This article contemplates and articulates the broad legalities and operational standpoint on Termination of employees from Service, Lay-off, and Retrenchment so as to allow the business management to make well-informed decisions weighing legalities against business objectives. Law provides broad-level directives and guidelines which companies shall have to oblige and comply with, without compromising the interests of the subject matter of the Act (welfare of workforce). Employment and Labour laws are a cumbersomely clumsy, yet comprehensive compendium of labour Acts applicable to deal with the law relating to employment and labour aspects. The common objective of all is to provide safeguard and protection to varied kinds of the workforce, be it an employee, workman, contract employee, etc., working in varied lines of business at different levels from daily wager to contract labour and all kinds of employees in between. Apparently, although different laws govern varied kinds of the workforce, these laws have effectively achieved the main objective of providing protection to a varied workforce. In a basic sense, this law governs the relationship between the employer-employee, covering the workforce in varied spectrums.
The government has been working to enact uniform labour code to condense varied employment legislations at central and state levels to bring in comprehensive legislation to simplify compliances for employers and thereby achieve better workforce protection.
The definitions of lay-offs and retrenchment are specifically covered under the Industrial Disputes Act, 1947. However, while determining the termination of service of employee it is pertinent to delve into the spectrum of Labour and Employment Acts and regulations which are prevalent in India in order to take statutorily compliant decisions taking into account the business objectives of the company.
The law relating to lay-offs and retrenchment is specifically expounded under Chapter VA (Entitled, Layoff and Retrenchment) and Chapter VB (Concerning, Special provisions relating to Lay-Off, Retrenchment, and Closure in Certain Establishment) of the Industrial Disputes Act, 1947. These two chapters in ID Act elaborately delineates provisions relating to Lay-offs and Retrenchment.
It is imperative to understand the applicability of the Act, since the objective, purpose and applicability of every act are different, and so contemplating and analyzing the applicability of relevant law to the issue in hand is the key to arriving at a targeted solution. The ID Act is applicable to a certain class of workmen as defined under Section 2(s) of the Act. “Workman” means
"Any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied, and for the purposes of any proceeding under this Act in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of, that dispute, or whose dismissal, discharge or retrenchment has led to that dispute”
Further, notably, there are certain exclusions to the definition of a workman, and according to the Act, Workman who is,
(i) in a managerial or administrative capacity; or
(ii) employed in a supervisory capacity, draws wages exceeding ten thousand rupees per mensem, or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature, are express exclusions to the definition.
As such, this Act does not become applicable to the sizable spectrum of employees working in various organizations or companies either due to their nature of work or earning being at a higher scale.
This Act has provided lucid definition to the words “lay-offs” and “retrenchments” under Section 2(kkk) and Section 2(oo) of the Act and the extract thereof is below.
"Lay-Off (with its grammatical variations and cognate expressions) means the failure, refusal or inability of an employer on account of shortage of coal, power or raw materials or the accumulation of stocks or the breakdown of machinery [or natural calamity or for any other connected reason] to give employment to a workman whose name is borne on the muster rolls of his industrial establishment and who has not been retrenched."
Explanation: Every workman whose name is borne on the muster rolls of the industrial establishment and who presents himself for work at the establishment at the time appointed for the purpose during normal working hours on any day and is not given employment by the employer within two hours of his so presenting himself shall be deemed to have been laid-off for that day within the meaning of this clause:
Provided that if the workman, instead of being given employment at the commencement of any shift for any day is asked to present himself for the purpose during the second half of the shift for the day and is given employment then, he shall be deemed to have been laid- off only for one-half of that day
Provided further that if he is not given any such employment even after so presenting himself, he shall not be deemed to have been laid-off for the second half of the shift for the day and shall be entitled to full basic wages and dearness allowance for that part of the day.
