The legal landscape of insolvency in India has been significantly shaped by judicial interpretations, particularly concerning the classification of financial instruments under the Insolvency and Bankruptcy Code, 2016 (IBC). A landmark decision in this context is the Supreme Court's ruling in China Development Bank v. Doha Bank Q.P.S.C., which addressed the pivotal question of whether a Deed of Hypothecation (DoH) can be construed as a guarantee under Section 5(8) of the IBC. This article delves into the intricacies of this judgment and explores its far-reaching implications for creditors and debtors involved in insolvency proceedings.
The dispute originated from financial transactions involving the Reliance Group entities, specifically Reliance Communications (RCom), Reliance Telecom Limited (RTL), and Reliance Infratel Limited (RITL). The appellants, including China Development Bank, had extended financial assistance to RCom and RTL. To secure these loans, RITL executed a Deed of Hypothecation in favor of the appellants, creating a charge over its assets. Notably, RITL was not a direct borrower but provided security for the loans advanced to its associate companies.
During the Corporate Insolvency Resolution Process (CIRP) of RITL, the appellants were recognized as financial creditors by the Resolution Professional. However, this classification was contested by Doha Bank, another financial creditor, which argued that the DoH did not constitute a contract of guarantee and, therefore, the appellants should not be considered financial creditors under the IBC.
The National Company Law Tribunal (NCLT) initially upheld the appellants' status as financial creditors. Dissatisfied with this decision, Doha Bank appealed to the National Company Law Appellate Tribunal (NCLAT). The NCLAT reversed the NCLT's ruling, holding that the DoH was merely a security document and did not amount to a guarantee. It emphasized that the DoH's primary purpose was to create a charge on the charger's property and that RITL could not be deemed a guarantor in the absence of an explicit guarantee agreement.
Challenging the NCLAT's decision, the appellants approached the Supreme Court. They contended that the DoH contained clauses that effectively obligated RITL to discharge the debt in case of default by the principal borrowers, thereby constituting a guarantee under Section 126 of the Indian Contract Act, 1872.
The Supreme Court meticulously examined the provisions of the DoH, particularly Clause 5(iii), which stipulated that upon the occurrence of an event of default, the security trustee had the right to enforce the security and apply the proceeds towards the repayment of the secured obligations. Crucially, the clause also provided that if the realized amounts were insufficient to discharge the secured obligations, RITL was liable to pay the shortfall, thereby undertaking to cover any deficiency in repayment.
The Court held that this undertaking by RITL to pay any shortfall amounted to a contract of guarantee as defined under Section 126 of the Indian Contract Act. It reasoned that RITL, by committing to cover the deficiency, assumed the role of a surety, promising to discharge the liability of a third party (RCom and RTL) in case of their default.
Furthermore, the Supreme Court addressed the definition of "financial debt" under Section 5(8) of the IBC, which includes "any counter-indemnity obligation in respect of a guarantee." The Court clarified that the term "financial debt" encompasses obligations arising from guarantees, even if such guarantees are embedded within other security documents like a DoH. It emphasized that the substance of the transaction should prevail over its form, and the presence of a guarantee obligation within a DoH brings it within the ambit of financial debt under the IBC.
The China Development Bank ruling can be contrasted with the Supreme Court's earlier decision in Anuj Jain Interim Resolution Professional for Jaypee Infratech Limited v. Axis Bank Limited (2020). In the Jaypee Infratech case, the Court dealt with the issue of whether a mortgage created by a third-party security provider to secure a borrower's loan could be treated as a guarantee. The Court concluded that a mortgage created by a third-party security provider to secure a borrower’s loan cannot be treated as a guarantee without a separate deed of guarantee. The Court concluded that a creditor cannot be classified as a financial creditor under the IBC relying only on a mortgage deed—a person who has a security interest over only the assets of a corporate debtor is not a financial creditor of such corporate debtor under the IBC. In contrast, the China Development Bank case involved a DoH that explicitly included a clause obligating the security provider to cover any shortfall in the event of default by the principal borrower. The Supreme Court recognized this obligation as a guarantee, thereby classifying the appellants as financial creditors under the IBC. Hence, the Supreme Court’s Ruling in China Development Bank Creates Further Confusion on Third-Party Securities and creates a necessity for a settled position in this matter.
The Supreme Court's ruling has profound implications for creditors in insolvency proceedings. By recognizing that a DoH can constitute a guarantee, the Court has broadened the scope of what constitutes financial debt under the IBC. This expansion allows creditors holding security documents with embedded guarantee clauses to assert their status as financial creditors, thereby granting them a significant role in the CIRP, including participation in the Committee of Creditors (CoC) and voting rights. Creditors can now rely on the guarantee obligations within security documents like DoHs to enforce their claims more effectively. In the event of a default, they can pursue the guarantor (even if not a direct borrower) for the shortfall, thereby enhancing their prospects of debt recovery. The judgment encourages creditors to structure their security arrangements thoughtfully, ensuring that guarantee obligations are explicitly incorporated within security documents. This strategic structuring can provide additional layers of security and strengthen the creditors' position in insolvency proceedings.
For debtors, particularly those providing security for loans advanced to third parties, the ruling carries significant consequences. Entities that offer their assets as security through instruments like DoHs may now find themselves classified as guarantors, thereby exposing them to direct liability for the debts of third parties. This increased liability necessitates careful consideration before extending such guarantees. As guarantors classified as financial creditors, these entities may face claims from other creditors during their own CIRP. The recognition of guarantee obligations as financial debt means that such liabilities will be factored into the resolution process, potentially affecting the outcome for the debtor. Debtors must ensure that the terms of their security documents are clear and unambiguous. If the intention is not to assume the role of a guarantor, this should be explicitly stated to avoid unintended liabilities.
The Supreme Court's decision in China Development Bank v. Doha Bank Q.P.S.C. marks a watershed moment in the interpretation of financial instruments under the IBC. By holding that a Deed of Hypothecation can amount to a guarantee, the Court has underscored the importance of the substantive obligations contained within security documents over their formal titles. This ruling not only broadens the definition of financial debt but also reshapes the dynamics between creditors and debtors in insolvency proceedings. Creditors are now better positioned to enforce their claims, while debtors must exercise heightened diligence in their contractual engagements to manage potential liabilities effectively.
India’s rapid socio-economic and market transformation has necessitated reforms to create a balance between regulatory oversight and business facilitation. The decriminalization of corporate offenses under the Companies Act is one such step aimed at fostering ease of doing business while maintaining robust corporate governance standards. Many non-grievous offenses, previously subject to criminal action, have been decriminalized to streamline processes and encourage entrepreneurship.
The need for reform stemmed from the overly stringent provisions in the Companies Act, 2013, which often imposed harsh penalties for minor and technical lapses. According to the Ministry of Corporate Affairs (MCA), over 97% of cases under the Act involved non-serious violations, yet they faced severe penalties, creating a deterrent for businesses and burdening courts. Recognizing this, the government initiated reforms to re-categorize offenses into civil and criminal categories, ensuring proportionate penalties and simplifying compliance. These efforts, led by the Injeti Srinivas Committee, resulted in significant amendments through the Companies (Amendment) Acts of 2019 and 2020.
The Companies (Amendment) Act, 2019, marked the first major step in the decriminalization process. It decriminalized 16 compoundable offenses, introduced an in-house adjudication mechanism for minor violations, and redefined penalties for procedural lapses. These changes were designed to address issues without overburdening judicial systems. Notably, while corporate social responsibility (CSR) violations were initially criminalized, they were later clarified as civil liabilities, reflecting a more balanced approach.
Building on this, the Companies (Amendment) Act, 2020, further decriminalized 46 provisions and replaced imprisonment with fines for 11 offenses. This Act also introduced clearer guidelines for penalties, ensuring consistent enforcement. The introduction of the in-house adjudication mechanism (IAM) is a cornerstone of these reforms. This mechanism allows minor defaults to be resolved by adjudicating officers, thereby reducing the burden on courts. Since its implementation, IAM has facilitated the resolution of over 1,000 cases, showcasing its effectiveness.
The reforms have significantly enhanced the ease of doing business by fostering a business-friendly environment. By reducing the fear of harsh penalties for minor infractions, the reforms have boosted investor confidence and encouraged entrepreneurship. Businesses now find it easier to navigate compliance requirements, which, in turn, promotes economic growth.
Another key benefit of these reforms is the encouragement of voluntary compliance. Companies are more likely to adhere to regulations proactively, knowing that minor infractions will not result in disproportionate consequences. This shift also aligns with India’s goal of leveraging its demographic dividend effectively by creating a more conducive environment for business operations.
The reduction in litigation burdens is another critical outcome of decriminalization. Courts are no longer overwhelmed with minor cases, allowing them to prioritize significant corporate governance violations. Regulatory bodies, too, can allocate resources more efficiently, focusing on ensuring compliance rather than punitive measures.
The reforms have bolstered confidence among law-abiding corporates by demonstrating the government’s commitment to supporting honest wealth creation. This approach aligns with global best practices, enhancing India’s appeal as an investment destination.
Critics argue that decriminalization may lead to a perception of leniency, potentially encouraging non-compliance among certain entities. To mitigate this, robust enforcement mechanisms must be established to ensure that civil penalties are effectively imposed and collected.
Certain offenses, particularly those involving fraud or significant public interest, must retain stringent penalties to deter malpractice. A balanced approach is essential to maintaining trust in the corporate governance framework while facilitating business operations.
To ensure the long-term success of these reforms, continuous monitoring and evaluation are crucial. Strengthening IAM through regular training and capacity-building programs for adjudicating officers will enhance its effectiveness. Periodic reviews of offenses and penalties will help address emerging challenges and ensure fairness in enforcement. Policymakers must also engage actively with businesses and legal experts to adapt regulations to evolving market dynamics. By fostering collaboration, India can create a dynamic governance framework that supports sustainable growth. India’s move to decriminalize corporate offenses represents a significant shift toward modernizing its corporate governance framework. By reducing criminal liabilities for minor infractions, the reforms align with global standards, support entrepreneurial growth, and reduce judicial burdens. However, achieving the desired balance between facilitation and accountability requires a cautious and adaptive approach. With consistent evaluation, robust enforcement, and active stakeholder engagement, these reforms have the potential to position India as a global leader in corporate governance, fostering a resilient and equitable economy.
[Order dated 03.01.2025 in Special Civil Application No. 11345 of 2023 and connected matters]
The Hon’ble Gujarat High Court examined the applicability of Goods and Services Tax (GST) to the transfer/assignment of leasehold rights in industrial land under the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the “CGST Act”).
The Gujarat Industrial Development Corporation (GIDC), established under the Gujarat Industrial Development Act, of 1962, acts as the nodal agency of the Government of Gujarat for developing industrial estates. GIDC acquires land, develops infrastructure (roads, water supply, street lighting, etc.), and allots industrial plots to entities through long-term lease agreements (typically 99 years). A registered lease deed is executed upon fulfillment of specific conditions in the allotment letter. The lease deed allows lessees to assign their leasehold rights to third parties with GIDC's approval, subject to the payment of transfer fees.
The petitioners, including the Gujarat Chamber of Commerce and Industry, challenged the imposition of GST on transactions involving the transfer or assignment of leasehold rights in industrial land. They argued that such transactions do not constitute a "supply" of goods or services as defined under the GST regime, emphasizing that the nature of the transaction is akin to a sale of an interest in immovable property, which is outside the purview of GST.
The Hon’ble Court’s Ruling Addressed the following Critical Aspects:
Accordingly, HC held that the assignment of leasehold rights is not leviable to GST, and impugned show cause notices and orders were quashed and set aside. The show-cause notices and demand orders issued by tax authorities were quashed. The prayer for a stay on the judgment was also denied.
