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Criminal Law

Charitable Society Members Running College Are "Public Servants"

 17-Dec-2024

Source: Kerala High Court 

Why in News? 

Recently, the Kerela High Court in the matter of A. K. Sreekumar v The Director and Others (2024) has held that members of charitable society running private college are "Public Servants.” 

What was the Background of the A. K. Sreekumar v The Director and Others Case?  

  • A.K. Sreekumar (petitioner) filed a complaint seeking investigation into alleged corruption and misappropriation at Nazreth Pharmacy College in Kerala. 
  • The college is run by a charitable society registered under the Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, 1955. 
  • Initially, the college was affiliated with Mahatma Gandhi University and later became affiliated with Kerala University of Health Sciences, Thrissur. 
  • The college received a "No Objection Certificate" from Kerala's Health and Family Welfare Department and sanction from the All India Council for Technical Education. 
  • The petitioner's complaint named nine suspects and alleged they: 
    • Denied admission to eligible students in government-allotted seats 
    • Sold these seats to private students after collecting large capitation fees 
    • Misappropriated the collected money for personal gain 
    • Caused financial loss to the society 
  • The alleged actions were claimed to violate: 
  • When the Vigilance and Anti-corruption Bureau (VACB) didn't act on the complaint, the petitioner approached the Court of Enquiry Commissioner and Special Judge, Kottayam. 
  • The VACB claimed they couldn't investigate without approval under Section 17A of the PC Act. 
  • The Special Court dismissed the petitioner's request for investigation and asked for Section 17A approval from competent authorities. 
  • When VACB sought this approval, the Government decided no vigilance enquiry was needed since the allegations were already being considered by the Admission Supervisory Committee for Medical Education. 
  • The petitioner then challenged this government order before the Kerela High Court in the present case. 

What were the Court’s Observations? 

  • The Kerela High Court made the following observations:  
    • On Public Duty and Public Servants: 
      • The court emphasized that 'public duty' must be connected to a State law or valid governmental directions. 
      • A person performing public duty must be under positive command of State law or valid executive direction. 
      • The focus should be on the office and duties performed rather than the position itself. 
    • On Education and Public Duty: 
      • The court noted that admission and fee fixation at the institution are governed by Kerala Medical Education Act, 2017. 
      • The management's duties are based on positive law of the State and governmental directions. 
      • The court concluded that the accused persons were the final authority for admissions and fee collection, making their duties "public duty" 
    • On Section 17A of the PC Act Approval: 
      • The court found that prior approval under Section 17A was not required in this case. 
      • The alleged acts were not related to recommendations or decisions taken by public servants in discharge of official duties. 
    • On Definition of Public Servant: 
      • The court noted that the legislative intention was to provide a general definition rather than an exhaustive list. 
      • The focus should be on public duties performed rather than positions held. 
      • Any duty where the State, public, or community has interest qualifies as public duty. 
    • On Corruption in Educational Institutions: 
      • The court referenced Supreme Court observations about corruption threatening constitutional governance. 
      • It emphasized that anti-corruption laws should be interpreted to strengthen the fight against corruption. 
    • On Government's Decision: 
      • The court found the government's decision (that no vigilance enquiry was needed since matter was before Admission Supervisory Committee) to be inadequate. 
      • The court observed that the petitioner had alleged cognizable offenses that warranted investigation. 
    • On Scope of Investigation: 
      • The court determined that a preliminary enquiry was necessary despite the matter being before the Admission Supervisory Committee. 
      • It emphasized that the investigation should proceed according to law. 
  • These observations led the High Court to quash the government order and direct the Vigilance and Anti-corruption Bureau to conduct a preliminary enquiry into the matter. 

Who is a Public Servant Under PC Act? 

  • PC Act, 1988: 
    • The PC Act 1988 is an act of the Parliament of India enacted to combat corruption in government agencies and public sector businesses in India. 
    • Section2(c): Public Servant means. 

