E-Mail and informal contracts are valid – SC held in “Trimex International FZE Limited, Dubai vs. Vedanta Aluminium Limited, India

E-Mail and informal contracts are valid – SC held in “Trimex

 International FZE Limited, Dubai vs. Vedanta Aluminium Limited, India

The Indian Contract Act, 1872: ss.4, 7 – Concluded contract containing arbitration clause - Valid

The  Hon’ble Supreme Court (SC) in a recent judgment in the case of “Trimex International FZE Limited, Dubai vs. Vedanta Aluminium Limited, India” in Re (2010) 3 SCC 1”. It was held that in the absence of signed agreement between the parties, it would be possible to infer from   various documents duly approved and signed by the parties in the form of exchange of emails, letter, telex, telegram and other means of communication. The Hon’ble Supreme Court has accepted the unconditional acceptance through emails and held the same to be a valid contract which satisfies the requirements of Section 4 and 7 of the Contract Act 1872 and further it satisfies Section 2(1)(b), 7 of the Arbitration and Conciliation Act 1996.  In the absence of a signed agreement inference can be from documents approved and signed by the parties in the form of exchange emails, letters, telegrams which come within Section 10 and 2(e) of the Contract Act 1972.

As per Section 4: The communication of a proposal is complete when it becomes to the knowledge of the person to whom it is made.

As per Section 7: In order to convert a proposal into a promise the acceptance must - be absolute and unqualified; and be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted.

If respondent accepts the offer of petitioner following a very strict time schedule, he cannot escape from the obligations that flowed from such an action -

• Arbitration clause can be inferred from various documents duly approved and signed by the parties in the form of exchange of e-mails, letter, telex, telegrams and other means of tele-communication even in the absence of signed agreement -
• If no inference can be drawn from the facts that the parties intended to be bound only when a formal agreement had been executed, the validity of the agreement would not be affected by its lack of formality -
• On facts, the Commercial Offer carried no clause making the conclusion of the contract incumbent upon the Purchase Order -Therefore, the moment commercial offer was accepted by the respondent, the contract came into existence - Since the contract contained arbitration clause, petitioner made out case for appointment of arbitrator - Arbitration.

Petitioner's case was that on 15.10.2007, it submitted a commercial offer through e-mail for supply of Bauxite to the respondent. After exchange of several e-mails, respondent conveyed acceptance of offer through e-mail on 16.10.2007 confirming the supply of 5 shipments of Bauxite. Dispute arose and petitioner served arbitration notice on the respondent. Respondent rejected the arbitration notice stating that there was no concluded contract between them. Petitioner filed arbitration petition for appointment of arbitrator.

PUNITIVE DAMAGES FOR USING DECEPTIVE AND PHONETICAL SIMILAR TRADE MARK

Through a landmark judgement , the Delhi High Court held in a trade mark infringement verdict  that will help to hamper companies from employing deceptively and phonetically  analogues trade mark, the Delhi HC recently granted damages to the tune of Rs.1 lakh as punitive damages to a subsidiary of Pfizer.

For the first time in trade mark litigation history that punitive damages have been granted by the Court against Omax Healthcare though no actual damages have been corroborated or established.

The Delhi High court also granted an injunction restraining Omax Healthcare from manufacturing, marketing and distributing cough syrup under the mark 'Orex' or any mark deceptively similar to that of the Pfizer's Corex.


Subsidiary of Omex had initiated a legal suit for injunction, production of accounts and damages against the Omax Healthcare for branding and marketing their cough syrup under the mark 'Orex' being deceptively and  phonetically analogues to their registered mark being, 'Corex'.

As per trade mark law, any one employing  a mark, either deceptively,visually, phonetically and  analogues to that of a registered trademark thereby generating chaos in the minds of the customers, would end in damages for passing off and infringement. 


Deceitful usage of misleading mark tantamounts to fake misrepresentation to the general public. No one  is permitted to employ trade marks of opponents with an aim of arrogating their goodwill and standing in the market. Either enrichment upon the brand value created by others or colorable usage of marks is not allowable under the Act.

In spite of legal requirements, cough syrup being one of the most frequently sold syrups and is commonly available without prescription in the market. 

