by Zen Webnet | Dec 31, 2023 | Blog
Article by Aanchal Trivedi and Shilpi
Introduction
Primarily, ‘smart contracts’ are decentralized agreements built in computer code and stored on a blockchain.[1] Nick Szabo is known as the architect of smart contracts and he described it as “A set of promises, specified in digital form, including protocols within which the parties perform on these promises.”
A ‘blockchain’ is a particular type of data structure (i.e., essentially a ‘chain’ of ‘blocks’) wherein the ‘blocks’ are used to store and transmit data and are connected to each other in a digital ‘chain’, forming a ledger. It utilizes cryptographic and algorithmic methods to record and synchronize data across a network in an irreversible manner.[2]
Henceforth, smart contracts are agreements entered into by the parties through digital codes and integrated into a decentralized blockchain. Execution of smart contracts are automated which is often effected through computer running code that has translated legal prose into an executable program.[3] Smart contracts can be further distinguished between strong and weak smart contracts. Strong smart contracts possess prohibitive costs of revocation and modification, while weak smart contracts lack the same.
Advantages of smart contracts
To tackle the increased competition between the businesses, benefits arising out of smart contracts can be employed. Primarily, smart contracts do not depend upon human intervention. Its implementation is guided by blockchain networks. The execution of such contracts depends upon a triggering event. Hence, once the triggering event takes place, the scripted contract self-executes.
One of the fundamental requirements of a smart contract is that the terms of a smart contract must be explicit and accurate. Smart contract entails if-then statements; hence, its implementation is accurate. For example- for subscription-based institutions, if x unit of cryptocurrency is paid, then the subscription will be auto-renewed.
Breaches of a smart contract are rare to occur because the execution and continuation of a smart contract will depend upon pre-defined conditions. The penalty of breach will also be automatic as per the pre-decided mechanism, requiring no third-party intervention. For example- when the seller fails to pay the amount to the vendor, a late payment will be automatically deducted from his account or his access to the software can be suspended.
Disadvantages of Smart contracts
Smart contracts carry various advantages; however, they are not devoid of some disadvantages. Smart contracts have some inherent characteristics of blockchain. One of such characteristics is it being immutable- meaning, once it is created, it cannot be modified. It means that in the event of any mistake in the code, the immutable nature of the smart contract will prevent it from being rectified.[4]
As these smart contracts, once executed, cannot be modified further, additional cost will also be incurred by the parties to determine ex ante terms of the agreement that can deal with all the circumstances arising out of that transaction. Additionally, the cost incurred in the process of negotiation and designing the smart contract will also increase the cost during the preparation phase.
The principle of ubi jus ibi remedium prescribes that when one’s right has been infringed, law bestows right upon that person to claim remedy. Smart contracts will certainly create some rights in favour of the parties to the contract, however in case of any breach of those rights, the entitlement of any remedy will become dubious, if the fundamental laws of India are not supporting the validity of those smart contracts. Individuals will be entitled for the remedy, provided, the Indian laws acknowledge the existence of such smart contracts.
The scope of smart contracts under the regime of Indian Legislations
INDIAN CONTRACT ACT, 1872: In India, contracts are regulated by the Indian Contract Act, 1872. As per the said Act, a valid contract must satisfy the fundamental criteria of including firstly an offer, secondly, absolute and unqualified acceptance, and lastly lawful consideration. It also mandates the existence of consensus ad idem, implying that the parties should agree on the same terms in the same sense.
Taking parallel inference between the fundamental requirements of a valid contract under the Indian Contract Act, 1872 and the smart contract; it can be concluded that a smart contract is a valid contract under the Indian Contract Act, 1872. To validate the aforesaid statement, following inferences can be drawn:
- As per Section 2(a) of the Indian Contract Act, 1872, when one person signifies his willingness to do or to abstain from doing anything, with a view to obtain the assent of other person to such act or abstinence, it is said that an offer has been made. In smart contract, the act of publishing the self-executing code shall represent the intention of one party to enter into a contract with another party, and, hence, making an offer.
