"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well." -Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Monday, November 16, 2015

Holier than thou, cow.

Cow has become a hazardous subject to be handled cautiously, capable of igniting the frenzy of a mob to lynch or deny nationhood by being verbally deported to another nation. The image of this docile animal has been strategically used to polarize people to achieve ulterior purposes.

Cow has been historically used as an identity symbol to distinguish from Muslim rulers by the re-emerging Hindus of 19th century, who followed the consciousness of medieval period which proscribed beef eating, pertinent only for upper caste Hindus. The shift to preservation of cattle is associated with agrarian expansion of which caste Hindus where the major benefactors. The influence of Buddhist principle of ahimsa and its cooption is also argued to be another strand that endowed the moral dimension to this preservation angle. Cow protection historically therefore has less to do with ‘holiness’ of cows but more with economics. (See, ‘The Myth of Holy Cow’ by D.N Jha; W Norman Brown, “The Sanctity of Cow in Hinduism”, EPW, February 1964).

Analysis on the objective and rationale of cattle preservation/cow protection laws could provide an impassionate sense of laws logic and contrast it with the current high-pitched hyperbole on ‘holy cow.’  The legal regime is located in two major fields, Constitution of India and States laws under Entry 15 of the Seventh Schedul. There are few relevant judicial decisions connected with the prevailing issue.

Constitution of India, besides Entry 15, deals with the topic of cows in Article 48. While speaking in Constituent Assembly on current Article 48, Pandit Thakur Das Bhargava reflected the Assembly’s attitude in the following words, “[w]e have practically substituted this article for the article which other Members wanted from a religious point of view. It is now simply a utilitarian measure but still a measure in which the religious sentiments of crores of people are involved.”  The Directive Principle of State Policy urge the states to ‘endeavour to organise agriculture and animal husbandry on modern and scientific lines and shall, in particular, take steps for preserving and improving the breeds, and prohibiting the slaughter, of cows and calves and other milch and draught cattle.’ The tenor of the directive is writ large in the mandate to the states. The objectives are agriculture and animal husbandry. The prohibition of slaughter is of cattle that have one common character, productiveness. It is both arduous to locate holiness of cows in Article 48, and unreasonable to force the States to legislate to prohibit slaughter of cows because it is sacred, as Article 48 is not drafted to protect the ‘divine cow’ but an agricultural benefaction.

There is also a very plausible contextual explanation for the placement of cattle protection norm in Directive Principles of State Policy. It was a time when the demand for cow protection were gaining momentum and getting violent. Given the liberal fa├žade of the Constituent Assembly, it was difficult to bring the non-secular cow protection directly into the basic document that they strategically positioned it in Directive Principles. Entry 15 that give the mandate of ‘preservation, protection and improvement of stock and prevention of animal diseases; veterinary training and practice’ to States to legislate, leave it upon the States to decide the content of the laws in ursuance of the directive under Article 48 and within the legislative competency under Entry 15.

Out of 36 States and Union Territories of India, 29 States and Union Territories have laws prohibiting slaughter of cows. Out of which except three, Indian National Congress have prime authorship. Majority of these Act are title as cattle/animal preservation as opposed to six which have prohibition of cow slaughter in its title. The nomenclature distinction is highlighted only to augment the point of focus of these legislations.  Of all the cow related laws, it is the Delhi legislation, that was fully drafted by the Bharatiya Janatha Party, though the Rajasthan and Gujarat laws have seen amendments in respective laws during BJP regime tightening up existing laws by enhancing punishments and also prohibiting export of cows for slaughter out of state.

The Delhi legislation covers cows and calves of cows of all ages, bulls and bullocks. The law titled Delhi Agricultural Cattle Preservation Act 1994 has the declared objective to ‘provide for the preservation of animals suitable for milch, draught, breeding or agricultural purposes,’ which ostensibly stands far from the holiness of species. There are certain state laws that specifically target to prohibit slaughter of cows and not the wider range of agricultural cattle like the Punjab Prohibition of Cow Slaughter Act 1955, Uttar Pradesh Prevention of Cow Slaughter Act 1955. Both these enactments have similarly worded objectives that is, ‘to prohibit the slaughter of cow and its progeny in ...’.

