June 22, 2012



Assignment of Liability


Yes, through novation. Novation transfers the rights, benefits and obligations of the original contract to the new party. In Wharton’s Law Lexicon[1], the meaning of the term ‘Novation’ is stated as “the substitution, with the creditor’s consent, of a new debtor for an old one.” With Assignment only the rights and benefits transfer, the burden (obligations) remains with the original party, and the original party remains liable.  As compared with assignment, a novation provides a clean break between the original party and a new party.


The reason for a novation occurs when the terms of a contract are still current and the parties want the contractual obligations to continue, but one party, the Transferor, wants to be released from it and allow a third party to take its place, and the other party to the original contract agrees.


Section 62 of The Indian Contract Act, 1872 sets out the general parameters for novation. Effect of novation, rescission and alteration of contract – If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.


Illustration (a) A owes money to B under a contract. It is agreed between A, B and C that B shall thenceforth accept C as his debtor, instead of A. The old debt of A to B is at an end, and a new debt from C to B has been contracted.
(b) A owes B 10,000 rupees. A enters into an agreement with B, and gives B a mortgage of his (A’s), estate for 5,000 rupees in place of the debt of 10,000 rupees. This is a new contract and extinguishes the old. 

(c) A owes B 1,000 rupees under a contract, B owes C 1,000 rupees, B orders A to credit C with 1,000 rupees in his books, but C does not assent to the agreement. B still owes C 1,000 rupees, and no new contract has been entered into.

It is to be noted that Section 62 speaks of substitution of a new debtor, creditor, contract, etc. in place of an old one. The essential feature of novation of contract is that when a contract is substituted the rights under the original contract are relinquished or replaced by the new contract.

In every novation there are Four Essential Requisites[2]:
(1) A previous valid obligation; 
(2) the agreement of all the parties to the new contract; 
(3) the extinguishment of old contract; and 
(4) the validity of the new one.

Pollock and Mulla, 12th Edn., pg 1212 to 1215: The parties to a contract are free to substitute or rescind the entire contract, or to modify, alter, vary or rescind some of its terms. Novation or modification of a contract can take place in the same manner as the conclusion of a contract. If one party proposes a novation, and the other party accepts this proposal in a qualified manner, there is no novation. A novation, modification or revocation of the contract cannot be effected unilaterally by one party, it requires the consent of all. The substituted contract must be a valid and enforceable contract and if by reason of formality, such as registration, the document containing new contract is inadmissible in evidence, the original contract might still be operative. A new contract is substituted for it either between the same parties or between different parties the consideration mutually being the discharge of the old contract. It would occur when the substituted contract should rescind or extinguish the previous contract, such that the terms of the two contracts should be so inconsistent that they cannot stand together or render impossible the performance of the former.




