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Force Majeure: Evolution of Jurisprudence in India Post COVID-19

The extraordinary outbreak of the Covid19 pandemic has had staggering effects on the economy, health and commerce of about 110 nations across the globe. Even after almost a year, the situation is far from normal. In addition to the massive pressure on the health and medical segments, several other unprecedented factors played crucial part in the whole system, economy, commerce, or business. Given the present situation of disruption of supply chaindisruption of assured manpower, uncertainty of future planning, inadequacy of security as well as the forced restraints in free commercial activities, numerous commercial contracts have either been interrupted, delayed or cancelled. The present situation has thrown light on several important questions with respect to the jurisprudence of the force majeure clause in various commercial contracts or frustration of contracts 

 

Force Majeure Typically in Law

 

The term force majeure which seems to have been borrowed from the Code Napoleon had received interpretation in several decisions of the English Courts in earlier years. In Matsoukis v. Priestman and Co.[i] . Justice Bailhache opined that force majeure would include strikes and break-down of machinery but not bad weather, or football matches, or a funeral. In Lebeeaupin v. Crispin[ii] Justice McCardie had observed: “A force majeure clause should be construed in each case with a close attention to the words which precede or follow it, and with due regard to the nature and general terms of the contract. The effect of the clause may vary with each instrument.”

In the Indian context, the Supreme Court has considered, interpreted and decided the events of force majeure in various judicial precedents, inter-alia from Satyabrata Ghosh vs Mugneeram Bangur[iii] to Energy watchdog vs CERC[iv] The Court has maintained a strict yet flexible approach towards the concept of force majeure and frustration of contracts. In the case of Alopi Prashad and Sons vs. UOI[v] the Supreme court had observed that commercial hardship shall not be a just and reasonable ground to support frustration of contract and excuse performance.

As we find in the commercial world, contracting parties have generally been incorporating the force majeure clause in their contracts since ages, to absolve themselves of any liability arising out of events beyond their reasonable control. However, in this discussion we would focus the force majeure arising out of Covid-19 pandemic.

 

COVID 19 and Application of Force Majeure

 

There was a difference of opinions and questions were raised over the fact that some contracts though having a force majeure clause, do not stress on the word ‘pandemic’, ‘epidemic’, ‘disease’ etc. , while majority of the contracting parties rely on the general phrase ‘any other unforeseeable event, not under the control of either of the parties.’

 
Executive Interpretation:
 

Alike the private sector, the Government contracts and the Public Sector transactions also started suffering on account of the pandemic and declaration of lockdown throughout the country. To address the situation fairly, the Ministry of Home Affairs came out with Notification No. F. 18/4/2020 PPD dated 19-02-2020 with respect to Manual for Procurement of Goods, 2017 declaring that the interruptions in supply chain due to Covid 19 from China or any other country shall be covered under the ambit of force majeure, and that force majeure shall be invoked whenever considered appropriate following the due process of law.

While the power of the Ministry to bring certain events within the ambit of force majeure under clause 9.7.7 of the Manual for Procurement of Goods, 2017 by a simple notification, may be a different issue, but as it appears, by this notification the Corona Pandemic was brought within the meaning of force majeure as defined in the Manual for Procurement of Goods, 2017 and tacitly, this event certainly becomes applicable in respect of all government and/or public sector contracts irrespective of application of the Manual for Procurement of Goods, 2017.  It may be noted that this Memorandum of 19th February 2020 was issued prior to Covid-19 affecting operations in India, recognizing the difficulty faced by the contracting parties regarding import of materials from other countries which were impacted by the pandemic.

Similarly, on account of various representations and submissions made by various Renewable Energy (RE) Developers and RE Associations, and considering the prevailing situation, the Ministry of New and Renewable Energy vide Office Memorandum No. 283/18/2020-GRID SOLAR dated March 20, 2020 declared Covid-19 as a force majeure event. The Ministry vide the said order granted time extensions in scheduled commissioning date of RE projects, in light of disruption of supply chain due to the pandemic.

The Ministry of Roads Transport and Highways also in its Circular dated 18.05.2020 inter-alia classified the pandemic as a force majeure event. In addition, the Ministry of Home Affairs by its Order no. 40-3/2020(D) dated 24 March 2020 expressed that the country was threatened with the spread of Covid 19 virus and therefore has considered to take effective measures to prevent its spread across the country and therefore in exercise of powers under section 10(2)(I) of the Disasters Management Act 2005 issued various guidelines for immediate implementation. Subsequently, by Office Memorandum dated 13 May 2020 the Ministry of Finance, Department of Expenditure referred to its earlier memorandum dated 19 February 2020 and also referred to the Manual of Procurement and recognized inter-alia that in view of the prevailing restrictions, it may not be possible for the parties to the contract to fulfill contractual obligations. Therefore, after fulfilling due procedure and wherever applicable, parties to the contract could invoke force majeure clause for all construction / works contracts, goods and services contracts, and PPP contracts with Government Agencies up to a certain period and subject to certain conditions. Therefore, officially the Government of India recognized Covid-19 Pandemic as an event of force majeure applicable in relation to contracts with Government Agencies, in effect resulting inclusion of Public Sector Undertakings also.

While the specific acceptance of force majeure in relation to Government sector contracts may not have any binding effect on the contracts outside the scope of the explicit instances or in relation to purely private contracts between two private parties, they probably offered an explanatory value to bring Covid 19 and the forced restraints imposed on account of lockdowns, within the ambit of force majeure.  

 
Judicial Interpretation:
 

In the Indian judicial scenario the court would rely on the terms of force majeure clause in the contracts or on principles of frustration under section 56 of the Contract Act. This means, unless there is compelling evidence for non-performance of contract the courts do not favor parties resorting to frustration or termination of contract. On account of the enormous devastative effects the Pandemic created on the commercial and economic environment in the country, different Courts had to come forward and grant relief to different contracting parties who were severely affected by the Pandemic.

The Delhi High Court considered the matter in June 2020 in the case of MEP Infrastructure Developers Ltd vs. South Delhi Municipal Corporation and Ors[vi]. The court essentially relied on the Ministry of Roads Transport and Highways (MORTH) circular and observed that:

27(i) The respondent Corporation itself referred to Circular dated 19.02.2020 which notified that the COVID-19 pandemic was a force majeure occurrence. In effect, the force majeure clause under the agreement immediately becomes applicable and the notice for the same would not be necessary. That being the position, a strict timeline under the agreement would be put in abeyance as the ground realities had substantially altered and performance of the contract would not be feasible till restoration of the pre-force majeure conditions.” 

The court also expounded on the continuous nature of the force majeure event and held that the subsequent lockdown relaxations given by the central government and the state government shall not amount to abatement of the force majeure event, at least in respect to major contracts such as road construction projects. The court also identified the distinct effects of the lockdown, independent of the effects of the pandemic and its implications on various contracts which many be affected by the force majeure conditions.  

