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Asadullah Vs Lassa Baba Chhoba Lal Vs Kallu Mal Ganesh Ram Tulja Ram Gopal Chand Vs Madan Lal Hyderabad Industries Ltd. Vs Nuclear Power Corp Of India Ltd Jagannath Vs Mannulal K.K Modi Vs K.N. Modi Kohinoor Creations Vs Syndicate Bank Kohli Bros. Vs Atlantic Multiplex Pvt. Ltd
Manish Mittal Vs Manesh Chand National Almunium Co. Ltd Vs Geralds Metals Sa Ashok Chawla Vs Rakesh Gupta Nimet Resources Inc. And Another Vs Essar Steel Ltd Operative Group Housing Society Vs H.S Nag And Associates Ltd Orissa State Co-Operative Marketing Federation Ltd Vs Associated Marketing Co. Ram Labhayya Vs Panna Lal Sundarv Lal Vs Bhagwati Devi
INDEX
Sr No
1) 2) 3) 4)
Topic
Introduction Arbitration-meaning Scope Essentials of Arbitration Agreement
Page No
5-6 7-8 8-9 9-14
Remarks
5) 6)
14-16 16-17
7)
17
8)
Section -8 Court obliged to refer parties to arbitration Suits barred Writs whether barred Suits not barred Section 8(3)
17-21
Section -9 Interim measure Jurisdiction of court No stay of arb. Proceedings Absence of Substantive relief Bibliography
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Introduction Section 7, 8, 9
7Arbitration agreement. (1) In this Part, 'arbitration agreement' means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. (2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (3) (4) An arbitration agreement shall be in writing. An arbitration agreement is in writing if it is contained in (a) (b) a document signed by the parties; an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or (c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. (5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract. 8Power to refer parties to arbitration where there is an arbitration agreement. (1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration. (2) The application referred to in subsection (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof. (3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made. 9Interim measures etc. by Court. A party may, before, or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a court 3
(i)
for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or
(ii)
for an interim measure of protection in respect of any of die following matters, namely (a) the preservation, interim custody or sale of any goods which are the subjectmatter of the arbitration agreement; (b) securing the amount in dispute in the arbitration; (c) the detention, preservation or inspection of any property or thing which is die subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any part) or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence; (d) interim injunction or the appointment of a receiver; (e) such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.
........................................................................................................................
Arbitration Agreement Meaning of :- the section refers to the dispute which have
arisen or which may arise between the parties in respect of a certain legal relationship, whether contractual or not. While an arbitration clause creates a collateral agreement, it is just one clause in an agreement containing many other clauses relating chiefly to commercial terms and performance obligations. The reference of a particular existing dispute or disputes is usually achieved by an entirely separate agreement dealing only with the setting up of machinery to resolve the dispute(s) which have arisen between the same parties, either in tort or contract. The reference of an existing dispute can also form part of an agreement dealing with other matters. For instance, the parties to a contract might bring that contract, by agreement, to an end and at the same time, enter into a fresh contract, by agreement. Under the fresh agreement they might agree on a number of commercial terms about their future dealings , as well as an agreement to refer to arbitration an existing dispute arising from the original contract. The basis of agreement under the act is a written submission by the parties. No particular form is necessary but the words used for the purpose must be words of choice and determination to go to arbitration and not problematic words of mere possibility. It is not even necessary that a formal words such as arbitration is used but what is essential is that the parties should intend to make a reference or submission and should be ad idem in this respect. RUSSELL states: An arbitration agreement is an agreement to submit present or future disputes (whether they are contractual or not). An arbitration agreement is therefore a contractual undertaking by two or more parties to resolve disputes by the process of arbitration even if the disputes themselves are not based on contractual obligations. The word party for the purpose of Part 1 of the Act connotes party to the agreement as distinguished from party to the suit. Both the claimant who has brought legal action and the respondent who has brought legal action and the respondent who applies for reference of the dispute to arbitration must be parties to the arbitration agreement. Basically a dispute means Assertion of claim by one party and its repudiation by the other party. Thus a dispute implies some kind of disagreement between parties concerning some legal claim or liability. It may be distinguished from the term difference which means
having different opinion as to the exact meaning of a particular tern in the contract. The difference or dispute must relate to some civil claim.
legal relationship, whether contractual or not. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (2) The arbitration agreement shall be in writing. (3) An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means. (4) The requirement that an arbitration agreement be in writing is met byan electronic communication if the information contained therein is accessible so as to be useable for subsequent reference; electronic communication means any communication that the parties make by means of data messages; data message means information generated, sent, received or stored by electronic, magnetic, optical or similar means, including, but not limited to, electronic data interchange (EDI), electronic mail, telegram, telex or telecopy. (5) Furthermore, an arbitration agreement is in writing if it is contained in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other. (6) The reference in a contract to any document containing an arbitration clause constitutes an arbitration agreement in writing, provided that the reference is such as to make that clause.
