occurrence of B's triggered by
team winning the championship is uncertain and beyond the control of both parties. If the team team win
wins, the contract becomes enforceable, but if the team loses, the contract becomes void. Here the
sale of A’s car to B would be accompanied by appropriate consideration and as such there is no clear
‘winner’ or ‘loser’ and the transaction is merely triggered by the outcome of the championship.

Wagering Agreements (S. 30):

bet on Wagering agreements are essentially agreements where two parties bet on the outcome of an
uncertain uncertain event. In these agreements, both parties stand to gain or lose based on the occurrence or
event non-occurrence of the event. Wagering agreements are void and unenforceable in India, as they are
void, specula
pp considered to be speculative and against public policy.

Example: A and B agree to bet on the outcome of a cricket match, where each party will give a bet on cricket
certain amount of money to the other based on the outcome. Such a wagering agreement is void match
and unenforceable.

It is important to note that while contingent contracts are valid and enforceable, wagering
agreements are generally deemed void. However, there are exceptions to the rule, such as certain
types of insurance contracts and certain competitions where skill is involved, which are not
considered wagering agreements.

Quasi 7(ii) The concept of "unjust enrichment" is an important aspect of quasi-contracts under the Indian
benefit derived
Contract Act. It refers to a situation where one party has obtained a benefit or advantage at the
without justif
basis expense of another party without any legal or justifiable basis. In such cases, the law seeks to
prevent through quasi
 prevent the unjust enrichment of one party at the expense of another by providing remedies
through quasi-contracts.

Quasi-contracts, as defined under Section 68 to 72 of the Indian Contract Act, are based on the
principle of preventing unjust enrichment. These contracts are not created by the parties' mutual
consent but are imposed by law to avoid unfairness. The principles that govern quasi-contracts in
addressing unjust enrichment are as follows: RVME

restore aggreived1. Principle of Restitution: The principle of restitution seeks to restore the aggrieved party to
the position they were in before the unjust enrichment occurred. It ensures that the party
benefiter compensates
who benefited without legal justification returns the benefit or compensates the other party
for the loss suffered.

2. Absence of Voluntary Agreement: Quasi-contracts arise in situations where there is no

prevent unjust
voluntary agreement between the parties. The law imposes the obligation to prevent unjust
enrichment based on the circumstances and fairness.

reasonable 3. Quantum Meruit: The principle of quantum meruit ("as much as he deserves") allows a party
compensation for to claim reasonable remuneration or compensation for the value of the benefit conferred or
value in absence work performed, even in the absence of a valid contract. This principle prevents one party
windfall from receiving a windfall at the expense of another.
circumstances 4. Objective Evaluation: In determining unjust enrichment, the court objectively evaluates the
value, efforts
circumstances and considers the value of the benefit received, any efforts made by the
benefiting party, and the circumstances surrounding the transaction.

To illustrate the concept of unjust enrichment, consider the following example:

Car not stolen Suppose Mr. A mistakenly believes that his car has been stolen and reports it to the police. Later, it is
someone was discovered that the car was not stolen but was towed away due to parking violations. During the
using after period when Mr. A believed the car was stolen, Mr. B, unaware of the situation, found the car and
towing used it for his personal needs without paying anything. In this scenario, Mr. B would be unjustly
Unjustly enriched as he obtained a benefit (use of the car) without any legal basis.
enriched
significant To address this unjust enrichment, the principles of quasi-contracts would come into play. Mr. A, the
role aggrieved party, may seek restitution by claiming the value of the benefit conferred, i.e.,
remedies compensation for the use of the car during that period, or the return of the car itself.
quantum
restitution In conclusion, the concept of "unjust enrichment" plays a significant role in quasi-contracts under the
ensures fairness
Indian Contract Act. It prevents one party from unfairly benefiting at the expense of another and
provides remedies through the principles of restitution and quantum meruit. These principles ensure
fairness and equity by restoring the aggrieved party to their original position before the unjust
enrichment occurred.

Strict adhere 8. "Time is of the Essence" refers to a contractual provision that emphasizes the importance of strict
punctual adherence to specified timeframes for performance. It means that punctual performance within the
is agreed agreed time is crucial and failure to do so constitutes a breach of contract.

The significance of this principle lies in the fact that it allows parties to rely on the timely completion
timely
of obligations. Time-sensitive contracts often involve transactions where prompt performance is
time sensitive
prompt crucial for the parties' interests or where delays can cause significant harm or loss.
crucial
prima facie The general rule is that time stipulations in contracts are prima facie valid and enforceable. However,
intention whether time is considered essential or not depends on the intention of the parties, as inferred from
terms
the terms of the contract, nature of the transaction, and surrounding circumstances.

essence Time is typically considered to be of the essence in contracts where prompt performance is essential
nature due to the nature of the subject matter or the specific requirements of the parties. Examples include
eg: contructionconstruction contracts, delivery contracts for perishable goods, and contracts involving time-sensitive
events or performances.
essence In construction contracts, completion deadlines are usually of the essence to ensure timely project
essential
completion. Contracts for the sale of goods may specify delivery dates as essential to meet market
entertainment
demands. Entertainment contracts involving live performances often have strict time requirements
to ensure the event runs smoothly.

material breachIf a party fails to perform within the specified time when time is of the essence, it constitutes a
repudiated material breach of contract. The non-defaulting party can consider the contract repudiated and
pursue legal remedies.
Terminate The remedies available to the non-defaulting party include: a. Termination of the contract: The
Damages
innocent party can choose to terminate the contract due to the other party's failure to perform
Rescission
Specific Perf within the specified time. b. Claim for damages: The non-defaulting party may seek compensation for
losses suffered as a result of the breach, including any additional costs incurred due to the delay. c.
Specific performance: In certain cases, the non-defaulting party may seek a court order to compel
the defaulting party to perform their obligations within the specified time. d. Rescission: The
innocent party may seek to rescind the contract and restore the parties to their pre-contractual
positions, especially if timely performance was essential to the contract's purpose.

vital role Overall, the concept of "Time is of the Essence" plays a vital role in contract law, ensuring the timely
specify import performance of obligations. It is important for parties to clearly specify the importance of time in
legal conseq their contracts and understand the legal consequences of failing to meet time stipulations.
time stipulation

9. (i) Exclusivity clause breached - DSI

Sita has several legal options available to her under the Indian Contract Act 1872 in response to
Rina's breach of the exclusivity clause and the alleged copying of designs. Here are the potential legal
remedies that Sita can consider:

unauthorized a. Damages: Sita can claim damages for any losses suffered as a result of Rina's breach of the
use exclusivity provision and Rina's unauthorized use of the designs. This could include the loss of
reputition exclusivity, harm to Sita's brand reputation, or any financial harm caused by Rina's actions. The
financial harm
damages should aim to put Sita in the position she would have been in if the breach had not
occurred.

b. Specific Performance: Sita can seek an injunction to prevent Rina from working for any other
clothing manufacturer during the duration of their contract. This remedy aims to enforce the specific
terms of the agreement.

c. Injunction: Sita can seek an injunction to prevent Rina from using or reproducing the designs she
created exclusively for Sita's brand. This would aim to stop Rina from further breaching the contract
and protect Sita's intellectual property rights.
9(ii)

Rina claims that she entered into the subsequent agreement with the other clothing manufacturer
because they offered her better terms. While this may be a valid reason for seeking a new
agreement, it does not excuse Rina from breaching the exclusivity clause in her contract with Sita.
The contract between Sita and Rina explicitly states that Rina cannot work for any other clothing
manufacturer in India during the contract's duration. Therefore, Rina's decision to enter into an
agreement with another clothing manufacturer which has operations in India would most likely be
considered a breach of her contractual obligations, regardless of the terms offered. To the extent that
Rina is working for the other manufacturer on designs that will be released in other countries, her
actions are not in breach of the contract between her and Sita. Her work with the other
manufacturer for its business in India would certainly amount to a breach of her obligations of
exclusivity.

However, the reasonability of the exclusivity provision, which places a restriction on her ability to
carry out her trade, would need to be examined to see whether it falls afoul of S. 27 of the ICA,
which states that “every agreement by which any one is restrained from exercising a lawful
profession, trade or business of any kind, is to that extent void.” The scope of the exclusivity
provision is very wide as it applies to the entire country and continues for a long period of 2 years,
and as such it would amount to restraint of trade. Therefore this provision of the contract would be
void. Rina’s arguments themselves are not valid, but the provision she is allegedly in breach of is void
and unenforceable.

On the other matter of similarity of designs, the merit of Rina’s argument depends on the evidence
she and Sita are able to present. If Sita can provide substantial evidence that Rina's designs for the
other clothing manufacturer are indeed strikingly similar to the designs created exclusively for Sita's
brand, it could undermine Rina's claim of incidental similarities. In such a case, Rina's argument may
carry less weight, and it may be determined that she breached her contractual obligations by copying
the designs.

9 (iii)

On the matter of breach of the exclusivity provision, Sita would not be able to enforce the same as it
contravenes S. 27 ICA and is therefore void to that extent. In any event Rina’s work with the other
manufacturer for foreign markets does not amount to breach of contract.

On the matter of similarity of designs, if Sita is able to demonstrate by evidence that the designs
created for the other manufacturer are in fact derivatives of the ones created for her by Rina, and
that the similarities are more than ‘incidental’, the same would be considered breach of contract and
Sita would be entitled to appropriate damages for the same along with an injunction against
continued use of the copied designs if she has sought that remedy.

10(i)

1. Delay in completing the construction: As Y failed to complete the construction by the agreed
completion date, as at 1st August, X could have exercised the right to terminate the contract and seek
damages for losses caused due to the delay (such as temporary accommodation or storage costs, or
any financial loss caused by the delay in occupying or utilizing the house). However, by agreeing to an
extension of the time period for completion of the project, X may no longer exercise those remedies
as Y’s delay would now be considered condoned until the new completion date of 30th September. In
the event of a further delay beyond that new date, X’s rights as previously explained would once
again kick in, though the damages would now be assessed in the context of the stipulated penalty for
each day of further delay.

2. Imposition of the penalty clause: X, in his written communication to Y, imposed a penalty clause of
₹5,000 per day for the delay beyond the extended completion date. X's rights and remedies
regarding the penalty clause are as follows:

a. Enforceability of the penalty clause: The enforceability of the penalty clause would depend on
whether it is considered a genuine pre-estimate of damages or an unreasonable penalty. If the
penalty clause is considered a genuine pre-estimate of damages, X can enforce it. However, if the
court determines it to be an unreasonable penalty, X may not be able to enforce the full amount
stated in the clause.

b. Actual damages: Even if the penalty clause is unenforceable, X can still claim actual damages
suffered due to the delay. These damages would need to be proven and may include financial losses
directly caused by the delay.

10 (ii)

Y may make the following arguments:

(a) Lack of written agreement: Y can argue that since X's agreement to the penalty clause was
communicated verbally, without a written agreement, it may not be enforceable. Y may claim that X's
subsequent written communication only confirmed the extension but did not confirm the penalty
clause, and therefore, it should not be binding.

(b) Ambiguity in the terms: Y can argue that the terms of the extension and the penalty clause were
not clearly defined and finalized. Y may contend that the lack of specific terms and conditions
surrounding the extension and penalty clause creates ambiguity and should be interpreted in his
favour.

(c) Unreasonable penalty: Y can further argue that even if the penalty clause is enforceable, the
penalty of ₹5,000 per day is an unreasonable amount and does not reflect a genuine pre-estimate of
damages. Y may contend that the actual damages suffered by X due to the delay may be significantly
less than the penalty amount claimed.

10 (iii)

When Y initially requested an extension of the time for completion of the project, X agreed to the
same subject to terms that would be ‘confirmed subsequently’. There is substantial ambiguity
created by this statement and as such the circumstances will need to be examined. Y proceeded with
the work on the basis of the verbal confirmation, with the specific knowledge that the exact terms of
extension would follow. He received X’s revised terms including the penalty clause 3 days later. Upon
receipt of those terms, he chose to continue with the work, thereby accepting the modified terms by
his actions. The verbal agreement coupled with the written terms, along with Y’s actions, form a
binding contract between the parties. The penalty clause is therefore on the face of the matter valid.

The reasonability of the penalty clause will depend on the facts - if it is demonstrated that the
amount is not a genuine pre-estimate of damages, the penalty clause will be upheld; otherwise, X is
entitled to damages based on the actual loss suffered by him for the delay between 30th September
and 20th October.
 11.

perform on (i) According to Section 126 of the Act, a contract of guarantee is a contract to perform the promise
default or discharge the liability of a third person in case of their default. It is important to note that a
triparte
contract of guarantee is a tripartite agreement involving three parties: the principal debtor (A in this
case), the creditor (F), and the surety (G).

co-extensive Regarding the liability of the surety in a contract of guarantee, Section 128 of the Indian Contract Act
surety liable provides that the liability of the surety is co-extensive with that of the principal debtor unless
otherwise specified in the contract. This means that the surety is liable to the creditor to the same
extent as the principal debtor. In other words, if the principal debtor fails to fulfill their obligation,
the surety becomes responsible for the debt.

However, in the case of a minor (A), the contract entered into by them is considered void ab initio or
minor void from the beginning due to their incapacity to contract. As per Section 11 of the Indian Contract
Act, a minor lacks the capacity to enter into a contract, and such a contract is not enforceable by law
against the minor.

In light of the minor's incapacity, F, being aware of A's minority at the time of extending the loan,
cannot enforce the contract against A. Consequently, since the principal debtor (A) is not bound by
the contract, F would not have recourse to G (the surety) for the repayment of the debt. The liability
of the surety (G) is contingent upon the enforceability and fulfillment of the obligation by the
principal debtor (A), which, in this case, is not possible due to A's minority.

Therefore, F would not have recourse to G as the surety for A's debt in the event that A fails to repay
the debt, as the contract of guarantee is not enforceable against the minor principal debtor.