In the case of Standard Retail vs G.S Global Corp Pvt. Ltd[vii] steel importers had approached the Bombay High Court seeking restraint on encashment of letters of credit provided to Korean exporters in view of the COVID-19 pandemic and the lockdown declared by the Central/State Government citing that the contracts between the parties were unenforceable on account of frustration, impossibility, and impracticability. The Bombay High court by its order dated 8 April 2020 rejected the plea inter-alia on the grounds: 

  1. The Letters of Credit are an independent transaction with the Bank and the Bank is not concerned with underlying disputes between the buyers and the sellers.
  2. The Force Majeure clause in the present contracts is applicable only to one respondent and cannot come to the aid of the Petitioners.
  3. The contract terms are on Cost and Freight basis (CFR) and the respondent had complied with its obligations and performed its part of the contracts and the goods had already been shipped from South Korea. The fact that the Petitioners would not be able to perform its obligations so far as its own purchasers are concerned and/or it would suffer damages, is not a factor which can be considered and held against the Respondent.

The court also observed that:  

“The Notifications/Advisories relied upon by the respondent suggested that the distribution of steel has been declared as an essential service. There are no restrictions on its movement and all ports and port related activities including the movement of vehicles and manpower, operations of Container Freight Station and warehouses and offices of Custom Houses Agents have also been declared as essential services. The Notification of the Director General of Shipping, Mumbai, states that there would be no container detention charges on import and export shipments during the lockdown period.

In any event, the lockdown would be for a limited period and the lockdown cannot come to the rescue of the Petitioners so as to resile from its contractual obligations with the Respondent No. 1 of making payments”.

Therefore, even if the event is a force majeure, contracts may not be avoided if the event does not affect performance of the entire contract or affect every aspects of any contract. The event has to be specific to the failure.

In the Halliburton case[viii] , decided on May 29, 2020, the Delhi High court was of an unequivocal opinion that:

“62. The question as to whether COVID-19 would justify non-performance or breach of a contract has to be examined on the facts and circumstances of each case. Every breach or non-performance cannot be justified or excused merely on the invocation of COVID-19 as a Force Majeure condition. The Court would have to assess the conduct of the parties prior to the outbreak, the deadlines that were imposed in the contract, the steps that were to be taken, the various compliances that were required to be made and only then assess as to whether, genuinely, a party was prevented or is able to justify its non- performance due to the epidemic/pandemic”.

Further, while discussing the scope of the force majeure clause in contracts it was observed by the court that:

“Para 63. It is the settled position in law that a Force Majeure clause is to be interpreted narrowly and not broadly. Parties ought to be compelled to adhere to contractual terms and conditions and excusing non-performance would be only in exceptional situations. As observed in Energy Watchdog it is not in the domain of Courts to absolve parties from performing their part of the contract. It is also not the duty of Courts to provide a shelter for justifying non- performance. There has to be a ‘real reason’ and a ‘real justification’ which the Court would consider in order to invoke a Force Majeure clause”.

The Madras High Court in the case of Tuticorin Stevedores’ Association vs The Government of India[ix], dated 14 September 2020, observed that the question as to whether on account of the pandemic outbreak of Covid-19, the parties can invoke the principle of force majeure need not detain us. The calamitous impact and disruption caused by Covid-19 on the economic front has been recognized by the Government itself.

In Confederation for Concessionaire Welfare & Ors. vs Airports Authority of India & Anr[x] the Hon’ble Delhi High Court observed on 17 February 2021 inter-alia that the court has perused the clauses relating to Force Majeure. There can be no doubt that the pandemic is a force majeure event. Since the Petitioners wish to terminate/exit from their respective agreements, while directing completion of pleadings and while the issues are under examination by this Court, there is a need to reduce the risk to both parties as simply postponing the exit by the Petitioners would also make it impossible for the AAI to re-allot the spaces to willing concessionaires and the outstanding against the Petitioners would continue to mount. Accordingly, as an interim measure the Hon’ble Court directed certain processes to be followed.

In another case of Ramanand vs. Dr. Girish Soni RC.[xi], an application came under consideration of the Delhi High Court which raised various issues relating to suspension of payment of rent by tenants owing to the COVID-19 lockdown crisis and the legal questions surrounding the same. By order dated 21-5-2020 the Delhi High court while determining whether lease agreements are covered under the ambit of section 32 and section 56 of the Act and even though it was held that suspension of rent on the grounds of force majeure is not permissible under the circumstances, the court allowed relaxation in the schedule of payment of the outstanding rent owing to the lockdown.

The Hon’ble Supreme Court in the case of Parvasi Legal Cell and Ors. Vs Union of India and Ors., observed that the pandemic was an ‘unusual’ situation, that had impacted the economy globally. This case revolved around the liability of the airlines to compensate passengers who faced cancellation of flights due to government-imposed lockdowns and restrictions on inter-state and international travels. The court relied on the office memorandum issued by the Ministry of Civil Aviation dated 16th April 2020 to dispose of the petition.

In the case of Transcon Iconia Pvt. Ltd v ICICI Bank[xii], the Bombay High Court while determining whether moratorium period would be excluded for NPA classification observed inter alia as under:

‘38… the period of the moratorium during which there is a lockdown will not be reckoned by ICICI Bank for the purposes of computation of the 90-day NPA declaration period. As currently advised, therefore, the period of 1st March 2020 until 31st May 2020 during which there is a lockdown will stand excluded from the 90-day NPA declaration computation until — and this is the condition — the lockdown is lifted’.

Yet, in another judgment passed in R. Narayan v. State of Tamil Nadu & Ors.[xiii] the Madras High Court directed the Municipal Corporation to waive the license fee for running a shop at a bus stand, and observed that:

“…this Court would be justified in treating the “lock down” as a force majeure event which will relieve the licensee from performing his obligation to the corresponding extent.” The Court also observed that … “The respondents (The Government of Tamil Nadu & Ors.) themselves have chosen to treat the lock down restrictions as a force majeure event. But they have relieved the licensees from the obligation to pay the fees only for two months. The reason for granting waiver for the months of April and May would equally hold good for the entire “total lockdown” period.”

Therefore, as it appears, most of the High Courts relied on the government orders that classified pandemic as force majeure, although the relief granted in each case has been subjected to restraint based on the accompanying facts and circumstances. The common observation however remained that the Covid-19 pandemic is a force majeure event.

 

Key Takeaways

 

Hence, it can be summarized that, commercial hardship shall not be a just and reasonable ground to support frustration of contract and excuse performance. The Courts have no general inclination to absolve a party from the performance of its part of the contract merely because its performance has become onerous on account of an unforeseen turn of events. Parties are at an obligation to complete their part of the contract against all odds, within a reasonable and practical limit. However, where the contract itself either impliedly or expressly contains a term according to which performance would stand discharged under certain circumstances, the dissolution of the contract would take place under the terms of the contract itself and such cases would be dealt with under Section 32 of the Act. If, however, frustration is to take place de hors the contract, it will be governed by Section 56.

