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THE LEGAL VALIDITY OF MOU IN INDIA

In my previous blogs, I have explained about MOU [better known as MEMORANDUM OF UNDERSTANDING] and how does it work. Also, that a Memorandum of Understanding or “MOU” is used at a variety of places starting from business, divorce, partnership firms, companies, familial relationships, government organisations, between Foreign and Indian Nationals etc. It is the general notion that a “MOU” is non biding and has got no legal validity in India. In my present blog, I shall discuss about another unanswered question which have had contrasting views and try to discuss each aspect and then conclude and comment upon the validity of “MOU” in India. The basic stressing areas shall include the following1.     Introduction to the validity of “MOU”2.     Legal position of “MOU” in Indian Law3.     Enforceability of “MOU”a.      In General b.     International “MOU”c.      “MOU” between two countries 4.     Landmark Judgments 5.     Personal Opinion6.     Conclusion INTRODUCTION TO THE VALIDITY OF “MOU”A “MOU” is generally said to be a ‘non-binding agreement’ which does not have any legal enforceability and thus acts merely as a ‘letter of intent’ between two parties who mutually agree or disagree to do or not to something and on the basis of which another legally binding instrument is executed keeping all the previous understandings outlined in such “MOU” and giving it effect. As such we can decipher two things 1.     A “MOU” is merely a statement of understanding between two or more parties which when made has no enforceability in the eyes of law as such an agreement has no intention to create a legal bond between such persons. As a result of which, if in case there is a breach of such “MOU” there is no relief. 2.     It is a well-established rule of law that – “All contracts are agreements but, all agreements are not contracts”. This is so because for a contract to be valid it needs to fulfil all the essential ingredients mentioned u/s 10 of The Indian Contract Act, 1872. One of which is – “an intention to create legal relationship between the parties to such contract”. However, now the question arises that what if A “MOU” is drafted in such a manner that is fulfills all the ingredients of section 10??? Can such a “MOU” be a valid contract and be legally enforceable in a court of law???Can such a “MOU” compel the other person to oblige to the same and the breach of such “MOU” will be treated similar to that of a breach of contract??? It is also true that ‘Nomenclature’ of a contract or an agreement is not an index to determine the validity or invalidity of the same. Stating an agreement to be a “MOU” does not explicitly denote that such contract is non-binding.LEGAL POSITION OF “MOU” IN INDIAN LAWAs mentioned above, now that we can understand the fact that it is not necessary for a “MOU” to be non-binding. The question of whether such a “MOU” is legally binding or not depends upon the intent of the parties to create a legal relationship to that extent. Therefore, we can say that the legal position of “MOU” in Indian Law depends upon the intent by which such a document is made and thus such an intention of creating a legal relationship by way of such a “MOU” plays a pivotal role in determining the legal position of the same. Also, it must be noted that the construction of such “MOU” holds primary importance in setting the legality and the construction of words play a pivotal role in the same. If the parties intend to create a legal binding effect to a “MOU” then,a.      The construction of the words shall be of such nature ü Use of the word ‘shall’ instead of ‘may’ü ‘would be’ instead of ‘can be’ü ‘should be’ instead of ‘might be’ So, on and so forth. The use of such words tries to create a legal relationship by making the other person liable to do a certain act. The words shall, would, should, instead of may, can, might are of a superior nature and bind the acts which follow after such words. b.     “legal binding clause”ü A “MOU” would be legally binding if the parties thereto agree to insert any such clause, the literal meaning upon reading of which would mean that such a “MOU” intends to create a legal relationship between the parties to the contract and that the breach of such provisions would mean the same as a breach of a contract under the Indian Contract Act, 1872. c.      