- According to Section 2(b) of the Indian Contract Act, 1872, when the other person accepts the proposal, it is said to be accepted. In smart contracts, it is a pre-requirement that the other party carries out certain pre-determined functions that the contract prescribes. Thereafter, upon completion of those prescribed functions, the offer shall be considered to be accepted.
- As per the Section 2(d) of the Indian Contract Act, 1872, consideration includes any act/abstinence from an act at the desire of a Similarly, in a smart contract, performance of the pre- determined functions by the party will amount to a valid consideration.
- The Contract Act prescribes for consensus ad idem as an essential requirement of a valid contract. In smart contracts, as long as the smart contracts are triggered (code agreed between the parties) by the parties, the requirement of consensus ad idem will be abided by, thereby forming a valid contract.
INDIAN EVIDENCE ACT, 1872 AND THE INFORMATION TECHNOLOGY ACT, 2000: Indian Evidence Act, 1872 is the governing law regarding admissibility of any document in a judicial proceeding. Section 65B of the Evidence Act provides that “any information contained in an electronic record ….. in optical or magnetic media produced by a computer shall be deemed to be also a document…. would be admissible.” Section 85A of the Act, further provides that “the Court shall presume that every record purporting to be an agreement containing the electronic signature of the parties was so concluded by affixing the electronic signature of the parties.” According to Section 85A, for conclusion of an agreement, affixation of electronic signature is mandatory.
Section 5 of the IT Act, 2000 provides that these electronic signatures are legally enforceable if they are affixed in the manner as prescribed by the Central Government. Section 10 of the IT Act empowers the Central Government to make rules governing the electronic signatures.
Conclusively, in Evidence Act, an electronic contract is only considered to be valid, if it has been affixed by an electronic signature, as obtained in accordance with the provisions of law. However, smart contracts are indeed more technologically sophisticated, electronic signature is not required for its execution. Therefore, the absence of electronic signature might disentitle smart contract from being recognised as electronic contracts under the laws of India.
CODE OF CIVIL PROCEDURE, 1908: Section 15 to 20 of CPC, 1908 provide the provisions dealing with the jurisdiction of the Court to try a dispute. Prima facie reading of the same imparts a difficulty in reconciliation of the concept of ‘cause of action’ and smart contracts. Inherently, cause of action prescribes for a physical concept, whereas, in smart contracts, territorial delineation per se does not exist. Therefore, having a dispute regarding the territorial jurisdiction, it will become a bit challenging to enforce it in a court of law. To overcome this concern, party autonomy can be granted and, henceforth, the parties can agree on the question of jurisdiction.
Conclusion
Considering the fact that the future entails increased digital transactions, smart contract will become inevitable which will further change the course of contractual transactions in India. Nonetheless, if it would not be regulated appropriately, it will act as Achilles’s heel. Liberal interpretation of Indian Laws has the potential to bring smart contracts within the confines of Indian Contract Act. As smart contracts hold the capacity to become a part of digital transactions in future, its recognition under the Indian Laws for its proper regulation is imperative.
[1] Jeremy M. Sklaroff, Smart Contracts and the cost of inflexibility, Univ. of Penn. L. Rev. 263, 263-303 (2017).
[3] Max Raskin, The Law and Legality of Smart Contracts, Geo. L. Tech. Rev. 309, 305-341 (2017).
by Zen Webnet | Dec 30, 2023 | Blog
Article by Ankita Sinha and Neelambika Singh
As a general rule, a party claiming damages for loss of profit is required to establish breach. As long as the breach is established by the Contactor, no further evidence as to proof of actual loss is required. The Hon’ble Supreme Court has in the cases of A.T. Brij Paul Singh v. State of Gujarat, (1984) 4 SCC 59 and Dwaraka Das v. State of M.P., (1999) 3 SCC 500, laid down the law w.r.t to Loss of Profit, wherein it considered granting damages for loss of profit justified and has held that reasonable expectation of profit is implicit in a works contract and its loss has to be compensated by way of damages if the other party to the contract is guilty of breach of contract.
