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Jio-Facebook Deal

Three days after Facebook announced its stake in Reliance Industries, its retail e-commerce venture ‘JioMart’ gets its WhatsApp numbers 88500 and 08000.

In times of mass unemployment, stock market crashes, and economic disruption, the Sensex climbed over 700 points. California-based technology and social media giant, Facebook Inc. declared the largest foreign direct investment (FDI) in India’s technology sector yet.  

In a recherché union of giants, Facebook announced an investment of Rs. 43,574 crores for a 9.99% stake in Jio Platforms, a subsidiary of Reliance Industries Ltd., making Facebook the largest minority shareholder in Jio Platforms.

The entire deal revolves around the development of e-commerce and the e-payment business in India. Further, Jio and Facebook’s WhatsApp also entered into a commercial partnership agreement, which gives Facebook a strong foothold in India’s fast-growing market and access to over 388 million internet users – at par with Facebook’s 400 million users on WhatsApp, Instagram, and Facebook.

By virtue of this partnership, several local retailers and Kirana merchants list their products on the marketplace model called ‘JioMart,’ and garner benefits of scale and convenience for their customers of home delivery.

Several small businesses are already using WhatsApp Business to promote offerings, accept orders, and gather feedback, among other things. So enabling consumers to access the nearest Kirana stores that can deliver to their houses by transacting impeccably with JioMart using WhatsApp will be an epitome of how, with clean practices, both physical and digital retail can co-exist and flourish.

Naturally, the duo’s plans, upon receiving regulatory approvals, likely outperform even the most consumer-friendly fintech players in India.

Despite the unmatched access to digital India that the duo brings, the move will also facilitate Mukesh Ambani-led Reliance Industries significantly lower its debt – a pressing issue for companies today. As of December 31, the RIL group’s debt stood at Rs. 1,53,100 crore and with this monetization of digital assets, RIL can also deleverage its balance sheet and aim to be a debt-free group by March 2021.

The deal will positively impact the valuation of Jio’s partnership with Facebook in the event it decides to go public. Overall, at a time when the COVID-19 outbreak has thrown the world economy in shambles, this union is a feel-good tiding.

In addition to strategic business advantage, the deal was perfectly timed to foray into the government-sanctioned payment infrastructure with digital payments on a rapid rise in the wake of the ongoing pandemic. Both companies have payment apps namely, WhatsApp Pay and JioMoney that can together dominate the market.

This deal provides adequate leverage to JioMart to effectively compete against deep-pocketed giants like Amazon and Walmart (Flipkart) in India while potentially disrupting the digital payments segment, with the Alibaba-backed PayTM and Walmart’s PhonePe currently facing a financial setback.

Unfortunately, the deal has come in at a time when India is yet to pass the Personal Data Protection law. Collectively, the companies have access to a gargantuan repository of data and are likely to be closely scrutinized by the anti-trust watchdog, the Competition Commission of India.

But experts believe that the move has already set the stage for digital colonization. There are concerns that the duo will not only eliminate competition in the e-commerce segment by monopolizing data but will destroy the concept of net neutrality by way of – predatory pricing, imposing content, and ultimately destroying other retailers.

Additionally, Jio is in the talks of creating a super-app, which could also result in the creation of an ecosystem of apps. This could adversely impact not only other tech giants like Google and Amazon but also the Indian startup ecosystem, which is already struggling to compete with technology giants.

By harmonizing their strengths – Reliance’s mammoth distribution network and retail infrastructure and Facebook’s products and technologies – both companies are in a position to capitalize on the repository of data while partnering with small Kirana shops, as opposed to competing with them.

While this will propel customers into online retail and digital payments with relative ease, what it will not ease is the criticism from the government and domestic lobbies, and the deal’s adverse impact on the e-payment, e-commerce giants, and startups alike.

At a time when India tightened its FDI Policies impacting Chinese investments, this move can be viewed as an example to strengthen ties between the USA and India. On the flip side, this deal possesses grey areas that could defeat the purpose of the Competition Commission of India (CCI) and the Telecom Regulatory Authority of India (TRAI) and necessitates heightened vigilance.

Whether this partnership succumbs to data privacy and monopoly concerns, follows suit with Amazon and Walmart’s illegal practices such as violation of FDI rules, predatory pricing, destruction of other retailers, or is truly a double-sided coup – only time will tell.

 

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Tags: facebook reliance deal, facebook stake in jio, reliance and facebook deal, jio facebook deal, facebook and reliance deal, fb investment in jio, jio and facebook deal, facebook investment in jio, facebook jio deal, reliance facebook deal

Digital Wills in Times of COVID-19

As the nation gears up for Lockdown 2.0 justice remains a distant dream as the Indian judiciary remains dysfunctional, at large. Further, digitization in India has evolved from the computerization of government offices to fragmented initiatives aimed at speeding up technological implementation across courts, albeit at a sluggish pace.

Thus, people seeking legal advice on succession planning face a twin problem – closed law offices and
dysfunctional courthouses.

Fortunately or not, India has witnessed a recent development in the concept of “electronic wills” also known as e-will, or digital wills. As the term suggests, a will is a declaration of intent by a person competent to transfer his wealth to others, but in an electronic form. Simply put, electronic wills are those wills that have been written, signed, and/or attested by way of an electronic medium.

In India, several platforms like Willstar, and MakeMyWill.in, Lawfarm, EzeeWill, etc. offer will-drafting and advisory services at reasonable rates.

Prevailing legislation and its issues

The law governing the Execution of Wills has been in effect since 1925 and is very specific. The law requires that be a written document signed by the person making the will i.e. the testator in presence of witnesses and be attested by two or more witnesses by signing the Will in the presence of the testator.