Indemnify (ii) According to Section 124 of the Act, a contract of indemnity is a contract by which one party
Specific event promises to compensate another party for any loss or damage suffered by the latter in the
occurrence of a specific event. The party making the promise (indemnifier) agrees to make good the
loss suffered by the other party (indemnified) due to the occurrence of a specified event.

In the present scenario, if F and G intended their arrangement to be a contract of indemnity rather
than a contract of guarantee, they would have had to clearly express their intention to that effect.
While a contract of guarantee involves the surety undertaking liability for the debt of the principal
debtor, a contract of indemnity focuses on compensation for loss or damage suffered.

However, it is important to note that even if F argues that the arrangement between them is one of a
contract of indemnity, it would not alter the fact that A, being a minor, is not bound by the contract
due to their incapacity to contract. As mentioned earlier, a contract with a minor is considered void
ab initio or void from the beginning under Section 11 of the Indian Contract Act.

Considering the principle of privity of contract, which states that only parties to a contract can
enforce its terms, the contract of indemnity between F and G would require the participation and
liability of A (the principal debtor) to be enforceable. Since A, being a minor, is not legally bound by
the contract, F cannot proceed against G on the grounds of a contract of indemnity to seek
compensation for A's failure to repay the debt.

Therefore, even if F argues that the arrangement between them is one of a contract of indemnity,
the underlying issue remains that A, being a minor, is not legally obligated to fulfill the debt.
Consequently, F cannot proceed against G based on a contract of indemnity as the liability of G is
contingent upon the enforceability and fulfillment of the obligation by the principal debtor (A).
12. In the given scenario, both coercion and undue influence are present, affecting the free consent
of Ravi in entering into the loan agreement with Rajesh.

Coercion: Coercion is defined under Section 15 of the Indian Contract Act, 1872, as the act of
committing or threatening to commit any act forbidden by the Indian Penal Code or unlawfully
detaining or threatening to detain any property, to cause a person to enter into a contract against
their will. In this scenario, Rajesh's threat to publicly disclose sensitive information about Ravi's
personal life if he did not sign the loan agreement within 24 hours constitutes coercion. The threat of
harm to Ravi's reputation and relationships puts him under duress, leaving him with no meaningful
choice but to enter into the contract.

The legal implications of coercion are significant. As per Section 19 of the Indian Contract Act, a
contract entered into under coercion is voidable at the option of the party who was coerced. Ravi, as
the coerced party, has the right to rescind the contract and seek remedies such as restitution of any
consideration given, as well as claim damages for any losses suffered due to the coercion.

Undue Influence: Undue influence is defined under Section 16 of the Indian Contract Act as the
improper use of influence by one party over the mind of another, so as to dominate their free
consent. In this scenario, the presence of a special relationship between Ravi and Rajesh,
characterized by Rajesh being a wealthy businessman and a family friend, creates an opportunity for
the exercise of undue influence. Ravi's vulnerable financial situation and urgent need for the loan
further magnify the influence exerted by Rajesh.

The legal implications of undue influence are also significant. Under Section 19A of the Indian
Contract Act, a contract influenced by undue influence is voidable at the option of the party under
undue influence. Any such contract may be set aside either absolutely or, if the party who was
entitled to avoid it has received any benefit thereunder, upon such terms and conditions as to the
Court may seem just. Since Ravi has received the benefit of the funds and undergone treatment, the
contract cannot be set aside entirely, but Ravi can request the Court to prescribe equitable terms for
the contract. He also has the option to claim damages for any losses suffered due to lack of free
consent.

In conclusion, both coercion and undue influence are present in the given scenario, compromising
the free consent of Ravi in entering into the loan agreement. As a result, Ravi has the right to rescind
the contract and seek remedies available under Indian contract law to rectify the unjust situation.

13. (i): Under the Indian Contract Act 1872, Amar has the following legal remedies to claim the full
payment of ₹1,00,000 from Rohit:

1. Right to Sue for the Contract Price: Amar can sue Rohit for the full contract price of
₹1,00,000. Amar completed the mural as per the agreed specifications, and Rohit's refusal to
pay for the completed work constitutes a breach of contract. Amar is entitled to receive the
full payment as stipulated in the contract.

2. Damages for Breach of Contract: Amar can claim damages for breach of contract. Rohit's
refusal to pay for the completed work amounts to a breach of the contract's payment terms.
 Amar can seek damages to compensate for the financial loss suffered as a result of Rohit's
breach, which would include the full contract price of ₹1,00,000.

3. If Amar had halted work when Rohit informed him he no longer wanted the mural, he could
have exercised the option to rescind the contract due to Rohit’s anticipatory breach of
contract. He would then have been entitled to seek payment for the work done by him till
that point along with compensation for his time, effort and any materials that would be
wasted by cancelling the project midway, along with the amount he would have earned by
taking other jobs for the remaining period of time that he had blocked for Rohit. However,
since he has completed the mural this remedy cannot be exercised.

(ii): Amar's Perspective: Amar can argue that he fulfilled his contractual obligation by completing the
mural as per the agreed specifications. He invested time, effort, and resources into completing the
entire work, and therefore, he is entitled to receive the full payment of ₹1,00,000 as agreed upon.
Amar can emphasize that Rohit's refusal to pay for the completed work is a clear breach of contract,
causing financial loss and injustice.

Rohit's Perspective: Rohit may argue that he informed Amar of his decision to no longer proceed
with the mural, and therefore, Amar should not have completed the work. Rohit might contend that
Amar's decision to proceed and complete the mural despite being aware of Rohit's intentions
relieves him of the obligation to pay. Rohit may also assert that the quality of the work is not
satisfactory, justifying his refusal to pay the full amount.

Considering the facts, Amar has a stronger legal position as he completed the mural according to the
agreed specifications, and Rohit's refusal to pay for the completed work is a clear breach of contract.
Amar is entitled to claim the full payment of ₹1,00,000. However, the final decision will depend on
the specific provisions of the Indian Contract Act 1872, the terms of the contract between Amar and
Rohit, and the evidence presented by both parties.

14. The doctrine of frustration applies when an unforeseen event occurs, rendering the contract
impossible to perform or significantly changing the contractual obligations. It allows for the discharge
of the parties from their future obligations under the contract.

In this case, the cancellation of the prestigious art festival due to a natural disaster qualifies as an
unforeseen event. The extensive damage to the festival venue makes it impossible to hold the event
as planned. This event could be considered as frustrating the contract between Anita and the gallery.

Anita's obligations under the contract included showcasing her artwork for three days during the
festival and custom-making artwork in line with the festival's theme. She incurred expenses on
materials and devoted significant time and effort to create the artwork as agreed. However, due to
the cancellation of the festival, Anita's artwork could not be exhibited.

The Indian Contract Act does not explicitly address the doctrine of frustration, but it is recognized
and applied by Indian courts based on common law principles. The case of Satyabrata Ghose v.
Mugneeram Bangur & Co. (1954) sets out the test for frustration in Indian contract law. The event
causing frustration must be beyond the control of the parties, rendering the contract impossible to
perform or significantly altering the obligations.
In this case, the natural disaster and subsequent cancellation of the festival were events beyond the
control of both Anita and the gallery. The frustration of the contract occurred due to circumstances
beyond their reasonable anticipation or control.

As a result of the frustration, the contract would be discharged, and both parties would be relieved
of their future obligations. Anita would no longer be obligated to showcase her artwork, and the
gallery would be relieved of its obligation to pay the fixed sum for the exhibition.

However, it is important to consider whether Anita is entitled to any compensation for the expenses
she incurred and the efforts she invested in creating the artwork. The principle of quantum meruit
comes into play, which allows for a reasonable amount to be paid to Anita for the value of the work
done before the frustration occurred. Anita can claim reasonable compensation for the materials
used and the work completed up to the point of frustration.

Therefore, Anita may be entitled to payment for the artwork she custom-made, representing the
value of the work she completed before the frustration event. The gallery should compensate Anita
for her efforts and the expenses incurred, subject to a reasonable assessment of the work done.

In conclusion, under the doctrine of frustration, the contract between Anita and the gallery can be
considered frustrated due to the cancellation of the art festival caused by the natural disaster. Both
parties would be relieved from their future obligations under the contract. However, Anita may be
entitled to reasonable compensation for the artwork she created before the frustration occurred. It is
advisable for both parties to seek legal advice and negotiate a fair resolution considering the
principles of frustration and quantum meruit.

15 (i)

(a) No, B cannot claim the sum from A due to the operation of S. 41 which states that when a
promisee accepts performance of the promise from a third person, he cannot afterwards enforce it
against the promisor.

(b) In this case, C made the payment to B on behalf of A, with the intention of discharging A's debt.
However, since there is no prior agreement or obligation between A and C regarding the repayment
of the amount, C cannot recover the sum paid from A. The payment made by C to B can be seen as a
voluntary act to benefit A, but it does not create a legal obligation for A to repay C. A does not have
any legal liability towards C to repay the amount since A did not consent or enter into any agreement
with C regarding the payment.

15 (ii)

Under Indian contract law, the concept of illegality of object refers to situations where the subject
matter or purpose of a contract is prohibited by law. Contracts with an illegal object are considered
void ab initio, meaning they are deemed to have no legal effect from the beginning.

In the given scenario, Rahul and Ravi entered into a contract for the purchase of a rare and protected
species of wildlife, which is prohibited under the Wildlife Protection Act of India. This act prohibits
the trade, sale, or possession of such wildlife without proper authorization or permits.

Considering the nature of the subject matter, the contract between Rahul and Ravi falls within the
purview of an illegal object. The transaction involving the purchase of a protected wildlife species
without the required permits violates the specific provisions of the Wildlife Protection Act.
Therefore, the contract is void ab initio and has no legal enforceability.

The consequences of an illegal object on a contract are significant. Firstly, an illegal contract is void,
which means it is treated as if it never existed. Neither party can enforce the terms of an illegal
contract or seek remedies for its breach. Secondly, the court will not assist any party in an illegal
contract, as it would be against public policy to enforce or support illegal activities.

In this case, Rahul's refusal to honor the contract is legally justified due to the illegality of the object.
He has the right to seek recovery of any amount already paid to Ravi because the contract is void ab
initio. Ravi, on the other hand, cannot enforce the terms of the contract or retain the payment, as
the contract is illegal and unenforceable.

15 (iii)

S. 28 (a) is the relevant section of the ICA; it states that every agreement by which any party thereto
is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual
legal proceedings in the ordinary tribunals, or which limits the time within which he may thus
enforce his rights is void to that extent.

In this case, the agreement between Meeta and Shashank restricts Shashank from instituting
proceedings against Meeta in any courts other than those of Mumbai, even if those other courts
have jurisdiction. This restriction limits Shashank's ability to exercise his legal rights and enforce a
claim against Meeta in courts other than Mumbai.

However, this does not constitute an ‘absolute’ restriction on Shashank’s right to initiate legal
proceedings, as he is permitted to do so in the courts of Mumbai, and therefore the provision would
not fall under S. 28 (a) ICA and the validity of the contract is not affected. The fact that he has
refrained from doing so does not have any bearing on the validity of the contract. Meeta’s argument
that the agreement was void for being in restraint of legal proceedings does not hold water.
Shashank is entitled to receive payment of the agreed sum as he has fulfilled his promises under a
valid contract.

16. (i) In this scenario, the relevant clauses could include those related to the agent's duty of loyalty,
duty to act within the scope of authority, and duty to disclose material facts. The agent's duty of
loyalty requires acting in the best interests of the principal, which includes not engaging in self-
dealing or secret profits. The duty to act within the scope of authority requires the agent to only
perform actions authorized by the principal. The duty to disclose material facts necessitates the
agent to inform the principal of any significant information regarding the transaction.

Based on the given facts, Ms. Gupta's actions of secretly selling the property to her friend at a lower
price without Mr. Patel's knowledge or consent may breach her duty of loyalty, duty to act within the
scope of authority, and duty to disclose material facts. The potential legal consequences may include
a breach of contract claim by Mr. Patel, potential liability for damages or losses suffered by Mr. Patel,
and possible termination of the agency agreement.
(ii) In this scenario, the relevant clauses could include those related to the agent's duty of
confidentiality and duty to act in the best interests of the principal. The duty of confidentiality
requires the agent to maintain the confidentiality of the principal's information, particularly sensitive
or proprietary information. The duty to act in the best interests of the principal obligates the agent to
prioritize the principal's interests and not engage in activities that harm or compromise those
interests.

Based on the given facts, Mr. Khan's disclosure of confidential information about ABC Corporation to
a competitor without authorization may breach his duty of confidentiality and duty to act in the best
interests of ABC Corporation. The potential legal consequences may include a breach of contract
claim by ABC Corporation, potential liability for damages resulting from the disclosure, and the right
to terminate the agency.
 MBL SA JUNE 2023

BANKING LAW - KEY

SECTION A

{250 Words approximately}

1. Critically examine the rationale and process of Nationalisation of Banks by the
Government of India and its impact on Banking in India

14 Major Banks were initially Nationalised in 1969 as the Government felt that the
Indian commercial banks were only catering to large scale industries and affluential
persons but did not focus on lending to priority sectors like agriculture, exports, small
scale industry etc. Nationalisation was deemed as a major step in achieving the
socialistic pattern of society. Subsequently, in 1980, six more private sector banks
were nationalised extending the public domain further over the banking sector.

The step of Nationalisation of these banks was resorted to as it was felt that the steps
taken to introduce ‘Social Control’ by way of amendments to the Banking Regulation
Act were not working.

Nationalisation of Banks had a huge impact on the growth and spread of banks across
India as Banks had to expand their network so as to reach the masses in Urban and
Rural areas. This mobilised savings in Rural areas and various Priority Sectors such as
Agriculture, Artisans and Small Units / Industries which were earlier not getting
importance were able to source credit at low rates.

