Expiry of Limitation Period Does not Extinguish Usufructuary Mortgagor's Right to Recover Possession

A three-judge bench of the Supreme Court of India (“Supreme Court”) has recently, in Singh Ram (D) Thr. L.Rs. v. Sheo Ram &Ors., held that for the purpose of Article 61 of the Limitation Act, 1963 (“Limitation Act”), limitation period for ‘usufructuary mortgagor’ to recover mortgaged property starts when mortgage money is paid out of rents and profits or partly out of rents and profits and partly by payment or deposit by mortgagor.

The controversy in the present appeal (clubbed in several other appeals) involved a suit property, mortgaged by the predecessor of the Respondents to the predecessor of the Appellants in 1903. As the property was not redeemed even after a period of ‘60 years’, the Appellant-Plaintiffs filed a suit for a declaration that the Respondent-Defendants had lost rights over the property; as a consequence, the former had become ‘owners by prescription’. In other words, it was the contention that the mortgagor, as a result of the expiration of limitation period, i.e., 60 years, had lost their right to seek redemption of the property. [Under the Old Limitation Act, 1908, limitation period under Article 148 (Schedule I; right to redeem mortgaged property) was 60 years; however, under the Limitation Act (1963), it has been reduced down to 30 years under Article 61 of the Schedule]

The trial court did not accept the content(s) of the Appellants and held that in cases of ‘usufructuary mortgage’, limitation starts from the date when mortgagee demands the money and mortgagor refuses the same. The decision of the trial court was affirmed by the first appellate court and the High Court (second appellate court). While affirming the decision, the High Court made the following observations:

(i)                Mortgage  is essentially and basically a conveyance in law or an assignment  of  chattels  as  a  security  for  the payment  of  debt  or  for  discharge  of  some  other obligations for which it is given.

(ii)             The mortgagee remains in possession  of  the  mortgaged  property;  enjoys  the usufruct thereof and, therefore, not to lose anything by  returning  the  security  on  receipt  of  mortgage debt.

(iii)           § 62 of  the Transfer of Property Act, 1882 ("Property Act")  is  a  special  provision  dealing  only  with the  rights  of  usufructuary  mortgagor.

(iv)            Right of foreclosure  will  not  accrue  to  the  mortgagee  till such time the mortgagee remains in possession of the  mortgaged  security  and  is  appropriating usufruct of the mortgaged land towards the interest on  the  mortgaged  debt.

(v)              The mortgage cannot be extinguished by any unilateral act of the mortgagee.

Gift of Property under Muslim Law cannot be Conditional but Absolute

In a recent decision [V. Sreeramachandra Avadhani (D) by L.Rs. v. Shaik Abdul Rahim & Anr], the Supreme Court of India (“Supreme Court”) has had the occasion to deal with an intricate question under Muslim Succession Law – whether there can be a conditional gift of a (immovable) property? In 1952, Sheikh Hussein gifted a ‘titled house’ (through an executed gift deed) to his wife, Banu Bibi. It was stipulated in the deed that Banu Bibi would enjoy the property during her lifetime and would not alienate it. However, the property could devolve in favour of her off spring after her death, and in case she does not have any children, the property would be returned back to Hussein or his near successors. Notwithstanding the conditions under the deed, Banu Bibi sold the house in 1978 to V. Sreeramachandra Avadhani (Appellant – represented by his Legal Representatives). Consequently after Banu Bibi’s death, the Respondents (Shaik Abdul Rahim and Abdul Gaffor) staked claim over impugned house on the ground that, (i) Babu Bibi only had a ‘life interest’ in the property and could not have alienated it, and (ii) being legal representatives of Sheikh Hussein, right and title over the property came to be vested on them.

Principal Senior Civil Judge dismissed Respondents’ claim for the reason that since the gift deed was not in nature of usufruct, the gifted property came to be ‘irrevocably’ vested on Babu Bibi. As such, the conditions in the gift deed, limiting her rights, were void [Relied on: Nawazish  Ali Khan  v. Ali  Raza Khan, AIR 1948  PC 34]. Against this order, the Respondent filed first appeal. While reversing the order of Senior Civil Judge, the First Appellate Court relied on the ‘text’ of the gift deed that had limited the rights of Banu Bibi and had provided that the property would be returned back to Hussein or his near successors. Dissatisfied with the judgement of First Appellate Court, the Appellant filed an appeal before the High Court of Judicature of Andhra Pradesh (“High Court”). Appellant did not get any relief and the High Court, again relying on the text of the gift deed, affirmed the First Appellate Court’s order.