These requirements may be relaxed only in cases of wills signed by soldiers in warfare, or mariners at sea. Clearly, these rules appear archaic but they provide a certain level of protection to the Testator and beneficiaries alike.

On a regular day, these conditions can be met with relative ease; unfortunately, the law is not pandemic proof and prevailing legislations fail to recognize unconventional electronic wills. In fact, the Indian Information Technology Act, 2000, which allows electronic contracts, has specifically excluded wills and other testamentary dispositions from the applicability of its provisions.

Specifically, the preparation of Wills through electronic modes like emails or documents with digital signatures is not permitted. Further, the Indian Succession Act, 1925, governing Hindus, Sikhs, Jains, and Buddhists, requires witnesses to be present personally to see the signing of the Will by the testator. Therefore, attestation through video conferencing is inadequate under the law.

However, video recording of wills may be used as additional evidence, subject to compliance with Section 65B of the Evidence Act, 1872, to show that the Testator was of sound mind, and did not act out of coercion, undue influence, or fraud. Thus, the Indian judiciary’s partial acceptance of technology in the process of evidence and adjudication has further aggravated the wounds of people seeking expeditious legal help.

Recommendation of the Law Commission

Realizing this, the Law Commission of India in its 110th Report recommended a relaxation of rules for execution of a Will by persons affected by calamities has a reasonable apprehension of immediate death. As per the report, such a calamity would encompass instances of ‘epidemic’ or ‘pestilence’. However, this recommendation has not been given effect, and currently, the law does not provide for the easing of legal formalities amid an outbreak such as COVID-19!

The Scottish Law Society, for instance, issued guidelines wherein witnessing can be done via video technology in the presence of a lawyer overseeing the will signing process. Furthermore, the Ontario government introduced a regulation under the Emergency Management and Civil Protection Act, which allows witnessing of wills and powers of attorney remotely during the COVID-19 emergency.

Adding another stratum of protection, the regulation mandates 2 conditions namely: 1) technology that allows parties to see, hear and speak in real-time must be used, and 2) at least one of the witnesses must be a lawyer or a paralegal.

Conclusion

Unsurprisingly, many people are anticipating their own death during the COVID-19 pandemic and in a jiffy to make a legally enforceable will. However, the prevailing legislation is unsuitable for making wills in a time of quarantine and social distancing, with the non-recognition of digital wills coupled with a requirement to be physically present at the time of execution of the will.

However, with the current Indian government promoting the use of technology, social media, and e-governance, to encourage the pace of growth in various industries, and other countries positively recognizing testaments made in electronic form, there is an expectation for recognition of such concepts in India.

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Tags: digitalisation in india, disadvantages of digital india, Digital Wills in Times of COVID-19, Digital Wills, lockdown 2.0, digitization in india, about digital india

Innovation During a Crisis

With the country being in the midst of an extended lockdown, businesses and individuals are feeling the anxiety and stress brought on by uncertainty regarding the future. Though India Inc. plans a partial exit strategy but to jumpstart a stalled economy is an onerous task.

It is, therefore, a valid assumption that economic disruptions caused due to a nationwide lockdown might give a two-fold rise to disputes. The closure of courts and tribunals to curb the spread of the virus has understandably delayed justice to companies and individuals alike.

Although the Supreme Court is hearing important cases via videoconferencing, lower courts lack the infrastructure to keep up with these advancements. Therefore, in such times, the traditional reliance on litigation is far from the optimal way of dealing with conflict.

Desperate times call for desperate measures. Fortunately, Alternate Dispute Resolution (ADS) is at last beginning to emerge as a response to conflict in its myriad forms and to the challenge of building a more peaceful world. ADS mechanisms prescribed by the Civil Procedure Code (CPI) under Section 89(1)-(2) include arbitration, mediation, conciliation, judicial settlement, judicial settlement through Look Adalats (people’s courts). ADS, being an informal process, provides quick, interim solutions to parties of a dispute, thereby mitigating conflicts by large.

The arbitral institutes can broker an agreement between the parties in two or three successive meetings. In comparison to this, the other dispute resolution methods would take several months, if not years. At the outset, if time is on the claimant’s side, a well thought out, well-crafted demand with factual statements and even detailed legal analysis may help the client avoid the prolonged stress of litigation dispute escalation and yield an early influx of settlement funds.

Some of the most compelling reasons for choosing ADS are high litigation expenses, time-consuming adjudication and most importantly, an appropriate method of carrying out dispute resolution whilst following social distancing amid the pandemic.

Though it started with trying to resolve disputes via e-mail, it went on to incubate an online dispute resolution (ODR) platform, known as the Centre of ADS Excellence. This method of dispute resolution was made a reality by marrying ADS mechanisms with technology. Typically, an ADS meeting or conference can be called at a short notice and if both parties are in agreement with the arbitration rules, an arbiter is appointed and time-stamped intimations are sent via e-mails, WhatsApp messages and SMSs (Short Messaging Services).

This platform facilitates communication via video calls and eliminates the need for face-to-face communication. The question of its legality can be put to test by going through Section 19 of the Arbitration and Conciliation Act, 1996 which states that the tribunal is not bound by provisions of the Criminal Procedure Code (CrPC) and the Indian Evidence Act (IEA) and may decide upon the procedure to be followed in conduct of such proceedings, thereby making online or live conduct well within the legal domain.