“Retrenchment means the termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action, but does not include-
(a) voluntary retirement of the workman; or
(b) retirement of the workman on reaching the age of superannuation if the contract of employment between the employer and the workman concerned contains a stipulation in that behalf; or
(c) termination of the service of the workman as a result of the non-renewal of the contract of employment between the employer and the workman concerned on its expiry or of such contract being terminated under a stipulation in that behalf contained therein; or
(d) termination of the service of a workman on the ground of continued ill-health"
The law relating to lay-off and retrenchment is effectively applicable for the workman in industrial establishment, as defined under the Act, and effectively, the scope and validity of these provisions to said workman are categorically restricted to certain persons employed in an industry subjected to exclusions as delineated under the definition of the workman.
Bare reading of the Act clearly indicates that employees working in companies with salaries higher than the limit applicable for the workman, or who are in managerial or administrative capacity does not fall within the ambit of the scope of the said Act. Given the exclusions, the scope and applicability of the Industrial Disputes Act are limited to the workman as defined under the said Act.
The SE Act regulates the law relating to the regulation of employment and conditions of service of workers employed in shops and establishments for matters connected therewith and incidental thereto. This is a state enacted law and every state enacts its own Act. This Act has vast applicability as the words” commercial establishment” and “shops” have wide applicability covering businesses and organizations in varied sectors and industries.
As per the Act, the term Commercial Establishment means “an establishment which carries on any trade, business, profession or any work in connection with or incidental or ancillary to any such trade, business or profession or which is a clerical department of a factory or an industrial undertaking or which is a commercial or trading or banking or insurance establishment and includes an establishment under the management and control of a co-operative society, an establishment of a factory or an industrial undertaking which falls outside the scope of the Factories Act, 1948, (Central Act 63 of 1948), and such other establishment as the Government may, by notification declare to be a commercial establishment for the purposes of this Act but does not include a shop.”. The meaning of word Shops means “any premises where any trade or business is carried on or where services are rendered to customers and includes a shop run by a Co-operative Society, an office, a storeroom, godown, warehouse or workplace, whether in the same premises or otherwise, used in connection with such trade or business and such other establishments as the Government may, by notification, declare to be a shop for the purposes of this Act, but does not include a commercial establishment”.
It is important to understand the sect of employees who are governed by the said Act, and the definition of Employee under the SE Act means “A person wholly or principally employed in, and in connection with, any establishment and includes an apprentice and any clerical or other staff of a factory or industrial establishment who fall outside the scope of the Factories Act, 1948; (Central Act, 63 of 1948).”, and the said definitions had certain stipulated exclusions. This definition widely encompasses employees in organized as well as unorganized sectors which relatively include higher income groups.
Contextually, understanding the exemptions to the Act is equally important to apply the relevant labour Act righteously to any given situation. Under the said Act, Section 79 deals with exemptions to the applicability of the Act, and the exemptions delineated under the Act are “employees in any establishment in a position of management and having control over the affairs of the establishment, whose average monthly wages exceed sixteen hundred rupees”.
In “T. Prem Sagar vs The Standard Vacuum Oil Company Madras and Others”, the apex court had laid down certain tests to ascertain whether an employee is in a position of management and extract of the judgment is provided below.
“So, in order to determine whether a person is in a position of management or not, the factors to be considered are whether the person had the power to operate on the Bank account, whether he could make payments to third parties and enter into agreements with them on behalf of the employer, whether he was entitled to represent the employer to the world at large in regard to the dealings of the employer with strangers, whether he had the authority to supervise the work of the clerks employed in the establishment, whether he had control and charge of the correspondence, whether he could make commitments on behalf of the employer, whether he could grant leave to the members of the staff and hold disciplinary proceedings against them and whether he had the power to appoint members of the staff or punish them. The salary drawn by an employee may have no significance and may not be material though it may be treated theoretically as a relevant factor.”
The apex court had emphasized the applicability of the tests laid out under the said judgment that they should be considered against the facts of the case, particularly taking into account the nature and scope of work of the employee in the broader perspective of his/her work functions and responsibilities.
In accordance with provisions of the SE Act, in case any employee falls within the purview of the SE Act, the employer shall have to strictly comply with obligations of serving of notice period or alternatively pay wages in lieu thereof to employees in case employee is terminated of services of employment.
