It is generally accepted that a defendant in an action for damages cannot exercise the right of “set-off” on the basis of a mere “claim”, which has not crystallised. For example, while the law permits a defendant to set off debts owed to him by the plaintiff against a successful claim in court, he cannot normally resist the plaintiff’s case on the basis that litigation is pending in other courts...
The Corporate Veil and Arbitration Clauses
With the rapid growth of group companies in India over the past decade, it has become commonplace for a commercial transaction to be routed through several entities in one group. In cases where some of those entities have entered into agreements containing an arbitration clause, and others have not, the question arises as to whether the non-signatories are bound by the arbitration clause. In...
The Supreme Court’s Judgment in the Reliance Dispute – Part II
A previous post outlined the issues that arose in the Reliance judgment and summarised the Court’s conclusions. In this post, I discuss two of these in more detail – the doctrine of identification, and the binding nature of an MoU under the Companies Act, 1956. As to the first issue, it was argued by RNRL that the MoU signed by the Ambani brothers was binding on their respective companies, by...
The Supreme Court’s Judgment in the Reliance Dispute – Part I
The Supreme Court’s judgment today in Reliance Natural Resources Ltd. [“RNRL”] v. Reliance Industries Ltd. [“RIL”] turns on several important propositions of corporate and contract law. It has been widely reported that RIL prevailed by a majority of 2:1. This is incorrect, for Justice Sudershan Reddy’s separate opinion concurred with the majority on all but one issue, on which he decided in...
The Meaning of a “Debt”
We have discussed the role of the Debt Recovery Tribunal on this blog, and noted the Supreme Court’s decision in Nahar holding that an “independent suit” filed by a borrower is maintainable in civil court, despite the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (“RDB Act”). This Monday (May 3), the Supreme Court considered another crucial issue in this...
Characterising a Joint Venture
A joint venture, perhaps one of the most widely used vehicles of commerce, is principally of two types – an incorporated joint venture [“IJV”] and an unincorporated joint venture [“UJV”]. The shares of the IJV are held by the members of the joint venture, in proportions that typically reflect their respective contributions to the enterprise. As a matter of law, therefore, an IJV is treated as any...
More Controversy over Forex Derivatives
Over the past two years, forex derivatives have generated substantial legal controversy in India, perhaps because of the relatively recent rise in the use of these instruments in India. We have discussed the challenge to the legality of derivatives as wagering agreements, their regulation, taxability and other related issues. The latest addition to this chapter of uncertainty is a report that the...
NLSIR Corporate Law and Corporate Governance Symposium: April 10 and 11, 2010
The NLSIR Symposium, scheduled for 10 and 11 April at the NLS campus in Bangalore, will feature several important topics that we have discussed on the blog, including corporate governance, independent directors, tax planning, tax avoidance and adjudication of company disputes. The schedule for the symposium is indicated below. Readers interested in attending may contact us by email as soon as...
A Rather Elusive Form of the Statutory Corporation
Any discussion of the difference between a company and a statutory corporation seems, at first sight, unnecessary. It is, after all, settled law that a statutory corporation is an entity created by a statute, while a company is an entity that is governed by the provisions of a statute. This distinction, however, has become sharply controversial in recent times, and was considered by the Supreme...
The Court of Appeal Reaffirms the Sanctity of the Corporate Form
Few issues have proved to be more controversial than the strength of the principle that the company is a separate legal entity. The exceptions to the principle – commonly referred to as “lifting” or “piercing” the corporate veil – are both statutory and judge-made. The statutory exceptions are, in the main, not controversial. However, while there is agreement that courts are entitled to lift the...
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