Agreement Supervening beyond Contract

Agreement Supervening beyond Contract - Transcript

Agreement Supervening beyond Contract
A Case study on the Section 27 of Indian Contract Act 1872
Agreement in Restraint of Trade

PGDM FT B3 Group 2

Institute of Management Technology Ghaziabad
Table of Contents
1 INTRODUCTION
2 RESEARCH METHODOLOGY
3 INDIAN CONTRACT ACT 1872
3 KNORR BREMSE Vs ESCORTS LTD
4 JUDGMENT
5 CONCLUSION
6 BIBLIOGRAPHY
ACKNOWLEDGEMENT
There is always a sense of gratitude which everyone express to others for the helpful and needful services they render during different phases of life and help to achieve the goals We too want to express our deep gratitude to each and everyone who always been helpful to us in getting this task to a successful end
We are thankful to Dr RASHMI KUMAR AGARWAL Associate Professor International Business IMT GHAZIABAD who is not only our internal training guide but also our professor in charge of Legal Aspects of Business
Introduction
Legal Aspects are an integral part of business today They reflect the extent to which the extent to which the judicial system of the country is capable enough to ensure the smooth functioning of the organizations
We enter into contracts so many times in a day that contract has become an indispensable part of our life When you purchase milk or newspaper in the morning or go to movie in the evening you are entering into a contract Indian Contract Act really codifies the way we enter into a contract execute a contract and implement provisions of a contract and effects of breach of a contract Basically a person is free to contract on any terms he chooses The Contract Act consists of limiting factors subject to which contract may be entered into executed and breach enforced It only provides a framework of rules and regulations which govern formation and performance of contract The rights and duties of parties and terms of agreement are decided by the contracting parties themselves The court of law acts to enforce agreement in case of non performance
Section 1 of Contract Act provides that any usage or custom or trade or any incident of contract is not affected as long as it is not inconsistent with provisions of the Act In other words provision of Contract Act will prevail over any usage or custom or trade However any usage custom or trade will be valid as long as it is not inconsistent with provisions of Contract Act The Act extends to the whole of India except the State of Jammu and Kashmir and came into effect on 1 9 1872
It must be noted that contract need not be in writing unless there is specific provision in law that the contract should be in writing
Research Methodology
AIMS AND OBJECTIVES
The principle objective of this report is essentially to analyze what are the liabilities and terms governing the Indian Contract Act with respect to the Knorr Bremse AG Vs Escorts Ltd case
SCOPE AND LIMITATIONS
The scope of this project covers Indian Contract Act and the provisions for their enforcements as provided in the constitution and in particular section 27 which is the governing point of our case under consideration
We tried to find and comprehend all the material we could gather so as to derive certain conclusions regarding the paper However we do suffer from various limitations chiefly among them being the scarcity of material in this aspect which made the analysis tougher
RESEARCH QUESTIONS
What is the Indian Contract Act
What is relevance of Section 27
What are the provisions for Breach of Contract
The Knorr Bremse AG Vs Escorts Ltd case
International Implications
Indian Implications
Indian Contract Act 1872
Law of Contract is the most important branch of Business Law It plays an important role in regulating daily trade commerce and industry The Contract Act creates an obligation between the parties to the contract and not against the whole world Thus it creates Right in Personam and not Right in Rem Right in Personam means a right against a particular person Right in Rem on the other hand is available against the whole world
According to section 2 h of the Indian Contract Act 1872
An Agreement enforceable by law is a contract
Essential requirements of a valid contract
Offer and its acceptance
Free Consent of both parties
Mutual and Lawful consideration for agreement
Enforceable by law
Competent parties to contract
Object should be lawful
Certainty and possibility of performance
Contract should not have been declared void under contract law
The steps involved in the contract are
Proposal and its communication
Acceptance of proposal and its communication
Agreement by mutual promises
Contract
Performance of Contract
Article 27 of the Indian Contract Act 1872
Agreement in restraint of trade void
This section says that Every agreement by which anyone is restrained from exercising a lawful profession trade or business of any kind is to that extent void
Exception to this section
Saving of agreement not to carry on business of which goodwill is sold One who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business within specified local limits so as long as the buyer or any person deriving title to the goodwill from him carries on a like business therein provided that such limits appear to the court reasonable regard being had to the nature of the business
Example
A is a doctor and he hires B to be his compounder for the next 5 years B agrees and works with him Now after 5 years B leaves the job and opens his own clinic Now according to this section B is free to do this and A cannot sue him for opening his own business in competition to his A can sue B only if in the beginning of the contract it was specifically mentioned that B will not open similar business within local limits
The above does not mean an absolute restriction and are intended to apply to a partial restriction During the period of employment the employer has the exclusive right to the service of the employee But a restraint operating after the termination or retirement is for freedom from competition from a person who no longer works within the contract And holding the same is declared void by a court of law The reason for upholding restraint of trade against employee is to protect the proprietary rights of the employer i e the trade secrets or trade connections but it is not available if directed to prevent exercise of extra skill or knowledge acquired by the employer during the course of employment