The claim for Loss of Profit has been duly upheld in subsequent cases by the Hon’ble High Court, and the High Courts have refused to interfere with the Loss of Profit awarded by Arbitral Tribunal’s in cases of National Highways Authority of India v. BEL-ACC(JV), 2012 SCC OnLine Del 5350 and National Highways Authority of India v. Afcons-Apil Joint Venture, 2018 SCC OnLine Del 7194, thus fortifying the foundation for claim by private parties who were obstructed from executing work contracts in time, for delays not attributable to them.
However, in its recent judgment in Batliboi Environmental Engineers Ltd. v. Hindustan Petroleum Corpn. Ltd., 2023 SCC OnLine SC 1208, the Hon’ble Supreme Court has laid down a more stringent criteria for determination of quantum of damages for loss of profit. It is therefore important to examine the legal development on this aspect and the same is being analysed in the present article.
Background of the Dispute:
BEEL[1] was awarded the turnkey contract for detailed engineering including civil and structural design, supply and erection, testing and commissioning of 23 MLD capacity Sewage Water Reclamation Plant in Mahul Refinery area by HPCL[2], for a contract value of Rs.574.35 lakhs. The initial period of the contract period was 18 months, upto August 1993, however, there was delay in completion and the contract was extended by HPCL on various occasions on the request of BEEL, after which BEEL abandoned the work in March 1996, after completing 80% of the work.
On 04.07.1996, BEEL made a formal claim to HPCL for breach of contract on account of delay in execution, causing extra expenses and losses. Subsequently, BEEL invoked arbitration. An arbitral award dated 23.03.1999 was passed which inter alia substantially allowed BEEL’s claims including claim for ‘Compensation for loss of Overhead and profit and also profitability. HPCL preferred an arbitration petition challenging the Award before the High Court of Judicature at Bombay, which was dismissed by the Ld. Single Judge. Thereafter, HPCL filed an appeal and in departure from the findings of Ld. Single Judge, the Arbitral Award was set aside by the Division Bench of the Hon’ble High Court exercising power under Section 37 read with Section 34 of the Arbitration and Conciliation Act. The SC judgement in ‘Batliboi Environmental Engineers Limited v. Hindustan Petroleum Corporation Limited and Another’ upholds the decision in of the Division Bench and dismisses the civil appeal filed by BEEL.
Findings & Analysis:
The Hon’ble Supreme Court has extensively analysed the findings in the Award and inter alia discussed the principles and formulae for computing a claim for increased overheads and loss of profit in a works contract. The Supreme Court has emphasized on the need for giving reasoning and justification for the amount of damages awarded by the Arbitral Tribunal and upheld setting aside of the Award for the lack thereof.
The SC has observed that the Award is deficient as it is particularly silent as to the method and manner in which the arbitrator had computed damages and there is lack of justification as regards the method adopted by the arbitral tribunal. BEEL had based for loss on account of overheads and profits/profitability upon 48 months delay as on 27.08.1997. BEEL for computation had considered 10% of the contract value towards overheads and other 10% towards profits/profitability for arriving at the figure of Rs. 3,38,38,460/-, after taking into “account the same percentages from the payments already received by them”.
The Supreme Court has noted that the loss towards overheads and profits/profitability is to be computed on the payments due for the un-executed work, and should exclude the payments received/receivable for the work that has already been executed. In other words, damages towards expenditure on overheads and loss of profit are proportionate, and not payable for the work done and paid/payable. Delay in payment on execution of the work has to be compensated separately.
The Hon’ble Apex Court has further opined that the computation of damages should not be whimsical and absurd resulting in a windfall and bounty for one party at the expense of the other. The computation of damages should not be disingenuous. The damages should commensurate with the loss sustained.
The Hon’ble Apex Court has held that even to ascertain the loss of overheads and profits if formulae such as the Hudson’s, Emden’s, or Eichleay’s formulae are applied, the factual assumptions should be examined while applying a particular equation or method. In its verdict, the Supreme Court has cautioned that these formulae when applied should be with full care and caution not to over-award the damages.
The Hon’ble Apex Court has therefore laid down a more stringent criteria for determination of the quantum of damages by the arbitral tribunal for such claims of loss of profit. Hon’ble Supreme Court has analysed the Hudson’s formula which is widely used for computation of such claims and observed that Hudson’s formula, is couched on three assumptions. First, that the contractor is not habitually or otherwise underestimating the cost when pricing; secondly the profit element was realistic at that time; and thirdly, there was no fluctuation in the market conditions and the work of the same general level of profitability would be available to her/him at the end of the contract period.
