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Trade secrets: Contractual obligation or intellectual property

Gaurav Goswami

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“No one can doubt, that the convention for the distinction of property, and for the stability of possession, is of all circumstances the most necessary to the establishment of human society, and that after the agreement for the fixing and observing of this rule, there remains little or nothing to be done towards settling a perfect harmony and concord.” -David Hume, Treatise of Human Nature

Property rights are central to every civilised society. The legal relationship between individuals, objects and the state is not easy to justify and is true in case of intellectual property. The two important elements of any property right are exclusivity and transferability. This means that the owner of the right has the exclusive right to use the property and also to transfer it voluntarily. Property rights exist with respect to both tangible and intangible properties.

 Intellectual property rights deal with intangible properties and have been gaining unprecedented importance in recent times. With the Paris convention in 1883 and the following Bern convention in 1886, the world recognized the intellectual property as a tool of innovation and development. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) has further advanced the IP Regime worldwide among the member countries. The TRIPS Agreement requires WTO members to put in place their national intellectual property protection and enforcement systems to protect different forms of intellectual property and trade secrets against acts of unfair competition.

The rationale behind the increasing importance being accorded to intellectual property rights is not difficult to grasp. These are necessary to provide incentives to people to put in money, resources and hard work to innovate and create. However, giving too much protection to creators might be detrimental to the public interest and hence a balance needs to be struck between the interests of creators/researchers and the public interest at large. Intellectual property laws strive to achieve this arduous task.

 India being the member countries to the Trade Related Aspects of Intellectual Property Agreement (TRIPS) is obliged to provide standard protection to IP Rights holders as mandated and required under the TRIPS Agreement and for the fulfilment of obligation India has over the stretch of time has brought up its laws in consonance with the TRIPS in a variety of ways. Recently USTR in its special report 301 has put up India on the priority watch list for lack of sufficient measurable improvements to its IP framework and an outdated and insufficient trade secrets legal framework and have shown great concern over the Indian commitment in the persuasion of its international commitments. The United States provides statutory protection with sufficient civil and criminal remedies to counter the misappropriation of trade secrets. Whereas in India there is no statutory protection for the trade secrets, Currently in India the trade secrets are protected by the parties through the non-disclosure agreements and contracts which are governed by The Indian Contracts Act, 1872.

Nevertheless, Indian courts have upheld trade secret protection on basis of principles of equity, and at times, upon a common law action of breach of confidence, which in effect amounts a breach of contractual obligation. The remedies available to the owner of trade secrets is to obtain an injunction preventing the licensee from disclosing the trade secret, the return of all confidential and proprietary information and compensation for any losses suffered due to disclosure of trade secrets.

TRADE SECRET AS AN INTELLECTUAL PROPERTY

Out of various supporting theories for the protection of intellectual property, no single theory quite justifies for the protection of trade secrets. Robert Bone in 1998 suggested that there is no need to protect trade secret as a separate doctrine as it is an anomaly to the existing intellectual property theories and advocated for treating trade secret protection only under contractual principles. Per contra Mark A Lemley strongly advocates for the treatment of trade secrets as IP Rights. Lemley suggested that trade secrets can be justified as a form, not of traditional property, but intellectual property and proposed that the incentive justification for encouraging invention and innovation is straightforward.

Whereas Indian government in its communication dated 10th July 1989, to the members to negotiating group on Trade-Related aspects of intellectual property rights, including Trade in counterfeit goods communicated that any principle or standard relating to intellectual property rights to be carefully tested against the touchstone of the socioeconomic, developmental, and technological and public interest needs of developing countries. In Para 46 of part V Permanent Mission of India communicated that:

“The trade secret cannot be considered to be intellectual property rights as it lacks disclosure, publication and registration, while the fundamental basis of trade secret is its secrecy and confidentiality. The observance and enforcement of secrecy and confidentiality should be governed by contractual obligations and the provisions of appropriate civil law and not by intellectual property law.”

Thus making it clear that trade secret cannot be protected as other forms of intellectual properties as it lacks disclosure. India also pointed out that the essence of intellectual property system is its monopolistic and restrictive character; its purpose is not to liberalise but to confer exclusive rights on their owners. Further India being the Democratic Socialist Republic ideologically it is supposed to have a socially owned economy along with the democratic mode of governance.