Considering the limited construct of the word “Workman” under the Industrial Disputes Act, the applicability and enforceability of ID Act are limited (as aforementioned). Now the majority of Multinational Companies, Start-ups, Information Technology and IT-Enabled Services (ITES), and industrial establishments have the manpower of varied spectrum of employees, operating at different levels. No single Act may be applicable to all kinds of manpower, and so it is important to delve into various labour and employment Acts that are prevailing.
Further, from the preceding analysis, it is evident that lay-off and retrenchment of workman would be dealt as per the provisions of the Industrial Disputes Act, and the Shops and Establishment Act stipulates provisions concerning termination of services of employees. However, the applicability of the Act would differ on a case-to-case basis depending on the nature of the job, income, nature of work, exemptions provided under the Act, etc., and therefore, application of relevant labour and employment Act is critical.
Nevertheless, it is important to note that the Shops and Establishment Act does not apply to the employees in any establishment in a position of management and having control over the affairs of the establishment, whose average monthly wages exceed sixteen hundred rupees. However, employees falling under the purview of the SE Act would be governed with regard to matters of Wages, Conditions for termination of services appeals, suspension, and terminal benefits, under Chapter VIII of the said Act.
Particularly, where Act is applicable to employees Section 47 of the Telangana Shops and Establishment Act stipulates conditions for terminating the services of an employee, payment of service compensation for termination, retirement, resignation, disablement, etc., and payment of subsistence allowance for the period of suspension. Pursuant to the said provision, “no employer shall, without a reasonable cause terminate the service of an employee who has been in his employment continuously for a period of not less than six months without giving such employee at least one month notice in writing or wages in lieu thereof and in respect of an employee who has been in his employment continuously for a period of not less than one year, a service compensation amounting to fifteen days average wages for each year of continuous employment”. While the said provision under the Act is illustrative, the above extract of the Section highlights that serving of notice period is mandatory for termination, retirement, resignation, disablement etc.,. Therefore, the companies will have to consider the mandatory notice period and service compensation guidelines illustrated under the said provision.
It is imperative to also take into account that evidently, hordes of the workforce falls to the exemptions of the Industrial Disputes Act and the Shops and Establishment Act, 1988, as a result of an employee being in the position of management or extensive salary packages, etc., In such a scenario, the governing document will be the Employment Agreement and applicable company policies, as the may be agreed between employer and employee.
The law prescribes the compliance framework and guidelines for companies to adhere to and comply with. However, companies may set-up pragmatic and workable workforce management and operational framework keeping in compliance with the applicable legal framework. In the event of any doubt, apropos the minimum compliance standards and framework, it is prudent to delve into the Acts and legal precedents before taking any decision.
“Ideally, the Employment Agreement should strike a balance between the applicable legal framework and interests of the company”
The employment agreement is an important document, as it legally binds and governs the relationship between employer and employee. So, if the employment agreement had legally enforceable provisions in line with applicable laws, then the employer's decisions in regard to termination of an employee from service will be governed by the provisions of this Employment Agreement.
In the wake of the outbreak of the novel COVID-19 pandemic and declaration of WHO that it is global health pandemic, the governments across global have taken unprecedented measures and many countries including India have locked down their nations restricting trade and commerce. Indisputability, lockdown measures although it helped nations to minimize the damage or loss of lives to a greater effect, yet this pandemic leads to the onset of economic crisis and market meltdown creating an adverse ripple effect across the global economies. The restrictions imposed by governments resulted in impacting the businesses in all areas ranging from exports/imports, transport, logistics, productivity, investment, etc.,. In other words, the market is in standstill mode with uncertainties leering from all corners of the world. With unpredicted and unprecedented meltdown, it is becoming difficult to ascertain the future.
The companies started experiencing less revenues and cash crunches due to steep plunge in the business operations, and virtually the businesses are preparing for a market meltdown by taking expeditious remedial steps. The major cost for any company is Human Resources and second, technological advancement. With clampdown of global operations, projects ramp down is underway and eventually, the companies would enter into cost-cutting mode and may result in laying-off and retrenchment of an employee in order to sustain the crisis.
