UNIT I

CONSTRUCTION CONTRACT

Indian Contract Act, 1872 determines the circumstances in which promises made by the
parties to a contract shall be legally binded to the enforcement of rights and duties. Indian
Contract act defines that contract as an agreement which is enforceable by law.
The Indian Contract Act, 1872 has 238 sections altogether. Sections 1 to 75 came into
force from September 1, 1872.

CONTRACT
Definition:
The term contract is defined as an agreement between two or more parties which has a binding
nature, in essence, the agreement with legal enforceability is said to be a contract. It creates and
defines the duties and obligations of the parties involved.

Process of Contract

First and foremost, an offer is made by one party to another which when accepted by the
party to whom it is made, leads to the agreement. If that agreement is enforceable by the court of
law, it is known as a contract.

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Elements of a Contract

The requisite elements that must be established to demonstrate the formation of a legally
binding contract are

1) offer

2) acceptance

3) consideration (usually money)

4) mutuality of obligation

5) competency and capacity

6) a written instrument

Essential Elements of a Contract

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1. Agreement: The primary element that creates a contract between parties is an agreement, which
is a result of offer and acceptance that forms consideration for the parties concerned.
2. Free Consent: Consent of the parties is another important aspect of a contract, which means the
parties entering into the contract must agree upon the same thing in the same sense. The consent
of the parties is said to be free when it is not influenced by coercion, undue influence, fraud,
misrepresentation and mistake.
3. Competency: Competency refers to the capacity of the parties to enter into the contract, i.e.
he/she has reached the age of maturity and sound mind as per the law like the alien enemy,
foreign sovereigns, etc.
4. Consideration: The agreement must be supported by consideration on both sides. Each party
must exchange a promise in a written agreement. Consideration is the price for which the
promise of t6he other is sought. However the price need not be in terms of money. In case the
promise is not supported by consideration, it is not enforced by law.
5. Lawful object: The object for which the contract is created must be lawful, or else it is declared
as void.
6. Not expressly declared as void: The law should not expressly declare the contract as void, such
as contract in restraint of marriage, trade or legal proceedings.

Other important elements of Contract

▪ There must be at least two parties to constitute a contract, i.e. one who proposes and another
accepts the same.

▪ The parties entering into the contract must intend to create a legal obligation for one another.

▪ It must be in writing.

▪ There must be certainty of meaning. the terms of the parties must be clear to the parties, i.e.
the party should not interpret anything wrong, there must be a consensus ad idem.

▪ There should be a possibility of performing the contract.

So, these are some paramount elements of a contract, without which it cannot be enforced in
the court of law.

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Elements of contract

1) Offer

For the validity of a contract, the offer is essential. The offer is the starting point of the
contract. Until there will be no valid offer by one party to another, there cannot a contract. The
offer may be oral, written or implied but it is compulsory for the formation of the contract.

2) Acceptance of the proposal

The only offer is not sufficient for the contract but its acceptance is also compulsory.
Until proposal is accepted by the offeree, there cannot be a contract so the acceptance of the
proposal by the offeree is also essential for the formation of contract.

3) Agreement

The only proposal and its acceptance are not sufficient for a contract and it is only a
promise. Therefore, there must be an agreement and its must be enforceable by law. Every
promise forming the consideration for both the parties is an agreement. So the proposal, its
acceptance and the consideration are compulsory for a valid contract.

4) Legal relation

The parties to the contract must intend to create a legal relation. It means both the
contracting parties should know that if any of them with fail to meet the contract, it will be liable
to the other party for such default. Agreements of moral, religious and social nature are not
contracts because they often do not create a legal relationship and legal obligation among the
contracting parties.

5) Lawful consideration

The only consideration is not compulsory for the validity of the contract but it must be
lawful. The contract act says that an agreement without consideration is void. But section 10 of
the contract says that lawful consideration is necessary for the validity of the contract, therefore
without consideration or with lawful consideration is void and not valid.

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6) Lawful object

For the validity of a contract, the object of the contract must also be lawful. It must not be
illegal or immoral. It should not oppose any general public policy. According to the section 23 of
the contract act, every agreement of which the object is unlawful is void.

7) Competent to contract

The parties to the contract must be competent to contract. According to the section 11 of
the contract act, every person is competent to contract who is of the age of majority according to
the law to which he is subject, and who is of sound mind, and is not disqualified from contracting
by any law to which he is subject, therefore a minor or a person who is of unsound cannot enter
into a binding contract.

8) Free consent

For the validity of the contract, it is necessary that all the contracting parties must enter
into a contract with free consent.

9) Certainty

For the validity of a contract, it is necessary that the meanings, terms and performance of
the agreement must be clear, certain and definite. Therefore, a valid contract the terms of the
agreement must be certain. These must not be uncertain otherwise it will become void.

10) The possibility of performance

For the validity of a contract, it is also necessary that the performance of the contract
must be possible. A contract, the performance of which is possible cannot be a valid contract.

11) Consideration

In a broad sense, consideration is something of value. It is the primary reason or main

cause or main cause for a person to enter a contract. It is something of value received by one of
the parties in exchange for another item or action that is of value. It is not regarded as
consideration unless it is so regarded by both parties. Both parties to a contract must obtain

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consideration or the contract is not valid. If consideration exists on the part of both contracting
parties, regardless of the value, the courts will probably consider it sufficient.

1) On the basis of validity

a) Valid contract:

A valid contract is an agreement enforceable by law with all the essential elements of a
contract. It satisfies all the essential requirements of a valid contract as laid down by Indian
contract element. If one or more of these elements (offer, acceptance, consideration and lawful
consideration) are missing, the contract is not valid.

b) Void contract

The act defines a void contract as “ a contract which ceases to be enforceable by law
becomes void when it ceases (wind up) to be enforceable”. This makes all those contracts that
are not enforceable by a court of law as void.

Example: A agrees to pay B a sum of Rs. 10,000 after 5 years against a loan of Rs.8,000.
If A dies of natural causes in 4 years, the contract is no longer valid and becomes void due to the
non-enforceability of the agreed terms.

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c) Voidable contract

The act defines a void contract as “an agreement which is enforceable by law at the
option of one or more of the parties thereto, but not at the option of the other or others, is a
voidable contract”.

Suppose a person A agrees to pay a sum of Rs.10,000 to a person B for a chair. This
contract would be valid, the only problem is that person B is a minor and can’t legally enter a
contract. So this contract is a valid , the only problem is that person is a valid contract from the
point of view of A and a “ voidable contract” from the point of view of B. In voidable contract,
at least one of the parties has to be bound to the terms of the contract.

d) Void agreement

It is an agreement not enforceable by law because one or more of essentials of valid

contract.

2) On the basis of formation

a) Express contract

It is an exchange of promises in which the terms by which the parties agree to be bound
are declared either orally or in writing, or a combination of both, at the time it is made.

b) Implied contract

An implied contract is created when two or more parties have no written contract, but the
law creates an obligation in the interest of fairness based on the parties conduct or circumstances.
A contract is assumed to exist based on the behaviors of the parties to it.

c) Quasi contract

It is a contract which does not arise by virtue of agreement express or implied but the
law recognizes the contact under special circumstances. For example, quasi contract are created
by the court when no official agreement exists between the parties, in disputes over payments for
goods or services.

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3) On the basis of performance

a) Executed contract

An executed contract is one in which both the parties have performed their respective legal
obligations.

b) Executory contract

An executory contract is one where one or both the parties to the contract have still to perform
their obligations in future. Thus, a contract which is partially performed or wholly unperformed
is termed as executory contract.

c) Unilateral contract
A unilateral contract is one in which only one party has to perform his obligation at the
time of the formation of the contract, the other party having fulfilled his obligation at the time o
the contract or before the contract comes into existence.

d) Bilateral contract
A bilateral contract is one in which the obligation on both the parties to the contract is
outstanding at the time of the formation of the contract. Bilateral contracts are also known as
contracts with executory consideration.
Contract documents
The Roads and Highways Department developed series of standard contract documents for
the use on all RHD contracts.
These compromises
1. The tender
2. Conditions of contract
3. Technical specifications
4. Drawing ( Including standard and project specific drawing)

In addition to the above standard documents a number of associated documents and guides
have also been produced,

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 1. The tender documents
2. Construction practices and procedures
3. Standard test procedures
The national building code defines contract documents as including the following,
i) contract drawings and specifications prepared by registered architects and registered
engineers
ii) priced bill of quantities prepared by a registered quantity surveyor
iii) construction programme, project quality management plan, project health and safety
plan prepared by a registered builder
iv) conditions of contract
v) all risk insurance for the building works, personnel and equipment.
Contract drawings
The contract drawings include the architectural drawings, the structural/geotechnical
engineering drawings. These drawings provide information regarding the arrangement of spaces,
structural components, electrical and mechanical installations.
Specifications
This amplifies the information given in the contract drawings and bill of quantities. It
describes the details the work to be executed under the contract and the nature and quality of
materials, components and workmanship.
Priced bill of quantities
A priced bill of quantities is a bill of quantities that has its rate and amount column filled
by a contractor. A bill of quantities consists of a schedule of items of work to be carried out
under the contract with quantities entered against each item, prepared in accordance with the
standard method of measurement of building works.
Construction programme
This is a document that is ordered that the project participants may have a thorough
appreciation of the work involved, to allow the site production team to sort out its main
constituent and decide how, in what order and at what time to do them, and to ensure adequate
co-ordination of the labour, materials and machinery requirements.
Project quality management plan

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 The project quality management plan defines the various quality related activities and
procedures which will be implemented on the project. It sets down requirements, gives
guidelines, provides information and indicates to appropriate personnel, the procedures to be
followed with respect to the project quality management plan.
Project health and safety plan
The project health and safety plan is a document developed to secure the health, safety and
welfare of persons who will work or visit the site. It was also developed to control the emission
of toxic substances into the atmosphere and control the keeping and the use of substances that
might be hazardous to health.
Conditions of contract
The conditions of contract define the terms, under which the work is to be undertaken, the
relationship between the client, architect and contractors, the duties of the architect and
contractors, and the terms of payment.
All risk insurance
This is a contract document that is developed and shows that all the personnel and
equipment associated with a construction project has been insured against loss or damage. By
insurance, all the risks associated with personnel and equipment in a construction project is
transferred to a third party.
Torts
Tort is a legal term in common law jurisdiction that means a civil wrong that is recognized by
law as grounds for a law suit.
Tort means a breach of some duty independent of contract give rise to a civil cause of action
and for which compensation is recoverable.
Definition of tort by Salmond & Hueston
A tort is a civil wrong for which the remedy is a common action for unliquidated
damages, which is not exclusively the breach of contract or the breach of trust or other mere
equitable (one which is fair and acceptable to both sides).
Liability of tort does not exist without proof of legally recoverable losses. There is a
hierarchy of loss in tort, which does not exist in contract law.
฀ Historically tort has its root in criminal procedure

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 ฀ Even today there is a punitive main element in some aspects of the rules on damages.
However, tort is a species if civil injury or wrong
฀ Tort is one which gives rise to civil proceedings
฀ A civil proceedings concern with the enforcement of some right claimed by the plaintiff
as against the defendant. (Plaintiff - a person who brings an action in a court of law)
The main torts are
1. Negligence
2. Defective premises
3. Nuisance
4. Trespass to land
5. Negligent misstatement
6. Vicarious liability
7. Occupier’s liability
8. Employers liability
9. Product liability
10. Fraud/ Deceit
11. Withdrawal of natural rights
12. Breach of statutory duty
1. Negligence
It is the most important tort for several reasons “it forms the cause of action in the
majority of cases brought in tort, its scope is very wide, and it may also be an element in liability
for other torts”.
The tort of negligence is concerned with the careless infliction of harm or damage, “the
omission to do something which a reasonable (person) guided upon those considerations which
ordinarily regulate the conduct of human affairs, would do or doing something which are prudent
and reasonable (person) would not do”
2. Defective premises
Any person taking on work for the provision of a dwelling owes a duty to (its employer)
every person who acquires an interest (whether legal or equitable) in the dwelling.