Apart from this previous stance on the protection of trade secrets, The Indian government in May 2016 formulated National Intellectual Property Rights Policy and in its Para 3.8, identified trade secret protection as an important area of study and research for future policy development.

 Defining Trade Secret

Defining the subject matter of trade secret protection has also been an arduous task; there is no uniform definition for the same among the member countries to the TRIPS Agreement.

The United States Uniform Trade Secrets Act defines a trade secret as information, including a formula, pattern, compilation, programme, device, method, technique, or process.

To qualify as a trade secret the said information must meet the following requirements:

The information must have some independent economic value, actual or potential.

It must not be readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.

There must be reasonable efforts under the circumstances to maintain it as a secret.

Thus not any information qualifies for trade secret protection but only which is having independent actual or potential economic value, it should not be readily available or known to the person that normally works with the kind of information and there must be efforts on part of owner to keep it secret.

ARTICLE 39 TRIPS

 The TRIPS Agreement requires undisclosed information — trade secrets or know-how — to benefit from protection. According to Article 39.2, the protection must apply to information that is secret, which has commercial value because it is secret and that has been subject to reasonable steps to keep it secret.

The Agreement does not require undisclosed information to be treated as a form of property, but it does require that a person lawfully in control of such information must have the possibility of preventing it from being disclosed to, acquired by, or used by others without his or her consent in a manner contrary to honest commercial practices. “Manner contrary to honest commercial practices” includes breach of contract, breach of confidence and inducement to breach, as well as the acquisition of undisclosed information by third parties who knew, or were grossly negligent in failing to know, that such practices were involved in the acquisition.

The Agreement also contains provisions on undisclosed test data and other data whose submission is required by governments as a condition of approving the marketing of pharmaceutical or agricultural chemical products which use new chemical entities. In such a situation the Member government concerned must protect the data against unfair commercial use. Besides, Members must protect such data against disclosure, except where necessary to protect the public or unless steps are taken to ensure that the data are protected against unfair commercial use.

Need for Protection

U.S. companies that create innovative products and processes, and particularly those that are R&D intensive, often protect their innovations through trade secrets. Companies rely on trade secrets to protect technical information and confidential business information for the reason being non requirement of registration with the government, and relatively easy to implement protection, companies particularly SMEs rely on trade secrets as a default mode of IP protection.

A survey was conducted by the U.S. International Trade Commission (USITC) in 2014 and the U.S. companies were asked whether, and how, inadequate protection of IP affected their business in India. The surveys showed that firms were more likely to identify trade secrets as “very important” to their operations as other types of IP. The survey also provided that 56 per-cent of internationally-engaged firms considered trade secrets as “very important,” compared to 48 per-cent for trademarks, 37 per-cent for patents, and 31 per-cent for copyrights, even in sectors generally considered patent intensive, such as chemicals and information and communications technology (ICT), firms were more likely to consider trade secrets “very important” than patents.

 Further similar surveys were conducted by the Business R&D and Innovation Survey (BRDIS) undertaken by the National Science Foundation (NSF) and the Census Bureau. This reported that it’s not just large firms that care about trade secrets; 56.2 per-cents of U.S. firms with less than 500 employees considered trade secrets “very important,” compared to 45.4 per-cents for patents, 37.8 per-cents for trademarks, and 25.6 per-cents for copyrights.

Conclusion

Thus in a knowledge-driven economy, it has become significantly important for industry participants to keep their trade and business information confidential, to have a competitive advantage over others. It is desirable to strengthen trade secrets law by addressing the implementation of law issues and by increasing the means of lawful use, disclosure and acquisition for a social benefit. It is submitted that the existence of a robust and effective law would promote sharing of trade secrets with ample circles of contacts which may lead to the promotion of innovation in the country.

 Gaurav Goswami is Assistant Professor, School of Law, University of Petroleum & Energy Studies.

