Takeover Code / "Control"

Subhkam Ventures India Private Limited v. SEBI, Appeal No. 8 of 2009 decided on 15.01.2010


The Securities Appellate Tribunal has recently passed an order in Subhkam Ventures India Private Limited v. SEBI clarifying that veto rights (right to veto certain actions proposed to be undertaken by the company) do not constitute ‘control’ under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. 

Forum Non Conveniens / Anti Suit Injunction

Horlicks v. Heinz, 
FAO (OS) No. 86 of 2009 (Delhi) decided on 23.10.2009  by SK Kaul, SK Mishra, 
Held: 
"The principle of forum non convenience emerged as a principle of admiralty law applicable primarily to foreign forums. It finds no place in a domestic forum in India. The plaintiff is always the dominus litis and so long as the court has jurisdiction to try a suit, a party cannot be non-suited. A suit has to be governed by the provisions of the said Code."
A good analysis of  forum non-conveniens and anti-suit injunction under Indian law

Company Law: Winding up / Ongoing Arbitration

Ongoing arbitration / suit may be a bar to winding up proceeding under Section 433 / 434
Kesar Enterprises, 2002 (112)  Comp Cas174 (Bom)

• K K Vasudeva Kurup, 2003 (113) Comp Cas 401 (Bom)
• ICDS v. AL and Alliend Industries 2003 (113/114) Comp Case 581 (Bom)
• Manipal Finance 2001 (107) Comp Case 288 (Bom)
• Maharashtra Apex Corporation, 2005 ( 57) SCL 467 (AP)
• Ishwar Industries v. LMW CP 16/2009 and CA 311/2009 decided on 12.10.2009  (Madras)
• Technology Development Board [2009] 152 Comp Cas 690 (Mad)

Contract : Limited Liability / Damages

Bharathi Knitting v. DHL Worldwide Couriers, AIR 1996 SC 2508

Held: Terms in contracts limiting liability to a certain amount are to be restricted and damages award (here in a consumer case) cannot exceed that specified amount.

Arbitration / Contract : Mutuality / Unilateral agreement to refer to arbitration

Jindal Exports v. Fuerst Day Lawson Ltd. (Delhi HC)

Manu/DE/3204/2009

Issue: Whether agreement to settle disputes by arbitration entitling only one party to refer the matter to arbitration is a valid arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996?

The Clause in Dispute: The Buyer shall shall be entitled to nominate any of the above options at any time after the dispute or difference has arised, the Seller hereby acknowledging that they are familiar with the Arbitration Rules of the Association thereby nominated and agree to be bound by the decision of such arbitrators or of any appeal therefrom.

Held:

"I [the court] can see no reason, why, if an agreement between two persons confers on one of them alone the righht to refer the matter to arbitration, the reference should not constitute an arbitration. There is fully bilateral agreement which constitutes a contractt to refer. The fact that the option is exercisable by only one of the parties seems to me to be irrelevant. The arrangement suits both parties. "

"The words in Section 7 means an agreement by the parties to submit to arbitration, in my opinion, postulates an agreement which necessarily or rather mandatorily requires the appointment of an arbitrator(s). Section 7 does not cover a case where the parties agree that they may go to a suit or they may also go to arbitration"

There should not be an agreement to further obtain consent or to agree to settle disputes by arbitration.

See http://www.lw.com/upload/pubContent/_pdf/pub1762_1.pdf for position in other countries.