No one can challenge such proceedings merely on the ground of being an online resolution proceeding. International Commercial Arbitration rules, which serve as a guideline to arbitration institutions around the globe and have been adopted by the India Council of Arbitration, also mandate that arbitration tribunals have the power to conduct proceedings via videoconference, telephone or any such other means of communication as may be deemed fit.

This transposed the concept of ADS towards a highly advanced and a far more cost-effective method of ODR. The ODR also helps overcome jurisdictional issues, eliminate geographical barriers, automate administrative tasks, improve productivity of professionals, promote eco-friendly processes and finally, deliver a quick, economical and effective solution to disputes.

The need for use of modern technology in courts was emphasised by the Reserve Bank of India (RBI) and the Supreme Court in the matter of Meters and Instruments Pvt. Ltd. and Anr. v. Kanchan Mehta while hearing a petition on expeditious settlement of cases, especially those relating to business like the Negotiable Instrument Act.

The question of time-bound proceedings had already been answered by the Supreme Court vide its order dated  March 23, by freezing the limitation period from March 15 until further orders. For instance, Section 29A of the Arbitration and Conciliation Act, 1996 stipulates passing of award within 12 months of commencement of proceeding, which may be extended by six months upon agreement of parties to the dispute.

It is necessary that technologies be effectively implemented in the regular course of business and move away from the Supreme Court’s “urgent only” requirement for using videoconferencing and delve into full swing application of online proceedings for all cases and promote ODR, wherever applicable. The COVID-19 crisis has catapulted an archaic industry such as the law to adopt technology at a never-seen-before pace and is believed by many to be the way forward.

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Tags: extended lockdown, economic disruptions, lockdown extended, crisis innovation, innovation in times of crisis, crisis driven innovation, crisis and innovation, crisis leads to innovation, Innovation during a crisis, innovation during crisis, innovation crisis

Section 144: A Need of The Hour Amid COVID-19 Crisis

The World Health Organization (WHO) recently declared the novel corona virus (COVID-19) — a worldwide pandemic.

With over 2,00,000 confirmed cases and 8,000 deaths panic levels are on a rise around the globe. Flight cancellations, shutdown of public places and remote functioning of offices have caused unprecedented disruption across industries worldwide. In many instances, people seem to be prepping as if it’s the end of the world.

But what does it really mean?

Countries severely hit by COVID-19 such as Italy, Germany, China, United States are preparing to the greatest extent possible. While they may not resort to building 10 new hospitals in 2 weeks like China, but surge capacity is being evaluated, coordinated within their healthcare system coupled with several isolation policies and orders.

Similarly in India, the preliminary concerns for the government and its officials would revolve around the health and safety of all citizens disguised as an employee, customer, or neighbour. On these lines, Dy. Commissioner of Police Pranay Ashok imposed Section 144 over the Greater Mumbai region. 

Section 144 of Criminal Procedure Code (CrPC) imposes power to executive magistrate to restrict particular or a group of person residing in a particular area while visiting a certain place or area. This move was implemented to prevent a danger to human life health and safety and to ultimately slow down the spread of COVID-19. 

The outbreak of Novel Corona Virus aka COVID-19 was the reason for such threat to human life perceived by the Magistrate. This order created confusion among the general public who assumed this to be an imposition of Section 144 of Indian Penal Code (IPC) pertaining to Unlawful Assembly.

The same was later clarified by the Mumbai Police that the order was specific in nature, applicable to ‘Tour Operators’ and not the public in general. This was done so that travel groups comprising of domestic or foreign nationals in the area may be curtailed. The question that now lingers around is whether imposition of Section 144 the need of the hour amid this crisis?

We must know that Section 144 is there to dispose urgent cases of nuisance or apprehended danger by a competent magistrate so empowered to take such action. Although in India the cases of reported cases is still very low as compared to other nations across the globe. This is not to forget the harm already caused by the virus due to its quick growth rate and the potential to further aggravate the situation.

The present order or any such order within the legal dictum would be a necessary tool to impose certain restriction on public gathering and movement and such order could not be challenged on the ground of infringing the Fundamental Right enshrined in Article 19(1)(b) or (d) of the Constitution as same was found to be well within the limit of reasonable restriction of 19 (2) and (5).

However, there are certain restriction on the Magistrate exercising these power as he have to follow certain guiding principles laid down in the provision itself or that of Section 134. One peculiar instance in this regard is that this order under 144 cannot exceed more than 2 months but there is a proviso in the same clause granting the power with State Government to exceed such time period to 6 months on satisfying itself for the need of such act.

Given the situation of present case where no cure has been found these sections would need to be interpreted leniently it being a procedural law.

However, the role of CrPC would be much less when it comes to a situation which we are foreseeing as spread of COVID-19 to such a large extent. In India, we have Indian Epidemic Disease Act, 1897 which not only grants the State and Central governments to take any temporary measure for controlling and prevent the outbreak of a disease but also punish the individual not complying with such orders through Section 188 of IPC (Disobedience to order duly promulgated by Public Servant).

A recent case has been lodged in this regard invoking this section of Epidemic Act and even Visas are being called cancelled under the ambit of this Act.

In a recent poll, pharmaceutical companies and scientists acknowledged that it may take at least a year for a COVID-19 vaccine to be approved and made available to patients. So for the time being, Section 144 CrPC seems adequate to control the specific movement of targeted groups that are either more prone to the outbreak or are a major threat to spreading the virus.

This Section can also be invoked to prevent any situation of panic among the general public when it comes to shopping for essential commodities as we observe in different nations across the globe. Thus, we can rightly conclude that imposition of Section 144 is very well within its legal competency and can be effectively imposed to tackle this pandemic as the world impatiently awaits a magic COVID-19 vaccine.