The following preliminary conditions are emerging to be sine quo non to invoke covid-19 as a valid defense for non-performance:

  1. The contract is rendered impossible to perform: To establish pandemic as a force majeure occurrence de hors the contract the parties must demonstrate how the pandemic has disturbed the fundamental basis on which the obligations and agreements of the parties rested [Naihati Jute Mills Ltd. Vs Khayaliram Jagannath[xiv]]. This principle was also adequately elaborated upon by the Bombay High Court in Standard Retail vs G.S Global Corp Pvt. Ltd. A mere invocation of the force majeure clause in light of the pandemic does not absolve the parties from discharging their contractual obligations. A prima facie case has to be built justifying the reason for inability and seeking such an exemption.
  1. Prior conduct of the parties: While pleading the defense of force majeure, it is highly pertinent for the concerned party to ensure that, prior to the outbreak of the pandemic, the party was discharging its functions in a bona fide manner within the stipulated conditions of the contract. Additionally, as enumerated in the Halliburton case by the Delhi High Court, the concerned party should have demonstrated a bona fide attempt at undertaking all reasonable measures to execute its obligations in light of the situation and was genuinely prevented to act upon the same due to the collateral effects of the pandemic.
  1. Collection of documents capable of corroborating the claim of force majeure: It is crucial for the party invoking the force majeure clause to corroborate their claims with valid documents applicable to the specific instance, given the unusual and unprecedented situation. In the present scenario, these documents can include the abovementioned government circulars and guidelines, local medical reports, news reports, announcements etc. It needs to be kept in mind that generic documents howsoever crucial they may be, might not be enough in any specific case. While citing such documents, the affected party also has a duty to carry out a due diligence to ensure such exemptions and relaxations are strictly applicable to their case as observed in Standard Retail vs G.S Global Corp Pvt. Ltd.

 

No Straitjacket Formula                     

 

As can be summarized, different Courts in India have upheld the defense of frustration of contract and the defense of force majeure sparingly in every case. Even though the Covid 19 pandemic and its consequent lockdown can be generally covered under the ambit of force majeure, but there can’t be any straitjacket formula and its invocation strictly and solely shall depend upon the facts of each case, previous conduct of the parties and the prevailing circumstances in the specific scenario. If there are alternate modes of performing contractual obligations, the liable party shall not have the luxury to hide behind the comfort of doctrine of frustration or the doctrine of force majeure and absolve themselves of their duties. Accordingly, it would need a very careful examination of the whole situation before any ground is taken for avoidance of obligations under a concluded contract.

References:

[i] (1915) 1 K.B. 681

[ii] (1920) 2 K.B. 714

[iii] [1954 SCR 310]

[iv] [(2017)14 SCC 18].

[v] [1960 (2) SCR 793]

[vi] W.P.(C) 2241/2020

[vii] Commercial Arbitration Petition (l) no. 404 of 2020

[viii] Halliburton Offshore Services Inc. v. Vedanta Ltd. O.M.P (I) (COMM.) No. 88/2020 & I.As. 3696-3697/2020

[ix] WP(MD)No.6818 of 2020 and WMP(MD)No.6217 of 2020

[x] W.P.(C) 2204/2021 & CM APPL.6421-22/202

[xi] REV447/2017

[xii] 2020 SCC OnLine Bom 626

[xiii] Case No.19596 of 2020 and W.M.P.(MD)Nos.16318 & 16320 of 2020

[xiv] AIR 1968 SC 552

Image Credits: Photo by Medienstürmer on Unsplash

The Courts have no general inclination to absolve a party from the performance of its part of the contract merely because its performance has become onerous on account of an unforeseen turn of events. Parties are at an obligation to complete their part of the contract against all odds, within a reasonable and practical limit.

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Restoring value through tenancy reforms

The phenomenon of urbanisation, accompanied by the aspirations of the masses looking to make an ascend out of and above their life circumstances, dawns with transformation of landscapes. The harbours of the coast often become a passageway to opportunities. Settling the chaos of the opportunities in the city of Mumbai post the Second World War led to unique tenancy model in the city which sheltered its migrant population that would not otherwise be able to afford a shelter to call its own and ever since, rent control laws continue to bear the blame for much of an unlocked value of premises in the city despite the initial righteous intention of tenancy reforms.

Righteous Intention v. Regressive Implementation

The Maharashtra Rent Control Act, 1999 stands as a successor of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, which was enacted as social welfare, as well as regulative legislation with a bonafide intention of protecting tenants from exploitation by and tyranny of landowners and from the spurt in rentals. The aforesaid situation did not change much with the enactment of the Maharashtra Rent Control Act, 1999 as the provisions of this substituted legislation were nothing but old wine in a new bottle. It carried forward the pros and cons of the erstwhile Bombay Rents, Hotel and Lodging House Rates Control Act, 1947 without rationale a and, as a result, rented premises in Mumbai city continue to fetch lower rental returns than prevalent market value or become a subject matter of long-lasting litigation/s. This situation has adversely impacted the rental market in the city of Mumbai and people are caught between the adverse demand and low yielding supply of the premises to be meant for rentals.

Against this background, yet another tenancy reform, the Model Tenancy Act, 2021 as approved by the Union Cabinet in the first week of June 2021 (“the Model Act”) is now being viewed as a great catalyst towards boosting the rental market as it may stimulate the market by promising secured higher rental returns to the landowners (which includes premises’ owner) and as an affirmative driving force addressing most of the concerns of its predecessors.

Rationalising the Expectation

While the disputes arising out of decades-old tenancies continue to keep their memories alive in the Small Causes Courts and further in the appellate courts, the prevailing skepticism that premises owners have lately clung to as a result of the pandemic over letting out their premises, shows the unreliability of the current rent control laws and eviction proceedings under the Maharashtra Rent Control Act, 1999. However, the enactment of the Model Act too depends on the adaptation of the provisions by the States to suit their indigenous tenancy models.

The State of Maharashtra has already cleared its stand in favour of protecting the interest of the tenants enjoying protection under the prevailing rent control regime.[i] Further, the prospective applicability of the Model Act is an important consideration while assessing the extent of the change to be expected out of the Model Act. Hence, it is required that the thrust of the reforms be maximised where it can be currently realised from the very stage of entering into a rental agreement, while the process of working out the reforms into the indigenous tenancy models continues to be unravelled by the State government.

One of the reforms that is hoped for is an overhauled dispute resolution process for rent and tenancy related matters. The Model Act seeks to nail the long lasting tenancy litigation by proposing a three-tier adjudicatory system being the Rent Authorities, Rent Courts and Rent Tribunals vested with exclusive jurisdiction to try and adjudicate disputes falling under the scope of the Model Act which does not extend to “question of ownership or title”.[ii] The essential condition to be met to seek relief through the Rent Authorities or the Rent Courts and Rent Tribunals is to have a rental agreement that is duly identified with a unique identification number by the Rent Authority set-up for a district under the Model Act.[iii]

An overview of the role to be played by the authorities/courts to be constituted under the Model Act is as tabulated below:

 

Matters related to the eviction of tenants are to be adjudicated upon by the Rent Courts, which may try and dispose off the matter based on the terms and conditions stipulated in the agreement entered between the disputing parties or on the basis of an application/documents made/placed before it.

Eviction of a tenant may be sought on the following grounds under the Model Act:

  • Non-payment of arrears of rent and other related charges for a period of two consecutive months despite being served a notice by the landowner as stipulated under the Model Act.
  • Abandonment of the premises (part or whole) by the tenant without the consent of the landowner.
  • Misuse of the premises includes the use of additional space by the tenant, causing damage to the premises, or carrying out activities that cause a public nuisance or are illegal.
  • Carrying out repair and alterations to the tenanted premises.[i]
  • Bonafide requirement by the legal heirs of a deceased landowner during the subsistence of the tenancy agreement.[ii]

It is noteworthy that the Model Act also provides for the interest of landowners who have let out vacant land as a part of the tenanted premises, to enable the landowners to undertake construction on the vacant land by causing severance of the vacant part of the land from the tenanted premises. In order to give effect to such severance of vacant land, the landowner may make an application before the Rent Court, if the landowner is unable to obtain possession of the vacant land from the tenant. The Rent Court may, on being satisfied with the willingness of the landowner to commence construction on the vacant land without causing undue hardship to the tenant, direct severance of vacant land or make other such orders that it may deem fit.[iii]

Restoring Value

The Model Act once again comes in as a tenancy reform with noble intent at a time when restoring the value of constructed properties that are vacant as a fallout of the current circumstances is vital for the recovery of the real estate market. While the applicability of the Model Act to the premises that have been trapped under old rental agreements and arrangements is subject to its enactment by the State, the assurance, that continues to gleam through is the balance that can be brought about by having a watertight rental agreement as per the Model Act. The Model Act accords primacy to the rental agreement executed between the landowner and tenant and strives to ensure its absolute enforcement.