However, Nationalisation also affected the profitability of Banks due to increased

lending costs, increasing defaults due to negligible due diligence and increasing cost
of recovery towards such loans.

The Bank Nationalisation exercise was duly upheld by the Hon’ble Supreme Court in
the case of Rustom Cavasjee Cooper v Union of India.

Despite certain drawbacks of such exercise, these Banks have been instrumental in the
economic development of the nation and cater to different sections of society.
2. Commercial Banks play a vital role in the economic progress and socio-economic
progress of a Nation. Justify the said statement by highlighting the important
roles and functions performed by Commercial Banks in India {Para 2.3 Pages
20-21 of the Coursework}.

Banks play a crucial role in the economic progress of a country. In India, Commercial
Banks have made significant contribution in this direction by ensuring Financial
Inclusion and mobilisation of savings, availability of Credit to various sectors and
classes and channelling resources to various sectors to stimulate capital formation and
accelerate the process of economic growth

Commercial Banks play a vital through the following functions

i. Banks Promote Capital Formation – By stimulating Savings (through

attractive investment schemes/interest rates) and facilitating investment, a
sound Banking system makes investment in ensuring Money and Capital isn’t
idle

ii. Optimum Utilisation of Resources – As Commercial Banks are spread across

the Country, they are instrumental in pooling of small savings of individuals
are pooled together and provided as advances to persons requiring Credit,
thereby earning interest to the Depositor and availability of Capital to the
borrower, thereby benefitting both in the process

iii. Financing the Priority Sectors – Advances to Priority Sectors helps in

achieving overall economic development and progress of a nation and
increasing the standard of living

iv. Banks promote balanced regional development – By catering to different

needs of Urban, Semi-urban and Rural areas through various branches,
 balanced regional development is achieved through channelising funds from
developed to developing regions

v. Expansion of Credit & Promoting Growth with Stability – In order to achieve

sustained economic development, availability of credit is crucial at all times.
Some Banks are also responsible for administering and disbursing of various
government schemes to promote growth and regulating Interest
3. Briefly explain the provisions of the Banking Regulation Act which requires all
Banking Companies in India to appoint persons with “Professional or Other
Experience” as Directors on their Board of Directors.

Section 10A of the Banking Regulation Act 1949 requires all Banking Companies in
India to comply with the requirements relating to appointment of persons with
Professional or other Experience to the Board of Directors of the Banking Company.
The intent behind introduction of the said provision that predominance of leading
Industrialists as Directors of Banks should be reduced and persons from various
sectors and fields be appointed to ensure professionalism and diverse people on the
Board. In the event of failure to comply with these provisions, the RBI may
reconstitute the Board to ensure that the said requirements are fulfilled and any such
removal/reconstitution shall not be challenged in any Court

As per S.10A, not less than 51% of the Board shall consist of persons having special
knowledge areas such as accountancy, agriculture and rural economics, banking,
cooperation, economics, finance, law, small-scale industries or any other special
knowledge which in the opinion of the Reserved Bank be useful in the banking
company. At least two of the above must have special knowledge of practical
experience in agriculture or rural economy cooperation or small-scale industries.

Such persons ought not to have substantial interest in/be connected with, either as an
Employee, Manager or Managing Agent
(i) any company not being a company registered under S. 25 of the
Companies Act, 1956 (Section 8 of the 2013 Act) or
(ii) any firm,
which carries on any trade, commerce or industry and which, in either case, is
not a Small Scale Industrial Concern, or
(2) be proprietors of any trading, commercial or industrial concern, not being a small-
scale industrial concern
4. A cheque is sometimes referred to as a “special type of bill of exchange”. Evaluate
the said statement with reference to the key ingredients of the two instruments,
their definitions and parties to such instruments.

A Cheque is sometimes referred to as a special type of bill of exchange since it is a

bill of exchange drawn on a specified banker and not expressed to be payable
otherwise than on demand. While it does bear some similarities and a BoE, Cheques
does not require acceptance. It is directly presented for payment unlike a Bill of
Exchange which has to be presented for acceptance first.

(a) A cheque is always drawn by the executant on a banker {Drawee} payable to the
Drawee; whereas a BOE is made to a drawer who is merely a definite or identifiable
person.
(b) A cheque is payable immediately on demand without days of grace; whereas a
BOE may be payable on demand or a future fixed date or at sight or at presentment
etc.
(c) Cheques require no acceptance apart from prompt payment; whereas BOE in the
first instance has to be presented for acceptance.
(d) There is no privity of contract between the banker and the payee and so the latter
cannot sue the banker on his dishonouring the cheque without sufficient cause;
whereas since a drawer of BOE accepts the liability to pay, he can be sued by the
payee if he dishonours the BOE i.e. there is a privity of contract between the drawer
and payee.
(e) A cheque is supposed to be drawn upon funds in the hands of the banker belonging
to the maker i.e. if there are no funds the cheque cannot be honoured.
(f) A cheque is not noted or protested for dishonour unlike a BOE.
5. At the time of Lending, the mere fact that the borrower is providing valuable
security is not the only factor to be seen, the Banker also has to keep in mind
certain “principles of good lending” and evaluate other factors before sanctioning
such loan. Please enumerate and explain certain Principles of Good Lending
before grant of loans.

A Bank has to keep in mind several things in mind while considering whether to
provide Loans/Advances/Credit Facilities to a prospective applicant to avoid the risk
of bad debts and losses on account of such Loans

i. Capacity of the Applicant to contract: The Banker should ensure the person who is
taking the Loan is not under any legal bar to enter into a Loan Agreement, i.e. he
should be a Major, be of Sound Mind and should not be barred from entering into any
contract by any law (eg: Undischarged Insolvent)

ii. Purpose of the Loan: The Banker should analyse the necessity for such loan and
refrain from lending for non-productive purposes.

iii. Amount of the Advance : The Banker should ascertain whether the sum so
requested is reasonable and whether such amount would be sufficient for the purpose
mentioned. Long term loans are usually more profitable to the Banks.

iv. Duration of the Advance: The Banker should consider the duration of such loan,
i.e. whether it is short term or long term

v. Source of Repayment: The Borrower must have reasonable sources of income to

promptly payments during the duration of such loan. Additionally, the Bank would
have to consider the value and viability of the Security which is proposed to be given
and whether the same can be used to cover any deficit in the event of failure on the
Borrower’s part.
vi. Profitability of Advance: The terms of the transaction so advanced should be
profitable to the Bank
6. Examine in detail the following 3 kinds of loans: Consortium Loans, Personal Loans
and Secured Loan

Participation loan or consortium advance: In certain circumstances, two or more

financing agencies may grant a single loan to a single customer. Such a loan is termed
as a participation or consortium loan. This practice is resorted to where the risk
involved is too extensive for any single institution to take it up with equanimity or
there are administrative or other difficulties involved in either sanctioning or
following up the loan.

In India, a Consortium Agreement is entered into for specifying the rights,

responsibilities of each back and the right of a ‘Lead Bank’ in such Consortium who
shall initiate and act on behalf of all consortium partners in the event of default.

Personal loans are given for personal requirements such as purchase of Air
Conditioners and Household Appliances, Car etc. They are usually “Unsecured
Loans” given upto a prescribed limit repayable within the duration stipulated.

A secured loan is one where the bank advances the money against some tangible,
valuable, marketable asset of the customer. The asset may be anything - a house, shop,
machinery, stock in trade, shares, etc., and the value of security is dependent or is in
proportion to the amount of the loan sought. In the event of default in the payment of
the Loan amount, the Security shall be realised in order to recover the monies due to
the extent they haven’t recovered. Secured Loans restrict the Borrower’s power to
further take another loan upon such Asset without the approval of the Bank to which it
has first been given as Security.
7. Briefly examine the provisions relating to Amalgamation of Banking Companies
(Voluntarily between 2 Private Banks) under the provisions of the Banking
Regulation Act and the Directions framed by RBI in this regard.

S. 44A of the Banking Regulation Act, 1949 contains the powers of the RBI to
sanction Amalgamation of two or more Banking Companies. It prescribes
(i) The Procedure and Powers of the RBI in sanctioning a Scheme of
Amalgamation between two Individual Banks
(ii) The Power of the Central Government to provide for Amalgamation of two
or more Banking Companies after consultation with the RBI.

In exercise of the RBI’s Powers to frame Rules/Directions, the RBI has framed the
RBI Master Direction – Amalgamation of Private Sector Banks, Directions, 2016,
which governs amalgamation voluntarily between two Private Sector Banks or a
Private Sector Bank and an NBFC.

The Master Direction contains the detailed process for (i) Approval of the Scheme by
the respective Boards (ii) Approval of the Scheme by the Shareholders of both
Banking Companies by 2/3rd Majority. The Scheme of Amalgamation shall contain
detailed provisions regarding the valuation of the assets being merged, the
Consideration being paid to Shareholders/Swap Ratio for such scheme and whether
the same is fair and proper, post amalgamation shareholding pattern, Capital
Adequacy and Profitability post Merger, Board of Directors post Merger, rights of a
Dissenting Shareholder to be paid the value of the shares, etc.

S. 44A of the Act further prescribes the mode and manner of publication of Notices
prior to the meeting, rights of a dissenting shareholder to be paid the Value of such
share as determined by RBI (final and binding) .
8. The Role of the ‘Banking Ombudsman’ in India has assumed immense significance
in recent years. Critically examine the said statement with specific emphasis on
the increased role, jurisdiction and powers of the Ombudsman as on date.

The Banking Ombudsman was originally a Quasi-Judicial Authority functioning

pursuant to the ‘Banking Ombudsman Scheme’ 2006 aimed at resolution of customer
complaints relating to certain services rendered by the Banks (eg: Failure to confirm
remittance, charging of services without consent, etc).

In the year 2021, the Central Government had merged 3 Ombudsman which were
earlier functioning for 3 separate enactments:
i. The Banking Ombudsman under the Banking Ombudsman Scheme 2006,
ii. The Ombudsman for Digital Transactions (Payment and Settlement Systems) 2019
iii. The Ombudsman for NBFCs

Under the Integrated Scheme, complaints can be filed online/physically for grievances
except those which are specifically excluded under the Scheme. In the event the
Ombudsman is satisfied that that the reply given by the entity is not satisfactory and
that complaint could not be settled before it, it can pass an Award. The Complainant
has an option to accept the award in full and final settlement or appeal against the
same.

The disposal data of the RBI Integrated Ombudsman highlights that most claims are
settled before the passing of an Award in the matter. The powers of such Integrated
Ombudsman are also much wider than the restrictive list earlier prescribed under the
2006 Scheme, the IO has wider discretion to determine what “Deficiency of Service”
is and can further pass an Award directing Compensation upto Rs. 20 Lakhs & a sum
of upto Rs. 1Lakh for mental anguish, time and expenses incurred. The Ombudsman
may direct the Regulated Entity to provide information/furnish certified copies of any
relevant material documents.
 SECTION B

{400 Words approximately}

 SECTION B

1. The various functions discharged by The Reserve Bank of India as the Central
Bank of our Country are vital to ensure the health of the Banking System in
India. Evaluate the said statement by examining in depth the key Functions
performed by the Reserve Bank of India.

2 ½ Marks (approx.) for each of the 6 Functions:

As the Central Bank of the Country, RBI performs the important task of
regulating issue of Bank Notes, maintaining Reserves and monetary stability
and safeguard the credit system. In discharging such role, the RBI performs
key functions which are briefly explained below:

1) Banker to the Government: The RBI is the banker of the Central & State
Governments as such it has treasury functions. It collects money for & on
behalf of the Government and meets the expenses,. In the case of Central
Government it may demand any quantity of money and the RBI is obliged to
meet the demand. In case of State Governments the RBI extends a time credit
facility up to a maximum limit which is required to be set off against future
collections. The Central Government entrusts RBI with all its money,
remittance, exchange and banking transactions (directly by it or through
authorised persons such as SBI). The RBI manages the Public Debt as per the
provisions of the Public Debt Act.

2) Currency function: The RBI is the sole authority for the issue of the
currency. One rupee coins & notes & subsidiary coins are issued by the
government of India and are put into circulation only through the RBI. This
important function also includes the regulation of Legal Tender {eg:
Demonetization of High Denomination Notes} & also destruction/replacement
of Torn/Mutilated Notes and framing rules/procedures for the same.

3) Credit Control & Money Management: RBI regulates the value of money
& controls the credit system through regulation of cash reserve ratio, bank
rate, open market buying & selling of securities & statutory liquidity ratio.

4) Banker’s Bank: RBI is the apex bank regulating, controlling & creating
opportunities for ordinary commercial banks to function efficiently. It also
gives constant advice about the various goals of lending, borrowing & other
banking functions. It also monitors the banking functions of the institutions of
commercial banks & institutional banks.

5) Leadership in institutional banking: The RBI provides leadership to all

institutional banking such as NABARD, IBRD, IFC, Industrial banking, NHB
and so on. These banks look forward to the RBI for their policies on loans &
advances (eg: Priority Sector Lending Norms).

6) Ordinary Commercial Banking Function: RBI carries out ordinary

commercial banking functions for the commercial banks and the government
which many central banks of other countries do not execute. These functions
include bill discounting, giving loans & advances to financial institutions,
dealing with foreign exchange & the like.
2. The importance of traditionally ‘Universal Banks’ has significantly dwindled in the
present day and age. As a result, the RBI has devised unique and limited licenses to
be issued under the provisions of the Banking Regulation Act.

Examine the above statement with specific reference to Payment Banks and Small
Finance Banks and how they differ from a traditionally ‘Universal Bank’.