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3. Nuisance
Nuisance is the unlawful interference with person’s use or employment of land or some
rights over or connection with the land (or a neighbor’s land).
4. Trespass to land
It is the wrongful or unjustifiable entry onto the land in the possession of another or
remaining on land after permission to be there has ceased, however temporary or minor the
intrusion. It also includes placing or throwing items onto the land.
5. Negligent misstatement
A person who gives advice or information knowing that the receipt of the information
will rely or is very likely to rely on the maker’s skill or ability, owes the recipient a duty of care.
This is form of negligence liability.
6. Vicarious liability
It states that vicarious liability attaches to,
a) Wrongful acts authorized by the employer
b) Wrongful and unauthorized modes of carrying out authorized acts.
7. Product liability
This is a strict liability offence under the consumption act 1987 allowing individuals to
bring a claim for compensation arising from personal injury and damage to other property (but
not the defective product itself).
8. Fraud / Deceit
The essence of fraud is that the person making a statement has no belief in its truth. It
involves dishonestly, irrespective of motive or intention. Where there is a fraudulent
misrepresentation
Then the injured party is entitled to claim under the tort of deceit.
9. Withdrawal of natural rights
A landowner must not interfere with the natural rights enjoyed by his neighbours.
10. Breach of statutory duty
It is primarily punishable under criminal proceedings,
a) The individual comes within the class or category of persons which the act is
intended to protect
b) The loss of damage suffered is of a type intended to prevent under the statue

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c) The act does not preclude civil liability for breach of its provisions
d) Breach of the relevant statutory duty

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 UNIT II

TENDERS

Prequalification

Prequalification is the process, that results in a select bidders list or shortlist, which
identifies firms that have demonstrated to the owner that they have the necessary abilities to
perform the required work. Prequalification generally consists of

 Submitting specific information about the types of projects successfully completed by the
firm
 Current work load
 The personnel employed by the firm
 The experience of the personnel to be assigned to the proposed project
 The financial stability of the firm

To accomplish the prequalification process, an individual or group is empowered to

determine whether particulars are qualified to handle contracts. Based on the results of such
research, a list of contractors who are approved as prospective bidders may be prepared.
Compiling such a list is frequently a difficult task because,

 Omission of a particular contractor is likely to be criticized as unfair

 Political pressure may be exerted in favor of one or more concerns
 A contractor who is not able to qualify at one time may be able to meet all requirements
later, or vice versa
 The ability to complete the contract work successfully is not always easily determined.
 The prequalification procedure may prevent some builders from being awarded a contract
that, because of scope and complexity.

Bidding

It is the process of submitting a proposal (tender) to undertake, or manage the

undertaking of a construction project. Bids are not only chosen on cost alone. Sometimes
contractors submit lower tenders to win the contract and win the work.
 The bid states the price that the bidder will contract for to perform the work based on the
work shown and described in the bidding documents .bids are prepared in confidence by each
other. They are usually sealed when submitted to the client. At a specified time and date, all bids
are opened, competitively examined and compared. Unless there are compelling reasons to do
otherwise, the client usually enters into an agreement to have the work performed by the bidder
submitting the lowest bids.

Bid capacity = (A x N x 2) – B

Where,

N = Number of years prescribed for completion of the contract

A = Maximum values of works executed in any one year during last five years (at current
price level)
B = Value, at current price level, of existing commitments and ongoing works to be
Completed in the next ‘N’ years.
Accepting

EVALUATION OF TENDER FROM TECHNICAL, CONTRACTUAL &

COMMERCIAL (FINANCIAL POINT OF VIEW)

If prequalification is carried out then normally the lowest tender is selected. If

prequalification was not carried out then all the factors to be considered in prequalification
process are to be considered during evaluation of tender form. The various points to be
considered at this stage are

(i) TECHNICAL POINTS

a) Details of key personnel
b) Details of skilled & other workers
c) Plants & equipments in hand
d) Details of experience & past experience of the applicant in particular type of work.
(ii) CONTRACTUAL POINTS
a) Litigation history (whether black tested or not)
 b) Bid & capacity
c) Current contract commitments
d) Progress of past projects
e) Value of work completed in the previous years (year wise)
f) Names of owners of previous work

(iii) FIANCIAL POINTS

a) Annual financial statements for past five years
b) Particulars of Bankers and possible support by them
c) Particulars of Insurers
d) List of projects under progress indicating their COST, probable completion period,
percentage of completion so far as on prequalification date & names & address of
owners.

(iv) OTHER POINTS

a) Go through the conditions of contract & see that contractors have SIGNED in all The
Pages
b) If there are corrections in tender, it should be attested by the contractor.
c) Verify whether the contractor have produced INCOME TAX CLEARANCE
CERTIFICATE
d) Verify the validity of the tender (normally 2 months)

By considering the above points, qualified tenders are identified & prepared for further.

PREPARATION WORK

The preparation of tender and contract documents, including all survey and design
work needed to prepare quantities and guideline costings, should take place in good time. If
funds are to be sourced from international lending agencies or donors, their guidelines will
have to be followed and examples of advertisements and documents from such organizations
should be obtained at the beginning of this process.

Preparation may require the application for land and water rights, environmental
impact assessments plus any needed compensation or resettlement plans. These must be
completed before the dam construction can be approved and allowed to proceed.

In many places, construction can only take place in the dry season when river levels
are low, access to the site easier and moisture control for compaction possible. Thus, the
design and tender process should take place in the rainy season and be timed to be completed
by the beginning of the next dry season in time for mobilization of plant and equipment as the
ground begins to dry out. Clearing access roads, felling and removing trees and stripping
foundation areas is often best begun before the ground has completely dried out. The end of
one rainy season and the start of the subsequent dry season are the best times for this.

ADVERTISEMENT OF THE TENDER

Always include a site visit in any tender advertisement and award procedure. The
tender advertisement period has to take into account the need for approval (usually at the
advertisement and award stages) from the lender or donor, the need to adhere to local or
national government regulations and bureaucratic procedures, whether it will be advertised
internationally, regionally or nationally and the scope of works. A tender for one small dam
could be advertised nationally and potential tenderers given 6 to 8 weeks to respond, including
site visits and collection of documents. Thus, the tender period for this, including
advertisement and evaluation could be around 12 weeks. A series of dams being funded by
one or more donors may require international advertisement with time for potential bidders to
collect documents, make site visits and prepare timetables and bids (in their home countries).
Such a tender may require up to 20 weeks to complete with further time required for the
winning bidder to mobilize. The more complicated the works and the size and number of
dams to be built, the longer the tender process will take. Guidelines to assist in the preparation
of tender and contract documents, and in the award of a contract for a simple project involving
only one or two small dams, are given below:

The evaluation modalities (see details hereafter) or any modified equivalents are to be
attached to every tender document to permit bidders to understand the proposed evaluation
process.

Always keep written records of significant events and always advise bidders in writing
of any matter that could have legal implications. Any specific information given to any
tenderer that is not in the documents should be passed on, in writing, to all other tenderers.

THE EVALUATION MODALITIES

Two options exist for tender, and the choice has to be indicated in the tender
document. In the first option, the technical and financial offer are combined and presented in a
single envelope. The second option, called staged tender, involves a two envelope system in
which the technical proposal (first envelope) is evaluated and bids ranked before the financial
offer (second envelope) is opened. It ensures that price does not influence the technical
evaluation of the bid. This approach should be preferred, in particular in the case of complex
contracts. Where a two envelope tendering process is used, it should be indicated in the tender
document that tenderers are to place the technical and financial components of their tenders in
separate, clearly marked, envelopes. These envelopes are to be placed inside a single envelope
and normal procedures apply for the lodging of the tender. A points system should be adopted,
based on criteria that can be adjusted according to country, individual dam sites, scope of
work and other factors. All tenderers must be made aware of the evaluation procedure to be
followed and whether there are any special conditions involved

The following steps are to be followed:

RECEPTION OF THE BIDS

Following advertisement of the tender, ensure that every tenderer who pays the
required, non- refundable fee for receives the documents, design drawings, quantities (but no
guideline costs), any Community Agreement, the date of the site visit and details on where the
tender documents are to be delivered, the deadline for delivery and the location and time of
tender opening. If the deadline is changed, all potential tenderers must be advised either
personally (if few in number) or by advertisement in the media. Bids received should be noted
in a diary and the bidder and staff member sign to confirm date and time received. Any bids
delivered in unsealed envelopes should be rejected and the bidder advised in writing that
his/her fee is forfeited and that s/he cannot re-bid. All other bids are to be kept in a secure and
inaccessible location until the time of tender opening. The site visit should be formally
recorded in the same diary and any bidder unable to make the visit should be excluded from
the process and his/her bid returned unopened.
OPENING OF THE BIDS

The responsible officer opening the bids should first advise all those present of the
procedure he/she will follow. Brief details on the evaluation process (already provided in the
documents and based on the guidelines above should be given to assure potential bidders that
the evaluation is to be fair and equitable. At tender opening, one staff member should be given
the responsibility for opening the bids received. A secretary will be required to note persons
attending and any comments (especially objections) made. The minutes – brief and noting
points only should be filed for future reference. Accept cash or bank certified cheques only.

REVIEW OF THE DOCUMENTATION

As each bid is opened, the responsible staff member may name the bidder but then
must check that the bid is complete and conforms to the advertised conditions. If for any
reason it is not complete (for example the site visit certificate is missing), the bid should be
rejected and the bid price not disclosed. The whole document has to be returned to the bidder
with a covering letter stating why it had been rejected. There is no appeal on this matter.

Minor omissions or errors can be accepted. Small arithmetic errors should be corrected
and the revised figure used in the evaluation. If significantly large errors that may affect the
bid price are noted, and at the discretion of the evaluation team, the bid should be rejected.
Unrealistic bids with either costs shown at levels impossible to achieve or for bidders who
show that they are completely inexperienced or have completely inappropriate equipment, can
also be rejected at this stage. If the bidders have not been prequalified some investigation at
this stage (this process should be noted in the bidding documents and/or tender advertisement)
into the integrity of the bidder should be carried out. Any bidder with recent20 criminal
convictions relating to fraud, bribery or corruption or with serious, proved cases of contract
malpractice or failure, should be excluded at this time. The bid should not be evaluated. As
above, the bid should be returned to the bidder with a covering letter and all other bidders
informed of the decision.
TECHNICAL EVALUATION

Once the bids are declared valid, the actual points evaluation procedure can begin.
Tenders should initially be assessed, in accordance with the evaluation methodology being
utilized, against non-price criteria, that is, on their technical merits. The evaluation team
should not have access to the tender price at this stage. The assessment of the non-price
criteria is to be documented before moving onto the next stage of the evaluation.

FINANCIAL ASSESSMENT

Once tenders have been assessed against the technical criteria, a financial evaluation of
the prices tendered (or quoted) can then be undertaken. The results of the financial assessment
are to be documented before moving onto the next stage of the evaluation.

ASSESSMENT OF ‘BEST COMBINED OFFER’

Having separately assessed tenders against technical and financial criteria, a comparison
of technical worth‘ and price is undertaken in accordance with the criteria established in the
tender document, to determine which tender represents the best combined offer. This stage will
establish the final ranking of the tenders.

AWARDING THE CONTRACT

Once the final ranking has been established, the contractor with the highest total
should be awarded the contract. If, for exceptional reasons, a decision is made that does not
award the contract to the highest evaluated bidder, other bidders must be formally advised of
the reasons why and given a period (10-14 days) in which to object but not change their bids.
All objections then have to be looked at and a final decision made. Because this can lead to
delays and legal issues it is best not to make decisions that award contracts to bidders other
than the highest evaluated.

Lastly, once a decision has been made to award the contract, the potential contractor
can be contacted and the contract awarded. It is recommended that the winning bidder should
not be negotiated with to either reduce the price (i.e. if above the budget for the dam or project
or if all bids are considered unacceptably high in part or whole) or to improve on the bid to
include items considered deficient. It is not unethical to do so as long as it is done for the
interest of the cost effectiveness and in a open and transparent way. If the award of contract
fails, or is stopped for any reason, the second highest bidder can be brought in. Do not
however negotiate with two bidders at any one time in an attempt to play off one against the
other. This is extremely unethical and unprofessional.

Once the contract has been awarded, the other, unsuccessful bidders should be
formally advised of the award but not of the final price. The actual evaluation is confidential
and information therein is only released if a losing bidder should complain and arbitration has
to take place. The award decision should be published with a list of all the bidders, major
elements of the evaluation process detailed and specific reasons why the award has been made
to the winning contractor.

CONTRACT SUPERVISION

Continuous monitoring and auditing is required to supervise any contract. This can be
carried out by the dam owner, government agencies or consultants appointed to supervise a
contract being funded by an international financing agency. For all but the former, the
supervisor must in turn be monitored and audited to ensure compliance with the contract and
to encourage cost effectiveness and to avoid corruption.