SEBI Notifies modifications to Master Circular on Anti-Money Laundering/Combating the Financing of Terrorism

On Wednesday, 12^th March, 2014, Securities and Exchange Board of India (“SEBI”) has notified a circular through which the Master Circular on Anti Money Laundering (AML) Standards/ Combating the Financing of Terrorism (CFT), issued on December 31, 2010 (“Master Circular”), has been modified. The circular, issued in view of the amendments to the Prevention of Money-laundering Act, 2002 (“PML Act”) and related rules, has modified the obligations of intermediaries with respect to risk assessment, recording keeping requirement etc. Following points provide a brief overview of the modifications, as stipulated under the circular:

1.Risk Assessment: In clause 5 (Client Due Diligence), Part II (Detailed Directives), of the Master Circular, a new sub-clause (5.3.2.) has been inserted which requires the registered intermediaries to carry out risk assessment for mitigating its money laundering and terrorist financing risk w.r.t. its clients, countries or geographical area etc. The risk assessment, carried out by the concerned intermediary, shall be updated regularly.

2.Reliance on Third Party for carrying out Client Due Diligence (“CDD”): Again in clause 5, Part II, of the Master Circular, a new sub-clause (5.6) has been inserted to allow registered intermediaries to rely on third party for identification and verification of the client, including the determination as to whether client is acting on behalf of a beneficial owner. Such third party should be regulated and supervised; however, the ultimate responsibility for CDD and due diligence will be that of the registered intermediary.

3. Record Keeping Requirements: Instead of maintaining and preserving transaction records for ‘ten years’ from the date of cessation of the transactions with clients, intermediaries will now have to maintain transaction records, including that of unusual and complex transactions, for a period of ‘five years'. Intermediaries will also have to maintain and preserve records evidencing the identity of clients and the beneficial owners (apart from maintain records of concerned account files and business correspondence). They will have to maintain and preserve records of documents such as passports, driving licenses etc.).

Principle of ‘International Exhaustion’ and Marlboro Cigarette’s Trademark Violation

On Monday, a single-judge bench of the High Court of Delhi (“High Court”), in two similar suits, had granted an ex-parte injunctions in favour of the Plaintiffs, proprietor of trademark ‘MARLBORO’ and ‘ROOF DEVICE’ (“suit trademarks”). While one dispute was related to sale of infringing cigarette products in Mumbai, other dispute was related to its sale in Kolkata. In both the actions, the High Court restrained the defendants from selling counterfeit and grey versions of the cigarette. In Philip Morris Products S.A. & Anr. v. Sameer & Ors ("first suit") and Philip Morris Products S.A. & Anr. v. Anil Kumar Singh & Ors ("second suit") [both dated 10/03/2014], the High Court had awarded damages of Rs. 10,000 against some of the defendants and Rs. 5,000 against other. In reaching its judgment, the High Court also discussed the principle of ‘international exhaustion’ with respect to section 30(3)(b) of The Trade Marks Act, 1999 (“TM Act”).Through both the suits, Plaintiffs had sought to restrain the defendants from using suit trademarks and had sought Rs. 20,00,000/- as damages (apart from punitive damages). The suit(s) were originally filed by Philips Morris Products S.A., the original proprietor of suit trademarks. Later, suit trademarks were assigned in favour of Philip Morris Brands Sarl – by virtue of this, the latter become the substituted Plaintiff No.1.

(Image Source: cgtrader.com)

Factual Background: Sometime in May 2010, it came to the knowledge of the Plaintiffs that some retailers in Mumbai and Kolkata were selling, stocking & distributing the counterfeit as well as grey market versions of Plaintiff’s products (cigarettes). While grey market version products were not meant for sale in India, counterfeit products were duplication of Plaintiff’s products. That is, grey market version is imported through another country, either legally or illegally (e.g., smuggling). On becoming aware of these activities and finding the cigarette products to be infringing, Plaintiffs filed two suits before the High Court. The defendants, in both the proceedings, preferred not to appear or file written statement. As a result, the High Court, apart from considering Plaintiff’s evidence ex-parte, also allowed their application for passing an ex parte decree.

In both the suits, the High Court had appointed two commissioners to inspect the premises of the defendants. With respect to second suit, concerned commissioner found substantial amount of infringing products in the premises of defendant no. 7. (9660 cigarettes); certain amount of infringing product was also found in the premises of defendant no.5. However, in the premises of some of the other defendants (defendants no. 1,2&4 in first suit and defendants no. 1,3,5 & 6), not much infringing product(s) were found. In the premises of the remaining defendants, nothing incriminating was found. Among all the defendants, only defendant no.7 maintained books of accounts, ledger etc.