4 Marks: Introduction

In order to achieve the concept of Financial Inclusion, it was felt by RBI that
those people who are not currently served by the Commercial Banks would
also need to be brought into the Banking System. RBI had been contemplating
differentiated bank licensing to fill the gap in providing financial services to
low income households and small businesses, as the Banking Sector had only
category of Commercial banks, which was the universal bank. A Commercial
bank is allowed to undertake the complete range of banking activities
consisting of lending, borrowing and investments to all categories of people.
Differentiated licensing for banks was recommended to bring in new varieties
of banks to carry out specific banking activities, pursuant to which Payments
Bank & Small Finance Banks (SFB) Licenses were granted .

6 Marks: Payment Banks

PB’s are allowed only to accept deposits and offer payment services and is a
unique concept of a ‘Bank’ which only accept deposits. They accept small
savings upto limits prescribed from time to time. They offer payment and
remittance services mainly to migrant labourers / unorganized sector. They
 also accept government subsidies and other aid for credit to their beneficiary
customers & eligible Direct benefits transfers. They can issue debit cards but
cannot issue credit cards. They can mutual fund units and insurance and
pension products which are not risky in nature. PB’s cannot undertake lending
activities on their own but by becoming business correspondents of universal
banks they can offer loan products on their behalf. Examples include Airtel
PB, Jio PB, IndiaPost PB etc

6 Marks : Small Finance Banks

SFB’s are mandated to offer all basic banking services consisting of accepting
deposits and lending to population which has largely been un-served and
underserved by banks. Their key target group are small business units, small
and marginal farmers, micro and small industrial units and entities in
unorganized sector. Most prudential norms such as those relating to CRR and
SLR applicable to scheduled commercial banks apply to these banks as well. A
Significant portion of their Loans have to be granted only to the priority sector
comprising of agriculture, small enterprise and low income group. After
establishing satisfactory track record, a SFB will be eligible to convert itself
into universal bank, subject to policies and parameters decided by Reserve
Bank of India. Examples include Suryoday SFB, Ujjwal SFB, Equitas SFB,
etc

In today’s digital age, these two novel concepts have complemented Commercial
Bank’s activities and have by and large achieved the intent of differentiated licensing.
3. Mr. Abhay Rohtak is one of the key promoters having 26% stake in M/s. Rohtak
Jitendra Bank and is presently its Managing Director & CEO. M/s. Rohtak
Jitendra Bank is one of the most profitable Private Banks having least NPA’s in
the Country. Even the Equity Shareholders of the Bank other than the Rohtak
Family & Promoter groups repose full trust and faith in Mr. Abhay Rohtak, and
as a result unanimously pass a Resolution appointing him as Chairman and MD
for life not liable for reappointment and amending the Articles of Association to
reflect the same.

Examine in depth the validity of such Resolution passed in light of the provisions
of the Banking Regulation Act.

5 Marks : Introduction & Overriding Effect of Banking Regulation Act

The Resolution passed by the Shareholders of M/s. Rohtak Jitendra Bank

appointing Mr. Abhay Rohtak as the Chairman / MD for Life as well as the
Resolution amending the Articles of Association are not valid in light of the
provisions of the Banking Regulation Act, 1949.

S. 5A of the Act expressly provides that the provisions of the Act shall have
effect notwithstanding anything to the contrary contained in the memorandum
or articles of a Banking Company, or any agreement executed/resolution
passed by the Company in general meeting and any such article/resolution
shall, to the extent it is repugnant to the provisions of the Act become Void.

9 Marks : Prior Approval of RBI required & rationale for such prior approval

Under S. 35A of the Banking Regulation Act, no amendment of any provisions

relating to the appointment / reappointment / termination of a Chairman/
Managing Director/ Director/ CEO shall not have effect unless such
 appointment, re-appointment or termination is made with the previous
approval of the RBI.

Under S. 35B, any appointment or re-appointment or termination of

appointment of a Chairman, a Managing or Whole-Time Director, Manager or
CEO shall not have effect unless such appointment, re-appointment or
termination is made with the previous approval of the RBI.

While no specific Qualifications have been prescribed under the provisions of

the Companies Act 1956 or the Companies Act 2013 regarding
knowledge/expertise required of a person being appointed as a Managing
Director/Director of Companies, the above provisions under the Banking
Regulation Act 1949 have been prescribed as the post of a Chairman /
Managing Director in a Banking Company is an important position for which
the RBI must be satisfied regarding the competence and capabilities. It is for
such reason that the appointment/re-appointment of any Director / MD / CEO /
Chairman, etc after approval by the Shareholders has been made subject to
approval by the RBI.

The Resolution passed by the Shareholders, although passed unanimously

therefore is in contravention of the above provisions of the Banking
Regulation Act, 1949.

2 Marks:

2 marks in the event students also Highlight that the Post of Chairman and
Managing Director are separate positions and cannot be held by the same
person on the Board.
4. Mr. Amar, a permanent resident of Dharwad executed a Cheque drawn on his
Bank M/s. State Bank of India, Nagarbhavi Branch Bengaluru in favour of Ms.
Jodha, who just completed her UPSC training and is presently posted by the
Central Government in Chennai. Ms. Jodha deposited the said cheque at her
native in SBI Branch, Ramanagara District. Ms. Jodha received an intimation
from SBI Ramanagara Branch that the Cheque had been dishonoured due to
insufficiency of funds in Amar’s account.

Ms. Jodha approaches you to institute criminal proceedings under S. 138 of the
Negotiable Instruments Act against Mr. Amar and seeks your advise on which
Court/City she may file her case before. Please explain in detail the provisions
relating to Jurisdiction wherein such proceedings may be validly prosecuted and
where she cannot file such proceedings in light of 2 key Supreme Court
Judgments.

7 Marks: Introduction to NI Act & S. 138, multiple Jurisdictions as per

Baaskaran

S. 138 of the Negotiable Instruments Act, 1881 prescribes that in the event a
Cheque has been dishonoured on account of insufficiency of funds in the
Drawer’s Account, such offence shall attract a punishment of imprisonment
which may extend to two years or with fine which may extend to twice the
amount of the cheque or both, provided that the requirements prescribed under
S. 138 are satisfied.

Under S. 142 of the Act, a Complaint under S. 138 should be filed by such
complainant before a Metropolitan/Judicial Magistrate of first class.
Complainants usually used to file such Complaint either in the place where
they reside or the Accused/Drawer of the Cheque resides or the place where
 the Complainant’s/Accused’s Bank Account were situated. When a question
arose before the Hon’ble Supreme Court as to what were the places a
complaint could validly be filed and maintained, the Hon’ble SC in the matter
of K. Bhaskaran v. Sankaran Vaidhyan Balan had held that a Complaint could
be filed in any of the 5 places::

• The place of issue of cheque

• The place of dishonour,
• The place of receipt of notice,
• The place where the complainant resides or
• The place where the Accused resides

7 Marks: Dashrath Roopsingh Rathod and Amendment Act 2015

However, subsequently, the Hon’ble Supreme Court vide its 2014 Judgment in
Dashrath Roopsingh Rathod Vs State of Maharashtra was under the opinion
that the provisions pertaining to place of suing were being misused and that
complaints would have to filed only in the Court within whose territorial
jurisdiction the drawee bank is situated where such dishonour actually
happens. Thus, the Drawer/Executor of such Cheque was put at an unfair
advantage and the Complainant had to expend significant resources to litigate
in the place where the Drawee Bank is situated.

Thus, the Negotiable Instruments (Amendment) Act 2015 {originally passed

as an Ordinance}was thus passed to overcome the effects of the Hon’ble
Supreme Court, which clarified that a proceeding could be initiated where

(a) the branch of the bank where the payee or holder in due course, as the case
may be, maintains the account, is situated, or
 (b) the branch of the drawee bank where the drawer maintains the account is
situated

2 Marks : Application and Conclusion to given facts:

In the given facts of the case, Ms. Jodha can file a complaint against Mr. Amara
before the JM/MM of the following places:

i. Ramanagara – Where the branch of the Payee’s bank account is

maintained is situated, or
ii. Nagarbhavi - Where the branch of the Drawer his account is situated
5. Mr. A handed over a Blank Cheque to Mr. B on 02.01.2014 as Security towards
discharge of certain liability in respect of a hand loan of Rs. 10,00,000 (which
was transferred through NEFT) by Mr. B to Mr. A on 01.01.2014. Mr. A had not
made any part / full payment of such dues even until June 2018 and had not
issued any acknowledgement towards such debt in writing. Mr. B filled in the
details of the said Cheque in July 2018 (date stated on the Cheque – 01.07.2018)
and deposited the said Cheque for Payment. Upon receipt of notice of dishonour
due to insufficiency of funds, Mr. B sent a Notice u/s. 138 which was not replied
to by Mr. A. Mr. B thereafter filed a Criminal Complaint before the
Jurisdictional Court.

Will Mr. B succeed in his Complaint? Please explain why / why not along with
relevant provisions in support of your answer.

8 Marks: Introduction and essential Ingredients

For an offence to be Committed under S. 138 of the Negotiable Instruments

Act, 1881 and for proceedings to be maintained before a Magistrate, the
following are the essential ingredients:
1. A Person must have drawn a Cheque on an Account
maintained by him with a Bank for payment of a certain
amount
2. The Cheque should have been issued for discharge of
whole or part of any debt or other liability i.e.
towards a Legally Enforceable Debt
3. Cheque has to be presented within a period of 3 months
(post 2004) or within validity period
4. Once it is returned with an Endorsement ‘funds
insufficient’ or ‘exceeds arrangement’
 5. The Payee or Holder in Due Course makes a Demand
(Demand Notice) for Money within 30 days by asking
Drawer to pay the Amount
6. Drawer fails to make the payment within a period of 15
days

8 Marks: Application of Ingredients and Conclusion

Mr. B will not succeed in his Complaint against Mr. A in his Complaint u/s.
138 of the Negotiable Instruments Act, 1881 for the following reasons:

i. The sum payable by Mr. A. to Mr. B is barred by the provisions of

Limitation Act, 1963 since no part payments have been made nor any
acknowledgment issued by Mr. A to Mr. B expressly in writing.
ii. As the sum thus claimed which forms the basis of the Cheque filled in
and presented for payment by Mr. B is barred by Limitation, the same
will not satisfy the essential ingredient that the said payment is towards
discharge, in whole or in part, of any debt or other liability

On account of the fact that the underlying transaction for which the Cheque
amount has been filled in, that is the monies due to him of Rs. 10,00,000, the
same does not constitute a Valid Debt owed by Mr. A to Mr. B. Thus, even if
the other ingredients regarding Demand notice are complied with, as the
Cheque dt. 01.07.2018 has been presented for time barred debts, the essential
ingredients of S. 138 of the Negotiable Instruments Act 1881 have not been
made out.

Thus, Mr. B cannot maintain a Complaint before the Magistrate under Chapter
XVII of the Negotiable Instruments Act 1881 and state that Mr. A has
committed any Offence as prescribed under the provisions of S. 138 of the
Negotiable Instruments Act. The Summary proceedings under S. 138 cannot
be misused to claim Dues which are no longer payable or can be claimed
before a Civil Court.
6. The Duty of Secrecy owed by a Banker to its customer is absolute and not subject to
any restrictions or exceptions. Critically evaluate the said statement in the Indian
context along with reasons for your agreement / disagreement.

4 Marks: Introduction and Rule in Tournier’s case

The general duty to maintain secrecy between a Banker and its Customer is an
added obligation and is an exception to the general rule that the relationship
between a banker and its customer is that of a debtor and creditor. It is a Legal
Obligation and not merely a moral one, and Agreements between the Bank and
the Customer usually contain covenants restricting the Bank’s right to divulge
such the customer’s information. It has to be borne in mind that the duty of
Secrecy continues even after the customer has closed the account and the
confidence is not limited to information derived from the account itself.

The Rule in Tournier’s case {Tournier v. National Provincial and Union Bank
of England} requires that the Bank should be cautious in divulging
information, but the said duty is a legal one which arises out of contract and
such duty is not absolute but qualified.

3 Marks each for the following 4 Headings

Even in India, the Duty of Secrecy is not an absolute right and is subject to
certain restrictions and exceptions as follows:

1. Where the disclosure is under compulsion of law.

The Bank may require to give evidence before a Court of Law

regarding the Statement of Account of the Customer, evidence in Garnishee
proceedings about the amounts lying to the credit of such account, etc.
Statutory Authorities such as the Income Tax Department, Enforcement
Directorate, the RBI, Finance Ministry and other persons such as Liquidators
of Companies may also call for Bank Statements. Such disclosures by Banks
would fall within the exception to the general rule.

2. Where there is a duty to the public to disclose.

This is an exception which rarely arises nowadays and is prevalent

during War Times – In the event the Bank has knowledge that the said
Customer is trading with the enemy, such disclosure could be made in public
interest.

3. Where the interests of the bank require disclosure.

Where any litigation is pending against the Bank wherein it may be

necessary to divulge information to the necessary extent in order to safeguard
the Bank’s interests, such duty of secrecy would not be absolute.

4. Where the disclosure is made with the express or implied consent

of the customer.

Where with the express consent of the Customer an Account Statement

is sent to the Customer’s Accountant/other professionals. Further, some
Customers also require Letters of Comfort to be provided by Banks directly to
their Customers/Vendors in order to instil confidence.
7. Banks no longer deal only with Individuals and have to cater to various kinds of
Special Category Customers. Kindly enumerate atleast 6 special category
customers and briefly elaborate on the safeguards to be remembered and
documents to be obtained from such persons before opening and running such
accounts

Any of the 6 Categories between Pages 279 – 286 of the Coursework

Please award around 2 ½ Marks for each Category of Special Customer which they
answer.
8. M/s. Dalal Investments Limited had borrowed a sum of Rs. 100 Crores for a
Long Term Loan together with Interest at the rate of 15% p.a. from M/s. State
Bank of India, Nagarbhavi Branch during the year 2015. As Security towards the
same, it had created a Security Interest over one of its valuable Immoveable
assets in MG Road, Bengaluru which has also been registered with the Registrar
of Companies as well as CERSAI. However, due to business slowdown in 2016
and mounting losses, M/s. Dalal Investments Limited was not in a position to
honour its payment obligations as a result of which its Loan account has been
duly marked as a Non-Performing Asset and Loan facilities recalled by M/s. SBI
in 2017.

