Report of the Insolvency Law Committee: The New Way Forward
Report of the Insolvency Law Committee: The New Way Forward
On November 16, 2017, the Government of India constituted a committee to undertake a comprehensive review of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) in light of the experiences of various stakeholders during the past year. The Ministry of Corporate Affairs (‘MCA’) constituted the Insolvency Law Committee (‘ILC’) which comprises representatives from across the industry. Bahram N Vakil, a founding partner of AZB & Partners (‘Firm’) and a member of the Bankruptcy Law Reform Committee (the committee entrusted with drafting of the IBC in 2015) is one of the members of the ILC.
The MCA released ILC’s report on April 3, 2018 (‘Report’). The Report proposes various amendments to the IBC and the rules and regulations thereunder. The Parliament is likely to consider the Report in the near future to make the relevant legislative changes. Some of the major changes proposed by the Report are as below:
- Homebuyers upgraded
The IBC does not explicitly categorise homebuyers who have paid advances towards completion of real estate projects as financial or operational creditors in the corporate insolvency resolution process (‘CIRP’) of the real estate developer.The ILC took the view that advances paid by homebuyers are effectively used by real estate developers as working capital to finance the completion of projects thereby giving it the commercial effect of a borrowing and has proposed that homebuyers be treated as financial creditors. Note that their secured status depends on the nature of their contract with the developer and the bank providing the home loan. The ILC has also proposed that a large block of creditors be allowed to participate in meetings of the committee of creditors (‘CoC’) through an authorised representative.
- Interest clock on interim finance extended
Under the IBC, interim finance and any interest on it is classified as insolvency resolution process cost which receives the highest priority on any payout under a resolution plan. However, in the event of liquidation, though the principal amount of interim finance still retains its highest priority, the interest stops accruing from the date of the liquidation order.The ILC felt that the clog on accrual of interest in liquidation was affecting liquidity and raising the coupon on interim finance. The ILC has proposed that interest on interim finance shall continue to accrue for up to one year from the liquidation commencement date. Note that the Insolvency and Bankruptcy Board of India (‘IBBI’) has already made necessary changes to this effect in the IBBI (Liquidation Process) Regulations, 2016.
- Disqualification for bidders – revisited again
Section 29A of the IBC was introduced to address concerns that persons who by their conduct had contributed to the financial distress of the corporate debtor or are otherwise deemed not to be fit and proper to gain control over distressed assets, should be disqualified from being resolution applicants. However, the market felt that the range of disqualifications and the affected persons was too large. To address this issue, the ILC has made several proposals, some of which are set out below:
i. Section 29A of the IBC lays down eligibility criteria vis-à-vis the resolution applicant as well as any person acting jointly or in concert with the applicant. The term ‘acting jointly or in concert’ is not defined in the IBC and causes market participants to rely on the definition contained in the Securities and Exchange Board of India (‘SEBI’) (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. This results in inclusion of an extremely broad range of persons, including even those who are involved in the resolution plan in an ancillary way. The ILC proposes to restrict the eligibility test only to the applicant and its connected persons. Additionally, any person acting with a common objective of acquiring voting rights or control over the company would also have to pass the eligibility test.
ii. Section 29A(c) of the IBC bars persons who have been in control of a non-performing asset (‘NPA’) for more than one year. However, this provision effectively disqualified several ‘pure play’ financial investors who are in the business of investing in companies across the credit spectrum. For instance, asset reconstruction companies, private equity and distressed debt funds are quite likely to have some distressed assets in their portfolios. The ILC has proposed that the test under Section 29A(c) of the IBC should not apply to such pure play financial entities.
iii. Section 29(A)(d) of the IBC bars persons who have been convicted of a criminal offence punishable with imprisonment for more than two years. This disqualification was thought to be very expansive and would disqualify applicants for offences, the commission of which have no nexus to the ability of the person to run the corporate debtor successfully. The ILC has proposed that the nature of offences, the commission of which will incur the disqualification should be economic in nature and a schedule listing such specific crimes be provided. Additionally, the disqualification should also not apply in case a stay against the conviction has been obtained from a higher court.
iv. Section 29A(h) of the IBC disqualifies persons who have executed an enforceable guarantee in favour of a corporate debtor currently undergoing CIRP. The ILC felt that the scope of the disqualification is overreaching since it bars guarantors solely on account of issuing an enforceable guarantee. The ILC has proposed that the disqualification should only apply against guarantors against whom the underlying guarantee has been invoked by the creditor and remains unpaid.
- Curious case of guarantors’ liability – now resolved
Section 14 of the IBC imposes a stay on any recovery action against the corporate debtor and the enforcement of any security interest created by a corporate debtor over its assets during the CIRP period. However, a few recent judicial pronouncements have suggested that the moratorium in an ongoing CIRP will also stay enforcement of guarantees or security interest from promoters and group companies of the corporate debtor since it is not feasible to determine the liability of the relevant third party until the CIRP is concluded.The committee felt that the scope of the moratorium is very clear and should not be interpreted broadly. The intent of law could not have been to deprive creditors of contractually negotiated remedies against third parties as long as the corporate debtor’s assets remain unaffected. The ILC proposes that an explanation be added to Section 14 of the IBC to clarify that the moratorium does not apply to any recovery action that does not impact the assets of the corporate debtor.
- CoC voting thresholds reduced
The IBC provides that all decisions by the CoC be taken by vote of 75% of the CoC, by value. The ILC felt that effectively granting minority lenders constituting 25% of the CoC a veto right to any proposed resolution plan could cause many companies to be liquidated. To ensure that there is a higher likelihood of resolving a distressed company as a going concern under the IBC, the ILC has proposed that the voting threshold for important matters during the CIRP including voting on resolution plans be reduced to 66% of the CoC. Additionally, for other routine decisions that the CoC is required to take during the CIRP, the voting threshold should be reduced to 51% to assist the resolution professional in ease of conducting day to day operations.
- IBC trigger threshold now ten times
To keep debt recovery actions from small operational creditors at bay, the ILC recommended that the minimum amount to trigger the IBC be raised to Rs. 10 lakh (approx. US$ 15,000). This may reduce pressure on the NCLT – as statistics suggest that many small creditors used the IBC to coerce recovery. But what of the small creditor? Back to the long queues in the debt recovery tribunals? Perhaps small creditors can accumulate their debt and then trigger IBC.
- In and out with ninety percent
Currently, once an IBC case is admitted, the law does not permit withdrawal of the same without the consent of all creditors. This is consistent with the philosophy that this is a collective and representative process for all creditors and settlement with the ‘filing creditor’ should not permit withdrawal. The Supreme Court has thought otherwise and has permitted withdrawal post admission. The ILC reiterated the aforesaid philosophy but saw merit in permitting withdrawal post admission if 90% of the committee of creditors deem fit. Would this have been of use in the Binani Cement saga?
- Regulatory approvals window
An immediate issue for acquirers in the IBC process is obtaining governmental and regulatory consents, dispensations and permits. Should the bidders bear this risk or the CoC live with the uncertainty? Today, negotiations resolve this tug-of-war to some extent while bidders draft their resolution plans treating the NCLT as a single window clearance. The ILC observed that single window clearance was not the intent of the IBC. This is a critical observation for bidders. Some solutions were debated but a comprehensive solution remained elusive. Instead, the ILC has recommended that a requirement be placed to obtain consents, dispensations and permits within a maximum of one year. It’s unclear how this will impact the fine balance currently trying to be achieved in practice by bidders.
- Competition approval fast tracked
In a welcome development, the ILC has been informed that the Competition Commission of India will clear notifications for combinations arising out of the IBC within 30 days, with an extension of 30 days for exceptional cases. This is already being borne out in practice and echoes the collaborative effort being taken by Indian regulators to make the IBC work.
- Liquidation waterfall and priority of security
Concerns had been raised that the language in the IBC liquidation waterfall may override inter se ranking of security amongst creditors; i.e., in liquidation, a secured creditor with a first charge over an asset may receive the same amount as another with a second charge over such asset. After reviewing the language, related laws and relevant case law, the ILC felt confident that any such interpretation would be incorrect and valid subordination agreements should not be disregarded by the IBC and so no change has been proposed.
- MSME promoters get a breather
Micro, small and medium enterprises are thought to be the bed rock of the Indian economy. When such companies go through the IBC process, keeping their incumbent promoters out of the bidding process has raised concerns of mass liquidation of such companies leading to potentially significant job losses. The ILC has recommended that promoters of such companies be permitted to bid for their companies in the IBC process (despite Section 29A disqualifications) unless they are willful defaulters. In balancing the opposing forces involved, this seems to be the socially appropriate decision.
- Limitation now uncomplicated
Lenders benefited from judicial decisions which indicated that the Indian limitation legislation did not apply to an application under the IBC (although doctrine of laches might still apply). But this was yet to be confirmed by the Supreme Court, which had declined to comment on this issue in one matter. The ILC has recommended that limitation should apply to IBC applications other than those made by a corporate debtor itself.
- No man’s land now occupied
A resolution plan is approved by the CoC and submitted to the NCLT for confirmation. At this stage, the role of the resolution professional ends and the CoC ceases to exist. But the NCLT order may take weeks or months. Who runs the company during this time and what duties, powers and protections apply to such person? The ILC has recommended that the resolution professional be statutorily required to continue during this period, presumably with the same duties, powers and protections as during the CIRP.
For queries, please email firstname.lastname@example.org, email@example.com, firstname.lastname@example.org, email@example.com or firstname.lastname@example.org. Bahram N Vakil, one of the founding partners of the Firm, leads the Restructuring and IBC Practice Group at the Firm. Ashwin Ramanathan, Piyush Mishra and Nilang Desai are partners and Suharsh Sinha is a senior associate in the Restructuring and IBC Practice Group at the Firm.
The Dirty Dozen – first off the block
The Dirty Dozen – first off the block
Electrosteel Steels Limited was one of the twelve large stressed accounts directed by the Reserve Bank of India (‘RBI’) to be placed into the corporate insolvency resolution process of the Insolvency and Bankruptcy Code and has now become the first to be resolved under that process. The National Company Law Tribunal yesterday (i.e. April 17, 2018) approved the resolution plan submitted by Vedanta Limited. News reports suggest that the haircut taken by lenders is in the region of 55%. Vedanta awaits clearance from the Competition Commission of India before it can complete the acquisition. Many of the other ‘dirty-dozen’ are in the closing stages of their corporate insolvency resolution process and the next few weeks will see more resolutions and in some cases objections and litigation. The litigation in this space may settle some of the issues that lenders and acquirers fret about.
Major Amendments introduced to the Insolvency and Bankruptcy Code
Major Amendments introduced to the Insolvency and Bankruptcy Code
The President of India promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 (‘Ordinance’), which has become effective from June 6, 2018. Pursuant to the Ordinance, many of the amendments suggested by the Insolvency Law Committee (‘ILC’), which included our founding partner Mr. Bahram N Vakil, have now been implemented. The major changes introduced by the Ordinance have been summarised below:
- Homebuyers Upgraded as ‘Financial Creditors’
Prior to the Ordinance, the Insolvency and Bankruptcy Code, 2016 (‘IBC’) did not recognise persons who had paid advances towards completion of real estate projects as either ‘financial creditors’ or ‘operational creditors’. The Ordinance now provides that any amount raised from an allottee under a real estate project shall be considered a financial debt under the IBC. Since the number of such allottees could be numerous and their participation in a committee of creditors (‘CoC’) could be unwieldy, the Ordinance provides that allottees may appoint authorised representatives to attend CoC meetings on their behalf, with prior instructions on voting matters.
