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Can Indian law or contract balm commercial wounds without force majeure clause?

The courts would examine the plea of frustration, or even force majeure, on a case-to-case basis depending on the contract and the circumstances governing it

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Can Indian law or contract balm commercial wounds without force majeure clause?

In our previous column, we discussed the concept of force majeure, its interpretation and how contracting parties may invoke such clauses in their contracts to tide over the damaging consequences of contractual non-performance caused by the Covid-19 pandemic. However, one may note that the contractual mechanism of force majeure cannot come to the rescue of contracting parties if such a clause is absent from the contracts. In this piece, we will cover the strategy and its consequences when there is no force majeure clause in the contract, and the recent judicial trend of Indian courts while interpreting contracts in the testing times of Covid-19 outbreak.

Change in Law clauses

Apart from a force majeure clause, parties may consider whether there is a change-inlaw provision in the contract and the kind of remedies that may be availed by an affected party. Such clauses may, generally, provide for adjustment in price and extension/adjustment in time for performance without a risk of termination of a contract if a governmental order or change in applicable law makes contract performance delayed or impracticable or impossible. As discussed above, various national governments have taken drastic measures to curb the menace of Covid-19 outbreak and issued several legislative and executive orders and/or directions, which may have a direct or indirect impact on performance of commercial contracts. In India, various lockdown notifications issued by the Government are under the Epidemic Diseases Act, 1897 and the Disaster Management Act, 2005, which then take the colour of ‘law’. Further, the Disaster Management Act, 2005 under Section 72 states that the provisions of this act will have overriding effect on other laws. Therefore, the resulting disruption in workforce and materials which are “directly” impacted due to the notifications passed under the above laws, may be interpreted as a change in law event, if the contract provides for a change in law provision and provide for compensation for increased costs due to a change in law or an excuse for performance if a change in law prevents performance. In this context, parties must closely consider as to what will constitute a change in law under the language provided in the contract. Such a clause could be particularly helpful to critical infrastructure businesses and international companies facing increased costs for labour and workforce changes or moving personnel to worksites.

What if there is no Force Majeure or Change in Law clauses: Frustration of contract?

A force majeure or change in law clauses will not be implied into a contract as a matter of law. Therefore, in the absence of an express clause to that effect, a party could try to claim that the contract has been frustrated. The doctrine of frustration provides that a valid and subsisting contract, which has not yet been fully performed may be discharged where such circumstances arise (1) which were not envisaged at the time the contract was entered into, and (2) which render the contract impossible, illegal and/ or impracticable to perform or which transform a party’s obligations such that they are radically/fundamentally different to those which the parties originally agreed to perform. However, it may be borne in mind that the doctrine of frustration is applied narrowly and requires a very high threshold to be met before it can be established. As such, courts are loathe to declare a contract frustrated and require evidence with high probative value to demonstrate the same. Under the Indian Contract Act, 1872 (the “Contract Act”), if a contract becomes impossible or impracticable to perform, parties can avoid contractual obligations either (i) on grounds of contingent supervening events under Section 32 of the Contract Act read with the force majeure clause in the contract, or (ii) on grounds of frustration of the contract under Section 56 of the Contract Act. It is pertinent to note that these two remedies are mutually exclusive and where the contract has expressly (or impliedly) specified a force majeure event, parties cannot rely on such a force majeure event to invoke the doctrine of frustration under the Contract Act and consequently avoid the contract as a whole. The Supreme Court of India in Energy Watchdog v. Central Electricity Regulatory Commission and Anr. 2017 (4) SCALE 580, held that “In so far as a force majeure event occurs de hors the contract, it is dealt with by a rule of positive law under section 56 of the Contract Act 1872. The performance of an act as encompassed under the agreement may not be literally impossible, but it may be impracticable and useless from the point of view of the object and purpose of the parties and therefore, cannot be considered as a force majeure event.” Thus, for proving that a contract has been frustrated by the Covid-19 pandemic, an affected party may need to demonstrate that, not only has there been a supervening impossibility/illegality leading to change in the fundamental objective of the contract as a result of the outbreak, but also that there are no other alternative means of performing the same. Courts in India have time and again held that solely because certain obligations have become onerous or financially burdensome, the contract does not get frustrated. Further, for contracts that have been executed after the outbreak of Covid-19, it may be difficult to prove that the same had not been contemplated by the parties. While the Covid-19 outbreak is affecting a wide array of industries and services around the world, the resultant economic slowdown may not necessarily be considered as a valid event causing frustration of the contract. If a contract does not contain a provision on force majeure, a party invoking the doctrine of frustration must be mindful that when taking a plea under Section 56 of the Contract Act, the contract is automatically discharged. Hence, parties must bear in mind that there is no flexibility of keeping a contract alive or renegotiating the same, as available while invoking a force majeure clause. However, parties can recover amounts paid under the contract before it was frustrated less the expenses incurred by the counterparty for the performance of its obligation. This is expressly enacted under Section 65 of the Contract Act. However, this is not an absolute rule and the extent of restitution will depend on several factors, such as expenses incurred by the non-affected party and the level of performance and consequent payment based on milestones provided under the contract.