In consistency with section 10 of the Indian Contract Act, 1872ü If a “MOU” fulfills all the conditions laid down u/s 10 of the Indian Contract Act, 1872 then, such a “MOU” should be treated as a contract as defined in section 2(h) of The Indian Contract Act, 1872. Hence, giving it a legal force. d.     Insertion of a “dispute resolution clause”ü If a “MOU” inserts a dispute resolution clause, then, it binds the parties to perform their obligations as mentioned or specified in such “MOU”. Non performance of which will lead to breach/dispute for which the “MOU” in itself shall contain a clause which shall provide the method in which such dispute shall be resolved in good faith and in an amicable manner. Thus, from the above we can say that – The principle legislation governing “MOU” in India is dealt with the Indian Contract Act, 1872. Also, in order to make a “MOU” legally enforceable it must have a clear intention to bind the parties to a contract whereby both come under specific obligation to perform their part of the duties. ENFORCEABILITY OF “MOU”As has been discussed earlier in this blog, the enforceability of a “MOU” depends upon the principle governing legislation. I.e. The Indian Contract Act, 1872. In light of this, the enforceability of “MOU” can be divided into 3 categories. a.     In General b.     International “MOU”c.      “MOU” between two countries IN GENERALIn the general sense, the enforceability of a “MOU” can be divided into two categories. They are: 1.     When it fulfills the conditions of a Contract as per The Indian Contract Act, 1872.ü If the “MOU” satisfies the conditions laid down u/s 10 of The Indian Contract Act, 1872 then, the performance of such obligations laid down in the “MOU” can be enforced vide The Specific Relief Act, 1963. ü However, such a relief shall only be granted under The Specific Relief Act, 1963 when, the damage caused to the aggrieved party by way of non-performance of obligation cannot be ascertained and compensation for in lieu of such damages fails to become an appropriate remedy. Sen Mukherjee and Co vs. Chhaya Banarjee [AIR 1998 / CAL 252]2.     When it does not fulfill the conditions of a Contract as per The Indian Contract Act, 1872.ü In certain cases, the courts may find that the “MOU” lacks certain requirements to form a valid Contracts and hence the same cannot be enforced. ü However, even in the above circumstance a person has the right to approach to the court on the basis of: Ø Principles of promissory estoppel     &Ø EquityMotilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradesh   [AIR 1979, SC 621]ü Even beyond that, a “MOU” can be held as enforceable merely on the grounds of equity and on the basis of the general principles of equity irrespective of whatever deficiency it holds is still held to be a contract. Subimalchandra Chatterji vs. Radhanath Ray [AIR 1934, CAL 235]INTERNATIONAL “MOU”ü Any International “MOU” is executed in the form of a treaty or a covenant which is then registered under the ‘United Nations Treaty Collection’.ü These International “MOU” should be registered and by doing so one avoids political diplomacy and secrecy.ü The enforceability of a National or International “MOU” does not differ. In both the cases, the enforceability is dependent upon the intention so conveyed through the construction of such “MOU” ü The title of such International “MOU” nowhere mentions whether it is a legally binding document or whether it is non-binding document. It is prudent to mention here that, The International Court of Justice in the year 1994, July 1st [Quatar vs. Bahrain] has expressed their views upon the legality of “MOU” and had also provided various standards to be maintained for the legality of such “MOU”INTERNATIONAL “MOU” BETWEEN COUNTRIESü As it has already been mentioned and is clear now that no “MOU” is legally binding without the clear intention of it making it as binding. ü Nevertheless, there are “MOU” between countries for a variety of reasons and some of them can be as follows. The “MOU” entered between two countries can have the object and purpose of: - 1.     Exchanging resources between themselves 2.     Exchanging technology between themselves 3.     Student exchange programs4.     Exchange of technical support 5.     Military Support 6.     Understanding of peace 7.     