1. Business agreements
Contracts
The Indian Contract Act - 1872

2. Law of Contract…
The law of contract is the foundation upon which the
superstructure of modern business is built.
It is common knowledge that in business transactions,
quite often promises are made at one time and the
performance follows later.
In such a situation if either of the parties were free to go
back on its promise without incurring any liability, there
would be endless complications and it would be
impossible to carry on trade and commerce.
Hence the Law of Contract was enacted which lays down
the legal rules relating to promise, their formation, their
performances and enforceability.

3. In simple, law of contract is intended to ensure that
what a man has been led to expect shall come to pass,
that is.. What has been promised to him shall be
performed.
Not only in business, you can find it out in every day
life.
We all enter into number of contracts almost every
day, but almost every time we do not realize what we
are doing from the point of law.
So from now lets make it an habit.. As a Manager one
should be cautious of all contracts he enter on behalf
of his firm. Cannot be vague on this part!
So, what is a contract???

4. A contract is a legally binding or valid agreement
between two parties. The law will consider a contract
to be valid if the agreement contains all of the
following elements:
• offer and acceptance;
• an intention between the parties to create binding
relations;
• consideration to be paid for the promise made;
• legal capacity of the parties to act;
• genuine consent of the parties; and
• legality of the agreement.
An agreement that lacks one or more of the elements
listed above is not a valid contract.

5. Let me make You familiar with some terms of contract,
before going further….
When you entrusts to a mechanic for repairs, you are
entering into a contract.. That is contract of Bailment.
If Kaushik is buying a packet of Cigarettes, he is said to be in
entering into contract… That is contract of Sale of Goods.
And If Anurag is entering into a cinema hall to watch the
movie buying a ticket… He is entitled to be in a service
agreement and if he enters without buying that ticket, that
means without a contract to once premises then Code of
Criminal Procedure would come into action. The above
action may come under Trespassing or Burglary.
There are many branches of contract law.
Next we will go through Valid, Void and Voidable contracts.

6. VALID CONTRACT :-
Valid contract is that which is enforceable at law. It creates legal
obligations between the parties. It enables one party to compel
another party to do something or not to do something.
Parties Obligations :-
In case of valid contract all the parties to the contract are legally
responsible for the performance of a contract. If one party breaks
the contract other has right to be enforced through the court.
Example :- Amit proposes to sell his one acre land to Giri for one
lakh and the parties are capable to do the contract by law. So this
contract is valid. If Amit fails to deliver the land, Giri can sue him in
the court for the delivery of land. On other hand if Giri fails to make
the payment, Amit can sue him for the recovery of payment.

7. VOID CONTRACT :-
Definition :- "An agreement not enforceable at law is a void contract".
Originally it is a valid contract but due to certain reasons it becomes void after its formation. A void
contract cannot be enforced by either party.
Features of Void Contract :-
a. It is not enforceable by law.
b. It creates no legal rights.
c. It creates no obligations on any party.
d. An agreement which is against the public policy or against any law is also void.
e. Under this contract no compensation can be paid to any party.
An agreement in restraint of marriage and trade are common examples of void contract.
Example :- Anurag and kiran contract to marry on next Sunday. Kiran dies before the Sunday. The
contract becomes void.
A contract that was between an illegal drug dealer and an illegal drug supplier to purchase a
specified amount of drugs for a specified amount. Either one of the parties could void the contract
since there is no lawful objective and hence missing one of the elements of a valid contract.
Rights and Duties :-
In this case the parties are not legally responsible to fulfill the contract. If any party has received
any benefit is bound to return.
This contract takes place when consent of one of the parties is not free.

8. • VOIDABLE CONTRACT :-
"An agreement which is enforceable by law at the option of one or more of the
parties, there to but not at the option of the other or others is a voidable
contract".
Features of Voidable Contract :-
a. It is enforceable at law at the option of one or more of the parties.
b. A voidable contract can only be objected by the party who has been subject
to fraud, coercion, misrepresentation and undue influence.
c. If the contract is revoked by a person rightfully then he can also receive the
compensation.
d. The contract is voidable at the option of the party whose consent is caused.
e. Contracts caused by fraud, undue influence, misrepresentation or by
coercion are voidable contracts.
Example :- Mr. Qadir threatens to shoot Mr. Shah to purchase a car for one lac.
Mr. Shah agrees the contract was made by coercion and is voidable at the
option of Mr. Shah.
Rights and Duties :-
The aggrieved party can cancel such contract within a reasonable time. It is
also entitled to be compensated by the other party.