The Court also noted that the Eichleay’s Formula is more precise and accurate in calculating loss of profits since it requires the contractor to itemise and quantify the total fixed overheads during the contract period. It takes into consideration all the contracts during the delay period to determine the proportionate fraction of the total fixed overheads.
Conclusion:
Therefore, for a party claiming damages for loss of profit, satisfaction of these assumptions is necessary. In view of the findings in the Batliboi Judgment, now, Material should be furnished by the party claiming such damages, such as producing invitations to tender which were declined due to insufficient capacity to undertake other work, or from the books of account of the contractor which show a decreased turnover etc., in order to justify and assure that the assumptions for applying the formulae are met.
This observation of the Hon’ble Supreme Court is commensurate with the principle of Section 73 of the Indian Contract Act, 1872, that a party may be awarded damages only for those losses that it has been able to prove that it has suffered.
The Hon’ble Supreme Court’s extensive analysis of the computation methods for a Loss of Profit claim and setting out the materials requisite for establishing said claim has heralded a shift in the jurisprudence on the ‘Loss of Profit’ claim, and will act as a caution for Arbitral Tribunals before which the claim is raised in First Instance – insofar as calculation, factual assumptions and material furnished to establish Loss of Profit, is concerned. Therefore, it can be said that the Hon’ble Supreme Court has further clarified and fortified the standards for proving the assumptions in a Loss of Profit claim.
[1] Batliboi Environmental Engineers Limited
[2] Hindustan Petroleum Corporation Limited
by Zen Webnet | Dec 29, 2023 | Blog
Article by Prateek Dhir and Sahil Kumar Purvey
Introduction
The Arbitration and Conciliation Act, 1996’, (hereinafter, ‘the Act’), is the cardinal law for Indian arbitration. Indian arbitration law has been evolving due to economic volatility, dynamic contractual terms, and trans-border dealings etc. Interpretation of various provisions of the Act has been subjected to judicial scrutiny. The scope of judicial inquiry under Section 11 of the Act, is one of them. Section 11 confines the Court’s role under Section 11 to the examination of the existence of an arbitration agreement. Whether the Court while considering application under Section 11 of the Act should examine that the contract containing the arbitration clause is properly stamped or not has been ongoing topic of judicial discussion. The Supreme Court in N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd.[1], held by a 3:2 majority that the arbitration agreements must be stamped to be enforceable. Subsequently, many review applications were filed to review the previous orders passed under the applications under Section 11 of the Act.
On 21.07.2023, the Delhi High Court in Ambience Developers and Infrastructure Pvt. Ltd. vs. Zesty Foods[2], had rejected one of the similar review applications (i.e. Review Petition No. 161/2023). The review application was filed, to review the order dated 20.03.2023 passed in application bearing no. Arbitration Petition No. 549/2022 under Section 11 of the Act on the premise that the agreement dated 02.02.2019 executed between the parties, containing the arbitration clause, is unstamped, and after the judgment in N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd.[3], the same is invalid in law/cannot be acted upon.
The Delhi High Court in the instant matter rejected the review application under Order XLVII, Rule 1 of the Code of Civil Procedure, 1908. The High Court relying on various judgments observed that where any question of law on which the judgment of the Court is based, has been reversed or modified by a subsequent decision of a superior Court in any other case, the same shall not be a ground for the review of such judgment. The Delhi High Court rejected the review application on the ground that there is no ground for review of the order dated 20.03.2023. However, the Hon’ble High Court did not determine whether the High Court has any power under the Act to review the order under Section 11 of the Act or not. Therefore, this Article attempts to determine the same.
Difference between ‘Review’ and ‘Appeal’
An appeal allows a party who is not satisfied with the verdict to challenge the judicial verdict before a higher court. Whereas, a review challenges the correctness of a judicial order based on new evidence, illegality, impropriety, irrationality etc. before the same court, which had passed the judicial verdict. The grounds for review are laid down in under Order XLVII of the Code of Civil Procedure, 1908.