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Allahabad High Court Quashes POSCO Case: If Husband/Accused Is Convicted Then Victim/Wife’s Future Would Be Ruined

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Allahabad High Court Quashes POSCO Case: If Husband/Accused Is Convicted Then Victim/Wife’s Future Would Be Ruined

The Allahabad High Court recently in the case Rajiv Kumar v. State of U.P. And 2 Others observed and has recently quashed an FIR and criminal proceedings in a POCSO case registered against a man as it noted that the accused man and victim-wife (who was a minor at the time of the incident) married the accused/ applicant out of her own sweet will and is living a happy married life with him.
The bench comprising of Justice Manju Rani Chauhan observed that to punish punish the offenders for a crime, involved in the present case, is in the interest of society, but, at the same time, the husband is taking care of his wife and in case, the husband is sentenced and convicted for societal interest, then, the wife will be in great trouble and it would ruin their future. Thus, it is also in the interest of society to settle and resettle the family for their welfare, the bench quashed the rape-POCSO case against the accused.

Facts of the Case:
The Maternal Uncle of the Victim lodged an FIR against the accused under Sections 363, 366, and Section 376 of the Indian Penal Code, 1860and Section 3/4 of the POCSO Act, alleging that the accused had raped the victim (then a 17-year-old minor).
Further, the accused moved the instant Section 482 CrPC petition seeking to quash the instant FIR. Also, the victim appeared before the Court and had submitted that her maternal uncle had lodged the FIR in an attempt to ruin her married life.
It was further stated by her that she has entered into a compromise with the accused and has married him out of her free will, and consent, and without any external pressure, coercion, or threat of any kind. Before the court, it was also submitted that that out of their wedlock, they are blessed with a male child, who is presently four and half years old and as per her date of birth and at the time of marriage she was nearly 17 and half years old.
It was submitted by the Applicant-Accused that on account of the compromise entered into between the parties concerned, all disputes between them have come to an end, and therefore, further proceedings are liable to be quashed in the present case.

Observations Made By Court:
In the present case, the court noted that though the offence under the relevant sections 363, 366 and 376 of IPC and Sections 3/4 of POCSO Act are not compoundable under Section 320 Cr.P.C, however, adding to it, the court stated that the power of the High Court under Section 482 Cr.P.C is not inhibited by the provisions of Section 320 Cr.P.C and the criminal proceedings as well as the FIR can be quashed by exercising inherent powers under provision of Section 482 Cr.P.C, if warranted in given facts and circumstances of the case for ends of justice or to prevent abuse of the process of any Court, even including the cases which are not compoundable where parties have settled the matter between themselves.
The court while considering the facts and circumstances of the case, and also the submissions made by the counsel for the parties, the court came to the considered opinion that the victim herself, has stated before this Court that out of her own sweet will, she has married the applicant and is living a happy married life and out of their wedlock, the couple are blessed with a male child. However, no useful purpose shall be served by prolonging the proceedings of the criminal case as the parties have already settled their disputes.
Accordingly, the court quashed the charge sheet and the cognizance order as well as the entire proceedings of the Criminal Case were hereby quashed. Thus, the application was allowed.

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SC likely to hear next month pleas related to Article 370

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SC to hear Manoj Tiwari’s plea on firecracker

A Supreme Court constitution bench is expected to hear a slew of petitions related to Article 370 of the Constitution, which granted Jammu and Kashmir (J&K) semi-autonomous status before it was repealed in August 2019. Chief Justice of India (CJI) Uday Umesh Lalit said on Friday that the petitions will be heard after the Dussehra holiday.

When senior advocate Prashanth Sen asked the CJI to list the matter, Justice Lalit responded, “We will certainly list that…it will be listed after Dussehra break.” From October 3 to 10, the court will be closed for Dussehra.

The petitions were last heard in March 2020, when a five-judge panel declined to refer the case to a larger panel. The reference was requested because previous court decisions on the subject were in conflict with one another. This contention was rejected by the bench.

At the time, the bench was aware of an older batch of petitions pending in the Supreme Court challenging the constitutionality of Articles 370 and 35A, which granted J&K special status. It was stated that all issues concerning Article 370 should preferably be heard together.

National Conference legislators, former bureaucrats, and some organisations are among those who have objected to the repeal of Article 370. Some petitioners cited the Supreme Court’s 2018 decision, which stated that Article 370 had gained permanent status.