(i) any person in the service or pay of the Government or remunerated by the Government by fees or commission for the performance of any public duty; 

(ii) any person in the service or pay of a local authority; 

(iii) any person in the service or pay of a corporation established by or under a Central, Provincial or State Act, or an authority or a body owned or controlled or aided by the Government or a Government company as defined in Section 617 of the Companies Act, 1956 (1 of 1956); 

(iv) any Judge, including any person empowered by law to discharge, whether by himself or as a member of any body of persons, any adjudicatory functions; 

(v)a ny person authorized by a court of justice to perform any duty, in connection with the administration of justice, including a liquidator, receiver or commissioner appointed by such court; 

(vi) any arbitrator or other person to whom any cause or matter has been referred for decision or report by a court of justice or by a competent public authority; 

(vii) any person who holds an office by virtue of which he is empowered to prepare, publish, maintain or revise an electoral roll or to conduct an election or part of an election; 

(viii) any person who holds an office by virtue of which he is authorized or required to perform any public duty; 

(ix) any person who is the president, secretary or other office-bearer of a registered co-operative society engaged in agriculture, industry, trade or banking, receiving or having received any financial aid from the Central Government or a State Government or from any corporation established by or under a Central, Provincial or State Act, or any authority or body owned or controlled or aided by the Government or a Government company as defined in Section 617 of the Companies Act, 1956 (1 of 1956); 

(x) any person who is a chairman, member or employee of any Service Commission or Board, by whatever name called, or a member of any selection committee appointed by such Commission or Board for the conduct of any examination or making any selection on behalf of such Commission or Board; 

(xi) any person who is a Vice-Chancellor or member of any governing body, professor, reader, lecturer or any other teacher or employee, by whatever designation called, of any University and any person whose services have been availed of by a university or any other public authority in connection with holding or conducting examinations. 

What is Section 17A of PC Act? 

  • This section states about Enquiry or Inquiry or investigation of offences relatable to recommendations made or decision taken by public servant in discharge of official functions or duties as: 
  • Basic Prohibition 
    • No police officer can conduct any enquiry, inquiry, or investigation 
    • This applies to offenses allegedly committed by public servants under this Act 
    • The prohibition applies only when the alleged offense relates to: 
      • Recommendations made by the public servant. 
      • Decisions taken by the public servant. 
      • Actions within official functions or duties. 
  • Requirement of Previous Approval 
    • For Union Government Employees 
      • Applies to persons employed in connection with Union affairs. 
      • Approval needed from Union Government. 
      • Covers both current and former employees at time of alleged offense. 
    • For State Government Employees 
      • Applies to persons employed in connection with State affairs. 
      • Approval needed from State Government. 
      • Covers both current and former employees at time of alleged offense. 
    • For Other Public Servants 
      • This applies to all other categories of public servants. 
      • Approval needed from authority competent to remove them. 
      • Authority status determined as of time of alleged offense. 
  • Exceptions (First Proviso) 
    • No approval required for arrest on the spot 
    • Must involve either: 
      • Accepting undue advantage. 
      • Attempting to accept undue advantage. 
    • Can be for self or any other person. 
  • Time Limits (Second Proviso) 
    • Initial Decision Period 
      • Authority must convey decision within 3 months 
    • Extension 
      • Can be extended by 1 additional month 
      • Extension requires: 
        • Reasons in writing 
        • Recording by concerned authority 
  • Key Elements for Application 
    • Must involve a public servant. 
    • Must relate to official functions. 
    • Must connect to recommendations or decisions. 
    • Must be under PC Act 

Mercantile Law

Arbitration Not Optional Under Arbitration Clause

 17-Dec-2024

Source: Supreme Court  

Why in News? 

The Supreme Court held that arbitration cannot be considered 'optional' if an agreement contains an arbitration clause. Setting aside the MP High Court's decision, the Court clarified that disputes must be referred to arbitration as per the agreement, even if parties fail to mutually agree to invoke the clause. The bench, led by CJI Sanjiv Khanna and Justice Sanjay Kumar, observed that the arbitration clause cannot be narrowly interpreted, and courts can appoint an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996. 

What was the Background of Tarun Dhameja v. Sunil Dhameja & Anr.(2024) case? 