It is settled law that the Arbitration Act is a Complete Act in itself and exhaustive in nature pertaining to arbitration proceeding[5]. The Arbitration and Conciliation Act, 1996 has no provisions providing for review or appeal of the Orders passed in application under Section 11 of the Act. The Apex Court in SBP & Co. v. Patel Engineering Limited[6], had already observed that the order passed under Section 11 of the Act by the Chief Justice of a High Court or by the designate Judge of that High Court is appealable before the Supreme Court under Article 136 of the Constitution. However, there is no recourse available to party for filing of review of such order before the same High Court.
Power of High Court to Review the Order Passed under Section 11 of the Act
Observations of various High Courts on the question that whether the High Court has any power under the Act to review the order passed under Section 11 of the Act or not, are as follows;
- The Andhra Pradesh High Court in Nagireddy Srinivasa Rao vs. Chinnari Suryanarayana[7], has observed that “There is no provision in the Arbitration and Conciliation Act, 1996, providing for a review of an order passed under Section 11 of the Act. The provisions of the Act also do not make out a case for holding that such a power of review is available by implication.”
- The Allahabad High Court[8] is also of the similar opinion that the power of review is a creature of the statute. In the absence of such specific power, a review is not maintainable, unless the review is a procedural review.
- The Calcutta High Court in Sarada Construction vs. Bhupendra Pramanik and Ors.[9], has observed that “the Act is a complete code which does not specifically confer any power upon this Court to review an application under the statute which is section 11 of the Act and consequently, a review in the instant case is not maintainable”.
- The Delhi High Court in M/s Diamond Entertainment Technologies Private Limited & Ors. vs. Religare Finvest Limited[10], has observed that“By way of the present review petition, the petitioner is seeking review of the Order vide which an application under Section 11 of the Arbitration & Conciliation Act, 1996 has been allowed. Since the Order made under Section 11 of the Act is in exercise of the statutory powers as defined under the Arbitration & Conciliation Act, any review of the same can be only within the parameters of the Statute. Since, there is no provision of review in the Arbitration & Conciliation Act, this Court finds itself without any jurisdiction to review the present Order.” The Similar View was observed in Kush Raj Bhatia v. M/S DLF Power & Services Ltd[11].
From the above, we can conclude that the various High Courts have repeatedly observed that they do not have any power under the Act to review the order under Section 11 of the Act. Various High Courts have time and again reiterated that the Act is a complete code in itself, which does not has any provision permitting review. Therefore, the High Court cannot exercise power of review in the absence of an enabling provision. The approach of the High Courts are in accordance with settled principle on power of review that the power to review is not inherent but must be conferred by the Statute either specifically or by necessary implication, and in absence of any such conferment, no power of review can be exercised[12].
Power of Supreme Court to Review the Order Passed under Section 11
In Jain Studios Ltd., vs. Shin Satellite Public Co. Ltd[13], a review application filed before the Hon’ble Supreme Court under Article 137 of the Constitution of India, against an order under Section 11 of the Act. The Hon’ble Supreme Court had held that by virtue of Article 137 of the Constitution of India, the Apex Court could review only its own judgments or orders. The Hon’ble Supreme Court did not decide that, whether a review against an order passed by the High Court under Section 11 of the Act would be available before the Supreme Court under any provisions other than the Article 137 of the Constitution of India. Therefore, there is no recourse of review available under Article 137 of the Constitution of India similar to recourse of appeal under Article 136 of the Constitution of India.
Conclusion
Considering the above discussions, it can be concluded that High Court does not have any power under the Act to review the order under Section 11 of the Act. The Delhi High Court in Ambience Developers and Infrastructure Pvt. Ltd. vs. Zesty Foods[14] ought to have first determined that whether the High Court is competent to review any order passed under section 11 of the Act or not before analysing the grounds available for review of such order. The same is against the settled principle on power of review[15]. However, whenever any apparent factual mistake[16], procedural error[17] or order passed vitiated with fraud[18], the court may review or reopen the proceedings without going in the merit of the case.