Essentials of Arbitration Agreement 1) Competency of parties 2) There must be a present or future difference in connection with some contemplated
affairs
3) There must be the intention of the parties to settle such differences by a private
tribunal
a) Minor under section 3 of the Indian Majority Act, 1875 a person domiciled in
India is deemed to be a minor till he completes the age of 18 years. This section, however, provides the age of 21 years as the age of minority in a case where a Court Guardian is appointed for the person of a minor and his property. It has been held that when the age of majority has been provided by the law to be 18 years, any person less than that age, even by a day, would be a minor in law AIR 1961 Patna 21. A contract entered into by a minor is void and not merely voidable because he is a person who is not competent to contract. In matter of arbitration the rights of the parties are to be determined during the arbitration which ultimately may entail consequences adverse to the interests of the minor. Even the natural guardian of the minor much less a court guardian, cannot bind the minor to an arbitration agreement. In Chhoba Lal Vs Kallu Mal1 the Privy Council held that a guardian ad litem or a next to friend of a minor has the authority to refer to arbitration on behalf of the minor after obtaining a valid permission of the court in terms of order XXXII Rule 7 of the CPC to refer the dispute and in the absence of such permission the reference is invalid. A contract by a minor cannot be ratified by him after attaining age of majority.
b) Lunatic A lunatic cannot enter into a valid contract and any contract executed on
his behalf including a contract for arbitration is void. Lunatic is insane, mad, outrageously foolish, fanatic and eccentric. There is no definition of lunacy in this act but section 3(5) of Indian Lunacy Act, 1912, defines lunatic to mean a person who is an idiot or of unsound mind.
court the manager or the karta of the family cannot make the reference to bind the minor with the award unless he has sought permission of the court for making the reference. (Ganesh Ram Tulja Ram3)
e) Trustee a trustee gets the power to refer the disputes pertaining to the trust to
arbitration only if the provisions of the instrument of trust authorize him to make the reference. A trust is created under the Indian Trust Act, 1882. The deed of trust and the provisions of the statute regulate the rights and duties of the trustee. In a case where more than one trustee is provided, no reference can be made only by one trustee. The reference of dispute in such a case has to be made collectively by all the trustees or by one of the trustees with specific authority from other trustees in that behalf.
3 4
there are several executors or administrator, the power of all may in the absence of any direction to the contrary, be exercise by one of them who has proved the will or taken out administration as is the mandate of section 311 of the Indian succession act, 1925.
2) Intention of the parties there must be the intention of the parties to seetle their
dispute from arbitral tribunal. The intention of the parties to enter into an arbitration agreement have to be gathered from the terms of the agreement. If the terms of agreement clearly indicate an indicate an intention on part of the parties to the agreement to refer their dispute to arbitral tribunal for adjudication and willingness to be bound by the decision of such arbitral agreement, the words used should disclose a determination and obligation to go to arbitration and not merely contemplate the
5 6
10
possibility of going for arbitration. When there is merely a possibility of the parties agreeing to arbitration in future, as contrasted from an obligation to refer disputes to arbitration in future, there is no valid and binding arbitration.
7 8
1990 2000
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sets out what an arbitration agreement id. It could be in different forms by way of an arbitration clause in a contract.
IN Supreme Co.- operative group housing society Vs H.S Nag and Associates Ltd9 Facts A Managing Director of appellant company signed a contract with the
respondent, a Yugoslavian based company, at Belgrade, which contained an arbitration clause that disputes shall be referred to arbitration of international chamber of commerce in Paris. On that very day, the managing director sent a letter from Belgrade itself to the respondent at Belgrade stating that he had objected to the arbitration clause contained in the agreement and that in fact in the draft of the agreement, which he had sent in advance to the respondent company, the said clause was deleted. The managing director immediately on landing in Bombay sent a cable to the respondent company again objecting to the arbitration clause in the agreement. The respondent company gave no reply either to the letter or cable sent by the managing director.