[1] 15th Edition, 2009 at p.1174


June 9, 2012


Competition Commission of India updates M&A Regulations-2012


“The Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 as amended up to 23rd February, 2012”
Shall come into force: 1st June 2012.
Time period: Commences from date of receipt of notice in Form II. If the requisite details are not available for any of the columns in Form I or Form II, the date on which they may be submitted should be clearly indicated against those columns, by the parties to the combination.
Date of notice: Person who proposes to enter into a combination, within thirty (30) days of approval of merger or any agreement in relation to combination. And No combination shall come into effect until two hundred and ten days (210) have passed from the day on which the notice has been given to the Commission or the Commission has passed orders under section 31, whichever is earlier.
Exception: Categories of combinations mentioned in Schedule I are ordinarily not likely to cause an appreciable adverse effect on competition in India. Notice under sub-section (2) of section 6 of the Act need not normally be filed.
Process of Application: Any enterprise which proposes to enter into a combination shall give notice of such combination to the Commission in accordance with sub-section (2) of section 6 of the Act:
·         Shall ordinarily be filed in Form I as specified in schedule II to these regulations, filled, and verified with proper fees by parties.
Parties May fill Form II where:
(a) the parties to the combination are engaged in production, supply, distribution, storage, sale or trade of similar or identical or substitutable goods or provision of similar or identical or substitutable services and the combined market share of the parties to the combination after such combination is more than fifteen percent (15%) in the relevant market ;
(b) the parties to the combination are engaged at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or trade in goods or provision of services, and their individual or combined market share is more than twenty five percent (25%) in the relevant market.
Filing of details of acquisition under sub-section (5) of section 6 of the Act.-
(1) The details of acquisition by a public financial institution, foreign institutional investor, bank or venture capital fund, pursuant to any covenant of a loan or investment agreement, shall be filed without any fee in Form III, along with a certified copy of the loan agreement or investment agreement.
The duly filled in and verified Form III, along with two copies and electronic version shall be delivered to the Commission at the address published on its official website.
Failure to file notice.-
Where the parties to a combination fail to file notice Commission may upon its own knowledge or information relating to such combination, inquire into whether such a combination has caused or is likely to cause an appreciable adverse effect on competition within India.
Where the Commission decides to commence an inquiry, the Commission, without prejudice to any penalty which may be imposed or any prosecution which may be initiated under this Act, shall direct the parties to the combination to file notice in Form II. The notice, referred to in sub-regulation (2), shall be filed, within 30 days of receipt of communication from the Commission, by the parties to the combination.
In case of a merger or an amalgamation, parties to the combination shall jointly file the notice in Form I or Form II.
Fees:
Where the notice is filed in Form I, the fee payable shall be rupees ten lakhs (Rs. 10, 00,000)
Where the notice is filed in Form II, the fee payable shall be rupees forty lakhs (Rs. 40,00,000) only.
Procedure:
Notice (Form I or Form II)
A summary of the combination, not containing any confidential information, in not less than 2000 words: having
1. The values of assets/turnover
2. The respective markets in which the parties to the combination operate
3. Details of agreement(s)/other documents and the board resolution 
4. The nature and purpose of the combination
5. The likely impact of the combination on the state of the competition in the relevant market(s) in which the parties to the combination operate along with 9 copis and electronic version.
Prima facie opinion on the combination:
The Commission shall form its prima facie opinion under sub-section (1) of section 29 of the Act, on the notice filed in Form I or Form II, as the case may be, as to whether the combination is likely to cause or has caused an appreciable adverse effect on competition within the relevant market in India, within thirty days of receipt of the said notice.
                                  “Combination: Section 5 of Competition Act 2002”
The acquisition of one or more enterprises by one or more persons or merger or amalgamation of enterprises shall be a combination of such enterprises and persons or enterprises, if—
(a) Any acquisition where—
(i) the parties to the acquisition, being the acquirer and the enterprise, whose control, shares, voting rights or assets have been acquired or are being acquired jointly have,—
     (A) Either, in India, the assets of the value of more than rupees one thousand crores or turnover more than rupees three thousand crores; or
    (B) in India or outside India, in aggregate, the assets of the value of more than five hundred million US dollars, including at least rupees five hundred crores in India, or turnover more than fifteen hundred million US dollars, including at least rupees fifteen hundred crores in India; or]
(ii) the group, to which the enterprise whose control, shares, assets or voting rights have been acquired or are being acquired, would belong after the acquisition, jointly have or would jointly have,—
    (A) Either in India, the assets of the value of more than rupees four thousand crores or turnover more than rupees twelve thousand crores; or
    (B) In India or outside India, in aggregate, the assets of the value of more than two billion US dollars, including at least rupees five hundred crores in India, or turnover more than six billion US dollars, including at least rupees fifteen hundred crores in India; or]
(b) Acquiring of control by a person over an enterprise when such person has already direct or indirect control over another enterprise engaged in production, distribution or trading of a similar or identical or substitutable goods or provision of a similar or identical or substitutable service, if—
(i) the enterprise over which control has been acquired along with the enterprise over which the acquirer already has direct or indirect control jointly have,—
(A) Either in India, the assets of the value of more than rupees one thousand crores or turnover more than rupees three thousand crores; or
(B) In India or outside India, in aggregate, the assets of the value of more than five hundred million US dollars, including at least rupees five hundred crores in India, or turnover more than fifteen hundred million US dollars, including at least rupees fifteen hundred crores in India; or]
(ii) The group, to which enterprise whose control has been acquired, or is being acquired, would belong after the acquisition, jointly have or would jointly have,—
(A) Either in India, the assets of the value of more than rupees four thousand crores or turnover more than rupees twelve thousand crores; or
(B) In India or outside India, in aggregate, the assets of the value of more than two billion US dollars, including at least rupees five hundred crores in India, or turnover more than six billion US dollars, including at least rupees fifteen hundred crores in India; or]
(b) Acquiring of control by a person over an enterprise when such person has already direct or indirect control over another enterprise engaged in production, distribution or trading of a similar or identical or substitutable goods or provision of a similar or identical or substitutable service, if—
(i) The enterprise over which control has been acquired along with the enterprise over which the acquirer already has direct or indirect control jointly have,—
(A) Either in India, the assets of the value of more than rupees one thousand crores or turnover more than rupees three thousand crores; or
(B) In India or outside India, in aggregate, the assets of the value of more than five hundred million US dollars, including at least rupees five hundred crores in India, or turnover more than fifteen hundred million US dollars, including at least rupees fifteen hundred crores in India; or]
(ii) The group, to which enterprise whose control has been acquired, or is being acquired, would belong after the acquisition, jointly have or would jointly have,—
(A) Either in India, the assets of the value of more than rupees four thousand crores or turnover more than rupees twelve thousand crores; or
(B) in India or outside India, in aggregate, the assets of the value of more than two billion US dollars, including at least rupees five hundred crores in India, or turnover more than six billion US dollars, including at least rupees fifteen hundred crores in India; or]
(c) any merger or amalgamation in which—
(i) the enterprise remaining after merger or the enterprise created as a result of the amalgamation, as the case may be, have,—
      (A) Either in India, the assets of the value of more than rupees one thousand crores or turnover more than rupees three thousand crores; or
(B) In India or outside India, in aggregate, the assets of the value of more than five hundred million US dollars, including at least rupees five hundred crores in India, or turnover more than fifteen hundred million US dollars, including at least rupees fifteen hundred crores in India; or]
(ii) The group, to which the enterprise remaining after the merger or the enterprise created as a result of the amalgamation, would belong after the merger or the amalgamation, as the case may be, have or would have,—
(A) either in India, the assets of the value of more than rupees four-thousand crores or turnover more than rupees twelve thousand crores; or
(B) in India or outside India, in aggregate, the assets of the value of more than two billion US dollars, including at least rupees five hundred crores in India, or turnover more than six billion US dollars, including at least rupees fifteen hundred crores in India;]
Explanation.— For the purposes of this section,—
(a) "Control" includes controlling the affairs or management by—
(i) One or more enterprises, either jointly or singly, over another enterprise or group;
(ii) One or more groups, either jointly or singly, over another group or enterprise;
(b) "Group" means two or more enterprises which, directly or indirectly, are in a position to —
(i) Exercise twenty-six per cent. or more of the voting rights in the other enterprise; or
(ii) Appoint more than fifty per cent. of the members of the board of directors in the other enterprise; or
(iii) Control the management or affairs of the other enterprise;
(c) The value of assets shall be determined by taking the book value of the assets as shown, in the audited books of account of the enterprise, in the financial year immediately preceding the financial year in which the date of proposed merger falls, as reduced by any depreciation, and the value of assets shall include the brand value, value of goodwill, or value of copyright, patent, permitted use, collective mark, registered proprietor, registered trade mark, registered user, homonymous geographical indication, geographical indications, design or layout design or similar other commercial rights, if any, referred to in sub-section (5) of section 3.