Statutory Bar Precludes the Applicability of Arbitration and Conciliation Act, 1996

Under section 8 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), the concerned judicial authority is obliged to refer the parties to arbitration, if the action brought before it is also the subject matter of an arbitration agreement.  Recently, Supreme Court of India (“Supreme Court”), while delivering the judgment in Ranjit Kumar Bose & Anr v. Anannya Chowdhury & Anr, has held that a statutory bar (in other legislation) would preclude the applicability of Arbitration Act. That is, if a legislation prohibits reference of a matter to arbitration, the Arbitration Act will not be applicable [see: sec. 2(3), Arbitration Act]. 

Facts: Through an unregistered tenancy agreement [“Tenancy Agreement”], the Appellants (Rajnit Kumar Bose & Anr.) had inducted the Respondents (Anannya Chowdhury & Anr) as tenants with respect to a shop room. Later, the Appellants terminated the Tenancy Agreement and sought the vacation of the shop premises. The Respondents did not vacate the premises; as a consequence, the Appellants filed a Title Suit against the Respondents (in a Civil Court) for eviction, arrears of rent etc. As there existed an arbitration clause in the tenancy agreement, the Respondents filed an application under section 8 of the Arbitration Act for referring the matter to arbitration. The Civil Judge dismissed the Respondent’s application; however, on filing an application against Civil Judge’s order, the High Court held in favour of the Respondents. The High Court further held that issue of arbitrability, if any, will be decided by the arbitral tribunal.

In reaching its conclusion, the High Court had relied on the decision(s) of the Supreme Court in, (i) Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums [(2003) 6 SCC 503]; (ii) Agri Gold Exims Ltd. v. Sri Lakshmi Knits & Wovens & Ors.[(2007) 3 SCC 686];  and (iii) Branch Manager, Magma Leasing & Finance Limited & Anr. v. Potluri Madhavilata & Anr. [(2009) 10 SCC 103]

Relevant Legislations: the West Bengal Premises Tenancy Act, 1997; Arbitration and Conciliation Act, 1996

‘One Person Company’ and ‘Small Company’ under Companies Act, 2013

The Companies Act, 2013 (“Act”), which received the assent of the President of India last year, has introduced two important concepts in (Indian) Company Law Jurisprudence – Small Company and One Person Company (“OPC”). As can be understood from the reply of Sachin Pilot, Minister of State (I/C) Corporate Affairs, to Starred Question no. 507 (2^nd May, 2013, Lok Sabha) and Unstarred Question no. 90 (5^th Dec., 2013, Lok Sabha), the concept of ‘small company’, along with ‘one person company’, have been introduced to allow new entrepreneurs to take advantage of corporate form of business. In the Companies Act, 1956 (“1956 Act”), there were no such concept(s) and those, intending to incorporate a business entity under the 1956 Act, had the option to incorporate companies in other forms.

Both Small Company and OPC are special form of private companies. While existence of the former company is determined in accordance with the value of share capital or turnover, existence of the latter company is determined in accordance with the number of members. There can also be a possibility where both the forms of companies may overlap. For instance, consider a situation where an OPC also satisfies the definition of a Small Company. These companies are different from other companies because of the simplified procedure available for them, both in terms of administration and responsibilities.

The 21^st Report [Companies Bill, 2009 (“2009 Bill”)] of the Standing Committee on Finance noticed that the 2009 Bill contained scattered provisions for providing exemptions to OPC and Small Companies [see: clause 421, 2009 Bill – it was later removed]. While Ministry of Corporate Affairs (“MCA”) was of the opinion that further exemptions, if any, could be provided vide notifications, the Standing Committee opined that such exemptions should be provided in the bill itself. In fact, Standing Committee recommended that such exemptions should be provided by way of a schedule or be appended to the main Act. Once again in its 57^th Report [Companies Bill, 2011 (“2011 Bill”), the Standing Committee reiterated that exemptions available to different classes of companies should be clearly specified.

Consultation Paper on ADR in Civil Aviation Sector Issued - Comments to reach by 15th April

Recently, Ministry of Civil Aviation (Government of India) has issued a Consultation Paper on “Ombudsman for Civil Aviation”. The paper has been issued to explore the possibility of creating  an  alternative  dispute  settlement mechanism for Aviation sector in India. If established, the same would serve as an effective grievance redressal for passengers and other stakeholders.

The paper has been divided into six chapters with last chapter enlisting the Issues for Discussions. The issues, as enumerated in Chapter 6, are as follows:

(i)   Whether there is sufficient legal basis for the Central govt.  to  take  measures  for  protecting  the  interests  of  consumers  including  creating  alternative  dispute  settlement  machinery  like  Ombudsman  without  resorting  to amendment of the Aircraft Act, 1934?