Held there was no concluded agreement as there was no consensus ad idem with
regard to the arbitration clause, which was a severable part of the contract. Where terms of letter of credit to be furnished by one party and performance guarantee to be furnished by the other party, as mutually acceptable both, had not till then been accepted, it was held that the parties had not reached an agreement upon all material terms of the contract and were as such not ad idem. No concluded and binding contract had come into existence between the parties. Hence, the arbitration clause contained in the contract had also not come into existence in the eye of law. Reference of dispute to arbitration invoking such non-existent arbitration clause was invalid.
Drafting of arbitration agreementWhen drafting arbitration agreement care needs to be taken to ensure that it is appropriate for the particular circumstances of the case. The following is the checklist of the matters which need to be considered when drafting an arbitration agreement:-
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1) Have the parties been properly identified? 2) Is there a clear reference to arbitration? 3) Where is the seat of arbitration to be? 4) Is there the choice of proper law of contract? 5) Is the law of arbitration agreement to follow the proper law of the contract? 6) Is there a choice of procedural law? 7) How will the tribunal be appointed? 8) Is there an appointing authority? 9) Is the tribunal be required to have any particular attributes or qualification? 10) How many members of tribunal will there be? 11) Are there to be procedural and/or evidential rules, and if so, which ones? 12) What will be the language of arbitration? 13) Should the tribunal be given power to order provisional relief under section 39 of the Arbitration and Conciliation Act, 1996? 14) Is specific provision for confidentiality required? 15) Should applications and appeals to court be excluded? 16) Is a waiver of sovereign immunity required? 17) Are provisions for multi-party arbitration consideration and concurrent hearings required?
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4.) The tribunal will determine the rights of the parties in an impartial and judicial manner with the tribunal being fair and equal to both sides. 5. The agreement of the parties to refer their disputes to the decision of the tribunal must be intended to be enforceable in law 6.) The agreement must contemplate that the tribunal will make a decision upon a dispute which is already formulated at the time when a reference is made to the tribunal. Other important factors include whether the agreement contemplates that that tribunal will receive evidence from both sides and give the parties opportunity to put forth their issues and hear their contentions; whether the wording of the agreement is consistent with the view that the process was intended to be an arbitration; and whether the agreement requires the tribunal to decide the dispute according to law11. The courts have laid emphasis on (i) (ii) existence of disputes as against intention to avoid future disputes; the tribunal or forum so chosen is intended to act judicially after taking into account relevant evidence and submissions made by parties before it; (iii) (iii) (iv) the decision is intended to bind parties; Nomenclature used by parties need not be conclusive12.
http://www.indiankanoon.org/doc/1777887/ Saraf, B.P (J), LAW OF ARBITRATION AND CONCILIATION, 4th Ed. Snow White Publications, Mumbai, 2006, pg 193 13 Orissa State Co-Operative Marketing Federation Ltd Vs Associated Marketing Co. AIR 1982 Ori 1
14
Paranjape Dr N.V., Arbitration and Conciliation in India , 4th ed, Central Law Agency, Allahabad, pg 89
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before filing its written statement, the party applying for referring the dispute to arbitration has so applied. When a civil court does not have jurisdiction to entertain a suit after an application has been filed under this section, it follows as a corollary that the court which refuses to refer the parties to arbitration has failed to exercise jurisdiction. This section vests authority in the judicial authority to refer parties to arbitration where there is an arbitration agreement, and also if the parties apply for it. it is no more res integra that the provisions of this section are mandatory in nature. But they by itself should not be taken to mean that it authorizes an automatic or mechanical reference to arbitration. On the contrary, the reference is dependent on the requirement of the section being satisfied by the parties15. Once arbitration proceedings are pending and there is no dispute between as to the existence and validity of the arbitration agreement, there would be no justification for the courts to entertain the petition and refer the matter to arbitration. There is no legal ground for not referring the dispute to the arbitrator as there are no limitations to the pecuniary jurisdiction of an arbitrator16.