  • The dispute arises from a partnership deed signed in July 2016 between business partners.  
  • After the death of one of the partners (Yeshwant Boolani), his legal representative (Tarun Dhameja) sought to initiate arbitration to resolve some ongoing business disputes. 
  • The Partnership Deed contained an arbitration clause that appeared somewhat ambiguous. 
    • It stated that arbitration was "optional" and that the arbitrator would be appointed with mutual consent of the partners.  
    • When Tarun Dhameja tried to invoke this arbitration clause, the other partners resisted, arguing that the arbitration was truly optional and required full agreement from all parties. 
  • As a result, Tarun Dhameja approached the court to appoint an arbitrator.  
  • Initially, the Madhya Pradesh High Court refused to appoint an arbitrator, believing that the arbitration clause meant parties must mutually agree to arbitration before it could proceed. 
  • Tarun Dhameja then appealed to the Supreme Court, challenging the High Court's interpretation of the arbitration clause.  
  • The Supreme Court was asked to clarify whether the arbitration clause was truly optional or if it could be invoked by an aggrieved party even without complete mutual consent. 
  • The core legal question was about the interpretation of the arbitration clause:  
    • Could one party unilaterally invoke arbitration, or did it require unanimous agreement from all partners? 

What were the Court’s Observations? 

  • The Supreme Court observed that the arbitration clause cannot be considered 'optional' in a manner that renders it non-existent or requires unanimous consent from all parties to invoke arbitration. 
  • The Court held that an aggrieved party can invoke the arbitration clause, and the subsequent appointment of an arbitrator can be facilitated through mutual consent or judicial intervention. 
  • The Court states that arbitration clauses should be interpreted pragmatically, considering the broader intent of dispute resolution rather than narrowly restricting their application. 
  • The judgment clarified that legal representatives of deceased partners are entitled to invoke the arbitration clause, ensuring the mechanism's continuity beyond the original partners. 
  • The Court noted that where parties cannot mutually agree on an arbitrator, the court can step in and appoint an arbitral tribunal under Section 11(6) of the Arbitration and Conciliation Act, 1996. 
  • The Supreme Court stressed that the various portions of an arbitration clause must be read together in context, avoiding isolated interpretations that might undermine the clause's fundamental purpose. 

What is Arbitration Clause? 

  • An arbitration clause is a fundamental legal provision that establishes the consent between parties to resolve specific disputes through arbitration, which serves as the basis for an arbitral tribunal's jurisdiction. 
  • Consent to arbitration can be established through three primary mechanisms: direct agreement between parties, legislation of a host state, or a bilateral/multilateral investment treaty. 
  • A comprehensive arbitration clause typically includes key components such as an explicit referral of disputes to arbitration, governing law of the arbitration agreement, seat of arbitration, arbitration rules, number and selection method of arbitrators, and potentially the governing institution. 
  • In investment contexts, a compromissory clause is usually embedded in an investment agreement, which clearly defines the category or nature of disputes that can be referred to arbitration. 
  • Arbitration clauses can be broad, covering "any dispute" under an agreement, or narrow, specifying particular disputes to be resolved through arbitration while leaving others to traditional court systems. 
  • Tribunals often employ the "Unity of Investment" doctrine, which allows them to interpret arbitration clauses broadly by considering the entire investment relationship rather than individual contract provisions. 
  • The validity of an arbitration clause depends on clear and binding consent from all parties, with ambiguous or unclear language potentially undermining the clause's effectiveness. 
  • Different jurisdictions and treaty frameworks may have varying requirements for perfecting consent to arbitration, which could involve additional steps beyond the initial clause drafting. 
  • The scope and interpretation of an arbitration clause can be significantly influenced by factors such as the specific wording, applicable laws, and the relationship between the parties involved in the dispute. 

What is the Standard Arbitration Clause as per ICC? 