The Bombay High Court, in the case of Panacea Biotec Limited vs. Union of India & Ors. [Writ Petition No. 13587 of 2024], quashed the GST demand on the transfer/assignment of leasehold rights and directed a fresh adjudication of the matter. The Court highlighted procedural lapses, particularly the Revenue's failure to consider the petitioner's reply to the show-cause notice, dated 22nd July 2024, which had been duly submitted but erroneously recorded as absent. The High Court observed that the impugned order violated the principles of natural justice. Notably, the court referenced the instant Gujarat High Court's judgment that transactions involving the assignment of leasehold rights in industrial land do not attract GST as they constitute a transfer of immovable property. While the Bombay High Court did not delve into the merits of the Gujarat High Court ruling, it directed the adjudicating authority to consider this judgment while re-evaluating the case. This decision reinforces the need for a comprehensive review of such transactions under GST law, ensuring adherence to natural justice and consistency with existing precedents.
The Gujarat High Court's judgment provides clarity on the taxability of leasehold rights transfers under GST, resolving an issue that had led to widespread litigation and notices across India. By classifying the transfer of leasehold rights along with the building as a transfer of immovable property, the court excluded such transactions from GST, aligning them with the sale of land and buildings. This follows from the West Bengal Advance Ruling Authority's 2020 decision in M/s Enfield Apparels Limited [2020(8) TMI 251], which had classified leasehold transfers as a service. The court emphasized that such transfers represent a transfer of legal interest in land, similar to a sale, and therefore not subject to GST. By holding that such transactions constitute a transfer of immovable property and not a taxable 'supply of services,' the decision eliminates the uncertainty and financial burden that had plagued businesses particularly MSMEs operating under long-term lease models in industrial estates. The judgment draws on principles from the service tax regime wherein development rights from the land were not taxable. Since leasehold rights are even more substantial, the same principle should apply under GST, as GST aims to replace and unify existing taxes. Hence, development rights, a type of property right, are not taxable as services. The ruling also touches on input tax credit issues, highlighting previous rulings like M/s Bayer Vapi P. Ltd [2023 (9) TMI 165], which disallowed credit for leasehold property used in industrial units. If implemented well, this decision could lead to a more predictable and business-friendly tax system in India. While this decision is pivotal for industries dealing with leasehold land, its potential appeal to the Supreme Court means that its ultimate impact remains uncertain, and businesses must remain vigilant regarding future developments.
Countries are diverse based on their unique social, economic, and political aspects. However, they are interconnected through business. It is because of this that many commercial disputes sometimes surpass national boundaries. In these times where the growth of a country is determined by its economic prosperity and trade relations, dispute resolution mechanisms like Arbitration have become a popular choice for settling global business disputes. Unlike traditional litigation, arbitration is a quick, amicable and efficient mode of conflict resolution. Nonetheless, enforcing international arbitration awards in India can prove to be a complicated endeavor, as it is guided by a plethora of statutes, rules, and legal precedents.
When the entities are engaged in business relations across borders, the last thing they would want is to be stuck in long-drawn legal battles. In business, time plays a crucial role. If the finances are stuck due to litigation, businesses might feel scarcity of money to undertake their core business and growth-related initiatives. Arbitration serves as a private method for resolving conflicts whereby parties’ consent is required to have their disputes resolved by unbiased third-party called the arbitrator, whose ruling (referred to as an award) holds legal weight just like a judgment of the court. A foreign award is a decision made by arbitrators from outside India's jurisdiction. It is a decision made by arbitration panels in international or domestic arbitration proceedings.
The legal rules for arbitration and enforcing foreign awards in India are prescribed under the Arbitration and Conciliation Act of 1996, which is influenced by the UNCITRAL Model Law.
The New York Convention of 1958 helps in making sure that awards from arbitration conducted in other countries are upheld and enforced in a consistent and effective way. India's participation in the Geneva Convention of 1927 also strengthens the legal system for enforcing foreign arbitration awards.
The importance of arbitration as well as foreign awards and the rules governing them is highlighted by various courts in several decisions. These decisions have helped shape India's arbitration laws. In Renusagar Power Plant Co. Ltd. v. General Electric Co. (1994). SC 860, the Supreme Court upheld the implementation of a foreign judgment against an Indian company.
However, in National Agricultural Cooperative Marketing Federation of India (NAFED) v. Alimenta S.A., SC rendered the contract unenforceable due to violation of public policy. Court noted that NAFED was justified in not exporting the commodity as per the contract because doing so would have violated a government order.
Hence, the enforcement of foreign arbitration awards is determined on a case-to-case basis.
According to Section 44 of the act, a "foreign award" refers to a decision made by an arbitrator in a dispute between individuals, whether based on a contract or not, which are considered commercial under Indian law. This award must have been issued on or after October 11, 1960, and meet the following criteria:
(a) It must be the result of a written agreement for arbitration that falls under the Convention listed in the First Schedule.
(b) It must have been issued in a territory designated by the Central Government, which has determined that reciprocal agreements are in place and has officially announced such territories in the Official Gazette as covered by the mentioned Convention.
As per Section 47 of the Act:
(1) The party applying for the enforcement of a foreign award shall, at the time of the application, produce before the court—
(a) the original award or a copy thereof, duly authenticated in the manner required by the law of the country in which it was made;
(b) the original agreement for arbitration or a duly certified copy thereof; and
(c) such evidence as may be necessary to prove that the award is a foreign award.
(2) If the award or agreement to be produced is in a foreign language, the party seeking to enforce the award shall produce a translation into English.
Enforcement can be denied due to incapacity of the parties, lack of proper knowledge or inability to present a case, award covering issues beyond the arbitration agreement, procedural irregularities, or if the award is not binding or has been set aside by the competent authority. Additionally, enforcement may be refused if the subject matter is not arbitrable under Indian law or if enforcement would be against public policy. The term "public policy" includes instances of fraud, violation of Indian law, or conflict with fundamental principles of morality or justice. If an application for setting aside or suspending the award is pending, the court may adjourn the decision on enforcement and may also order security from the party seeking enforcement.
Where the Court is satisfied that the foreign award is enforceable, the award shall be deemed to be a decree of that Court.
It can be said that arbitration as a mode of dispute resolution is always prompted in India. To ensure that people and businesses use this way to get their disputes resolved, laws have been made lenient and validity of the awards have been made final. Even with the existing legal structure and favorable pro-arbitration decisions, individuals looking to enforce foreign awards in India may encounter obstacles.
Some of the common challenges are:
Enforcement of foreign awards play a crucial role in facilitating smooth international trade. The legal system and court rulings have time and again provided necessary support to simplify the process and increase the efficiency of the enforcement, yet certain obstacles remain. To improve the likelihood of successfully enforcing foreign awards in India, it is vital to stay informed about developments, consult with legal experts, and adhere to best practices in international arbitration.
Recently, the High Court of Himachal Pradesh, in the case of BMD Pvt. Ltd., opined on whether a Petition under Section 11 of the Arbitration & Conciliation Act, 1996 (“the Act”) would be non-maintainable before the Court after filing of an application under Section 13 of the Act to challenge the appointment of an arbitrator.
Indian courts have constantly reiterated that the principle of party autonomy is the brooding and guiding spirit of arbitration.[2] In the instant case, the Court aimed to balance the scope of judicial review on an application under Section 3 of the Act, therein the petitioner prayed for termination of the mandate of the arbitrator and, approached this Court in the instant proceedings, under S. 11 of the Act, praying for appointment of another arbitrator.
Background of the Dispute
The parties of the instant case are embroiled in a web of judicial applications under the Act ensued by their initial association in 2011 for the execution of a hydroelectric project in Himachal Pradesh. The Respondent extended a sum of INR 6 to the Petitioner as an upfront premium which was then followed by a project report. However, in this report, it was found that the proposed plan is technically and financially unviable which prompted the Respondent to seek a refund of the said premium from the Petitioner.
On Petitioner’s continued disregard towards the Respondent’s request for a refund, the Respondent served a legal notice in 2019 indicating that it shall be treated as a notice of initiation of arbitration proceedings (under the terms of the underlying contract) if the upfront premium along is not refunded within 15 days from the date of the said notice.
In 2020, a Section 11 (6) application was filed by the Petitioner to request the appointment of an arbitrator which was then followed by a Section 13 application on the part of the Respondent to challenge the appointment of the arbitrator.
Arguments Posed by the Parties
The Petitioner, arguing in favour of the Sec 11 application, submitted that the unilateral appointment made by the Respondents is invalid in law as the Petitioner had previously informed the Respondent that it is going to approach the Court for the Himachal Pradesh High Court for appointment of the arbitrator.
Whereas the Respondent challenged the maintainability of the Petitioner’s Section 11 application before the Court on the grounds that it has already filed a Section 13(2) application, challenging the appointment of the arbitrator chosen by the Respondent, therefore, it is estopped from filing the said application for appointment of the arbitrator. It further claimed that due to the Petitioner’s lack of response to the Respondent’s arbitration notice, the Petitioner can only challenge the arbitrator under Section 13 of the Act.
Rule
| Section 11 (6) of the Act | Where, under an appointment procedure agreed upon by the parties, a. A party fails to act as required under that procedure; […] A party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointed procedure provides other means for securing the appointment. |
| Section 12 of the Act | Grounds of challenging an appointment and the circumstances in which a party may challenge an arbitrator. |
| Section 13 of the Act | Challenge Procedure – […] (2) Failing any agreement referred in sub-section (1) {it states that the parties are free to agree on a procedure challenging an arbitrator}, a party who intends to challenge an arbitrator, shall, within 15 days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of circumstances referred to in sub-section (3) of Section 12, send a written statement of the reasons for the challenge to the arbitral tribunal. |
Issues Discussed
The Court explained that the Petitioner’s lack of response to the Respondent’s arbitration notice within the stipulated time can be understood as its deemed consent to the appointment of the arbitrator indicated in the said notice by the Respondent.
Relying its understanding upon the precedent set in the SP Singla case[1], the Court is of the opinion that the party which failed to object/respond to the notice of appointment of an arbitrator within 30 days, the party estopped itself from laying a challenge to the appointment of an arbitrator, once it had given deemed consent to the same, by not responding/objecting within the stipulated time.
The terms of the underlying contract expressly provided that the concerned parties shall endeavour to settle any disputes amongst themselves, at the first instance, through mutual negotiations, which shall then be followed by referring the matter to arbitration as per the provisions of the Act.
Relying on the Honourable Supreme Court’s decisions set in the SP Singla Construction case[1] and Swadesh Kumar Agarwal case[2], the Court held that once parties have invoked arbitration proceedings and an arbitrator has been appointed, subsequent applications under Sec. 11(6) of the Act shall not be maintainable considering that it has consented to the arbitrator’s appointment via submission of an application to terminate the arbitrator’s appointment under Sec. 13 of the Act.
After the close perusal in the case of Antrix Corporation Limited v. Devas Multimedia Private Ltd. (2014) 11 SCC 560, and S.P. Singla (supra) the Hon’ble SC held that after the appointment of an Arbitrator is made, the remedy of the aggrieved party is not under Sec. 11(6) but such remedy lies under Sec(s) 12 and 13 of the Arbitration Act. If any party is dissatisfied or aggrieved by the arbitrator's appointment in terms of the agreement by another party/parties, his remedy would be by way of a petition under Section 13 of the Act and, thereafter, filing an application for challenging the award under Sec. 34 of the Act.
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In the instant case, the dispute was referred to arbitration after making due efforts to settle through mutual negotiations. Also, as previously stated, the arbitration notice issued by the Petitioner clearly states the name of the arbitrator it wishes to appoint.
Law clearly states that any challenge to the tribunal’s jurisdiction shall be made before it under Section 13(3) of the Act. It further clarifies, under sub-section (2), that the tribunal may continue proceedings and pronounce an award in case the Section 13(3) challenge does not survive. Moreover, precedent has categorically clarified [1] that after the appointment of an arbitrator, the remedy of an aggrieved party does not lie under Section 11(6)[2] but under Section(s) 12[3] and 13[4] of the Act.
Final Takeaways & Insights
The decision in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Limited[5], has gone a long way in clearing various legal hurdles in the appointment of arbitrators under the prevailing law. Initially, the courts played a key role in the appointment of arbitrators under Section 11 of the Act, however, now, arbitration institutions have taken over.