Execution of new rental agreements pertaining to residential and commercial premises as per the provisions of the Model Act, as may be notified by the State government, will be the first step for landowners who seek better returns on their premises along with a more balanced set of landowner-tenant obligations. The challenge here remains to convince existing tenants to agree to the shift.

Taking a lesson from the quandary arising out of the existing rent control legislation, it is important that the implementation of the Model Act should be directed towards giving full effect to the balanced set of rights and obligations of tenants and landowners as currently envisaged therein. The pitfall to be avoided is the misuse of the autonomy given to the landowners and tenants while putting the provisions of the Model Act, that place reliance on the rental agreement to steer the course of the tenancy, into practice. It is only when the fine balance of responsibilities created under the Model Act are replicated in rental agreements, that the potential positive socio-economic impact of the Model Act will be of aid to the collective advancement towards the goal of ‘Housing for All’.

References

[i] Naresh Kamath, Maharashtra to Partially Adopt Central Model Tenancy Act, HINDUSTAN TIMES (June 3, 2021),
https://www.hindustantimes.com/cities/mumbai-news/maharashtra-to-partially-adopt-central-model-tenancyact-101622743211971.html.

[ii] The Model Tenancy Act, 2021, §40.

[iii] The Model Tenancy Act, 2021, §4(4)(a).

[iv] The Model Tenancy Act, 2021, §10.

[v]The Model Tenancy Act, 2021, §20(3).

[vi] The Model Tenancy Act, 2021, §32.

[vii ] The Model Tenancy Act, 2021, §35(7).

[viii] The Model Tenancy Act, 2021, §35(8)

[ix] The Model Tenancy Act, 2021, §38(3)

[x] The Model Tenancy Act, 2021, §37.

[xi]The Model Tenancy Act, 2021, §35(2).

[xii]The Model Tenancy Act, 2021, §21.

[xiii]The Model Tenancy Act, 2021, §22(2).

[xiv]The Model Tenancy Act, 2021, §27.

 

Image Credits: Photo by Sasun Bughdaryan on Unsplash 

 It is only when the fine balance of responsibilities created under the Model Act are replicated in rental agreements, that the potential positive socio-economic impact of the Model Act will be of aid to the collective advancement towards the goal of ‘Housing for All’.

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Abbreviations as Trademarks

It is a common practice for organizations/businesses to use abbreviations in relation to their brands. From Indian Space Research Organisation (ISRO) to Mahashian Di Hatti (MDH), from Bavarian Motor Works (BMW) to Kentucky Fried Chicken (KFC) and from Louis Vuitton (LV) to Madras Rubber factory (MRF) and General Electrics (GE), all these brands changed their strategy by adapting abbreviations to connect with their consumers easily.

In this post, we will look into the aspects of registering abbreviations as trademarks under the Indian Trademark laws and attempt to list out the requisite considerations associated with adopting an abbreviation as a brand name.

NATURE OF ABBREVIATIONS – DESCRIPTIVENESS

As per the trademark law, for a word/term to qualify for registration as a trademark, it should not be a generic or a common term to trade or be recognized by customers as being descriptive of the kind/quality/character/intended purpose of specific goods/services. However, most abbreviations would be considered descriptive and non-distinctive as they are formed out of words that could be generic/common to trade. In such instances, it becomes difficult to claim exclusive rights when the trademark itself is incapable of being associated with a single source, like ‘VIT’ for Vitamins or ‘EV’ for Electric Vehicles. Under these conditions, how can an abbreviation qualify as a valid trademark? How does one seek registration/protection of an abbreviation as a trademark?

In the matter of S.B.L. Ltd. vs. Himalaya Drug Co[1], the Court emphasised on the test of overall similarity while deliberating upon the broad and essential features of both the marks and the effect on the consumers. The plaintiff’s liver tonic was labelled ‘Liv. 52’ and the defendant’s mark ‘LIV-T’ dealt with homeopathic and ayurvedic preparations. In both instances, the word ‘Liv’ was an abbreviation for liver. The Court held that abbreviation ‘Liv’ for Liver was generic or commonly used and falls under the domain of public juris. Hence the Court denied both the parties an exclusive proprietary right.

The Delhi High Court, in the decision of Bharat Biotech International Ltd. vs. Optival Health Solutions Pvt. Ltd. and Ors.[2], provided clarification in relation to the nature of acronyms that may make valid trademarks. In the instant case, the facts in issue pertained to the acronym TCV – the full form being Typhoid Conjugate Vaccine, that was being used by the plaintiff as ‘TYPBAR-TCV’ and the defendant as ‘ZYVAC-TCV’. The Court opined that the vaccine ‘Typhoid Conjugate Vaccine’, was common to the trade world over, especially in the medical community as ‘TCV’. Therefore, the mark ‘TCV’ being a generic abbreviation, as also being descriptive of the goods it related to, was incapable of trademark protection.

From the observations made by the Courts, it is clear that an abbreviation that is generic, common to trade or carries a descriptive meaning in itself cannot be registered or even enforced unless added to another distinctive and non-descriptive term like TYBAR-TCV/ Liv. 52. Here, the comparison is made on the basis of the perception of the trademark as a whole and not just the abbreviation.

NATURE OF ABBREVIATIONS – NON-DISTINCTIVE

Let us now look at the decisions where the Courts have found that the abbreviation by itself has trademark value and ought to be protected. In general practice, abbreviations, especially those formed of less than 3 letters, are usually not considered inherently distinctive, unless on certain occasions it is proven with substantial evidence that such a mark has acquired distinctiveness or a secondary meaning has come to be associated with it, by virtue of such extensive use. Some of the popular examples are GE, HP, LG etc.

This concept of acquired secondary significance has been a deciding factor in the Delhi High Court’s judgement in Larsen and Toubro Limited vs. Lachmi Narain Trades and others[3], which dealt with the abbreviation trademark ‘LNT’/‘LandT’. The Court studied the evidence produced by the plaintiff and observed that ‘LandT’ had acquired a secondary meaning exclusively associated with the plaintiff, owing to its continuous use over the course of nearly 50 years, whereas, the Respondents, being in business for some years, had started using the abbreviation ‘LNT’ only recently. It was held that the trademark ‘LandT’ was identified with the goods marketed by the plaintiff and as a result, its use could not become permissible for expressions like ‘Lachmi Narain Trades’.

Similarly, the Madras High Court in the decision of VIT University vs. Bagaria Education Trust and Ors.[4], also relied on the distinction and secondary significance acquired by the plaintiff in relation to the abbreviation ‘VIT’ and recognised the exclusive rights of the plaintiff to use ‘VIT’ as trademark.