Many petitions have also been filed against the Jammu and Kashmir State Reorganization Act, which calls for the division of J&K into two Union Territories.

Despite opposition from the central government, which argued that Article 370 had international and cross-border implications, the Supreme Court issued notices on the petitions on August 28, 2019. The Centre also claimed that it is a highly sensitive issue, and that whatever happens in the country will be brought up at the United Nations. While issuing notices in 2019, the court referred the case to the five-judge constitution bench.

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Supreme Court: Fixed Term Sentences Exceeding 14 Years Can Be Alternative To Death Sentence In Certain Cases

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death penalty

The Supreme Court in the case State of Haryana vs Anand Kindoo observed and stated that fixed term sentences exceeding 14 years can be awared in appropriate cases to strike a delicate balance between the victims’ petition for justice and rehabilitative justice for the convicts.
The bench comprising of Justice Sanjay Kishan Kaul, Justice Abhay S. Oka and the Justice Vikram Nath observed that this fixed term sentence can only be by the High Court or this Court and not by the trial Court.
In the present case, the trial court awarded death sentence to the accused who were ‘trusted employees’ of the deceased. However, Major General Kailash Chand Dhingra (K.C. Dhingra) and his wife Smt. Sangeeta Dhingra, who were an aged couple and were killed by the accused while they were sleeping. It was refused by the High Court to confirm the death sentence and imposed life sentence on them.
In an appeal before the Apex Court, the complainant and the state contended that given the brutality of the crime, the court should impose a fixed term sentence before which the convicts are not liable to be considered for granting of remission. Thus, it was submitted that there should be at least a fixed term sentence.
The court observed that it was a pre-planned murder for gain and greed by somebody who was in a position of trust with the family.
The bench observed that at an advanced stage in such health respect, there is always an element of trust and faith in the person by a person who employs them as well as the family members. However, the work takes other family members elsewhere and with the joint family system having broken down, the role of such trusted help becomes even more significant. Also, it is the significance of the society where a wrong signal goes if a trusted person breaches that trust to kill the person who had employed them in such a gruesome manner. It has been stated by the trial Court, the society itself demands justice, apart from an utter element on deterrence which is in any aspect of conviction. Further, the approach cannot be the vindictive but lack of appropriate sentence leaves the cry of justice of the society un-addressed apart from the fact that other persons who may have the propensity to carry out the crime feel that they will get away with the lighter sentence, if in case they are caught. While, battering two sleeping people beyond recognition who imposed trust in their employee certainly calls for something more than merely a life sentence under Section 302, IPC, even if death sentence is not to be imposed.
Therefore, the court imposed a fixed term sentence of 30 years.
The bench while allowing the appeal observed in the case Shankar Kishanrao khade vs. State of Mahrashtra (2013) 5 SCC 546, wherein it was held that if there is any circumstance favouring the accused such as lack of intention to commit the crime, young age of the accused, possibility of reformation etc., accused not being a menance to the society, no previous criminal record etc., the accused may avoid capital punishment. It was opined by the court that the crime is important but so is the criminal and hence the Supreme Court in recent past has substituted death penalty with fixed term sentences exceeding 14 years. It stated that imposing a fixed term sentence creates a possibility for the convict to re-integrate into society after serving his/her sentence. A delicate balance is strike the balance between victims’ plea for justice.

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NCLAT Upholds Dismissal Of Section 7 Petition, Corporate Debtor Willing To Pay Full Amount, Opposed By Financial Creditor

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NCLAT Upholds Dismissal Of Section 7 Petition, Corporate Debtor Willing To Pay Full Amount, Opposed By Financial Creditor

The National Company Law Appellate Tribunal (“NCLAT”) in the case Reliance Commercial Finance Limited v Darode Jog Builder Private Limited, the Principal Bench, comprising of Justice Ashok Bhushan (Chairperson), Judicial Member, Justice M. Satyanarayana Murthy and the Technical Member, Mr. Barun Mitra observed while adjudicating an appeal filed in Reliance Commercial Finance Limited v Darode Jog Builder Pvt. Ltd., has upheld the Adjudicating Authority’s decision to not admit a petition under Section 7 of IBC, despite there being a default and a debt. It was recorded by the bench the Corporate Debtor an opportunity to pay/settle the full amount of default despite the Financial Creditor’s unwillingness to enter settlement.