People staying in villages and possessing average intelligence might not be vigilant enough to ensure small details and products sold with phonetic and visual resemblance may cause perplexity among customers. Such defective usage could adversely affect the reputation of the registered trademark owner as quality of all cough syrups is not similar.

On the basis of the trademark jurisprudence in India and on the above said reasoning and, the Delhi HC granted injunction against the manufacture, sale and distribution of cough syrup of the defendants under the name of 'Orex' or any other name/mark which is deceptively and phonetically analogous to the registered mark 'Corex'.

Industry Sources observed that, "This move would generate preclusion in the minds of users resorting to infringing or fraudulent usage registered marks of well-known manufacturers and averting puzzlement in the minds of customers."

Is LOI ( Letter of Intent ) IS A CONTRACT?

Is LOI ( Letter of Intent ) IS A CONTRACT?

In Dresser Rand S.A. v. M/s. Bindal Agro Chemical Ltd. & Another, 2006 Vol. I Supreme Court Cases (SCC) page 751 at page 773 at paras 39 and 40, a two-Judge Bench of the Supreme Court of India emphasized that whether letters of intent rise to the level of being a contract hinges on the terms of the letter itself. It observed as under:- "It is now well settled that a letter of intent merely indicates a party’s intention to enter into a contract with the other party in future. 

A letter of intent is not intended to bind either party ultimately to enter into any contract. This Court while considering the nature of a letter of intent observed thus in Rajasthan Coop. Dairy Federation Ltd. v. Maha Laxmi Mingrate Marketing Service (Plaintiff) Ltd. [1996 (10) SCC p.408, Para 7]

“The letter of intent merely expressed an intention to enter into a contract …. There was no binding legal relationship between the appellant and Respondent 1 at this stage and the appellant was entitled to look at the totality of circumstances in deciding whether to enter into a binding contract with Respondent 1 or not.”

It is no doubt true that a Letter of Intent may be construed as a letter of acceptance if such intention is evident from its terms. It is not uncommon in contracts involving detailed procedure, in order to save time, to issue a letter of intent communicating the acceptance of the offer and asking the contractor to start the work with a stipulation that the detailed contract would be drawn up later. If such a letter is issued to the contractor, though it may be termed as a Letter of Intent, it may amount to acceptance of the offer resulting in a concluded contract between the parties. But the question whether the letter of intent is merely an expression of intention to place an order in future or whether is a final acceptance of the offer thereby leading to a contract, is a matter that has to be decided with reference to the terms of the letter. Chitty on Contracts (Para 2.115 in Vol.1, 28th Edn.) observes that where parties to a transaction exchanged letters of intent, the terms of such letters may, of course, negative contractual intention; but, on the other hand, where the language does not negative contractual intention, it is open to the courts to hold that the parties are bound by the document; and the courts will, in particular, be inclined to do so where the parties have acted on the document for a long period of time or have expended considerable sums of money in reliance on it.”

The said proposition has been quoted with approval in the latest judgment of Supreme Court of India in “Great Offshore Ltd. Vs. Iranian Offshore Engineering & Construction Company” decided on 25.08.2008.

CAN A BANK OR CREDITOR INITIATE LEGAL ACTION AGAINST GUARANTOR INSTEAD OF INITIATING PRINCIPAL DEBTOR?

The liability of the guarantor and principle debtors are co-extensive and not in alternative. 

The Supreme Court in United Bank of India Vs Satyawati Tondon and others {(2010) 8 SCC 110; Decided on 26.07.2010} observed and held that the legal position that the liability of the surety/guarantor is co-extensive with the principal debtor, unless it is otherwise provided by the contract and that a creditor is not bound to, exhaust his remedy against the principal debtor before suing the surety/guarantor.

In Bank of Bihar Ltd. v. Damodar Prasad (1969) 1 SCR 620, SUPREME COURT CONSIDERED AND ANSWERED IN AFFIRMATIVE the question whether the bank is entitled to recover its dues from the surety and observed:

"It is the duty of the surety to pay the decretal amount. On such payment he will be subrogated to the rights of the creditor under Section 140 of the Indian Contract Act, and he may then recover the amount from the principal. 