- Amendments to Eligibility Criteria for a Resolution Applicant
Section 29A sets out ineligibility criteria for potential bidders in a corporate insolvency resolution process (“CIRP”). The ambit of Section 29A may have been in some instances too wide and could have unintentionally disqualified some sophisticated bidders on technical grounds. The Ordinance has, therefore, introduced the following amendments to Section 29A :
i. Section 29A(c): NPA Related disqualification
(a) Section 29A(c) provides that persons controlling accounts which have remained non-performing assets (‘NPA’) in excess of one year are barred from acting as resolution applicants in an ongoing CIRP. However, no clarification had been provided on whether the one-year period would be determined from: (i) insolvency commencement date of the corporate debtor; or (ii) the time at which the bid was submitted in the ongoing corporate insolvency resolution process (‘CIRP’) of the corporate debtor. The Ordinance has clarified that the relevant date should be the latter.
(b) The Ordinance provides that the disqualification under Section 29A(c) shall not apply to a ‘financial entity’ (scope of which is discussed under Paragraph iii below).
(c) Successful resolution applicants acquiring companies under the CIRP end up being in control or management of accounts which have turned NPA. Such acquirers would, as a result, fall foul of Section 29A(c) and would be estopped from making any further bids for any other company undergoing CIRP. In order to rectify this anomaly, the Ordinance provides for a grace period of three years in favour of a resolution applicant, calculated from the date of acquisition of such corporate debtors with NPAs during which the acquirer will not be disqualified from bidding for other companies undergoing CIRP. A similar carve-out has also been granted under Section 29(A)(g) of the IBC, to successful bidders, who have acquired companies in CIRP where certain avoidable transactions may be been undertaken by the previous promoters or officers.
ii. Section 29A(d): Disqualification on account of Criminal Convictions
(a) Section 29A(d) of the IBC disqualified a resolution applicant if it or any of its ‘connected persons’ had been convicted for an offence punishable with imprisonment for two years or more. It was argued that there must be a rational nexus between the underlying offence and the ability of the bidder to successfully restructure the corporate debtor.
(b) This sub-section has been amended to provide that: (i) conviction for two years or more is a bar only if the offence relates to certain statutes prescribed in the newly introduced Twelfth Schedule to the IBC; and (ii) conviction for seven years or more would be a bar irrespective of which statute the offence fell under.
(c) A list of twenty-five laws is specifically mentioned in the Twelfth Schedule covering areas such as money laundering, foreign exchange, pollution control norms, tax, anti-corruption and securities market regulations. The Twelfth Schedule only covers Indian statutes and an interpretation may be taken that similar violation by the bidder or its connected persons under foreign laws may not attract the disqualification. However, the disqualification relating to conviction for seven years or more would apply under Indian as well as foreign laws.
(d) The Ordinance provides that the bar under Section 29A(d) will not apply if more than two years have elapsed from the date of release from imprisonment (rather than a bar in perpetuity).
iii. Explanation to Section 29A(i) : Reducing the Scope of ‘Connected Person’
(a) Part (iii) of the definition of ‘connected person’ under Section 29A(i) of the IBC, is extremely broad and includes the holding company, subsidiary company, associate company or any related party of the proposed acquirer, its promoters, the acquirer’s board as well as the proposed management of the corporate debtor or its promoters. By virtue of their business model, it was inevitable that several pure play financial entities would have connected persons through their investee companies in India or abroad which suffered from the disqualifications (especially relating to NPAs) listed in Section 29A. The IBC was amended late last year to create a carve-out from part (iii) of the definition for scheduled banks, asset reconstruction companies and alternate investment funds registered with the Securities and Exchange Board of India (‘SEBI’) – however this exemption did not benefit foreign private equity players, venture capital and distressed assets funds.
(b) Pursuant to the Ordinance, relaxation has now been provided to foreign financial investors. The definition of ‘financial entities’ now includes the following additional classes of entities: (i) any entity regulated by a foreign central bank or any other financial sector regulator of a jurisdiction outside India; and (ii) any investment vehicle, registered foreign institutional investor, registered foreign portfolio investor or a foreign venture capital investor as defined in regulation 2 of the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident Outside India) Regulations, 2017.
iv. Section 29A(d): Disqualification on account of Criminal Convictions
(a) The impact of Section 29A of the IBC was such that in many cases, it would force a change of control of the erstwhile promoter under a resolution plan or in liquidation. There was a concern that there may not be enough interest from third party buyers in companies under IBC, which are of a comparatively smaller size. A ‘one size fits all’ approach could hamper recoveries where there is little scope for turnaround of smaller companies unless the promoters submit a resolution plan. Recognizing this, the Ordinance provides for limited exemptions from the provisions of Section 29A of the IBC for Micro, Small and Medium Sector Enterprises (‘MSMEs’).
(b) However, the statutory thresholds for recognizing MSMEs under the Micro, Small and Medium Enterprises Development Act, 2006 (‘MSME Act’) are low. For instance, for companies engaged in manufacturing, the thresholds for classification as MSMEs are investment in plant and machinery ranging from less than INR 25,00,000 (approximately USD 37,000) to INR 10,00,00,000 (approximately USD 1.5 million). The Central Government had approved an amendment to the MSME Act on February 7, 2018 providing that the thresholds in the MSME Act be redefined. The proposal is to re-align the definition of MSMEs on the basis of annual turnover ranging from less than INR 5,00,00,000 (approximately USD 750,000) to INR 250,00,00,000 (approximately USD 37 million). Once the proposed amendment to MSME Act is notified, it will provide significant relief to promoters of a large number of small companies facing financial distress.
- Withdrawal of an Ongoing CIRP Proceeding
Once an application filed under the IBC is admitted, it can either lead to a successful resolution plan or liquidation. Under the IBC, a company undergoing the CIRP process did not have the power to arrive at a settlement or compromise by which the ongoing CIRP proceedings could be withdrawn. However, in a few cases, the courts had gone beyond the purview of the IBC and allowed settlement of the claims of a creditor, bilaterally leading to withdrawal of the matter.
The Ordinance clarifies that withdrawal of a CIRP proceeding will be permissible if 90% of the CoC approves it. However, such withdrawal will be permissible only prior to the resolution professional formally inviting resolution plans from interested bidders.
- CoC voting thresholds reduced
The IBC provided that all decisions by the CoC be taken by a vote of 75% of the CoC by value. The Ordinance has reduced the voting threshold from 75% to 66% for major decisions such as: (i) applying for an extension for the CIRP period from 180 to 270 days; (ii) replacement of an interim resolution professional or resolution professional; and (iii) approving a resolution plan. For other routine decisions, the voting threshold has been reduced to 51%.
- Role of shareholders of the corporate debtor in approving resolution plans
The consent of shareholders of the corporate debtor is generally required for significant corporate actions. The Ministry of Corporate Affairs (‘MCA’) released a clarification last year to the effect that approval of shareholders of the company for any corporate action in the resolution plan (otherwise required under any law) is deemed to have been given on its approval by the NCLT. The Ordinance specifically amends the IBC to incorporate the clarification proposed by the MCA.
- Resolution professional responsible for ongoing legal compliances by the corporate debtor
Under Section 17 of the IBC, on insolvency commencement date, the board of the company is suspended and an insolvency professional takes control over management control. However, several laws including many provisions of the Companies Act, 2013, regulations issued by SEBI, Factories Act, impose obligations on the board of the company. The Ordinance clarifies that insolvency professionals shall be responsible for complying with the requirements under all applicable laws on behalf of the corporate debtor.
- Participation of ‘related party’ financial creditors in the CoC
The IBC provided that financial creditors which were related to the corporate debtor would not be allowed to participate, attend or vote in CoC meetings. Financial institutions which had converted their debt into substantial equity stakes in the corporate debtor under any previous restructuring, were deemed ‘related’ to the corporate debtor and were thereby precluded from attending or voting in CoC meetings. The Ordinance provides an exemption from this prohibition for such financial creditors provided they are regulated by a financial sector regulator.
- Grace period for fulfilling statutory obligations
A critical issue for acquirers in the IBC process is obtaining governmental and regulatory consents, dispensations and permits. Currently, acquirers tend to draft their resolution plans treating National Company Law Tribunal (‘NCLT’) as a single window clearance for all such approvals. But this approach is susceptible to legal challenge. The Ordinance provides for a one year grace period for the successful resolution applicant to fulfill various statutory obligations required under various laws to implement the resolution plan.
- Issue of guarantors’ liability resolved
Section 14 of the IBC imposes a stay on any recovery action against the corporate debtor and the enforcement of any security interest created by a corporate debtor over its assets during the CIRP period. However, in a few cases, courts had taken the view that the moratorium in an ongoing CIRP will also stay enforcement of guarantees or security interest from promoters and group companies of the corporate debtor. The Ordinance states that the moratorium under Section 14 will not apply to the enforcement of guarantees granted by promoter guarantors or other group companies which are not undergoing a CIRP.
- Further regulations to govern the bidding process
In most CIRP proceedings, the CoC formulates a process memorandum which governs the timelines for receiving bids, procedure for rebidding, grounds for rejection of bids etc. Such provisions and their application have been subject to several legal challenges at the NCLT by unsuccessful bidders. In a press release accompanying the Ordinance, the government has indicated that the regulations will govern issues such as non entertainment of late bids, bar on negotiations with late bidders and a standardised process for maximization of value of the corporate debtor.
- Triggering CIRP by a company voluntarily
The IBC provided that a company may initiate its own CIRP and that the persons eligible to initiate a voluntary CIRP were: (i) the corporate debtor itself; (ii) a shareholder of the company specifically authorised to do so under the articles; (iii) director and key employees; and (iv) the chief financial officer. The Ordinance now makes a special resolution of shareholders mandatory for filing for its CIRP. It remains to be seen if a special resolution will be possible in closely held companies where promoters have a dominant stake. But directors and officers will need to be mindful of provisions in the IBC which impose civil and criminal sanctions on erstwhile directors and officers of the company for wrongful trading.
- Limitation Act to apply to IBC
Lenders have benefited from judicial decisions which indicated that the Indian limitation legislation did not apply to an application under the IBC (although the doctrine of laches might still apply). However this has not been confirmed by the Supreme Court till date, as it had declined to comment on this issue. The Ordinance now provides that the law of limitation will apply to IBC applications.
Amendment to the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014
SEBI, by way of a notification dated February 27, 2017 has amended the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014. Some key amendments are:
i. In case of delay, the applicant has to file an application for condonation of delay and the settlement fees payable by the applicant will be increased by levying simple interest at the rate of 6% p.a.;
ii. An application for default, which has been previously rejected by SEBI or withdrawn by the applicant, may be refiled and considered in exceptional circumstances (such as lapse of time since the default, weight of evidence against the applicant) and the payment of the additional fees and/or interest as recommended by the High Powered Advisory Committee;
iii. The settlement amount must be paid within 15 calendar days from the receipt of the notice of demand and such period may be extended by the panel of whole time members by an additional 15 calendar days, but no later than 90 calendar days from the date of the receipt of the demand notice. If the amount is remitted between the 30th and 90th calendar day, interest at 6% p.a. will be levied from the date of the notice till the payment of the settlement amount. Upon failure by the applicant to remit the settlement amount within such period and/or abide by the relevant undertaking and waivers, SEBI may reject the application;
iv. Except in cases specifically excluded from settlement, a settlement notice indicating the substance of charges and the probable actions may be issued in advance of the notice to show cause so as to afford an opportunity to file a settlement application within 15 calendar days from the receipt of such settlement notice. However, SEBI will have the power to modify the enforcement action to be brought against the notice and the notice will not confer any right to seek settlement or avoid any enforcement action; and
v. Applications filed voluntary or suo moto will get the benefit of a proceeding conversion factor of 0.65 as opposed to the existing 0.75.