The above analysis is taken up with an idea to indicate where the law stands. The cow slaughter laws may be a compromise to placate the hardliners but it has so far not endorsed the religious sentiments outwardly, nor these laws permit trading of human souls for those of cows. The laws of India so far hold the life of humans valued than cow. 

Wednesday, November 4, 2015

Breaking (!) Ban on Penalty Clauses Survives! UK SC in Cavendish Square Holding v Talal El Makdessi

Regular readers of this Blog would be aware of the recent post on the UK Supreme Court's case of Cavendish Square Holding BV v Talal El Makdessi (Earlier posts on case in this blog can be accessed from here and here.). The issues involved in this case are:
  1. Whether the rule against penalties applies to commercial contracts between sophisticated parties.
  2. If the rule does apply to such contracts, whether clauses 5.1 and 5.6 are within the scope of the rule.
  3. If the clauses are within the scope of the rule against penalties, whether the Court of Appeal was wrong to conclude that they were penal and therefore unenforceable.
In this case, it was contended  by one of the parties that the rule against penalties should go as a whole irrespective of whether the contract was a commercial contract. The UK SC would be authoritatively ruling on the rule against penalties which, rudimentarily put, restricts damages to the actual losses suffered and has been established for more than two centuries.

The Supreme Court has decided the case today (04.11.2015). Following is a summary of conclusions of the court on the rule against penalties (as taken from the UK SC Press Release):

1) The penalty rule is an “ancient, haphazardly constructed edifice which has not weathered well” but has stood the test of time. Similar rules exists in all all other developed systems of law.
2) Therefore, it should not therefore be abolished. At the same time, it should not also be extended unnecessarily.
3) Penalty clauses not merely apply to clauses relating to money penalties but also to obligations to transfer assets, or clauses where one party forfeits a deposit following its’ breach of contract.
4) The concepts of ‘deterrence’ and “genuine pre-estimate of loss” in determining whether a clause is a penalty or not are not relevant.
5) The true test, according to Lord Mance, is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation.
6) The method of applying this test is as follows:
a) The first step is to consider whether any (and if so what) legitimate business interest is served and protected by the clause, and if so,
b) whether the provision made for that interest is extravagant, exorbitant or unconscionable.
7) The test to determine penalty clauses, according to Lord Hodge, is whether the sum or remedy stipulated as a consequence of a breach of contract is exorbitant or unconscionable when regard is had to the innocent party’s interest in the performance of the contract. A clause, according to Lord Hodge, fixing a level of damages payable on breach will be a penalty if there is an extravagant disproportion between the stipulated sum and the highest level of damages that could possibly arise from the breach.

The judgement can be accessed from here. The Press Summary of the UK Supreme Court can be accessed from here. More on this judgement and the Bunge SA judgement in the next few posts in this blog.

Tuesday, November 3, 2015

Judgement Cavendish Square Holding BV v Talal El Makdessi to be Delivered Tomorrow

Early August, we had blogged about the case of Cavendish Square Holding BV v Talal El Makdess pending before the UK Supreme Court. We had stated that the decisions would have huge ramifications on international commerce. For the issues involved, see the linked post. UK SC blog reports that the judgements would be delivered tomorrow. We will keep readers posted on this case.

We would also like to draw the attention of the readers to a recent decision, again, of the UK SC which deals with determination of market price for damages in cases of anticipatory breach. A prima facie reading of this judgement [Bunge SA v Nidera BV [2015] UKSC 43] indicates that the decision may provide a restatement of the legal basis of risk purchase/ risk and cost contracts and is therefore worth noting. The case comment of the decision in Bunge v. Nidera can be accessed from here.

Wednesday, October 28, 2015

Is the New Arbitration and Conciliation (Amendment) Ordinance, 2015 Prospective or Retrospective?