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Does Your Business Contract Recognize Coronavirus?

The novel coronavirus (COVID-19) is now a global pandemic. Numerous deaths are reported worldwide and catastrophic consequences for businesses and the economy are on the rise as well. Cancellation of flights, shutdown of public places, and remote offices has caused unprecedented disruption to businesses across the globe. Our preliminary concerns would revolve around the health and safety of our loved ones, employees, customers, and neighbours.

But when the dust settles, business leaders from the C-suite to owners of convenience stores would be left wondering how the pandemic will affect their business contracts. The answer to which is particularly important for small and medium businesses, who may not have a robust cash flow or necessary resources to deal with such a crisis.

As a result of this outbreak, several companies are examining their contracts to understand the extent of their rights, remedies, and obligations with respect to their business associates. Suppliers of goods and services unable to deliver on contractual obligations are looking to see what provisions, if any, may protect them from default. One such provision of particular concern is the ‘Force Majeure’ clause.

What is the ‘Force Majeure’ clause?

Fundamentally, a force majeure is an unforeseen or unavoidable event beyond the reasonable control of the parties to an agreement that serves as an excuse or delay in the affected party’s performance of its obligations under the agreement. Common force majeure events include floods, fires, earthquakes, wars, terrorist attacks, and government orders.

But this is not an exhaustive list of events and there lies the problem. The Force Majeure clause excuses non-performance of contractual obligations for events specified under the clause. But if an event not specified under the force majeure provision occurs, then the impacted party may not be excused from performance. Simply put, if the impacted party is unable to perform, it is likely in breach of the contract.

If the contract does not specify events such as “epidemics and quarantines” or “pandemics” in its Force Majeure clause, a party may have a difficult time claiming they are excused from contractual obligations because COVID-19 has rendered a party unable to perform the contractual duties. But, is their failure to perform excused under the Force Majeure clause? Ultimately, it comes down to what the contract says and how a court of law interprets the clause.

Challenges in the Force Majeure defense

Part of the challenge lies with the fact that there is no universal standard definition for force majeure, and they often vary across agreement types and industries. The performance of one party might be completely excused by one force majeure provision, while under another, the contract might defer performance of the obligation until the force majeure event ceases, and yet another may require strict performance of the obligations or face penalty.

Ultimately, and most importantly, the issue depends on an assessment of: the nature and context of your particular contract; the words in the relevant Force Majeure clause; and the general terms of the contract, including the substantive law / governing law clause.

To assess a business’s rights, obligations, and remedies, whether the business is the party unable to perform or such counterparty, the following should be considered:

What contract provisions are relevant? Firstly, companies should determine whether their contracts include a force majeure clause, and whether there any other relevant provisions to further examine. Provisions concerning any violation, termination, cancellation, and/or repudiation may be applicable under the given situation.

How does the contract define a force majeure event? The language in contracts may be as broad or restricted as agreeable to parties to the contract. A contract may either explicitly list all qualifying events, or generally define a force majeure event as “an event beyond the parties’ control”, leaving room for interpretation.

Considering the extraordinary circumstances of its emergence, most of our contracts may not have it listed directly as a force majeure event. In the latter scenario, companies must look for examples of relevant language such as “disease,” “epidemic,” “pandemic,” “quarantine,” or “acts of government,” which may be interpreted to include the COVID-19 outbreak.

Is the coronavirus outbreak the cause of the party’s nonperformance? The mere existence of COVID-19 in the city does not exempt a company from the performance of its contractual obligations. Also, if other factors lead to the party’s non-performance, then a force majeure clause may not be applicable. For example, to the extent, a company takes proactive steps to curb the spread of the virus, by, say, advising workers to stay home, does the resulting failure to perform constitute a force majeure event?

Practical tips

Here are some brief tips in dealing with COVID-19 relative to contracts: Carefully review your contracts to determine your rights and obligations under these agreements, as well as any risks associated with the consequences and potential for recovery of additional costs or a price adjustment as a result of a work delay or stoppage.

Contractors should also carefully review their subcontracts to determine their rights, obligations and potential for recovery. If a long list of force majeure events is included, it is likely to be helpful (where you are seeking to rely on the clause) if pertinent wording is included such as “pandemic”, “epidemic”, “outbreak”, “crisis” or “governmental action”.

Watch out for wording in new contracts that require that the event of force majeure is “unforeseeable”. Communicate and properly document the incurrence of such additional costs to include any potential mitigation of such costs. The point here is to document, document, document, and communicate, communicate, communicate.

 

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Tags: business contract, sales contract, simple contract, business agreement, draft contract, legal contract, commercial contract, investment contract

COVID-19’s Impact on The Execution of Contracts & Mitigation

COVID-19 has posed a threat to human life across the globe so much so that it has now been termed a ‘pandemic’ by the World Health Organization (WHO). Apart from the rising deaths, stock markets across the globe have plummeted with Sensex crashing over 3,000 points in a span of two hours. The concern is not only limited to stocks and reduced production across the globe causing massive losses to the world GDP but also toward the performance of commercial contracts.

A contract is an enforceable agreement. This term ‘enforceable’ simply means a contract having the force of law (ie, it fulfils all other criteria essentials for it to be deemed a contract) must be performed by all the parties to it, and in event of failure to do so the party aggrieved may bring a civil suit in a court of law or refer it for adjudication or arbitration as the case may be.

But with the recent development of such a disease, which is forcing individuals to remain in a designated place for the time being or even bringing cities to standstill, what will be the legal status of contract to be executed by that person or in that area?