TRAI Tariff Order and Interconnection Regulations for Broadcasting and Cable Services
The Telecom Regulatory Authority of India (‘TRAI’) has on March 3, 2017, issued two sets of regulations governing, inter alia, the pricing of television channels by broadcasters and distributors, namely the Telecommunication (Broadcasting and Cable) Services (Eighth) (Addressable Systems) Tariff Order, 2017 (‘Tariff Order’) and the Telecommunication (Broadcasting and Cable) Services Interconnection (Addressable Systems) Regulations, 2017 (‘Interconnection Regulations’), which repeal certain related regulations applicable to pricing and addressable systems.
The Tariff Order and the Interconnection Regulations specify the framework for tariffs to be charged by broadcasters and distributors and also govern the arrangements between various service providers engaged in broadcasting services, and inter alia:
(i) provide that broadcasters are required to declare a monthly maximum retail price for a-la-carte channels; (ii) prescribe the amounts distributors may charge for channels as the capacity fee per network; (iii) manner in which charges may be levied by broadcasters and distributors for channel bouquets; and (iv) manner in which discounts and carriage fees may be applied by broadcasters and distributors.
Star India and Vijay Television have filed a writ petition in the Madras High Court (‘Madras HC’) challenging TRAI’s authority to regulate pricing of content on television channels. During the pendency of these proceedings, the Supreme Court (‘SC’) has granted TRAI leave to notify regulations (including the Tariff Order and Interconnection Regulations), while observing that the new cause of action arising from the notification of the regulations may be taken up with the Madras HC.
Right to be Forgotten
The High Court of Karnataka (‘Karnataka HC’) passed an Order, on January 23, 2017 in the case of Vasunathan v. The Registrar General, High Court of Karnataka and Ors., regarding the rule of ‘Right to be forgotten’. In the instant matter, a writ petition was filed before the Karnataka HC seeking masking of the name of the petitioner’s daughter from all court records (including the cause title), which contained details of a previous marriage of the petitioner’s daughter that had been annulled, as well as court records of orders that had been passed in criminal proceedings filed by his daughter’s former husband. The masking was sought to protect her reputation in society and her relationship with her current husband.
The Court held that the Registry will endeavour to ensure that the petitioner’s daughter’s name was not reflected in any internet search in the public domain including any search within the order or in the body of the order apart from the cause title. This would be in line with the trend in many foreign jurisdictions where the principle of ‘Right to be forgotten’ is followed in sensitive cases involving women in general, and cases involving rape or affecting the modesty and reputation of the person concerned. The Court further held that where the website of the Karnataka HC is concerned, no steps need to be taken to anonymize the petitioner’s daughter’s name and accordingly, any certified true copy of the relevant order of the Karnataka HC will reflect the name of the petitioner’s daughter.
 Writ Petition 62038 of 2016 (GM-RES), order dated January 23, 2017
Issue on Appointment of ex-Government Employees as Arbitrators in Disputes Arising out of a Contract with the Government
By its judgment passed on February 10, 2017, SC has held in Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd., that ex-Government employees could be appointed as arbitrators, under the amended Arbitration and Conciliation Act, 1996 (‘Arbitration Act’), in disputes arising out of a Government contract, and that such appointment does not run foul of the conflict of interest guidelines listed in the Seventh Schedule of the Arbitration Act.
Facts of the case
Under the contract awarded to Voestalpine Schienen GmbH (‘Voestalpine’), Voestalpine was required to nominate an arbitrator from a panel of arbitrators selected by Delhi Metro Rail Corporation Ltd. (‘DMRC’). After disputes arose, DMRC furnished the names of five arbitrators, who were retired engineers of various Government departments or public sector undertakings (‘PSUs’), including the Indian Railways. Voestalpine challenged the selection of the panel of arbitrators on the basis that the DMRC nomination was disqualified by Section 12 of the Arbitration Act, read with Entry 1 of the Seventh Schedule of the Arbitration Act, which prohibits a person from acting as an arbitrator if he is/has been an employee, consultant or advisor with one of the parties to the arbitration.
Decision of the SC
SC held that the selection of retired engineers of Government departments or PSUs did not violate Section 12(5) of the Arbitration Act simply because the person (sought to be appointed as an arbitrator) is a retired officer of a Government or other statutory corporation or PSUs. If such person had no connection with the DMRC, then that person would not be treated as ineligible under Section 12(5) of the Arbitration Act. The judgment effectively rejects the proposition that all Government entities and PSUs are to be seen as one composite entity for purposes of conflict of interest in choice of arbitrators. Therefore, in disputes arising out of Government contracts, private parties will not be entitled to object to the process of nomination of arbitrators by the Government entity, so long as such nominees are not/were not directly employed with the particular Government entity that is party to the relevant dispute.
 2017 SCC OnLine SC 172.
Claim of Damages for Breach of Contract under Section 73 of the Contract Act, 1872 by a non-resident does not violate the RBI guidelines
On February 9, 2017, in the case of Shakti Nath and Ors v. Alpha Tiger Cyprus Investments, the Delhi High Court (‘Delhi HC’), while deciding a challenge to an arbitral award involving enforcement of put option rights, held that awarding damages to a non-resident investor does not amount to an indirect enforcement of an optionality clause under a contract.
Two foreign entities (‘Respondents’) had entered into inter alia a shareholders’ agreement (‘SHA’) with certain resident entities (‘Petitioners’) to invest in an Indian company in the real estate sector. The SHA provided for a ‘put option right’ in favour of the Respondents, entitling the Respondents, upon non-fulfilment of certain conditions by the Petitioner, to require the Petitioners to acquire the Respondents’ shares at a price ‘equal to the Investors’ Capital plus a post tax IRR of 19% on the Investors’ Capital’. The arbitral tribunal, appointed upon occurrence of certain disputes, awarded damages to the Respondents on finding that the Petitioners had breached their obligations under the SHA.
The issue before the Delhi HC was whether awarding damages to the Respondents would amount to an enforcement of their put option right, thereby violating the guidelines set out in the RBI Circular dated July 15, 2014 (‘RBI Circular’). The RBI Circular states that a transfer of shares between a resident and a non-resident is required to be undertaken at a price computed in accordance with internationally accepted methodology, with the underlying principle being that a non-resident investor cannot be guaranteed an assured return on its exit price.
The Delhi HC held that the Respondents had a choice between enforcement of the put option and claiming damages for breach of the SHA. Given that the Respondents chose to make a claim for damages for breach of contract under Section 73 of the Contract Act, 1872, the question of violation of the RBI Circular did not arise.
It is pertinent to note that the judgment reflects the pro-arbitration stance of Indian Courts, and indicates a liberal approach towards enforcement of awards arising out of obligations under optionality contracts.
 Judgment dated February 9, 2017, in OMP (Comm) 154/2016. (Delhi High Court)
Delhi High Court on Permissibility of Photocopying of Text Books for Preparing Course Packs
A Division Bench (‘DB’) of the Delhi High Court, by its judgement dated December 9, 2016 in the case of Chancellor, Masters & Scholars of the University of Oxford & Ors v. Rameshwari Photocopy Services and Ors, disposed the appeal filed by the publishers against the order passed by the Single Judge on September 16, 2016. The DB held that photocopying of copyrighted materials for preparing course packs would be a permissible activity and would not constitute infringement so long as such copying was for purposes of educational instruction. The DB reaffirmed the following findings of the Single Judge on substantive points of law: (i) utilisation of the copyrighted work would constitute fair use to the extent justified for the purpose of education, irrespective of the quantity of reproduction; (ii) “course of instruction” under Section 52(1)(i) of the Copyright Act, 1957 was not limited to a lecture in a class room and extends to various acts of imparting instruction; (iii) reproduction of works under Section 52(1)(i) can be made by an intermediary, i.e., a photocopier, and need not be limited only to reproduction by a teacher / pupil; (iv) course packs will not adversely impact the market of the publishers since students are not potential customers; and (v) distribution of course packs would not amount to “publication” as the element of profit was missing in such publication.
The DB, however, partially overturned the judgment of the Single Judge and remitted the matter to the trial court for a fact specific determination of whether: (i) inclusion of the copyrighted works in the course packs was justified by the purpose for which course packs are prepared, i.e. for instructional use; and (ii) whether photocopying of entire textbooks (copied back to back) would be a permissible activity. This issue arose from the findings of the local Commissioner’s report highlighting that apart from the course packs that contained excerpts of various textbooks, eight books had been photocopied back to back.
In light of the legal determination above, the DB refused to grant the publishers an interim injunction. However, the photocopying agency was called upon to maintain records of the course packs photocopied by it and supplied to the students and also file a statement to this effect with the trial court every six months till the trial is completed.
 Chancellor, Masters & Scholars of the University of Oxford & Ors v. Rameshwari Photocopy Services and Ors., RFA(OS) 81/2016, Delhi High Court
 The Chancellor, Masters & Scholars of the University of Oxford & Ors v. Rameshwari Photocopy Services and Ors., CS(OS) 2439/2012, Delhi High Court (Judgement dated September 16, 2016).
Mere Allegations of Fraud Simplicitor Will Not Render a Dispute Non-Arbitrable
In a recent decision passed by the Supreme Court (‘SC’) on October 4, 2016 in the case of A. Ayyasamy v. A Parmasivam, it was held that a dispute will not be rendered as non arbitrable because of mere allegations of fraud simplicitor, and distinguished it from serious fraud allegations.
Sections 34(2)(b) and 48(2) of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’), inter alia, provide that an arbitral award may be set aside if the Court finds that the “subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force”.
While the Arbitration Act does not specify the kinds of cases that are not arbitrable, in a number of its previous judgments, the SC has specified examples of certain kinds of disputes that are not arbitrable. In Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and Others, the SC held that the following matters were not arbitrable: (i) disputes relating to rights and liabilities that give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights and child custody; (iii) guardianship matters; (iv) insolvency and winding up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes.
The SC in the present judgement, clarified that a mere allegation of fraud simplicitor may not constitute grounds to nullify the effect of the arbitration agreement between the parties, and listed examples of serious allegations of fraud that would render a dispute non arbitrable, such as: (i) serious allegations of forgery or fabrication of documents in support of the plea of fraud; (ii) where fraud is alleged against the arbitration provision itself; and (iii) where the fraud is of such a nature that it permeates the entire contract, including the agreement to arbitrate, i.e., where fraud goes to the validity of the contract itself – either the entire contract that contains the arbitration clause or the validity of the arbitration clause itself.
The SC held that it is only in cases where there would be a serious issue of fraud involving criminal wrongdoing that the exception to arbitrability carved out in N. Radhakrishnan v. Maestro Engineers would apply. In cases involving allegations of fraud simplicitor, the arbitration clause need not be avoided and that the parties can be relegated to arbitration.
 A. Ayyasamy v. A Parmasivam., AIR 2016 SC 4675.
 Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and Others, 2011 5 SCC 532.
 N. Radhakrishnan v. Maestro Engineers, 2010 1 SCC 72.
Dishonour of a Post-dated Cheque for Repayment of a Loan Covered by Section 138 of the Negotiable Instruments Act, 1881
On September 19, 2016, the SC in Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Limited dealt with the issue of whether the dishonor of post-dated cheques that have been described as ‘security’ in a loan agreement, would attract criminal liability under Section 138 of the Negotiable Instruments Act, 1881 (‘Negotiable Instruments Act’), the penalty for which includes imprisonment for a term upto two years, or a fine, or both.
The SC held that Section 138 of the Negotiable Instruments Act applies only if, on the date of issuance of the cheque, the liability or debt exists or the amount has become legally recoverable, and not otherwise. The SC further held that the issuance of a cheque and admitted signature on such cheque creates a presumption of a legally enforceable debt in favour of the payee, and a mere statement by the accused that the cheques were issued as “security” and not as repayment, would not rebut this presumption.