June 6, 2012


Modes of amending the constitution 

Power to amend the constitution of India is given in Article 368. Parliament in exercise of its constituent power, amend by way of addition, variation or repeal any provision of the constitution.  For the purpose of amendment, the various Articles of the Constitution are divided into three categories. The first category is out of the purview of Article 368 whereas the other two are a part and parcel of the said Article. The various categories of amendment to the Constitution can be summarized as follows:

Amendment by Simple Majority:

As the name suggests, an article can be amended in the same way by the Parliament as an ordinary law is passed which requires simple majority. The amendment contemplated under Articles 5-11 (Citizenship), 169 (Abolition or creation of Legislative Councils in States) and 239-A (Creation of local Legislatures or Council of Ministers or both fir certain Union Territories) of the Indian Constitution can be made by simple majority. These Articles are specifically excluded from the purview of the procedure prescribed under Article 368.

Amendment by Special Majority :

Articles which can be amended by special majority are laid down in Article 368. All amendments, except those referred to above come within this category and must be affected by a majority of total membership of each House of Parliament as well as 2/3rd of the members present and voting.

Amendment by Special Majority and Ratification by States:

Amendment to certain Articles requires special majority as well as ratification by states. Proviso to Article 368 lays down the said rule. Ratification by states means that there has to be a resolution to that effect by one-half of the state legislatures. These articles include Article 54 (Election of President), 55 (Manner of election of President), 73 (Extent of executive power of the Union), 162 (Extent of executive power of State), 124-147 (The Union Judiciary), 214-231 (The High Courts in the States), 241 (High Courts for Union Territories), 245-255 (Distribution of Legislative powers) and Article 368 (power of the Parliament to amend the Constitution and procedure therefore) itself. Any list of seventh schedule or representation of states in Parliament as mentioned in the fourth schedule is also included.