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Case Note - Chapter 7 - 2

The document discusses two cases related to the enforceability of Memorandums of Understanding (MOUs). The first case involved an MOU between a state government and a company providing various tax exemptions. The state later denied these benefits, but the Supreme Court ruled the MOU was legally binding and the state could not ignore its own decision outlined in the MOU. The second case involved an MOU between individuals to start a foundry business. The High Court found that if the terms of a written MOU show the parties intended legal obligations, the MOU will be considered enforceable, even if one party did not anticipate legal obligations. It examined the conduct and intentions of the parties to make its determination.

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Yash Mayekar
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56 views

Case Note - Chapter 7 - 2

The document discusses two cases related to the enforceability of Memorandums of Understanding (MOUs). The first case involved an MOU between a state government and a company providing various tax exemptions. The state later denied these benefits, but the Supreme Court ruled the MOU was legally binding and the state could not ignore its own decision outlined in the MOU. The second case involved an MOU between individuals to start a foundry business. The High Court found that if the terms of a written MOU show the parties intended legal obligations, the MOU will be considered enforceable, even if one party did not anticipate legal obligations. It examined the conduct and intentions of the parties to make its determination.

Uploaded by

Yash Mayekar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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ENFORCEABILITY OF AN MOU

• Jai Beverages v. State of Jammu and Kashmir (2006) 5 SCC 772

Facts
The Kashmir government announced a package of incentives to industries, particularly to
"prestigious units" having a capital investment of Rs 25 crore or more. The nodal agency of the
government entered into a Memorandum of Understanding [“MoU”] whrein they were exempt
from general sales tax and central sales tax for five years, among other benefits. There were
additional benefits for "prestigious units". The company in this case started as a medium unit, but
later invested Rs 27 crore and was recognised as a "prestigious unit". However, two years after the
commencement of production, the state department of industries denied the benefit to the
company. One reason to deny the exemption in taxes was that the minimum of Rs 25 crore was
invested at a later stage and not at the start. Another reason was that it was producing soft drinks,
which was in the negative list. It was also argued that the Cabinet had reconsidered its decision
and refused exemption and, therefore, the revenue authorities had to go by that decision. The
company moved the high court where the petition was dismissed.
Issue
Whether x legally binding?
Judgement
The Supreme Court held that the documents and material on record disclosed that the government
took a conscious decision after Cabinet discussions to grant exemptions to new industries. "The
state cannot be permitted to ignore its own decision to permit the company to invest Rs 25 crore. It acted on the basis
of the decision taken by the state government.... In this background, the state cannot be allowed to say that the
incentives cannot be extended to this industrial unit," the judgement emphasised.
• Bikram Kishore Parida v. Penudhar Jena AIR 1976 Ori 4
Facts
Plaintiffs and defendant No. 1 were well acquainted with one another since a long time and they
proposed to start a foundry business under the Pilot Project Scheme of the Government of Orissa.
Accordingly, an agreement/MoU was entered into by the plaintiff and the defendant No. 1. The
essential terms were that the name of the defendant No. 1 would be shown as the private
entrepreneur, but the money for the shares was to be advanced by the plaintiffs; defendant No. 1
shall transfer 26, 250 shares out of 35,000 shares ostensibly held in his name; each of the plaintiffs
and defendant No. 1 would have 1/4th interest in the shares standing in the name of defendant
No. 1. The plaintiffs have fully paid the money for the 35,000 shares allotted in the name of
defendant No. 1 and after subscribing the money, the plaintiffs carried on the work of the business
of the company and continued to manage the work jointly as agreed upon by them. Defendant
No. 1 became the Managing Director of the Board of Directors and got a resolution passed for
transfer of 7000 shares in name of plaintiff No. 1 and 7000 share in the name of plaintiff No 2
and 3000 shares in the name of plaintiff No 3 and the same was sent for sanction of the
Government. Defendant No. 1 assured that further shares would be transferred to the plaintiffs.

Issue
Whether plaintiffs will be entitled to have 8750 shares to be transferred to each of them or they
are entitled to transfer of only 17000 shares in their favour as resolved by Board of Directors and
approved by Government, i.e, whether the MoU is legally enforceable?

Judgement
If there is a written agreement between the parties, the intention of the parties can be inferred
from the agreement and: the conduct of the parties, the Cour held that the test of an intention of
the parties to effect legal relations is an objective one. It may be that the promisor never anticipated
that his promise would give rise to any legal obligations, but if a reasonable man would consider
that he intended so to contract, he will be bound to make good his promise. The intention of the
parties, as to whether they intended to enter into a legally enforceable contract or not is primarily
gathered from the terms and conditions which are agreed by the parties.

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