In the present case, though the word “security” was used, the cheques were towards repayment of installments, which became due under the relevant agreement immediately upon advancement of the loan. Therefore, the dishonor of cheque was for an existing liability and covered under Section 138 of the Negotiable Instruments Act.
 Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Limited, (2016) 10 SCC 458.
Liability of Personal Guarantors of a Corporate Debtor during the Corporate Insolvency Resolution Process
State Bank of India (‘SBI’) had sanctioned a loan to Lohia Machines Limited (‘LML’) which was guaranteed by the directors of LML. Upon non repayment, SBI approached the Debt Recovery Tribunal, Allahabad (‘DRT’). However, in parallel, LML also filed an application before the National Company Law Tribunal (‘NCLT’), Allahabad Bench, to initiate a corporate insolvency resolution process (‘CIRP’) in respect of itself. In response to the CIRP being admitted, although the DRT stayed the proceedings against LML, it continued to hear the matter in relation to the enforcement of personal guarantees given by the directors of LML. Aggrieved by DRT, the personal guarantors filed a writ petition before the Allahabad High Court. The Allahabad High Court passed an order dated September 6, 2017, staying the DRT proceedings against the personal guarantors and stated: (i) under Section 60(1) of the Insolvency and Bankruptcy Code, 2016 (‘IBC’), NCLT is the adjudicating authority for resolution of insolvency and liquidation of a corporate person (including a personal guarantor); (ii) when liability is co-extensive and proceedings are still in a fluid stage, two split proceedings cannot go on simultaneously before the DRT and the NCLT for the same cause of action; and (iii) the scope of the CIRP order passed by NCLT imposing a moratorium on all legal proceedings, extends beyond the properties of the corporate debtor and suits/proceedings pertaining to the corporate debtor. Accordingly, the Allahabad High Court stayed the DRT proceedings against the personal guarantors till the finalisation of the CIRP or till approval of the resolution plan by NCLT or passing of an order for liquidation of LML by NCLT, as the case may be.
 Sanjeev Shriya v. State Bank of India, Writ–C Nos. 30285 and 30033 of 2017
Ability of a Power of Attorney Holder to Initiate Insolvency Proceedings
ICICI Bank Limited (‘ICICI’) filed an application before the NCLT through a representative, holding a power of attorney (‘PoA’), on behalf of ICICI to commence CIRP for Palogix Infrastructure Private Limited (‘Palogix’). Under the PoA in question, ICICI gave a general authority to the representative to appoint pleaders, advocates and solicitors to appear and act on behalf of ICICI before any NCLT bench and/or before other forums and to attend meetings of creditors in insolvency or bankruptcy or winding up matters and to vote at such meetings and to accept composition and to take such proceedings as he may think proper. Palogix objected that the person authorised by ICICI did not have adequate authority under the PoA to initiate bankruptcy proceedings before the NCLT. The National Company Law Appellate Tribunal (‘NCLAT’), in this case, took the view that IBC being a specialized law creating new rights and obligations, requires that a PoA be interpreted strictly so that the powers given to the agents are not abused and the actions are restricted only to the extent the power is indicated or given. It further stated that an authorization, in case of a company, means a specific authorization by the board of directors of the company by way of passing a resolution. Any application under Section 7 of the IBC, if signed and filed by a ‘general PoA holder’ without specific authorization under the IBC, will not be maintainable.
Limitation Act does not apply to Proceedings under the IBC
By its order dated August 11, 2017, NCLAT held that the provisions of the Limitation Act, 1963 (‘Limitation Act’) do not apply to the insolvency and bankruptcy process under the IBC. It stressed on the fact that the IBC was not enacted for the purpose of recovery of money claims, but rather for the initiation of CIRP. Accordingly, NCLAT allowed a debt that was time barred under the Limitation Act to form the basis of an application for the initiation of CIRP.
On August 23, 2017, the Supreme Court (‘SC’) dismissed an appeal from the order of NCLAT and declined to interfere with it. However, it noted that the question of law, viz whether the Limitation Act applies to IBC proceedings, has been kept open.
 Neelkanth Township and Construction Pvt. Ltd. v. Urban Infrastructure Trustees Limited, Company Appeal (AT) (Insolvency) No. 44 of 2017.
IBC prevails over the Maharashtra Relief Undertakings (Special Provisions) Act, 1958
In its first extensive ruling on the operation and functioning of the IBC, the SC in its order dated August 31, 2017 held, inter alia, that the Maharashtra Relief Undertakings (Special Provisions) Act, 1958, being a State legislation, cannot stand in the way of CIRP under the IBC, being a Central enactment, especially in view of the non-obstante clause contained in Section 238 of the IBC.
 M/s. Innoventive Industries Ltd. v. ICICI Bank & Anr., Civil Appeal Nos. 8337-8338 of 2017.
Fundamental Right to Privacy
A nine-judge SC bench , on August 24, 2017, held that an inalienable fundamental right to privacy resides in Article 21 of the Constitution of India and other fundamental freedoms contained in Part III of the Constitution. It however observed that the fundamental right to privacy must yield in given circumstances to legitimate State interests and will be subject to reasonable restrictions. Consequently, any encroachment to privacy will have to subscribe to the touchstone of permissible restrictions and invasion of privacy would have to be justified against the standard of a fair, just and reasonable procedure.
However, the SC did not categorically comment on the Aadhar scheme, which was the original subject matter in the context of which the nine-judge bench had been constituted. The bench observed that it had not been constituted to look into the constitutional validity of the Aadhar scheme, and the same is currently pending before another bench of the SC.
 Justice K.S. Puttaswamy v. Union of India and Ors., WP (Civil) No. 494 of 2012.
Arbitral Tribunal has the Power to make Representation to the Court for Contempt of its Orders
On July 6, 2017, the SC held that an arbitral tribunal is empowered under Section 27 of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’) to make a representation before the Court for contempt of any order passed during the arbitral proceeding.
While the Bombay High Court had taken a restricted interpretation of Section 27 stating that the power of the arbitral tribunal to make a representation before the Court for contempt of orders is limited to the failure of the parties to follow the process of taking evidence, the SC took a broader view and held that if the parties fail to comply with any orders, including interim orders of an arbitral tribunal, they may be liable for contempt, on representation by the arbitral tribunal. Such orders would be deemed to be orders of the Court for all purposes and would be enforced under the Civil Procedure Code, 1908 in the same manner as if they were orders of the Court.
 Alka Chandewar v. Shamshul Ishrar Khan, Civil Appeal No. 8720 of 2017.
Proceedings under Section 37 of the Arbitration Act would not constitute ‘Dispute’ for IBC
Under Section 9 of the IBC, the existence of a dispute could bar an application by a financial or operational creditor. Section 8(2) of the IBC provides that, while pendency of “arbitration proceedings” has been included as “existence of dispute”, pendency of an application under Section 37 of the Arbitration Act has not been included as “existence of dispute”.
By an order dated August 29, 2017, the NCLAT considered the relationship between the IBC and the Arbitration Act. It held that an arbitral award reaches finality upon: (i) expiry of the time within which an application under Section 34 of the Arbitration Act to set aside the arbitral award can be made, or (ii) an application made under Section 34 being rejected. Accordingly, the pendency of an appeal under Section 37 of the Arbitration Act would not constitute an “existence of a dispute” within the meaning of the IBC.
 M/s Annapurna Infrastructure P. Ltd. v. Soril Infra Resources Ltd., Company Appeal (AT) (Insolvency) No. 32 of 2017.
Provisions relating to Applications against Oppression and/or Mismanagement brought into force
The MCA has notified the following provisions of the Companies Act, which came into force on September 9, 2016:
i. Section 227, which deals with confidentiality of privileged communications made to any legal advisor and information regarding legal proceedings before any Governmental authority;
ii. Section 242(1)(b), which deals with the circumstances in which the company tribunal may exercise its powers for winding up of a company upon receipt of an application under Section 241 of the Companies Act, regarding oppression and mismanagement of the affairs of the company;
iii. Section 242(2) (c) and (g), which deals with the powers of the company tribunal to pass orders for reduction of the share capital of the company upon purchase of the shares of an existing member and / or for setting aside any transfer, delivery of goods payment, execution or other act relating to property taken by or against the company within the preceding three months of the date of application under Section 241; and
iv. Section 246, which states that Sections 337 to 341, which deal with liability for the fraudulent conduct of business and powers of the company tribunal to assess damages against delinquent directors in companies / partners in firms, respectively, would apply mutatis mutandis to applications made under Section 241 and Section 245 (which deals with class action suits), of the Companies Act.
Companies (Mediation and Conciliation) Rules, 2016
The MCA has, by way of a notification dated September 9, 2016, notified the Companies (Mediation and Conciliation) Rules, 2016 (‘Mediation Rules’), whereby any party to a proceeding before the Central Government or the company tribunal or the Appellate Tribunal (‘Authority’) can apply to the Authority, or the Authority may apply suo moto, for the matter to be referred to the Mediation and Conciliation Panel in accordance with the process prescribed under the Mediation Rules.
Diverging John Doe orders in relation to blocking URLs
The Bombay High Court (‘Bombay HC’) recently passed a number of orders dated June 16, 2016, July 1, 2016 and July 22, 2016 that have narrowed down the scope of John Doe orders. The Bombay HC refused to pass orders that would result in wholesale blocking of hundreds of websites that allegedly offered and hosted illicit links to the movies ‘Udta Punjab’, ‘Great Grand Masti’ and ‘Dishoom’. The Bombay HC held that an order to block entire website without demonstrating that the entire website contains infringing material cannot be granted and that specific uniform resource locators (‘URL’) containing infringing material must be identified and established.
On the other hand, in the case of Department of Electronics and Information Technology v. Star India Private Limited, a division bench of the Delhi High Court (‘Delhi HC’), by its judgement dated July 29, 2016, upheld a sweeping John Doe order for blocking 73 websites on the grounds that if only a single URL is blocked, the same website can very easily provide access to the blocked content through another URL.
 Balaji Motion Picture Limited & Anr. v. Bharat Sanchar Nigam Ltd. & 49 Ors., Notice of Motion (L) No. 1783 of 2016 in Suit (L) No. 633 of 2016.
 Balaji Motion Pictures Ltd. & Anr. v. Bharat Sanchar Nigam Ltd. & Ors., Notice of Motion (L) No. 1940 of 2016 in Suit (L) No. 694 of 2016.
 Eros International Media Ltd. and Anr. v. Bharat Sanchar Nigam Limited & Or., Notice of Motion (L) No. 2147 of 2016 in Suit (L) No. 751 of 2016.
 Department of Electronics and Information Technology v. Star India Private Limited, R.P.131/2016 in FAO (OS) 57/2015.
Diverging rulings by the Bombay HC and Delhi HS on the Issue of Jurisdiction in Trademark and Copyright Infringement Cases
Pursuant to the decision of the Supreme Court of India (‘SC’) in Indian Performing Rights Society Ltd. v. Sanjay Dalia and Anr.  (‘Sanjay Dalia Case’), the Bombay HC and the Delhi HC have had the opportunity to interpret this ruling and have adopted diverging views.
For instance, in the case of Manugraph India Limited v. Simarq Technologies and Ors the plaintiffs (having registered offices in Mumbai) brought a suit for trademark infringement before the Bombay HC, although the cause of action arose in Delhi for one set of plaintiffs, and in Kolhapur for the other set. The Bombay HC, however, ruled that it continues to have jurisdiction despite no cause of action having arisen in Mumbai on the reasoning that Sections 134 and 62 of the Trade Marks Act, 1999 and the CR Act allow plaintiffs to institute suits at the place where they carry on their business, irrespective of whether or not a cause of action arose in that place. Further, the Bombay HC held that the only mischief the SC was trying to remedy in Sanjay Dalia Case was the mischief of plaintiffs filing suits at far-flung subordinate offices where no cause of action had arisen.