In case companies are taking steps of lay-offs, retrenchment, and termination of services, then it would be prudent of Companies to follow legalities and be compliant so as to avoid the influx of litigation that may arise as a result of illegal termination of employment. Simple measures will mitigate future litigation expenses.
Employer-employee or Employer-workman relationship is regulated by various labour and employment laws. However, in the context of lay-offs, retrenchment, and termination of services of an employee, predominantly, two Acts, namely the Industrial disputes Act and the state relevant Shops and Establishment Act governs and stipulates the law and procedures pertaining thereto. The ID Act governs the relationship between workman-employer and the SE Act of employee-employer. However, there is a class of employees who do not fall within the ambit of both acts due to depending facts such as remuneration, type of employment, nature of work, etc. Therefore, there is no straight forward formula for determining the applicability of provisions and so it is important to delve into applicable law and precedents so as to get a legal solution.
Companies as a practice enter into an employment agreement and bind their employees to comply with various company policies (such as leave policy, maternity policy, etc.). However, execution of employment agreement does not absolve the obligations of the company to comply with applicable Act and regulations, and it is imperative that employment agreement should be drafted and amended from time-to-time in strict compliance with applicable amending regulations. Employment Agreement which is not in line with applicable law may fall to the ground in the eyes of the law. From a high-level perspective, the employment agreement and company policies applicable to its employees play a vital role in streamlining the management of human resources, without compromising on legalities surrounding thereto. As such, companies should audit the human resources portfolio and accordingly implement an effective employment agreement that works both statutorily and organizationally. This employment agreement will govern the procedure of lay-offs, retrenchment, and/or termination of services, in case the ID Act and the SE Act are not applicable to particular class of workforce.
Corporate and Litigation Lawyer, Hyderabad
Disclaimer: The content of this article is solely the author’s personal analysis and interpretation. In case you wish to act upon the basis of the content of this article, please seek legal advice. The author shall not be responsible for any loss you may incur as a result of your actions relying upon this content. The content herein is the copyright of the author and is informational and shall not be used for commercial purposes other than for personal reading.
Cheque Bounce is something that all of us would have faced in our lives. However, did you know that the person who had issued the cheque can go to prison for the same? The dishonor of a cheque drawn in furtherance of discharging, any debt or other liability owed by such drawer, is considered to be a criminal offense in India, punishable by imprisonment of up to 2 years, or with fine which may extend to twice the amount of the cheque, or with both. Hence, we have discussed below the legal provisions dealing with issues of cheque bounce.
As it stands, the ingredients required to constitute an offense relating to the dishonor of cheques have been mentioned within Section 138 of the Negotiable Instruments Act, 1881, and have been reproduced below:
The intention of the drawer is not considered relevant while deciding his culpability under this Section. Furthermore, it is worth noting that Section 141 of the Negotiable Instruments Act also renders liable, companies, partnership firms, and other associations of individuals liable for the offense mentioned in Section 138. Typically, the persons in charge of the company (usually directors or partners, as the case may be) are held liable for punishment under the same. They may claim defense on the grounds that the offense was committed without their knowledge or that they had exercised all due diligence to prevent the commission of such offense. The Court trying a case under Section 138 may order for interim compensation not exceeding twenty percent of the amount of the cheque to the payee during the pendency of the case.
If you have been presented with a cheque which gets dishonored, you can take the following steps:
Once your cheque bounces, you will be served with a notice to make the payment within 15 days of such notice. If you fail to do so, a complaint against you may be filed. You will be summoned to the Court, and a court proceeding will commence. It is advisable to take legal help in such circumstances.
Cheque bounce offenses lead to imprisonment of up to 2 years along with fine. Furthermore, intention does not play a role in affixing liability. Hence, you may be held liable, despite not intending to dishonor the cheque. The severity and seriousness of this offense hence need to be understood. It is pertinent to take care that if this offense has been committed unintentionally, the amount promised should be paid within the stipulated time period of 15 days. Also, it is preferred that in the event of such a situation arising; one should approach a lawyer and take advice.