In the case on hand, the aggrieved party subjected itself to the tribunal’s jurisdiction by making an application under Section 13 of the Act. The Court’s judgment in the instant case can be taken as a precedent by individuals and entities engaged in an arbitration agreement or proceeding to ensure thorough appreciation of the terms applicable for the appointment of the tribunal under their contract.
In the future, courts are likely to handle such cases while balancing the need to ensure the independence and objectivity of arbitrators with the fundamental principle of arbitration agreements and the court's limited ability to interfere with the parties' stated bargain as set forth in the arbitration agreement.
The Supreme Court, in a recent case of criminal breach of trust under Section 405, Indian Penal Code, 1860 (“IPC”) observed that entrustment of property is sine qua non to attract charges under the said section. The case was brought before the Court by the owner of M/s J K Waste Recycling Private Limited (“Petitioner”) who is involved in the business of processing waste plastic material as against a Hyderabad-based company, M/s Ramkey Reclamation and Recycling Private Limited (“Respondent”), after floating a tender inviting bids for plastic recycling.
The parties started off with a mutual agreement to conduct two test recycling runs with raw materials sourced by the Respondent before it buys three plants from the Petitioner. While the two test runs were successful, the Petitioner experienced a loss of machine infrastructure during the third cycle to the tune of INR 62,00,000.
The Petitioner, in its FIR to the Khandala Police Station, complained that due to the wet and peculiar smelling waste material provided by the Respondent and the subsequent formation of sulfuric acid during its processing, various machinery broke down and the Petitioner avoided a fatal fire by a thread.
The case surfaced before the Supreme Court due to the Petitioner’s appeal against the Bombay High Court’s order.
The Supreme Court supporting the High Court’s decision in its judgement clarified that one can attract the offence of criminal breach of trust under Section 405 only where the accused has been entrusted with property, and the said property had dishonestly been misappropriated or converted by the accused for its own use.
To determine whether the materials on record indicated an offence amounting to criminal breach of trust, the High Court of Bombay referred to its judgment in State of Haryana v. Bhajan Lal, wherein it analysed the circumstances in which a first information report (FIR) can be legally quashed and came up with a list of reasonably applicable circumstances. It held that the instant case falls under the scenario prescribed under Point no. 6 of the said list which is reproduced hereunder for easy reference.
“Where there is an express legal bar engrafted in any of the provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the Code or the concerned Act, providing efficacious redress for the grievance of the aggrieved party.”
Finally, referring to its judgment in Dalip Kaur & Ors. vs. Jagnar Singh & Ors., (2009) 14 SCC 696, the Supreme Court found that, prima facie, the fundamental components of the offence of cheating were missing.
As far as the Respondent’s alleged negligent conduct with respect to fire is concerned, the Court held that the instant case does not fulfil the prescribed requirement under Section 285 of IPC which states that the accused must have handled fire or any combustible matter in a rash or negligent manner to endanger human life. The act of recycling waste plastic material and the act of supplying the same by Respondent’s cannot be construed as having been done with fire or any combustible material. In fact, the Court explained that the Respondent cannot be said to have committed a criminal breach of trust merely based on the supply since the act of supplying the same is not negligently or harshly done to endanger human life.
In light of the abovementioned reasonings, the honourable Supreme Court dismissed the Petitioner’s Special Leave Petition before it and held that the Bombay High Court’s judgment is well reasoned and does not call for interference as it has adequately clarified that its order does not limit Respondent No. 2 in any way to initiate proceedings against the Petitioner for any grievance permissible under law.
Unfavourable information regarding business partners, gained at any time, is a signal to move on in certain cases. The Petitioner ought to have a lookout for ways to identify materials that cannot be recycled considering the adverse effects of processing foreign materials at its plant. In the absence of adequate evidence showcasing otherwise, the Court cannot charge any person with the offence of criminal breach of trust unless the said person manipulated fire or any combustible matter negligently.
Parties involved in criminal breach of trust, cheating, and criminal misappropriation cases can now refer to the precedent set by the honourable Court in the instant case to analyse relevant case facts and evidence to strategically attain a favourable outcome of a dispute.
Parties:
M/s. Silpi Industries etc. v. Kerala State Road Transport Corporation & Anr. etc.
[CIVIL APPEAL NOS.1570-1578 OF 2021]
M/s. Khyaati Engineering v. Prodigy Hydro Power Pvt. Ltd.
[CIVIL APPEAL NOS.1620-1622 OF 2021]
Date of Judgement: June 29, 2021
Authority: Supreme Court
The seminal judgement of Securities Appellate Tribunal (“SAT”) on May 17, 2021, in the case of Axis Bank Ltd. v. National Stock Exchange of India Ltd, Securities and Exchange Board of India and Karvy Stock Broking Ltd highlighted the issue of the prevalent vacancy in the composition of SAT and the resultant adversities.
SAT’s existing composition consists of only a Presiding Officer and a Judicial Member as opposed to the legislative position envisaged under proviso to Section 15L(2)(b) of the Securities and Exchange Board of India Act, 1992 (“SEBI Act’”) which states that every Bench constituted by the Presiding Officer of the SAT shall include at least one Judicial Member and one Technical Member. At present, the Technical Member is unavailable as he has demitted office on March 31, 2021. Considering the given facts, Securities and Exchange Board of India (“SEBI”) has questioned the legitimacy of the current composition of SAT to hear appeals filed before it.
The primary contention of SEBI lies on the fact that every Bench must have at least one Technical Member and since the current Bench is composed of only Judicial Members, the constitution of the Bench is defective, and orders passed by the Bench would be coram non judice, meaning “not before a judge” or without proper legal jurisdiction.
SAT took notice of the grievance and decided to rule its own jurisdiction professing that proviso to Section 15L(2)(b) must be construed harmoniously with the other provisions of the SEBI Act. If literal interpretation results in defeating the purpose of a statute, such literal interpretation must give way to purposive interpretation. Reference was made to “the cardinal principle of construction” asserting that the process of interpretation combines both literal and purposive approaches while reiterating the “mischief rule” expounded by the Supreme Court.[1]
SAT took an overview of the legislative history of the composition provisions as originally envisaged under Section 15L, substitution by Finance Act no.7 of 2017 and a Notification dated May 16, 2019 (“Notification”), issued by the Central Government regarding the strength of the SAT. The Notification proposed the consistence of four persons, namely a Presiding Officer, One Judicial Member and Two Technical Members. Further, Section 15L(2) prescribes that a Bench may be constituted by the Presiding Officer of SAT with two or more Judicial or Technical Members as they “may deem fit” subject to other provisions of the SEBI Act which indicates that this provision is directory in nature and not mandatory.
The other relevant provisions in this regard are:
Section 15-P. Filling up of vacancies- If, for reason other than temporary absence, any vacancy occurs in the office of the Presiding Officer or any other Member of a Securities Appellate Tribunal, then the Central Government shall appoint another person in accordance with the provisions of this Act to fill the vacancy and the proceedings may be continued before the Securities Appellate Tribunal from the stage at which the vacancy is filled.
Section 15-PA. Member to act as Presiding Officer in certain circumstances-
In the event of occurrence of any vacancy in the office of the Presiding Officer of the Securities Appellate Tribunal by reason of his death, resignation or otherwise, the senior-most Judicial Member of the Securities Appellate Tribunal shall act as the Presiding Officer until the date on which a new Presiding Officer is appointed in accordance with the provisions of this Act.
Rule 5(2) of the Securities Appellate Tribunal (Procedure) Rules, 2000
“In the temporary absence of the Presiding Officer, Government may authorise one of the two members to preside over the sitting of the Tribunal either at a place where its office is situated or such other place falling within its jurisdiction as it may deem fit by the Appellate Tribunal.
Interpretation Employed by SAT:
Section 15P provides that proceedings may be continued before the Tribunal from the stage at which the vacancy is filled. The contention of SEBI is, that when a vacancy occurs, the Tribunal becomes non-functional and can become functional and can restart the proceedings only when the vacancy is filled up.
This contention is incorrect in view of Section 15-PA which provides that in the event of a vacancy occurring in the office of the Presiding Officer of the Tribunal then the senior most Judicial Member will act as the Presiding Officer until a new Presiding Officer is appointed. Thus, the Tribunal would continue to function even if there is a vacancy in the office of the Presiding Officer.
Similarly, if a vacancy of a Member occurs whether it is a Judicial Member or a Technical Member and if there is a coram in spite of a vacancy, the Tribunal can proceed and hear the matters. Rule 5 also provides that in the absence of a Presiding Officer the Government can appoint one of the members to preside over the sitting of the Tribunal, meaning thereby, that even in the event of a vacancy, the Tribunal will not become non-functional and will continue operations with remaining members.
Section 15R. Orders constituting Appellate Tribunal to be final and not to invalidate its proceedings.
No order of the Central Government appointing any person as the Presiding Officer or a Member of a Securities Appellate Tribunal shall be called in question in any manner, and no act or proceeding before a Securities Appellate Tribunal shall be called in question in any manner on the ground merely of any defect in the constitution of a Securities Appellate Tribunal.”
Interpretation Employed by SAT:
Section 15R protects the legality and validity of the orders passed by SAT even if any subsequent defect is found in the constitution of the Tribunal. This provision clearly indicates that the Section 15L(2)(b) and its proviso are only directory in nature and cannot be mandatory.
Realistically, the constitution of the Bench as envisaged in the proviso to Section 15L(2)(b) may not always be met, and in such an event, the constitution of the Bench shall be immune from being called in question. Section 15R would have the effect of qualifying and treating the word “shall” in the proviso to Section 15L to mean “ may” or “as far as possible” that is to say, that there shall be at least one Judicial Member and one Technical Member in every Bench where such members are available and, where such members are not available it would not be a mandatory requirement to be met with and by law and the Presiding Officer shall be required to constitute a bench as he deems fit from the members available. Thus, Section 15L(2)(b) is directory in nature.
SAT therefore asserted that the impugned proviso to Section 15L(2)(b) has to be construed harmoniously along with the other provisions in order to promote the cause of the investors under the SEBI Act and that the intention of the legislature cannot be construed in a way that it stalls or renders SAT non-functional in the absence of a Technical Member as the Technical Member’s contribution is understood to be confined to cases where technical guidance or specialised knowledge is needed and therefore, a harmonious construction is to be given for the benefit of the aggrieved stakeholders.
It was also held that any contrary position to designate the Tribunal as non-functional on account of a vacancy even though the coram exists would be in complete violation of the right to access justice as guaranteed under Article 21 of the Constitution of India in line with the judgement in Anita Kushwaha v. Pushap Sudan, (2016) 8 SCC 509.
Relying on precedential value, SAT quoted a series of favourable judgements upholding similar legal positioning. Some of the notable ones are reproduced below:
An order under the Consumer Protection Act, 1986 was passed by two Members of the State Commission. The National Commission held that the order passed by the State Commission was illegal and void as it was passed by two Members without the President which was contrary to the mandatory provision of Section 14(2A) read with Section 18 of the said Act.
The Supreme Court reversed the decision of the National Commission holding that in view of Section 29A of the said Act, the order of the State Commission will not be invalidated merely because there was a vacancy in the State Commission. The Supreme Court held that relevant provision must be construed harmoniously to find out the intention of the legislature and to promote the object and spirit of the Act.
Accordingly, Section 29A of the Consumer Protection Act can be equated to Section 15R of the SEBI Act.
The post of a Technical member fell vacant and the Appellate Board under the Trade Marks Act, 1999 could not take up any matters on account of lack of coram. Section 84 of the Trade Marks Act provides a stringent condition that a Bench of the Appellate Board shall consist of one Judicial Member and one Technical Member. The Delhi High Court invoked the doctrine of necessity holding that the Appellate Board could proceed and hear urgent matters and orders passed by the Appellate Board would not suffer any invalidity on account of lack of coram.
The Supreme Court interpreted Section 84 of the Trade Marks Act, 1999 holding that in the absence of Technical Member the Chairperson can discharge the functions of a Judicial Member or Technical Member of the Bench.