However, a Division Bench of the Delhi HC has taken a contrary view in the case of Ultra Homes v. Purushottam Kumar Chaubey & Ors. In this case as well, the plaintiff instituted a suit before the Delhi HC on the ground that it carried on business in Delhi, i.e. its principal office was located in Delhi. However, the cause of action arose in Deogarh, Jharkhand (where the plaintiff’s subordinate office is located). Applying the principle laid down in the Sanjay Dalia Case, the Delhi HC held that the plaintiff would be deemed to carry on business at the place of his subordinate office and not at the place of the principal office and therefore, in such a situation, the plaintiff could sue only at the subordinate office and not at the place of its principal / registered office.
 Indian Performing Rights Society Ltd v. Sanjay Dalia and Anr., Civil Appeal Nos. 10643-44/2010 (arising out of Civil Suit FAO (OS) No. 359/2007)and Civil Appeal arising out of SLP [C] No. 8253/2013.
 Manugraph India Limited v. Simarq Technologies and Ors, Notice of Motion No. 494 of 2014 in Suit No. 516 of 2013, Bombay High Court (judgement dated June 15, 2016).
 Ultra Homes v. Purushottam Kumar Chaubey & Ors., FAO (OS) 494/2015, Delhi High Court (judgement dated January 20, 2016).
Photocopying for Course Packs Falls within “Fair Dealing” and Does Not Amount to Copyright Infringement
In the case of The Chancellor, Masters & Scholars of the University of Oxford & Ors v. Rameshwari Photocopy Services and Or., a suit was filed by five publishers against Delhi University and Rameshwari (a photocopying shop attached to Delhi University) alleging that by photocopying and distributing substantial extracts of academic text books for course packs, for sale, the defendants were infringing the publishers’ copyright in these books. However, the defendants’ main argument that photocopying of academic books for course packs fell under Section 52 of the CR Act, i.e. the fair dealing provisions, was upheld by the Delhi HC. On the grounds that the acts of the defendants fell under Section 52(1)(i) of the CR Act i.e. reproduction of a work by a teacher / pupil in the course of instruction, the Delhi HC held that: (i) this provision applies to an institution and its students and is not limited to an individual teacher and his / her student; (ii) the words “course of instruction” is not limited to a lecture in a class room and extends to various acts of imparting instruction throughout the academic session; (iii) the course packs were provided to students at nominal rates and only contained extracts of the books and, hence, would not be considered as competing with the books of the publishers; and (iv) such an interpretation would not violate the Berne Convention for the Protection of Literary and Artistic Works or the Agreement on Trade-Related Aspects of Intellectual Property Rights as these conventions have left this issue to be decided by their respective member countries. The publishers have filed an appealed on October 5, 2016 challenging this decision and the matter is pending before a Division Bench of the Delhi High Court.
 The Chancellor, Masters & Scholars of the University of Oxford & Ors v. Rameshwari Photocopy Services and Or., CS(OS) 2439/2012, Delhi High Court (judgement dated September 16, 2016).
Disputes under Trust Deeds and the (Indian) Trust Act, 1882 Not Arbitrable
The SC, in the matter of Vimal Kishor Shah & Ors v. Jayesh Dinesh Shah, by way of an order dated August 17, 2016, has held that disputes relating to trusts, trustees and beneficiaries arising out of trust deeds and the (Indian) Trust Act, 1882 (‘Trust Act’) are not capable of being decided in arbitration despite the existence of an arbitration clause in the trust deed. This judgment is significant as it adds another category of disputes that are not capable of being decided in arbitration prescribed by the SC in the matter of Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.
The dispute in the present case arose in respect of a family trust deed that contained an arbitration clause that provided for arbitration in terms of the (Indian) Arbitration Act, 1940 for disputes between / with beneficiaries who were not parties to the trust deed. The beneficiaries in the present matter challenged the appointment of an arbitrator by the Bombay HC before the SC on the ground that a valid and enforceable arbitration agreement did not exist.
Referring to Section 7 of the Arbitration and Conciliation Act, 1996 which sets out the requirements of a valid arbitration agreement, the SC held that since the beneficiaries did not sign the document (being the trust deed), they are not parties to such deed and therefore, no agreement could have been entered into between the beneficiaries. The SC also examined the provisions of the Trust Act and observed that the Trust Act exhaustively deals with trusts, trustees and beneficiaries and provides for adequate and sufficient remedies to all aggrieved persons by giving them a right to approach civil courts.
 Vimal Kishor Shah & Ors v. Jayesh Dinesh Shah, (2016) SCC OnLine SC 825
 Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532 wherein SC had held that the following types of disputes are not capable of being settled by arbitration: (i) disputes regarding rights and liabilities arising out of or giving rise to criminal offences; (ii) matrimonial disputes including child custody; (iii) guardianship matters; (iv) insolvency and winding up matters; (v) testamentary matters; and (iv) eviction or tenancy matters governed by special statutes.
Messer Holdings: Supreme Court Judgement on Enforceability of Share Transfer Restrictions
In the case of Messer Holdings Ltd. v. Shyam Madanmohan Ruia, an appeal had been preferred before the Supreme Court (‘SC’) from a decision of the division bench of the High Court of Mumbai (‘Mumbai HC’), which had held that share transfer restrictions as set out in an agreement between shareholders are not violative of the Companies Act, 1956 (‘CA 1956’). The issue of enforceability of share transfer restrictions has long been vexed. It was expected, therefore, that SC would provide some clarity on this issue. However, in its judgment on April 19, 2016, SC effectively refused to answer the questions of law and further criticised the parties for unreasonably taking up the time of the court. While the Companies Act, 2013 (‘CA 13’) appears to clarify this issue under Section 58(2), there continue to remain some unanswered questions, including whether the Mumbai HC judgment would still be valid law.
 Messer Holdings Ltd. v. Shyam Madanmohan Ruia, SLP (Civil) Nos. 33429-33434 of 2010.
SEBI Board Meetings
SEBI, in its board meeting held on May 19, 2016, approved the incorporation of the internal guidance note in the SEBI (Settlement of Administrative and Civil Proceedings) Regulations 2014 (‘Settlement Regulations’), to clarify that only serious and substantial cases are to be taken for enforcement under Regulation 5(2)(b) of the Settlement Regulations. For this purpose, defaults which in the opinion of SEBI have a bearing on the securities market as a whole and not just the listed security and its investors may be considered to have market wide impact.
Thereafter, in its meeting held on June 17, 2016, SEBI approved the two consultation papers in relation to the changes to be made to the SEBI (Portfolio Managers) Regulations and the SEBI InvIT Regulations.
Supreme Court Decision in the Case of Star Sports India Private Limited v. Prasar Bharati and Ors.
On May 27, 2016, SC upheld the order passed by the Delhi High Court against Star Sports India Private Limited (‘Star Sports’), in connection with a dispute relating to the mandatory sharing of feeds for television broadcast of sporting events of national importance on cable or direct-to-home (‘DTH’) networks in India.
Under Section 3 of the Sports Broadcasting Signals (Mandatory Sharing with Prasar Bharati) Act, 2007, a content rights owner or holder and a television or radio broadcasting organisation (‘Broadcaster’) are prohibited from carrying live television broadcast of a sporting event of national importance on cable or DTH networks, unless it simultaneously shares the live broadcasting signals, without its advertisements, with Prasar Bharati to enable it to retransmit the same on its terrestrial and DTH network.
In the present case, live feeds being provided by Star Sports to Prasar Bharati contained commercial enhancements such as ‘logos’ and ‘on-screen credits’ (‘Logos’) inserted by the event organiser, i.e., International Cricket Council (‘ICC’). Star Sports argued that the words ‘without its advertisements’ in Section 3, relates to advertisements inserted by the Broadcaster and not by the event organiser, and therefore the Logos inserted were not prohibited under Section 3.
The SC observed that the word ‘its’ under Section 3 relates to all three categories, viz: (i) content rights owner; (ii) contents holder; and (iii) television or radio broadcasting service provider. Accordingly, the SC held that Star India is required to remove all commercial content from the feed, even if such commercial content has been included by ICC and Star Sports does not earn any revenue from such commercial content, before sharing the feed with Prasar Bharati.
Orders of Two Different High Courts on Stamp Duty Payable on a Scheme of Amalgamation
A bench of three judges of the Mumbai HC in the case of Chief Controlling Revenue Authority, Maharashtra State, Pune and Superintendent of Stamp (Headquarters), Mumbai v. Reliance Industries Limited, Mumbai and Reliance Petroleum Limited, Gujarat has considered whether stamp duty would be payable on orders of two different HCs in case of a scheme of arrangement under Sections 391 to 394 of the CA 1956 involving two States.
In 2002, Mumbai HC and the Gujarat High Court sanctioned a scheme of amalgamation between Reliance Industries Limited (‘RIL’) having its registered office in Maharashtra and Reliance Petroleum Limited (‘RPL’), having its registered office in Gujarat (‘Scheme’). While RPL paid stamp duty in Gujarat on the order passed by the Gujarat High Court, RIL contended before the Superintendent of Stamps, Mumbai that the stamp duty paid in Gujarat by RPL should be set off against the stamp duty payable on the Mumbai HC order under the Maharashtra Stamp Act, 1958.
Based on an application made by RIL, Mumbai HC held that: (i) stamp duty is charged on an ‘instrument’, and not on the ‘transaction’ effected by the ‘instrument’; and (ii) orders passed by two different HCs, albeit pertaining to the same scheme of amalgamation, are separate instruments, and therefore, full stamp duty is payable in all States where such a scheme of amalgamation is sanctioned.
 Chief Controlling Revenue Authority, Maharashtra State, Pune and Superintendent of Stamp (Headquarters), Mumbai v. Reliance Industries Limited, Mumbai and Reliance Petroleum Limited, Gujarat, AIR 2016 Bom 108
Reference to BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985
SC, in the case of Madras Petrochem Limited v. Board for Industrial and Financial Reconstruction and Ors., dealt with the interaction between SARFAESI and the Sick Industrial Companies (Special Provisions) Act, 1985 (‘SICA’) and held that SARFAESI prevails over SICA to the extent that the latter is inconsistent with the former.
The main issue before SC was with regard to Section 22 of SICA which provides that if a company is registered as a sick industrial company with the BIFR, all other legal proceedings against the company will be suspended and cannot be resumed without the BIFR’s permission. Further, proviso 3 to Section 15(1) of SICA provides that a reference pending before the BIFR will abate if secured creditors representing 75% or more of the borrower’s total debts initiate action under SARFAESI to recover their debts. In considering the above, SC held as under:
i. Where a single secured creditor in whose favour an exclusive charge has been created seeks to recover its debt under SARFAESI, such secured creditor may realise such secured debt notwithstanding provisions of SICA;
ii. Where there are more than one secured creditors of a sick industrial company, and at least 60% of such secured creditors in value of the amount outstanding as on a record date decide to proceed against the security charged in their favour, the provisions of SICA will not be applicable; and
iii. Where secured creditors representing not less than 75% in value of the amount outstanding against financial assistance decide to enforce their security under SARFAESI, any reference pending under SICA cannot be proceeded with and the proceedings under SICA will abate. Hence, if such SICA proceedings abate, any party can proceed to recover its dues and all pending proceedings against the industrial undertaking will stand revived.
 Madras Petrochem Limited v. Board for Industrial and Financial Reconstruction and Ors., (2016) 4 SCC 1
SEBI Order in the matter of Price Waterhouse relating to the case of Satyam Computer Services Limited.