CONCLUSION

An abbreviation may be granted protection if it is not common to trade practices, has distinctive focal element(s) attached to it, its full form does not carry any descriptive meaning, or it is proved with substantial evidence that the abbreviation has acquired distinctiveness or secondary significance by way of use. By observing the rulings of various Courts over the years, we are given a basic sense of the principles that are relied on, while deciding whether an abbreviation deserves to be registered as a trademark or not, and some of them are as follows:

  • Acquired distinctiveness or secondary significance, by way of longstanding, extensive and exclusive use of the trademark: This is case-specific and is decided on the basis of the evidence produced.
  • Overall perception of the trademark: This is decided based on the anti-dissection principle and the ‘dominant feature’ rule. 
  • Common to trade or descriptiveness: The concept of publici juris is considered since no single business is allowed to claim monopoly or have exclusive rights over a generic term. The full form of the abbreviation is examined to check if it is directly pointing towards the goods/services bearing the trademark.

The problem with the protection of an abbreviation as a trademark is not the registration; rather it is the enforcement of the rights that creates more hassles. There are many industries (as seen above like pharmaceutical, electrical etc.), that follow the trend of adopting brand names that are derived from or consist of generic terms that are common to trade. In such cases, since one business cannot claim monopoly over a generic trademark, it is added to a distinctive element, which is precisely the reason why it is easier to protect an abbreviation as a part of a composite mark (in whole), as opposed to protecting and enforcing it by itself.

Image Credits: Photo by Alexey Mak on Unsplash

An abbreviation may be granted protection if it is not common to trade practices, has distinctive focal element(s) attached to it, its full form does not carry any descriptive meaning, or it is proved with substantial evidence that the abbreviation has acquired distinctiveness or secondary significance by way of use.

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The draft EIA notification, 2020: what went wrong?

India has witnessed consistent and rapid environmental degradation since the past 50 years which can be attributed to the depletion of forests, vehicular emissions, use of hazardous chemicals, improper disposal methods and various other undesirable human activities.  Incidents such as the Bhopal gas tragedy and the LG Polymers gas leak incident have accentuated the seriousness of the matter and the need for introspection and rectification as well as timely action. Implementation of regulatory norms to curb pollution may seem plausible, but it is even more crucial to check whether industrial units and other polluting entities are complying with the safety norms and standards laid down to check the adverse impact of their operations. In that light, The draft Environment Impact Assessment (EIA) Notification is bound to suffer implementational challenges and demands thorough revision to meet the environmental, developmental and sustainability parameters.

 

Concatenation of EIA in India

The current environmental laws seek to strike a balance between ‘ecology’ and ‘economy.’ The EIA framework is the practical aspect that guides towards striking this balance. Environmental Clearance (EC) is one of the most important features of an EIA framework. It refers to the process of assessing the impact of planned projects on the environment and people with an aim to abate/minimize the consequent environmental pollution. The clearance is mandatory of areas that are ecologically fragile, regardless of the type of project. 

The first EIA notification was notified in the year 1994, however, it covered only a few industries, leaving many out of the scope of impact assessment. In order to reflect upon the shortcomings of the 1994 framework, it was updated as EIA notification 2006[1].

However, the system curated by the EIA notification 2006 has been a far cry from perfect. Over the 15 odd years of its implementation, there have been quality issues with respect to the EIA reports,[2] and poor track record of post environmental clearance monitoring and compliance[3]. Over these years, it has also undergone numerous changes. In 2017, the Expert Appraisal Committee of the Environment Ministry exempted public hearings for coal mining projects which were undergoing capacity enhancements of up to 40 percent. However, the relaxation was subjected to due diligence of the EAC[4]. In 2015, the Ministry extended the validity of environmental clearance from 5 years to 7 years[5]. In March 2020, a draft notification[6] to replace the 2006 notification was issued for public comments. Since then, there have been many protests seeking a revaluation of the draft proposal.

In the meanwhile, vide an Office Memorandum dated 18th November 2020, the government proposed new set of rules to streamline the process to reduce the number of days taken by the authorities in granting EC.[7] This was in line with the government’s efforts to ensure the country’s growth trajectory in not blocked. Post that, another Office Memorandum was issued on 15th March 2021 that sought to streamline the process of granting environmental clearances with regard to essential details demanded.[8]

Very recently, another Notification dated 18th March 2021 was issued where the center exempted all projects from public hearing whose environmental clearance had expired and therefore had to apply afresh.[9]According to the notification, the prior environmental clearance for a project was granted for a maximum period of ten years, and in some cases five years. The projects which failed to complete within the granted time period had to undergo all the processes of scoping afresh, including conducting a public hearing. However, as per the new amendment, the compulsory step of conducting public hearing has been done away with if minimum 50% of the physical form of the project has been implemented. This was essential to remit further delay in such projects.

The notification has been introduced amidst the countrywide opposition to the contentious EIA Draft Notification 2020[10], that seeks to overhaul the environmental clearance process for large infrastructures and projects like dams, roads, mines townships, etc. The prepared draft proposes three major changes:

  1. Exemption from public consultation for certain construction projects.
  2. Powers to regularise projects retrospectively.
  3. Exemptions for process with strategic consultation.[11]

 

Contentious Issues in the Draft EIA Notification

Environmentalists across the country took an abhorrent view of the proposed Draft EIA Notification 2020, since it provided time and liberty to project proponents while strategically keeping the public uninvolved.

  1. Ex post facto environmental clearance

This rule allows any industry working in violation of the Environment (Protection) Act to apply for clearance. This seemed quite arbitrary since India has already witnessed severe disasters caused due to the lack of compliance to environmental clearances. Recently, in addition to the LG Polymers gas leakage at Vishakhapatnam, a natural gas well of Oil India Ltd. blew up and caught fire in Tinsukia, Assam.  Assam’s State Pollution Board reported that Oil India Ltd. was operating without any consent from the Board for more than 15 years!

  1. Defeats the purpose of public consultation

Generally, the interested stakeholders are given a period of 30 days to raise any concerns regarding the preliminary report of the assessment. The draft EIA 2020 seeks to reduce this period to a mere 20 days. Very often, the concerned stakeholders belong to poor communities residing in and around the project sites. The news of such a report usually reaches late, by the time consultations are considered, clearances are granted. This provision is in violation of Principle 10 of Rio Declaration which states that “Environmental issues are best handled with the participation of all concerned citizens”.

  1. Reducing the Number of Compliance Reports

The Compliance Report contains all the norms and regulations which are being followed by industries on a regular basis. It is an essential aspect of EIA since it helps the concerned authorities to put a system of checks and balance. However, as per the draft EIA 2020, this period has been increased to one year, granting unwarranted freedom to industrial units to grossly violate the environmental norms and cover it up with ease.

  1. Empowering the central govt. to declare certain projects as ‘strategic’ may have adverse outcomes

It is the Technical Expert Committee that has been endorsed with the power to categorize new projects rather than the Ministry of Environment, Climate and Forest Change. Once a particular project has been labelled/categorised as ‘strategic’ by the central government, information regarding it shall be removed from the public domain. Any information regarding environmental violations thus remain a privy to the government. Not being able to report violations except by the government or regulatory authority goes against the principles of natural justice. Diluting the norms with regards to detailed scrutiny by the Expert Committee, EIA studies, or public consultation leaves many projects and polluters out of the regulatory net.