Non-payment of salary to the employees by their employers is very common. The employers are often under the misconception that the employees are either not aware of their rights or would hesitate to follow the complex procedure of filing a complaint against them. However, there are various laws that safeguard the rights of employees and to claim the unpaid salary as well as the interest in it.
The Payment of Wages Act, 1936, ensures that employees get their salaries on time. However, if the employer denies or delays the payment of salary or wages to the employee or worker, then the employee or worker is entitled to interest on the amount to be paid for delay in providing the wages or salary. The employee then has the option of sending a legal notice to the employer for the payment of salary. A certain list of documents is required while sending a legal notice to the employer such as-:
Upon receiving the Legal Notice from his employee, the employer must pay the unpaid dues with interest to the employee. However, if the employer refuses or fails to do so, then further legal remedies such as Insolvency and Bankruptcy Mode, Arbitration and Mediation, and lawsuit can be opted by the employee for the recovery of dues.
In this method, the employee or a group of employees file a petition for the payment of unpaid salary under the Insolvency and Bankruptcy Code, 2016. After filing a petition, a resolution professional is appointed, and a committee of creditors is set up. If a suitable conclusion is not arrived at for the payment of salary, then the company is liquidated.
In order to file a complaint under IBC, the employee or employees must send a demand notice to the employer seeking the payment of unpaid dues. If the employer does not pay within the stipulated time, then the insolvency resolution process will be initiated against the company. Generally, such a process can be initiated by filing an application with the adjudicating authority, which is the National Company Law Tribunal or NCLT.
Arbitration is a costly method and can be used only if it is one of the clauses in the employment contract. Also, the decision arrived at in Arbitration is time-consuming in the matter of the application of the decision. Mediation is a process whereby a neutral third party comes to a hears the dispute of both the parties and helps to come to a decision in a peaceful manner. However, in this matter, Mediation can be useful only if the employer is willing to abide by the decision of the mediator.
The employee can file two types of suits under the law for the non-payment of salary-:
Civil Suit: an employee can file a civil suit under the Civil Procedure Code. Typically, the employee is required to send a legal notice demanding payment of dues to the employer. If the employer refuses or fails to do so the employee can initiate legal proceedings against the company. As per order 37 of the Civil Procedure Code, you may file a summary suit before the District Court. After filing a suit, summon is issued, and the employer has a period of 10 days to appear before the court. In case the employer fails to appear, then the decision is made in favour of the employee. The employee also must have some proof of employment and must mandatorily file a suit within three years from the date when the salary was due to him.
Criminal Suit: It is the liability of the employer to pay the salary to the employee on time. However, if he denies, refuses, or fails to do so, then the employee can file a criminal suit for cheating and breach of trust under Section 420 of the Indian Penal Code.
The employer has paid the salary through cheque, which has bounced and thereafter refuses, or denies making a fresh payment, then the employee can file a suit under Negotiable Instruments Act, 1881.
It is pertinent that you know your rights as an employee. However, please note that if you work as a consultant or a professional on an independent basis, you may not be able to avail of the routes mentioned above, except filing a suit for breach of contract. You should approach a lawyer to understand and evaluate your options better.
Wrongful termination of employees refers to when the employees are terminated on account of wrongful means. The different grounds on which the termination of employees is known as wrongful termination are-:
The Employment Contract signed by the employer and the employee defines the procedure of terminating the employee. The contract may or may not have provisions regarding the procedure for the termination of employees; if it contains a procedure, then it must comply with the Labour laws; however, if it does have any such specific procedure, then the employer must follow the state-specific labour law. The two types of terminations of employees are-:
Termination by Contract: The employment contracts specifies a particular procedure for the termination of the employee. This method of termination is more popular. This form of termination is more common in a fixed-term employment contract, where an employee is hired for a fixed period of time. If the contract is not renewed by the employer, then the employee is automatically terminated, which does not amount to wrongful termination.