What to do when Frustration/Force Majeure claim is made?

As enumerated above, a party must take the following steps when a claim of frustration and/or force majeure is made against it: Firstly, check whether the contract has a force majeure clause that could cover Covid-19 or consequent lockdown notifications, as a trigger event. Secondly, check whether there is a causal link between the force majeure/ frustrating event and nonperformance of contractual obligation by the affected party. Thirdly, write to the counterparty and request (i) evidence of the circumstances it relies on, (ii) a full explanation of why its performance is now physically/legally impossible, (iii) evidence of steps it is taking to mitigate and (iv) regular updates as to its efforts to resume performance. Lastly, if satisfied with the response, consider entering in a written variation to the contract to suit the needs and commercial needs of the parties. If not and considering that the situation has impacted mostly everyone across the glove, parties should explore a possibility of an amicable settlement. In case nothing works, one may consider invoking the dispute resolution mechanism under the contract. It must be noted that the Contract Act does not contain any provision for suspension or partial-frustration of the contract. Therefore, if a party chooses to invoke frustration of contract against the other party, the only relief, in terms of the law, is for the whole contract to be terminated/ frustrated. Most recently, the Bombay High Court in the matter of Standard Retail Pvt. Ltd. v. M/s G.S. Global Corp & Ors., Commercial Arbitration Petition (L) No. 404 of 2020, gives an insight into the approach that the courts in India may adopt while dealing with the prevailing situation of Covid-19 outbreak. In this case, the buyer of imported steel sought to restrain the seller from encashing the former’s letter of credit on the ground that their contract had been terminated due to frustration, impossibility and impracticability in terms of Section 56 of the Contract Act due to lockdown imposed in the wake of Covid-19 outbreak. The Court, instead of allowing the reason of lockdown to be an overarching reason for claiming frustration of the contract, examined the nature of the contract in question i.e. a letter of credit and went on to hold that a bank guarantee is a separate contract all-together and is indifferent to the conditions prevailing between the buyer and the seller. Thus, alleged frustration of one contract would not automatically lead to frustration of another contract. Further, in rejecting the relief sought by the buyer, the Court held that commercial hardship could not be cited as a reason to excuse performance to the disadvantage of the seller. This decision of the Court reaffirms the view that courts would examine the plea of frustration, or even force majeure, on a case-tocase basis depending on the nature of contract and the circumstances between the parties governing it. In current times, we would like to strongly suggest that parties undertake a detailed contract review at their organizations to be prepared for emerging scenarios when request for invocation of Force Majeure or waiver of obligation is made by the counterparty. Having said that, mutual support and amicable settlement ought to be the flavour of the season! Sameer Jain, Managing Partner, and Suvigya Awasthy, Associate Partner, PSL Advocates & Solicitors

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Supreme Court upholds cancellation of fair price shop vacancies in West Bengal to implement Food Security Act, “no estoppel against statue”

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The Supreme Court in the case State of West Bengal vs Gitashree Dutta (Dey) observed in view of the implementation of National Food Security Act, 2013 and the court further noticed and dismissed the challenges faced against the cancelation of the declaration of Fair Price Shop vacancies.