[1] N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd., (2023) 7 SCC 1
[2] Ambience Developers and Infrastructure Pvt. Ltd. Vs. Zesty Foods, 2023 SCC OnLine Del 4231
[3] N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd., (2023) 7 SCC 1
[4] Naresh Shridhar Mirajkar vs. State of Maharashtra, (1966) 3 SCR 744; Union of India vs. Major S.P. Sharma, (2014) 6 SCC 351; Neelima Srivastava vs. State of Uttar Pradesh and Ors., AIR 2021 SC 3884; and Beghar Foundation vs. Justice K.S. Puttaswamy (Retired) & Ors., (2021) 3 SCC 1
[5] National Highway Authority of India vs. Oriental Structure Engineers Ltd., 2012 SCC OnLine Del 4787
[6] SBP & Co. v. Patel Engineering Limited, (2005) 8 SCC 618
[7] Nagireddy Srinivasa Rao vs. Chinnari Suryanarayana, AP No. 138 of 2017
[8] Manish Engineering Enterprises vs. Managing Director, IFFCO, New Delhi & Ors., 2008 SCC OnLine All 84; and Smt. Chandra Dickshit vs. Smart Builders, 2008 SCC OnLine All 85
[9] Sarada Construction vs. Bhupendra Pramanik and Ors., 2023 SCC OnLine Cal 342
[10] M/s Diamond Entertainment Technologies Private Limited vs. Religare Finvest Limited, 2023/DHC/000156
[11] Kush Raj Bhatia v. M/S DLF Power & Services Ltd., 2022 SCC OnLine Del 3309
[12] Ram Chandra Pillai vs. Arunschalathammal & Ors., 1971 (3) SCC 847
[13] Jain Studios Ltd., vs. Shin Satellite Public Co. Ltd., 2006 (5) SCC 501
[14] Ambience Developers and Infrastructure Pvt. Ltd. Vs. Zesty Foods, 2023 SCC OnLine Del 4231
[15] Ram Chandra Pillai vs. Arunschalathammal & Ors., 1971 (3) SCC 847
[16] Always Remember Properties Private Limited v. Reliance Home Finance Limited, 2022 SCC OnLine Del 4479;
[17] Manish Engineering Enterprises vs. Managing Director, IFFCO, New Delhi & Ors., 2008 SCC OnLine All 84
[18] Indian National Congress (I) Vs. Institute of Social Welfare and Ors., [2002] 3 SCR 1040
by Zen Webnet | Dec 20, 2023 | Blog
Article by Tanushri Sharma
INTRODUCTION
The terms “merger” and “acquisitions” pertain to the combination of two or more business entities or assets through various types of transactions. In practical usage, mergers and acquisitions are frequently used interchangeably: nonetheless they use distinct characteristics that define them apart. A merger entails the consolidation of two or more entities into a single entity, resulting in the transfer of ownership and control from the preexisting entities into a single entity. On the contrary, acquisitions pertain to the process by which company takeovers one or more companies and establishes itself a single entity. In contrast to a merger, acquisition does not result in the formation of a new entity. In acquisition, the transferee refers to the entity that is being acquired by the transferor business.
CROSS BORDER MERGERS AND ACQUISITIONS:
Cross-border mergers and acquisitions means where the companies from various countries combine or are bought to form a single entity. Essentially, cross-border mergers and acquisitions encompass agreements involving domestic and foreign entities operating within the target company. The phenomenon of cross-border mergers and acquisitions has witnessed a significant rise in the global economy. The prevalence of cross border mergers has increased over time, with Indian companies currently exhibiting a higher frequency of engaging in such mergers and acquisitions compared to other countries.
POSITIVE ASPECTS OF CROSS-BORDER MERGERS AND ACQUISITIONS
Encouraging market expansion: In the event of an Indian company merging with a foreign company merging with a foreign company, the Indian entity also gains entry into the international market where the merged company is established or conducts its operations. Therefore, it facilitates the smooth process of entering into other markets.
Boost of market share: It is an inevitable outcome of a merger, as it multiplies the company’s scale, hence enhancing its market value. It leads to an increase in the proportion of market shares. Which in turn may result in an increase of share price. Additionally, such mergers or acquisitions can assist the merged companies in reducing costs and attaining a more advantageous competitive position.
