What are Tripartite Agreements?

Vidhi Agarwal & Manali Chotalia

As the name suggests a Tripartite Agreement is an agreement between three parties. Agreements are generally done between two parties, however, under certain circumstances, a three-party agreement is required. Like any other agreement, it is also a legal document which when entered into, states the names of the parties and the purpose for which it is entered.

Apart from the two parties involved in the agreement, it is not always necessary that the third also has an interest in the transactions made; however, the circumstances are such that the third party gets indirectly associated with it.

Parties involved in Tripartite Agreements:

In these agreements, the parties between whom the agreement is made depending on the type and purpose for which the agreements are made.

Applying for a home loan from banks. Here, the parties involved would be the Lender, the Owner/borrower, and the Developer. The developer enters into a written agreement for the sale of a house/flat with the buyer and here the bank is also interested because of the home loan provided by it. These are usually signed for the purchase of under-construction project units.

A Tripartite agreement is also signed when resale of property is done, here the Developer, Buyer (to whom resale is done) and the housing society are the concerned parties, where, the Housing Corporation shall become a third party as it means that it has no opposition to the sale of the property in the name of the new purchaser.

The law has not made it mandatory to make such agreements, but it is advised to enter into these agreements to avoid conflicts in the future.

Contents of a Tripartite Agreement:

The first basic content is the name of the parties to the agreement.

The purpose/objective for which the agreement is made.

The rights and liabilities along with the remedies are to be stated.

The developer should make a clear statement about the title of the land.

Also, the developer has not entered with another party into an agreement regarding the same.

The perspective of all the parties (Owner, Lender, and Developer) involved should be clearly stated.

The agreement should also mention the selling price, construction stages, date of possession, the interest rate charged on the loan taken, and its repayment schedule.

Penalties for the non-performance of the duties stated.

This agreement also contains the liability of the developer to continue with the plans stated and approved and construct the building.

All these contents mentioned become substantial for making these agreements and as these are done indirectly for the benefit of the buyer, he must see to the conditions.

Specific area where tripartite agreement works

The experts state that it assists a buyer when he is going in for a home loan to buy a house when it is under construction. Tripartite agreements were concluded to help buyers acquire property loans against their planned purchases. The builder will be included in the agreement with the Bank because the home/apartment is not yet in the customer’s name until ownership. Tripartite agreements can be drawn up between lenders, owners, and tenants in the leasing industry as well. In these arrangements, the owner/ borrower is generally required to become the new property owner in violation of the non-payment clause of a loan agreement. Besides, tenants must accept the mortgager/lender as their new owner. The contract also limits the new owner to change any of the tenants’ provisions.

The experts also agreed on tripartite agreements to help buyers receive funding from banks from expected home buyers from the developer. The arrangement is based on three different agreements.

International Examples

There have been famous Tripartite Agreements at International borders. The infamous Tripartite Agreement of 1936, which was entered into by the United States, France, and Britain as a monetary agreement for stabilizing their national currencies. Another example is the Britain-Nepal-India Tripartite Agreement of 1947 which was in the context of the rights over Gurkhas military service. These are some of the political examples of the tripartite agreements.

INDIAN ALUMINIUM COMPANY LIMITED AND ANR versus KARNATAKA ELECTRICITY BOARD AND ORS

The Business and the Board and the State signed a tripartite agreement here on 26 March 1966. Subsequently, a fresh tripartite agreement between the parties was entered into an amendment to the above-mentioned tripartite agreement and on August 7, 1976, the latter was concluded. A series of clauses were inserted into the said tripartite agreement to ensure secured electricity supplies and arrangements for concessional power supplies.

The aluminium control order for the price of aluminium ingots, wire bars, billets were issued by the central authorities in 1970. A policy on aluminium was informed by the central government on 15 July 1975. This policy states that, after consultations with the Central Government that regulated the price of aluminium, the proposed New Rate for Aluminium was to remain in place for the next five years and that prices should be regularly updated and revised, if necessary, only. The rate was 7 paise per unit in July 1975. On 7 August 1976 the second tripartite was a supersession contract between the Writ Petitioners and the Respondent No. 4 and this Arrangement, inter alia, was concluded, provided that, if the Board is to raise their power prices, it must provide the Company with a notice to the Central Government for at least six months in order to carry the resulting retention price increase of aluminium. It was provided, therefore, that the raised tariff rates would be successful if the Central Government did not raise the price within the six months.

The Board of Directors sent a letter on 22 January 1980 to the Company demanding that it contact the Executive Engineer for an additional agreement on certain improvements to the tariff rate proposed in that letter. By letter of 25 February 1980, the Company requested the Karnataka Government to arrange a debate on the situation as a result of the proposed tariff rate adjustment. It is stated that the negotiations between the parties did not yield any positive results. The Indian Government released, inter alia, the retention price notification on 15 July 1980.