The World Bank establishes a panel of experts for every large dam contract and these
personnel are fully independent and are able to carry out regular (and irregular) monitoring
and auditing activities throughout the duration of the contract.

Particular attention should be paid to contract variations. Any variation should be

scrutinized both individually and in aggregate, and once a financial ceiling is reached (based
on the contract price and usually in the range of 10-15 percent) the independent outside
experts should be called in. Any proven case of variation in response to bribery and corruption
should cause the immediate cancellation of the contract (without any penalty payment to the
contractor) and dismissal and prosecution of any supervision personnel involved.

For all contracts, an effective dispute resolution organization/entity is required. As

with the panel of experts, this should be independent and suitably qualified to resolve disputes
impartially and in the interest of fairness and integrity. This may be a government agency or
could be based in the private sector. Details of such an agency should be clearly stated in all
tender and contract documents.

PAYMENTS

The sequence of payments to the contractor will have been outlined in the tender and
contract documents. Usually these will have been negotiated at contract signing and any
variations allowed outlined in the tender documents.

Advance payment:

Most dam contracts will require an advance payment being made to the contractor for
mobilization (establishing a site complete with offices, power, communications and water
supplies, clearing the dam site, establishing stockpiles of materials, moving equipment and
staff to site and related initial activities). This would be recorded as an advance payment and
can comprise between 10 and 25 percent of the total contract amount. It can either be made as
a lump sum payment or can be proportionally recovered as routine payments are made to the
contractor as the works proceed.

Routine progress payments:

Routine payments can be agreed at contract signing and can take the form of a
monthly payment based on estimated amounts of work completed or can be based on
proportion of the dam being completed. Either way, the payment requests have to be
submitted by the contractor and then checked and approved by the Engineer supervising the
works. All approved payments should be scrutinized and cleared; then paid quickly. Many
contractors do not have the financial resources to cater for lengthy delays in routine payments
and, where private sector contractors are working for public sector clients such as government
ministries, effective and transparent ways and means of ensuring quick payments to the
contractors should be established before the project starts.

Variation payments:

In all but the simplest contracts, a sum for unexpected works or for variations to the
design should be catered for. Usually listed in the Bill of Quantities as Contingencies, this can
be calculated at around 5 to 15 percent of the total contract sum.

Final payments:

At the end of construction, the works should be inspected and signed off by the
engineer. The contractor can then demobilize and leave the site. Usually, the final payment is
withheld for a period agreed in the contract - one year is satisfactory and will give the dam a
chance to fill and be used before the contractor‘s liability is removed. During this period, the
dam should be closely monitored and checked. Defects should be noted and rectified at his/her
expense.

If the contractor is unable or unwilling to do this work, the retained sum can be used to
pay another contractor to do the work required. Once the liability period is over, the engineer
certifies the dam as good, and the contractor can be paid the balance owed.

FINAL INSPECTION AND MEASUREMENT

This is an important activity and can be carried out by the engineer to ensure the
completed dam has been built to the design and to the highest standard possible. This activity
can be carried out jointly by the engineer and the contractor to ensure there are no disputed
findings but the engineer is the overall responsible officer. The final inspection is best
completed before the contractor demobilizes to ensure that any outstanding work noted can be
completed without delay. As built drawings should be produced and kept on record. The
maintenance and safety programme can then be instigated.
Basics of contract
A contract is an agreement reached between two or more parties which is legally
enforceable when executed in accordance with specific requirements.
Contract should be project specific and reflect the agreement between the parties.
Contracts are obviously a key part of every business and it is therefore fundamental that all
parties to a contract understand the terms included in a contract and right and responsibilities
of the parties under that contract.
Every contract should have
1. Offer
2. Acceptance
3. Consideration
4. Intention to create legal relations
1. Offer
The first requirement of a legally binding agreement is that there is an offer. One party
is the offeror, who represent the offer and one party is the offeree, who is the potential
acceptor of the offer. The main objectives are
a) An expression of willingness to contract on specified time
b) With the intention that it is to be binding once accepted
An operative offer must be more than an expression of desire or hope, that contract can
be considered. Preliminary negotiations, invitations to deal, advertisements, and acts evidently
done are not to be regarded as offers because the requisite intent to contract is lacking. An
invitation to enter into negotiations may be just a suggestion advanced with the purpose of
inducing offers by others. Similarly, a quotation of price should be distinguished from a real
offer. The question of whether a given communication naming a price is meant to be a
quotation or an offer depends upon the perspective vendor’s intention as manifested by the
facts and circumstances of the particular case or the custom of the trade.
2. Acceptance
Acceptance represents the meaning of the minds of the parties to the contract- both
agree to exchange something for the other (payment, services, goods, etc..). It is important that
you are able to distinguish between the different rules and principles governing acceptance,
a. Acceptance must be unequivocal - There must be nothing left to be negotiated by the
parties.
b. Acceptance must mirror the offer - It must be exactly corresponding with the offer in
order to be valid and form a binding contract. The offeree cannot accept an offer while
offeror add further items during acceptance.
c. Acceptance must be communicated to the offeror by suitable way of communication
(postal, e-mail)
3. Consideration
Consideration is the requirement of reciprocal obligation on the parties to a contract.
Both parties must receive valuable consideration for performance of their side of the contract.
Consideration is not required in Scotland where donation accepted in the law of contract.
However, it is extremely unlikely that a commercial organization would provide goods or
service for free.
4. Intention to create legal relations – For a contract to exist the parties to an agreement must
intend to create legal relations.
Potential contractual problems
It deals with the subject of performance and breach. The general rule is that for any
breach of contract, for any unjustified failure to the perform the act promised, the party in
default will be held liable for damages to the injured party. No matter how the trivial the
breach, the law will award damages to the aggrieved party. Further-more, In some cases where
the breach is a very serious one, the law may excuse the aggrieved party from the performance
of his duty under the contract.
Substantial performance
It refer to a degree of performance of a contract which isn’t full and complete
performance, but is so nearly equivalent that it would be unfair to deny the contractor the
payment agreed upon in the contract. However, the owner has a right to recover whatever
damages he has suffered by reason of the contractor’s failure to render full and complete
performance.
Partial performance
Action in accordance with the terms of the contract when full performance has not
taken place. Partial performance will not generally support a recovery on the contract.
Approval of performance
The authorities are definitely far from unanimous regarding the effect of a contract
system whereby one party agrees to perform to the satisfaction of the other. It is reasonably
clear that, in any event, the latter must exercise good faith in evaluating the performance; the
difficult question is whether or not his decision must be reasonable.
Example: construction contracts normally stipulate that all work is subject to the approval of a
third person (typically an architect or engineer)
Impossibility of performance
The term impossibility refers not only to literal impossibility but also to impracticality
to some extreme difficulty encountered (promisor has died or is in capacitated).
Non performance
If one of the parties fails to perform at all or performs only partially, it is known as non
performance and breach of contract. The major excuse for non performance can be either
prevention or impossibility. Legal impossibility to perform includes death or illness, change
of laws. In these substances, performance may be excused by the courts.
The time element
It means the failure of a promisor to fulfill his particular obligation within the
stipulated period. This failure will not discharge the other party’s duty of performance, though
any unwarranted delay will normally subject the delinquent party to damages.
Nature of delays (time overrun either beyond the contract date or beyond the date the parties
agreed upon the delivery of the product)
Force majeure causes (weather, acts of nature, subsurface condition)
 UNIT III
ARBITRATION
Arbitration is a process in which a dispute is submitted to an impartial outsider
(Arbitrator or Arbitration panel) who makes a decision which is usually binding on both the
parties. Disputes are resolved on the basis of material facts, documents and relevant principles of
law.

 A private method of dispute resolution

 A consensual dispute resolution process
 To resolve their commercial or trade related disputes at venue selected by the parties.
 Without recourse to court of law
 By reference to a neutral third party for its determination chosen by the parties
themselves
 With a binding end result which is internationally enforceable
 Avail interim reliefs if required and Confidentiality in the process.

Arbitration process
Arbitral Disputes

 Property
 Insurance
 Contract (including employment contracts)
 Business / partnership disputes
 Family disputes (except divorce matters)
 Construction
 Commercial recoveries

Non Arbitral Disputes

 Matters of criminal nature

 Disputes relating to matrimonial relations
 Relating to trusts for public purposes of charitable or religious nature
 Insolvency matters
 Matters relating to the guardianship of a minor or lunatic.
 Any execution proceedings.

Types of Arbitration
Institutional Arbitration:
All disputes arising in connection with the present contract shall be finally settled
under the rules of ICC (International Court of Arbitration) .
Advantages
• Degree of permanency
• Modern rules of arbitration
• High quality technical support facility
• Better scrutiny of awards
Disadvantages
• Cost is higher [Cost is determined on the ad-volerem (in proportion to the estimated
value of the goods) of the amount involved in the claim]
• Time problems with the respondent (As there is a fixed period on the respondent to
submit his response to the issues raised by the party initiating arbitration).
• Lack of greater flexibility
 • Process is extremely technical and involves higher time for its resolution.
Ad-Hoc Arbitration
All dispute or differences arising out of or in connection with this agreement shall
be referred to and determined by arbitration”.
Advantages
 Parties agree there own rules
 Greater flexibility offered
 Usually less costly and less technical in comparison to institutional arbitration
Disadvantages
 Depends on co-operation and effectiveness of parties.
 Greater chance of existence of factual errors in the award.
Arbitrator
An arbitrator is person selected by mutual consent of the parties to settle the matters in
controversy between them. A person appointed to adjudicate the difference is called an
arbitrator. An arbitrator is a tribunal chosen by the consent of the parties. (or) An Arbitrator is a
person to decide the dispute outside the Court. He may be appointed either by the parties or by
the Court. There may be a sole Arbitrator or a panel of Arbitrators. Whether the Arbitrator is a
sole person or a panel, it is called ‘Arbitral Tribunal’. The award given by the Arbitral Tribunal
is equal to a decree of a Civil Court. In most of the matters, the arbitrator / arbitral tribunal
resembles a Court, however it is not a Court.

Any person who enjoys the confidence of the parties may be selected as an arbitrator.
Every person is free to choose his own judge for the settlement of any matter in controversy, and
the judge so chosen, if accepted by the opposite party, becomes an arbitrator. They may choose
an arbitrator by lot or in any other way. If they an incompetent or unfit person, that is their own
affair.

An arbitrator should be a person who stands indifferent between the parties. He should
have no interest direct or remote in the subject-matter of the controversy or in the parties. Any
person who is under any legal disability by virtue of statutory provision or by reason of public
policy cannot act as an arbitrator. An arbitration agreement appointing a supreme head of the
state as an arbitrator would be against public policy and hence void at its inception.
Agreements

Arbitration agreements are usually signed at the beginning of a business relationship -

long before there’s a disagreement. They are often just a few sentences long, and are commonly
found near the end of a larger contract under a heading such as “Arbitration” or “Dispute
Resolution.”
An arbitration clause will typically say that all disputes arising under the larger contract
will be submitted to binding arbitration. Sometimes a contract will say that only certain disputes
will be arbitrated.

The agreement may also say how the arbitration will be conducted. It may specify certain
arbitration rules, such as the American Arbitration Association (AAA) rules, and it may say
whether there will be one arbitrator or a panel of arbitrators. The agreement may also specify
how the arbitrator will be chosen.

The parties to a dispute may also agree to arbitration after a conflict has arisen, or even
after a lawsuit has been filed.

An arbitration agreement must be in writing. It will be considered to be in writing. If

contained in

(a) document signed by parties

(b) exchange of letters, telex, telegrams or other means of telecommunication recording the
arbitration agreement

(c) non-denial of the existence of the arbitration agreement in the Statement of Defence

With respect to the arbitration agreement is not required to be in any particular form. An
agreement between the parties refers a dispute between them .With respect to a contract to
arbitration would spell out an arbitration agreement.

If the intention of the parties to refer the dispute to arbitration can be clearly ascertained from
the terms of the agreement. It is immaterial whether or not the expression “arbitration”
“arbitrator” or “arbitrators” has been used in the agreement.
 A valid arbitration agreement is separable from the main contract and the invalidity or
rescission of the main contract does not necessarily entail the invalidity or rescission of the
arbitration agreement.

When drafting an arbitration clause/ agreement, some guiding principles that must be kept
in mind are

 Unambiguous and clear intent to refer all future or existing disputes , contractual or not
to arbitration

 Choice of law governing the substance of the dispute i.e. governing the law of the main
contract.

 Choice of governing the arbitration clause / agreement i.e. substantive matters governing
the arbitration clause / agreement.