The bench observed while agreeing to these contentions and therefore allowed the appeal:

While going by the observations of the Division Bench in the impugned judgment, that the State was aware of the 2013 Act while issuing the vacancy notification on 30th April 2014, the said notification cannot be sustained and the notification being contrary to the mandate of the National Food Security Act, 2013, more importantly of Section 12 thereof, there can be no estoppel against a statute. the appellants endeavoured to enforce the statute, The respondent herein being a mere applicant in an unfinalized selection process and when by recalling the vacancy notification it is seen that the respondent has no vested right in his favour to seek

The respondent in an unfinalized selection process has no vested right in his favour to seek continuation of the notified vacancies and further it was contended before the court that there can be no estoppel against a statute as the State endeavoured to enforce the statute while recalling the vacancy notification

Before the Apex Court, the State contended that it was reposed with a responsibility for implementing the 2013 Act which, inter alia, entrusted a responsibility to reform the existing Targeted Distribution System.

Inter alia praying for quashing of the Notification dated 17th August 2015, the respondent filled a writ petition before the High Court of Calcutta. The Writ petition was dismissed by High Court single bench as This notification was issued in the light of implementation of the 2013 Act. the Division bench of the High Court held while allowing the intra court appeal that the State of West Bengal failed to justify the decision to recall the vacancies and that it has acted in an arbitrary and unreasonable manner, and hence, it is being said to quash the Notification dated 17th August 2015. However, no final order appointing the respondent was issued by the State Authority and the application of the respondent was pending before the court. The Food and Supplies Department of the State of West Bengal issued a notification dated 17.08.2015 while cancelling the declaration of vacancies.

The Bench comprising of Justice S. Abdul Nazeer and the Justice Vikram Nath observed that the State endeavoured to enforce the statute and that there can be no estoppel against a statute, while recalling the vacancy notification.

The Food and Supplies Department of the State of West Bengal issued a notification dated 17.08.2015 while cancelling the declaration of vacancies.

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To clear wage arrears of sweepers within 8 weeks, the Supreme Court directs Jammu & Kashmir

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The Supreme Court in the case Dr. Kunzes Dolma and Anr. v. Mehraj-ud-Din Kumar and Ors observed and directed the Union Territory of Jammu and Kashmir to clear the wages of sweeper from March 2015, within 8 weeks as the arrears of sweepers sustaining at a monthly wage of as the minimum wage of sweeper is of Rs. 100/- per month (Rs. 3 per day).

In an order dated May 7, 2016 the LPA was preferred by the Department against which the High Court refused to entertain and passed the impugned order.

the Jammu and Kashmir High Court vide order dated May 7, 2016 confirmed the earlier order and again directed those minimum wages to be paid by the sweeper is to the extent of Rs. 4500 per month. Thereafter the order dated 06.11.2015 was not being implemented However in the contempt petition and since the Contempt Petition was preferred by the sweepers.

On 06.11.2015, the Single Judge of High Court directed in their favor for the release of the unpaid minimum wages.

the part time sweepers with wages of Rs 4500 each which has been done without any approval and authorization from any authority as accordingly in an order passed by the Chief Medical Officer The sweepers were aggrieved by the clubbing of plan grants into non plan which was done on the account.

For challenging the grant of same wage irrespective of the enhancement Part Time Sweepers in different Health Centers in District Kupwara by the then District/Block Level Officers who were entitled to monthly wages @Rs.100/- had approached High Court, a case before Jammu & Kashmir High Court.

It is being noticed by the bench in the impugned judgement that the sweepers continued to be paid meagre wages of INR 100 per month despite of repeated directions.

In an order dated 05.15.2019, the Top Court issued the directions while considering SLP assailing Jammu and Kashmir High Court’s, the top court further observed and refused to entertain the LPA.

The directions issued by the Top Court while considering an order dated May 15, 2019 as in the said order the SLP assaulted Jammu and Kashmir High Court’s while refusing to entertain the LPA furthermore the Court observed that the same was an abuse of the process of law.

In an order dated 15.05.2019, while considering SLP assailing Jammu and Kashmir High Court’s by which it further observed while refusing to entertain the LPA that the same was an abuse of the process of law, the directions issued by the Top Court.

The bench comprising of Justice BR Gavai and the Justice AS Bopanna observed and further directed for paying the monthly payment to the sweepers from the month of May, 2022 and which is to be paid a regularly without any break.

In an order dated 05.15.2019, the Top Court issued the directions while considering SLP assailing Jammu and Kashmir High Court’s, the top court further observed and refused to entertain the LPA.