(ii) Whether inclusion of disputes between users of airports like cargo agents  and  the  airport  operator/  custodian/  ground  handling  agent/carrier  etc  under  the domain of Ombudsman will be consistent with the provisions of AERA Act?

A New Regime "Contracts of Adhesion": Unconscionability of Bargain?

(The author of this post is Paridhi Poddar, a 1st year student of the West Bengal National University of Juridical Sciences, Kolkata. She can be contacted at paridhipari04@gmail.com)

Introduction: Adhesion Contracts

Contracts of adhesion, simply put, are contracts containing a set of standard terms and conditions presented on a take-or-leave basis thereby eliminating the scope and need for negotiations between the contracting parties. In the day-to-day sense, one comes across such contracts during the purchase of insurance policies, license agreements, online software etc. Adhesion contracts incorporate terms which are derived from common business experience and do not allow for any customisation as per the needs of the other party. Sometimes, such contracts are formed through shrink wrap or click wrap agreements.[1] As a result, such contracts are sometimes also termed as “boilerplate contracts” or “private legislation.”[2] In its 103^rd report of 1984, the Law Commission of India has even gone to the extent of calling these as “pretended contracts.” This is true because such contracts become problematic to the basic tenets of contract law when they evince unconscionable manipulation of the bargaining powers of the contracting parties. On the other hand, since adhesion contracts evolve through business usage and practice, they import efficacy in commercial bargains by reducing costs in transactions to a large extent. Even after having some of these advantages, the probable presence of unconscionability in adhesive contracts has urged the judges to critically think about the notions of freedom of contract and “pact sunt servanda”. This article would introduce you to the position of Indian law on the enforceability and the binding nature of such contracts.

Unconscionability of bargain: The test

A contract comes into existence on the grounds of consensus-ad-idem when the consumer “accepts” or “agrees” to the terms. Hence, when firms in the market intend to do business on the basis of standard contracts, the presumption of the court is that there is nothing unconscionable about such a transaction per se.[3] Thus, the courts have never held that all forms of standard contracts would be struck down as unenforceable. For instance, in Ferro Alloys Corpn. Ltd. v. A.P. State Electricity Board,[4] where the terms of the contract provided that no interest would be provided on the security deposit made by the consumers with the board, the court held that such a term was not arbitrary but reasonable on the grounds of statutory validation. As a result, since such a term did not shock the conscience of the Court, it was not declared to be void.

Companies (Corporate Social Responsibility Policy) Rules, 2014: An Overview

In exercise of the powers conferred under section 135 and section 469 [sub-sections (1) and (2)] of the Companies Act, 2013 (“Act”), the Central Government, on February 27^th (2014), has notified Companies (Corporate Social Responsibility Policy) Rules, 2014 (“CSR Rules”). The Rules, which provides for the implementation for Corporate Social Responsibility ("CSR") obligations,  will come into force on 1^st April, 2014.

Section 135 of the Act mandates a company, falling under the provided criteria, to constitute a CSR Committee. The function of the CSR Committee is to formulate and recommend CSR Policy.The provision also provides that the CSR committee should consist of two or more director, out of which one shall be an ‘independent director’. So far as section 469 of the Act is concerned, it empowers the Central Government to make rules for carrying out the provisions of the Act.

The CSR Rules, as notified by the Ministry of Corporate Affairs (“MCA”), consist of 9 rules. Among the important ones, it contains the descriptive rules for CSR Activities, CSR Committees, CSR Policy, CSR Reporting etc. In this blog post, I intend to explain and summarise the CSR Rules in brief.

Important Definitions:

1.   Definition of ‘Corporate Social Responsibility’: One of the most important features of the CSR Rules is that it defines the term ‘Corporate Social Responsibility’; according to Rule 2(c), CSR means and includes but is not limited to:

(i)           Projects or programs relating to activities specified in Schedule VII to the Act; or

(ii)         Projects or programs relating to activities undertaken by the board of directors of a company (Board) in pursuance of recommendations of the CSR Committee of the Board as per declared CSR Policy of the company subject to the condition that such policy will cover subjects enumerated in Schedule VII of the Act

From both the above clauses, it becomes apparent that a company has to focus on the subjects specified under Schedule VII of the Act. Schedule VII of the Act contains a list of activities which a company may purse for discharging its CSR obligations. Among other things, the list contains subjects such as ‘promotion of education’, ‘eradicating extreme hunger and poverty’, ‘social business projects’ etc.