Understanding of trade 8.     Understanding of allies          ETCü The above list though not exhaustive, mentions some of the reasons why two countries enter into a “MOU” and act accordingly. ü Also, every “MOU” must not be formally designed and executed, but those which have been formally designed and executed must be registered and include the exchange of some monetary value with the same. LANDMARK JUDGMENTSGiven below are a list of landmark judgments which have been held to be useful in deciding the legality or non-legality of “MOU” CASE LAWS WHERE “MOU” HAS BEEN DECLARED AS A LEGALLY BINDING DOCUMENT 1.     BrikramKishore Parida v. Penudhar Jena2.     Structural Waterproofing & Ors. v. Mr. Amit Gupta3.     Jai Beverages Pvt. Ltd. v. State of Jammu and Kashmir and Ors4.     Millenia Realtors Private Limited v. SJR Infrastructure Private Limited 5.     Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh6.     M/s. Nanak Builders and Investors Pvt. Ltd. v Vinod Kumar Alag7.     Kollipara Sriramulu vs. T. Aswathanarayana &OrsCASE LAWS WHERE “MOU” HAS NOT BEEN DECLARED AS A LEGALLY BINDING DOCUMENT 1.     Monnet Ispat and Energy Ltd. v. Union of India and Ors2.     Jyoti Brothers v. Shree Durga Mining Co PERSONAL OPINIONAfter going through all the above details, facts, and decisions one can conclusively conclude that a “MOU” is generally a non-binding agreement made for the purpose of making another agreement which shall rely upon the principles of such “MOU” and then carter them into a legally binding agreement. Going by the same logic it is stated by the courts that any agreement which is made for the purpose of making another agreement cannot be given the legal status of an agreement. So, to say, an agreement for an agreement is not enforceable. However, now the question arises that – if a “MOU” which is said to be an agreement on the basis of which another agreement is made which then becomes a contract and the breach of such contract shall be legally bending but not a “MOU”. Then, would it be right to say that 1.     A pre-mortgage agreement 2.     A pre-sale agreement 3.     A pre-lease agreement           ETCOr, any such agreement which has the same purpose that which of a “MOU” merely having different names as mentioned above shall also come under the same purview and shall not be legally binding? To which I can deduce the following: - 1.     Mere heading of any agreement shall not be used as an index to come to the decision of its legality or illegality. The contents of the same shall hold value and the agreement in full shall be taken into consideration with respect to equity and principles of promissory estoppel. 2.     The construction and use of words in such agreement shall also be taken into consideration which will further help the reader to analyse the same and conclude whether such agreement was made with an intention to comply with or was it made just for namesake and was merely a promise. 3.     Insertion of various clauses like “legal binding” “indemnification” “damage” “breach” which shall show the clear intention to make such agreement legally binding would play a pivotal role. 4.     A “MOU” is said to be an agreement which needs to fulfil the valid requisites of a contract u/s 10 of The Indian Contract Act, 1872 as it is the guiding principle legislation. Hence it can be said that if any agreement [irrespective of its nomenclature] fulfils the conditions as laid down u/s 10 of such act shall be deemed to be legal and enforceable. CONCLUSION From the above we can finally come to the conclusion that: - 1.     Any agreement to be a contract shall fulfil the provisions of section 10 of The Indian Contract Act, 1872. 2.     An agreement may or may not be legally binding depending upon the intention between the parties who enter into a contract. 3.     In its generic definition a “MOU” is defined to be a non-binding document, however, if there lies a clear intention of compliance then such “MOU” shall be binding. 4.     It is a well-established rule of law that if a “MOU” fulfils all the conditions laid down u/s 10 of The Indian Contract Act, 1872 then, such a “MOU” shall be legally binding. 5.     Apart from everything a “MOU” can be enforceable in spite of deficiencies on the grounds of equity and promissory estoppel as held in the case of Subimalchandra Chatterji vs. Radhanath Ray [AIR 1934, CAL 235]. 

