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...
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...
Incorporation of an Arbitration Clause by Reference
One of the most controversial and interesting questions in contemporary arbitration law is incorporation by reference. It is a common practice in some industries, particularly shipping and construction, for the contractual relationship between the parties to be composed of several documents. It sometimes happens that a dispute arises with reference to one of these documents, while the arbitration...
Derivatives and Underlying Assets
In a very interesting article published in the Journal of Business Law in 2007, Professors Green and Saidov had this to say of software: “…its unique characteristics mean that it is not truly analogous to any conventional chattel with which the law is familiar… despite the fact that it is one of the most ubiquitous commodities of our commercial age, it has no readily discernible legal identity.”...
Fraud and Bank Guarantees
Often, it so happens in the commercial world that a contract between two parties requires one to provide a performance guarantee to the other. Accordingly, the party provides a bank guarantee; but the guarantee itself is expressed to be “unconditional” and “irrevocable”. The understanding of the parties is that the guarantee will be utilized and encashed if and only if a breach is committed. Some...
Contracts of Sale, Works Contracts, and TDS
Tax deducted at source (TDS) has proved to be a controversial area of law for quite some time now. One issue that has most recently come to light is likely to have enormous commercial significance – under what circumstances is a company obliged to treat an ordinary transaction as a “works contract” and not a “sale of goods” with the consequent liability to deduct TDS? The governing provision is s...
Demystifying concepts and terms used in agreements
My colleague, Daksh Trivedi has recently written an interesting article in The Mint, where he has discussed the various legal concepts/ terms used in shareholders and share purchase agreements. He begins with: Typical documents used for capturing terms of equity investments, that is, share-purchase agreements or shareholders’ agreements, are now complex and ridden with industry terminology such...
The AIG Bonus Payments Controversy: Issues of Contract Law
There has been a significant outrage since the controversy over bonus payments to some AIG employees began about a week ago. One of the justifications of the AIG management for pressing on with the payments is that the company is legally obligated to pay their employees failing which it could be liable to suits for breach of contract. Although the controversy has taken a different shape owing to...
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