Resource sharing: Company has the ability to utilize the resources of the merged entity in accordance with the agreed upon proportion outlined in their merger agreement. Moreover, in context of acquisitions, the acquiring company is deemed to obtain the assets and resources of the target company. Consequently, the act of resource sharing enables companies to enhance their operational capabilities.
Growth of economies scale: It can be observed in the context of cross-border mergers or acquisitions, since it facilitates mass production and enables operation on a larger scale. The company size increases market share and confers favorable market position.
CHALLENGES:
Diversity: Each country has its own culture and product preferences. It must adapt to such variations and operate .in merged or target company marketplaces while considering consumers and employees. Failure of balance cultural differences causes company losses.
Issues due to bankers, lawyers, regulations etc.: Documentation and compliance are common in cross-border mergers and acquisitions. Penalties for violating such regulations are severe. In such situations the currency and have different legislations which affects and slows down the process of mergers and acquisitions. Different law regulations complicate the deal and make them time consuming.
COMPARATIVE ANALYSIS:
The utilization of mergers and acquisitions has emerged as a prevalent approach to integrating commercial operations. The primary objective is to minimize expenses, capitalize on economies of scale, and concurrently enhance market presence. For a significant number of individuals, mergers are primarily perceived as a strategic approach aimed at enhancing financial performance through consolidation of resources and the reduction of expenses.
| |
INDIA |
UNITED KINGDOM |
| Cross border regulations governing body: |
India is overseen by the “Reserve Bank of India (RBI) and are guided by the provisions outlined in the Companies Act, 2013”.
RBI is also responsible for regulating foreign exchange rules, whilst the Companies Act, 2013 applies to the deals of mergers and acquisitions. |
The enforcement of legislation dealing with cross border mergers and acquisitions in the United Kingdom is carried out by two regulatory bodies, namely the Financial Conduct Authority (FCA)[1] and the Takeover Panel[2]. “The financial conduct authority” is responsible for governing and regulating the companies and the Takeover code regulates activities related to mergers and acquisitions.
|
| Regulatory |
In India, the approval is conferred by the “National Company Law Tribunal(NCLT) and RBI”. |
In United Kingdom, the approval is granted by “Financial Conduct Authority (FCA) and Competition and Markets Authority”.
|
| Tax laws |
India has established particular tax rules which applies to cross border deals. |
The responsibility for managing tax implications in the United Kingdom lies with “Her Majesty’s Revenue and Customs (HMRC)”. |
| The disclosure regulations |
“In India, the Companies Act, 2013” requires companies to provide all information related to merger or acquisitions to their shareholders. |
In the UK, the Takeover Code establishes rules related to information disclosure to shareholders.
|
CONCLUSION
It can be inferred that the information provided supports the notion that takeovers are a fundamental element within the realm of capital markets, constituting an integral aspect of a country’s capital market system. The economic expansion of a nation encompasses the advancement of its capital markets. Therefore, it is imperative to implement regulations on the takeover code in order to facilitate the optimal economic development of the nation. Moreover, it is evident that the regulations align with the policy and ideological framework of the nation. While the United Kingdom tends to prioritize the shareholder- oriented approach in its takeover legislation, the Indian approach appears to strike a compromise between the state control to ensure fairness and maximization of value for stakeholders. However, the United Kingdom exhibits a significantly higher level of variation and frequency in the utilization of takeover defenses compared to India. In India emphasize on safeguarding the labor force, promoting welfare whereas in United Kingdom it prioritizes capital markets. “Cross-border mergers and acquisitions are complex and require careful consideration of the regulations for specific jurisdiction”. Companies have to understand the rules and regulations of India and United Kingdom to comply. Protection of national security interests may require limits on foreign ownership or control of particular industries or assets. Another essential aspect is competition law protects against anti-competitive behavior. In the end it states that Cross Border Merger and Acquisitions are complicated, but they promote accountability, responsibility in global business.