In the event of impossibility of a contract we may immediately refer to Section 56 of Indian Contract Act, 1852, which says that any act that was to be performed after the contract is made becomes unlawful or impossible to perform, and which the promisor could not prevent, then such an act which becomes impossible or unlawful will become void. Section 56 is based on a common law principle known as ‘Doctrine of Frustration’ propounded by English judges through a series of case.

As per this Doctrine there can be two grounds upon which even a legal contract can be termed ‘frustrated’ or, in other words, absolving all the parties from the liability of performance on account of certain intervening factors: (1) performance of contract is physically impossible, and (2) the object of contract has failed.

These principles have been upheld by the Supreme Court to be well within the ambit of Section 56 and thus we conclude that frustration as a result of COVID-19 will be safeguarded by the present contractual law. When in situations where it would be physically impossible to perform a contract owing to restrictions imposed on individual or an area, say, delivery of goods in a locality where all movement of people are restricted will fall within the present law, and both promisor and promise would be relieved from any contractual duty and liability in case of non-performance.

Similarly, where although it is physically possible to perform contract but such performance has lost the power to fulfil the very object of the contract itself would again call for application of Section 56 and Doctrine of Frustration. For example, decoration of an auditorium for a music concert although may be possible physically but without fulfilment of object to secure the required audience or even in some cases unlawful as per the orders of government.

In this regard we must also take note of Section 65 of the Act, which talk about the obligation of any person to revert back any benefit he may have received on account of any void contract. Thus, even though a contract ‘becomes’ frustrated at a later stage where at the time of its inception it was indeed possible to execute, if at all any benefit or advantage is derived by any party through this contract which became void due to frustration must be reverted back to the other party to bring everything back in its place.

Therefore, no one needs to worry about any liability arising out of contractual relationship when such relationship is tainted by an intervening impossibility like COVID-19 and also about any right he had over any amount, which is now with the other party to a contract where contract is now frustrated. A significant light in this regard must be thrown on the concept of ‘Force Majeure’, which is a French term for “superior force”.

If there is a force majeure clause present in a contract agreement then doctrine of frustration would not be applicable as far as such clause is applicable in a given situation.

The concept is simple, wherein parties to a contract agree beforehand about how to deal with or execute a contract under certain specified circumstances that might prevent execution of a contract. These circumstances could be anything such as natural calamity or unforeseeable circumstances that may be mentioned exclusively in the contract.

The clauses dealing with these circumstances and duties imposed on parties when such situation occurs and their liability, or what is to be done by the parties in such event, is termed as Force Majeure clause.

Force Majeure provision or clause is left for the parties to define within the contract itself and no such application are a matter of law and in common law no inference of such clause are decided by the courts. Any such clause in common law countries like ours are read strictly.

Onus to prove that the COVID-19 outbreak is within the force majeure clause mentioned in the contract and any such delay or failure to perform the contract on the account of such force majeure will lie on the party seeking such relief. In absence of these clauses, the doctrine of frustration would be applicable to make the contract void.

In conclusion, it can be said that COVID-19 has indeed impacted and will affect the execution of commercial contracts significantly in the near future, but such impacts can be mitigated by the provision within contract agreement itself and also by the law being in force.

 

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Tags: execution of contracts, contract mitigation, execution of agreement, executed lease agreement, mitigation contract law, mitigation of loss contract law, execution of this agreement, mitigation of losses in contract law, mutual execution of contract, mitigate loss contract law, mitigation of damages contract law, force majeure mitigation

Section 144

The World Health Organization (WHO) recently declared the novel coronavirus (COVID-19) a worldwide pandemic. With over 2,00,000 confirmed cases and 8,000 deaths panic levels are on a rise around the globe. Flight cancellations, shutdown of public places, and remote functioning of offices have caused unprecedented disruption across industries worldwide. In many instances, people seem to be prepping as if it’s the end of the world.

But what does it really mean? Countries severely hit by COVID-19 such as Italy, Germany, China, and the US are preparing to the greatest extent possible. While they may not resort to building 10 new hospitals in two weeks like China, surge capacity is being evaluated, coordinated within their healthcare system coupled with several isolation policies and orders.

Similarly, in India, the preliminary concerns for the government and its officials would revolve around the health and safety of all citizens disguised as an employee, customer, or neighbour. On these lines, Deputy Commissioner of Police Pranay Ashok imposed Section 144 over the Greater Mumbai region. Section 144 of Criminal Procedure Code (CrPC) imposes power to executive magistrate to restrict particular or a group of persons residing in a particular area while visiting a certain place or area.

This move was implemented to prevent a danger to human life health and safety and to ultimately slow down the spread of COVID-19. The outbreak of novel coronavirus aka COVID-19 was the reason for such threat to human life perceived by the Magistrate. This order created confusion among the general public who assumed this to be an imposition of Section 144 of Indian Penal Code (IPC) pertaining to Unlawful Assembly.

The same was later clarified by the Mumbai Police that the order was specific in nature, applicable to ‘Tour Operators’ and not the public in general. This was done so that travel groups comprising domestic or foreign nationals in the area may be curtailed.

The question that now lingers around is whether the imposition of Section 144 is the need of the hour amid this crisis. We must know that Section 144 is there to dispose of urgent cases of nuisance or apprehended danger by a competent magistrate so empowered to take such action.

Although in India the number of reported cases is still low compared to other nations across the globe, one cannot ignore the harm already caused by the coronavirus due to its quick growth rate and the potential to further aggravate the situation.