M/s. SBI approaches you to advise it on how to proceed with the enforcement of
its Security Interest and the process to be adopted to realise its dues. Explain the
procedure to be followed for enforcement of such Security Interest and briefly
also examine the remedies which the Borrower has against such actions under
the provisions of the SARFAESI Act.

12 Marks: Introduction and Ingredients/Steps under S. 13(2) & S. 13(4), S. 17

Once a valid Security Interest has been created as per the provisions of the
Act, 2002, in the event of a borrower failing to repay such Secured Debt or
any instalment thereof and his account being classified as an NPA, the Lender
shall first send a Notice u/s. 13(2) calling upon the Borrower to discharge his
liability in full within sixty days, failing which it shall be entitled to exercise
all rights under S.13(4). Such Notice shall give details of the amount payable
and the Secured Assets intended to be enforced in the event of non-payment.
U/s. 13(3A), the Borrower is entitled to make a representation/raise objection
which shall be considered and within 15 days of receipt of such confirmation
 itrespond to such representation/objection and reasons for rejection of the
same.

The Lender may take recourse to either of the following measures:

(a) take possession of the secured assets of the borrower including the
right to transfer by way of lease, assignment or sale for realising the
secured asset;
(b) take over the management of the business of the borrower
including the right to transfer by way of lease, assignment or sale for
realising the secured asset:
(c) Appoint a Manager for managing the Assets

The Secured Creditor shall send a Notice u/s. 13(4) and the SARFAESI Rules
containing the detailed description of the Secured Assets over which it is
exercising its Security Interest in and thereafter entitled to proceed to Auction
the sale after conducting a Fair Valuation of such Secured Assets. It shall
further affix such Notice upon such place {“Symbolic Possession Notice”}
and may take the assistance u/s. 14 of the Chief Metropolitan Magistrate /
District Magistrate for taking physical possession.

A Borrower aggrieved by any act of the Secured Creditor u/s. 13(4) of the Act
can file appropriate application before the Debt Recovery Tribunal under S. 17
of the SARFAESI Act 2002.

3 Marks:

In the present facts of the case, M/s. SBI would not be in a position to enforce
its Security Interest today as nearly 6 years have elapsed since the recall of the
facilities in the year 2017. In the event SBI had not initiated any action during
this period, it would not be in a position to now enforce its Security Interest or
file for recovery of Loan. If the Borrower fails to show that the amounts so
 claimed are within the period of Limitation prescribed, M/s. Dalal Investments
can raise the same by way of an Application u/s. 17 of the SARFAESI Act and
seek quashing of any Notices/steps which may be initiated by the Bank for
enforcement of such Security Interest.

1 Mark:

In the event that a Mortgage has been created in favour of the Bank, SBI may
file a Suit for enforcing payment of money secured by a Mortgage
 NATIONAL LAW SCHOOL OF INDIA UNIVERSITY, BENGALURU
PROFESSIONAL AND CONTINUING EDUCATION (PACE)
SUMMATIVE ASSESSMENT (SA) - JUNE 2023
MASTER OF BUSINESS LAWS (MBL)
MBL I YEAR COURSE 3: CORPORATE LAW
Date: 25.06.2023 Marks: 100

Answer Key

1. Students are not expected to remember section numbers and replicate them, in the
event that the correct sections are replicated, additional marks may be given
2. Case laws and names of cases are not required to be replicated, ratio and brief
facts
3. The answer key is not an elaborate explanation but merely guides the evaluator on
what to expect in the answers

Category - A
Please select any four questions to answer from the following: (4*10=40 marks)

1. What are the most common types of business organisations in India? Write a short
note on the viability of any two.

Ans. The most common types of Business organisations are :

• Proprietorships
• Partnerships
• Limited liability Partnerships
• Companies
• Trusts
• Co-operative Societies
• HUF

Students may choose to write a note on the viability of any two, covering the benefits and
the possible purposes for which such entity may be used.

2. Is there any accountability of promotes for pre-incorporation contracts? If so, expound

on the rationale with the help of case law.

Ans. Promoters have been held liable for pre-incorporation contracts where they are for the
benefit of the company or cause loss to a third party. Either company or promoters are held
liable.
 The law of restitution, being one of equity would apply.
 Promoters will be held personally liable.

-1-
  Kelner v Baxter- Wine bought by persons who sought to form a company, the
company refused to buy as the prices were inflated, and the promoters were held
personally liable.
 Seth Sobhagmal Lodha,v. Edward Mills Co. Ltd– held company not liable but
promoters are personally liable.
 Newborne v Sensolid (Great Britain) Ltd.- Signed in the name of the Company while
it was being incorporated
 Jai Narain Parasrampuria Vs. Pushpa Devi Saraf (2006) 7 SCC 756- NO
requirement of inclusion in articles, any act done that is warranted by the
incorporation of the company, to form or run business, liability of the company.

 According to Sec. 15 (h) and 19(e) of the Specific Relief Act, specific performance
can be enforced against a company where its promoters have before its incorporation
entered into a contract for the purpose of the company and such contract is warranted
by terms of incorporation.
 Normally included in Articles so as to make valid.

3. Has the proposition of Ultra Vires been diluted in light of the acceptance of the
Bellhouse Clause? Elaborate.

Ans.
• The Answer must begin with the Objects clause and the fact that it lays out the
purposes of the company
• The concept of Ultra Vires must be explained to essentially mean anything outside the
objects of the company and therefore void ab initio
• The Ashbury Rly. Carriage & iron Company v. Riche [1875] LR 7 HL 653 may be
discussed to explain the concept of Ultra Vires
• The Bellhouse clause, is an objects clause that allows complete discretion to the
directors to decide the business of the company at any point in time.
• Bel houses Ltd v. City Wall Properties Ltd [(1966)36 Comp. Cases 779] In this case,
the object clause included the power to carry on any other trade or business
whatsoever, which can, in the opinion of Board of Directors, be advantageously
carried on by the Company.
• The student may argue that it has diluted the concept of Ultra vires or may defend the
proposition that it has not done so. The argument must be based on the perception of
the student in relation to the widening of objects and how they have resulted or not, in
dilution.

4. Why is fraud an exception to the doctrine of Indoor management? Elucidate.

Ans.
• The Answer must begin with explaining what the concept of indoor management is. It
must call out the doctrine of constructive notice and that indoor management is an
exception. The meaning of indoor management is that an outsider is protected from
any procedural requirements under the Articles of Association which are typically
internal to the company. The rule of constructive notice would hold an outsider
accountable for failure to follow prescribed procedure in the articles.

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 • An exception to indoor management would effectively revert one back to constructive
notice. However, in the case of fraud, it is an exception because it would hold the
individual liable and if the fraud is apparent, third parties will not be protected. The
company will remain protected.
• Case Law of Anand Bihari Lal Vs. Dinshaw and Ruben v. Great Fingal Consolidated
[(1906) AC 439], may be discussed. The first case involves the transfer of property by
an accountant and the second involves the act of forgery by a secretary to issue share
certificates.

5. Is the defence of a “typographical error” a viable one in the case of misstatement in a

prospectus? Substantiate.

Ans.
• The answer must briefly describe the meaning of a prospectus and the purpose of the
document, which is to solicit investment into a company.
• The answer must go on to talk about the concept of misstatement and how the law
views misstatement as a grave offence
• The answer must then briefly discuss Sections 35 and 36 of the Act. Section 35 which
deals with civil liability does not require intention as a pre-requisite for imposition of
liability and fines. On the other hand, Section 36 requires
intent/knowledge/negligence to impose criminal liability
• In the given case, the imposition of civil liability will continue even if the
misstatement is a typographical error but the promoters may be able to absolve
themselves of criminal liability.

6. What is meant by buy back of shares? Does it result in a reduction in share capital?
Ans.
• When a Company Buys backs its own shares, either on its own or by lending money
for the purchase of its shares, this is known as buy back.
• It is done to reduce share capital without having to go through all the grind of
reduction, including permission of the NCLT.
• Unlisted companies and Private companies are governed by the Companies Act alone,
Listed Companies are to also follow Buy Back regulations of SEBI.
• Sections 68-70 of the Act govern the concept of Buy Back
• It does result in the reduction of Share Capital
• It is an alternative mode of reduction in capital without requiring approval of the
Court/NCLT,
• OPTIONAL CONTENT:
• It is done to:
a. to improve the earnings per share;
b. to improve return on capital, return on net worth and to enhance the long-term
shareholders value;
c. to provide an additional exit route to shareholders when shares are
undervalued or thinly traded;
d. to enhance consolidation of stake in the company;
e. to prevent unwelcome takeover bids;
f. to return surplus cash to shareholders;

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 g. to achieve optimum capital structure;
h. to support share price during periods of sluggish market condition;

7. Who are operational creditors under the Insolvency and Bankruptcy Code, 2016?
How do they initiate insolvency?

Ans:
 Section 5 (16) “operational creditor” means a person to whom an operational debt is
owed and includes any person to whom such debt has been legally assigned or
transferred;
 Section 5(17) “operational debt” means a claim in respect of the provision of goods
or services including employment or a debt in respect of the [payment] of dues arising
under any law for the time being in force and payable to the Central Government, any
State Government or any local authority;

 Dealt with Under Section 8 and 9 of the Act:

 An operational creditor may, on the occurrence of a default, deliver a demand notice
of unpaid operational debt or copy of an invoice demanding payment of the amount
involved in the default to the corporate debtor in such form and manner as may be
prescribed.
 (2)The corporate debtor shall, within a period of ten days of the receipt of the demand
notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the
operational creditor—
 existence of a dispute, [if any, or] record of the pendency of the suit or
arbitration proceedings filed before the receipt of such notice or invoice in
relation to such dispute;
 the payment of unpaid operational debt—
 by sending an attested copy of the record of electronic transfer of the
unpaid amount from the bank account of the corporate debtor; or
 by sending an attested copy of record that the operational creditor has
encashed a cheque issued by the corporate debtor.
 (1) After the expiry of the period of ten days from the date of delivery of the
notice or invoice demanding payment under sub-section (1) of section 8, if the
operational creditor does not receive payment from the corporate debtor or notice of
the dispute under sub-section (2) of section 8, the operational creditor may file an
application before the Adjudicating Authority for initiating a corporate insolvency
resolution process.
 The application under sub-section (1) shall be filed in such form and manner and
accompanied with such fee as may be prescribed.
 The operational creditor shall, along with the application furnish—
 a copy of the invoice demanding payment or demand notice delivered by the
operational creditor to the corporate debtor;
 an affidavit to the effect that there is no notice given by the corporate debtor
relating to a dispute of the unpaid operational debt;
 a copy of the certificate from the financial institutions maintaining accounts of
the operational creditor confirming that there is no payment of an unpaid
operational debt [by the corporate debtor, if available;

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  a copy of any record with information utility confirming that there is no
payment of an unpaid operational debt by the corporate debtor, if available;
and
 any other proof confirming that there is no payment of an unpaid operational
debt by the corporate debtor or such other information, as may be prescribed.

8. How is the abuse of dominant position determined under the Competition Act, 2000?

Ans.
While determining/inquiring whether an enterprise has a dominant position or not, the
Commission has give due regard to the following:
(a) Market share of the enterprise;
(b) Size and resources of the enterprise;
(c) Size and importance of the competitors;
(d) Economic power of the enterprise including commercial advantages over competitors;
(e) Vertical integration of the enterprise including commercial advantages over competitors
(f) Dependence of the consumers on the enterprise;
(g) Monopoly or dominant position whether acquired as a result of any statute or by virtue of
being a Government company or a public sector undertaking or otherwise;
(h) Entry barriers including barriers such as regulatory barriers, financial risk, high capital
cost of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost
of substitutable goods or service for consumers;
(i) Countervailing buying power;
(j) Market structure and size of market;
(k) Social obligations and social costs;
(l) Relative advantage, by way of the contribution to the economic development, by the
enterprise enjoying a dominant position having or likely to have an appreciable adverse effect
on competition;
(m) Any other factor which the Commission may consider relevant for inquiry.
-----
Category - B
Please select any four questions to answer from the following: (4*15=60 marks)

9. Mr. Abdul Rehman, a shareholder holding 3% shares in Pink Technologix Pvt. (pink)
Ltd. filed a petition for oppression and mismanagement with the NCLT. His
allegations are that Pink along with its majority shareholder, Ms. Aruna Singha have
siphoned off funds into an SPV which was incorporated for the building of an
apartment complex, of which Pink is a 60% shareholder. It is on record that the SPV
is set to make 300% profits out of sales. Please examine the admissibility of the claim.

Ans. The issue has to focus on the 3% shareholding, where the Act requires a minimum of
10% of shareholding to bring forth a complaint under Section 244. However, the NCLT can
waive this requirement. The Answer must examine the requirements under Section 244 and
the resultant action under 245.

The investment in another firm. No matter how much profit it is set to make is irrelevant and
does amount to mismanagement, that issue must also be answered

Therefore ultimately admissibility would be the prerogative of the NCLT as the threshold
under the Act is not met.

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 10. Wearedone Pvt Ltd Co has not repaid any of its debts and currently has liabilities of
over Rs. 300 crores. The main lender is a consortium of banks which has an
outstanding of Rs. 200 crores. Lendmore bank decided to approach the NCLT and file
an application to initiate the corporate insolvency process. This bank has lent only Rs.
2 crores. The other member banks of the consortium do not agree to the initiation of
the process. The application has been accepted by the NCLT.
At this point, Threadwell Pvt Ltd Co a supplier of raw materials to Wearedone,
approaches you on advice for payment of dues of Rs. 3.5 Crores for material supplied
as they are sure, they will not get paid. Advise them on the process of insolvency and
their rights, along with the possibility of filing a civil suit for recovery.