By letter dated 3 July 1980, the Board of Directors stated that the Company had applied an additional 2 paise extra unit surcharge on 8 July 1980. The Company applied to the Central Government on 5 August 1980 with abundant caution for an increase in the price for retention. However, the Board refused to comply with the company’s request to not lift the tariff rate for power supply to its smelter. In 1980, the cost of power per unit was increased to 19.59. On 30 June 1980, the Board of Directors also levied a surcharge of 10 countries per unit, which came into effect on 1 June 1980.

The company submitted that the Board of Directors had not informed the supplementary charge for six months and that such a supplementary amendment in the written petition effective 1 June 1980, and that the legitimacy and validity of the imposition of surcharge for the period from 1 July 1980 to 1 November 1980 before the promulgation, were disputed in the Written Petition.

The State of Karnataka released an Electricity Supply Order on 21 November 1980 (Karnataka Amendment), as amended, in order to amend Section 33 of 1981 (Supply Act), Section 49 of the Electricity Act. The consequence of such reform to Article 49 (Supply) of the Electricity Act is that, notwithstanding the agreement with the customer, it has allowed the Board to raise tariff rates. The Board boosted the tariff rate by Rs. 25.93 per unit on 2 February 1981. The Corporation and one of its shareholders, having been compounded by the rise in tariff rates and consequent demands on the payment of bills in compliance with the increase in tariffs, have demanded that the Writ Petitions No. 6257 be referred to in 1981 for the relief stated above.

The written petitioners argued before the High Court that, inter alia on the following grounds, the amending act does not impact the current agreement of 1976:

(a) A tripartite arrangement is not envisaged by the amending Act, but a bipartite agreement between the customer and the Board of Directors is the agreement provided for under the amending act.

(b) The tripartite agreement originated from the Government of India’s aluminium policy and the amending Act cannot negate this governmental policy.

Only through time and social conditions dependent on experience could the trial be palpable subjective. No particular formulas or doctrinaire tests or scientific principles of exclusion can be established.

In his equal position, Mr. Parasaran claimed that the Board was entitled to amend tariffs under the Electricity (Supply) Act but argued that such changes were not rendered arbitrarily or intentionally.

He argued that because the Board is a licensee in a specific field to provide electricity to different customers, the Board enjoys to some degree monopolies. It must therefore be considered if the Board has behaved fairly and equitably and is well advised in the exercise of the tariff revisions by reasons of the decision. He also maintained that the aluminium manufacturing facility has certain unique and unusual features. He drew our attention to the claims in the Writing Petition that concentrated extensively on the process and the main function of electricity.

Mr. Parasaran has also highlighted the agreed position in the world regarding the crucial role played by electricity in the electrolytic process in aluminium production in the smeltering process and its effects on manufacturing costs as the basic raw material. Mr. Parasaran argued in the aforesaid sense that grouping of the smelter into the general power-intensive industry category is only unreasonable and inappropriate.

The classification of the milling plant as a power-intensive industry is incorrect, as is the case with many other power-intensive industries. The State and the Board are well aware of the very distinctive and special characteristics of the smelter plant. He drew the attention of the Court to various clauses of the 1976 agreement to show that the State and the Board were well aware of the role of electricity in the production process of a smelter plant and of the intense need for the plan to provide unrestricted energy to the Company at Belgaum which was the plant of the petitioner.

Mr. Parasaran proposed that, as the State and the Board were well aware of the effects of the electricity tariff at the smelter plant, special arrangements were made in the billing agreement and the tariffs to be paid in the event of supply disruption. Mr. Parasaran claimed that, because the agreement was tripartite, it could not have been terminated by relying on the amended clause of Section 49 of the Electricity (Supply) Act, the Boards wrongly repudiated the agreement by considering the smelter plant as a power-intensive industry only and by exorbitantly revising the tariff and making it applicable to the petitioner-company at the request of the Commission and maintaining status quo.

Miscellaneous

These agreements state the rights and obligations of all the parties involved, thus making them liable for their non-performance. Upon entering into this agreement the third party cannot claim being unaware of the transactions done.

In the case where a third party is a person, their successors cannot challenge the done transaction in the court of law.

These agreements offer the banks or other financial institutions a sense of originality, helping in the development of the loans.

The most important benefit is it being a no-fault agreement, where the parties have to evaluate their own mistakes and the other parties are not held liable for the same.

These documents put forward the status of all the parties associated with it. Getting into such agreements has been seen as really beneficial for the buyers due to its authentication.

These arrangements may have complicated terms and conditions and could also be difficult to comprehend. It is recommended that the purchasers obtain legal experts’ assistance and review the paper. This will not in the future lead to problems or project delays, in particular in the case of an argument.