The present order or any such order within the legal dictum would be a necessary tool to impose certain restrictions on public gatherings and movement and such order could not be challenged on the ground of infringing the Fundamental Right enshrined in Article 19(1)(b) or (d) of the Constitution as same was found to be well within the limit of reasonable restriction of 19(2) and (5).

However, there are certain restrictions on the Magistrate exercising this power as he has to follow certain guiding principles laid down in the provision itself or that of Section 134. One peculiar instance in this regard is that this order under 144 cannot exceed more than two months but there is a proviso in the same clause granting the power with the State government to exceed such a time period to six months on satisfying itself for the need of such act.

Given the situation where no cure has been found, these sections would need to be interpreted leniently it being a procedural law. However, the role of the Code of Criminal Procedure would be much less when it comes to a situation that we are foreseeing as the spread of COVID-19 to such a large extent.

In India, we have the Indian Epidemic Disease Act, 1897 which not only grants the State and Central governments to take any temporary measure for controlling and prevent the outbreak of a disease but also punish the individual not complying with such orders through Section 188 of IPC (disobedience to order duly promulgated by Public Servant). A recent case has been lodged in this regard invoking this section of the Epidemic Act and even visas are being canceled under the ambit of this Act.

In a recent poll, pharmaceutical companies and scientists acknowledged that it may take at least a year for a COVID-19 vaccine to be approved and made available to patients. So, for the time being, Section 144 Criminal Procedure Code seems adequate to control the specific movement of targeted groups that are either more prone to the outbreak or are a major threat to spreading the virus.

This Section can also be invoked to prevent any situation of panic among the general public when it comes to shopping for essential commodities as we observe in different nations across the globe. Thus, we can rightly conclude that imposition of Section 144 is very well within its legal competency and can be effectively imposed to tackle this pandemic as the world impatiently awaits a COVID-19 vaccine.

 

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Tags: section 144, section 144 rules, 144 ipc, sec 144 crpc, sec 144 ipc, section 144 crpc, 144 crpc, 144 section rules, section 144 ipc, sec 144, article 144

Coronavirus – An ‘Act of God’ or not?

Oh my God! was a movie based on a middle-class atheist whose shop was destroyed in an earthquake. The movie revolves around the atheist’s struggle to claim his insurance money and learns that the disaster claim does not cover any damage caused by natural calamities classified under “Act of God”. Running out of options, he decides to sue God but fails to find a lawyer for such a lawsuit.

Similarly, the world today is struggling owing to the outbreak of COVID-19. The human cost of the novel coronavirus outbreak has been widely reported and the tragic consequences continue. But beyond the human toll of the current global health crisis, the coronavirus outbreak is having serious economic repercussions to the global economy and the supply chains on which it depends. 

As a result of this outbreak, several companies are examining their contracts to understand the extent of their rights, remedies and obligations with respect to their business associates. Suppliers of goods and services unable to deliver on contractual obligations are looking to see what provisions, if any, may protect them from a default.

What is the Force Majeure clause?

Force majeure clauses are contract provisions that excuse a party’s nonperformance when “Acts of God” or other extraordinary events prevent a party from fulfilling its contractual obligations.

Would the outbreak of corona virus amount to an Act of God?

Many force majeure definitions include reference to Acts of God or similar wording. Avoiding philosophical arguments that everything is potentially an Act of God, from a purely legal perspective, there is no one-size-fits-all answer as to whether a particular event falls within this sort of language. 

Generally, Act of God appears to denote events due to natural causes without any human intervention. It has also been labelled as “an irresistible act of nature” and some are advising that the phrase (or other catch-all provision) may suffice to cover an outbreak such as coronavirus. 

Ultimately, and most importantly, the issue depends on an assessment of all of:

• the nature and context of your particular contract; 
• the words in the relevant force majeure clause; and
• the general terms of the contract, including the substantive law / governing law clause.

To assess a business’ rights, obligations, and remedies, whether the business is the party unable to perform or such counterparty, the following should be considered:

• What contract provisions are relevant? Determine whether the contract includes a force majeure provision, and whether there any other relevant provisions to assess. Contractual provisions to review include any breach, termination, cancellation, or repudiation terms that may be applicable under the circumstances.
• How does the contract define a force majeure event? Is the provision broadly written? Assess whether the outbreak of the coronavirus, or the efforts to contain it, constitute a force majeure event under the contract. Examples of relevant language that may be included are “disease,” “epidemic,” “pandemic,” “quarantine,” or “acts of government.” Depending on the parties’ prior negotiation and drafting, a contract may either explicitly list all qualifying events, or generally define a force majeure event as an event beyond the parties’ control, leaving more room for interpretation. Broad, catch-all language may be interpreted differently depending on the applicable law.
• Is the coronavirus outbreak the cause of the party’s nonperformance? Consider whether the party could have timely performed if the outbreak did not occur. If other factors contributed to the party’s nonperformance, a force majeure clause may not be applicable. For example, to the extent a company takes proactive steps to avoid further spread of the coronavirus, e.g., by advising workers to stay home, does the resulting inability to perform constitute a force majeure event?

Practical tips

• Review the wording of force majeure clauses, paying particular attention to the list of non-exhaustive events which is often included, and the consequences of triggering a force majeure.
• If a long list of force majeure events is included, it is likely to be helpful (where you are seeking to rely on the clause) if pertinent wording is included such as “pandemic”, “epidemic”, “outbreak”, “crisis” or “governmental action”.
• Watch out for wording in new contracts that require that the event of force majeure is “unforeseeable”.
• Contact counterparties of contracts which may be affected and discuss a possible renegotiation, or postponement of obligations, as appropriate.