 Choice of procedural law governing the arbitration proceedings i.e., Juridical seat of
arbitration

 Location of assets for enforcement of award

In addition to the above, while drafting an effective arbitration clause/agreement, it is advisable

to consider the following:

 Multi-party agreements

 Third parties and non-signatories

 Arbitrability of dispute

 Multi tier arbitration in india

 Waiver of right to appeal

ARBITRALITY

Not every type of disputes can be submitted to arbitration. The international conventions
and domestic statues require that certain matter of types of disputes cannot be subject matter of
arbitration. This subject matters or disputes are considered as no arbitrable subjects and the
principle is known as ‘arbitrability’. The decision relating to what is not arbitrable in particular
jurisdiction lies with the state and its domestic court. Arbitrability in essence, is a matter of
national public policy. As public policy can differ from one country to another, the arbitrability
of a particular dispute may vary considerably from jurisdiction to jurisdiction.
Some traditionally non-arbitrable subjects
• Criminal disputes/Fraud
• Disputes between the patent or trademark applicant and the granting office.
• Anti-trust or anti-competition claims
• Matrimonial dispute
• Insolvency disputes
• Consumer Disputes

Arbitration Agreement

Arbitration primarily being a contractual process requires the free consent of the parties
to arbitrate. The arbitration agreement is the foundation stone on which the entire arbitration
process consolidates. Therefore requirement of a valid arbitration agreement is a mandatory
requirement in all national and international law governing arbitration.

Functions of an arbitration agreement

1. It shows that the parties have consented to resolve the disputes by arbitration
2. Once parties have express their consent to arbitrate they cannot unilaterally withdraw
from arbitration
3. Agreement establishes the jurisdiction of the tribunal.
4. Agreement to arbitrate is an universally enforceable agreement
Valid Legal Requirements for Arbitration Agreement
1. Agreement in writing
2. Dispute arises in respect to defined legal relationship, whether contractual or not
3. Deals with existing or future disputes
4. Subject matter is capable of settlement by arbitration
An arbitration agreement in writing consists of four aspects
 (1) In a contract containing an arbitration clause signed by the parties,
(2) In a contract contained in exchange of letters, telegrams telex, telegrams or
other means of telecommunication.
(3) An exchange of statements of claim and defence in which the existence of the
agreement is alleged by one party and not denied by the other.
(4) Incorporation by reference to another contract
Power to refer parties to arbitration where there is an arbitration agreement.
(1) A judicial authority before which an action is brought in a matter, which is the subject
of an arbitration agreement, shall, if a party so applies not later than when submitting
his first statement on the substance of the dispute, refer the parties to arbitration.
(2) The application referred to in sub-section (1) shall not be entertained unless it is
accompanied by the original arbitration agreement or a duly certified copy thereof.
(3) Not withstanding that an application has been made under sub-section (1) and that the
issue is pending before the judicial authority, an arbitration may be commenced or
continued and an arbitrat award made.
Nature of court intervention to enforce foreign arbitration agreement
“a challenge to the arbitration agreement under Section 45 on the ground that it is “null and
void, inoperative or incapable of being performed” is to be determined on a basis of contract
law.”
Interim Measures
In arbitration, due to the lapse of time between commencement of arbitral proceedings
and issuance of the final award, interim measures often constitute a key tool to prevent
irreparable and non-compensatory harm to one party.
Nature of Interim Measures
An interim measure is any temporary measure, whether in the form of an award or in
another form, by which, at any time prior to the issuance of the award by which the dispute is
finally decided.

Example
CONDITIONS FOR GRANTING INTERIM MEASURES
Gujarat Bottling Co. Ltd. vs. Coca Cola Company and Others, 1995(5) SCC 545
 a. The object of the interlocutory injunction is to protect the plaintiff against a. injury by
violation of his right for which he could not be adequately compensated in damages recoverable
in the action if the uncertainty were resolved in his favour at the trial (Irreparable injury).
b. The need for such protection has, however, to be weighed against the corresponding
need of the defendant to be protected against injury resulting from his having been prevented
from exercising his own legal rights for which he could not be adequately compensated. The
court must weigh one need against another and determine where the “balance of convenience
lies"
Type of interim measures
1. Maintain or restore the status quo pending determination of the dispute
2. Take action that would prevent, or refrain from taking action that is likely to cause,
current or imminent harm or prejudice to the arbitral process itself
3. Provide a means of preserving assets out of which a subsequent award may be
satisfied
4. Preserve evidence that may be relevant and material to the resolution of the dispute.

The Arbitration and Conciliation Act, 1996 is based upon the principle of disposing the
dispute in a cost effective, quick and fair manner. An Arbitrator deals with the matters of the
dispute concerning the Arbitration Agreement. The arbitration and the office of the arbitrator
flow from the Arbitration Agreement.

Objective of A & C Act 1996

(a) To comprehensively cover international commercial arbitration and conciliation as
also domestic arbitration and conciliation;
(b) To minimize the supervisory role of courts in the arbitral process;
(c) To provide that every final arbitral award is enforced in the same manner as if it was a
decree of court
(d) To ensure that Indian law is harmonized with the international legal framework
Section. 8 of arbitration conciliation act 1996
Power to refer parties to arbitration where there is an arbitration agreement
1. A judicial authority before which an action is brought in a matter which is the subject of an
arbitration agreement shall, if a party so applies not later than when submitting his first
statement on the substance of the dispute, refer the parties to arbitration.
2. The application referred to arbitration conciliation act 1996 in shall not be entertained unless it
is accompanied by the original arbitration agreement or a duly certified copy thereof.
3. Notwithstanding that an application has been made and that the issue is pending before the
judicial authority, an arbitration may be commenced or continued and an arbitral award made.

Section. 9 of arbitration conciliation act 1996

Interim Measures by Court : A party may, before or during arbitral proceedings or at any time
after the making of the arbitral award but before it is enforced in accordance with Section 36,
apply to a Court
1. For the appointment of a guardian for a minor or a person of unsound mind for the purposes of
arbitral proceedings; or
2. For an interim measure of protection in respect of any of the following matters, namely :
a. the preservation, interim custody or sale of any goods which are subject‐matter of the
arbitration agreement;
b. securing the amount in dispute in the arbitration.
c. the detention, preservation or inspection of any properly or thing which is the subject
matter of the dispute in arbitration, or as to which any question may arise therein and
authorizing for any of the aforesaid purposes any person to enter upon an land or
building in the possession of any party, or authorizing any samples to be taken or any
observation to be made, or experiment to be tried, which may be necessary or
expedient for the purpose of obtaining full information or evidence;
d. Interim injunction or the appointment of a receiver;
e. Such other interim measure of protection as may appear to the Court to be just and
convenient and the court shall have the same power for making orders as it has for the
purpose of, and in relation to, any proceedings before it.
TERMINATION OF ARBITRATION AGREEMANT
 Termination of arbitration agreement by mutual consent
 other grounds for termination of the arbitration agreement:
1. Although the death of one of the parties is not generally considered a ground for termination
of the agreement, it is expressly provided for under some laws.
2. The death of the arbitrators is not normally a ground for terminating the arbitration agreement,
either. Some laws set forth otherwise when the parties regard the intervention of a specific
arbitrator as a condition for the arbitration.
Number of arbitrators

1. The parties are free to determine the number of arbitrators, provided that such number shall
not be an even number.
2. Failing the determination ,the arbitral tribunal shall consist of a sole arbitrator.
• A person of any nationality may be an arbitrator
• Parties can agree on a procedure for appointing
• Parties can appointment of an arbitrator
• Each party could appoint one arbitrator, and the two arbitrators so appointed,
could appoint the third arbitrator, who would act as the presiding arbitrator.
Appointment of arbitrators
 A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.
 The parties are free to agree on a procedure for appointing the arbitrator or arbitrators.
 An arbitration with three arbitrators, each party appoints one arbitrator, and the two
appointed arbitrators appoints the third arbitrator who shall act as the presiding arbitrator.
If the appointment procedure is not followed and the arbitrators not appointed then the
appointment shall be made, upon request of a party, by the Chief Justice of the State High Court
or any person or institution designated by him.
In the case of appointment of sole or third arbitrator in an international commercial
arbitration, an arbitrator of a nationality other than the nationalities of the parties where the
parties belong to different nationalities may be appointed.
Where the dispute with regards to appointment of arbitrators arise in an international
commercial arbitration the reference to "Chief Justice of High Court shall be construed as a
reference to the "Chief Justice of that countries".
Grounds for challenge
An arbitrator may be challenged only if
(a) circumstances exist that give rise to justifiable doubts as to his independence or
impartiality, or
(b) he does not possess the qualifications agreed to by the parties.
Substitution of arbitrator
a) Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed
according to the rules that were applicable
b) Where an arbitrator is replaced, any hearings previously held may be repeated at the
discretion of the Arbitral Tribunal
c) An order or ruling of the arbitral Tribunal made prior to the replacement of an arbitrator
under this section shall not be invalid solely because there has been a change in the
composition of the arbitral Tribunal

Powers of Arbitrator and Umpire

The contract lays down the powers of arbitrators or umpire. It is subject to the agreement of the
parties. But they cannot be compelled to exercise those powers. This section is applicable to
statutory arbitration as well. The various powers are as under :

(1) To administer oath to parties and witnesses appearing before him;

(2) To state a special case for the opinion of the court on any question of law or state the
award in the form of a special case for the opinion of the court;

(3) To make the award conditional or in the alternative;

(4) To correct in an award any clerical mistake or error arising from any accidental slip or
omission;

(5) To administer any party interrogatories.

In addition to the statutory powers given above, there are some implied and incidental
powers, such as:

a) Power to obtain legal assistance.

b) Power to delegate authority limited to the performance of acts of ministerial character

 c) Power to award interest

d) Power to award costs

e) Power to allow payment by installments

f) Power to allow amendment of the plaint.

The arbitrators have no power:

1) To allow withdrawal of the reference

2) To receive or realize monies

3) Alter the terms of arbitration agreement

4) Award damages otherwise than in accordance with law.

Duties of Arbitrator or Umpire

1. Duty to follow rules of natural justice :
An arbitrator must observe the rules of natural justice. He must act in a judicial manner. His
enquiry should not be slip-shod but full and complete. He must give due notices and maintain
proper record of the proceedings. He ought not hear one side in the absence of the other side.
Any departure from the rules of natural justice is sure to vitiate the award.
2. Duty to act fairly to both parties :
The arbitrator must act fairly to both parties. He must not favor one party more than another,
or do anything for one party which he does not do for another.
3. Duty not to delegate :

An arbitrator must not delegate his duties to a third person, or to a co-arbitrator. Since one
who has an authority to do an act for another, must do it himself and cannot delegate to another.
This rule is, however, subject to the exception that an arbitrator may delegate to another the
performance of an act of ministerial character only.

4. Duty to decide according to law :

It is duty of an arbitrator, in the absence of a provision to the contrary, to decide the question
according to legal rights of the parties and not according to what he may consider to be fair and
reasonable under the circumstances. If an arbitrator decides honestly, through wrongly, he is not
guilty of misconduct. But deliberate disregard of law in matters of arbitration is misconduct.
5. Duty not to exceed his authority :

An arbitrator cannot go beyond the scope of his authority. He derives his authority from the
arbitration agreement. He cannot take upon himself an authority which is not conferred by the
submission. If the arbitrators go beyond the scope of reference and decide a dispute not referred
to them, the award is bad.

6. Duty to decide all matters referred :

It is the duty of the arbitrator to decide all the matter referred to him. Where he omits to decide
some of the important questions referred the award is bad. A partial award is invalid and should
be remitted for reconsideration.

7. Duty to act together :

When there are several arbitrators, all must act together. The presence of all the arbitrators at
all the meetings is essential to the validity of the award. Omission on the part of the arbitrators to
act together amounts to misconduct.

8. Duty not to accept hospitality :

An arbitrator should not accept hospitality from one of the parties, if the invitation is given
with the intention of inducing him to act unfairly. But merely dining or lunching with one of the
parties and his witness in the absence of other will not invalidate an award.