  1. Exclusion of projects

Clause 26 of the Draft EIA Notification 2020 excludes a long list of projects from the purview of EIA. Further, Clause 14 of the said Notification excludes a number of projects from public consultation. Further, public consultation has also been exempted for the projects falling under Category B2.

 

Judicial Approach on the Draft EIA Notification

Since the issuance of the draft notification, various petitions have been filed in courts across the country demanding judicial scrutiny over specific controversial aspects as discussed above.

The notification allowing for grant of ex post facto environmental clearance for project proponents who have already commenced or completed projects without obtaining a prior EC was challenged in the case of Alembic Pharmaceuticals Ltd. v. Rohit Prajapati & Ors.[12], the Supreme Court held that the concept of ex post facto clearance as opposed to the fundamental principles of environmental jurisprudence and is violative of the previous EIA Notifications. It was further held in this case that such a clearance would lead to irreparable degradation of the environment. The grant of such problematic environmental clearances violates the precautionary principle and sustainable development. Furthermore, such clearances overturn the ‘polluter pays principle’ to make it ‘pay and pollute’ principle.

The court placed reliance on its previous ruling in the matter of Common Cause v. Union of India.[13] In this case, the Supreme Court held that “the concept of an ex post facto or a retrospective EC is completely alien to environmental jurisprudence including EIA 1994 and EIA 2006.” Therefore, relying on the verdict of the Hon’ble Supreme Court in the above two cases, it can be stated that ex post facto clearances are unsustainable is law and void.

In the case of Puducherry Environment Protection Association v. The Union of India.[14], the Madras HC addressed the issue in a different light. The question of whether an establishment providing livelihood to hundreds of people must be closed down on the grounds of non-compliance with prior EC, was addressed. After much deliberation, the HC arrived at the conclusion that violation of environmental norms can conveniently and effectively be checked. It also stressed on the fact that an ex post facto clearance takes away the scope of EIA.

Previously, the National Green Tribunal in S. P. Muthuraman v. Union of India[15], remarked that the law does not recognise any such examination which is made post-commencement and upon completion of a project. The Tribunal further went to acknowledge that the practice of conducting an EIA is internationally recognised. It also stated that granting post facto approvals could legalise and legitimise illegal and irregular projects which are in contravention of environmental norms and thus would defeat the purpose of the Environment Protection Act, 1986.

Another contention raised by the stakeholders was that the draft notification dilutes the EIA process making it easier for industries to escape accountability. Various courts also took stock of these concerns and the Delhi High Court granted an extension in the time allowed to the general public for giving suggestions to the Draft EIA Notification till August 11, 2020. It also suggested that the notification must be translated into other languages so that it can reach to even the remotest groups and seek recommendations.[16] However, the centre responded by saying that it was giving ‘thoughtful consideration’ to the HC’s views on translating the EIA Notification 2020 in twenty-two languages of the eighth schedule of the constitution.[17]The Karnataka High Court also took a similar approach and restrained the Ministry of Environment, Forest, and Climate Change from releasing the final notification till September 7, 2020, on the grounds of the ongoing pandemic.[18]

 

Giving Voice to the Voiceless

EIA is a part of participatory justice which gives voice to the voiceless[19].

The present EIA draft notification appears to be an attempt to promote the growth of industries and the corporate community at the cost of biodiversity, human rights and the environment. The draft is bound to suffer implementational challenges and demands thorough revision to meet the environmental, developmental and sustainability parameters. However, the final notification is not out yet and the judicial bent towards scrapping the post-commencement sanctions and increasing the period for public consultation period would most likely lead to a revision of those aspects. Moreover, provisions such as discretionary powers for the determination of strategic projects as well as a reduction in key compliance norms dilute the very essence of environmental assessments. Ease of doing business was ideally implemented to subvert bureaucratic dawdle but it should not become a veil for corporate subterfuge. Then again, too many compliance burdens deter participants in a sector from undertaking developmental projects. Some fine-tuning keeping the regulatory pressures minimal while balancing environmental repercussions would be the ideal course of action.

References 

1 GOVERNMENT OF INDIA – THE ENVIRONMENTAL IMPACT ASSESSMENT NOTIFICATION 2006,
http://www.environmentwb.gov.in/pdf/EIA%20Notification,%202006.pdf (last visited Aug. 29, 2020).

2 http://moef.gov.in/wp-content/uploads/2017/09/OM_IA_ownershipEIA.pdf

3 https://cag.gov.in/en/audit-report/details/27540

4 http://environmentclearance.nic.in/writereaddata/Form1A/Minutes/010820176ABWO9WXApprovedMOM15thEACheldon25July2017Coal.pdf

5 https://economictimes.indiatimes.com/news/economy/policy/government-extends-validity-of-environmentclearance-to-7-years/articleshow/49452693.cms?from=mdr


6 http://parivesh.nic.in/writereaddata/Draft_EIA_2020.pdf


7 http://dghindia.gov.in/assets/downloads/5fbb4c3cc3135moefccom.pdf

8 https://ficci-web.com/link/OMStreamlining.pdf


9 http://environmentclearance.nic.in/writereaddata/EIA_Notifications/52_SO1240E_12032021.pdf


10 http://parivesh.nic.in/writereaddata/Draft_EIA_2020.pdf

11 https://www.bloombergquint.com/law-and-policy/environment-law-proposed-norms-dilute-the-processrigours-experts-say

12 Alembic Pharmaceuticals Ltd. v. Rohit Prajapati & Ors., 2020 SCC OnLine SC 347

13 Common Cause v. Union of India, (2017) 9 SCC 499.


14 Puducherry Environment Protection Association v. The Union of India, (2017) 8 MLJ 513.


15 S.P. Muthuraman v. Union of India, 2018 (8) FLT 498.


16 Vikrant Tongad v. Union of India, W.P. (C) 3747/2020 & CM APPL. 13426/2020.


17 https://www.newindianexpress.com/nation/2021/mar/26/giving-thoughtful-considerationto-hc-view-totranslate-draft-eia-in-22-languages-centre-2281924.html

18 United Conservation Movement Charitable and Welfare Trust v. Union of India, W.P. No. 8632/2020.


19 Samarth Trust and Anr. v. Union of India and Ors., Writ Petition (Civil) No 9317 of 2009

 

 

Image Credits: Photo by Alan Rodriguez on Unsplash

The present EIA draft notification appears to be an attempt to promote the growth of industries and corporate community at the cost of biodiversity, human rights and environment. The draft is bound to suffer implementational challenges and demands thorough revision to meet the environmental, developmental and sustainability parameters. However, the final notification is not out yet and the judicial bent towards scrapping the post commencement sanctions and increasing the period for public consultation period would most likely lead to revision of those aspects

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The Rise of Fantasy Sports in India

“Dream XI mein team bana lo”! Every Indian cricket fan must have heard this line several times during the recently concluded IPL 2020. From a struggling startup that faced uncertainty about the legality of its business model to the title sponsor of IPL 2020, Dream11, an Indian Fantasy Sports platform has made it big. With the rise of the likes of Dream11 and Mobile Premier League (MPL) the market for fantasy sports has surely been set in India.

What are Fantasy Sports? 