9. Burden of Proof :-
It is the responsibility of the aggrieved party
to prove that her consent was obtained by
fraud or coercion. If it fails to prove in the
court then contract will remain valid.
If the contract is not written or not registered
it can not be enforced. But as you will remove
this defect the contract can be enforced.
Example :- Suppose "A" borrows the money from "B"
and writes a pronote but proper amount stamps are
not posted on the pronote. Now in this case contract
is valid but not enforceable by law.

10. • Unenforceable Contracts - an unenforceable contract is a contract which
cannot be enforced in a court of law. This could happen because the terms of
the contract are ambiguous, if one party has a voidable contract or if the
Statute of Limitations has expired. The statute of limitations requires that
lawsuits be filed within a certain period of time following a breach. Another
reason a contract might be unenforceable could be because of the Doctrine of
Laches. This principal states that a court has determined a contract is
unenforceable due to needless delay or neglect in filing a claim even though
the statute of limitations may not have expired.
Example #1
• Prathap bought a property from Hemanth through a written contract for sale.
Seven years after the purchase Hemanth wanted to claim that the contract was
unenforceable. The statute of limitations for written contracts in Oregon is six
years and Hemanth would not be able to challenge the contract.
Example #2
• Uday bought a house from Sangeetha using a written purchase and sale
agreement. After taking possession, Uday discovers a small leak in a pipe in the
crawl space of the house, but does not take any action against Sangeetha for
four years. The court decided that the contract was unenforceable because of
Uday’s delay, even though the Statute of Limitations had not expired. The court
ruling was based on the Doctrine of Laches.
Here the benefit of doubt and favor would be on defendant side, against the
plaintiff.

11. What isSecuritization?
• Securitization is the transformation of illiquid assets into a “security” -
an instrument that is issued and traded in a capital market.
 ‘pooling’ various types of contractual debt; and
 selling these cash flows to third party investors as securities
• Investors are repaid from the principal and interest cash flows
collected from the underlying debt
• Securities backed by mortgage receivables are called mortgaged-
backed securities (MBS), while those backed by other types of
receivables are asset-back securities (ABS).

12. How Does ItWork?
Source: IMF

13. What are thebenefits?
• For Originator /Issuer
 Off balance sheet financing
 Helps in capital adequacy requirements
 Access to alternative investor base
 Better asset-liability match
• For Investors
 Better security (isolation of financial risk from originator) – often
are also credit-enhanced
 Matched Investment /Risk-Return Requirements

14. TheCaseforMonetizationofInfrastructureAssets
• Need for financing (primarily bank debt) to fund development of
‘greenfield’ infrastructure.
• Need to create liquidity for banks to support new infrastructure
development as capital is tied up to existing long-dated project
lending.
• Availability of operating& income generating infrastructure assets.
• Opportunity for institutional investors (e.g., insurance companies and
fund managers)to invest in other securities other than direct equity
investments when it comes to infrastructure projects.
• And in the long term, access for retail investors to invest in long-
dated, senior and secured debt securities when it comes to
infrastructure projects.

15. How Does the SchemeWork?
Project Finance Securitization

16.  ‘Monetizing’ receivables from infrastructure projects and selling -down
to institutional investors will:
 Provide banks and other financial institutions long-term funding
source to continue lending to the sector and fund new
infrastructure development
 permit the participation of a much larger number ofinvestors
 provide benefits in terms of enhanced credit ratings and market
liquidity for infrastructure projects
 potentially lower the cost of funding infrastructure projects
Rationale for Monetization toSupport
InfrastructureFinancing

17. Rationale forBanks
• Recapitalization purposes. Recycle capital rather than hold in long-
dated assets.
• Offload potential long-term risk exposure via the sell-down process.
• Although the receivables will be sold down at a discount, the discount
rate used may potentially represent a premium as construction and
ramp-up risks are taken away prior to monetization.
• In lieu of receiving on-going income from margin of debt repayment,
this can be compensated by on-going fees generated as trustee
manager for institutional investors and as a pass-through vehicle.

18. BackgroundInformation
• In June 2015, ADB commenced a technical study (underTA-8876)
aimed at enabling a viable structure and framework for the
monetization of loan assets in India.
• The Indian banking sector is under pressure with banks reaching their
exposure limits as far as infrastructure lending, weighed down by bad
loan and weak profitability (and this is more evident in the public
sector banks (PSBs)).
• This banking situation is also affecting the infrastructure sector.
Considering the government’s goal of spending U$1 trillion on road,
ports, power and other infrastructure (up to 2017), the sector requires
close to U$750 billion of debt.
• Taking these into consideration, the technical study will assess how
monetization of infrastructure assets will: (i) strengthen the capital
position of PSBs to fund new credit growth opportunities; and (ii)
improve flow to the infrastructure sector by monetizing infrastructure
assets.