REMOVAL OF AN ARBITRATOR
Under section 11 of the arbitration Act, 1940, the court may remove an arbitrator under the
following condition:
(a) it must be proved that the arbitrator is guilty of improper delay in the conduct of the
arbitration or in making the agreement.
(b) The court may remove an arbitrator who has misconducted himself and the proceedings. In
this case, the court may exercise its power by SUO MOTO without an application.
POWER OF COURTS OVER AWARDS BY ARBITRATOR
The court may modify or correct an award in the following cases:
1. Power to Modify Award
a. When the decision is not conducted according to the arbitration agreement b/w the
concerned parties, then the court has right to modify the award.
b. When the award is imperfect or the decision is unfair then the court has right to change
the decision.
c. Where the award contains a clerical mistake or an error arising from an accidental slip
or omission.
Enforcement
Where the time for making an application to set aside the arbitral award under section 34
has expired, or such application having been made, it has been refused the award shall be
enforced under the Code of Civil Procedure 1908 in the same manner as if it were
a decree of the court.

ARBITRAL AWRAD
Meaning
• An instrument embodying a decision of an arbitrator or arbitrators as regards matters
referred to him.
• Settlement agreement under the conciliation process is not an award
Statutory Definition
“ Arbitral awards includes an interim award”

VALID AWARD
To be valid an award must comprise a decision by the tribunal on the matters referred
with which it deals. An award must also be final, in the sense of being a complete decision
without leaving matters to be dealt with subsequently or by a third party, and it must be certain.
Classification of awards
1. Final award
2. Interim award
3. Consent award
4. Additional Award
FORMS AND CONTENT OF AWARD
1. Written form and signed
2. Date and place
3. Reasons
Exception
 The parties have agreed that no reasons are to be given, or
 award is an arbitral award on a-reed terms under section 30.
1. Delivery of award
2. Stamp duty
3. Awarding interest and period
4. Costs
 Fees and expenses of arbitrators and witnesses
 Legal fees
 Administration fees
 Expenses incurred in connection with arbitral proceedings

GROUNDS FOR SETTING ASIDE AN AWARD

An arbitral award may be set aside by the court only if
Incapacity
Invalid arbitration agreement
With out proper notice
Exceeding the scope of submission to arbitration
Composition of the arbitral tribunal
Arbitrability
Public Policy
Procedure for setting aside
 An application for setting aside an award be made before a competent court having
jurisdiction to hear such an application
 Made before three months elapsed from the date on which the party making that
application had received the arbitral award
The phrase 'Public Policy of India' is not defined under the Act. Hence, the said term is
required to be given meaning in context and also considering the purpose of the section and
scheme of the Act. It has been repeatedly stated by various authorities that the expression 'public
policy' does not admit of precise definition and may vary from generation to generation and from
time to time. Hence, the concept 'public policy' is considered to be vague, susceptible to narrow
or wider meaning depending upon the context in which it is used.
PATENTLY ILLEGAL ORDER
The award which is, on the face of its, patently in violation of statutory provisions cannot
be said to be in public interest. Such award/judgment/decision is likely to adversely affect the
administration of justice.
Result would be - award could be set aside if it is contrary to:
 fundamental policy of Indian law
 the interest of India
 justice or morality
 in addition, if it is patently illegal.
costs
Another common cause for complaint concerns overly lengthy proceedings. Subject to
the overriding principle of due process, therefore, arbitrations should be conducted and
concluded as expeditiously as possible, avoiding not only unnecessary delay, but also the
unnecessary cost associated with protracted proceedings.

According to the LCIA (London court of International Arbitration) India Rules, the
tribunal may not proceed with the arbitration unless it has ascertained from the Registrar of
LCIA India that sufficient funds are held on deposit. Arbitrators should, therefore, regularly
submit interim fee notes during the course of proceedings, to permit the secretariat to ensure that
sufficient advances are directed from time to time.

Arbitrators are entitled to charge for time reserved for hearings but not used as a result of
late postponement or cancellation by the parties, provided that the basis for such charges have
been approved by LCIA India and notified, in advance, to the parties.
If the tribunal is aware that a scheduled hearing might be postponed or cancelled, it
should remind the parties as the hearing dates approach, so that they do not inadvertently trigger
cancellation charges by failing to give the tribunal adequate notice.
 Under the LCIA India schedule of arbitration costs, which form part of the Rules, all
arbitrators must keep full details of all time spent on the arbitration, including details of the
activities on which the time was spent, and these details must accompany any request for
payment on account of fees. No payment, either interim or final, will be made to any arbitrator
until LCIA India has satisfied itself that an arbitrator’s fees are reasonable in the circumstances
of the case and in light of the agreed .procedural timetable.
All expenses must also be reasonably incurred and in a reasonable amount, and all claims
for expenses must be supported by invoices or receipts. Prior to incurring expenses, the arbitrator
should consult the LCIA India secretariat as to what is considered reasonable, in regard, for
example, to the class of travel for the distance concerned, and the amount of travel time that may
be charged to the parties.

According to the of the LCIA India Rules, tribunals must specify in their final Award the
total amount of the costs of the arbitration. As these costs must be submitted to, and approved by
the LCIA Court, it is essential that arbitrators keep their timesheets fully up to date, so that their
Award is not delayed whilst the LCIA India secretariat awaits final details of the time spent, and
costs incurred, for approval by the LCIA Court and inclusion in the Award.
 UNIT IV

LEGAL REQUIREMENTS

A surety bond is a specific type of bond which involves three different parties.

The first party is the principal - this is the person or organization who is being secured
against default. The second party is the obligee - this is the person or organization who is owed
money or labor. The third party is the surety - this is the person or organization who is promising
to pay a certain amount should the principal default.

Surety bonds may be used in an incredibly wide range of circumstances. They are
basically used any time an individual or group is expected to do something, and some further
assurance of their compliance is needed.

Bid guarantees:

(a) A contracting officer shall not require a bid guarantee unless a performance bond or a
performance and payment bond is also required, bid guarantees shall be required whenever a
performance bond or a performance and payment bond is required.

(b) All types of bid guarantees are acceptable for supply or service contracts .Only separate
bid guarantees are acceptable in connection with construction contracts. Agencies may specify
that only separate bid bonds are acceptable in connection with construction contracts.

(c) The chief of the contracting office may waive the requirement to obtain a bid guarantee
when a performance bond or a performance and payment bond is required if it is determined
that a bid guarantee is not in the best interest of the Government for a specific acquisition
(e.g., overseas construction, emergency acquisitions, sole-source contracts). Class waivers
may be authorized by the agency head or designee.

Solicitation provision or contract clause:

(a) The contracting officer shall insert a provision or clause substantially (Bid Guarantee), in
solicitations or contracts that require a bid guarantee or similar guarantee. For example, the
contracting officer may modify this provision
 (1) To set a period of time that is other than 10 days for the return of executed bonds;

(2) For use in connection with construction solicitations when the agency has specified
that only separate bid bonds are acceptable

(3) For use in solicitations for negotiated contracts; or

(4) For use in service contracts containing options for extended performance.

Performance and payment bonds for other than construction contracts:

General

(a) Generally, agencies shall not require performance and payment bonds for other than
construction contracts. However, performance and payment bonds may be used

(b) The contractor shall furnish all bonds before receiving a notice to proceed with the work.

(c) No bond shall be required after the contract has been awarded if it was not
specifically required in the contract, except as may be determined necessary for a
contract modification.
Performance bonds:

Performance bonds may be required for contracts exceeding the simplified acquisition
threshold when necessary to protect the Government's interest. The following situations may
warrant a performance bond:
a) Government property or funds are to be provided to the contractor for use in performing
the contract or as partial compensation (as in retention of salvaged material).

(1) A contractor sells assets to or merges with another concern, and the Government,
after recognizing the latter concern as the successor in interest, desires assurance that it is
financially capable.

(2) Substantial progress payments are made before delivery of end items starts.

(3) Contracts are for dismantling, demolition, or removal of improvements.

b) The Government may require additional performance bond protection when a contract
price is increased.
c) The contracting officer must determine the contractor's responsibility.

Payment bonds:

 A payment bond is required only when a performance bond is required, and if the use
of payment bond is in the Government‘s interest.

 When a contract price is increased, the Government may require additional bond
protection in an amount adequate to protect suppliers of labor and material.

Other types of bonds:

The head of the contracting activity may approve using other types of bonds in
connection with acquiring particular supplies or services. These types include advance
payment bonds and patent infringement bonds.

Advance payment bonds:

Advance payment bonds may be required only when the contract contains an advance
payment provision and a performance bond is not furnished. The contracting officer shall
determine the amount of the advance payment bond necessary to protect the Government.

Patent infringement bonds:

a) Contracts providing for patent indemnity may require these bonds only if

1. A performance bond is not furnished; and

2. The financial responsibility of the contractor is unknown or doubtful.

INSURANCE :

Insurance Under Cost-Reimbursement:

Cost-reimbursement contracts (and subcontracts, if the terms of the prime contract are extended
to the subcontract) ordinarily require the types of insurance with the minimum amounts of
liability indicated.
Group insurance plans:

a) Prior approval requirement. Under cost-reimbursement contracts, before buying

insurance under a group insurance plan, the contractor must submit the plan for
approval, in accordance with agency regulations. Any change in benefits provided
under an approved plan that can reasonably be expected to increase significantly the
cost to the Government requires similar approval.

b) Premium refunds or credits. The plan shall provide for the Government to share in
any premium refunds or credits paid or otherwise allowed to the contractor. In
determining the extent of the Government‘s share in any premium refunds or credits,
any special reserves and other refunds to which the contractor may be entitled in the
future shall be taken into account.

Liability:

a) Workers’ compensation and employer’s liability

Contractors are required to comply with applicable Federal and State workers‘ compensation
and occupational disease statutes. If occupational diseases are not compensable under those
statutes, they shall be covered under the employer‘s liability section of the insurance policy,
except when contract operations are so commingled with a contractor‘s commercial operations
that it would not be practical to require this coverage.

b) General liability.

 The contracting officer shall require bodily injury liability insurance coverage written on
the comprehensive form of policy .
 Property damage liability insurance shall be required only in special circumstances as
determined by the agency.
a) Automobile liability.

The contracting officer shall require automobile liability insurance written on the
comprehensive form of policy. The policy shall provide for bodily injury and property damage
liability covering the operation of all automobiles used in connection with performing the
contract. Policies covering automobiles operated in the United States shall provide coverage
of at least $200,000 per person and $500,000 per occurrence for bodily injury and $20,000 per
occurrence for property damage. The amount of liability coverage on other policies shall be
commensurate with any legal requirements of the locality and sufficient to meet normal and
customary claims.

b) Aircraft public and passenger liability.

When aircraft are used in connection with performing the contract, the contracting
officer shall require aircraft public and passenger liability insurance. Coverage shall be at least
$200,000 per person and $500,000 per occurrence for bodily injury, other than passenger
liability, and $200,000 per occurrence for property damage. Coverage for passenger liability
bodily injury shall be at least $200,000 multiplied by the number of seats or passengers,
whichever is greater.

c) Vessel liability.

When contract performance involves use of vessels, the contracting officer shall require, as
determined by the agency, vessel collision liability and protection and indemnity liability
insurance.

SELF INSURANCE:

a) When it is anticipated that 50 percent or more of the self-insurance costs to be incurred at a

segment of a contractor‘s business will be allocable to negotiated Government contracts, and
the self-insurance costs at the segment for the contractor‘s fiscal year are expected to be
$200,000 or more, the contractor shall submit, in writing, information on its proposed self-
insurance program to the administrative contracting officer and obtain that official‘s approval
of the program. The submission shall be by segment or segments of the contractor‘s business
to which the program applies and shall include
 1. A complete description of the program, including any resolution of the board of
directors authorizing and adopting coverage, including types of risks, limits of
coverage, assignments of safety and loss control, and legal service responsibilities;
2. If available, the corporate insurance manual and organization chart detailing fiscal
responsibilities for insurance;
3. The terms regarding insurance coverage for any Government property;

4. The contractor‘s latest financial statements;

5. Any self-insurance feasibility studies or insurance market surveys reporting comparative
alternatives;
6. Loss history, premiums history, and industry ratios;
7. A formula for establishing reserves, including percentage variations between losses
paid and losses reserved;
8. Claims administration policy, practices, and procedures;
9. The method of calculating the projected average loss; and
10. A disclosure of all captive insurance company and reinsurance agreements, including
methods of computing cost.

b) Programs of self-insurance covering a contractor‘s insurable risks, including the deductible

portion of purchased insurance, may be approved when examination of a program indicates
that its application is in the Government‘s interest. Agencies shall not approve a program of
self-insurance for workers‘ compensation in a jurisdiction where workers‘ compensation does
not completely cover the employer‘s liability to employees, unless the contractor

1. Maintains an approved program of self-insurance for any employer‘s liability not so

covered; or

2. Shows that the combined cost to the Government of self-insurance for workers‘
compensation and commercial insurance for employer‘s liability will not exceed the
cost of covering both kinds of risk by commercial insurance.

c) Once the administrative contracting officer has approved a program, the contractor must
submit to that official for approval any major proposed changes to the program. Any program
approval may be withdrawn if a contracting officer finds that either
 1. Conditions or situations existing at the time of approval that were a basis for original
approval of the program have changed to the extent that a program change is
necessary.

d) To qualify for a self-insurance program, a contractor must demonstrate ability to sustain the
potential losses involved. In making the determination, the contracting officer shall consider
the following factors:

1. The soundness of the contractor‘s financial condition, including available lines of credit.

2. The geographic dispersion of assets, so that the potential of a single loss depleting all
the assets is unlikely.

3. The history of previous losses, including frequency of occurrence and the financial
impact of each loss.

4. The type and magnitude of risk, such as minor coverage for the deductible portion of
purchased insurance or major coverage for hazardous risks.