Ans. The issues in the question are three:

1. Does a single bank, which is a member of a consortium have the
right to bring an action for insolvency under the Code
2. What category will a supplier of raw materials fall under
3. What is the waterfall and likelihood of recovery
• The answer must focus on the position of an Operational Creditor Vis a vis a
Financial Creditor. The Code is clear under Section 7 that even when the lender is a
consortium, even one of them may bring an action for insolvency under the Code.
• The Supplier of Raw material is to be treated as an Operational creditor under the
Code.
• The waterfall puts the Operational creditor much after the financial creditors
• The possibility of a civil suit is ruled out due to the moratorium taking effect on the
acceptance of an insolvency petition.
• Return of unused raw material may be sought

11. Tyre Manufacturers Association is an association of the top 5 manufacturers of tyres

in India, who together hold 95% of the market share in India. In a meeting at a 5-star
hotel in Mumbai, they decide that they will not pay more than Rs. 50 per kg and if
they are not able to procure the same, they will import from Vietnam. Additionally,
they also agreed on the minimum price of tyres as Rs. 4,000/- A rubber farmer writes
to the CCI, spelling out the above facts as explained to him by the agent who procures
rubber for JMJ Tyres, a member of the association. Explain the position of both these
agreements so as to allow the CCI to proceed on the matter.

Ans. The answer has to focus on how the agreement amounts to cartelization and that it is a
vertical agreement as discussed in Section 3 of the Competition Act. Price fixation for sale of
the products is anti-competitive and hit by the section. Case law like the Tyre Cartel case, the
LPG cylinder case and other may be discussed to further establish the point.

12. Mr. Neil Kumar was appointed as a director to the board of Swissfisheries Pvt. Ltd. in
June 2022. His appointment was announced with great fanfare and pomp. His
agreement stated that his tenure would be for a period of 3 years and that he could be
removed only on grounds of misconduct, insolvency or being convicted of an offence
involving moral turpitude. In June of 2023, the company unilaterally and without
consultation removed Mr Neil from his position as director. He was given 3 months’
notice pay, as required. Mr Now approaches you to challenge his dismissal on the

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 ground that there were no reasons given and that it was arbitrary. Advise him
accordingly.

Ans. The answer must note that to remove a director is the prerogative of the company but
providing of reasons is also a necessity.
• 169- Simple resolution by a body of shareholders. Unfettered power.
• LIC vs. Escorts- 1986(1) SCC 264 SC- Albeit not conclusive- no reasons required- in
this case, the minority wished to thwart the decision of the majority.
• Queens Kuries and Loans Pvt. Ltd Vs. Sheena Jose: (1993) 76 Com Cas. 821(Ker)
Reasons to be stated as it is a matter of substance and not of form a right to defend
exists.

13. Inkboats Pvt. Ltd. is a paper and notebook manufacturing company with an annual
turnover of Rs. 200 crores. The company was set up in 2021 and has been donating
notebooks which it manufactures every year to government schools and providing
scholarships to school children of their employees. The total value of these donations
is about Rs. 3 crores and the scholarships are worth about Rs. 2 crores a year. The
company has now received a notice for not complying with Corporate social
responsibility obligations under the Companies Act, 2013. The company wishes to
show this expense as its CSR spending. Advice on the possibility of this along with
the other CSR compliances required for the company.

Ans. The answer must examine the applicability of the CSR provisions under Section 135 to
the company in question. Since the only value shown is turnover, the section appears
inapplicable to them and the reply to the notice may be as such. Even if applicable, the
donation of books cannot be shown as CSR as it is the main business of the company.

14. Mr. Tripathi is the director of Spade Realty Pvt. Ltd. a real estate company. He is also
the majority shareholder. Upon his insistence, a specific clause was included in the
Articles of Association, stating that his signature must be present on all cheques
issued by the company and on all agreements entered into by the company. Mr. Kiran
supplies 2000 bags of cement to the company based on a PO signed by Mr. Dwivedi,
an accountant of the firm. Unfortunately, the company refuses to pay as the price is
too high and asks Mr. Kiran to take back the supplied product. Due to poor storage,
the product was rendered unfit for usage. Mr. Tripathi refused to pay, on the ground
that he has not signed the PO in question. What recourse does Mr. Kiran have? Also,
would the scenario be different if the entire transaction had happened before Spade
Realty was incorporated? Comment.

Ans. The Answer must focus on the following issues:

1. Would the doctrine of indoor management apply in the said case or would this
case be called out as an exception to that rule?
2. Would principles of equity and restitution apply to the said case?
3. Would the situation be different if it were a pre-incorporation contract?

The answer to these issues is that the principle of indoor management should apply but since
the PO is signed by an accountant, the disparity may seem apparent on the face of it. Students
can argue both ways. Anand Bihai Lal Vs Dinshaw may be sighted. In either case equity and
restitution will apply and at least, Mr. Dwivedi will be held liable. If it were a pre-

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incorporation contract, Section 15 of the Specific Relief Act would have protected the interest
of the supplier.

15. MiKart Pvt. Ltd. a company engaged in online grocery delivery, with an annual
revenue of Rs. 800 crores, wishes to take over Smartdelver Pvt. Ltd. a company in the
same space with an annual revenue of Rs. 250 crores. Both are Indian start-ups.
Advice on the route to be followed, authorities to be approached and the overall
process.

Ans. The answer should cover the process to be followed under the Companies Act and
answer the fact that no permission is needed from CCI as it does not meet the threshold under
Section 6 of the Competition Act.

The Companies Act provision to be discussed are under sections 230-240.

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16. It is January 2025. India has declared China an enemy state and officially declared
war on China, considering the multiple aggressions by Chinese forces in Arunachal
Pradesh. Koppu Pvt. Ltd. is a mobile phone manufacturer and it assembles phones in
India. In December, 2024 Koppu supplied over 20,000 handsets to Primavera Pvt.
Ltd., a retailing giant in India, on credit basis. Primavera now refuses to pay Koppu
stating that it is a Chinese company. Koppu is an Indian company with 29% shares
held by Technoplum Pvt. Ltd, an Indian entity, 31% held by Mr. Kumarswamy, a
Belgian national but resident in India and 40% held by Ximigin LLC. an American
company which is a fully owned subsidiary of Ximigin China, a Chinese company.
Examine the validity of Primavera’ s claim.

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Ans. This is a case of lifting the corporate veil. The answer must discuss the concept of the
Corporate veil, situations when it can be lifted and if this is a fit case for the lifting of that
veil. The case of Daimler Co. Ltd v. Continental Tyre & Rubber Co. [(1916) 2 AC 307:
(1916-17) All ER 191]. May be cited. The company here has taken on enemy character and
payment can be refused if the corporate veil is lifted.

*****

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 National Law School of India University

MBL I YEAR SUMMATIVE ASSESSMENT 2022-2023

INDUSTRIAL RELATIONS LAW

ANSWER KEY

Marks: 100 Time: 3 hours

Instructions
1. Please attempt any four questions out of Part A. All the questions in Part A carry 10 marks each.
2. Please attempt any four questions out of Part B. All the questions in Part B carry 15 marks each.
3. Please read the questions carefully. No clarification can be sought on the question paper.
4. In case you find any relevant and necessary information missing in the problem that precludes
you from forming a conclusive opinion, please state so in the answer and explain why that is
relevant and necessary.

___________________________________________________________________________

PART A

Question No. 1

What are the specific characteristics of Indian labour laws that have resulted in the exclusion
of a significant portion of the workforce from their coverage? Please explain?

1) Focus on relationship of employment

2) Numerical thresholds for application of labour statutes and small size of Indian
establishments
3) Wage ceiling in many labour statutes
4) Rights are contingent on continuous service in many statutes

Question No. 2

“The Dualist school sees the informal sector of the economy as distinct from and not related to
the formal sector.”

Can it be said that the Indian policymakers’ approach to defining and regulating informal
worker contradicts the above premise of the dualist school? Please comment with reasons.
 • Dualist premise that formal and informal sectors are two distinct binary field are not
correct.
• Considerable reliance of formal sector establishments on informal work
• Definition of Informal Work by National Commission for Enterprises in Unorganised
Sector – covers workers in the formal sector as well as the informal sector
• The unorganized sector consists of all unincorporated private enterprises owned by
individuals or households engaged in the sale and production of goods and services
operated on a proprietary or partnership basis and with less than ten total workers
• Unorganized workers consist of those working in the unorganized sector or
households and the workers in the formal sector without any employment and social
security benefits provided by the employers.

Question No. 3

“India has neither a constitutional nor statutory right to strike for its workers.” Do you agree
with this statement? Please comment with the help of case law discussed in the class.

• There is no constitutional right to strike

• All India Bank Employees Association - Article 19 (1) (c) – Freedom of association
does not include objects of an association – there is no right to strike
• TK Rangarajan – there is no fundamental right to strike
• Radhey Shyam Sharma – there is no right to strike under freedom of speech and
expression
• Industrial Disputes Act – some strikes are illegal under Sections 22-24. Which implies
that other strikes are legal.
• Therefore, it can be said that workmen under the Industrial Disputes Act 1947 have a
statutory right to strike

Question No. 4

“The definitions of industry [See. 2(j)…], are a statutory dictionary, not popular
parlance…what the common man does not consider as 'industry' need not necessarily stand
excluded from the statutory concept. (And vice versa.) …The popular limitations on the
concept of industry do not amputate the ambit of legislative generosity in Sec.2(j).”

Discuss how the above principle is reflected in judicial interpretation of the definition of
industry under the Industrial Disputes Act 1947.

• Definition of Industry provided by IDA – section 2 (j)

• Current standard established by Supreme Court in Bangalore Water Supply and
Sewerage Board case
 • Triple Test
o Systematic activity
o Cooperation of employer and employee
o Production or distribution of goods or services
• Profit motive is not essential.
• Many services and professions which do not get associated with industry in popular
parlance – like sports clubs, law firms, educational institutions are considered as
industry under this standard
• Charitable institutions can be industry even if they meet the triple test
• Even government services, if not sovereign functions, are covered by the definition

Question No. 5

“While the rise of the “gig-economy” is new, employment classification is an old legal
conundrum. Applying the traditional legal standards on relationship of employment as they
have evolved, members of the gig-economy can properly be classified as employees rather
than contractors.”

Please comment on the above in view of the different legal standards on relationship of
employment.

• Dharangadhara Case - The nature or extent of control which is requisite to establish

the relationship of employer and employee must necessarily vary from business to
business and is by its very nature incapable of precise definition.
• Simple operations – the degree of control that is necessary would be less
• Silver Jubilee case – Multifactorial test
• a formula in the nature of a single test to tell a contract of service from a contract for
service will not serve any useful purpose. The most that profitably can be done is to
examine all the factors that have been referred to in the cases on the topic. Clearly,
not all of these factors would be relevant in all these cases or have the same weight
in all cases.
• Place of work
• Ownership of tools
• Control over manner of work
• Product supervision
• Decisions from UK and Europe- Deliveroo in Netherland
• Uber v Aslam in UK
•
• Where gig workers have been held to be employees
• Factors emphasised on
o Salary – the mode of payment
o The terms of payment
o Algorithmic control
o Core activity
o Lack of Social presentation as entrepreneurs
 o Activity is of simple nature – does not require detailed control
• Opposite view
o Some courts have ruled that the cases of gig work before the courts fell
outside employment
o Deliveroo in UK
o Factors emphasised on
▪ Absence of obligation of personal service
▪ No hours of work
▪ Freedom to join a competitor
▪ No obligation on availability
▪ No continuity

Question No. 6

Do you agree with the statement that the right to receive minimum wages has not been
universally ensured in India under the current minimum wage laws? Please support with
reference to statutory provisions and case laws discussed in the class.

• Minimum Wages Act

o Difference between scheduled employment and non-scheduled employment
– section 3
o Not applicable to all employments
• PUDR Case rationale not followed in Lingegowd Detective case
• NREGA – exception to minimum wages
• R Gandhi v Union of India – upheld the exception

Question No. 7

• How have constitutional rights influenced the development, understanding, and

application of labour laws? Please provide examples from our class discussions.
• Recognition of Labour Rights as Directive Principles of State Policy - Part IV of the
Constitution
• Shaped the legislative agenda of the Parliament – turned into enactments
• Used as an interpretive device.
• Informed the interpretation of the fundamental rights
• Use of Fundamental Rights for Enforcement of Labour Statutes – PUDR case
• Use of Fundamental Rights for Creation of Regulatory Norms
• Use of Fundamental Rights to Challenge constitutionality of statutes
• Use of Fundamental Rights for Recognition of Principles of Natural Justice for
Workers

Question No. 8
Can a lock-out be considered as a lay-off too? Can a lay-off be considered as a
retrenchment? Please explain with the help of statutory provisions and case law in Indian
industrial law.

• Concept of Lay-off under Industrial Law

• Concept of Lay-off under Industrial Law in India has a different meaning from the
common parlance meaning
• It does not imply termination of employment

• Section 2 [(kkk)] [retained in section 2 (t) of IR Code]

• “lay-off” (with its grammatical variations and cognate expressions) means the failure,
refusal or inability of an employer on account of shortage of coal, power or raw materials
or the accumulation of stocks or the break-down of machinery [or natural calamity or for
any other connected reason] to give employment to a workman whose name is borne on
the muster rolls of his industrial establishment and who has not been retrenched.