Termination by Law: In the absence of a provision for the procedure of termination of an employee, the employer must follow the state-specific labour law.
Termination for a cause: of disobedience, theft, fraud, lack of punctuality, accepting of bribe, dishonest, causing damage to the company's goods, negligence of work.
Ordinary termination: is the most standard procedure for the termination of an employee. In it, the employer must provide the employee with 30 days' notice to the employee.
There are various labour laws in India, such as the Industrial Disputes Act, 1947, the Workmen's Compensation Act, 1923, State Shops and Establishments Acts, which protect the employees from wrongful termination.
Industrial Disputes Act, 1947: Industrial Disputes Act, 1947, states that if an employee has been employed for more than a year, then the employer can terminate him only after permission is granted to him by a suitable government office. Also, he must provide a valid reason for terminating the employee and pay severance amount (equal to 15 day's salary) to the employee for the number of years he has worked under him.
Make a formal complaint: The employee has been wrongfully terminated by the employer; then, the employee must first make a formal complaint to the Human Resource (HR) Department. Many times if the employee has been wrongfully terminated then the HR Department will resolve the issue and restore the job of the employee, however, if the HR Department does not take any action then the employee must send a legal notice to the employer to seek the damages, such as-:
In case a contractual provision is violated, then the employee can file a civil suit in the Labour Court. For initiating charges of Criminal Intimidation, the employee can file suits in criminal as well as civil courts.
In India, the employment laws are complicated. The employers who wrongfully terminates his employees do know the laws and methods through which the employees can claim remedy, thus the employers also know ways to get out of the loopholes and avoid the liability. However, the employees must know their rights and more so as to what factors or grounds constitute wrongful termination and thus must file a suit against the employer for wrongful termination.
Trademark is a form of Intellectual Property. It essentially refers to the brand name that allows for differentiation between similar goods. Trademarks can be in the form of numerals, a combination of colours, signature, name, or device. Companies spend a huge amount of money through advertising and product design to establish their brand value. The same is treated as an asset that can be transferred like any other type of property, in accordance with the Trade Marks Act, 1999 and accompanying Rules of 2017.
The assignment of Trademarks refers to the transfer of ownership of the Trademark to the buyer. The transfer can be with or without goodwill.
Licensing refers to a limited transfer i.e.; the transferee is allowed to use the Trademark (within the limits of the agreement entered upon) without having the ownership transferred to him. The Licensor(owner of the Trademark) usually generates loyalties while the Licensee gets the ability to expand his business using the appeal of the Trademark.
The following are the different types of Assignments allowed under the Act:
I. Complete Assignment:
As the name entails, a complete transfer of all the rights pertaining to the Trademark is transferred to the buyer. The buyer would be empowered to sell it later on if he so chooses to.
II. Partial Assignment:
Herein only restricted ownership pertaining to specific products or services is transferred to the buyer.
III. Assignment with Goodwill:
Goodwill is a term that is easy to describe but hard to define. It refers to the intangible value of (in this case) a Trademark. In this type of assignment, the owner transfers the rights and values related to the product or service.
IV. Assignment without Goodwill:
Trademark Ownership excluding Goodwill stands transferred. The buyer cannot use the Trademark for the same product or service as used by the owner. That is, the buyer shall be allowed to use the purchased Trademark for products other than those already being produced by the original owner, as the goodwill relating to that product is not transferred.
There exist certain restrictions on the assignment of registered Trademark so as to prevent creating confusion in the mind of the public or users.
While drafting an assignment deed, it is necessary to include the following:
It is important to record the change in ownership with the Trademark Registry. According to Rule 75 of Trademarks Rules, 2017, Form TM-P should be filed with the Registry intimidating the changes to the ownership of Trademark. A flat fee is applicable - Rs.9,000 for E-Filing, and Rs.10,000 for Physical Filing. This has made the process of assignment streamlined and simpler.