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Data Protection & Privacy in the Insurance Sector

The digital revolution in India has disrupted the business environment in all industries and the insurance industry is no exception. Digitization enhances efficiency and reduces the cost of transacting business however there remain several challenges to the adoption of emerging technologies such as disruption to the traditional insurance ecosystem, uncertain consumer adoption, return on investment and data privacy and security.

Emerging technologies usually deal in customer data which can be used to drive insights related to historical health issues and behavioural patterns of customers. Increasing regulations related to customer personal data around the globe and in India will continue to pose additional challenges for insurers and insurance providers alike.

The Information Technology Act, 2000 (IT Act) and the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 (SPDI Rules) set out the general framework with respect to data protection in India.

However, given the nature of the business of insurance companies and intermediaries, the Insurance Regulatory and Development Authority of India (IRDAI) has prescribed an additional framework for the protection of policyholder information and data, which is required to be followed in addition to the general framework under the IT Act.

Regulatory Framework Governing Insurance Companies

The IRDAI has made it mandatory for all the insurance companies to ensure the protection and maintenance of confidentiality of all the information that they have collected. Below are some of the relevant data protection regulations applicable to insurance companies:  

1. IRDAI (Maintenance of Insurance Records) Regulations, 2015 – Pursuant to Regulation 3(3)(b), 3(9) insurers are required to ensure that: The system in which the policy and claim records are maintained has adequate security features, and the records pertaining to policies issued and claims made in India (including the records held in electronic form) are held in data centres located and maintained in India.
2. IRDAI (Health Insurance Regulations), 2016 – Pursuant to Regulation 35(c) insurers, third party administrators (TPAs) and network providers (i.e., hospitals) are required to comply with data related matters as may be specified in guidelines prescribed by the IRDAI (if any).
3. IRDAI (Protection of Policyholders’ Interests) Regulations, 2017 – Pursuant to Regulation 19(5) insurers are required to maintain total confidentiality of policyholder information unless it is legally necessary to disclose the same to statutory authorities.
4. IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017 – Pursuant to Regulation 12 insurers are required to ensure that the:
   • The outsourcing service provider has adequate security policies to protect the confidentiality and security of policyholder information;
   • Information and data parted to outsourcing service providers remain confidential; and
   • Customer data is retrieved with no further use of the same by the service provider once the outsourcing agreement is terminated.

Regulatory Framework Governing Insurance Intermediaries

Intermediaries in the insurance sector such as – brokers, individual agents, corporate agents, third party administrators (TPAs), surveyors, loss assessors, and web aggregators – serve as a bridge between customers and insurance companies, by facilitating the process for selection and purchase of insurance products and assisting in the servicing of policies and assessment of claims.

Therefore, intermediaries are also bearers of confidential information and thus are subject to obligations relating to data protection and preservation of confidentiality prescribed by the IRDAI.

Whilst each intermediary is subject to its own regulations and code of conduct as set out in the table hereinbelow, the provisions in relation to data protection of the policyholder are common for all intermediaries. Inter alia, they prescribe that insurance intermediaries – 

• Treat all information supplied to them by prospective clients as completely confidential to themselves and to the insurer(s) to which the business is being offered
• Take appropriate steps to maintain the security of confidential documents in their possession, including by way of restricting access to such information, execution of confidentiality undertakings, etc. 

While a similar regime has been prescribed for insurance surveyors and loss assessors, the extant regulations permit surveyors and loss assessors, as an exception, to disclose information pertaining to a client, employer or policyholder to any third party, only where necessary consent has been obtained from the interested party.

It is however clear that the surveyors and loss assessors are prohibited from using (or appearing to use) any confidential information to their personal advantage or to the advantage of a third party.

Specifically, in relation to TPAs, the IRDAI (Third Party Administrators – Health Services) Regulations, 2016 (TPA Regulations) requires the TPAs to not share the data and personal information of customers received by them for servicing insurance policies or claims.

A limited exception to this rule has been carved out for disclosure of confidential information to any court of law, tribunal, government or the IRDAI in the event of any investigation being carried out (or proposed to be carried out) against the insurer, TPA or any other person or for any other reason.

The aforesaid exception is similar to the carve-out under Rule 6 of the SPDI Rules, which permits government agencies mandated under law to obtain information (including sensitive personal data or information) for specified purposes, without obtaining the prior permission of the provider of such information.

Insurance Regulatory Sandbox

A ‘Regulatory Sandbox’ is a testing environment created by the relevant regulatory authority to provide market players with an opportunity to safely and securely execute and test their innovative products, services, business models and delivery mechanisms, in an orderly manner, which aims at protecting the customers and at the same time safeguarding the interest of the stakeholders.

Shortly after the issuance of the RBI Regulatory Sandbox, on 18th May 2019, the IRDAI issued the “Draft Insurance Regulatory and Development Authority of India (Regulatory Sandbox) Regulations, 2019” (IRDAI Regulatory Sandbox).

The objective of the IRDAI Regulatory Sandbox is to create a balance between the orderly development of the insurance sector on one hand and protection of interests of policyholders on the other, while at the same time facilitating technological innovation by way of relaxing provisions of any existing regulations framed by the IRDAI, for a limited scope and limited duration.

On approval of an application, the IRDAI chair may relax the applicability of one or more provisions of any regulations, guidelines or circulars requested in the application, subject to the conditions for approving the application or any other conditions which the chair deems necessary.

The Regulatory Sandbox Regulations expressly state that no relaxation will be granted in relation to the Insurance Act 1938 or the Insurance Regulatory and Development Authority (IRDA) Act 1999.