State laws and regulations.

a) Agencies shall not approve a program of self-insurance for catastrophic risks (Special
procedures for unusually hazardous or nuclear risks). Should performance of
Government contracts create the risk of catastrophic losses, the Government may, to
the extent authorized by law, agree to indemnify the contractor or recognize an
appropriate share of premiums for purchased insurance, or both.

b) Self-insurance programs to protect a contractor against the costs of correcting its own
defects in materials or workmanship shall not be approved. For these purposes, normal
rework estimates and warranty costs will not be considered self-insurance.
UCC in laws governing sale

The law relating to the transfer of ownership of property from one person to another for
value, which is codified in the Uniform Commercial Code (UCC), a body of law governing
mercantile transactions adopted in whole or in part by the states.

The sale of a good, or an item that is moveable at the time of sale, is a transaction
designed to benefit both buyer and seller. However, sales transactions can be complex, and they
do not always proceed smoothly.

Problems can arise at several phases of a sale, and at least one of the parties may suffer a
loss. In recognition of these realities and of the basic importance of orderly commerce to society,
legislatures and courts create laws governing sales of goods.

The most comprehensive set of laws on sales, the Uniform Commercial Code (UCC), is a
collection of model laws on an assortment of commercial activities. The UCC itself does not
have legal effect; it was written by the lawyers, judges, and professors in the American Law
Institute (ALI) and the National Conference of Commissioners on Uniform State Laws
(NCCUSL).

Legal requirements of sale and purchasing of land

Owning a house is an important thing in one’s life. However, one needs to be careful
while buying a property to avoid falling into legal hassles. Before buying a land, a number of
checks need to be done to confirm that the land has a clear and marketable title. The legal status
of the land is one of the first issues that should be addressed before confirming a property.

Title deeds

The first step is to see the title deed of the land, which you are going to buy.

a) Confirm whether the land is in the name of the seller and that the full right to sell the land lies
with only him and no other person.
b) It is better to get the original deed examined by a lawyer. This is to check details like whether
the seller has permitted any entry/access to others through this land and whether any other fact
 has been suppressed/left undisclosed by the owner of the land.
c) Along with the title deed, you can also demand to see the previous deeds of the land available
with the seller.
d) In some cases, more than one person may own the land. So before registering, check if there
is more than one owner, and if there is, get release certificate from the other people involved.

Conveyance Deed or Sale Deed

A sale agreement is a document by which the title of property is conveyed by the seller to the
purchaser. Here, conveyance is the act of transferring ownership of the property from a seller to
the buyer. This document will help you ascertain whether the property, which you are buying, is
on land belonging to the society/ builder/development authority in which the property is located.

Tax receipt and bills

Property taxes, which are due to the government or municipality, are a first charge on the
property and, therefore, enquiries must next be made in government and municipal offices to
ascertain whether all taxes have been paid up to date.
* Inspect whether the latest tax paid receipts have been paid.
* Enquire with various departments of the municipality to ascertain whether any notices or
requisitions relating to the property are outstanding.
* If you are buying a house along with the property, then the house tax receipt should also be
checked.
* Also ensure that the electricity and water bills are up-to-date and if there any is balance
payment to be made, ensure that it is made by the seller.

Encumbrance Certificate
Before buying any land or house, it is important to confirm that the land does not have
any legal dues.
* Obtain a certificate called encumbrance from the sub registrar office where the deed has been
registered, stating that the said land does not have any legal dues and complaints.
* You can check the encumbrance certificate for the past thirteen years or could demand verify
the 30 years encumbrance certificate.
Pledged land

Some people may have taken loan from the bank by pledging their land.

* Ensure that the seller has paid back all the amounts due.
* Ask for a release certificate from the bank, which is necessary to release all the debts over the
land legally.
Measuring the land

It is advisable to measure the land before registering the land in your name. Take the help
of a recognized surveyor to ensure that the measurements of the plot and its borders are accurate.
You could also take the survey sketch of the land from the survey department and compare for
accuracy.

Purchasing land from NRI landowners

A person staying abroad can also sell his land in India by giving a Power of Attorney to a
third person authorizing him the right to sell the land on his behalf. In such cases, the power of
attorney should be witnessed and duly signed by an officer in the Indian embassy in his province.

Power of Attorney

Power of Attorney is the power given to an agent by the principal to execute several acts
and deeds for and on behalf of the principal. Stamp duty payable depends on the nature of power
given.

When ‘power’ is given in respect of a number of acts in a number of transactions it is

called General Power of Attorney. It is always advisable to hold a registered GPA while
registering an immovable property in order to give better title to the property.

When ‘power’ is given in respect of a particular act pertaining to one transaction it is

called Special Power of Attorney.
Agreement
Once all the matters, financial/otherwise are settled between the parties, it is better to give an
advance and write an agreement. This ensures that the owner does not change his word regarding
the cost as well as make a sale to someone else who offers more money.
* The agreement should be written in Rs.50 stamp paper.
* The agreement should state the actual cost, the advance amount, the time span within which the
actual sale should take place and how to proceed in case of any default from either parties, to
cover the loss.
* The agreement can be prepared by a lawyer and should be signed by both the parties and two
witnesses.
* After signing the agreement if one of the parties makes a default, the other party can take legal
action against him.
Stamp Duty
It is tax, similar to sales tax and income tax collected by the Government, and must be
paid in full and on time.
* A stamp duty paid is considered a legal document and such gets evidentiary value and is
admitted as evidence in courts.
* Stamp duty is a State subject and hence would vary from state to state.
* When an agreement is to be stamped, it needs to be unsigned and undated one may execute the
agreement only after the Stamp Office affixes stamps on the agreement.
Registration
Registration is the process of recording a copy of a document, transferring the title in
immovable property to the office of the Registrar. It acts as proof that a transaction has taken
place.

* A draft should be prepared before actually writing the document in stamp paper. Registration is
done after the parties execute the document.
* The agreement should be registered with the Sub-Registrar of Assurance under the provisions
of the Indian Registration Act, 1908 within four months from the date of execution of the
document.
* Make sure all the details mentioned are accurate.
* Original title deed, Previous deeds, Property/House Tax receipts, etc plus two witnesses are
 needed for registering the property.
* The expenses involved during registration include Stamp Duty, registration fees, Document
writers/ lawyer's fees etc.

* Make sure that the deed is registered within the time limit mentioned in the agreement.
* Stamp duty should be paid prior to the Registration. Changing the title in Village office

The whole legal procedure of buying the property will be complete only if the new
owners name is added in the village office records. An application can be made along with the
copy of the registered deed to the Village office to get this done. Purchase of property is a
lifetime investment. A lot of care is needed from the beginning- right from site seeing till the
registration of the land. Ensure that the documents of title are scrutinised for marketability with
due care by an experienced advocate.

legal requirements for planning

The local plan

The local plan provides the framework for local planning rules. Most communes now
have (or are preparing) a local plan. These plans cover the use of land in the commune and set
out the planning status of various zones i.e. housing, light industry, agricultural, schools and
education and community activities.

Risk prevention plan

In addition, many communes have also introduced a risk prevention plan.

This sets out details of any natural or technological risks affecting the area such as
flooding, fire, coastal erosion. Where such a plan exists, restrictions on development or
rebuilding are built into the plan.

On the sale of land or residential property, the seller must disclose whether or not such a
plan exists. If there is a risk prevention plan, a copy must be provided to the buyer before the
contractor is signed.

Once the basic planning framework for the commune has been checked, the next aspect
of planning law and procedure to consider is the planning certificate.
Planning certificates

It is important to be aware that even if the land or property you are buying has a valid
approval certificate from the competent authority.

 Planning consents
These are:
a) Planning permission
b) Permission to develop
c) Permission to demolish

One of the above consents will generally be required for all new construction, for major
works to an existing building or for demolition of an existing structure. However, certain small
scale projects are exempt and will often simply need a declaration of intended works.

LEGAL REQUIREMENTS:

What the owners of residential buildings are responsible for under the building laws, and what
work is exempt.

Compliance with the Building Act

 Under the Building Act, all building work must comply with the Building Code. If you
are planning on building a new house or doing alterations, you have to get a building
consent from your local Council before construction starts (unless it is work that is
exempt).
 To help explain the building consent and approval process, the Department of Building
and Housing has produced a booklet entitled master plan, which contains essential
information about your rights and responsibilities as you build or renovate.
 It tells you what you need to do at each step to ensure your building project is done
legally, which will avoid potentially costly mistakes or delays.
 It also explains how the law will protect you if things don't go to plan. Building Consent
Authorities (BCAs) look at the detailed plans drawn by the registered architect or
designer to see if the proposed house or building work complies with the Building Code.
 If it does comply, the BCA will issue you with a building consent allowing the work to
proceed. When the house is finished, you apply to your BCA.
  The BCA conducts a final inspection and issues a code compliance certificate (CCC) if it
is satisfied that the building work complies with the building consent.
 You must apply for a CCC once the work is complete. If you do not apply within two
years from the date your consent is granted, your BCA should contact you to follow up
on the work. Councils are required by the Building Act to keep information for the life of
any building.
 This information will include the plans and specifications provided when applying for
building consent, inspection reports by BCAs, and code compliance certificates.
 This information can be researched, for example, when you are looking to buy an existing
house.
Who is responsible?

Most people use the expertise of those in the building industry to advise them on the legal
requirements of the building laws and many delegate the task of obtaining a building consent to
their architect/designer, builder or project manager. When you employ a registered architect or
other type of designer, they must prepare plans and specifications that meet the Building Code
performance standards or the building consent application won‘t be approved by your BCA. The
builder then has to build the house to the specifications and plans so that the end result matches
what was approved in the building consent.

Ultimately you will be responsible under the Building Act if your house does not meet
the required standards, so make sure you employ skilled people who know all the building
controls and keep up-to- date with new standards and rules.

Meeting minimum performance levels

Subject to planning and resource management requirements, no one can make you
achieve a higher or more restrictive standard than that which is required by the Building Code. In
other words, when you are building a house or doing some other building work around home,
provided it meets the minimum performance levels in the Building Code, you can be confident
that your home will be sufficiently strong, durable, weatherproof, fire-resistant and use energy
relatively efficiently. You must build the house to the specifications agreed in your approved
consent.
 However, there is nothing to stop you exceeding these performance levels if you choose.
For example, you can use concrete tile roofing that exceeds the minimum standards and is likely
to outlast you and your grandchildren. You are free to look for creative and innovative ways of
adding features that improve your comfort and enjoyment of the house, providing they at least
meet the minimum performance levels in the Building Code, and are checked as doing so
through the building consent process.

PROPERTY LAW:
Property law is the area of law that governs the various forms of ownership and tenancy
in real property (land as distinct from personal or movable possessions) and in personal
property, within the common law legal system. In the civil law system, there is a division
between movable and immovable property. Movable property roughly corresponds to personal
property, while immovable property corresponds to real estate or real property, and the
associated rights and obligations thereon.
The concept, idea or philosophy of property underlies all property law. In some
jurisdictions, historically all property was owned by the monarch and it devolved through
feudal land tenure or other feudal systems of loyalty.

CLASSIFICATION:
Property law is characterized by a great deal of historical continuity and technical
terminology. The basic distinction in common law systems is between real property (land) and
personal property (chattels).

Before the mid-19th century, the principles governing the transfer of real property and
personal property on an intestacy were quite different. Though this dichotomy does not have the
same significance anymore, the distinction is still fundamental because of the essential
differences between the two categories. An obvious example is the fact that land is immovable,
and thus the rules that govern its use must differ. A further reason for the distinction is that
legislation is often drafted employing the traditional terminology.