Trademarks are valuable assets. They are a measure of a company's popularity and reputation in the market. Therefore, entities rather than investing a lot of time, effort, and money into creating a brand of their own sometimes prefer to buy it. It is advantageous for the buyer as through minimal effort; a customer base is handed over. Assignment deeds should be made with proper care otherwise, they might become a reason for litigation.
A contract is typically a written agreement wherein the parties fix the terms and conditions of their relationship and transactions. Termination of a contract is very important as it provides parties with an exit option. Under the Indian Contract Act 1872, a contract can be terminated by the parties involved by giving legitimate reasons like frustration, repudiatory breach, termination by prior agreement, rescission, or on completion.
Such termination may occur by the mutual consent of the parties or by law. However, if a contract is breached or terminated without mutual consent, then the party other than the one breaching it can seek certain legal remedies on account of such termination.
It is important that a contract includes all these remedies in writing. It is advisable to approach a lawyer and assess which remedies to termination of the contract, maybe the most beneficial.
Indemnity is a term that you may have heard or read often while going through commercial contracts. Do you know what does indemnity mean? Indemnity is defined as compensation which one contractual party gives to the other for the loss suffered. However, it is not this simple, and there are many contractual issues involved. We shall discuss and explain the issues associated with indemnity.
It is a promise to hold a person harmless from the consequences of his act. It can be express or implied. Companies, while entering into a contract, happen to mention an indemnity clause so as to manage risk arising out of acts by another party effectively. It is viewed as a form of security against a financial loss. The contracting party who promises/gives the indemnity is called the indemnifier while the contracting party to whom indemnity is given is called the indemnity holder. The definition of Indemnity in Indian Law is narrower compared to the English Law. While the latter definition includes within its scope losses arising from any cause (fire, ravages of the sea, etc.), the Indian definition only allows for a promise to indemnify losses arising out of actions directly attributable to the promisor or by any other person. Basically, loss must be on account of human agency.
An indemnity is typically required under certain events. These include intellectual property rights infringement, loss to property, losses to third parties, etc. Even if one has indemnified a product for a particular amount, a valid claim can only be made for the exact amount of loss made and not the entire amount. Also, it is a settled law position that a party can be indemnified before suffering actual loss provided that such loss is imminent.
Damages are described as compensation for legal injury. The following are differences between Damages and Indemnity :
There is a tendency to simply use previous indemnity clauses without tailoring it to the requirements of the contract at hand. This diminishes its effectiveness. Certain key points to keep in mind while drafting the Indemnity Clause are:
Thus, Indemnity clauses seek compensation for actual or potential damages arising out of certain set events. They are usually subject to intense negotiations on account of the liabilities they impose. Such clauses should be drafted with care and should be tailored as per the requirements of the contracting circumstances. Otherwise, they are likely to be rendered useless when a dispute arises.
A Lease agreement is quite common among corporate entities. It is like an arrangement between two parties with respect to rights of possession over some property for a specific time period and consideration. The basic function of the agreement is to ensure a clear demarcation of the terms and conditions involved in the said transfer. A poorly drafted agreement, more often than not, is the reason for extended litigation in Courts. Therefore, it is absolutely essential to understand the fundamental aspects of a Lease Agreement and the necessary points to incorporate in the same.
A Lease is a transfer of possession rights over some property over an agreed-upon time period and monetary value. An important thing to note here is that in a lease, the ownership of the property is not transferred. The law governing the transfer of immovable property is the Transfer of Property Act, 1882.
The following are certain key terms involved in the framing of a Lease Agreement:
A Lease Agreement needs to be specific and exhaustive enough to cover the subject matter at hand and, at the same time, protect one's interests. The following are certain key drafting points to keep in mind while framing a Lease Agreement:
Lease Agreements, especially in a commercial transaction, consists of various complicating circumstances, especially on account of the amount of money involved. This merits proper understanding of exactly what one expects out of the lease agreement and framing the same accordingly. The twin objective of any well-drafted agreement should be to grant peace of mind to the parties entering into a contract and prevent frivolous litigation. The points discussed above, though not exhaustive in any sense, should help achieve the same.