[1] https://www.fca.org.uk/
[2] https://www.thetakeoverpanel.org.uk/the-code
by Zen Webnet | Dec 5, 2023 | Blog
Article by Priyanka Rastogi
Introduction:
The Delhi High Court recently denied to grant interim injunction to Vifor (International) Limited regarding the launch of Ferric Carboxymaltose (FCM) drug for patients affected by iron deficiency/anaemia by Biological E in the market. However, the court has hesitated to label FCM as a product-by-process patent. Amidst the ongoing appeal in Vifor v. MSN, this hesitation hints at the complex legal landscape surrounding FCM patent infringement. In spite of the denial to grant injunction, Delhi High Court has directed the defendants not to use the plaintiff’s process for FCM manufacture and to maintain accounts of FCM manufacture and sales till the expiry of the tenure of the suit.
Arguments rendered by the parties:
The major arguments rendered by the parties were covered in two-fold, as follows:
1. Product-by-process nature of the patent
Firstly, the plaintiff, Vifor International Ltd. denied the patent’s product-by-process relying on section 2(1)(j) of the Patents Act, 1970. The Act recognizes only two types of patents- a product and a process, excluding any third variety. This argument was made by the plaintiff in a bid to establish patent infringement, although Biological E had used a different process to prepare the end product, FCM. As a reponse to the said claim, the defendants raised the court’s observations in certain cases like Vifor International Ltd. v. Dharmendra Vora[1], Vifor (International) Ltd v. Maxycon Health Care Private Limited[2] etc. In all these cases, the respective courts debated whether or not the plaintiff’s patent should be classified as a “product-by-process” patent but were unable to come to a definitive conclusion.
2. Sale of the product in the market
Secondly, the plaintiffs also contended that the defendants have not entered the market and the product is also not available for sale to the general public yet. They asserted a plausible suspicion of the defendants’ intention to do so, which would “irreversibly alter the market” and result in “irreparable harm” for the plaintiffs. However, as a defense to this claim of the plaintiff, the defendants asserted and successfully proved that the product had been released before the lawsuit was filed.
Observations and Reasoning given by the court:
The defendants have been ordered by the court to keep records of FCM production and sales up and to refrain from using the plaintiff’s method of manufacturing FCM until the conclusion of the lawsuit. It’s important to note that the court explicitly forbade the defendants from using the plaintiffs’ process rather than granting the plaintiffs an interim injunction. However, this decision continues a trend from earlier rulings by leaving a number of persistent ambiguities unresolved. It provides a two-pronged analysis that reevaluates the legal precedent created by the numerous FCM patent infringement cases.
The important takeaways from the case are that firstly, the court refrained from giving a definite category to the patent and hence maintaining the long lasting status quo within the jurisprudential landscape. The division bench putting a stay on the launch of generic FCM has once again kept the concept of product-by-process patents a vague one. The court has definitely recognized the dilemma over the product-by-process categorization of patents but has not contributed further towards its resolution. Currently, the Court has not recognized the patent as a ‘product-by-process’ patent because the defendant has been explicitly instructed not to employ the manufacturing process claimed by the plaintiff in the patent lawsuit.
Secondly, the denial to grant interim injunction denotes the trend of maintaining balance of convenience particularly when defendants have already introduced their products to the market. The court emphasized that there are different considerations when the defendant has already launched the product in the market as compared to when the defendant is yet to commence in the market. For this, reliance was laid upon Wander Ltd. v. Antox[3] wherein it was stated:
“The court also, in restraining a defendant from exercising what he considers his legal right but what the plaintiff would like to be prevented, puts into the scales, as a relevant consideration whether the defendant has yet to commence his enterprise or whether he has already been doing so in which latter case considerations somewhat different from those that apply to a case where the defendant is yet to commence his enterprise, are attracted.”
Conclusion:
In this case, the concept of product-by-process was reevaluated which has remained relatively unfamiliar in the Indian Patent jurisdiction. While the court restricted from providing anything conclusive with regard to assigning a definite category to product-by-process patents, it did contribute to the ongoing discussion regarding the same. Moreover, the court also followed a liberal approach against granting injunctions when products have already been introduced into the market. As a whole this order adds to the various decisions regarding FCM Patents. We can currently only hope of getting a substantial and definite ruling regarding product by process patents in India.
[1] CS(OS) 4083/2014
[2] CS(COMM) 712/2018
[3] CA NO. 9844 OF 2018