The division of land has been criticized as being not satisfactory as a basis for
categorizing the principles of property law since it concentrates attention not on the proprietary
interests themselves but on the objects of those interests.

Real property is generally sub-classified into:

1.corporeal hereditaments - tangible real property (land)

2.incorporeal hereditaments - intangible real property such as an easement of way

AGENCY LAW:
Definition of agency

Principal

 the party who employs another person to act on his or her behalf Agent

 the party who agrees to act on behalf of another Agency

 the principal/agent relationship

The law of agency is an area of commercial law dealing with a set of contractual, quasi-
contractual and non-contractual relationships that involve a person, called the agent, that is
authorized to act on behalf of another (called the principal) to create a legal relationship with a
third party. It may be referred to as the relationship between a principal and an agent whereby the
principal, expressly or implicitly, authorizes the agent to work under his control and on his
behalf. The agent is, thus, required to negotiate on behalf of the principal or bring him and third
parties into contractual relationship. This branch of law separates and regulates the relationships
between:

 Agents and principals;

 Agents and the third parties with whom they deal on their principals' behalf; and
 Principals and the third parties when the agents purport to deal on their behalf.
 Any person with the capacity to contract can appoint an agent to act or his or her behalf.
An agency relationship can only be created to accomplish a lawful purpose.

Kinds of employment relationships

Employer/employee - a relationship that results when an employer hires an employee to perform

some form of physical service.
Principal/agent - an employer hires an employee and gives that employee authority to act and
enter into contracts on his or her behalf.
Principal/independent contractor - a relationship that results when a person or business that is not
an employee is employed by a principal to perform a certain task on his or her behalf. Critical
factors in determining independent contractor status include:

 Whether the worker is engaged in a distinct occupation or an independently established

business.

 The length of time the agent has been employed by the principal.

 The amount of time the agent works for the principal.

 Whether the principal supplies the tools and equipment used in the work.

 The method of payment, whether by time or by the job.

 The degree of skill necessary to complete the task.

 Whether the worker hires employees to assist him or her.

 Whether the employer has the right to control the manner and means of

 accomplishing the desired result.

When is a principal liable for actions of independent contractors?

The crucial factor in determining whether a person is an employee or an independent

contractor is the degree of control that the principal has over that person. If the principal has
substantial control, there is an employer/employee relationship, and the principal can be held
liable for actions of the independent contractor.

Types of agency

a) Express agency-an agency that occurs when a principal and an agent expressly
agree to enter into an agency agreement with each other.
b) Implied agency-an agency that occurs when a principal and an agent do not
expressly create an agency, but it is inferred from the conduct of the parties.
c) Apparent agency-an agency that arises when a principal creates the appearance of
an agency that in actuality does not exist; the principal's actions, not the agent's,
create the agency.
d) Agency by ratification-an agency that occurs when a person misrepresents him or
herself as another's agent when in fact he or she is not and the purported principal
ratifies the agency.

Termination of agency by acts of the parties

An agency may be terminated by the following acts of the parties:

 Mutual agreement

 Lapse of time

 Purpose achieved

 Occurrence of a specified event

Termination of agency by operation of law
An agency is terminated by operation of law if there is:

 Death of the principal or agent

 Insanity of the principal or agent

 Bankruptcy of the principal

 Impossibility of performance

 Change in circumstances
  War between the principal's and agent's countries
Notification when an agency is terminated

If an agency is terminated by agreement of the parties, the principal is under a duty to

give certain third parties notification of the termination.
Wrongful termination of an agency contract

Wrongful termination is the termination of an agency in violation of the terms of the

agency contract. The non breaching party may recover damages from the breaching party.
Irrevocable agency

An agency coupled with an interest is a special type of agency relationship that is created
for the agent's benefit. It is irrevocable by the principal. This type of agency is commonly used in
security agreements to secure loans
Terms

Agency by ratification: An agency that occurs when

(1) a person misrepresents him- or herself as another's agent when in fact he or she is
not and
(2) the purported principal ratifies the unauthorized act.
Agency - The principal-agent relationship: the fiduciary relationship "which results from the
manifestation of consent by one person to another that the other shall act in his
behalf and subject to his control, and consent by the other so to act."
Agency law- The large body of common law that governs agency; a mixture of contract law and
tort law.
Agent- The party who agrees to act on behalf of another.
Apparent agency- Agency that arises when a principal creates the appearance of an agency that
in actuality does not exist.
Employer-Employee relationship - A relationship that results when an employer hires an
employee to perform some form of physical service.

Employment relationships:

(1) Employer-employee,

(2) principal-agent, and

 (3) principal- independent contractor.
Exclusive agency contract- A contract a principal and agent enter into that says the principal
cannot employ any agent other than the exclusive agent.
Express agency- An agency that occurs when a principal and an agent expressly agree to enter
into an agency agreement with each other.
Implied agency- An agency that occurs when a principal and an agent do not expressly create an
agency, but it is inferred from the conduct of the parties.
Independent contractor- "A person who contracts with another to do something for him who is
not controlled by the other nor subject to the other's right to control
with respect to his physical conduct in the performance of the
undertaking."
Independent contractor- A person or business who is not an employee who is employed by a
principal to perform a certain task on his behalf.
Power of attorney- An express agency agreement that is often used to give an agent the power
to sign legal documents on behalf of the principal.
Principal-agent relationship- An employer hires an employee and gives that employee
authority to act and enter into contracts on his or her behalf.
Principal-The party who employs another person to act on his or her behalf.
Termination by acts of the parties: An agency may be terminated by the following acts of the
parties.

(1) mutual agreement

(2) lapse of time

(3) purpose achieved

(4) occurrence of a specified event.

Termination by operation of law: An agency is terminated by operation of law, including
(1) death of the principal or agent
(2) insanity of the principal or agent
(3) bankruptcy of the principal
(4) impossibility of performance
(5) changed circumstances
 (6) war between the principal's and agent's countries.
Wrongful termination- The termination of an agency contract in violation of the terms of the
agency contract. The nonbreaching party may recover damages from
the breaching party.
 UNIT V

LABOUR REGULATION

Social Security

According to Friedlander " a programme of protection provided by society against the

contingencies of modern life- sickness, unemployment, old age, dependency, industrial accidents
and invalidism against which the individual cannot be expected to protect himself and his family
by his own ability or foresight.”

According to Ilo social security is the security that society furnishes, through
appropriate organization, against certain risk to which its members are exposed. The risks are
essentially contingencies against which the individual of small means cannot effectively provide
by his own ability or foresight alone or even in private combination with his fellows”

The various risks are:

 Sickness
 Invalidity
 Maternity
 Employment injury
 Unemployment
 Old age
 Death
 Emergency expenses

Objectives Of Social Security

 Compensation: provides for income security and is based upon the idea that during
spells of risks, the individual and his family should not be subjected to a
double calamity involving both destitution and loss of health, limb, life
or work.

 Restoration: implies cure of the sick and the invalid, re-employment and in habilitation .
  Prevention: designed to avoid the loss of productive capacity due to sickness,
unemployment or invalidity and to render the available resources which are
used up by avoidable disease and idleness and thus increase the material,
intellectual and moral well being of the community.
 To increase the productivity of industrial workers
 To improve health and control sickness of industrial workers
 To prevent occupational diseases and take the remedial measures
 To remove mental and physical hazards to prevent industrial accidents

Traditionally, the family has been the informal social security system in India. Joint
families often live together, with members taking responsibility for those who are in need.

Social security is available only to those who are employed in the organized sector
(less than 10 percent of India‘s workforce). The Employees‘ State Insurance scheme provides
medical care and other benefits (in the case of workplace accidents, temporary or permanent
disability, incapacity, maternity leave, support for dependants) to employees who earn less
than Rs15,000 a month.

Laws related to Social Security

1. The Workmen’s Compensation Act,1923

2. The Employees’ State Insurance Act,1948

3. The Employees’ Provident Fund & Miscellaneous Provisions Act,1952

4.The Payment of Gratuity Act,1972

1.The Workmen’s Compensation Act, 1923:

The Workmen’s Compensation Act, 1923, provides for compensation to injured
workmen of certain categories and in the case of fatal accidents to their dependants if the
accidents arose out of and in the course of their employment. It also provides for payment of
compensation in the case of certain occupational diseases.
Applicability
 The Workmen's Compensation Act, 1923 extends to whole of India.

 It applies to workmen employed in factories, mines, plantations, mechanically propelled

 vehicles, construction works and certain other hazardous occupations in any such
capacity as is specified in workmen’s compensation act.
 It applies to persons recruited for working abroad and who is employed outside India in
any such capacity as is specified in the Act.
 It also applies to a person recruited as driver, helper, mechanic, cleaner or in any other
capacity in connection with a motor vehicle and to a captain or other member of crew
of an aircraft.
Eligibility
The workmen or their dependants shall be entitled for compensation under the Act in case
of injury / accident arising out of and in the course of employment and resulting in:

 Death
 Permanent Total Disablement

 Permanent Partial Disablement

 Temporary Disablement (whether total or partial)

Determination of Compensation
Subject to provisions of this Act, the amount of compensation depends upon nature of
the injury, average monthly wages and age of the workmen and the same is determined on the
following basis:
Death resulting from injury - Amount equal to 50% of the monthly wages of the deceased
workman multiplied by the relevant factor or an amount of 80,000/-whichever is more
Permanent Total Disablement resulting from injury - Amount equal to 60% of the monthly
wages of the injured workman multiplied by the relevant factor or an amount of 90,000/-
whichever is more
Temporary Disablement, whether total or partial, resulting from injury - Half-monthly
payment of the sum equivalent to 25% of monthly wages of the workman, to be paid in
accordance with the provisions of work compensation act.
2.The Employees State Insurance Act (ESI Act), 1948

The ESI Act has been passed to provide for certain benefits to employees in case of
sickness, maternity and employment injury and to make provisions for related matters. As the
name suggests, it is basically an ‘insurance’ scheme i.e. employee gets benefits if he is sick or
disabled. ESIC - Employees State Insurance Corporation (ESIC) has been formed to supervise
the scheme under the act. The Corporation supervises and controls the ESI scheme.

Applicability of ESI Scheme

 The scheme is applicable to all factories.

 The Appropriate Government can also make it applicable to any other industrial,
commercial, agricultural or other establishments, by issuing notification and giving 6
month notice.
 Thus, ESI Act can be made applicable to shops also. However, since Government has to
provide for hospitals and medical facilities, the Act can be made applicable to different
parts of State at different dates.
 Thus, if a factory is at a place where ESIC is unable to provide medical facilities, ESI
Act may not be made applicable to that area. Government can exempt a factory or
establishment or persons or class of persons from provisions of ESI Act, if the
employees are getting better medical facilities.

Definition of ‘factory’ as per ESI Act:

The Factory means any premises where manufacturing process is carried out. If
manufacture is without aid of power, the Act is applicable if persons employed are at least
20. If manufacture is with aid of power, the Act applies if persons employed are at least 10.
However, mines have been excluded. Manufacturing process has same meaning as defined
under Factories Act. One a factory or establishment is covered, it continues to be covered
even if number of employees reduce.

Construction Workers Not Covered:

Construction workers employed in construction activities are not covered under ESIC.
However, if administrative office employs 20 or more eligible employees, that establishment
and employees working in administrative office will be covered.
Employees’ Provident Fund

The Employees‘ Provident Fund Organisation (EPFO) is a statutory body under the Ministry
of Labour and Employment that administers social security regulations.

3. Employees Provident Fund and Miscellaneous Provisions Act, 1952

Objectives

 To make provisions for the future of the industrial worker after he retires or
for his dependents in the case of his early death.
 Compulsory Provident Fund

 Family Pension

 Deposit linked insurance

The EPFO covers pensions and survivors‘ benefits in the event of an employee‘s
death. It is compulsory for all workers employed by companies with more than 20 staff.
Employers must apply for the fund on behalf of their workers.

Since October 2008, all foreigners employed in India have been subject to the terms of the EPFO
under the category of ―international workers
The employee is required to contribute 12 percent of their salary to the EPFO, which is
automatically deducted by the employer. Employers must match this 12 percent contribution.
Employers are legally required to deduct these contributions and remit them to the EPFO.

Tax-free interest is earned on contributions made to the fund at a specified rate, which
is updated regularly by the government. For 2012-13, the rate is 8.8 percent.
Scope and coverage

Application to factories and establishments employing 20 or more persons.