Data Protection has emerged to be a leading concern in today’s world due to the rise in the number of cybercrimes. The current Indian legal framework is inadequate in dealing with the threat posed by cyber-crimes. The Supreme Court of India has also recognized the need and importance of legislation that seeks to protect the personal data of the citizens. Based on this report, the Personal Data Protection Bill was tabled in the Parliament. The Bill has not yet become a law. Once passed, it will become the sole law addressing data protection issues in India, replacing Section 43A of the Information Technology Act, which regulates data privacy in India currently.
In 2008, Section 43A was inserted in the Information Technology Act along with Section 72A to address the issue of protection of personal data. Section 43A makes a company that collects sensitive personal data and fails to protect the same, thereby causing wrongful gain or loss liable for damages. Sensitive personal data is nothing but sensitive information that may be used to identify a person. For instance, information like password, biometrics, medical records, physical and mental health, financial information, or any other information which relates to a person, and which can be misused against that person.
However, information of an individual that is freely available from a public domain or under the Right to Information Act is not included under sensitive personal data or information. Section 72A spells out the penalty for unauthorised disclosure of such information. Any person who discloses sensitive personal data shall be liable to be imprisoned for a term not exceeding three years or fine up to INR five lakhs or both.
The Sensitive Personal Data or Information rules presently regulate data protection in India. They only apply to companies and individuals based in India. The Sensitive Personal Data Information Rules, mandate the following:
The Sensitive Data Protection Rules have been inadequate in addressing the issue of data protection. Not having a dedicated law aimed at data privacy, is altering India’s image in the world. The Personal Data Protection Bill, 2019 (PDP), as stated earlier, if passed, will become an exclusive law regulating data protection in India.
The PDP seeks to protect not only sensitive personal information but personal information of all kinds. It calls upon companies that collect and determine the purpose of collection of personal information to follow certain safeguards in order to protect the data from being leaked. Among other things, the PDP, stresses on the consent of the individual for the processing and usage of his personal data. If passed, it can go a long way to provide proper data protection mechanisms in India.
A non-compete clause is a provision in an employment contract whereby the employee agrees to the fact that he would not enter into any competition with the employer during the term of his employment or even after the employment period is over. Typically, a fixed period of time is agreed upon for restrictions that extend beyond the term of employment. Non-compete clauses are common in IT Departments, Media, Financial Industry, Corporate World.
The non-compete clause in an employment contract is governed by certain provisions of the Indian Contract Act, 1872. Section 27, of the Contracts Act, makes agreements that are in restraint of trade void.
A vast number of judicial decisions have emerged on the question of enforceability of non-compete clauses. These decisions are divergent, and hence, no clear answer to the enforceability of non-competes has emerged till now. We have discussed some of these case laws below:
For fixed-term employment contracts, the restriction can be enforced under specific conditions. If an employee has resigned before the expiry of the term, then the restriction can be enforced for the rest. Non-competes may also be enforced against senior-level employees under certain conditions. If there is suspicion that a senior- level employee possesses proprietary information about the company, such an employee may be prohibited from joining a competing company by enforcing a non-compete clause.
Thus, a non-compete clause in an employment contract is not completely unenforceable and may be enforced in some circumstances. However, it should be drafted carefully and properly.
A non-compete agreement is different from a non-disclosure agreement. In a non-compete clause, an employee promises to not enter into any kind of competition with the employer after leaving the job. Whereas a non-disclosure agreement restricts an employee from revealing any confidential information of his previous employer to the current employer or anyone else in the future. While the enforceability of non-compete clauses is still not a settled issue, non-disclosure agreements may be enforced under the law.
In India, any clause which restricts an employee from practicing any professional activity through a contract or an agreement is considered void under the law. The topic of whether a non-compete clause is harsh and extreme and whether it includes consultant is a debatable topic that will continue. However, whether such a clause imposed on an employee is harsh or not depends upon the circumstances of the situation, and the final call can be taken by the courts.
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