An order was passed by SEBI in relation to the financial fraud perpetrated by the senior management of Satyam Computer Services Limited (‘Satyam’).
PriceWaterhouseCoopers, Chartered Accountants (‘PWC’) were the statutory auditors of Satyam since April 1, 2000. When the financial irregularities at Satyam came to light, SEBI issued notices to 11 entities in the PWC group and the 2 signatories of the auditors’ report of Satyam on behalf of PWC, namely, Mr. S Gopalakrishnan and Mr. Srinivas Talluri (collectively, the ‘Noticees’). The Noticees were accused by SEBI of (i) acting in violation of certain provisions of the SEBI Act and the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (‘FUTP Regulations’) and in gross violation of their duties and responsibilities as auditors while certifying the financial statements of Satyam for the period from 2000 to 2008; and (ii) being complicit or acquiesced in the fraud perpetuated at Satyam.
In its order of January 10, 2018 (‘Order’), SEBI observed that there had been a total abdication by PWC of its duty to follow minimum standards of diligence (including PWC’s own manual), which inter alia required external confirmation of bank balances and fixed deposits. Further, PWC failed to reconcile discrepancies in the records of Satyam, which it had full knowledge of and which had been flagged by Satyam’s internal auditors, and its report certified the fairness of Satyam’s financial statements, forming a vital component of the prospectus inducing investors to trade in the scrip of Satyam believing it to be in a sound financial position.
SEBI inferred that their involvement was mala fide, and that the only reason for such a casual approach taken by PWC could be either complacency or complicity, and that PWC’s acts amounted to commission of fraud for the purposes of the SEBI Act and the PFUTP Regulations. In SEBI’s view, while PWC group entities are separate entities, they functioned as a single unit for all practical purposes in the context of the fraud at Satyam, and therefore, SEBI directed: (i) debarment from directly or indirectly issuing certificates of audit of listed companies, compliance of obligations of listed companies and intermediaries registered with SEBI for a period of two years for all PWC entities practicing as chartered accountants in India, and for a period of three years for the Noticees; (ii) disgorgement of wrongful gains of approximately Rs. 13.09 crore (approx. US$ 2 million) (joint and several liability) by PWC, Bangalore and the Noticees, with interest; and (iii) all listed companies and intermediaries registered with SEBI not to engage audit firms forming part of the PWC network for issuing any certificate with respect to compliance of statutory obligations for a period of two years.
An appeal against this Order filed by PWC is pending before the Securities Appellate Tribunal (‘SAT’). SAT has refused to grant a stay on the two-year audit ban imposed by SEBI, but has clarified that PWC is permitted to service its existing clients for the fiscal year 2017-2018 and is also permitted to complete assignments already undertaken for listed entities that follow the calendar year as their fiscal year, but is not permitted to undertake any new listed assignments.
Amendment to the Companies (Audit and Auditors) Rules, 2014
By way of notification dated June 22, 2017, the MCA has notified an amendment to Rule 5 of the Companies (Audit and Auditors) Rules, 2014 (‘Audit Rules’). Prior to the amendment, as per Section 139(2) of the Companies Act read with Rule 5, inter alia all private limited companies having a paid up share capital of INR 20 crores (approx. USD 3 million) (or more), were permitted to appoint (i) an individual as the statutory auditor only for a single term of five consecutive years; and (ii) an audit firm as the statutory auditor only for two terms of five consecutive years. Pursuant to the amendment, the limit of INR 20 crores (approx. USD 3 million) (or more) has been increased to INR 50 crores (approx. USD 7.7 million) (or more).
Applicability of the Arbitration and Conciliation Act (Amendment) Act, 2015 to pending arbitration/ court proceedings
The Supreme Court (‘SC’) in Board of Control for Cricket in India v. Kochi Cricket Private Limited has decided on whether the amendments introduced to the Arbitration and Conciliation Act, 1996 on October 23, 2015 (‘Commencement Date’), would be applicable to pending arbitration/court proceedings, which came into force.
Kochi Cricket Private Limited successfully defended the decision of the Bombay High Court (‘Bombay HC’) on the applicability of the amended Section 36 to a pending challenge to an arbitral award filed under Section 34 of the Act. Under the amended Section 36, a party cannot obtain an automatic stay of an arbitral award (and may be required to deposit security for the amount in dispute), whilst the challenge to the award was pending in Court. The issue before the SC was whether amended Section 36 would apply to a Section 34 challenge proceeding, which was filed before the Commencement Date
The SC held that the amendment is prospective in nature, and will apply to those arbitral proceedings commencing, on or after the Commencement Date. However, only the amended Section 36 will be applicable to Section 34 applications filed both before and after the Commencement Date even if the arbitral proceedings were initiated prior to such date.
The SC has interestingly also opined on the proposed Section 87 of the Arbitration and Conciliation (Amendment) Bill, 2018 (‘Bill’), approved by the Cabinet of Ministers on March 7, 2018, which stipulates that the amendment introduced in 2015 does not apply to Court proceedings arising out of or in relation to arbitral proceedings which commenced prior to the Commencement Date, irrespective of whether such Court proceedings commenced prior to or after the Commencement Date. In fact, the SC has observed that the proposed Section 87 would defeat the specific purpose of the amendment.
 2018 SCC Online SC 232.
Whether foreign law firms / foreign lawyers are permitted to practice in India?
The SC in Bar Council of India v. A.K. Balaji and Ors. was called upon to decide the question of whether foreign law firms / foreign lawyers are permitted to practice in India and held that foreign law firms/companies and foreign lawyers cannot practice Indian law in India either in relation to litigation or non litigation matters. However, there is no bar on foreign law firms or foreign lawyers visiting India for temporary periods, on a ‘fly in and fly out’ basis for the purpose of giving legal advice to their clients in India regarding foreign law or their own system of law and on diverse international legal issues. The expression ‘fly in and fly out’ will only cover a casual visit, not amounting to ‘practice’. Whether a foreign lawyer is limiting itself to ‘fly in and fly out’ would be determined by the Bar Council of India. However, the Bar Council of India or the Union of India will be at liberty to make appropriate rules in this regard, including extending the Code of Ethics to such cases.
With regard to the conduct of arbitration proceedings by foreign lawyers in India, the SC held that there is no absolute right of a foreign lawyer to conduct arbitration proceedings in respect of disputes arising out of a contract relating to the international commercial arbitration. In some cases, foreign lawyers may not be debarred from conducting arbitration proceedings arising out of international commercial arbitration in view of Sections 32 and 33 of the Advocates Act, 1961 (‘Advocates Act’). However, they will be governed by code of conduct applicable to the legal profession in India.
Business process outsourcing companies do not come within the purview of the Advocates Act or the Bar Council of India Rules. However, if in pith and substance the services amount to practice of law, then the provisions of the Advocates Act will apply and foreign lawyers/law firms will not be allowed to do so.
 2018 SCC Online SC 214.
Supreme Court grants Recognition to “Living Wills”
The SC, in its judgment dated March 9, 2018 in the case of Common Cause (A Regd. Society) v. Union of India and Another, gave recognition to “living wills” by terminally ill patients, and held that the right to life and liberty as envisaged under Article 21 of the Constitution of India includes the right to live with dignity. The SC further observed that the right to live with dignity also includes the smoothening of the process of dying in case of a terminally ill patient or a person in a persistent vegetative state with no hope of recovery. The SC drew a distinction between active euthanasia and passive euthanasia as the former entails a positive affirmative act, while the latter relates to withdrawal of life support measures or withholding of medical treatment meant for artificially prolonging life. Further, the SC provided that directions and guidelines laid down by it to give effect to passive euthanasia will remain in force till a legislation is passed by the Parliament on this subject.
 Writ Petition (Civil) No. 215 of 2005.
Division Bench of the Bombay High Court restrains Wockhardt from using the mark ‘CHYMTRAL FORTE’
In the matter of Torrent Pharmaceuticals Ltd. (‘Torrent’) v. Wockhardt Ltd. & Anr. (‘Wockhardt’), by way of order dated November 17, 2017, the Division Bench of the Bombay HC set aside the order of the Single Judge dated March 15, 2017 following an appeal filed by Torrent and granted an interim injunction restraining Wockhardt.
Torrent filed a suit inter alia for infringement and passing-off against Wockhardt based on their registrations for the marks CHYMORAL and CHYMORAL FORTE with rights dating back to the year 1962, and Wockhardt’s subsequent adoption, use and registration of the mark CHYMTRAL FORTE (‘Impugned Mark’). The key arguments relied upon by Wockhardt were that: (i) both the rival marks were derived from the active ingredient TRYPSIN – CHYMOTRYPSIN and the prefixes CHYM and CHYMO are publici juris; (ii) the Impugned Mark was not deceptively similar to CHYMORAL FORTE; (iii) Torrent failed to prove any misrepresentation by Wockhardt; and (iv) there has been significant delay as well as acquiescence as the Impugned Mark had been registered and allegedly coexisted in the market with Torrent’s product CHYMORAL FORTE for a period of eight years.
The Single Judge dismissed Torrent’s application for an interlocutory injunction against Wockhardt and held that the three tests in the classical trinity of passing off, i.e. reputation, misrepresentation and likelihood of damage, had not been satisfied, and that Torrent (and its predecessors) were also held to have acquiesced in the use of the Impugned Mark by Wockhardt as it failed to oppose or object to the use and registration for a considerable period of time.
The Division Bench allowed the appeal, inter alia, on the basis that Torrent had satisfied the tests for establishing passing-off. The Division Bench held that in order to prove ‘misrepresentation’, the plaintiff does not have to prove any mala fide intention and the act of putting the goods in the market with a deceptively similar trademark, is enough to constitute misrepresentation. The Division Bench also held that an incorrect test had been applied to determine ‘reputation’ and that association of the product with its source or the maker is not required to prove reputation. Further, the Division Bench observed that the tests laid down in Cadila Health Care Ltd. v. Cadila Pharmaceuticals Ltd. should be adopted while determining possibility of confusion between medicinal products and accordingly, Wockhardt ought to be restrained from continuing the use of the same. On the issue of delay and acquiescence, the Division Bench opined that there was no proof of a positive act attributable to Torrent and mere inaction or delay must not be confused with acquiescence.
Wockhardt has now challenged this order of the Division Bench by way of a Special Leave Petition before the Supreme Court, which is currently pending.
 Commercial Appeal No. 125 of 2017 in Notice of Motion of (L) 35 of 2017 in Commercial Suit (L) 32 of 2017.
Trade variations of footwear / sandals should not be given exclusive monopoly: Delhi High Court denies interim protection for Crocs registered designs
In the matter of Crocs Inc. USA (‘Crocs’) v. Liberty Shoes Limited & Ors. and other footwear manufacturers in India (‘Defendants’), the Delhi High Court (‘Delhi HC’) rejected Crocs’ applications for interim injunctions for piracy of copyright in their registered design.
Crocs had obtained design registrations under the Designs Act, 2000 for its perforated and non-perforated clog-type slippers/shoes in May of 2004. Crocs brought various infringement suits against the Defendants who were manufacturing and selling sandals with clog-type designs largely similar to Croc registered design. The Delhi HC was of the opinion that the registered designs ought not to have been registered in the first place and the registrations were liable to be cancelled as these designs were published and disclosed prior to their registration dates. This finding was arrived at on the basis of internet archival pages dated 2002 (which disclosed similar designs) from the website of Holey shoes. Evidence was also gathered from Crocs’ own website prior to 2004 which also revealed largely similar designs. On the issue of novelty and originality, the Court was of the view that the designs registered by Crocs were neither original nor novel as they were not significantly distinguishable from products already existing in the market and were mere ‘trade variants’ of a sandal, which did not deserve any exclusivity or monopoly.