• lay-off takes place for one or more of the reasons specified in the definition.
• Lay-off may be due to
• shortage of coal or
• shortage of power or
• shortage of raw materials or
• accumulation of stocks or
• breakdown of machinery or
• Natural calamity
• any other connected reason

• Lay-off does not involve termination of employment

• Nature of lay-off and lock-out are very different
• Management Of Kairbetta ... vs Rajamanickam And Others AIR 1960 SC 893
• In the case of a lay-off, owing to the reasons specified in s. 2(kkk) the employer is unable
to give employment to one or more workmen. In the case of a lock-out the employer
closes the business and locks out the whole body of workmen for reasons which have no
relevance to causes specified in s. 2(kkk). Thus the nature of the two concepts is entirely
different and so are their consequences.
• In the case of a lay-off the employer may be liable to pay compensation as provided by s.
25(C), (D) and (E) of the Act; but this liability can-not be invoked in the case of a lock-out.
The liability of the employer in cases of lock-out would depend upon whether the lock-
out was justified and legal or not; but whatever the liability, the provisions applicable to
the payment of lay-off compensation cannot be applied to the cases of lockout.
PART-B

Fact Sheet for Question No. 9, Question 10 and Question No. 11

Bogdan Vivek Jacob owns ‘A1A Leatherwash’, a tannery at Shameerpet, Ranga Reddy District
in Telangana, wherein tanning of hides and skins are carried on by manual labour. The
Tannery was set up on May 1, 2017, and by May 31, 2017, had employed 126 people in the
process of tanning within the premises. The number of workers in the tannery has remained
over 120 since June 2017.

The main work of tanning is done in an enclosed building where the raw and dried skins and
hides undergo various processes, such as soaking, lining, unhairing, flashing, de-lining,
scudding, colouring, buffing, etc. After such processes, the hides and skins are turned into
leather and sold to footwear companies.

The water, which is essential at the several stages of the tanning processes, is obtained from
a pond adjacent to the tannery compound. Water from the said pond is pumped into a
reservoir within the Tannery compound with the help of power motor pump-set situated
within but at the edge of the Tannery compound. From the reservoir, the water pushed by
the pump-set into pipes that lead into the main enclosed building for washing, cleaning and
other tannery processes done by hand.

The operation of pump-set section was handed over to M/s Gibreel Farishta and Associates,
a maintenance contractor. M/s Gibreel Farishta and Associates (GFA), an agency maintained
electrical utilities, as a contractor, in more than 20 industrial units and had engaged more
than 130 workers for such work. GFA also had obtained necessary registration and license
under the Employees’ Provident Funds and Miscellaneous Provisions Act 1952, Employees’
State Insurance Act 1948, and the Contract Labour (Regulation and Abolition) Act 1970. GFA
had hired Suyodhan Dinkar and Sengrak Marak, two electrical operators, for operating the
pump-set on behalf of A1A Leatherwash. They were provided a consolidated monthly wage
of Rs. 23,000 without any additional allowance.

The arrangement between Bogdan Vivek Jacob and GFA was such that any appointment of
staff by the latter for the pump-set would be provisional until ratified by A1A Leatherwash.
But the salary was paid by GFA. The appointment process, disciplinary control and wages
could be determined by GFA. Suyodhan Dinkar and Sengrak Marak were required to wear
the uniform of GFA and were governed by the leave policy of GFA. They were, however,
provided a single room accommodation on the Tannery Compound since their work
required them to operate the pump-set at odd hours.

Question 9

Suyodhan Dinkar and Sengrak Marak have written to the Labour Commissioner raising an
dispute on increase in their wages. Please decide whether the dispute is an industrial dispute
and whether this is maintainable against ‘A1A Leatherwash’ as the employer.
 • Individual dispute is not an industrial dispute unless the
o Dispute involves termination of employment [section 2-A of IDA]
o Dispute has been sponsored by a trade union or a substantial number of
workmen [Dharampal Premchand case]
▪ In this instance, the dispute has not been raised by a union or by a
substantial number of workmen. Further, it does not relate to
termination. Therefore, it is not an industrial dispute.
• Even if this was an industrial dispute, it will not be maintainable against A1A
Leatherwash.
o Test of employment is centred around several factors like control over manner
of work, payment of salary, power of appointment, power of disciplinary
control, power of termination, place of work, ownership of tools, etc and all
the factors have to be balanced.
• In this case, the salary was paid by GFA. The appointment process, disciplinary control
and wages could be determined by GFA. Suyodhan Dinkar and Sengrak Marak were
required to wear the uniform of GFA and were governed by the leave policy of GFA.
• Therefore, on balance, the main control was with GFA and GFA was their employer.

Question 10

The State Government of Telangana issued a notification on abolition of contract labour in

the process of operation of pump-set section in Factories. Thereupon the State Government
issued a GO. [GO 7846 dated 20th May 2023, in the following terms: -

"Whereas it is appropriate to abolish contract labour in the process of operation of

pump-set section in all the factories in the states.

And whereas in the opinion of His Excellency, the Governor of Telangana, having
considered all the relevant factors, it is necessary to notify the same.

Now, therefore, in exercise of the powers conferred by the Contract Labour

(Regulation and Abolition) Act, 1970, His Excellency the Governor of Telangana
hereby directs that the employment of contract labour in maintenance and operation
of water-pumps in factories shall stand prohibited.”

Suyodhan Dinkar and Sengrak Marak have approached the Labour Court asking for
automatic absorption as direct employees of by A1A Leatherwash on account of the
notification on prohibition of contract labour. Please decide whether their claim is tenable.
 • Section 10 of the CLRA provides for prohibition of contract labour but does not speak
of power of automatic absorption.
• SAIL judgment states that there is no automatic absorption of contract labour on a
notification of abolition under Section 10 of CLRA
• The only way in which contract labour can seek absorption after such notification
only if they raise an industrial dispute and establish that the contract was a sham
contract.
• No automatic absorption in this case

Question 11

Due to a better opportunity elsewhere, Suyodhan Dinkar submitted his resignation from the
position through an email marked to both ‘A1A Leatherwash’ and Gibreel Farishta and
Associates. He applied to A1A Leatherwash for payment gratuity.

Bogdan Vivek Jacob wrote back stating that:

A) Suyodhan Dinkar is not entitled to receive gratuity since he is not an employee within
the meaning of applicable laws for gratuity and since he has resigned from his
employment.
B) Even if he was entitled to receive gratuity, the obligation of paying the gratuity
amount rests on the contractor, Gibreel Farishta and Associates.

Suyodhan Dinkar is contemplating legal action seeking payment of gratuity by A1A

Leatherwash. Please advise him on tenability of the assertions made by Bogdan Vivek Jacob
in his response.

Is Suyodhan Dinkar an employee?

• Section 2 (e) of Payment of Gratuity Act defines an “employee” as “any person (other
than an apprentice) who is employed for wages, whether the terms of such
employment are express or implied, in any kind of work” , in or in connection with the
work of a factory, mine, oilfield, plantation, port, railway company, shop or other
establishment to which this Act applies.
• The only exception is that it does not include any such person who holds a post
under the Central Government or a State Government and is governed by any other
Act or by any rules providing for payment of gratuity – which is not applicable in this
case
• Since GFA is an establishment offering sale of manpower services and has more than
100 employees, it will be an establishment covered by the Act.
• Since Suyodhan Dinkar is employed for wages by GFA, he will be an employee under
the Payment of Gratuity Act. The type of work is irrelevant.

Is Gratuity Payable
 • Section 4 of the PoGA states Gratuity shall be payable to an employee on the
termination of his employment after he has rendered continuous service for not less
than five years,—
• on his superannuation, or(b) on his retirement or resignation, or (c) on his death or
disablement due to accident or disease:
• Resignation is explicitly mentioned.
• However, the facts are silent on whether or not S Dinkar has completed 5 years of
continuous service.

Is Gratuity, if payable, payable by Bogdan Jacob or GFA?

• Bombay and Calcutta HC has held that the obligation of paying gratuity is on
the employer. In this case, the salary was paid by GFA. The appointment process,
disciplinary control and wages could be determined by GFA. Suyodhan Dinkar and
Sengrak Marak were required to wear the uniform of GFA and were governed by the
leave policy of GFA.
• Therefore, on balance, the main control was with GFA and GFA was their employer.So,
gratuity is payable by GFA
• Altermatively, it can be argued that Madras HC has relied on CLRA to hold that
principal employer is liable for any unpaid wages including gratuity
• So, if the contractor does not pay, then the liability to pay gratuity will also fall on the
PE – in this case, Bogdan Jacob

Fact Sheet for Question No. 12, Question 13 and Question No. 14

FedEx Corporation (FedEx) is an American multinational conglomerate holding company

focused on transportation, e-commerce and business services.

As a central part of its business in India, FedEx India Ltd., contracts with drivers to deliver
packages to its customers. The drivers must wear FedEx uniforms, drive FedEx-approved
vehicles, and groom themselves according to FedEx's appearance standards.

FedEx's Operating Agreement (“OA”) governs its relationship with the drivers.

FedEx does not expressly dictate working hours, but it structures drivers' workloads to ensure
that they work between 9.5 and 11 hours every working day.

Drivers are compensated by and according to a formula determined by Fedex.

FedEx requires its drivers to provide their own vehicles. Vehicles must not only meet “all
applicable federal, state and municipal laws and regulations,” but also must be specifically
approved by FedEx. The OA allows FedEx to dictate the “identifying colours, logos, numbers,
marks and insignia” of the vehicles. All vehicles must be painted “FedEx white,” a specific
shade of paint, or its equivalent. They must be marked with the FedEx logo, and “maintained
in a clean and presentable fashion free of body damage and extraneous markings.” FedEx
requires vehicles to have specific dimensions, and all vehicles must also contain shelves with
specific dimensions. Managers may refuse to let drivers work if their vehicles do not meet
these requirements.

Drivers authorize FedEx to pay for vehicle licensing, taxes, and fees, and to deduct these
costs from the drivers' pay. The OA requires that while vehicles are “in the service of FedEx,”
they must be used “exclusively for the carriage of the goods of FedEx ... and for no other
purpose.”

Some 200 drivers, engaged by Fedex for delivery, have formed a collective body, called
Fedex Drivers’ Collective (FDC). FDC has sent a memorandum to the CMD of Fedex India Ltd,
Mallesh Pai, seeking recognition of rights of Fedex Drivers under the Industrial Disputes Act
1947 and the Employees’ State Insurance Act 1948. It also sought formal recognition for FDC
as a trade union.

Question No. 12

Whether the drivers of Fedex India shall be governed by the Industrial Disputes Act 1947?

Issue 1: Is Fedex India industry?

• Definition of Industry provided by IDA – section 2 (j)

• Current standard established by Supreme Court in Bangalore Water Supply and
Sewerage Board case
• Triple Test
o Systematic activity
o Cooperation of employer and employee
o Production or distribution of goods or services
• All the conditions are met
• Fedex India is an industry

Issue 2: Whether drivers are employees?

• Test of employment Multi-factorial test

• Test of employment is centred around several factors like control over manner of
work, payment of salary, power of appointment, power of disciplinary control, power
of termination, place of work, ownership of tools, etc and all the factors have to be
balanced.
• FedEx does not expressly dictate working hours, but it structures drivers' workloads
to ensure that they work between 9.5 and 11 hours every working day.
• Drivers are compensated by and according to a formula determined by Fedex.
• The OA allows FedEx to dictate the “identifying colours, logos, numbers, marks and
insignia” of the vehicles
• FedEx requires vehicles to have specific dimensions, and all vehicles must also contain
shelves with specific dimensions.
 • Managers may refuse to let drivers work if their vehicles do not meet these
requirements.
• FedEx pays for vehicle licensing, taxes, and fees, and to deduct these costs from the
drivers' pay.
• The OA requires that while vehicles are “in the service of FedEx,” they must be used
“exclusively for the carriage of the goods of FedEx ... and for no other purpose
• All these show that on balance, Fedex has extensive control over the drivers and the
drivers are its employees

Issue 3: Are the drivers are workmen under IDA?

• Workmen means a person employed in an industry for skilled, unskilled, manual,

clerical, technical, operational, supervisory work and
• does not include
o Those in managerial work
o Those in supervisory work earning more than 10,000
• It has been established that the drivers are employees
• Drivers cannot be considered as managerial or supervisory workers
• They are involved in skilled work
• So, they are workmen

So the IDA will apply to them

Question No. 13

Whether the FDC can be considered as eligible for registration as a trade union? Will your
answer change if the Industrial Relations Code 202 is brought into force?

• Tirumala Tirupati Devasthanam case – SC decision (1993)

• For registration of a trade union, any group of employees can establish a trade union
for regulating the conditions of employment between employers and employees.
• In this case, the drivers are employees
• Since there are 200 drivers who are members of FDC, FDC meets the numerical
requirement
• After TTD case, it is not required that drivers are employed in an industry. In this case,
the drivers are workmen of industry. So, even if that was a requirement, it would have
been met.
• Subject to submission of appropriate paperwork and compliance, FDC is entitled to
registration as a trade union.
• Under IRC 2020, even self-employed workers in unorganised sector can form and
register a trade union.
 • However, in this case, it is established that drivers are employees in an industrial
undertaking – so, the legal position will not change in any manner in this case

Question No. 14

Whether the drivers of Fedex India shall be governed by the Employees’ State Insurance Act
1948?

• ESI Act applies to Factories and notified establishment

• Factory means a premise where manufacturing is carried out and has 10 employees
• Manufacturing means a process involving transformation of an article into a new
commercially distinct article
• A delivery service like Fedex is not involved in a process that involves transformation
of an article into a new commercially distinct article.
• So, there is no manufacturing. And Fedex cannot be considered as a factory.
• Application of ESI will depend on notification

Question 15

Please read the following excerpt from the business-news daily, Business Standard, June 13,
2022:

“Ford Motor Company announced in September last year it was shutting its factories in India.
The next round of talks between the Union and the management is on June 14, the date on
which the company is intending to restart production. As protests are happening within the
plant premises, employees were informed that only those who are willing to support production
will be allowed entry to the factory area from Tuesday. The company also warned about taking
appropriate actions against those who continue with the ‘illegal strike’ within the factory
premises, even making loss of pay option applicable.”