Fantasy Sports1 are online prediction games where the fantasy gamers (persons playing the game) put together a virtual team of real sports players such as players from the Indian Premier League (IPL), English Premier League (EPL) the National Basketball Association (NBA), etc. These gamers are called “Managers” and they form a team of players in a specific league, who earn points based on real-life statistics that are converted into fantasy points. Managers earn fantasy points based on the players’ performances in real-life sports. Each Manager plays against other Managers and their teams. These managers manage a roster by adding, trading, and selling players to form their team.

There are two types of fantasy sports that are prevalent. The first is the season-long draft system and the second one is the daily fantasy leagues played by the players worldwide.

In Indian fantasy sports platforms like Dream11, My Circle 11 we generally see the daily fantasy version being used. Managers pay an entry fee to enter a contest, the prize money for which is predetermined by the platform. Taking the example of cricket; points are earned on a variety of statistics like the runs scored by a batsman, wickets taken by a bowler and catches/run-outs inflicted by a fielder. The managers have to select a captain and vice-captain among the 11 players and their performance normally fetches some extra points. At the end of the match, the Manager with the highest points wins the game.

Prominent Fantasy platforms in India

There have been many fantasy sports platforms in the offing in India, but it was Dream11 that made it big and popularised fantasy sports in India. Some of the other apps such as MPL, My11 Circle, My team 11, Fancode, Fancy11, Faboom, Fanfight, Guru 11, MPL, Balle Baazi are fighting out in the market which already is in surge with the number of new players joining in. Dream 11 has been the first Fantasy Sports platform that has entered the league of unicorns in India. They have also been at the forefront when it comes to legal suits as many cases have been filed against it and some are still pending.

How does ‘Fantasy Sports” work in India

The Federation of Indian Fantasy Sports (FIFS)2 is the self-regulatory industry body of Fantasy sports in India. FIFS has been set up to protect consumer interest and formulate best practices for Fantasy Sports

For an online fantasy sports platform (OFSP) to be considered for confirmation by the Governing Council, the Operator is required to obtain and submit an evaluation and opinion from the Innovation Committee of the FIFS on the proposed contest as a ‘game of skill’. In the recent Rajasthan High Court ruling4, the Court observed that FIFS presently has over 35 of the largest fantasy sports companies as members, which cater to 99% of the fantasy sports users in India.in India. FIFS also publishes a Charter for Online Fantasy Sports Platforms which lays down the ground rules for the members.3

According to the charter, the members have to obtain a valid license and authorization for the usage of third-party intellectual property rights which include player images, photographs, trademarks, etc. on its platform. Members have to obtain a license and authorization to claim any official association with any sport’s governing body, player, team or tournament. FIFS has also adopted the Internet & Mobile Association of India (IAMAI) guidelines for self-regulation of the advertisements.5

Legal issues around online gaming in India

Regulating Fantasy Sports: Central vs State Legislations

The Public  Gaming  Act,  18676  is  a  central law that  prohibits  running  or  being  in  charge  of  a  public gambling house in India. However, under the Constitution of India, State legislatures have been entrusted with the power to frame state-specific laws on betting and gambling. As per the Seventh Schedule to the Constitution of India7 (Entries 34 and 62 of List II), the State Governments have been authorized to make laws on betting and gambling.

Fantasy Sports, which have been categorized as Game of skill, fall in a separate category and the State Gambling legislation of various states (with the exception of Assam, Odisha and Telangana) exclude game of skill from the ambit of gambling.

“Skill” V. “Chance”

The main legal hurdle faced by online gaming companies in India is whether it is a game of skill or a game of chance. Countries have adopted different approaches to defining chance and skill. India has followed the US model by applying the “dominant factor” test. The Satyanarayana case8 and the Lakshmanan case9 were the first cases where the “skill versus chance” question was addressed. The Courts were of the opinion that no game exists which can have ‘skill’ as the individual factor to determine the result. In State of Bombay v. R.M.D.C.,10 the court propounded that if a game contains both elements, i.e. skill and chance, it would be considered a game of skill.

Skill vs. Chance as seen through Fantasy Sports

Bringing context into fantasy sports, the main question was whether choosing a team of 11 players out of 22 was something a player did on skill or whether it was the player taking chance by selecting the set of players. The Court for the first time had settled this question in the case of Varun Gumber v. UT of Chandigarh & Ors.11 clarified that: “Playing of fantasy game by any participant user involved forming of a virtual team by him which certainly required considerable skill, judgment and discretion. The participant had to assess the relative worth of each athlete/sportsperson as against all athlete/sportspersons available for selection. He was further required to study the rules and regulations of the strength of athlete or player and weakness also.”

 

The High Court made its stance clear that Dream 11 is completely a game of skill and held that fantasy sports did not amount to gambling. The Court also added that Dream 11 was conducting a business activity protected under Article 19(1)(g) of the Constitution.

IP Rights: Use of Players’ Names, Team Logos, etc.

Another issue that surrounds fantasy sports platforms is the usage of the players’ names and the team logos in their platforms. Fantasy sports platforms use players’ names, team logos etc. to enable the participants to choose specific players from specific teams. We are aware of the fact that IP laws enable players to have certain IP rights including image rights.

Fantasy sports are built around the leagues/ tournaments and the participants (players) therein and not around specific players and there are always commercial arrangements between the platforms and the leagues/teams which enables the platforms to use their IP. Moreover, the use of these players’ names and images by fantasy sports platforms is largely for the purpose of identifying those players and the use of their names, images do not in any manner suggest endorsement of the fantasy sports game.12

Since Indian courts haven’t particularly dealt with cases of publicity rights with regard to fantasy sports, there is less legal jurisprudence available on this issue.

Judicial Developments related to “Fantasy Sports” in India

Two years after the Varun Gumber case, the legality of Dream 11 was questioned again in the Bombay High Court in the case of Gurdeep Singh Sachar v. Union of India case13. The Court again sided with the previous judgment and observed- “The participants do not bet on the outcome of the match and merely play a role akin to that of selectors in selecting the team. The points are scored by the participants for the entire duration of the whole match and not any part of the match.” This was an interesting analysis done by the Bombay High Court which further strengthened Dream 11’s case. Dream 11 again got the benefit of the doubt in 2020 where the Rajasthan High Court dismissed the PIL14 which argued that the said app was involved in betting on cricket games.

Future of Fantasy Sports in India! What lies ahead?

Recently in D Siluvai Venance v. State,15 the Madras High Court has called for stricter regulations for online games. The Court showed concern by pointing out how youngsters are being attracted to play such online games where some prize money is involved. The Madras High Court also sent a notice to MPL ambassador Virat Kohli and My11Circle ambassador Sourav Ganguly for promoting online gaming apps. It is worth noting that the apps mentioned above not only include fantasy sports but they also have online rummy- which was the major point of contention in the Siluvai case.

Andhra Pradesh was the latest state to ban fantasy sports in its entirety when the savings and exceptions for ‘game of skill’ from the provisions of the Andhra Pradesh Gaming Act were done away with.

The decision of the Bombay High Court has been challenged before the Supreme Court already. The Supreme Court has issued notices to all the parties for hearing the fresh contentions. So, it can be said that the future of online fantasy sports hangs in the balance until the Supreme Court decides on the pending matter.

