Friday, October 9, 2015

Contract Law - Elements of a contract in order to be 'valid' and binding in law

08 Oct 2015

The basic/most fundamental principle of the age-old contract law, being one of the laws that has stood the tests of time, including our modern times, has yet again been revisited , in order to reconfirm and reestablish  as to what is the only correct , so also the settled. position in law for long :

Related to consideration for a contract to be 'valid' -  contract law

Accordingly, it was envisaged in the composite scheme of arrangement that in lieu of acquiring the Transferor’s businesses in the manner stipulated above, the Transferees would discharge the consideration for the scheme through a swap of its shares for the shares of the Transferor in the following manner:   
For Part A: allot 116 equity shares of Transferee A of Re.1/- fully paid up for every 100 equity shares of the Transferor of Rs.10/- fully paid up, and
For Part B: allot 4 equity shares of Transferee A of Re. 1/- to be paid up for every 100 equity shares of the Transferor of Rs.10/-.  
This is NOT A CASE in which the dispute is whether the 'scheme of arrangement' on hand - howsoever composite or differently and complicatedly structured that is, which is 'admittedly' a 'contract agreement'  between the two parties thereto , - has been without the most essential element of 'consideration' in order to constitute, and be construed as a valid and binding contract in law. Further, it is really NOT  a dispute between the parties per se and / or 'interested parties' in the sense of having vested rights and interests in the whole of the transaction, by whom the validity has been challenged .  On the contrary but quite distinctly, it is the company law authority who has been responsible for , and raised an issue.
If were viewed from a different but independent manner, founded on so called 'common sense' , besides on the attendant principles of  common law./ natural justice, the most fundamental of all questions requiring to be gone into  and incisively decided IS THIS:
Whether the company law authority, has been right at all , under the guise/pretext  of acting in exorcise of its administrative  cum regulatory powers , in having challenged the validity of the 'scheme of arrangement',
Pithily stated : In one's perspective, and as per own conviction based on sound and logical thinking / reasoning,  this is one of those several instances in which the appointed authority may be rightly urged, with success,  to have traveled beyond, and acted in excess of,  his  vested powers; and thereby, been the cause of a unwarranted court litigation.

The term ' consideration' , in the context herein, has to construed and taken to mean, and include, -
Something with monetary value, voluntarily exchanged for an act, benefit, forbearance, interest, promise, right, or goods or services. In banking, the loan-amount is a consideration, in exchange for the borrower's promise to repay the principal and to pay interest and other charges. In insurance, the insurance company's offer to make a loss good is a consideration in exchange for payment of premium. Essential element of all enforceable commercial-contracts, it does not have to be 'adequate' or equal in value to the exchanged item but must be legal (not in violation of any law). Any commercial contract without a valid (valuable and legal) consideration is invalid and is called 'nudum pactum' (Latin for, naked contract) governed by the legal maxim 'ex nudo pacto non oritur actio' (Latin for, a right of action does not arise from a naked contract). See also good consideration, and valuable consideration.

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