 Can be made applicable by central government to establishments employing less than
20 persons or if the majority of employees agree.
 Applicable to all persons who are employed directly or indirectly through contractors in
any kind of work.
4. Payment of Gratuity Act, 1972

Gratuity is a lump sum payment to employee when he retires or leaves service. It is

basically a retirement benefit to an employee so that he can live life comfortably after
retirement. However, under Gratuity Act, gratuity is payable even to an employee who resigns
after completing at least 5 years of service.

ACT PROVIDES FOR MINIMUM GRATUITY ONLY - The Gratuity Act provides only
for minimum gratuity payable. If employee has right to receive higher gratuity under a contract
or under an award, gratuity.

Employers liable under the scheme - The Act applies to every factory, mine, plantation, port,
and railway company. It also applies to every shop and establishment where 10 or more persons
are employed or were employed on any day in preceding 12 months. Since the Act is also
applicable to all shops and establishments, it will apply to motor transport undertakings, clubs,
chambers of commerce and associations, local bodies, solicitor’s offices etc., if they are
employing 10 or more persons.
Employees eligible for gratuity - Employee means any person (other than apprentice)
employed on wages in any establishment, factory, mine, oilfield, plantation, port, railway
company or shop, to do any skilled, semi-skilled or unskilled, manual, supervisory, technical or
clerical work, whether terms of such employment are express or implied, and whether such
person is employed in a managerial or administrative capacity. However, it does not include
any Central/State Government employee. Thus, the Act is applicable to all employees - workers
as well as persons employed in administrative and managerial capacity.
Gratuity is payable to a person on
(a) resignation
(b) termination on account of death or disablement due to accident or disease
(c) retirement
(d) death. Normally, gratuity is payable only after an employee completes five years of
continuous service. In case of death and disablement, the condition of minimum 5 years’
service is not applicable.
The Act is applicable to all employees, irrespective of the salary.
LAWS RELATING TO WAGES

Wage regulation

wages means all emoluments which are earned by an employee while on duty or on
leave in accordance with the terms and conditions of his employment and which are paid or
are payable to him in cash and includes dearness allowance but does not include any bonus,
commission, house rent allowance, overtime wages and any other allowance.

The Payment of Wages Act 1936 requires that employees receive wages, on time, and
without any unauthorised deductions. The wages act requires that people are paid in money
rather than in kind. The law also provides the tax withholdings the employer must deduct and
pay to the central or state government before distributing the wages.
Objectives

 To ensure regular and prompt payment of wages and to prevent the exploitation of a
wage earner by prohibiting arbitrary fines and deductions from his wages.
Applicability of the Act

 Application for payment of wages to persons employed in any factory.

 Not applicable to wages which average Rs 6,500 per month or more.

 Wages include all remuneration, bonus, or sums payable for termination of service, but
do not include house rent reimbursement, light vehicle charges, medical expenses, TA.

Important provisions of the Act

 Responsibility of the employer for payment of wages and fixing the wage period.

 Procedures and time period in wage payment.

 Payment of wages to discharged workers.

 Permissible deductions from wages.

 Nominations to be made by employees.

 Penalties for contravention of the Act.

  Equal remuneration for men and women.

 Obligations and rights of employers.

 Obligations and rights of employees.

The Act is to regulate payment of wages to certain class of employed persons. The
main purpose of this Act is to ensure regular and timely payment of wages to the employed
persons, to prevent unauthorized deductions being made from wages and arbitrary fines being
imposed on the employed persons. The Act extends to the whole of India.
Payment of Bonus Act 1965

The term bonus has not been defined in the Payment of Bonus Act, 1965. It defines
bonus as “something given in addition to what is ordinarily received by or strictly due to the
recipient”. (or)

It defines as “something to the good into the bargain (and as an example) gratuity to
workmen beyond their wages”.

L.A.T Formula regarding payment of bonus:

A dispute relating to payment of bonus by the Cotton Mills of Bombay was decided by
the Industrial Court, Bombay. An appeal against the award of the Industrial Court was
considered by the Full Bench of the then Labour Appellate Tribunal (Mill Owners’ Association,
Bombay v. Rashtriya Mill Mazdur Sangh, Bombay, 1959). In its decision, the LAT laid down
the principles involved in the grant of bonus to workers. These principles are known as the LAT
Formula. According to the formula, the following prior charges were to be deducted from gross
profits:

 Provision for depreciation;

 Reserve for rehabilitation;
 Return of 6 per cent on the paid up capital
 Return on the working capital at a lower rate than the return on paid-up capital.

The balance, if any, was called “available surplus” and the workmen were to be awarded
a reasonable share out of it by way of bonus for the year. Bonus is really a reward for good
work or share of profit of the unit where the employee is working. Often there were disputes
between employer and employees about bonus to be paid. It was thought that a legislation will
solve the problem and hence Bonus Act was passed. Unfortunately, in the process, bonus has
become almost as deferred wages due to provision of payment of minimum 8.33% and
maximum 20% bonus. Bonus Act has not in any way reduced the disputes.

The Act is applicable to

(a) any factory employing 10 or more persons where any processing is carried out with
aid of power
(b) Other establishments (established for purpose of profit) employing 20 or more
persons. Minimum bonus payable is 8.33% and maximum is 20%. Bonus is payable
annually within 8 months from close of accounting year. Bonus is payable to all
employees whose salary or wages do not exceed Rs 3,500 per month provided they
have worked for at least 30 days in the accounting year.

Establishments to which the Act is applicable - The Act applies to

(a) every factory
(b) every other establishment in which twenty or more persons are employed on any day
during an accounting year.

The Industrial Disputes act, 1947

The objective of the Industrial Disputes Act is to secure industrial peace and harmony by
providing machinery and procedure for the investigation and settlement of industrial disputes by
negotiations. This act deals with the retrenchment process of the employees, procedure for
layoff, procedure and rules for strikes and lockouts of the company.

INTRODUCTION

Industrial Disputes have adverse effects on industrial production, efficiency, costs,

quality, human satisfaction, discipline, technological and economic progress and finally on the
welfare of the society. A discontent labour force, nursing in its heart mute grievances and
resentments, cannot be efficient and will not possess a high degree of industrial morale. Hence,
the Industrial Dispute Act of 1947, was passed as a preventive and curative measure.

SCOPE AND OBJECT

The Industrial Dispute Act of 1947, came into force on the first day of April, 1947.
 Its aim is to protect the workmen against victimization by the employers and to ensure
social justice to both employers and employees.
 The unique object of the Act is to promote collective bargaining and to maintain a
peaceful atmosphere in industries by avoiding illegal strikes and lock outs.
 The Act also provides for regulation of lay off and retrenchment.
 The objective of the Industrial Disputes Act is to secure industrial peace and harmony by
providing machinery and procedure for the investigation and settlement of industrial
disputes by negotiations.

DEFINITIONS
Appropriate Government: Appropriate Government means the Central Government in relation
to any industrial dispute concerning any industry carried on by or under the authority of the
Central Government, any industry carried on by a Railway Company, any controlled industry
specified by the Central Government, The Unit Trust of India. Corporations under the Central
Statutes, Banking company, Insurance company. Mines. Oil field, Cantonment board, Major
ports, etc. In relation to any other industrial dispute, the appropriate Government is the State
Government.

Award: means an interim or a final determination of any industrial dispute or of any question
relating thereto by any Labour Court, Industrial Tribunal or National Industrial Tribunal and
includes an arbitration award made under the Industrial disputes act.

Industry: Industry means any business, trade, undertaking, manufacture or calling of employers
and includes any calling, service, employment, handicraft or industrial occupation of workmen.
Industrial Dispute: It means any dispute or difference between employers and employers, or
between employers and workmen, or between workmen and workmen, which is connected with
the employment or non-employment or the terms of employment or with the conditions of
labour, of any person.

Child Labour (Prohibition & Regulation) Act, 1986

In India, there are a number of Acts which prohibit the employment of children below
14 years and 15 years in certain specified employments. However, there is no procedure laid
down in any law for deciding in which employments, occupations or processes the employment
of children should be prohibited. There is also no law to regulate the working conditions of
children in most of the employments where they are not banned from working and are working
under extremely shady and questionable conditions.

Objectives of Child Labour (Prohibition & Regulation) Act, 1986

 Ban the employment of children, i.e. those who have not completed their fourteenth
year, in specified occupations and processes;
 Lay down a procedure to decide modifications to the Schedule of banned occupations or
processes;
 Regulate the conditions of work of children in employments where they are not
prohibited from working;
 Lay down enhanced penalties for employment of children in violation of the provisions
of this Act, and other Acts which forbid the employment of children;
Penalties:
For the contravention of Section 3 a person is punishable with not less than three
months imprisonment which may extend to one year or with fine not less than Rs.10,000/-
rupees which may be extended up to Rs. 20,000/- or with both.
For other offence, the punishment may be simple imprisonment up to one month or with
fine up to Rs. 10,000/- of both. A conviction u/s 67 of the Factories Act, 1948 or u/s 21 of the
Motor Transport Workers Act, 1961 will attract the penalties under the Child Labour
(Prohibition & Regulation) Act,1986.
 Other labour laws
i) Laws related to Industrial Relations
ii) Laws related to Wages
iii) Laws related to Specific Industries
iv) Laws related to Equality and Empowerment of Women
v) Laws related to Deprived and Disadvantaged sections of the Society
vi) Laws related to Social Security
vii) Laws related to Employment and Training viii) Others.
Indian factories act
 In India, the First factories Act was passed in 1881.
 This Act was basically designed to protect children and to provide few measures for
health and safety of the workers.
 This law was applicable to only those factories, which employed 100 or more
workers.
 In 1891 another Factories Act was passed which extended to the factories employee
50 or more workers.
Factories Act includes:
 Health
 Safety
 Welfare
 Working Hours Of Adults
 Annual Leave With wages
Definitions:
Factory is defined in section 2(m) of the Act. It means any premises including the
precincts there of
a) Whereon 10 or more workers are working, or were working on any day of the preceding
12 months, and in any part of which a manufacturing process is being carried on with
the aid of power, or is ordinarily so carried on; or
b) Whereon 20 or more workers are working, or were working on any day of the preceding
12 months, and in any part of which a manufacturing process is being carried on without
the aid of power, or is ordinarily so carried on.
“Manufacturing process” means any process for-
a) Making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning,
breaking up, demolishing, or otherwise treating or adapting any article or substance with
a view to its use, sale, transport, delivery or disposal ; or
b) Pumping oil, water, sewage or any other substance; or
c) Generating, transforming or transmitting power; or
d) Composing types for printing by letter press, lithography, photogravure or other similar
process or book binding
e) Constructing, reconstructing, repairing, refitting, finishing or breaking up ships or
vessels
Objectives

1. To ensure adequate safety measures and to promote the health and welfare of the
workers employed in factories.
2. To prevent haphazard growth of factories through the provisions related to the
approval of plans before the creation of a factory.
Applicability of the Act
1. Applicable to the whole of India including Jammu &Kashmir.
2. Covers all manufacturing processes and establishments falling within the definition
of ‘factory’.
3. Applicable to all factories using power and employing 10 or more workers, and if not
using power, employing 20 or more workers on any day of the preceding 12months.
Provisions Regarding Health:
1) Cleanliness
2) Disposal of Wastes & Effluents
3) Ventilations & Temperature
4) Dust & Fumes
5) Artificial Humidification
6) Overcrowding
7) Lighting
8) Drinking Water
9) Urinals & Toilet
Provisions Regarding Safety:
1) Fencing of Machinery
2) Safety
 All machinery should be properly fenced to protect workers when machinery is
in motion.
 Hoists and lifts should be in good condition and tested periodically.
 Pressure plants should be checked as per r free form obstructions.
 Safety appliances for eyes, dangerous dusts, gas, fumes should be provided.
 Worker is also under obligation to use the safety appliances. He should not
misuse any appliance, convenience or other things provided.

Provisions Regarding Welfare of Workers

1) Washing Facilities
2) Facilities for Storing & Drying clothing
3) Facilities for Sitting
4) First Aid facilities
5) Canteens, Shelters, Rest Rooms & Lunch Rooms

Working Hours
 Weekly hours not more than 48.
 Daily Hours, not more than 9 Hours.
 Intervals for rest at least 1/2 hour on working for 5 hours.
 Spread over not more than 10 1/2 hours.
 Overlapping shifts prohibited.
 Extra Wages for overtime double than normal rate of wages.
 Restrictions on employment of women before 6 AM and beyond 7 PM