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Supreme Court: Asks Comptroller of Examinations to examine students grievances about differences in marks allotted by CBSE exam

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The Supreme Court in the case Jay Dhande & ors vs Union of India & ors observed and directed the Comptroller of Examinations to reconsider grievances of the students and take appropriate decision as there is a difference in marks calculated by CBSE and the respondent School.

It was argued by the school that the CBSE is trying to cover up this inaccuracy and now the CBSE has used the opportunity to put the entire blame on the school.

According to the School Committee, it was submitted that the CBSE portal was an all-inclusive portal and the portal worked as per the algorithm/program as designed by CBSE and if there is a wrong or inaccurate moderation process, the onus and the responsibility of that lies with the CBSE and not the school, according to the School Committee.

Thereafter it was being argued that as per the CBSE instructions, the entire process was done precisely and as now the CBSE is putting the onus of its wrongs on the School as the School had no independent rule either in moderating or assigning the marks.

Further it was argued by the School Committee that the school did not have any power or any option to moderate or assign marks on its own and the school as mentioned in the CBSE portal, the school meticulously followed each and every instruction

It was further argued by the petitioner that the CBSE does not have any authority and the CBSE has changed the marks given by the School and the CBSE has awarded much less marks given by the school

In the present petition the main grievance is that the marks uploaded by CBSE are much less than the marks given by the school whereas the CBSE results that are uploaded reveal by the present petitioner school students is that according to their school, the school allotted them particular marks.

Further it being clarified by bench that it hasn’t expressed any opinion on the contentious issue.

No expressed opinion on the contention issue is being expressed by Bench, as bench clarified

In this case the main dispute is in regards with the marks allotted to the students as per 30:30:40 formula for class X, XI, XII respectively for the 2021 exams, where an alternative assessment is being restored by the Board in lieu of written exams due to.

The bench comprising of Justice AM Khanwilkar and Justice JB Pardiwala has asked to explain the flow of algorithm and software which provides for different deduction of different marks student-wise to take assistance of technical team by the Comptroller of Examination

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Supreme Court: Asks Petitioner On Plea Challenging Talaq-E-Hasan, To Mention Next Week

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The Supreme Court observed the Muslim personal law practice of Talaq-E-Hasan which was mentioned before a vacation bench for urgent listing. A petition was filed before the Supreme Court challenging the Muslim Personal Law Practise.

The petitioner argued before the court that the practise is arbitrary and is a violation of Article 14, Article 15, Article 21 and Article 25 of the Constitution and is therefore unconstitutional as the practise is discriminatory since only men can exercise the same and seeks a declaration. As it is not an essential practice of Islamic faith, according to the petitioner.

the Chief Justice of India NV Ramana had refused to grant urgent listing for the plea on 09.05.2022.

by pronouncing “talaq” once a month for three months, a Muslim man can divorce his wife as per Talaq-E-Hasan.

Ms. Anand submitted that as on April 19, first noticed was issued and Now second notice has been issued and he further submitted that we are challenging the proceedings and hence for Talaq E Hasan, a notice have been issued through lawyer.

The bench led by Justice Chandrachud further remarked that “Why under Article 32?”.

Ms. Anand submitted that the Talaq-E-Hasan was left out and the only issue of Talaq E Biddat was considered was considered in Shayra Bano.

Justice Chandrchud further remarked that there is no urgency and We will keep it on the re-opening day after vacations.

As it will be over, she has received the second notice on 05.19.2022 and on 06.20.2022.

She has received the second notice on May 19 and on June 20 it will be over”

on May 19 and on June 20 she has received the second notice and by the time it will be over as by that time everything third talaq will be given and everything will be over.

The bench led by Justice Chandrachud further remarked that there is no urgency as the first notice issued was on April 19 and wait for a period to come here.

Ms. Anand submitted further submitted that it is about a woman being abused and by reopening everything will be over.

On which Justice Chandrachud further remarked to take his chance and mention it next week.

The Vacation Bench comprising of Justice DY Chandrachud and the Justice Bela Trived contended that the petitioner has received the second notice of talq as the Public Interest Litigation petition filed by Senior Advocate Pinky Anand

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KERALA HIGH COURT: NO QUARRYING OR CONSTRUCTION WORK ON LANDS ASSIGNED FOR CULTIVATION

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The Kerala High Court directed the State Government to take steps for the resumption of such land, notify and exempt the provisions of required and further the court directed that no quarrying activities are permitted on the land assigned for cultivation in the case Raphy John v. Land Revenue Commissioner & connected matter.