  • All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.  
  • Parties are free to adapt the clause to their particular circumstances. For instance, they may wish to stipulate the number of arbitrators given that the ICC Arbitration Rules contain a presumption in favour of a sole arbitrator.   
  • When adapting the clause, care must be taken to avoid any risk of ambiguity. Unclear wording in the clause will cause uncertainty and delay and can hinder or even compromise the dispute resolution process.  
  • Parties should also take account of any factors that may affect the enforceability of the clause under applicable law. These include any mandatory requirements that may exist at the place of arbitration and the expected place or places of enforcement. 

What is Standard Arbitration Clause as per Indian Council of Arbitration? 

Following is the standard arbitration clause provided by ICA to avoid vagueness: 

  • "Any dispute or difference whatsoever arising between the parties out of or relating to the construction, meaning, scope, operation or effect of this contract or the validity or the breach thereof shall be settled by arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration and the award made in pursuance thereof shall be binding on the parties." 

What are the Types of Arbitration Clauses 

  • Basic Clauses  
    • Include only the most essential provisions for a viable arbitration agreement 
    • Typically follow institutional model clauses 
    • Contain minimal, fundamental elements required for arbitration 
  • General Clauses  
    • Most common type for substantial transactions 
    • Include optional provisions beyond basic requirements 
    • Address specific issues such as:  
      • Venue 
      • Language 
      • Governing law 
      • Negotiation stages 
      • Mediation provisions 
    • Commonly used in industries like energy, including agreements for:  
      • Joint operating 
      • Drilling 
      • Natural gas supply 
      • Power plant construction 
  • Complex Clauses  
    • Include unusual and additional provisions 
    • Require careful tailoring to prevent:  
      • Inconsistencies 
      • Potential invalidation in different jurisdictions 
    • May incorporate advanced provisions like:  
      • Confidentiality 
      • Discovery mechanisms 
      • Multi-party arbitration 
      • Consolidation of proceedings 
      • Split clauses (mixing litigation and arbitration) 
      • Expert determination 
      • Arbitrability definitions 
      • Waivers or consent to appeals 
      • Contract adaptation provisions 

What are the Differences Between Arbitration Clauses and Arbitration Agreement? 

  • Definition  
    • Arbitration Clause: A specific provision within a larger contract that outlines how potential disputes will be resolved through arbitration.It is usually incorporated directly into the main contract document. 
    • Arbitration Agreement: A separate document or agreement specifically dedicated to establishing the terms and process of arbitration between parties. 
  • Scope and Placement  
    • Arbitration Clause: Narrow in scope, usually limited to disputes arising from the specific contract in which it is included. It is typically found within sections of the main contract for dispute resolution. 
    • Arbitration Agreement: Broader in scope, can cover multiple contracts or a wider range of potential disputes between parties. It exists as an independent document. 
  • Legal Independence  
    • Arbitration Clause: Dependent on the primary contract. If the main contract is invalid, the arbitration clause might also be considered invalid. 
    • Arbitration Agreement: Generally considered legally independent. It can survive even if the original contract is terminated or found to be invalid. 
  • Timing of Creation  
    • Arbitration Clause: Created simultaneously with the main contract, at the time of initial contract drafting. 
    • Arbitration Agreement: Can be created before, during, or after the occurrence of a dispute. It's more flexible in terms of timing. 
  • Complexity and Detail  
    • Arbitration Clause: Usually brief and concise, providing basic guidelines for arbitration. 
    • Arbitration Agreement: More comprehensive, potentially including detailed procedures, selection of arbitrators, rules of evidence, and specific guidelines for the arbitration process. 

Case Law 

Duro Felguera, S.A. v. Gangavaram Port Limited (2017) 

  • The Supreme Court definitively interpreted Section 11(6A) to mandate a narrow, focused judicial review during arbitrator appointment proceedings, strictly limiting the court's examination to verifying the mere existence of a valid arbitration agreement. 
  • The judicial determination under Section 11(6A) requires a precise assessment of whether the agreement contains an arbitration clause that explicitly covers the specific disputes arising between the parties, without delving into the substantive merits of the underlying conflict. 
  • The Court's interpretation emphasizes a minimal judicial intervention approach, ensuring that the court's role is procedurally circumscribed to a prima facie verification of the arbitration agreement's applicability, thereby preserving the principle of party autonomy in dispute resolution.