The Division Bench of the Bombay High Court was dealing with the earlier version of Section 15L of the SEBI Act on a question as to whether the absence of a Presiding Officer would preclude SAT from exercising its jurisdiction. The controversy raised at that time was that the then Presiding Officer of the Tribunal had retired and the Central Government acting under Rule 5(2) of the Securities Appellate Tribunal (Procedure) Rules, 2000 designated one of the two members of the Tribunal as the officiating Presiding Officer.
A writ petition was filed praying for prohibiting any of the Members of SAT from functioning as the officiating Presiding Officer of the Tribunal. The Bombay High Court in its decision held that the temporary absence contemplated under Rule 5(2) and Section 15P means that the arrangement under which one of the two Members is to preside over the sitting of the Tribunal is to be made on a temporary basis and not on a regular basis and, consequently, dismissed the writ petition holding that the Appellate Tribunal can proceed and decide the appeal of the petitioner as there was no impediment in its functioning.
Countering the position, the SEBI had also quoted a series of deflecting judgments. The Tribunal dealt with the contrary judgements as follows:
The aforesaid decisions were held distinguishable on facts.
Relying on above decisions, the submission of SEBI was that the presence of a Technical Member is essential and mandatory and that a Bench of a Tribunal cannot function in the absence of a Technical Member. This contention was held to be untenable and misplaced.
It was pointed out that the Supreme Court has repeatedly held that the encroachment of judicial space by bureaucrats and government officials who get appointed as Technical Members dilutes and encroaches upon the independence of judiciary. Special reference was made to Roger Mathew (supra), where the SAT observed that this case neither dealt with the impact of the vacancy nor held that the presence of Technical Member was necessary for the Tribunal to function. On the contrary the Supreme Court reiterated its proposition in its earlier judgements that judicial functions cannot be performed by Technical Members who lack adjudicatory experience.
Describing the role of Technical Member, it was noted that that since, SAT performs judicial functions, it is mandatory for the Tribunal to be manned by Judicial Members. It is an essential requirement under the SEBI Act that the Presiding Officer is a Judicial Member. The Technical Member cannot replace a Judicial Member.
Further, inclusion of Technical Member is only to bring specialised knowledge. For the role envisaged under SEBI Act, a Technical Member cannot substitute the competence of a Judicial Member. A Technical member is merely an aid to assist the Bench requiring technical expertise on specific issues and, thus, it cannot be said that if a Technical Member is not available the Bench comprising of two Judicial Members cannot function.
Reiterating the importance of the judicial component in the composition of SAT, reference was made to L. Chandra Kumar vs. Union of India, (1997)3SCC261 in which the Supreme Court held that:
What is needed in a tribunal, which is intended to supplant the High Court, is legal training and experience, and judicial acumen, equipment and approach. When such a tribunal is composed of personnel drawn from the judiciary as well as from services or from amongst experts in the field, any weightage in favour of the service members or expert members and value-discounting the judicial members would render the tribunal less effective and efficacious than the High Court. The Act setting up such a tribunal would itself have to be declared as void under such circumstances. The same would not at all be conducive to judicial independence ...”
In view of the aforesaid contentions, the SAT held that the functioning of the Tribunal presently comprising of a Presiding Officer and a Judicial Member is not defective on account of non-availability of Technical Member and that the Bench constituting the Presiding Officer and Judicial member can proceed to hear and decide the appeals, etc which are filed before it. The objection raised by SEBI was thus rejected.
SAT decided to further comment upon the appalling condition of vacant quasi-judicial offices and emphasized on prompt dual action by executive and judiciary. It was stated that the current adjudication is only a temporary solution, and the permanent resolution to the prevalent crisis is that Central Government should expedite and fill up existing vacancies. Attention was alluded to the fact that a fourth post of Technical Member was created vide Notification, but no steps were taken by the Central Government to fill up this vacancy. Inaction persisted even after the knowledge of the incumbent Technical Member’s retirement plans.
Immediate action in terms of the necessary amendments and resolving the discrepancy in the charging section to the proviso under Section 15L(2)(b) plus proactive executive action by requesting to fill up the vacancies at the earliest and consideration of making appropriate amendments by Ministry of Finance, Department of Economic Affairs and the Supreme Court of India to treat this order as a PIL to resolve the issue on the judicial side was propounded by the SAT.
W&B Take
A desperate need was recognized to overcome the hurdles of delay in administration of justice. Creation of tribunals has evolved as one solution in the ever-constant strive to increase access to justice. A ‘Tribunal’ can be understood as a body tasked with discharging quasi-judicial functions with the primary objective of providing a special forum for specific type of disputes and for faster and more efficacious adjudication of issues.[2]
Therefore, the quasi-judicial machinery was developed to supplement judicial functions for the dispensation of subject-specific justice in a swifter manner. SAT is the sole appellate body envisaged under the SEBI Act having the power to hear appeals against the decisions of SEBI. The normal functioning of SAT is quintessential for the aggrieved interests of the involved stakeholders.
As the Judiciary is equally marred by unsatisfactory composition evident from a staggering number of vacant judicial positions highlighted One Hundred Seventh Report on Demands For Grants (2021-22) of the Ministry Of Law And Justice, it becomes imperative for the quasi-judicial vacuum prevalent by force of circumstances to not hinder the critical adjudicatory processes parallelly running to address the long-drawn problem of an overburdened judiciary.
Therefore, in larger interest of providing easy access to justice, the directory nature of proviso to Section 15L(2)(b) should be crystallized in the form of a legitimate amendment in the SEBI Act or alternatively the composition envisaged under the Notification should be revised. The Judiciary may also responsibly take the baton to espouse the cause of justice and settle the controversy regarding Tribunal vacancy in the form of some uniform guidelines or decisive judgements.
In all, the judgment by SAT is a temporary remedy to a permanent wound. The questioning of SAT reflects poorly on the integrity of the legislatively established Tribunal and hence there is an urgent need to take corrective action in time.
[1] Bengal Immunity Co. Ltd. v. State of Bihar, AIR 1955 SC 661
[2] Roger Mathew vs South Indian Bank Ltd And Ors Chief
Discharge in legal criminal parlance is defined in Black Law Dictionary as “The opposite of charge; hence to release; liberate; annul; unburden; disencumber” as opposed to its meaning in contractual law, which is to cancel or unloose the obligation of a contract; to make an agreement or contract null and inoperative. In layman’s language, the provisions of discharge under sections 227 & 239 of the Criminal Procedure Code, 1973 (Cr.P.C) comes into the picture after investigation in a crime is complete by the prosecution and the chargesheet is filed against the accused.
If there is nothing incriminating against the accused in the chargesheet, he / she can prefer a discharge application (in warrant cases1) under section 227 of the Cr.P.C if the offence/s is triable by Sessions Court and under section 239 of the Cr.P.C if the offence/s is triable by Magistrate Court whereby the Magistrate Court is required to consider the police reports and the documents sent along with the police reports under section 173 of the Cr.P.C and if necessary, examine the accused and after giving the accused an opportunity of being heard, if the Magistrate considers the charge against the accused to be groundless / baseless, the accuse is liable to be discharged by recording reasons thereof.
The accused may exercise this right in order save himself / herself from the entire rigamarole of trial where no prima facie case is made out in the entire chargesheet placed on record before the appropriate court qua the accused.
Under section 227 of the Cr.P.C., after considering the entire material placed on record and after hearing the arguments of the accused as well as the prosecution, if the Judge reaches the conclusion that there is no sufficient ground for proceeding against the accused and that the commence of trial will only waste the valuable time of the court, the Judge may discharge the accused.
The parameters for grant of discharge are well settled by a catena of judicial precedent A recent judgment of the year 2017 which elaborately deals with the said legal proposition has been passed by the Hon’ble Supreme Court in the case of P. Vijayan vs. State of Kerala2. The Apex Court held in the said case that the Judge is not a mere post office to frame charge but the Judge should exercise his judicial mind and discretion to determine whether a case for trial has been made out by prosecution. It was further clarified that the Judge should be satisfied that the evidence produced by the prosecution before the Court discloses grave suspicion that the accused has committed the crime. Based on these aforesaid, the Supreme Court laid down the following principles-
The parameters which govern the exercise of this jurisdiction have found expression in several decisions of the Supreme Court. The Supreme Court in State of Karnataka vs. M.R. Hiremath3 have observed that at the stage of considering an application for discharge, the Court must proceed on the assumption that the material which has been brought on record by the prosecution should be true and the Court should evaluate the material in order to determine whether the facts emerging from the material, taken on its face value discloses the existence of the ingredients necessary to constitute the offence.
In another case of State of Tamil Nadu vs. N. Suresh Rajan4 adverting to the earlier decisions on the subject of discharge, the Supreme Court observed that at the stage of discharge, the probative value of the materials has to be gone into and the Court is not expected to go deep into the matter. Whereas what is needed to be considered is whether there is a ground for convicting the accused has been made out. To put it differently, if the Court thinks that the accused might have committed the offence on the basis of the materials on record on its probative value, it can frame the charge but for the conviction of the accused the Court should come to the conclusion that the accused has committed the offence. The Court further observed in this case that the law does not permit a mini trial at the stage of discharge.
In the case of Dilawar Balu Kurane vs. The State of Maharashtra5, the Supreme Court observed that in exercising powers under section 227 of the Criminal Procedure Code, 1973, the settled position of law is that the Judge while considering the question of framing the charges under the said section has the undoubted power to sift and weigh the evidence for the limited purpose of finding out whether or not a prima facie case against the accused has been made out and whether the materials placed before the Court discloses grave suspicion against the accused which has not been properly explained to the Court, then in such a case the Court will be fully justified in framing the charge and proceed with the trial. On other hand, if the Judge is satisfied that the evidence produced before the Court gives rise to some suspicion but not grave suspicion then the Judge will be fully justified in discharging the accused.
On a different footing, in M. E. Shivalingamurthy vs. CBI6, the Supreme Court observed that the defence of accused cannot be looked into at the stage when the accused seeks to be discharged under Section 227 of the Criminal Procedure Code, 1973. In this case the High Court of Karnataka had set aside the order of the Magistrate Court allowing the discharge application of the accused. The legal issue before the Apex Court was whether the accused could rely upon material which he chooses to produce at the stage of discharge application?
The bench comprising of Justice Sanjay Kishan Kaul and Justice KM Joseph upheld the decision of the High Court and noted that the principle is to take the materials produced by the prosecution, both in the form of oral statements and documentary material, and act upon it without it been subjected to questioning through cross - examination and everything assumed in favour of the prosecution, if a scenario emerges where no offence, as alleged, is made out against the accused, it undoubtedly would endure to the benefit of the accused warranting the Trial Court to discharge the accused.
If a discharge application is rejected by the Sessions Court, the accused may challenge such rejection under the revisional jurisdiction vide a criminal revision application under section 397 of the Cr.P.C. However, in exceptional cases of grave miscarriage of justice or abuse of process, the inherent powers of the High Court under section 482 of the Cr.P.C. could also be invoked. However, the power of the High Court under section 482 of the Cr.P.C. is to be used sparingly and in rarest of rare cases inter alia when commencement of trial will only cause unnecessarily harassment to the accused.
Under the present judicial system, the scope of discharge is very limited. At the stage of framing of charge, the prosecution merely needs to display a prima facie case qua the accused from the material available on record and trial may thereafter commence. However, at the stage of deciding a discharge application, the accused may opt to refer to and rely upon sterling quality evidence to seek his discharge, and if, on the basis of such unimpeachable record, the Judge is satisfied on the aforesaid legal precepts that the accused is entitled to an absolute exoneration from the alleged crime, it is well within the law for the accused to be discharged.
Preface:
Arguably the principle of granting mandatory injunctions at interlocutory stage is often fraught with apparent uncertainties. The relief of mandatory injunctions are granted generally to preserve / restore the status quo of the last non-contested status to their former rightful order until the final hearing of the case, when full relief may be granted by the concerned court. Section 39 of the Specific Relief Act, 1963 categorically deals with the grant of mandatory injunction. Since such mandatory injunctions are granted only under exceptional circumstances, courts have laid down certain provisions of caution that require to be met before an interlocutory mandatory injunction is granted. Reason being, granting of such interlocutory mandatory injunction may cause great injustice or irreparable harm to the party against whom it was granted or alternatively when not granted, to the party who succeeds or who would succeed. Therefore, it can be said that interlocutory mandatory injunction may only be granted where there is a threat of violation of the plaintiff’s right even before such violation has actually occurred.