Background Facts of the Case:
The Appellant/ Financial Creditor, Reliance Commercial Finance Limited had sanctioned Term-Loans of Rs. 19.5 Crores to the Corporate Debtor i.e., Darode Jog Builder Pvt. Ltd. on 29.07.2013. In 2017, the Loan Accounts were declared as the Non-Performing Assets. On 04.11.2019, a petition under Section 7 of Insolvency and Bankruptcy Code, 2016 (“IBC”) was filled by Financial Creditor, wherein seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) over a default of Rs. 15,79,41,658/- against the Corporate Debtor.
It was observed that in an hearing held on 06.07.2022, the Corporate Debtor acknowledged its liability to pay and made an offer of Rs. 12.75 Crores, which is to be paid within 45 days. Thus, the Adjudicating Authority directed the Counsel for the Financial Creditor to obtain appropriate instructions. Thus, the court observed that if the Settlement did not take place, the Petition would automatically be admitted on the next date of hearing.
The court on the next date of hearing i.e. 11.07.2022, it was submitted by the Corporate Debtor that it is willing to deposit the entire amount of Rs. 15,79,41,658/- within 45 days. However, the Financial Creditor expressed its unwillingness for settling the matter. The Bank account details of the Financial Creditor were obtained by the Adjudicating Authority and alongside granted liberty to the latter to file for restoration of petition in case said amount is not deposited within 45 days. The court disposed of the appeal.
The Financial Creditor filed an appeal before the NCLAT, aggrieved by the order dated 11.07.2022.

Contentions Made By Appellant:
It was submitted by the Financial Creditor that the Adjudicating Authority committed error in disposing of the Petition, as it was not willing to settle the matter. However, the Adjudicating Authority could not have permitted the Corporate Debtor to deposit amount in Financial Creditor’s account.

Contentions Made By Respondent:
It was argued by the Corporate Debtor that Financial Creditor was unwilling to settle as earlier entire amount was not offered and settlement had not taken place despite several adjournments. Further, it was submitted that the Corporate Debtor has financial capacity to deposit the entire amount.

NCLAT Decision:
The Bench placed reliance on the Supreme Court judgment in the case Vidarbha Industries Power Limited Vs. Axis Bank Limited, Civil Appeal No. 4633 of 2021.
It was observed by the bench that as per the judgment, even after debt and default is there, Adjudicating Authority has to apply its mind to assess the feasibility of initiating CIRP.
It stated that when the Corporate Debtor has complied to deposit the entire defaulted amount of the Financial Creditor as permitted by the Adjudicating Authority and no purpose and occasion shall survive to still proceed with the Corporate Debtor Insolvency Resolution.
Accordingly, the bench observed that the proceedings under Section 7 are for resolution of insolvency. Adjudicating Authority had not erred in ascertaining whether the Corporate Debtor can comply to deposit the entire defaulted amount in bank account of Financial Creditor’s. Further, the court observed that the Financial Creditor’s interest was fully protected, since liberty was already given to revive the petition in case full amount was not received within 45 days.

The bench dismissed the appeal.

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IBBI Amends Liquidation Process Regulations: COC To Function As Stakeholder’s Consultation Committee For First 60 Days

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IBBI Amends Liquidation Process Regulations: COC To Function As Stakeholder’s Consultation Committee For First 60 Days