Breach of contract is a HYPERLINK http en wikipedia org wiki Legal o Legal legal concept in which a HYPERLINK http en wikipedia org wiki Binding agreement o Binding agreement binding agreement or bargained for exchange is not honored by one or more of the parties to the contract by non performance or interference with the other party s performance
Types of Breach
Anticipatory Breach
Actual Beach
Remedies for Breach of Contract
Suit for Rescission
Suit for Injunction
Suit for Specific Performance
Suit for Quantum Meruit
Suit for Damages
Knorr Bremse ag Vs Escorts Ltd
The Case
Parties Involved
Knorr Bremse AG
Knorr Bremse AG is the world s leading manufacturer of brake systems for rail and commercial vehicles Knorr Bremse has been pioneering development production and marketing of modern braking systems for a variety of applications for over 100 years making an important contribution to improved safety on the railways and the roads Other lines of business include automatic door systems rail vehicle air conditioning systems and torsional vibration dampers for internal combustion engines
Escorts Ltd
The Escorts Group is among India s leading engineering conglomerates operating in the high growth sectors of Agri machinery Construction Material handling equipment Railway equipment and Auto components Escorts Ltd is a leading manufacturer of critical railway components since the last 40 years It is one of the oldest and most trusted partners of Indian Railways the largest rail network in the world Having played a significant role in the growth and modernization of Indian Railways today it is a multi product multi technology business at Escorts
Agreement Contract Begin End
Knorr Bremse AG and Escorts Ltd had entered into a license agreement under which the petitioner was given license to manufacture brakes for rail and road vehicles The license agreement was entered into in 1977 it was amended on 9th January 1987 and with the approval of Government of India vide its letter No FC II 631 9 dated 13 12 1991 the validity of license agreement was extended up to 31st December 1995 No dispute arose between the parties until the aforesaid date
Technology Sharing Agreement
Terms Conditions
Under provisions of Article 1 3 of the license agreement between the two companies Escorts was to take approval of the German company before exporting such braking systems to countries where Knorr Bremse had licensing agreements with other parties or had agents and distributors Interestingly Article 1 5 of the agreement between the two companies provided that even after the expiry of the agreement period the clause regulating Escorts exports of braking systems manufactured with Bremse s technology would remain enforceable
Dispute
Petitioner s Argument
On 28th November 2002 respondent served a legal notice upon the Escorts Ltd alleging violation of Article 1 3 of the license agreement The German company alleged in the case that Escorts offered to export braking systems manufactured with Knorr Bremse s technology to Iranian railways and Iraq railways through Rites Ltd without any intimation and consent of the petitioner which was in violation of the provisions of Article 1 3 of the license agreement between the two companies
Counsel for Knorr Bremse argued that as far as exports from India of products manufactured by Escorts with technology of Knorr Bremse were concerned Escorts was bound by the conditions of export as laid down in the agreement which survives even after the expiry of the license agreement on the strength of Article 1 5
Defendant s Argument
Escorts Ltd maintained in the court that the clauses fall within the purview of Section 27 of ICA and are therefore void and illegal as they are contrary to Section 27 of ICA The Escorts counsel argued that the restraint imposed by Clause 1 5 of the agreement was unreasonable and against the public policy as it imposed absolute restrictions on Escorts to carry out even lawful trade or business and the company is within its rights to freely export the products to other countries
Judgment
After hearing the arguments of counsels for both the companies following judgment was delivered
this Court on a consideration of the above stipulations is prima facie of the view that the restrictions contained in Article 1 3 do not appear to be in restraint of trade which should attract Section 27 of the Contract Act so far as the question of survival of the aforesaid stipulations even after the expiry of the agreement is concerned suffice it would be to mention that the respondent Escorts having accepted the same with open eyes cannot be allowed to urge that the limitations contained in Article 1 3 would not survive after the expiry of the license agreement
Though Knorr Bremse appealed for Injunction as a remedy against the Breach of Contract by Escorts Ltd the court declined to grant interim relief to Knorr Bremse The court held that even if the negative covenant embodied in the clause of the agreement is valid under German law it cannot be enforced in India and therefore injunction cannot be granted in favor of the plaintiff The Court ruled that since Escorts is not debarred from supplying and making their offers for supplying products to other countries the company should be given a fair chance of competing with them and if they are successful there should be no reason why they should not be allowed to fulfill their commitment for exports
Implications
Hence In this precedence setting order the Delhi High Court has ruled that a clause in an agreement regulating a mode of trade is enforceable even after expiry of such agreement and would not be hit by Section 27 of the Indian Contract Act ICA
International Implications
Through this Judgment the Court has also reiterated that the Contract made by Companies under the Purview of ICA continue to be so and would not be affected by the Parties Involved and the Law to which they Submit to as in this case Knorr Bremse cannot enforce the Applicable on it i e the German Law on its partner Hence Escorts Ltd is free from the implications of the Licensing Agreement even though it is binding on it as it goes against ICA
Bibliography
Books
Business Law for Managers by P K Goel
Business and Corporate Laws by VS Datey
Internet
HYPERLINK http www manupatra com www manupatra com
HYPERLINK http www vakilno1 com www vakilno1 com
HYPERLINK http www financialexpress com www financialexpress com
Online Judgment Databases
HYPERLINK http www indlaw com www indlaw com
HYPERLINK http www courtnic nic in www courtnic nic in
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Sahil Mehra 09FT 129
Saumya Sharma 09FT 139
Siddharth Sehgal 09FT 151
Shashi Kanth Tangella 09FT 160
Tripuraj Singh 09FT 163