Mandatory injunction when granted at an interlocutory stage:
Generally, mandatory injunctions act as reliefs of ‘qua timet’ and has the effect of ordering the defendant to either do a positive act with a view of putting an end to a wrongful set of things engineered by them or in fulfilment of their legal obligation. However, such mandatory injunction is not granted where the monetary compensation is an adequate relief to the plaintiff or where the balance of convenience is in the favour of the defendant or where the plaintiff has shown considerable acceptance of the acts of the defendant or to create a new state of things, but rather to restore status quo.
Legislative and Regulatory framework backing interlocutory mandatory injunction
The uncertainty on granting of mandatory injunction at interlocutory stage began as early as 1914, where in Rasul Karim & Anr. v. Pirubhai Amirbhai1, Justice Beaman took the view that the courts in India have no capacity to issue a temporary injunction in the form of a mandatory injunction. It was Justice Shah, who constituted a Bench in that case, who took a rather contradictory view. However, it was in Champsey Bhimji & Co v. The Jamna Flour Mills Co. Ltd2 , that the Division Bench of the Hon’ble Bombay High Court took a contrasting view as against Justice Beaman.
In the case of Samir Narain Bhojwani V/s Aurora Properties & Investments & Anr3, the Hon’ble Apex Court held that an interim mandatory injunction is not a remedy that is easily granted. Rather, it is an order which is passed only in circumstances where the prima facie material clearly justifies a finding that the status quo has been altered by one of the parties to the litigation and the interest of justice demands that the status quo be restored by way of an interim mandatory injunction.
The Hon’ble Supreme Court in Dorab Cawasji Warden v. Coomi Sorab Warden & Ors4, held that
“16. The relief of interlocutory mandatory injunctions are thus granted generally to preserve or restore the status quo of the last non-contested status which preceded the pending controversy until the final hearing when full relief may be granted or to compel the undoing of those acts that have been illegally done or the restoration of that which was wrongfully taken from the party complaining. But since the granting of such an injunction to a party who fails or would fail to establish his right at the trial may cause great injustice or irreparable harm to the party against whom it was granted or alternatively not granting of it to a party who succeeds or would succeed may equally cause great injustice or irreparable harm, courts have evolved certain guidelines. Generally stated these guidelines are:
The Hon’ble Supreme Court further went on to say that,
“17. Being essentially an equitable relief, the grant or refusal of an interlocutory mandatory injunction shall ultimately rest in the sound judicial discretion of the court to be exercised in the light of the facts and circumstances in each case. Though the above guidelines are neither exhaustive nor complete or absolute rules, and there may be exceptional circumstances needing action, applying them as prerequisite for the grant or refusal of such injunctions would be a sound exercise of a judicial discretion.”
Therefore, it can be seen that the Hon’ble Supreme Court has vide Dorab Cawasji Warden’s judgement observed that the grant of interim mandatory injunction is not prohibited, and that it can be granted only in 'appropriate' cases.
Pursuant to the said test, following are few of the judicial instances wherein the courts have granted mandatory injunction at interlocutory stage:
Hammad Ahmed v. Abdul Majeed & Ors.5
In the given case the Hon’ble Apex Court while granting mandatory injunction at interlocutory stage held that unless clear and prima facie material justifies a finding that status quo has been altered by one of the parties, the order in mandatory injunction can be given. Further, it also placed reliance on the Dorab Caswaji Warden’s judgement and held that the ad-interim mandatory injunction is to be granted not at the specifically asking but based on the circumstances of each case so as to protect the rights and interest of the parties and not frustrate their rights regarding mandatory injunction. Therefore, the Hon’ble court while granting the interim mandatory injunction sought for by the Plaintiff, noted the balance of convenience in favour of the Plaintiff and directed the Defendants to handover the password of the domain name for discharging the duties of Chief Mutawalli of Hamdard Laboratories (India) which was claimed by both the parties.
Vishal Gupta v. L and T Finance Limited6
In the said case, the Plaintiff filed the present case against his employer seeking declaration that he was entitled to a letter relieving him from the Defendant and also for permanent mandatory injunction directing the Company to issue a relieving letter and other reliefs qua damages.
The Hon’ble court while granting interlocutory mandatory injunction held that the rule that a Court cannot grant an interim relief that would amount to grant of the final relief at the interlocutory stage is not an inflexible one and that the same would depend on the facts of every case. Therefore, the Hon'ble Court issued an interlocutory mandatory injunction and granted the relief which was sought as final relief in the suit.
Baban Narayan Landge v. Mahadu Bhikaji Tonchar & Ors.7
In the said case, the Hon’ble Bombay High Court was faced with the question as to whether civil courts have jurisdiction to issue an interlocutory mandatory injunction so as to restore the status quo anterior to the date of institution of a suit?
Whilst dealing with other things, the Hon’ble High Court held that injunctions are a form of equitable relief, and they have to be adjusted or moulded in aid of equity and justice to the facts and circumstances of every case. It further went on to say that the power to issue mandatory injunction at an interlocutory stage is not to be exercised lightly or commonly. Rather, it can be issued only in case of compelling circumstances and mostly in those cases when the status quo existing on the date of the institution of the suit is to be restored.
Conclusion:
Therefore, after going through all the above case laws, one can understand that the test as stated in Dorab Cawasji Warden’s judgement is general and flexible depending on the facts and circumstances of each and every case. It is a well-known fact that an injunction is an equitable remedy, wherein the one who seeks equity must also do equity. Granting of such interlocutory mandatory injunction is entirely the discretion of the court, though such discretion is expected to be sound and reasonably guided by Judicial Principles.
Introduction:
The availability of power and its exercise in its truest form are two distinct matters. When ruling on a matter for direct transfer of investigation, the law courts do not do so solely to appease the ego or defend the prestige of a party involved in the investigation. Rather, the Court's decision is based on whether the facts and circumstances of a particular case warrant such an order. There is no such thing as a hard-and-fast rule that can be applied universally to all situations. Each case's judgement is based on its own set of facts and circumstances. What matters is that the Court, in exercising its authority to order such a transfer, is mindful of the principle that transfers are not made simply because a party wishes to lead the investigator to a specific conclusion. Only when there is a genuine fear that justice may be jeopardised as a result of shoddy or political investigation will the Court intervene and employ its extraordinary powers. In such cases, the sensibility of the crime victims or their relatives is not entirely irrelevant. After all, transfer of investigation to a third party does not indicate that the transferee agency will inevitably, much less falsely, incriminate anyone in the commission of the crime. This is especially true when a transfer is ordered to an outside agency that is seen to be free of the influences, pressures, and pulls that are frequent when State Police investigates significant situations. In such instances, the party seeking transfer's trust in the outside agency is based on that agency's independence from such or similar other considerations. As a result, unless the Court detects any malice in the prayer for transfer, it must be regarded as an attempt solely to ensure that the truth is revealed. More than any other factor, the perceived independence of the transferee is the defining feature of a transfer. The ultimate goal of any investigation is to find the truth, and who better to achieve than an independent agency?
Provisions and Procedure for Transfer of Investigation:
There is no cast iron formula for directing a transfer of investigation to the Central Bureau of Investigation (“CBI”) or another competent authority. The Court makes a decision after considering the facts and circumstances of the case, such as prima facie evidence of an offence, the gravity of the offence, and the impact of the offence on society. Surreptitious manufacture, import distribution, and sale of prohibited items such as gutkha and other forms of chewable tobacco that affects people's health, particularly the young, and has inter-State ramifications is certainly a case that should be referred to a centralised agency like the CBI for investigation, especially when serious allegations of connivance are made.
The Hon'ble Apex Court has the power to transfer "any particular case or appeal" from one High Court to another, or from one criminal court subordinate to one High Court to another criminal court of equal or superior jurisdiction subordinate to another High Court, under Section 406 of the Code of Criminal Procedure, 1973 (“CrPC”). Despite the fact that the term "case" is not defined in the CrPC, it has been judicially defined as a judicial proceeding pending before a court of law for the purpose of determining an issue. The investigating officer can produce a final report, which could be a charge sheet or a closure report, once the investigation is completed. Once a report is submitted under Section 173 of the CrPC, a court of law has jurisdiction to take cognizance under Section 190(1)(b), among other things.
Latest Judgement:
For a more concrete understanding, let us now study the following case:
In the very recent Param Bir Singh S/o Hoshiyar Singh v. State of Maharashtra & Ors.1, the Hon’ble Apex Court while deciding a matter for investigation laid that after considering the materials on record, if the Court finds that such materials disclose a prima facie case, then the Court may make an order for calling for investigation by the CBI.
Facts of the case:
Former Mumbai Police Chief Param Bir Singh has filed to the Bombay High Court once more, claiming to be an informant "who has attempted to expose corruption in the most elevated public office" and seeking insurance at standard with an informant. Singh's appeal challenges two primary investigations launched by the Maharashtra government against him. According to the appeal, the orders dated April 1, 2021 and April 20, 2021, given by the State Home Ministry, were meant to target and bug him, and such acts by the State can act as a barrier for public servants to "make disclosures of corruption and other criminal acts by the high functionaries of the State machinery."
These investigations, according to the petitioner, Param Bir Singh, are a breach of Article 14 (equality before the law), Article 19 (1)(a) (right to freedom of speech and expression), and Article 21 (right to live with dignity) of the Indian Constitution. After that, Mumbai cops lodged a FIR against Singh and a number of other officers.
After hearing a slew of PILs, including one filed by Singh, the Bombay High Court, on April 5, granted directives for the CBI to conduct a preliminary investigation into the accusations levelled by Singh in his letter.
The question of law:
The complaint of Dr. Jaishri Laxmanrao Patil (“Dr. Patil”) was investigated to see if it appeared to be a case of cognizable offence. At this point, evaluating the authenticity and also correctness of the statements included in that isn't our job. Dr. Patil included a copy of Shri Param Bir Singh's letter to the Hon'ble Chief Minister with her complaint. The information provided therein reveals Shri Anil Deshmukh's commission of cognizable offences, which, in our opinion, should have been dealt with in the manner required by the CrPC. Whether or not an FIR should be registered immediately on the basis of it, or whether a preliminary investigation should be conducted first, is a question we want to explore after determining whether the current case deserves to be forwarded to the CBI.
Held:
The High Court, under Article 226 of the Constitution, and the Supreme Court, under Article 32 of the Constitution, have the authority to order the CBI to investigate any specific case or conduct an inquiry against a person. It can only do so if the Court has enough evidence to reach a prima facie conclusion that such an investigation is necessary. Certainly, such an investigation cannot be undertaken on a routine basis or simply because a party makes an allegation. If the Court determines, after reviewing the evidence on file, that such evidence reveal a prima facie case warranting CBI investigation, the Court can issue the requisite order.
In the current case, Dr. Patil had certainly presented her complaint to the Senior Police Inspector of the Malabar Hill Police Station on March21,2021; in any case, no action was taken, as the law would require, except than putting a section in the Internal Register. The Court has successfully underlined that the claims levelled by Shri Param Bir in his letter dated March 20,2021, which prompted Dr. Patil to file an objection with the Malabar Hill Police Station in Mumbai, are of legitimate nature and are directed at the most prominent functionary of the Maharashtra government in terms of police department operations. In fact, the problems have gotten to the point where locals' trust in the police department's operations is in jeopardy. If any of the claims are true, it will undoubtedly have a negative influence on citizens' trust in the state's police force. As a result, such complaints cannot be ignored and must be investigated in accordance with the law when they appear to show the commission of a cognizable offence. As a result, it is unquestionably a matter of the State machinery's legitimacy, which will be scrutinised when confronted with legal assumptions and when such grievances are lodged against high-ranking public officials. In these circumstances, the Court cannot just stand by and watch. There is undeniably a genuine public expectation of a free, reasonable, fair, and impartial request and investigation of such claims that have surfaced in public space. The need for an independent office to investigate such claims would undoubtedly be a matter of law and order. It is critical that an inquiry and probe be guided by an independent agency in order to instil public trust and defend citizens' Fundamental Rights, and for these reasons, the court believes that an autonomous test would achieve the goals of justice in the current circumstances.