On 16.09.2022, the Insolvency and Bankruptcy Board of India (“IBBI”) has notified amendments for a second time to the IBBI (Voluntary Liquidation Process) Regulations, 2016 (“Voluntary Liquidation Regulations”) and IBBI (Liquidation Process) Regulations, 2016 (“Liquidation Regulations”).
Detailed Overview Of the Amendments:
the IBBI has introduced the following amendments to the Voluntary Liquidation Regulations and Liquidation Process regulations, in exercise of the powers conferred by Section 196(1)(t) read with Section 240 of the Insolvency and Bankruptcy Code, 2016.
For enabling better participation of stakeholders and streamline the liquidation process to reduce delays and realize better value, the following major modifications are made for the amendment in Liquidation Regulation.
The Committee of Creditors (CoC) constituted during Corporate Insolvency Resolution Process (CIRP) shall function as Stakeholders Consultation Committee (SCC) in the first 60 days and after the adjudication of claims and within 60 days of initiation of process, the SCC shall be reconstituted with respect to the admitted claims.
It has been mandated to the liquidator to conduct the meetings of SCC in a structured and time bound manner with better participation of stakeholders.
It has been enlarged the scope of mandatory consultation by liquidator with SCC and now SCC may even propose replacement of liquidator to the Adjudicating Authority (AA) and fix the fees of liquidator, if the same during CIRP is not fixed by the CoC.
The amount of claim collated during CIRP shall be verified by the liquidator, if any claim is not fixed during the liquidation process.
Whenever it is decided by the CoC that the process of compromise or arrangement may be explored during liquidation process, an application shall be filled by the liquidator only in such cases before Adjudicating Authority for considering the proposal of arrangement or compromise, if any, within thirty days of the order of liquidation.
For Auction process, specific event-based timelines have been stipulated.
SCC b Before filing of an application for dissolution or closure of the process shall advice the liquidator, the manner in which proceedings in respect of avoidance transactions or fraudulent or wrongful trading and shall be pursued after closure of liquidation proceedings.
Further, the Amendment Liquidation Regulations and Amendment Voluntary Liquidation Regulations lays down the manner and period of retention of records relating to liquidation and voluntary liquidation of a corporate debtor or corporate person, respectively.

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Supreme Court: Setting Aside NCDRC Order Awarding Compensation To Women Who Gave Birth Despite Undergoing Tubectomy Surgery

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Supreme Court: Setting Aside NCDRC Order Awarding Compensation To Women Who Gave Birth Despite Undergoing Tubectomy Surgery

The Supreme Court in the case Civil Hospital vs Manjit Singh observed and has set aside an NCDRC order that directed a hospital to pay compensation to a woman who delivered a child despite undergoing tubectomy procedure.
In the present case, a woman underwent tubectomy procedure twice, though both the procedures remained unsuccessful. In the year 2003, she gave birth to a male child. A complaint was filled by her before the District Consumer Disputes Redressal Forum alleging medical negligence on account of failed tubectomy surgery. Thus, the court dismissed the same on the ground that the hospital is not a consumer. The order was affirmed by the State Consumer Commission (SCDRC). Later, the revision petition was allowed by the National Consumer Commission and has directed to pay compensation as per the guidelines and the policy of the State.
Before the Apex Court, two contentions were raised by the hospital (1) that hospitals and Doctors who render service without any charge to every person availing of the service would not fall within the ambit of ‘service’ under Section 2(1)(o) of the Act relying on the case Indian Medical Association Vs. V.P. Shantha And Ors., (1995) 6 SCC 651 that the failed tubectomy surgery is not a case of medical negligence as the sterilized woman can become pregnant due to natural causes. [relying on the case State of Punjab Vs. Shiv Ram and Ors., 2005, 7 SCC 1].
The bench while taking notice of the law laid down in the decisions relied on by the appellants, allowed the appeal by setting aside the NCDRC order. However, if the respondent has been paid any amount in terms of the Order of the NCDRC, the same shall not be recovered by the State, the bench said.
It was observed in In V.P. Shantha that the Hospitals and Doctors who render service without any charge whatsoever to every person availing of the service would not fall within the ambit of ‘service’ under Section 2(1)(o) of the Act. Thus, the payment of a token amount for registration purposes only would not alter the position in respect of such doctors and hospitals.
The Apex Court regarding failed tubectomy surgery in Shiv Ram (supra), had observed that the cause of action in claiming compensation in cases of failed sterilization operation arises on account of negligence of the surgeon and not on the account of child birth. Further, the failure due to natural causes would not provide any ground for claim and it is the women who has conceived the child to go or not to go for medical termination of pregnancy. Thus, having gathered the knowledge of conception in spite of having undergone sterilization operation, if the couple opts for bearing the child, it ceases to be an unwanted child and the compensation for maintenance and upbringing of such a child cannot be claimed.

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