Posted By

Shreyash Mohta

1 month ago

DIFFERENCE BETWEEN CIVIL DEFAMATION AND CRIMINAL D...

DIFFERENCE BETWEEN CIVIL DEFAMATION AND CRIMINAL DEFAMATION.Next to life, man cares most for his reputation. Sometimes, we find an individual giving it the foremost place, preferring death rather than living a life of ignominy and disgrace. Reputation is thus in fact a great internal force in the mind of every man, impelling him to do great things. On a careful analysis of the human mind, one will find this element of longing for name and reputation as the basic motive of most actions. Rightly, law gives protection to a man’s reputation, as it gives protection to his property and life. Before we go deep into this topic, let us first concentrate on the topic of defamation and what it is. WHAT IS DEFAMATION?Defamation is actually the injury to the reputation of a person. If any person injures the reputation of another, he does so at his own risk, as it is in the case of an interference with the property. If defamation occurs in spoken words or gestures (or other such transitory form) then it is termed as slander and the same if in written or printed form (of a permanent nature) is libel. In India, defamation is both a civil and a criminal offence. In Civil Law, defamation mostly falls under the Law of Torts, which imposes punishment in the form of damages awarded to the claimant (person filing the claim). Under Criminal Law, Defamation is bailable, non-cognizable and compoundable offence. Therefore, the police cannot start investigation of defamation without a warrant from a magistrate (a FIR cannot be filed). The accused also has a right to seek bail. Later, the charges can be dropped if the victim and the accused enter into a compromise to that effect (even without the permission of the court). Defamation as a criminal offence is stated under section 499 of the Indian Penal CodeDIFFERENCE BETWEEN LIBEL AND SLANDER.English Law - Mainly because of historical reasons, English law divides defamation into two: - * Libel - Libel is the representation made in some permanent form, e.g., writing, printing, picture etc. *  Slander - Slander is the publication of a statement in a transient form. examples of it may be spoken words or gestures. Under English law, the distinction between libel and slander material for two reasons:1. Under Criminal law, only libel has been recognized as an offence. Slander is not an offence.2. Under the law of torts, slander is actionable only on proof of special damage. Libel is always actionable. Indian Law: It has been noted above that under English criminal law, a distinction is made between libel and slander. There, Libel is a crime but slander is not. Slander is just a civil wrong in England. Criminal law in India does not make any such distinction between Libel and Slander. Both Libel and Slander are criminal offences under section 499, I.P.C. It has been noted above that though Libel and Slander both are considered as civil wrongs, but there is a distinction between the two under English Law. Libel is actionable per se, but in case of slander, except in certain cases, proof of special damage is required to be proved. IN INDIA DEFAMATION IS BOTH A CIVIL AND CRIMINAL OFFENCE.The remedy for civil defamation is stated under the Law of Torts. In a civil defamation case, the person who is defamed can move either to the High Court or subordinate courts and seek damages in the form of monetary compensation from the accused. Also, under sections 499 and 500 of the Indian Penal Code, a person guilty of criminal defamation can be sent to jail for two years.DEFAMATION UNDER CIVIL LAWUnder civil law, defamation is the publication of a statement which tends to lower a person in the estimation of the right-thinking members of the society. To constitute a defamation under civil law, few conditions has to be satisfied: 1. The statement made must be defamatory- Defamatory statement is one which tends to injure the reputation of the plaintiff. An imputation which exposes one to disgrace and humiliation, ridicule or contempt is defamatory. 2. The said statement must be referred to the plaintiff. It is immaterial that the defendant did not really intend to defame the plaintiff. If the person to whom the statement was published could infer that the statement referred to the plaintiff, the defendant is liable. 3. The statement must be published - Publication actually means making the defamatory matter known to some person other than the person defamed, and unless and until that is done, no civil action for defamation lies. DEFENCES The defence to an action for defamation are :1. JUSTIFICATION OR TRUTH - In a civil action for defamation, truth of the defamatory matter is complete defence. Under criminal law, just proving that the statement was true is no defence. The exception under criminal law states the statement besides being true the imputation must be shown to have been made for public good. 2. FAIR COMMENT - Making fair comment on matters of public interest is a defence to an action for defamation. For this defence to be available, the following essentials are required: a. It must be a comment. b. The comment must be fair. c. The matter commented upon must be a matter of public interest. The person defamed can move either to the high court or trial court and seek damages in the form of monetary compensation from the accused. The remedy sought is covered under the Law of Torts, a rare and slow course of relief witnessed in India.The law defines defamatory content as one “calculated to injure the reputation of another by exposing him to hatred, contempt or ridicule.” This is the very first condition required to be fulfilled under the civil remedy.Second, the claimant must be identified in the defamatory statement. It must address a particular person and no as such broad-based classification is acceptable.And lastly there must be publication of the defamatory statement in oral or written form. A civil defamation law would be applied once these conditions are attained. The defendant will then have to plead his defense. CIVIL CASES UNDER THE LAW OF DEFAMATION In D.P. Choudhury v. Manjulata, the plaintiff - respondent, Manjulata about 17 years of age, belonged to a distinguished educated family of Jodhpur. She was a student of B.A. There was publication of a news item in a local daily, Dainik Navjyoti, dated 18.12.77, that the last night 11 p.m. Manjulata had run away with a boy named Kamlesh, after she went out of her house on the pretext of attending night classes in her college. The news item was untrue and was negligently published. It was held that all defamatory words are actionable per se and in such a case general damages will be presumed. DEFAMATION UNDER CRIMINAL LAWSEC 499 OF THE INDIAN PENAL CODE, 1860DEFAMATION - Whoever, by words either spoken or by signs or by visible representations, makes or publishes any imputation concerning any person intending to harm, or knowing or having reason to believe that such imputation will harm, the reputation of such person, is said to defame that person.On the other hand, the Indian Penal Code gives an opportunity to the defamed individual to also move a criminal court, asking the latter to take cognizance of his complaint. It’s a bailable, non-cognizable and compoundable offence, which means no police can register a case and start investigation without the court’s permission.Under sections 499 and 500 of the Indian Penal Code, a person found guilty can be sent to jail for two years. The Supreme Court has reserved its verdict on a clutch of petitions challenging the constitutional validity of the two penal provisions.In a criminal suit, the complainant should be able to prove that the accused intended to defame him. In the absence of intention, it has to be be established that the alleged offender had knowledge that the publication was likely to defame the person. Normal stand of proof in criminal cases, which is to prove the offence beyond reasonable doubt, must also be placed before the court.Since the law is compoundable, a criminal court can drop the charges if the victim and the accused enter into a compromise to that effect (even without the permission of the court).

Posted By

Sayaree Ganguly

1 month ago

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