It was being contended that through the rule the authorities had made a conscious decision not to grant or renew any quarrying lease if the land was assigned for a specific purpose. The revenue authorities would be incapacitated from verifying if the land was assigned for cultivation as the appellants had argued that if quarrying permits are sought for such lands. The amendment was brought in since it was impossible to distinguish between assigned lands in an appeal moved by the State while citing and the week after the judgment was delivered and lands sold to third parties, The impugned decision was, however, put on hold by the Court.

It was mandate by the impugned rule made that for granting or renewing any quarrying lease a Certificate is required from Village Officer and if such lands are assigned for any specific purpose, the village officer has to certify it.

It was being observed by the bench led by a Single Judge that since a quarrying lease was executed by the State and the bench further stated that the State has given sanction to conduct quarrying on assigned land, it can be presumed

In January 2018, the bench comprising of Single Judge had interfered with the amendment in the Kerala Minor Mineral Concession Rules brought in by the State to prevent quarrying on assigned lands and then sold it to third parties through assignees.

once an application for the same is received, the State may take a decision on the land classification, in furtherance with the decision made.

The order issued by the Revenue Department barring other constructions on agricultural land shall be strictly enforced was also being emphasized by the Bench And it has also been established under the Kerala Land Assignment Rules, 1964 and that there will be a violation of the Land Acquisition Act if there are any other construction activities on assigned lands and that assigned lands could not be used for any other purpose.

It has also opined that the Revenue authorities are empowered to take action to suspend all quarries that are currently operating on such lands the Court all the work assigned on lands including the other constructions and has also stayed of all resorts and petrol pumps while emphasizing that quarries are not allowed on such land.

A division bench comprising of Justice S. Manikumar and Justice Shaji P. Chaly, while ruling a single Judge Decision, in a batch of petitions moved by filed by the quarry owners and the Stated related to quarrying in lands assigned for rubber cultivation at the State’s capital.

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DIGITAL TRACKER WATCHES AND THE SURVEILLANCE CONUNDRUM: A DAILY DEHUMANISATION OF INDIA’S MUNICIPAL WORKERS

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The issue around digital privacy, or rather the lack of it, has been a hot topic of debate in India and has even made its way to the Parliamentary lobbies. In India, personal data is collected and stored by various merchants, big tech companies and other entities through the innumerable digital applications and devices that people use. From digital payment and ecommerce applications to social media platforms, personal data collection and storage is happening en masse, all while individuals still scramble to understand its repercussions. What’s worse — this personal, often sensitive information including financial and medical records, of millions of Indians is available for sale online through “data brokers” who have put a price tag to these records.

WHAT’S HAPPENING WITH MUNICIPAL WORKERS IN INDIA

Going a step further, there is an urgent need to look into this invasion of digital privacy from the lens of India’s municipal workers. Over the past few years, there have been several news pieces buried amid the bulk of eye-catching headlines, about municipal workers across several Indian cities being made to wear smartwatches to track their daily working hours. As per news reports, municipal corporations in cities like Nagpur and Chandigarh have made it mandatory for sanitation workers to wear GPS-enabled watches that are used to monitor their arrival at work, attendance record, number of hours clocked at work and the end of their shifts. The reports suggest that some of these watches have in-built cameras and microphones to allow the supervisors to monitor them by the minute. To make things worse, any discrepancy in the recorded number of hours at work is reportedly manifesting itself in the form of workers’ salary deductions. Thus, workers have been protesting the use of these digital trackers as being humiliating and violating their privacy in the garb of improving work efficiency.

INFRINGEMENT OF WORKERS’ RIGHT TO PRIVACY

The fact that sanitation workers are often unaware of the ramifications of surveillance of this kind, as is enabled by these digital trackers, goes to show how their informed and aware consent is not likely sought while implementing this technology. In this case in particular, the employer being the State, these rules amount to digital snooping on citizens by a government. This form of a ‘surveillance state’ directly impinges on citizens’ right to privacy, a fundamental right that flows from Article 21 of the Indian Constitution (K.S. Puttaswamy & Anr. v. Union of India & Ors.). While one can argue that this right is not absolute and there can be certain grounds for restricting the same (legitimate state interest, necessary and proportionate to achieve the interest, among other things), this is a justification that would hold up when a comprehensive and well-defined legislation is in place to regulate the collection and storage of such personal data of citizens.