Suits barred :- if the following suits are brought by a party to the arbitration agreement,
they would clearly be barred by the provisions of this section and relief, if any, on these has to be by way of provisions of the act itself: suit to challenge agreement or award. Suit to affirm agreement or award. Suit inspite of arbitration agreement.17
Writs whether barred :- in respect of private arbitrations, the high court cannot issue
any prerogative writs to interfere with such arbitrations or awards made in pursuance of such agreements. An arbitrator appointed under the act is not amenable to writ jurisdiction. Merely because the courts have been given powers under the act to deal with the arbitrator or his award does not mean that the arbitrator is a statutory arbitrator in the sense of being a public body, to whom either the arbitration has necessarily to be referred to or in the sense that his award by itself has been given a finality and recognition by the statute. A writ however can
15 16
Kohinoor creations Vs Syndicate Bank, 2005 (2) Raj 622(DB) delhi Manish Mittal Vs Manesh Chand, 2005 (2) Raj 454 17 Sethi, R.P, Law Of Arbitration And Conciliation, Vol.1; Ashoka Law House, New Delhi, 2007
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be issued to an arbitrator appointed under the industrial disputes act because he is a statutory arbitration. The fact that the arbitrator is a an employ of the government does not make him liable to the writ jurisdiction of the court, as he is not exercising a public function.
Suits which are not barred :- suits regarding the effect, validity and existence of the
award or arbitration agreement are barred, but suits on the following ground are not barred:- Stranger to a contract :- where by some award, a relief is sought against another party who is not a party to the agreement, the same can be challenged. Suit to enforce agreement based on award:- a suit that is not filed to enforce or challenge award but to enforce an agreement is maintainable and not barred. It also includes an agreement based on award. Fraud :- where the award and the decree were bogus and sham and had been bought into existence for a fraudulent purpose, and were never intended to be created upon, the challenge to the decree and the award is independent of the contents of the award and decree. Thus a separate suit is maintainable to enforce substantive rights. Where the decree is challenged on the grounds of fraud in the proceedings the suit is maintainable. Award accepted :- where after the award was made and acted upon, all the party filing suit sought to do was to divide the property with the consent of the parties. A suit on such an action is not barred. Subject-matter not the same :- a party has a right to sue for reliefs arising from the title of the property, independent of any right from the agreement, as the suit is not to enforce an arbitration agreement. Further relief :- where the award is mere declaratory award declaring rights of parties in certain contingencies, on the happening of those contingencies, a suit for further relief is not barred. The case would be the same when certain claims arise subsequent to the rights so declared an award. Suit by minor:- a minor can sue to set aside a decree against him based on an award on the ground that the reference to arbitration was made without leave of the court as required by Order 32 Rule 7. CPC. Criminal prosecution :- merely because there is an arbitration clause in the agreement , that cannot prevent criminal prosecution against the accused if an act constituting a criminal offence made out even prima facie.
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Long pendency of disputes :- to avoid long pendency of cases which leads to late redressal, the plaintiff has been equipped with such right and any suit for this cause is not barred and maintainable18. Suits under special enactments :- provisions of 1996 act does not override the provisions of public premises act 1971 and consumer protection act which created an additional remedy in favour of the consumers by raising consumer disputes.
Refusal of the stay due to arbitration clause:The court can refuse to refer the matter in the following circumstances:a) Where the defendant did not file the arbitration agreement and also contested the suit. b) The defendant who denies the validity of the deed of dissolution of partnership upon which the suit was based, is not entitled to apply under this section. c) Where the arbitration clause was limited only to the interpretation of clauses, it could not be used to stay a suit based on the monetary claims of a party. However, the Delhi High Court holds a contrary view. d) Where the arbitration clause only vested the Superintending Engineer with supervisory and administrative control, it did not amount to an arbitration clause and stay ought to be refused. e) Where suit is based not upon the partnership deed but upon the right of co-ownership, suit cannot be referred. f) Where contract was oral and arbitration clause in the consignment note was not brought to the notice of the other party, suit cannot be referred. Section 8 (3) :- this is a new sub-section. By this section a machinery is provided under the act to stop the arbitration proceeding, not simpliciter by the filing of legal proceedings, but upon fulfilment of certain conditions. To render the arbitration invalid, the legal proceedings must be commenced upon the whole of the subject-matter of the reference; it must be between all the parties to the reference; and a notice thereof has to be given to the arbitrators. If all these conditions are satisfied, further arbitration proceedings from the time of service of notice upon the arbitrators in the pendimg reference becomes invalid. Thus no reference or award can be rendered by reasonably of
18
Basu, N.D, LAW OF ARBITRATION AND CONCILIATION, 10th Ed. Orient Publishing Com., Allahbad, 2005, pg 177
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the commencement of legal proceedings upon the subject-matter of the reference. Basically the burden of proof lies upon the plaintiff.