Contracts: 'Pre-contractual' Understandings and the Duty to Negotiate in Good Faith

Source: Law and Legal developments

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'Pre-contractual' Understandings and the Duty to Negotiate in Good Faith A previous post highlighted an ICSID case on how negotiations between parties can unexpectedly result in a binding legal relationship being formed. For any contractual liability to arise, it is essential that the parties must have an intention to enter into a legal relationship. This test – whether such an intention was present – will often be useful in determining whether "agreements in principle" or "memorandums of understanding" or like documents can – without any further contract – be enforceable under principles of contract law. In seeing whether understandings reached by parties are binding, the remarks of Parker J in Von Hatzfeldt-Wildenburg v. Alexander [1912] 1 Ch. 284 appear to be relevant. According to him, the absence or presence of a binding contractual relationship depends on whether the preparation of a formal document was a condition of the contract; or whether the formal document was to be merely a record of the expressed will of the parties. In the former case, no binding contractual relationship exists; in the latter, it does. Under Parker J's test, if the preliminary understanding is sufficiently definite, it will be presumed that parties intended to enter into a binding legal relationship. The leading Indian textbook, Pollock and Mulla, summarised the position by saying that what needs to be determined is "… whether the formal document is of such a nature that it was the very condition of the contract or whether it was commemorative of the evidence on the point…" (12th edn., page 213) Insofar as the existence of a duty to negotiate in good faith is concerned; in an extreme form, the contents of this duty might be expressed thus: "A party who manifests a willingness to enter into a contract at given terms should not be able to freely retract from her manifestation. The opposing party, even if he did not manifest assent, and unless he rejected the terms, acquires an option to bind his counterpart to her representation or charge her with some liability in case she retracts…" (Omri Bin-Shahar, Contracts without Consent: Exploring a New Basis for Contractual Liability, 152 U. Penn. L. Rev 1829) Common law is unlikely to recognise such a broad formulation of the duty. Indeed, since Routledge v. Grant (1828), it is settled law that a party is free to withdraw its offer, unless there is a consideration for the offer being kept open. Further, in Watford v. Miles [1992] 1 All ER 453, specifically, the House of Lords held that there could be no duty to negotiate in good faith for an undefined amount of time. This position is distinct from the position in many civil law countries – under civilian systems, offers cannot easily be revoked, unless they are made expressly subject to revocation. Civilian systems are, then, more likely to impose an obligation to conduct negotiations in good faith (this is covered within the civilian doctrine of 'culpa in contrahendo'). The Convention on the International Sale of Goods (CISG) – born out of a compromise between common law and civil law systems – also recognizes such a 'good faith' obligation in Article 7. Nonetheless, it cannot be said that common law refuses to recognise any good faith obligation at all. For instance, an Australian case – Renard Constructions v. Minister for Public Works (1992) 26 NSWLR 234 – suggests that a duty to negotiate in good faith can be imposed on grounds of reasonableness. Claims may arise under quasi-contract principles too. [Note: On the role of good faith in international sales transactions under the CISG, see John Klein, Good Faith in International Transactions. India is not yet a party to the CISG. On the advantages and disadvantages of ratifying the CISG, see this article]

Civil Law: Lawyer's Collective / Right to Practice / Profession / Advocate

Lawyer's Collective Judgmenet

Copy of judgment available on: http://bombayhighcourt.nic.in/data/judgements/2009/OSWP8152695.pdf (last accessed on December 24, 2009 at 2100 IST)

The High Court held that:

·       Since Foreign Law Firms' parent provide legal advice to clients all over the world, their liaison office in India, even though functioning as coordination and communication channels, would also be conducting activities in relation to providing legal advice. In other words, the activity of liaison office are "inextricably linked" to the head office of Foreign Law Firms.

·       RBI's authority under S. 29 of FERA is limited to granting permission to foreign entities to set up a branch or liaison office in India for carrying any activity of trading, commercial or industrial nature. Based on judicial precedents, the High Court held that since the practice of law is a profession and not a business, trade or commerce, as covered under the scope of S. 29 of FERA. Therefore, the RBI has no authority to grant permission to foreign law firms to establish liaison office in India.

·       The objectsof the Advocates Act is inclusive and is meant to regulate persons practicing law in any part of India as well as persons practicing the profession of law in any court, including Supreme Court. If it were to be held that practice of law did not include non-litigious practice, the purpose of Advocates Act would fail since any professional misconduct of an advocate while conducting non-litigious practice would not be punishable