EXISTING LEGAL FRAMEWORK ON PERSONAL DATA PROTECTION

At present, the only legislation that to some extent deals with the handling of personal data of individuals is the Information Technology (IT) Act, 2008, and the subsequent rules framed by the government. However, the coverage of this law is very limited in that it does not apply to collection and use of personal data by various entities (Section 43A of the IT Act 2000 recognises personal data dealings by a ‘body corporate’ and the compensation in that regard). It primarily focusses on information security as opposed to personal data protection. There exist other sectoral, subject-specific laws that regulate data dissemination in the respective segments, however, these are very narrow in their scope of protection. Further, while the Privacy Rules 2011 define what comes under the meaning of personal information and sensitive personal data, but how far the data collecting entities adhere to compliance standards and rules on storage and disclosure, grievance redressal and user safety is a big question mark.

The Personal Data Protection Bill, 2019, can be viewed as a step in the direction of chalking out the contours of digital privacy and collection, storage and dissemination of personal data of individuals in India. To begin with, the bill seeks to define what all would come within the ambit of ‘personal data’, and would govern the processing of personal data by governments, Indian and foreign companies. This is especially significant as it would plug the gaps that exist in the IT Act and rules subsequent thereof. Further, it would also outline the rights of individuals with respect to their personal data and the remedies available. However, it has been in the pipeline for some time, with objections having been raised over several aspects of the proposed law.

THE WHYS AND HOWS BEHIND THIS DIGITAL SURVEILLANCE

The recent mandate by city municipal corporations requiring workers to wear the digital trackers (Human Efficiency Tracking Systems, as they’re being referred to) takes on another hue when viewed from the lens of worker exploitation. Reports suggest that the trackers are being used to map the daily hours of every employee, and failure to wear the watch at all times or getting disconnected could result in salary deductions. Also, in the event of device malfunction, the workers would have to bear the brunt of the pay cut despite having clocked their daily hours. How and when such grievances would be addressed and dealt with is not very clear. Thus, workers’ woes take a backseat in the productivity and efficiency-focused surveillance work environment. Since municipal workers and sanitation staff employed by city corporations are usually not very tech-savvy or comfortable with tech-based gadgets, they are wary of how the system works. It can result in unnecessary anxiety regarding loss of earnings due to technical glitches.

Another issue is the alleged in-built cameras and microphones in these trackers. For workers who are not very well versed in such gadgets, the fear of being watched constantly could be debilitating, more so in the case of female workers. Their movement at work is tracked down to minutes, even seconds, linking the same to productivity targets and goals. Failure to meet these targets and minute-to-minute monitoring requirements could lead to reduction in the month-end salary payments. Automated workplace management is a concern that is prevalent across countries, and a parallel can be seen in the surveillance systems implemented by tech giant Amazon at its warehouses across the United States. The hazards of this surveillance system, like higher rate of injuries at workplace or even leaving workers without bathroom breaks, is similar to what is being witnessed in the case of India’s digitally-tracked municipal workers. The only major difference in the above-mentioned sets of scenarios is the place of occurrence and the entity engaging in worker surveillance. In India, the State is the data collector, often times undertaking this feat with the help of a third-party IT services firm. This makes the workers’ situation more precarious as their personal, sensitive information could be easily accessible to such contractual firms, especially in the absence of a data privacy law to regulate the same.

With increasing technological advancement and innovation, the cost of such surveillance methods has dropped, thus making it easier and more convenient for employers to adopt and implement. In contrast, this weakens the position of workers and the unions advocating for them as there is limited knowledge and legal recourse in this regard.

CONCLUSION

Thus, these GPS trackers are problematic on various fronts- they infringe individual privacy, operate in regulatory grey areas (as there is no proper oversight) and finally and most importantly, they constantly dehumanize the workers by treating them in a manner similar to bonded labour and robots. The human element of taking into account genuine issues being faced by employees or the context as to why they may not have been available on the tracking systems throughout the day (like poor internet connection, device malfunction, etc.) is completely ignored and disregarded.

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