Please advise the Management of the company on the compliance requirements under the
Industrial relations Law for closure of the factories. Please also advise them on the measure
that they can take in response to the ‘illegal strikes’ by the workers?

• If Ford has 100 or more workers in an establishment, it will be required to

• Serve notice to workmen
• Seek permission of appropriate govt
 • Pay compensation to workmen for closure

• If it has less than 100 workers in an establishment, it must

• Serve notice to workmen
• Pay compensation to workmen for closure

For illegal strike,

• It can deduct wages o participating workers

• It can initiate disciplinary proceedings against participating workers since
participation in a strike that is illegal is a misconduct
• It can initiate criminal prosecution since participation in illegal strike is an offence
under IDA

Question No. 16

Please read the following news-report:

Apple's new iPhone factory near Bengaluru tipped to create 100,000 jobs

“Apple is set to move its iPhone manufacturing facility from China to India. The tech giant is
reportedly investing $700 million in a new plant to be located in Karnataka, India. The plant
will be built on a 300-acre site, as confirmed by Union Minister of State for Electronics and IT,
Rajeev Chandrasekhar. Karnataka Chief Minister, Basavaraj Bommai, has also stated that the
establishment of the new plant will generate up to 100,000 employment opportunities in India.
Foxconn, according to a Bloomberg report, is reportedly in the planning stages of constructing
a new factory near the Bengaluru airport in Karnataka, India. The factory will be built on a
300-acre site and will primarily focus on manufacturing parts for iPhones, with rumours
suggesting that it may also be used to assemble the devices.

Additionally, the report suggests that Foxconn may utilize the same site for manufacturing
certain components for its new electric vehicle venture. At present, Apple has not made any
official statement regarding these developments.

[…]

The establishment of the proposed iPhone factory in India is expected to generate

approximately 100,000 employment opportunities. However, this number pales in comparison
to the current workforce at iPhone's assembly complex in Zhengzhou, China, which reportedly
employs around 200,000 workers.”
Assuming that the plans for this plant do materialise, please decide whether the
management of the plant will have to comply with the Factories Act and the Industrial
Employment Standing Orders Act? Will the applicability of the above statutes and the
compliance requirements for standing orders change in case the Industrial Relations Code
2020 comes into force before the establishment of the plant?

• Factory under Factories Act means a premise where manufacturing is carried out and
has 10 employees where power is used and 20 employees where power is not used
for manufacturing
• Thus plant will manufacture phones – anticipated number of workers are very high
• Likely to be a factory
• Will be governed by Factories Act

Standing Order Act applies to every factory having 100 or more workers

It is likely that the plant will be covered by the Standing Order Act since it will be a
factory and have more than 100 workers

Standing Orders under IRC

• The chapter on standing orders under IRC will apply only to industries having more
than 300 workers
• However, the chapter will apply to all industries meeting the numerical threshold
Answer key MBL – Environmental Law
Part A
1. Role of Court in protection of Environment – Brief idea

Religious practices and Individual rights –

Right to religious practice vs right to pollute
Compare on the ground of right to life
Compare on the ground of right to health
Challenges of categorisation of religious places as per zoning laws
Judgements on this aspect

Right to religious practices vs right to life

The role of the court in creating this distinguishing factor of use of technology –
Advancement vs Essential practise of Religion & Continuous performance vs occasional
performance

The Noise Pollution (Regulation and Control) Rules, 2000 – Rationale for categorisation of
noise level areas

Waste management laws –

B L Wadhera and Almitra Patel (Not mandatory) – The courts have been instrumental in the
development of waste management laws
Various Rules have been enacted under the Environmental Protection Act, 1986

2. Right to religion and right to pollute

Right to religious practices vs right to life

Use of technology – Advancement vs Essential practice of religion
Continuous performance and occasional performance
The Noise Pollution (Regulation and Control) Rules, 2000 – Rationale for categorisation of
noise level areas

The right to pollute is not a right that is recognised under law.

Describe the balance created under the law for regulating pollution. – Precautionary
Principle and Polluters Pay Principle

3. Duty of citizen or obligation of State

 Article 48A directs that the State shall endeavour to protect and improve the environment
and safeguard forests and wildlife of the Country.

Article 51A(g) imposes a duty on every citizen of India, to protect and improve the natural
environment including forests, lakes, river, and wildlife and to have compassion for living
creatures.

Obligation of State?

Public Trust Doctrine

Duty of Citizens?

Murli S Deora vs Union of India, AIR 2002 SC 40 - Smoking in public places – Obligation of
State to enact law and duty of citizens not to smoke public places

Elaborate that there is a joint responsibility of the State and citizens or if this is on one party
providing reasons or justification for the same.

4. Environmental Rule of Law

The Environmental rule of law focuses on ensuring compliance with and enforcement of
environmental laws (Not mandatory, but there can be a contrast with that of Environmental
governance comprises a broader set of objectives and approaches related to making and
implementing decisions about the environment and the environmental rule of law speaking
mainly to the implementation)

Illustration can be through provisions(Air Act or Water Act or EPA) or illustrative facts

5. Deep Ecology

In 1972 Norwegian philosopher Arne Naess and American environmentalist, George Sessions
developed a platform of eight organising principles for the deep ecology social movement.

Arne Naess makes Gandhi central to his "deep ecology."

Basic Principles of Deep Ecology

1. Inherent value
The well-being and flourishing of human and nonhuman Life on Earth have value in
themselves (synonyms: intrinsic value, inherent value). These values are independent of the
usefulness of the nonhuman world for human purposes.
2. Diversity
Richness and diversity of life forms contribute to the realisation of these values and are also
values in themselves.
 3. Vital Needs
Humans have no right to reduce this richness and diversity except to satisfy vital needs.
4. Population
The flourishing of human life and cultures is compatible with a substantial decrease of the
human population. The flourishing of nonhuman life requires such a decrease.
5. Human Interference
The present human interference with the nonhuman world is excessive, and the situation is
rapidly worsening.
6. Policy Change
Policies must therefore be changed. These policies affect basic economic, technological, and
ideological structures. The resulting State of affairs will be deeply different from the present.
7. Quality of Life
The ideological change is mainly that of appreciating life quality (dwelling in situations of
inherent value) rather than adhering to an increasingly higher standard of living. There will
be a profound awareness of the difference between big and great.
8. Obligation of Action
Those who subscribe to the foregoing points have an obligation directly or indirectly to try to
implement the necessary changes.

Eco-centric – Values that are centered on ecology – includes abiotic

Anthropocentric – Human beings are central and superior

6. Waste generation and zoning

There are various laws governing waste and the waste has been categorised into different
kinds
Zoning – Regulation of building development and use of property by division
Heterogenous and homogenous use of land

An example ot illustration –
Preamble in Karnataka Town and Country Planning Act, 1961:

Regulation of planned growth of land use and development

Physical planning has to precede economic planning as otherwise cities, towns and villages
of our Country will grow to unmanageable sizes without proper planning resulting in
unhealthy surroundings

Physical planning with co-ordinated effort on a large scale is necessary if the people are to
live in a better, healthier and happier environment.

The proposed measure is expected to solve the Town Planning problems

Why do we need it? Avoid Public nuisance -

 Waste generated from similar kinds of operations can be segregated and treated by applying
principles of zoning.

The waste has been categorised under law(EPA and the rules thereunder) into various
categories.

7. PIL – Deviation from traditional court procedure on these grounds -

Litigation Competence
To act in utmost good faith
Verification of bona fides
Amicus curiae
Check for hidden agendas; surrogate phantom lobbies; seeking to pursue
commercial gain; and using the court as a medium for publicity

Procedural Innovations
Strict Rules of Pleading do not apply
Collaborative effort – court, public and official and citizen
Letters written to Court – Treated as Writ petition – Dehradun Quarrying Case (RLEK
vs State of UP, (1989)) Supp(1) SCC 504)
Pollution Cases – NEERI directed to study the situation
Justice Krishna Iyer visited Ratlam – Justice P N Bhagwati visited Doon Valley

Justiciability
Expanded concept of the right to life
Declared policy based on technical and expert reports
Blurred boundaries of adjudication
Enunciated principles

Justification for PIL or categorisation of PIL as judicial activism

8. EPA – Historical reason – Bhopal Gas incident and Shriram Foods Case (Oleum Gas Case) –
EPA over and above the Air Act and Water Act - Control of pollution has been though
enactment of various rules
Example –
Hazardous and Other Wastes (Management and Transboundary Movement) Rules, 2016
Solid Waste Management Rules, 2016
Bio-medical Waste (Management and Handling) Rules, 2011
Recycled Plastics Manufacture and Usage Rules, 1999
Chemical Accidents (Emergency Planning, Preparedness, and Response) Rules, 1996
Batteries (Management and Handling) Rules, 2001

EPA in addition to Air Act and Water Act has been in a position to control pollution
Part B
9. a. National Green Tribuanl – Jurisdiction Techi Tagi Tara vs Rajendra Singh Bhandari, (2018)
11 SCC 734
Persons appointed to Pollution Control Board – Qualification – Supreme Court set aside the
order of National Green Tribuanl
The issue of the jurisdiction of the National Green Tribunal's Public Interest Litigation is
limited to environmental aspects and not concerning administrative functions and decisions.
Adminsitrative functions and decisions have to be decied by the High Court or Supreme
Court under Writ.

b. High Court – Jurisdiction Water (Protection and Control of Pollution) Act, 1974 & the Air
(Prevention and Control of Pollution) Act, 1981 - Sec18. Powers to give directions —
Central Government binds Cental Pollution Control Board
Sate Pollution Control Board is bound by Central Government and State Government
If State Government's direction is inconsistent with the directions of Cental Pollution Control
Board then the matter shall be referred to Central Government

It is only the Central Government whose decision will prevail based on the current factual
details.

10. The Water Act, 1974:

Power to issue notice
Right to enter premises
Right to collect sample
Duty of the company to cooperate
Proviso to Section 23 – reasonable hours of entry in the residential area – Activity here is a
commercial activity in a residential area and the officer has the right to enter the premises
on that ground

The Air (Prevention and Control of Pollution) Act, 1981

40. Offences by companies.— Liability of Director

11. a. Writ remedy

Public Trust Doctrine
Span Motel Case – M C Metha vs Kamal Nath 1996
There is no river where the complex is built
The complex is in compliance of all the required laws
The State and it's entities have not stopped during the construction phase
and now have no right to stop the operation
Telki violates Public Trust Doctrine
Nature has to be restored to its original condition
 b. Writ remedy – to remove the obstruction and restore the environment based on polluters'
pay and precautionary principles. Under the Public Trust Doctrine, the State is responsible
for protecting the environment and not letting private citizens take control of public
resources.

12. a. State list and Central List cannot be exclusive, and one cannot infringe on the other. (Not
mandatory) Here the activities of the State within the Country will impact the other States
and Extend the principle of Good Nebhioliness of the traditional international environmental
law the State can be asked to curtail its activities. The issue is not only about migratory birds,
which is the responsibility of all the States.

b. Yes, the Trail Smelter Case between US and Canada is the best example. Where the
activities of the Nation were impacting the neighbour, the only issue concerning such
disputes is that two countries have to agree to abide by the jurisdiction of the forum they
approach, which might be a challenge under International Law. The challenge is due to
environmental law being aSoft Law.

13. Intragenerational and intergenrational equity

Sustainable development
Sovereignty over natural resources and public trust
Convention on Biological Diversity
The Cartagena Protocol on Biosafety to the Convention on Biological Diversity,
2000
The Nagoya Protocol on Access to Genetic Resources and the Fair and Equitable
Sharing of Benefits Arising from their Utilisation to the Convention on Biological
Diversity, 2010 – Access and Benefit Sharing Mechanism
Fulfilment of international obligations
Prevention of Piracy; ensuring safety and security
Assertion and protection of sovereign rights and interests
Deals with bio-resource and associated knowledge, practice and traditions
Benefit Claimers – Rewards them for being the conservers of Bio-resources,
creators and holders of knowledge and traditions associated with its use and
application
Equity - Adoption of the traditional practice / method – Commercial Practices –
Aiding and advise by individuals to commercial operations is not exemption
under traditional practice
Jeevani - Arogyappacha plant - Kani Tribe
Neem and turmeric patent case – Issue of biopiracy

14. Public Trust Doctrine – States the responsibility to protect the environment.

Electricity Rural vs Urban - The State has the right to determine based on policy decisions in
the interest of the Nation.
 E-waste Management – Extended Producer Responsibility – There is a responsibility on the
producers to ensure that they can recycle and safely discard the electronic waste generated
from the use of their products.

15. M.C.Mehta v. Union of India, AIR 1988 SC 1037 - Supreme Court held that the financial
capacity of the tanneries should be considered as irrelevant while requiring them to
establish primary treatment plants.
M.C. Mehta v. Union of India, AIR 1998 SC 2963- In Delhi, the public transport system
including buses and taxies are operating on a single fuel CNG mode on the directions given
by the Supreme Court
Polluters pay vs precautionary principle

16. The tragedy of commons - What makes a concern 'common' to the entire global community.
The issue becomes a common concern when it transcends national boundaries and requires
co-operation and collective action of nation-states; when no single nation can resolve the
problems they pose or receive the benefits they provide.

Is this a case of common concern?

The term soft law is used to denote agreements, principles and declarations that are not
legally binding.

Soft Law vs Hard Law

Soft law instruments are predominantly found in the international sphere. UN General
Assembly resolutions are an example of soft law. Vs Hard law refers generally to legal
obligations that are binding on the parties involved and which can be legally enforceable by a
national or international body.

Reasons as to why soft will fail? Else if there is justification that soft law will prevail.