In State Bank of India v. M/s. Indexport Registered and others (1992) 3 SCC 159, SUPREME COURT HELD THAT THE DECREE-HOLDER BANK CAN EXECUTE THE DECREE AGAINST THE GUARANTOR WITHOUT PROCEEDING AGAINST THE PRINCIPAL BORROWER.

In Industrial Investment Bank of India Limited v. Biswanath Jhunjhunwala (2009) 9 SCC 478, this Court again held that the liability of the guarantor and principal debtor is co-extensive and not in alternative.

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Can the payment of loan, advances etc to shareholders or to entities in which members are substantially interested be treated as "Deemed Dividend " under Section 2(22) of Income Tax Act

section 2(22)(e) dealing with the payments or distributions by the company to its shareholders deemed to divided to the extent of accumulated profits of the company. 

Whereas it can be applied to ‘Loans’ or ‘Advances’ but not to the transactions amount to Loan and Advances carried out in course of business as such. In the course of carrying on business transaction between a company and a stockholder, the company may be required to give advance in mutual interest. There is no legal bar in having such transaction. 

What is to be ascertained is what is the purpose of such advance. If the amount is given as advance simplicitor or as such per se without any further obligation behind receiving such advances, may be treated is ‘deemed dividend’, but if it is otherwise, the amount given cannot be branded as ‘advances’ . Within the meaning of deemed dividend under section 2(22)(e). 

The athe decision of HIGH COURT OF DELHI, In The case of: CIT v. Creative Dyeing & Printing Pvt. Ltd., Appeal No.: ITA No. 250/2009, Decided on: September 22, 2009 is corroborating the above.

Just as per clause (ii) of section 2(22)(e), dividend is not to include advance or loan made by a company in the ordinary course of business where the lending of money is a substantial part of the business of the company advance in the ordinary course of carrying on business cannot be considered as dividend within the meaning of section 2(22)(e).

By granting advance if the business purpose of the company is served and which is not the sum, which it otherwise would have distributed as dividend, cannot be brought within the deeming provision of treating such ‘Advance’ as deemed dividend ”

METTUR BEARDSELL LTD , Madras vs. REGIONAL LABOUR COMMISIONOR (CENTRAL)-ELIGIBILITY FOR GRATUITY

In this case , the Madras High Court decided about the eligibility of employees who completed 4 year ,10 months and 18 days service  for gratuity eligibility under section 2 (a), 2 (b), 2(c),2(e), and 2 A under the Payment of Gratuity Act ,1972.

Section 4 of the Payment of Gratuity Act, 1972 provides that an employee will entitled to gratuity on completion of continuous service of 5 years and while clarifying the 5 years complete service, Andhra Pradesh Hight Court in P. Raghuvulu and Sons v. Additional Labour Court , [1985] , had held that the minimum period for becoming eligible for payment of gratuity should not be less than 5 years since it should be complete 5 year service.

 It was further clarified that the words or part in excess of six months' are only meant for the purposes of computation of gratuity for the subsequent year or years to first complete 5 years. It was also held that if an employee has worked for 4 years 11 months and 10 days, he will not be eligible for gratuity for want of completion of 5 years. 

Further in a subsequent case, MADRAS HIGH COURT while relying upon the clarification by the SUPREME COURT pertaining to 240 working days in one year will be deemed to be continuous service of one year meaning thereby that there should not be complete 12 calendar months' service. MADRAS HIGH COURT has further held that an employee, who has put in service of 4 Years 10 Months and 18 Days in the 5 years, will be entitled to gratuity.

The gratuity act says continued services . In this case , there is continuity in service.

Further , as per SC , a year means 240 working days.

Since the employee who has completed 4 years 10 months and 18 days is eligible for gratuity as he has put in service of 5 years continuously as per SC explanation.

To ,  gratuity act is a social welfare act and one should have liberal interpretation offering benefits to employees who had put more than 4 years and but less than in 5 years but falls within 240 days in the 5th year.

SC applied liberal interpretation of the Act and had given benefits to the employee.

Hence , an employee who has completed 4 years 10 months and 18 days continuously without any break is eligible for Gratuity under the Act.