Other judgements:
Other judgements in this regard would include the following:
Conclusion:
As the famous saying goes,
“Trial judge as the kingpin in administration of Justice..”
Because the magistrate has extensive powers, including the ability to check arbitrary arrests, police excesses, and facilitate a more incisive investigation into the discovery of truth, it is critical for a judge to never find himself in a situation where he is forced to make a grudging confession of acquitting a known criminal due to a lack of evidence. The CBI, as an anti-corruption agency, has jurisdiction over Central Government employees and Central Public Sector Undertakings. It has established separate wings to investigate traditional offences, such as the Special Crimes Wing, Economic Offenses Wing, Banks Securities & Frauds Cell, to investigate conventional offences owing to the professional manner in which it conducts investigation, its multi-layered supervision over the investigation of cases and it being a specialized agency which focuses only on investigation of crime, which is not burdened with other responsibilities like law and order, VIP security, election duty, etc.
The concept of Live-in Relationships has been gaining popularity in the 21st Century after multiple decades of being considered a taboo in the India society. Until recently, and even so in the present, a lot of people are of the view that the concept of Live-in Relationships is not conforming to the morals and values of the Indian culture and has been a hotly debated issue with more and more people emerging in its support in today’s world. However, some people often come up with their reservations as to the abuse and exploitation of women in a live-in relationship. Hence, in this article, we delve into the concept of Live-in Relationship and analyze its legal position in the eyes of the law and the associated rights of a woman in a live-in relationship.
Although there is no legal definition for the term coded in any of our statutes, a live-in relationship can be defined in laymen terms as a living arrangement in which an unmarried couple lives together in a setting that resembles a marriage. It is an arrangement whereby two people decide to live together on a long-term or permanent basis in an emotionally and/or sexually intimate relationship however, without being confined by the commitments of a formal marriage.
In spite of the colloquial immorality associated with live-in relationships , the Privy Council in a case as old as 1927 not only considered the aspect of a live-in relationship but also provided a certain degree of legal ratification to the same while also assuring that it does not result in concubinage thereby protecting women morally, socially as well as legally. The Privy Council in its judgment of A. Dinohamy vs W.L. Balahamy1 held that where a man and a woman are proved to have lived together as husband and wife, the law will presume, unless the contrary is clearly provided, that they were living together in consequence of a valid marriage and not in a state of concubinage. This was the first time, that the courts in India identified and acknowledged the existence of live-in relationships.
Subsequently, in the year 1952, the Hon’ble Supreme Court of India in the case of Gokul Chand vs Parvin Kumari2 observed that continuous co-habitation of a man and a woman as husband and wife and their treatment as such for a number of years may raise the presumption of marriage. A similar ruling of presumption in favour of a wedlock was given by the Hon’ble Supreme Court again in the case of Chanmuniya vs Chanmuniya Virendra Kumar Singh Kushwaha and Anr.3
As can be seen above precedents, the courts, after due recognition and acknowledgement of existence of live-in relationships in the Indian society, have always endeavored to save the women from falling a prey to the disastrous concept of concubinage. The following legal precedents laid down the following rights of a woman in a live-in relationship:
As of today, from most of the judicial precedents, it can be easily said that the judicial stand with regards to the rights of women in live-in relationship is very clear and the same in pro women. This approach of the judiciary helps the women in a live-in relationship by empowering them with conferment of various rights available to a legally wedded wife and protecting them under law from any kind of abuse. This can be seen as a welcome change in law with the changing times and trends in modern society thereby fulfilling the role to judiciary to answer the call of society for adapting to the changes in thinking of the society at large and modifying the legal landscape in the country to go hand in hand with changing times.
INTRODUCTION
The Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”), alike its predecessor, The Interest on Delayed Payments to Small and Ancillary Industrial Undertakings Act, 1993 (“the 1993 Act”) was formulated with an intent of protecting and promoting the interests of micro, small and medium enterprises (“MSME”), by shortening their working capital cycle, fostering availability of credit, and providing an exorbitant interest liability (at three times the bank rate notified by the Reserve Bank of India, compounded till the actual date of payment) to be paid by a buyer, for the period of delay to disincentivize delayed payments and maintain the flow of liquidity for microscale businesses.
The MSMED Act even provides for a speedy dispute resolution mechanism by making a reference to the Micro and Small Enterprises Facilitation Council (“MSEFC”). It envisages compulsory conciliation, failing which arbitration will be invoked. It is pertinent to note at this juncture that remedies under the Act are available to the micro and small enterprises and not the medium enterprises. These dispute resolution mechanisms have gained considerable popularity owing to its cost and time efficiency.
Despite being a statute favouring and empowering the MSMEs, the MSMED Act is silent on the applicability of the Limitation Act, 1963 (“Limitation Act”). This silence has resultantly paved the way for evergreening of claims. The uncertainty surrounding the applicability of the statute of limitation vis-a-vis arbitrations mandated under the MSMED Act remains unresolved and compels one to delve into the divergent views expressed by various judicial fora over the years.
LEGISLATIVE INTENT
The issue ‘whether the Limitation Act applies to the proceedings before the MSEFC” under Section 18 of the MSMED Act is not based on the Limitation Act alone but rather an interplay of the MSMED Act with the Arbitration and Conciliation Act, 1996 (“the Arbitration Act”). There is no express provision in the above-mentioned statutes that would answer the question.
It is a settled position in law that once an arbitration commences under the MSMED Act, the provisions of the Arbitration Act shall be applicable to the arbitration. Having said that, attention must be drawn to the Section 431 of the Arbitration Act which states that the Limitation Act shall be applicable to the arbitration proceedings. Yet, Section 2 (4)2 of the Arbitration Act provided for the inapplicability of the said Section 43 to statutory arbitrations. The term statutory arbitration means those arbitrations which are conducted in accordance with the provisions of certain special legislations which provide for arbitration in respect of disputes arising on matters exclusively covered by those domain specific Acts. In line with the provisions of the Arbitration Act, there seems to be an express bar on the applicability of the Limitation Act to the statutory arbitrations.
Conversely, the distinctiveness of the arbitration under the MSMED Act as opposed to the other acts is prescribed under Section 18 (3)3 of the MSMED Act being a “deeming provision” wherein the disputes to be settled under Section are “deemed” to have an arbitration agreement within the meaning of Section 7 of the Arbitration Act. Hence, despite being a statutory arbitration, it may not be treated as one under the Arbitration Act. This analogy once again gives authority to Section 43 of the Arbitration Act wherein the Limitation Act expressly becomes applicable.
The saving grace to this conundrum is Section 244 of the MSMED Act which clarifies that at every point where the provisions of the MSMED Act coincides with the provisions of the other statute, the provisions of the MSMED Act shall be given preference. Accordingly, a reading of all the provisions referred to above, brings us to the conclusion that the intent of the legislature while drafting the MSMED Act ought to have inherently provided for the applicability of the Limitation Act.
Once more the tables turn when reference is made to the Frequently Asked Questions on the official portal of the MSME SAMADHAAN-Delayed Payment Monitoring System5. The question 386 and 397 therein clarifies that the Limitation Act is not applicable to the Arbitration by the Council, only the concept of ‘delay and latches shall be applicable’.
Therefore, the question ‘whether the concept of limitation is to be made applicable to the proceedings under the MSMED Act’ leaves a lot of room for interpretation and lacks clarity.
PERIOD OF LIMITATION
The applicability of the Limitation Act itself becomes null and void when one goes into the further issue of ‘when does the limitation commence’. Ideally, one would look at the date of ‘acknowledgement of the debt’ as a reference point for the calculation of the limitation period, but what happens when the law mandates to provide such acknowledgement on a yearly basis till the time the debt is actually paid off.
As per Section 228 of the MSMED Act, every buyer is required to disclose the principal amount and the interest due thereon (to be shown separately) remaining unpaid to any supplier as at the end of each accounting year as and when the buyer gets their accounts audited as per the laws of India. Noncompliance of the said disclosure shall attract the penal provisions under Section 27 (2)9 of the MSMED Act which provides for a fine exceeding upto INR. 10,000/-.
The gravity of such disclosure is amplified on 22nd January 2019 with the Notification No. S.O. 368(E)10 issued by the Ministry of Corporate under Section 40511 of the Companies Act 2013. This notification introduces the concept of ‘Specified Companies’ which means all companies, who get supplies of goods or services from micro and small enterprises and whose payments to micro and small enterprise suppliers exceed forty-five days from the date of acceptance or the date of deemed acceptance of the goods or services. These Specified Companies are required to submit a half yearly return to the Registrar of Companies about the amount of payment due and the reasons thereof. As the notification is introduced within the Section 405 of the Companies Act, it attracts the penal provision at sub - clause (4)12 therein which automatically steps up the penalty from a meagre INR. 10,000/- imprisonment for a term which may extend to six months or with fine which shall not be less than INR. 25,000/- but which may extend to INR. 3,00,000/- or with both.
This fundamentally means that irrespective of the express applicability of the Limitation Act, the ‘Specified Companies’ will conceptually adhere to the mandated ‘acknowledgment of debt’ prescription within the meaning of Section 1813 of the Limitation Act and will keep giving rise to a new cause of action. The view has been held as good law very recently by the National Company Law Tribunal, Mumbai Bench vide its Order dated 25th January 2019 in the case of TJSB Sahakari Bank Ltd. v. M/s. Unimetal Castings Ltd.14
In conclusion, the Legislature has left very little or no room for barring the claims under the MSMED Act even if the Limitation Act has been made expressly applicable.
JUDICIAL INTERPRETATION
2016
38. In my view, since the arbitral proceedings under the provisions of MSMED Act, 2006 are also governed by the provisions of the Arbitration & Conciliation Act, 1996, limitation for filing an application under section 34 of the Arbitration & Conciliation Act, 1996 would be governed by section 34(3) of the Arbitration & Conciliation Act, 1996... the Court has to consider the plea of limitation raised, if any, in filing an application under section 34 of the Arbitration & Conciliation Act, 1996 by applying the provisions of section 34(3) of the Arbitration & Conciliation Act, 1996 which Act is self-contained which is applicable in all respects even to the arbitration proceedings commenced under the provisions of the said MSMED Act, 2006 in view of section 18(3) thereof. There is no separate provision for limitation in filing an application for challenging the award rendered by the Micro & Small Enterprises Facilitation Council under the provisions of the said MSMED Act, 2006. Reliance thus placed by the learned counsel for the respondent under section 23 of the MSMED Act, 2006 is totally misplaced.”
2017
The said Application came to be defended by MSEDCL on various grounds, inter alia, urging that the proceedings before the Council would attract the law of limitation and any claim for interest should have been instituted within a period of three years from the date on which the cause of action arose. Basis these contentions, the MSEFC had conducted a preliminary conciliation which had failed and accordingly the Parties had been referred to arbitration under Section 18 (3) of the MSMED Act. The award passed in favor of Delton, subsequently came to be challenged by MSMED before the Hon’ble Single Judge of the High Court, who set aside the award and an appeal was preferred by Delton.
The Hon’ble High Court rejected the contention that by virtue of Section 4324 read with Section 2(4) of the Arbitration Act that the Limitation Act is not applicable to statutory arbitrations. Taking into consideration that the limitation laws have a beneficial purpose, it held that an interpretation which allows the Council to make an award on time barred claims cannot be taken by the High Court, and held as follows:
“66. The Hon'ble Supreme Court has held in a very wide language that there are good reasons for supporting the existence of defence of limitation. One is that long dormant claims have more of cruelty than justice in them; that a defendant might have lost the evidence to disprove a stale claim and that persons with good causes of action should pursue them with reasonable diligence...