Copyright Board Merged with the IPAB
Sections 160 and 161 of the Finance Act, which have come into force on May 26, 2017, amend the provisions of the Copyright Act, 1957 and the Trade Marks Act, 1999 to pave way for the merger of the Copyright Board with the IPAB. As a result, all the functions of the Copyright Board (including adjudicating disputes in relation to assignment of copyright, granting of compulsory licenses and statutory licenses in relation to certain types of works) will now get transferred to the IPAB.
Pursuant to powers granted under the Finance Act, the Central Government has promulgated and brought into force the Tribunal, Appellate Tribunal and other Authorities (Qualifications, Experience and other Conditions of Service of Members) Rules, 2017 (‘Tribunal Rules’) which govern the qualifications, experience and other conditions of service of the members of various tribunals, including the IPAB. According to the Tribunal Rules, a search-cum-selection committee would be responsible for the recruitment of members for the IPAB.
Given the fact that the Copyright Board has not been functional for quite a few years now, the merger of the Copyright Board with the IPAB gives a forum to the concerned stakeholders to seek redressal of their grievances. However, it still remains to be seen how effectively the IPAB will be able to perform the tasks, roles and responsibilities erstwhile carried out by the Copyright Board, given the huge backlog of pending matters at the IPAB.
Summary Judgment by the Delhi HC in a Trademark Suit
In the case of Ahuja Radios v. A Karim, filed under the Commercial Courts Act, 2015, the Delhi HC, by its order dated May 1, 2017, passed a summary judgment granting a permanent injunction restraining infringement of trademark, passing off and delivery in favour of the plaintiff, i.e. Ahuja Radios.
The plaintiff had procured an interim injunction on March 6, 2013 against the defendant restraining the defendant from dealing in products (being public address systems and audio equipment) bearing the plaintiff’s model number ‘SSA 250 M’ under the ‘AHUJA’ trademark or those which were deceptively similar. Thereafter, upon the inspection of the defendant’s premises by a local commissioner on April 3, 2013, amplifiers of 250 W [Model No. SSA 250 M] were recovered and the Commissioner’s report mentioned that the defendant had admitted to the amplifiers not being original. Despite of the defendant’s allegation that the recovered amplifiers were fraudulently implanted at its premises, the Delhi HC determined that the plaintiff is the undisputed registered proprietor of the trademark in question and that the defendant is not entitled to use the same. The Court noted that the defendant has no real prospect of resisting the decree of injunction and also has little prospect of succeeding in its defense.
 Ahuja Radios v. A Karim, CS(OS) 447/2013, Delhi High Court (order dated May 01, 2017).
Designation of the Seat of Arbitration is Akin to an Exclusive Jurisdiction Clause
In Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited, the SC held that an arbitration clause, pursuant to which a place has been determined as the ‘seat’, would vest the Courts of such place with exclusive jurisdiction for the purpose of regulating the arbitral proceedings. This is irrespective of the fact that such a venue may not, in the classical sense, have jurisdiction over the dispute at all, in that no part of the cause of action may arisen at such venue. Pursuant to this decision, the SC distinguished arbitral law from the law contained in the provisions of the Code of Civil Procedure, 1908 (‘CPC’) and observed that while under CPC, jurisdiction is closely linked to the place at which the cause of action of arises, under arbitral law, the courts having jurisdiction over the place designated as the seat of the arbitration would have exclusive jurisdiction for the purposes of regulating arbitral proceedings arising out of the agreement between the parties.
 Civil Appeal Nos. 5370-5371 of 2017.
Courts have no Power to Relegate Parties before the Arbitral Tribunal after having set aside the Arbitral Award and on its Own Motion
In Kinnari Mullick v. Ghanshyam Das Damani, the SC held that Section 34(4) of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’) does not allow the Court to suo motu relegate the parties back to the arbitral tribunal after having set aside the arbitral award. It held that the limited discretion available to the Court under Section 34(4) of the Arbitration Act to relegate the parties back to the arbitral tribunal can be exercised only upon a written application made by a party to the arbitration proceedings and not suo motu.
 Civil Appeal No. 5172 of 2017 (Arising out of SLP (Civil) no. 2370 of 2015).
Scope of the term ‘dispute’ under Section 5 (6) of the IBC
In Kirusa Software Private Limited v. Mobilox Innovations Private Limited, the National Company Law Appellate Tribunal (‘NCLAT’) held that the term ‘dispute’ has to be given a wide meaning, for the purpose of Sections 8 and 9 of the IBC, which deal with applications made by an operational creditor. In the instant case, NCLAT held that the term ‘dispute’ has to be given an inclusive meaning and not an exhaustive one, provided it is relatable to the existence of the amount of the debt, quality of good or service or breach of a representation or warranty as provided under Section 5(6) of the IBC. The term should thus cover all disputes on debt, default etc. without being limited to only two ways of disputing a demand made by an operational creditor, i.e. a pending suit or an arbitration.
The NCLAT however also cautioned against an illusory dispute being raised for the first time while replying to the notice under Section 8 of the IBC as a tool to reject an application under Section 9 of the IBC.
 Company Appeal (AT) (Insolvency) 6 of 2017.
Applicability of Section 9 of the Arbitration and Conciliation Act, 1996 to Foreign Awards Prior to Enforcement under Section 48
On April 28, 2017, Bombay HC, in the case of Aircon Beibars FZE v. Heligo Charters Pvt. Ltd held that Section 9 of the Arbitration Act, as amended by the Arbitration (Amendment) Act, 2015, can be invoked in relation to a foreign award prior to the enforcement of such award under Section 48 of the Arbitration Act.
The Petitioners, Aircon Beibars FZE (‘Aircon’), made an application under Section 9 of the Arbitration Act for an order of injunction to protect the assets of the respondent company, Heligo Charters Pvt. Ltd. (‘Heligo’), in order to secure the amount of a final award dated January 25, 2017, made by an arbitral tribunal seated in Singapore in favour of Aircon. An ad-interim order in these terms had already been passed by the Bombay HC on April 17, 2017.
The primary issue before the Bombay HC was whether Section 9 of the Arbitration Act as amended by the Amendment Act would apply to a foreign seated arbitration which commenced after the Amendment Act came into force, and where the award had not yet been enforced under Section 48 of the Arbitration Act. The Bombay HC therefore allowed the respondent’s petition and confirmed the ad-interim order dated April 17, 2017, to come to its finding that the amended Section 9 of the Arbitration Act would be applicable to awards pending recognition under Section 48 of the Arbitration Act.
IBC Update Committee of creditors approves first resolution plan
In a first, the committee of creditors has passed the first resolution plan in regard to a Hyderabad based company, Synergies Dooray Automative Limited. The resolution plan will be submitted to the NCLT on July 6 2017 and is set to be approved by the NCLT on July 11 2017.
Synergies Dooray was put into the resolution process under IBC on January 25 2017 with Mamta Binani as the resolution professional. This was also the first corporate debtor application to be admitted under the IBC. The IBC envisages a 180 day resolution process period (extendable by 90 days) which in this case, is to expire on July 23 2017.
A Guaranteed Mess?
Recent news reports indicate that State Bank of India, India’s largest corporate lender has decided to invoke all outstanding personal and corporate guarantees in relation to companies undergoing Corporate Insolvency Resolution Process (‘CIRP’) under the Insolvency and Bankruptcy Code 2016 (‘IBC’).
The treatment of guarantees issued by and in favour of companies undergoing CIRP should be relatively straightforward under the IBC. But jurisprudence over the last few months in this context has introduced complexity. This note briefly sets out the key themes that have evolved so far.
Invocation of Guarantee issued by a corporate debtor after Insolvency Commencement Date (‘ICD’).
Courts (in the Edu Smart case and MBL case)[i] have held that invoking a guarantee issued by a corporate debtor after its ICD is analogous to foreclosing, recovering or enforcing any security interest in respect of the property of the corporate debtor, which is prohibited on account of the moratorium imposed under Section 14 of the IBC.
Submission of proof of claim for guarantees yet to be invoked
Courts (in the Edu Smart case and the Binani case)[ii] have held that a proof of claim can only be submitted for claims that have crystallized “i.e.,” are due and payable by the corporate debtor on the ICD. A guarantee claim will be considered due and payable only after due invocation under the terms of the contract. So effectively, if a guarantee issued by a corporate debtor has not been invoked before ICD, no proof of claim can be filed. As a result, the rights of such beneficiary post-resolution plan remains uncertain (for the beneficiary and the resolution applicant).
Guarantee issued by a third party (“e.g.,” promoter or group company of the corporate debtor) not undergoing CIRP not hit by moratorium
Some judgements (the Alpha & Omega case and the Schweitzer case)[iii] have indicated that enforcement of any security interest granted by a third party for the debts of the corporate debtor is not prohibited by the moratorium under Section 14 of the IBC, since the moratorium only applies to the security created in respect of the assets of the corporate debtor appearing on its balance sheet. Though these cases don’t explicitly deal with third party guarantees, the principal enunciated could easily be extended to guarantees as well inferring that invoking a third party guarantee after ICD would not be prohibited.
On second thoughts, (invoked) guarantee issued by a third party (“e.g.,” promoter or group company of the corporate debtor) not undergoing CIRP hit by moratorium
Somewhat contrary to the above, the Allahabad High Court (in the Sanjeev Shriya case)[iv] held that in an ongoing CIRP, the obligations of the corporate debtor are in a fluid state and have not been conclusively determined; and that therefore, till such time as the CIRP continues any guarantee given by the promoters of the corporate debtor cannot be enforced since the guarantor’s obligations cannot be established while the company’s obligations are in flux. For the record, the guarantee was invoked before ICD of the corporate debtor.
On further reflection, (invoked) guarantee issued by a third party (“e.g.,” promoter or group company of the corporate debtor) not undergoing CIRP hit by moratorium and cannot be used to start IBC proceedings against the issuer
In the recent Vista Steel case[v], a group company of a borrower had provided a guarantee to a financial creditor. This financial creditor also benefited from security provided by the borrower. There was an ongoing CIRP against the borrower/principal debtor. The financial creditor of the principal debtor (in CIRP) invoked the guarantee granted by the group company before the ICD of the principal debtor. The guarantor did not make payment under the invoked guarantee and so the creditor sought to invoke IBC proceedings against the guarantor (for crystallised debt). The court held that doing so would cause the guarantor to be subrogated to the rights of the secured financial creditor causing creation of a security interest over the assets of the borrower/principal debtor, violating the moratorium under Section 14 of the IBC. On this basis, the court denied the financial creditor from proceeding with the IBC application against the guarantor.
Where do we stand?
The principle set out by the Alpha & Omega case and the Schweitzer case was, in our view, the right way to approach the matter. Subsequent decisions have made it difficult for lenders to proceed simultaneously against guarantors and borrowers. This dilutes the usefulness of a guarantee for a lender and currently provides one of the few silver linings for promoters whose companies are in CIRP/IBC.
[i] Axis Bank Limited v. Edu Smart Services Private Limited NCLT, New Delhi October 27, 2017 and RBL Bank Limited v. MBL Infrastructures, NCLT Kolkata, December 18, 2017.
[ii] Axis Bank Limited v. Edu Smart Services Private Limited NCLT, New Delhi October 27, 2017 and Bank of Baroda v. Binani Cements Ltd., NCLT Kolkata, November 17, 2017.
[iii] Alpha & Omega Diagnostics (India) Ltd. v. Asset Reconstruction Company of India Ltd & Ors, NCLAT, New Delhi July 31, 2017 and Shweitzer Systemtek India Pvt. Ltd. v. Phoenix ARC Pvt. Ltd. & Ors, NCLAT, New Delhi, August 9, 2017.