Conclusion

The underlying objective of the regulation is to encourage good data practices and retain customer trust in the insurance businesses. Instead of treating it as a mere compliance task, companies should welcome the newly introduced regulations as a great opportunity for them to win customer trust and gain competitive advantages.

Though insurers may be acutely impacted by the regulation, their path to compliance is similar to any other impacted sector: revisiting systems and processes to assess readiness for this regulation and investing in filling gaps.

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Transformation in The Hospitality Sector

The magnitude of devastation attributed to events like 9/11 and the ‘Great recession of 2008’ seem bleak in comparison to the havoc wreaked by the COVID19 pandemic. The pandemic-induced lockdown has disrupted supply chains, closedown of businesses, and mass unemployment.

But the government’s decision to reopen the country in a phased manner brings a breath of fresh air and a hope for a gradual but steady ascent. However, the ascent is contingent upon the hospitality industry’s adaptability to the virus-induced irreversible transformational effect at large. 

With canceled flights, empty hotel rooms, and deserted restaurants, this pandemic has taken a toll on the hospitality industry. The industry’s dependence on the airline, tourism and travel industry makes recovery agonizingly difficult during these unprecedented times.

However, as the industry strives to get back up on its feet, stringent rules applicable to hotels in the MMR region, including Mumbai, Pune and Nashik must be followed. Therefore, the hospitality industry is in metamorphosis as they gear up for the post-COVID era. 

At the outset, the entire guest experience from check-in until check-out is likely to be redefined to cater to the current requirements of social distancing and hygiene. Zero-maintenance buildings, contactless interactions, and technology-based sanitization will emerge as the “new normal” for hotels and restaurants at large. Specifically, hotels outside containment zones will be allowed to operate at 33% capacity subject to adherence of social distancing and hygiene guidelines.

The rationale behind this is not only to avoid overcrowding but also to convert the remaining 67% capacity into a quarantine facility, as and when required by the government. Reduced operational capacity and increasing costs of running a hotel or restaurant will compel the industry to look for unconventional avenues to keep business afloat during a depressionary phase. 

Moreover, several other guidelines ensuring hygiene and social distancing such as mandatory thermal screening, protective glass at reception tables, sanitizers to all hotel staff and guests, and contactless digital payments, etc. will change the entire guest servicing experience. This goes without saying that only asymptomatic guests will be allowed entry in hotels.

As an additional measure, hotels are required to keep each room empty for minimum 24 hours post guest check-out and sanitize the room. Many of the facilities, like bars, buffet, spas and swimming pools, will have to stay shut for now and even though restaurants can open, they will only serve hotel guests for now. The State-mandated guidelines will propel the hospitality industry to provide a safe, contact-less experience from the pick up at the airport to the check-in, entire stay and until check-out. 

State-mandated guidelines although necessary for the health and safety of individuals, it is likely to have catastrophic consequences for alternate accommodation such as Bed & Breakfast, Guest Houses and unbranded budget hotels which constitute 95% of the hotel industry. On the other hand, implementation of these guidelines is easier for chain and luxury hotels with deep pockets, however high maintenance costs coupled with less customers may pose as a challenge.

In light of this, the low-priced sector on the country can ride on India’s large domestic tourism to kick start the industry. Also, the alternate accommodation industry offers potential entrepreneurial opportunities to small-scale business owners. Seeking out entrepreneurial opportunities is especially important as revival projections do not look promising as on date.

Corporate travel will perhaps revive the chain hotels though the lock down has shown that corporate travel can be limited with the emergence of work-from-home concept. As per FHRAI, hotels are seeing about 15-20 percent occupancy at present. For restaurants, limited number of working hours coupled with restrictions on the sale of alcohol makes business unviable, thereby hurling several small restaurants, bars and hotels towards an empty treasury.

Moreso, inbound traffic is bound to be slow due to travel restrictions and recessionary conditions limiting disposable income. Clearly, the prolonged impact of the COVID-19 crisis, even after the lockdown has been relaxed, is likely to have a long-term impact on the sector on account of burdensome guidelines and recessionary conditions limiting disposable incomes of customers.

Driving up sales requires a culmination of strategies including – continuous and effective marketing strategies that communicate with loyal guests through digital and social media during and post the lockdown. In doing so, hotels and restaurants can showcase their contributions and safety measures in wake of the pandemic for its customers. Secondly, it is imperative for hotels and restaurants to maintain adequate liquidity for working capital.

This can be achieved through a combination of renegotiation and extension of payment cycles with vendors, adopt RBI’s 3-month moratorium period for existing interest and principal payments to banks, and enforce rigid cost-control measures while supporting the salaries of its staff members. Consequently, a higher budget will be allocated to technology; minimum human interaction is maintained while providing a safe, hygiene and comfortable stay. 

The Finance Ministry’s economic package disappointed the hospitality industry, which came to a screeching halt on account of the COVID-19 outbreak. Unfortunately, the survival of this industry is interlaced with the situation of the aviation, hospitality and tourism sectors, thereby making survival and recovery of hoteliers challenging across leisure, heritage, adventure and niche verticals.

The industry is starved relaxations from the government, but more importantly for customers to feel at ease to visit hotels and restaurants once again. It goes without saying that a resumption of economic activity is essential, but the vigil on the virus must remain and in doing so Indians are likely to witness decades of unprecedented transformation in near future. 

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Tags: mass unemployment, sectors of hospitality industry, tourism and hospitality sector, sectors of tourism and hospitality industry, hospitality sector, mass unemployment pandemic, mass unemployment for employers, hospitality industry