67. Once we approach this matter from this angle, we cannot place a interpretation which would enable the Council and set up under the Acts of 1993 and 2006 to make an Award of the present nature awarding claims which are barred by limitation.”
Further, it was held that such awards should be set aside on the ground of violating public policy as under:
“76.... This is nothing but claim for recovery of money. If the amount or money is due even under the statutory instrument as above, if that rules out completely the applicability of law of limitation and enables a Council to award time barred claims, then, such a stipulation must be expressly found in that statute or its provisions read together and harmoniously only ought to lead to this implied conclusion. It is that statute which empowers the Council to enter as arbitrator and which arbitration must proceed in terms of the Arbitration & Conciliation Act, 1996, by treating the whole arrangement as an agreement for arbitration. That statute, namely, Act 32 of 1993 and the successor law does not enable, to our mind, granting of a time barred claim.
77. We have, therefore, no hesitation in agreeing with the learned single Judge that the claims which were hopelessly time barred have been awarded and such an Award cannot stand the scrutiny on the touchstone of public policy. It could have been, therefore, set aside by taking recourse to an application under section 34 of the Arbitration & Conciliation Act, 1996.”
2018
2019
Accordingly, the Supreme Court held that the Limitation Act shall be fully applicable. Consequently, Section 2429 of the MSMED Act can be interpreted so as to mean that unless there is something which is inconsistent with the MSMED Act, the provisions of the Limitation Act shall be applicable.
“14. (iii) Further, it is trite that very often an arbitration clause will contemplate a pre reference conciliation process. This pre reference conciliation process does not in any manner dilute the arbitration agreement or imply that a Court entertaining a suit will continue with the suit and not refer the parties to Arbitration under Section 8 of the Arbitration Act, merely because parties are still at the stage of conciliation.”
Therefore, it has been expressly stated that the Limitation Act shall be applicable not only at the stage of arbitration, but even at the time of commencing conciliation under the MSMED Act. The judgement despite having concluded the applicability of Limitation Act, left the question regarding the claim being time barred to the wisdom and jurisdiction of the arbitrator / conciliator.
CONCLUSION
Bearing in mind the views expressed in the catena of judgments, whilst no express provision affirming the applicability of Limitation Act vis-a-vis the claims brought under the MSMED Act, is said to be present, any interpretation to the contrary would render the intention of the legislature infructuous. Even though the above discussed judgements draw us to the conclusion that the Limitation Act ought to be applicable to the proceedings under the MSMED Act, there is always a scope of distinguishing every matter from the judgements based on unique factual position.
Inapplicability of the Limitation Act would not only render a debtor/buyer defenceless, but also provide a supplier to raise claims that are otherwise time-barred and incentivize the same vide the extant provision envisaging an exorbitant interest component. In addition, a far greater anomaly would occur when proceedings for recovery before various judicial fora would entail a divergent application of the Limitation Act and debts under the MSMED Act will as a result survive perennially as opposed to the legislative intent of timely resolution. Moreover, with the ‘acknowledgment of debt’ being renewed every year, one needs to consider whether the application of the Limitation Act would be helpful in any manner to the buyers in cases of stale claims. This Judiciary is yet to go into this discourse and provide a harmonious view of all the provisions of law inclusive of the Notifications and Circulars updated from time to time.
A clarification / amendment in this regard will be instrumental in uniformly guiding ongoing litigation and helping the cause of affected stakeholders. MSMEs being financial crippled owing to the ongoing unprecedented times of the Covid-19 pandemic, it becomes imperative to exigently abet the cause of swifter dispute resolution both legislatively and judicially for such distressed businesses.
INTRODUCTION
With the advent of globalization coupled with the expansion of the technological landscape, the prevalence of international commercial transactions leading to disputes and differences between parties, have become an inexorable reality of the current times. Resultantly, disputes between parties, owing to the plethora of varied laws in various nations and their applicability to such disputes, poses a challenge to both litigants and Courts, alike. There has been a remarkable surge in the number of parties to such disputes, resorting to alternative dispute resolution methods as their chosen form of dispute resolution. However, the finer intricacies of the differences in laws across nations poses a complexity far greater than imagined. The contrasting laws and interests of such litigants lead to duplicity of proceedings before various forums. If used as a tool rather a weapon, an Anti- Suit Injunction (“ASI”) and an Anti-Arbitration Injunction (“AAI”), might prove to be an effective means of meandering through the jurisdictional complexities.
Originating from England, an ASI is an order passed by a Court, restraining a party to a suit/proceeding before it from instituting or pursuing proceedings in another jurisdiction or forum. The general principles governing the grant of injunctions also govern the grant of an ASI, which is but a species of injunction. Indian Courts, being Courts of equity, have the power to issue an ASI to a party over whom it has personal jurisdiction, as Courts of equity exercise their jurisdiction in personam. Similarly, an AAI is sought by a party, requesting for judicial intervention, to prohibit another party from initiating or pursuing arbitral proceeding, when found to be digressing from the negotiated terms. It has however been held that the discretionary power of the Court (granting ASI and AAI) is to be exercised rarely and with circumspection, as it effectively interferes with the exercise of jurisdiction of another Court or the tribunal, as the case may be. Similarly, in refusing to grant an ASI, the Hon’ble Supreme Court has also reiterated and observed that an ASI should be granted sparingly and not as a matter of routine and that before passing the order granting an ASI, Courts should proceed with extreme caution.1
Anti-Suit Injunctions
The Indian Courts’ practice of grant of ASI’s, largely resemble that of the English Courts. The situation arises when one or more Courts have jurisdiction over the proceedings basis factors such as; place of residence/work of parties, where cause of action arose, or where immovable property of a party may be situated etc. While an exclusive jurisdiction clause pertains to only a singular Courts’ jurisdiction, a natural or available jurisdiction clause pertains to the prevalence of jurisdiction of more than one Court. Therefore, parties in cross-border disputes, tend to either adopt the natural or available jurisdiction by creation of exclusive or non-exclusive jurisdiction clauses or have disputes resolved by a foreign Court of choice as a neutral forum in accordance with law applicable in such forum. It is trite law, that by agreement the parties cannot confer jurisdiction, where none exists, in a Court to which the Code of Civil Procedure, 1908 applies. However, this principle is not applicable when parties to a dispute submit to the exclusive/non-exclusive jurisdiction of foreign Courts. The key principles governing the grant of ASI’s and the circumstances warranting the use of a Court’s discretionary power, have been expounded in the Hon’ble Supreme Court’s Judgment in Modi Entertainment Network & Anr. v. W.S.G Cricket Pte. Ltd.2 and the same is as under;
Having opined the above, and in not having granted the ASI, the Court observed that granting an ASI when the proceedings in a parallel foreign Court of choice did not result in perpetuating injustice, would be equivalent to aiding a party to commit a breach of their agreement. Further, to do so, good and sufficient reasons would have to be shown to justify departure from the contractual obligations. Therefore, in substance, a party to a contract containing the jurisdiction clause cannot normally be prevented from approaching the Court of choice of the parties as it would amount to aiding breach of the contract. When one such parties to the jurisdiction clause approaches the Court of choice in which exclusive or non-exclusive jurisdiction is created, the proceedings in that Court cannot per se be treated as vexatious or oppressive nor can the Court be said to be a ‘forum non- conveniens’. It is pertinent to note that, the burden of establishing that the forum of choice is a ‘forum non conveniens’ or the proceedings therein are oppressive or vexatious would be on the party so contending to aver and prove the same. Similarly, a forum at which proceedings are initiated, if competent, cannot be considered to be a ‘forum non-conveniens’ for merely being situated in a foreign nation. This view has been espoused by the Hon’ble Calcutta High Court in Rotomac Electricals Pvt Ltd v. National Railway Equipment Company4 wherein while refusing to grant an anti-suit injunction, the Hon’ble Court observed that;
“when two parties to a contract belong to two different countries and proceedings are initiated in the country of origin of one of the parties to the contract, it cannot be said that the proceedings are initiated in a forum non conveniens, if the forum is competent otherwise. When the parties to a suit belong to different countries thousands of miles away from each other, one or the other of the parties would be inconvenienced. Proceedings in India would not be convenient to the party from the United States and proceedings in United States would not be convenient for the party from India.”
The fact that the parties had agreed to resolve their disputes under the agreement, indicated their foreseeability of a probable breach. However, the foreseeability test would not cover circumstances whereby approaching the forum of choice had been rendered impossible due to a vis major etc. Circumstances such as cost of litigation, or that of taking witnesses to the chosen foreign forum, is deemed to have been foreseen by the parties, when they agree to submit to the jurisdiction of such a foreign forum. A similar view has also been adopted in the Delhi High Court Judgment in (India TV) Independent News Service Pvt Ltd v. India Broadcast Live LLC & Ors.5 wherein the Hon’ble Delhi High Court reiterated that while deciding an application for ASI, factors such as convenience of parties, expenses involved and law governing the transaction are important while determining the appropriate forum.
Anti-Arbitration Injunctions
The practice of grant of AAI’s like its counterpart ASI, also largely resembles that of the English Courts’ system with the material distinction being the inapplicability of the principle of ‘forum non-conveniens’.6
The basis of amendments to the Arbitration and Conciliation Act, 1996 (“the Act”) have substantially been focused on limiting the extent of judicial intervention in arbitral proceedings whilst provisioning for an effective and speedy alternative dispute resolution focused on developing India as a credible commercial arbitration centre. While on the one hand the Courts’ endeavour has been to primarily provide autonomy to tribunals to adjudicate upon challenges to their jurisdiction, there will always remain a probable requirement of judicial intervention. Such a request, when made with a view to curtail the other party to the dispute, from initiation or continuing arbitral proceedings, the recourse sought is an AAI. The remedy is typically granted by the Courts against the commencement or continuation of the arbitration proceedings if the parties have agreed that they will not refer the matter to arbitration or if they have opted for litigation or alternative dispute resolution methods and may be sought at any stage of the arbitral proceedings, but before the final award is rendered. The effect of an AAI would therefore depend on, when the injunction is sought and granted, and against whom it is ordered. Alike an ASI, an order granting an AAI acts in personam against the party who is being restrained. The general circumstances under which AAI’s may be granted, include; lack of an agreement to arbitrate, arbitral proceedings that are outside the scope of an arbitration agreement, breach of an exclusive-jurisdiction clause, arbitration of an issue that is res judicata, proceedings initiated at the wrong seat, etc.
Pertinently, this remedy poses a serious threat inasmuch as being incongruent with the ‘kompetenz- kompetenz’ principle, that preserves the sanctity of autonomy of the tribunal. The wordings of sections 8(3) and 45(4) of the Act, lend a paradoxical view as to the legality of AAI’s. However, no provision under any applicable law make AAI’s illegal as such and upon sufficient reasoning being provided, Courts have not been shy to grant them.