Jurisdiction of Court
The right conferred by this section cannot be said to be one arising out of a contract. It is a right conferred on a party to an arbitration agreement. Thus only a person who is a party to an arbitration agreement can invoke the jurisdiction of the court under this section. However a
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AIR 2008 All 43 National almunium co. Ltd Vs geralds metals SA, AIR 2004
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person nor a party to the arbitration agreement cannot enter the court for protection under this section because a party means a party to arbitration agreement. An application for interim measure can be made to a court in India even though the arbitration proceedings are being held abroad. Section 2(2) provides that Part-I would apply where the place of arbitration is in India. It does not provide courts would have jurisdiction to grant an interim measure even though the venue of arbitration is not in India. Thus Indian courts would have jurisdiction to grant an interim measure even though the venue of arbitration is not in India. However the where the parties specifically agree that the agreement is to be governed by German laws, then the disputes shall be resolved by arbitration in accordance with the law prevailing in Germany which also includes German Code of Civil Procedure. A court cannot grant injunction to restrain the defendant form disposing of certain properties belonging to him because such an order would be an order in nature of attachment before judgment21. No Stay Of Arbitration Proceedings Section 9 does not permit any or all applications for interim measure in clauses (i) and (ii) thereof. Thus there cannot be any application for stay of arbitral proceedings or to challenge the existence or validity of the arbitration agreements or the jurisdiction of the arbitral tribunals. All such challenges would have to be made before the arbitral tribunal under 1996 Act. There is no provision in the act which enable the court to remove an arbitrator during the course of arbitration proceedings. But at the same time the party having grievance against an arbitrator cannot be said to be without remedy and the said remedy becomes available as soon as the arbitral award is made by the arbitrator. Court interference on basis of petitions challenging arbitral tribunal during the pendency of the arbitration proceedings would be clearly against the very spirit with which the 1996 act has been enacted. The mischief which existed in the earlier enactment and is sought to be removed by the present enactment cannot be allowed to be removed by entertaining writ petitions in the absence of any provision in the new act in this respect. A statute is an edict of the legislature and the conventional way of interpreting or construing a statute is to seek the intention of the matter. Grant of stay in matter of discretion of the court and if the trial court on consideration passes an order of stay the appellate court should be slow to interfere with the same. But that does not mean that if the order of stay passed by the trial court is based on non- judicial consideration such order is not liable to be interfered with the appellate court22.
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http://www.legalserviceindia.com/article/l111-Arbitral-Awards.html Bachawats, R.S (J), LAW OF ARBITRATION & CONCILIATION, VOL.1 . 5th Ed., Lexis Nexis Butterworth Wadhwa, Nagpur, 2010, pg 127
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In the absence of substantive relief interim measure not admissible In the absence of any substantive relief, the prayer for issuing any directions by way of interim measure cannot be entertained. The relief claimed by the petitioner for restraining the respondent from increasing the share capital of the company cannot be granted in such proceedings23. Courts cannot grant injunction to prevent such breach of contract, the performance of which cannot be specifically enforced. Where an application had been filed seeking interim relief, it was held that relief sought can only be in aid of the claim for specific performance and if no clear cut and undisputed case on merits is made out by the petitioner, the courts shall refuse the application24.
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Ashok Chawla Vs Rakesh Gupta 1996 (2) Arb LR(Del) Hyderabad Industries Ltd. Vs Nuclear Power Corp Of India Ltd.,2005 (1) Arb LR 352
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Bibliography
Bachawats, R.S (J), LAW OF ARBITRATION & CONCILIATION, VOL.1. 5 th Ed., Lexis Nexis Butterworth Wadhwa, Nagpur, 2010. Basu, N.D, LAW OF ARBITRATION AND CONCILIATION, 10th Ed. Orient Publishing Com., Allahbad, 2005. Chawla, S.K(J), 11YEARS DIGEST OF ARBITRATION & WORKS CONTARCT CASES 1992-2002, Vol.1 Suvidha Law House , Bhopal , 2009. Kwatra, G.K, ARBITRATION AND CONCILIATION LAW OF INDIA, 7TH Ed. Universal Law Publications, 2008 Malik, Surendra, SUPREME COURT ON ARBITRATION, Eastern Book Company, Lucknow , 2003 Saraf, B.P (J), LAW OF ARBITRATION AND CONCILIATION, 4th Ed. Snow White Publications, Mumbai, 2006. Sethi, R.P, LAW OF ARBITRATION AND CONCILIATION, Vol.1 Ashoka Law House, New Delhi, 2007. Paranjape Dr N.V., Arbitration and Conciliation in India, 4th ed, Central Law Agency, Allahabad
Webliography
www.supremecourtofindia.nic www.indiankanoon.com www.legalserviceindia.com
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