References

1 https://fanarena.com/fantasy-sports/

2 https://fifs.in/

3 https://fifs.in/wp-content/uploads/2020/09/1598963962796_FIFS.Charter.wef-01Sep2020.pdf

4https://www.medianama.com/wp-content/uploads/Rajasthan-High-Court-Dream-11-2020-Ravindra-Singh-3 https://fifs.in/wp-content/uploads/2020/09/1598963962796_FIFS.Charter.wef-01Sep2020.pdf

Chaudhary-v.-Union-of-India.pdf

5 https://fifs.in/fifs-advertising-guidelines/

6 https://www.indiacode.nic.in/bitstream/123456789/2269/1/A1867-03.pdf

7 http://legislative.gov.in/sites/default/files/COI-updated.pdf

8 State of Andhra Pradesh v. K. Satyanarayana, AIR 1968 SC 825

9 Dr. K.R. Lakshmanan v. State of Tamil Nadu, AIR 1996 SC 1153

10 State of Bombay v. R.M.D. Chamarbaugwala, AIR 1957 SC 699

11 Varun Gumber vs. Union Territory of Chandigarh and Ors. (18.04.2017 – PHHC): C.W.P. No. 7559 of 2017

12 http://www.sportslaw.in/reports/FantasySportsPublication-Web.pdf

13 2017 SCC OnLine Del 12272

 

Image Credits: Photo by Peter Lagson on Unsplash 

It can be said that the future of online fantasy sports hangs in the balance until the Supreme Court decides on the pending matter.

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The football transfer: How the Barcelona – Messi matter turned murky

“In Barcelona, on 14 December 2000 and the presence of Messrs Minguella and Horacio (Gaggioli), Carles Rexach, Director of Football of F.C.B., hereby agrees under his responsibility and regardless of any dissenting opinions, to sign the player Lionel Messi, provided that we keep to the amounts agreed upon.”

 

Carles Rexach, the then Director of Football of F. C. Barcelona, scribbled this on a napkin to sign up a young Argentinian wonder kid, Lionel Messi, as he had never seen such a talent before and did not want to lose out on him. Thus, began the fairytale journey of Messi’s tryst with Barcelona and as history suggests this gamble that played out 20 years ago, turned out to be the most profitable for the club and rewarding for Messi.

Messi has been the Messiah for the club on several occasions, wriggling the club out of tough situations with his magic touch. With Messi on their side, Barcelona established itself as a formidable force that won everything that world football could offer. As all good things inevitably come to an end, this fairytale match appeared to have come to an end when Messi formally notified the club of his intention to unilaterally terminate his contract.

The events that transpired after the news broke out of Messi’s intention to leave highlight some troubling issues that are currently plaguing the football transfer market; in particular, the breakdown of relationships between a club and a player at the instance of their squabbling over better wages and contracts. Messi’s dispute with Barcelona revolves around the unique nature of a football contract and the role relationships play in such contracts.

 

In order to understand the dispute better, one must first have a formal understanding of the football transfer market.

 

What is a football transfer? Generally, a transfer in football is like any other business transaction that takes place between two football clubs and involves the transfer of a player who is under a contract with one club to another club in consideration of a fee known as a transfer fee.

 

A transfer is considered complete when the buying and selling clubs agree on the terms of sale and when the buying club enters into a contract with the player.

 

 

How does football transfer work?

If a transfer has to take place, the buying club must first approach the selling club and inform in writing before entering into negotiation with the player. This is legally mandated under Article 18(3) of the FIFA Regulations on the Status and Transfer of Players (the ‘Transfer Regulations’).

 

It is important to note however that the ultimate bargaining power in a transfer still lies with the selling club.

 

 

What is a transfer request?

A player, who is dissatisfied with his current club and finds himself in a position wherein the club has rejected all transfer bids from other clubs, may put in an official transfer request to the club. The only drawback is that such a request has no legal bearing and the club may choose to reject the plea.

 

 

When can a football transfer happen?

A transfer can take place during the “registration periods” which are provided by the governing bodies of the respective national associations.

In Europe, there are officially two periods during which transfers can take place – summer (July 1st – August 31st) and winter (January 1st – 31st) transfer window.

 

What is the duration of contracts between the players and the clubs?

The duration of a contract entered into by a player with the club may vary from short term to long-term depending on a variety of factors such as the age of the player, their skill, commercial value, potential growth and injury risk of the player. The term of a contract is determined mostly by these factors.

According to Article 18 (2) of the Transfer Regulations, the minimum term of a contract shall be from its effective date until the end of the season, while the maximum term of a contract shall be five years. Players under the age of 18 may not sign a professional contract for a term longer than three years.

 

Having garnered a basis of what and how a football transfer works, it is necessary to understand the terms of the contract between Messi and FC Barcelona that enables him to leave Barcelona on a free transfer and the reason behind the current situation between two.

 

What enabled Messi to leave Barcelona for free? Messi extended his contract with Barcelona in 2017 for a duration of 4 years, which was a deal that would enable him to retire at the club. However, on the insistence of Messi, an additional clause was added in the contract, which granted Messi the right to unilaterally terminate the contract at the end of each season and leave for free, provided that he notified the club prior to June 10th.

 

 

What was the legal issue involved in their dispute?

The legal issue involved the interpretation of the terms of the unilateral termination clause in light of the unprecedented COVID–19 pandemic that led to the interruption and the subsequent extension of the season.

 

Messi claimed that since the pandemic had suspended the season temporarily and it restarted only after June 10th (La Liga re-started on June 11th, 2020), it was impossible for him to exercise such a right before June 10th. Messi thus wished for the terms of the contract to be viewed liberally in light of the unprecedented events.

 

The Barcelona Board however contested that the terms of the contract strictly mentioned June 10th, hence Messi could not unilaterally terminate the contract post that date. The issue therefore would depend on whether the terms of the contract specifically mention a “specific date” or whether it is termed as the “end of the season”. In any case, according to Article 16 of the Transfer Regulation, a contract cannot be unilaterally terminated during the course of a season.

 

 

Relationship v Contract: what matters more?

The reason behind this issue turning unpleasant is largely due to the long-standing relationship that Messi had with Barcelona ever since he was a young boy. On a deeper analysis, the issue throws light on an important question – what is the nature of a football contract; is it purely a business transaction or does it involve the building of a relationship of trust, faith and respect?

 

Generally, the nature of any football contract is such that a player is associated with a club for a period of 3-4 years. It is unlike a business transaction of sale wherein it involves a single transaction. Instead, football contracts bind a player to the club for a considerable period of time and hence building a definitive relationship with the club is essential for the success of the contract. While the contract may describe the legal relationship, the true essence of the deal is the personal relationship.

 

Therefore, if a football contract failed to build a human connection between the player and the club, it would only increase the chances of the player leaving mid-contract and create a hostile environment for both parties.

 

 

Conclusion

In this case, Barcelona should have gauged the reasoning behind Messi’s intention to include a clause to unilaterally terminate his contract at the end of each season. Adding to the misery, the club management seems to have created a situation, which ultimately drove him to the point of making a decision to leave.

 

Barcelona’s actions, post Messi’s notification to leave, has been criticized as a tactical move to ensure that Messi had no other option but to stay at the club or could only leave provided the Club received his hefty release amount of € 700 million.

 

While Messi decided not to take the matter to Court, Barcelona seems to have made a big commotion out of it by forcing him to change his decision and stay with the club, perhaps until next June, thereby destroying the long-standing relation between the two.

 

Image Credits: Photo by Connor Coyne on Unsplash

If a football contract failed to build a human connection between the player and the club, it would only increase the chances of the player leaving mid-contract and create a hostile environment for both parties.

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