The High Court of Calcutta in Board of Trustees of the Port of Kolkata vs. Louis Dreyfus Armatures SAS & Ors.7 granted the AAI and laid down the circumstances under which the same can be granted, as under;
The High Court of Delhi in dealing extensively with issuance of AAI’s in McDonald’s India Pvt Ltd v Mr Vikram Bakshi 8, has elucidated and further clarified the material difference between the principles that govern the grant of ASI’s and AAI’s. The defence of ‘forum non-conveniens’ that is fundamental to ASI’s, applies only when there are competing Courts and not when a dispute is before an arbitral tribunal. As in the present case, when a forum of arbitration was consciously selected by the parties as an alternative to the Court’s, the same could not be considered an inconvenient forum per se. It was further explained that Court’s should exercise their inherent power to injunct arbitration proceedings cautiously and only in rare circumstances in accordance with the principles envisaged in Sections 8 and 45 of the Act. A Similar view had also been taken in LMJ International Ltd. v. Sleepwell Industries Co. Ltd. & Anr.9 wherein the contention of ‘forum non-conveniens’ was rejected basis the fact that the contract had been entered into, with the parties’ eyes wide open. As also observed in Himachal Sorang Power Private Limited v. NCC Infrastructure Holdings Limited10 the Hon’ble Delhi High Court, while rejecting an application for an AAI, laid down the following parameters for grant of AAI’s;
In the matter of Ravi Arya & Ors v. Palmview Overseas Limited & Ors,11 taking a pro-arbitration stance, the Hon’ble High Court of Bombay opined that a matter which is already before the Tribunal, cannot be entertained by the Civil Court for proceedings seeking grant of an injunction against the Tribunal during the course of arbitral proceedings. It was held that Section 16 of the Act conferred power on the Tribunal to rule on its own jurisdiction inter alia adjudication upon issues such as the existence or the validity of the arbitration agreement itself. In opining so, the Hon’ble Court sought to reduce judicial intervention and similar views then came to be adopted by the Hon’ble High Court of Delhi in Bina Modi & Ors v. Lalit Modi & Ors,12 which has generated quite a tumultuous atmosphere, in having favoured the Tribunal’s discretion in opining on their own jurisdiction. In dismissing the suit, the decision had been highly influenced that of the Hon’ble Supreme Court’s decision in Kvaerner Cementation India Ltd. v. Bajranglal Agarwal & Anr,13 which had espoused the Tribunal’s right in adjudicating upon, inter alia, issues pertaining to its jurisdiction, and by virtue of a conjoint reading of Section 5 in consonance with Section 16 of the Act, an AAI would not be maintainable. This decision had further been approved and relied upon after a long hiatus, by the Hon’ble Supreme Court in A. Ayyasamy v. A. Paramasivam & Ors.,14 and a little later in National Aluminium Company Limited v. Subhash Infra Engineers Private Limited & Anr.15
Pertinently, taking a contrary view, the Hon’ble Supreme Court, prior in time, in Chatterjee Petrochem Company & Anr. v. Haldia Petrochemicals Ltd & Ors.16 had relied on Section 45 of the Act to determine if the arbitration agreement was null and void, inoperative or incapable of being performed. Though the Court had dismissed the AAI, the approach taken had digressed from the larger bench decision in Kvaerner Cementation. Similarly, in World Sport group v. MSM Satellite Singapore Ltd. 17 the Courts had applied the principles of Section 45 of the Act to look into whether the arbitration agreement was null and void.
However, the Hon’ble Supreme Court’s decision in Kvaerner Cementation has been overruled by the case of SBP & Co. v Patel Engineering,18 in which the Supreme Court rejected the argument that an arbitral tribunal had the sole competence, to the complete exclusion of Civil Courts, to determine its own jurisdiction.
Recently, the Hon’ble High Court of Calcutta in Balasore Alloys Limited v. Medima LLC,19 held that the Courts in India have the power to grant AAI’s against foreign seated arbitrations; however, this power should be used sparingly and with caution. In rejecting the grant of an AAI, the Court observed that Balasore had not completely discharge the duty of proving that the ICC in London, in this case, the alternate venue, was indeed a ‘forum non-conveniens’ or that the proceedings brought before it by Medima were arbitrary or vexatious. Effectively, the possibility of a claim arising in several jurisdictions was not an adequate ground to make an arbitration agreement inoperative.
CONCLUSION
The catena of judgments and precedents are clarificatory on the high threshold to be met for grants of ASI’s and AAI’s. The Hon’ble Supreme Court has time and again, over the years voiced their concerns over the requisite caution towards exercise of their discretionary power that is to be used sparingly.
While conceptually similar, ASI’s and AAI’s have a fine distinction which seems to have emerged and the principles governing the grant of the respective injunctions have been elucidated in light of the same. Being unreferred to, explicitly under any law in force, ASI’s and AAI’s have cultivated dubious façade vis-à-vis their legality, over time. That being said, no law expressly bars them and the Courts have not been shy in granting them. Such injunctions pose as a double edged sword, but also a rather useful tool for the enforcement of jurisdiction. With the progression of time and the increasingly notorious misuse, the Courts of Common Law were quick to curb their accessibility, by an increase in the threshold to be met.
A tool for resolution of jurisdictional issues, aimed at reduction in multiplicity of proceedings while protecting the interest of parties to litigation, is also viewed as, a weapon to the efforts of the judiciary in promoting India as a viable hub for International Commercial Arbitrations and safeguarding the crux of the ‘kompetenz-kompetenz’ principle. Bearing in mind, the rationale behind the system of checks and balances, a certain degree of juridical discretion would be necessitated in dealing with a tool so volatile.
INTRODUCTION
This article aims at providing a brief background on the hotly contested matter between Future Group the prominent Indian retail business group and Amazon.com NV Investment Holdings LLC pertaining to the takeover of Future Group's retail chain by Reliance Retail which culminated in their fight reaching up to the Delhi High Court for some issues which are discussed herein, discussing the factual matrix of the dispute, the insights from the orders of the Hon'ble Delhi Court and the author's take on the same.
Factual Background of the Dispute:
The board of directors of Future Retail Ltd ("FRL") on 02nd January, 2021 gave in-principal approval to the conversion of already allotted equity warrants to a promoter group entity, Future Coupons Private Limited ("FCPL"). Once completed, FCPL would own 7.5% of FRL. A total of 3.96 Million warrants were to be issued to FCPL by FRL out of which FRL on 02nd January, 2021 approved conversion of 2.48 million warrants to the same number of FRL shares. Issued at a price of Rs 505 per warrant, the deal effectively meant FRL would get Rs 2,000 crore from FCPL against the 3.96 million warrants.
On assurances from the promoters of Future Retail Group and FCPL that the retails assets of FRL would be protected, US tech giant Amazon made huge investments in Future Retail Group as and by way of obtaining 49% stake in Future Coupons Pvt. Ltd., which was made possible only after obtaining a hard-earned approval from Competition Commission of India ("CCI"). Due to the said deal, Amazon.com NV Investment Holding, a direct subsidiary of Amazon.com Inc, would get voting rights of both FRL & FCPL as well as non-voting share of FCPL, in addition to a right of first refusal in case of a sale of FRL's assets to a restricted entity.
Subsequently, in breach of their assurances, the Future Group decided to sell their retail division to Reliance Retail [Mukesh Dhirubhai Ambani Group ('MDA')], which naturally garnered a vehement opposition by Amazon, who filed emergency arbitration proceedings in view of the said dispute with Future Group. Amazon's major grievance was that it was denied the Rights of First Refusal for the deal, which, according to their Share-Subscription Agreement ("SSA") was a legal right of Amazon and consequently, a legal obligation of the Future Group.
Hence, in October last year, the Emergency Arbitrator constituted under the Singapore International Arbitration Centre Rules, passed an interim award in favour of Amazon, wherein he directed Future Retail to put on hold its transaction with Reliance Retail/MDA, which was a "Restricted Entity" under the agreement between Amazon and Future Group
Subsequently, Amazon.com NV Investment Holdings LLC approached the Delhi High Court and sought the recognition and enforcement of the emergency arbitrator's order under section 17(2) of the Arbitration and Conciliation Act, 1996 on the ground that it invested Rs. 1,431 crore in FCPL on clear understanding that FRL would be the sole vehicle for its retail business and its retail assets would not be alienated without its consent and even more so, to a Restricted Entity such as, and in this case, Reliance Retail.
The single judge of the Hon'ble Delhi high Court, Her Ladyship the Hon'ble Justice Midha heard the arguments and reserved its judgment last month. In the interim, it passed a status-quo order which put on hold the transaction between Reliance Retail and Future Group.
This interim order was assailed in an appeal before a division bench of the Hon'ble Delhi High Court headed by Chief Justice DN Patel which vacated the interim order of status quo.
The appeal against the said order of the Division Bench is currently pending before the Hon'ble Supreme Court. Last month, the apex court directed the National Company Law Tribunal to continue hearing the case but not give a final nod till further orders.
Insights from the Delhi High Court Order dated 18.03.2021:
A Single Bench of the Hon'ble Delhi High Court on 18th march, 2021, in a significant win for Amazon.com Inc., upheld the Emergency Arbitrator's award and also imposed a cost to the tune of INR Twenty (20) Lakhs on Future Retail and observed that Future Retail, Future Coupons, Kishore Biyani & Ors. violated the Emergency Award and have issued a notice to them asking them to remain present in person on the next hearing before the Hon'ble High Court in addition to show cause as to why they should not be detained in a civil prison.
Subsequently, in the latest development to the case, on 22nd March, a Division Bench of the Hon'ble Delhi High Court stayed the abovementioned order in an appeal filed by Future Coupons Pvt. against the order of Justice JR Midha.
Author's View:
Albeit being given the color of an Amazon-Future war, is truly a battle between Amazon and Reliance for market dominance in the retail and e-commerce sector of the behemoth Indian market, wherein Reliance has one advantage to influence market patters that Amazon doesn't: 410 telecom customers. There are a lot of moving pieces which will eventually decide the winner in this fierce competition between the two giants, the two most important ones being:
Bound by a web of new rules for e-commerce players that stops them from selling products from subsidiaries on their own platforms beyond a certain threshold, Amazon's investment in the group is aimed at bypassing the roadblocks. The indirect approach in acquiring equity stake in one of its rival entities is designed to make sure it can continue to sell products from Future group on its e-commerce platform.
We are of the view that the said deal clearly led to Amazon having protective rights (though not controlling rights) in FRL and the same would be rendered infructuous by the sale of FRL retail division to Reliance. the decision while furthering the doctrine of Group of Companies from a technical legal point of view will also be a big impetus to the garnishing the Foreign Direct Investment ("FDI") in our country. This decision is bound to provide a huge impetus to the confidence of the foreign investors for investing in India and extending their support to Indian Companies, which was extremely bleak up till now owing to the stringent eye of the CCI. The Indian Law in relation to FDI generally used to make sure that there are sufficient roadblocks for foreign investors in India, keeping them at bay and avoiding their massive entries into the humungous Indian markets.
Such a healthy and pro FDI decision is bound to ultimately benefit the end consumers of the country since it would lead to a tough competition to the home companies in India which would result in more and better options by the competitors thereby increasing quality options for the citizens of our country across various sectors.
Conclusion:
The final outcome of the dispute and the fate of Amazon as well as Reliance Retail's heavy investment in the Future Group, is a tale only time will tell. However, one thing which can be said for sure is that this dispute will hold the field on the concept of emergency arbitrators, their awards and their enforceability thereof. The final verdict by the Apex Court of India will either crystallize or destroy the faith that foreign investors will place in the Indian e-commerce ecosystem from hereon.
“There’s a demand to eliminate the discrimination of domestic the challenge of arbitration award and challenge of foreign awards,” says Krishan Singhania, Managing Partner, Singhania & Co Advocates and Solicitors. He was participating in a panel discussion at BW Global Legal Summit 2019 on Thursday in New Delhi. The topic discussed was "How can India become the biggest arbitration hub in Asia?".
Tarun Nangia, Associate Editor (special projects), NewsX pointed out to the different yardstick adopted by Indian businessmen when it comes to Arbitration and Conciliation Act, 1996. "Indian businessmen believe in setting up their businesses in India but for the legal issues prefer countries like Singapore, Paris, London and Stockholm. Why?, ask Nangia."
Singapore is considered as the biggest arbitration hub in Asia but India has been working towards it to achieve the same. Currently, the Arbitration and Conciliation Act 1996 is the key law governing arbitration in India which regulating domestic arbitration. One of the major difference between Indian and western judiciary system is how India prioritizes arbitration. An arbitration case begins by 11 AM and ends by 5 PM every day. On the contrary, arbitration is considered part-time among the professionals in India as it begins post the court sessions, the panelists felt.
Nilesh Tribhuvann, Managing Partner, White & Brief pointed to one of the loopholes in the act that he came across. "Though the act suggest to close the arbitration in a fixed time period but due to the call of witnesses during the arbitration, it pushes the procedure for another 6 months to take permission," he said.
Amit Kapur, Senior Partner, Jyoti Sagar Associates concluded the discussion by saying, “Arbitrator’s world has to be embracing and accepting the people from both public and private sector, academia and experts across the wall” to ameliorate the arbitration in India.