19. InfrastructureInvestmentDemandinIndia
Infrastructure funding likely toremain dependent on banks
(esp. PSBs) largely in the next 5 years

20. LargeExposureofIndianBankstoInfrastructure
• SCBs total asset book as on Mar 2015– INR 60 trillion
• Infra Exposure ofSCBs: 15% ( ~INR 8.9 trillion)
• PSBs exposure to infra even higher at 17.6%(~INR 8.3 trillion)
• Gross NPA in PSBs stand at an alarming rate of 5.1%
• PSBs estimated infrastructure NPA at a significantly higher levels
of nearly 10%
• 24% (INR 2.2 trillion) of infra advances are categorised as
stressed assets
Banks averse to further exposure to infrastructure sector leading to
drying up of new credit to the sector

21. BaselIIImandateshighercapitalrequirements
• Basel III norms likely to put additional strain on banking sector,
especially PSBs strapped for Tier-1 capital
• Likely capitalisation gap of INR 1.9 Trillion for PSBs over next five
years

22. • Securitization offers capitalization benefits by allowing banks to shift
assets off-balance sheet; can be used by banks to meet capital
requirement
• Theoretically, total market for securitization (for PSBs alone) is to
cover the entire capitalization gap of INR 1.9 Trillion by FY2020
SecuritizationofInfrastructureAssetstoMeet Capital
Requirement

23. India’s SecuritizationMarket
• The securitization market in India has been in existence
sincethe early 1990s.
• The market is primarily dominated by ABSs. Banks andnon-
bank financial institutions sell the retail assets on their
books through securitization.
• The market has matured in the past decade following the
implementation of the Securitization and Reconstruction of
Financial Assets and Enforcement of Security Interest Act
2002
• Development of the securitization market in India has been
markedby limited diversification of both investors and
originators.
• However, there had been no instances of
securitizationof infrastructure asset loans.

24. Key Challenges - IndiaContext
•Taxation – tax exemptions not afforded to
securitization trusts.
•Stamp Duty – stamp duty is payable on transfer of
asset rights.
•Capital Allocation – restrictions on capital
benefits providedby securitization transactions
•Investment Norms - public pension funds, life
insurance companies (EPF, LIC) etc.

25. Updates
• Technical study is still on-going
• There is some positive feedback from both
potential issuers and investors for the scheme.
• There will be need for government support to enable
such a scheme.
• ADB will facilitate relevant upstream reforms to
enable piloting the scheme and provide transaction
support.

26. • GMR Infrastructure Ltd plans to monetize few old
road projects and focus more on big highway
projects this fiscal.
• Mr Arun Kumar Sharma, CEO, GMR Highways, said
“Going forward, we are planning to explore big
highway projects as yield is better. We are looking at
monetizing few old road projects to fund our
expansion.”
This article was published on May 31, 2012 in The Hindu Business Line

27. • Hyderabad-based Gayatri Projects Ltd is planning to
sell the eight road projects it operates, joining a long
line of developers offloading their road assets.
• Gayatri Projects has eight operational build, operate,
transfer (BOT) road assets, of which four are annuity-
based projects and the other four are toll-based. The
company would look at divesting its road assets.
• The company has invested equity over Rs.500 crore
across all its road projects, Reddy said, “In principle,
our idea is that we want to monetize the roads.
There are different ways of monetizing; one is selling
asset-wise or the whole portfolio together.”

28. • Gayatri Projects said in November it would buy
out its private equity investor AMP Capital’s
29.41% stake in Gayatri Infra Ventures Ltd, its
holding company for all BOT projects. AMP
Capital had bought the stake in 2008 for about
Rs.100 crore.
• The company is, separately, in talks with global
infrastructure investment firm I Squared Capital
Advisors LLC for selling its 49% stake in the
Western UP Tollway project in Uttar Pradesh.
• Hyderabad-based NCC Ltd holds the remaining
51% stake and is also in an advanced stage of
selling the stake to I Squared. The project has
been operational since 2011.

29. • Recent relaxation of government norms allowing
highway developers to fully divest their operational
projects has helped speed up deal closures in the
road sector.
• Gammon Infrastructure Projects Ltd, Madhucon
Projects and Welspun Enterprises are some of the
developers who have recently divested some assets.
Reliance Infrastructure Ltd and Hyderabad-based
NCC Ltd are also in talks with potential buyers for
their road assets.

30. • About $1.8 billion worth of equity was
unlocked through the sale of road, renewables
and port assets in 2015, according to data
from Equirus Capital, an investment bank.