GRATUITY FOR CASUAL OR TEMPORARY WORKERS - INDIAN RARE EARTHS LTD , MADURAI HIGH COURT

Please go through the following Madurai Bench of Madras High Court , where it has held recently that for the purpose of gratuity , even the period of casual or temporary work period will be calculated for the eligibility of gratuity and for the payment of gratuity to eligible workers. Workers who were employed as casual and then after wards retrenched then taken back and became permanent employment , then gratuity should be calculated even for such casual or temporary phases of employment. This is another example where Courts had liberal interpretation in social welfare laws.

The facts of the case is given below:

Once workmen became eligible for gratuity, then, the entire length of their service must be counted, including different spells under which they were employed by the same employer. Otherwise, it would defeat the very purpose of the Payment of Gratuity Act, 1972, the Madurai Bench of Madras High Court has held.

In its order, the Court, while dismissing the writ petitions filed by Indian Rare Earths Ltd, Manavalakurichi, Kanyakumari District, a Government of India undertaking, challenging, inter alia, the common order dated September 23, 2005 of the Regional Labour Commissioner/Authority under the Payment of Gratuity Act, Chennai-600 006 in granting gratuity to workmen for the period when they (respondents) were employed on casual or temporary basis before their spell of employment as permanent workers, ruled that the entire length of service must be counted. Otherwise, it would defeat the very purpose of the enactment.

The issue

According to the petitioner, in early 1960s, when the unit was constructing the plant, the workers were employed for construction. They were later retrenched for want of work. Then, when mining operations got expanded, some workers, who were retrenched earlier, were taken back on casual or temporary rolls and subsequently made permanent. .At the time of superannuation (which were on different dates), the workers were paid terminal benefits, including gratuity. Long after their settlement of gratuity by management, the workers staked their claim for further gratuity for their first spell of employment. They moved the Controlling Authority (Assistant Labour Commissioner, Central). When the Authority held in workers' favour, the Company had come forward with the writ petitions.

Master-servant ties

The petitioner contended that the service rendered by the workers during the first spell of employment ended due to retrenchment. Their subsequent re-employment, on direct recruitment, could not be tagged on because during the interregnum period, there was no master-servant relationship that existed.

Mr Justice K. Chandru, who heard the petitions, said that if the contention of the petitioners was accepted, then it was easy for the employer to employ them in different spells and deny gratuity to them in spite of the fact that they might have put in sufficient length of service. The term ‘continuous service' under Section 25B of the Industrial Disputes Act was more or less similar to the definition under Section 2-A of the Gratuity Act. Hence, the objection of the petitioner on the findings of the Appellate Authority and Controlling Authority had to be rejected. Also, the question of delay would not arise in moving the authority.

The Judge also ruled that 3 other writ petitions of workers, M. Vairamuthu, V. Ponnaiah and N. Harikrishnan, could not be rejected as similarly placed persons were getting benefits.

Criminal Prosecution can be Initiated for wrong disclosure in Balance Sheet

SANJAY SURI V. STATE [2010] 157 COMP CAS 10 (DEL) V.K.Jain, J [Decided on 29-1-2010]
Sections 209(6) and 217(1) of the Companies Act, 1956 read with sections 468, 469(1)(b) and 482 of the Cr.P.C – 

Failure by company to give proper disclosure in balance-sheet regarding collateral security and activities relating to export.


Prosecution initiated by ROC –
 1. There was a contravention of section 212 (1) as the company had acquired in excess of 90% of shareholding .


2.No proper disclosure was made in the balance sheet regarding the collateral security thereby its bank account was attached due to a court order and no contingent liability was disclosed towards this.


3.Its director report failed to disclose activities relating to exports , action initiated to enhance the exports , expansion of new export markets .

The defendants argued that the complaint was barred by limitation.  The ROC cannot be regarded as " person of aggrieved " under section 469 (1) (b) of the Criminal Procedure , 1973.


Trial Court took cognizance of the offence-summons issued against the directors – Whether criminal proceedings can be quashed-  It was held by the Court as No as the petitioners were the persons obliged to make sure compliance of the appropriate provisions of the Act and the officers in default at the appropriate time.