Readers may be aware that the President of India has promulgated a new Ordinance amending the Arbitration and Conciliation Act, 1996. For those who are coming across this news for the first time, please read this post. Many of the reforms of the Law Commission of India have been incorporated while many have not been retained in the Ordinance.

One such provision which has not been retained in Section 85A (Transitory Provisions). Section 85A as suggested by the Law Commission's 246th Report reads as below:

"Transitory provisions .—(1) Unless otherwise provided in the Arbitration and Conciliation (Amending) Act, 2014, the provisions of the instant Act (as amended) shall be prospective in operation and shall apply only to fresh arbitrations and fresh applications, except in the following situations -
(a) the provisions of section 6-A shall apply to all pending proceedings and arbitrations. 
Explanation: It is clarified that where the issue of costs has already been decided by the court/tribunal, the same shall not be opened to that extent.
(b) the provisions of section 16 sub-section (7) shall apply to all pending proceedings and arbitrations, except where the issue has been decided by the court/tribunal.
(c) the provisions of second proviso to section 24 shall apply to all pending arbitrations.
(2) For the purposes of the instant section,—
(a) "fresh arbitrations" mean arbitrations where there has been no request for appointment of arbitral tribunal; or application for appointment of arbitral tribunal; or appointment of the arbitral tribunal, prior to the date of enforcement of the Arbitration and Conciliation (Amending) Act, 2014.
(b) "fresh applications" mean applications to a court or arbitral tribunal made subsequent to the date of enforcement of the Arbitration and Conciliation (Amending) Act, 2014."

Note that the aforesaid provision was clear in its retrospective operation. Hypothetically assuming Section 85A was inserted by Ordinance, if one were to pose a question whether the restricted ground of setting aside a domestic award not arising out of an international commercial arbitration would apply to pending proceedings, one would state that the Ordinance would apply only to fresh applications, that is those applications (including for setting aside such an award) which have been filed subsequent to 23 October 2015 (date of the ordinance).

Unfortunately, Section 85A has not been incorporated in the Ordinance. If so, what are the consequences? Would the restricted ground of setting aside a domestic award not arising out of an international commercial arbitration apply to pending applications?

This is really a hard case. Arguments in the affirmative and in the negative are equally convincing. But the following may be worth noting:

  • Section 1(2) of the Act states that the Ordinance shall come into force immediately. 
  • There are certain aspects which the Ordinance itself states it will not affect. For instance, arbitrators previously appointed (S. 9 of the Ordinance amending Section 12 of the Act). 
  • In respect of most other provisions there is no express mention. 
  • Considering the need for urgent reforms, one could reasonably argue that the provision is intended to apply to even to pending proceedings and applications, wherever the language of the Ordinance suggests. For instance, Section 18 of the Ordinance CLARIFIES that patent illegality would not be a ground for setting aside foreign awards. The language supports even pending applications (and possibly appeals against such applications?)
  • Similarly 18(II) eliminates error of law or of fact as a ground to set aside arbitral awards. There is no mention regarding prospectivity. Even in such cases, the courts would (should) apply the Ordinance even to pending applications. The policy argument is the need for reforms and the urgency with which the same has been promulgated especially without incorporating a provision akin to Section 85A. The logical corollary of this would be that in case the language of a provision does not support application to pending proceedings, then it cannot be (and should not be) extended. For instance, 18(III) inserts the requirement that an application shall be filed only after issuing prior notice. Obviously, the act of filing an application to set aside an award would have been an accomplished fact in pending applications.

Of course, there is this well established principle of statutory interpretation that unless an Act expressly/ clearly provides for retrospective operation, it is prospective in nature. 

This issue is likely to result in different views from different courts.  Ideally, if the language of the Ordinance supports application of a provision to proceedings/ applications, it should apply notwithstanding the pendency unless it would result in manifest injustice. If the language does not support application to pending proceedings/ applications, it should apply prospectively.