[iv] Sanjeev Shriya v. State Bank of India, Allahabad High Court, September 6, 2017.
[v] ICICI Bank Limited v. Vista Steel Private Limited, NCLT Kolkata Bench, December 15, 2017
Employment Law Update: Forfeiture of Gratuity
This is an update about a recent judgement of the Supreme Court pertaining to forfeiture of gratuity under the Payment of Gratuity Act, 1972 (Gratuity Act). The Apex Court, in Union Bank of India vs C.G. Ajay Babu and others, has held that forfeiture of gratuity upon termination of employment for an act constituting an offence involving moral turpitude is permissible only if the employee is convicted for the offence by a court of competent jurisdiction.
As per the Gratuity Act, gratuity is payable to employees who have been in continuous employment with the employer for at least five years (beneficially interpreted as four years and two hundred and forty days for those having a six day work week and four years and one hundred and ninety days for those who have a five day work week) at the time of cessation of employment. Gratuity is calculated at the rate of fifteen days’ wages for each year of completed service, subject to a maximum of INR 2,000,000 (~USD 28,500).
As per the statute, gratuity may be forfeited upon termination of employment of the employee:
a. for any act, willful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer, to the extent of the damage or loss so caused;
b. for riotous or disorderly conduct or any other act of violence; or
c. for any act which constitutes an offence involving moral turpitude, provided that such offence is committed in the course of employment.
With respect to forfeiture of gratuity for offences involving moral turpitude, the Supreme Court in the said judgement, has observed that the requirement of the statute is not for an employer to merely prove that the misconduct involved moral turpitude, but also that a court of law duly establishes that the said act is an offence involving moral turpitude under applicable law.
Prohibition on dealing in Virtual Currencies
On April 6, 2018, the RBI issued a circular prohibiting entities regulated by the RBI from dealing in virtual currencies or providing services (including maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer / receipt of money in accounts relating to purchase / sale of virtual currencies) for facilitating any person or entity in dealing with or settling virtual currencies. Prohibited entities already providing these services as on the date of the circular, have been directed to exit such relationship by July 6, 2018.
This RBI circular was challenged in the Supreme Court, which has not granted a stay on the circular.
Summary Dismissal of Suit for infringement
In the matter of Jaideep Mohan v. Hub International Industries & Anr., the Delhi High Court (‘Delhi HC’) summarily dismissed the suit for trademark infringement at the initial stage of framing of issues.
Jaideep Mohan (‘Plaintiff’) had instituted the suit, inter alia, for permanent injunction to restrain Hub International Industries and NV Distilleries & Industries Pvt. Ltd. (‘Defendants’), from using the trade mark ‘GOLDSMITH’ on the grounds that the same is deceptively similar to the Plaintiff’s registered trademark ‘BLACKSMITH’ in respect of identical goods i.e., alcoholic beverages.
The Defendants contended that the Plaintiff cannot claim exclusivity in the mark ‘SMITH’ as the application for registration of the mark ‘SMITH’ in class 33 (which covers alcoholic beverages) was still pending, and, accordingly, argued that the Plaintiff’s suit was liable to be dismissed under Section 17 of the Trade Marks Act, 1999. The Defendants also contended that there are many entities which have been using the word ‘SMITH’ and ‘BLACKSMITH’ prior to the use of the word by the Plaintiff and that the overall packaging and get-up of the rival goods are completely different.
The Delhi HC, relying on Godfrey Philips India Ltd v. PTI Pvt Ltd, summarily dismissed the suit for infringement and passing off and took the view that the terms ‘BLACKSMITH’ and ‘GOLDSMITH’ have a definite meaning and are clearly understood by most of the population of the country, including those who are not conversant with the English language, and hence there was no infringement and the suit was not likely to succeed. The Delhi HC was also persuaded by the fact that more than 90% of the sales of the Plaintiff were effected through defense and police canteens, where the relevant public was unlikely to get confused merely by the commonality of the term ‘SMITH’.
 2018 (74) PTC 154 (Del).
 2017 SCC OnLine Del 12509.
Establishment of an Appellate Tribunal for the State of Maharashtra under RERA
The Real Estate (Regulation and Development) Act, 2016 (‘RERA’) provides for appeals to be preferred to the appellate tribunals of the respective States against the orders passed by the regulatory authorities of such States. For the State of Maharashtra, the Maharashtra Revenue Tribunal (“MahaRT”) was designated as a temporary appellate tribunal for hearing appeals from the orders passed by the Maharashtra Real Estate Regulatory Authority (‘MahaRERA’) till the constitution of the appellate tribunal as required under RERA. The Government of Maharashtra has, on May 8, 2018 constituted the Maharashtra Real Estate Appellate Tribunal (‘Appellate Tribunal’), as the permanent appellate tribunal under RERA for the State of Maharashtra, to hear appeals from the orders passed by MahaRERA. All matters pending with MahaRT now stand transferred to the Appellate Tribunal.
New Plea of Jurisdiction permitted to be raised for the first time during Set-Aside Proceedings for an Arbitration Award
In M/s Lion Engineering Consultants v. State of Madhya Pradesh & Ors., the respondent had filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’) against an award passed in favour of the appellant. The respondent sought to belatedly amend this petition, which was rejected by the trial court, but was allowed by the High Court of Madhya Pradesh. The petitioner approached the Supreme Court contending, inter alia, that the amendment should not have been permitted as it introduced new grounds at the stage of the petition under Section 34 of the Arbitration Act, which had not been raised under Section 16 of the Arbitration Act before the tribunal. The appellant relied on MSP Infrastructure Ltd. v. MPRDC Ltd. (‘MSP Infrastructure’).
The Supreme Court overruled the MSP Infrastructure judgement to hold that there is no bar to the plea of jurisdiction being raised by way of an objection under Section 34 of the Arbitration Act, even if no such objection was raised under Section 16, as both stages are independent of one another. The MSP Infrastructure judgement had also held that public policy of India means the policy of the Union i.e., central law and not State law. The Supreme Court overruled the same to hold that ‘public policy of India’ refers to law in force in India, whether State law or central law.
NCLAT Ruling on Maintainability of Application under the IBC after Winding Up Proceeding is Initiated
In Indiabulls Housing Finance Limited v. Shree Ram Urban Infrastructure Limited, the National Company Law Appellate Tribunal (‘NCLAT’) was faced with the issue of whether an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) is maintainable when winding up proceedings against the ‘Corporate Debtor’ have been already initiated. The impugned order, passed by the National Company Law Tribunal, Mumbai (‘NCLT Mumbai’) had dismissed the application as not maintainable as the winding up proceeding against the ‘Corporate Debtor’ had already been initiated by the High Court of Bombay. The NCLAT upheld the NCLT decision and held that once the second stage i.e., the initiation of liquidation process, is initiated, then there is no question of reverting to the first stage i.e., initiation of corporate insolvency resolution process (‘CIRP’).
NCLAT stays admission of an Insolvency Petition against Reliance entities based on an Out-of-court Settlement
By orders dated May 15, 2018 and May 18, 2018, the NCLT Mumbai had admitted a petition filed under Section 9 of the IBC by Ericsson India Private Limited (‘Ericsson’) against Reliance Communications Limited (‘RCom’), Reliance Infratel Limited (‘RIL’) and Reliance Telecom Limited (‘RTL’). RCom, RIL and RTL, along with certain financial creditors / the Joint Lenders’ Forum, had approached the NCLAT, seeking a stay on the ground that the CIRP would prejudice recovery. On May 30, 2018, the NCLAT passed an order staying the CIRP till September 30, 2018, to enable RCom to pay Ericsson Rs. 550 crore (approx. US$ 80 million) (out of the Rs. 1150 crore (approx. US$ 167 million) due) and settle the matter (‘NCLAT Order’).
The NCLAT has granted a stay on the orders dated May 15, 2018 and May 18, 2018 passed by the NCLT Mumbai, taking into consideration the stand of the parties that if the CIRP was allowed to continue, financial and operational creditors may suffer more loss. The NCLAT Order mandates the resolution professionals to allow the managements of RCom, RIL and RTL to function and has stayed the CIRP until further orders.
This is arguably a precedent on the proposition that even after an operational creditor’s petition is admitted by the NCLT and the CIRP commences, the process can be reversed / stayed if the dues of the operational creditors are settled.
NCLAT Overturns CCI’s Penalty on Hyundai
1. On September 19, 2018, the National Company Law Appellate Tribunal (‘NCLAT’) issued a decision setting aside an order of the Competition Commission of India (‘CCI’) against Hyundai Motor India Limited (‘Hyundai’) (FX Enterprise Solutions India Pvt. Ltd. & St. Antony’s Cars Pvt. Ltd. v. Hyundai Motor India Limited, Case Nos. 36 & 82 of 2014). This decision has interesting ramifications for the decision-making procedure, and evidentiary standards, followed by CCI while assessing allegations of infringement. The NCLAT’s decision is also specifically relevant for businesses which are reliant on distribution-channels. However, unfortunately, the decision misses out an opportunity to clarify the substantive law on anticompetitive vertical restraints under Section 3(4) of the Competition Act, 2002 (‘Competition Act’).
2. CCI had imposed a penalty of Rs 870 million on Hyundai for imposing: (i) resale price maintenance (‘RPM’) by setting and implementing a ‘Discount Control Mechanism’ on its dealers, and (ii) “tie-in” agreements which mandated that its dealers use recommended lubricants (‘CCI Order’).
Analysis of relevant market
3. The NCLAT has not discussed CCI’s substantive findings against Hyundai on RPM and tie-in agreements in detail and also avoided a substantive review of the market definition relied on by the CCI (CCI had defined an upstream market for sale of all brands of passenger cars in India, and a downstream market for the dealership and distribution of Hyundai cars in India). Rather, the NCLAT, relying on the decision of the Supreme Court in Competition Commission of India v. Coordination Committee of Artistes and Technicians of West Bengal Film and Television and Ors. ((2017) 5 SCC 17), found fault with the methodology followed by the Director General (‘DG’) and CCI while defining the relevant markets. According to NCLAT, while defining relevant markets, both DG and CCI had failed to properly consider factors they were statutorily obliged to, namely: (i) the factors under Section 19(6) of the Competition Act, including regulatory trade barriers, local specification requirements, in determining the relevant geographic market; and (ii) factors under Section 19(7) of the Competition Act, including the physical characteristics and end-use of goods, and consumer preferences, in determining the relevant product market.
CCI’s assessment of the DG’s Report
4. Interestingly, the NCLAT went on to hold that CCI cannot merely rely on the findings in the DG’s report to establish a contravention under Section 27 of the Competition Act; rather, it is required to make an independent analysis of the evidence available on record. The NCLAT further noted that the CCI Order was self-contradictory, reflecting a non-application of mind by CCI, and even went on to point out certain examples of such contradictions. For example, at paragraph 108 of the CCI Order, CCI stated that the cancellation of warranty upon use of non-recommended oils / lubricants does not amount to a contravention of Section 3(4)(a) of the Competition Act (which deals with tie-in arrangements). However, it went on to conclude (at paragraph 116) that Hyundai contravened the tie-in provision of the Competition Act in mandating that its dealers use recommended lubricants / oils and in penalising them for use of non-recommended lubricants and oils. NCLAT also noted CCI’s and DG’s failure to support the conclusion that Hyundai had penalized its dealers for not acting in accordance with the tie-in agreement, and further observed that CCI and DG had failed to consider that it is normal for car dealers of all companies to recommend the use of a particular quality of lubricant and oil based on vehicle-type.
5. While it does not contain a substantial ruling on the assessment of anticompetitive vertical restraints in India, this is nevertheless a significant decision – especially, as it clarifies CCI’s proper role while adjudicating infringement allegations, which is to objectively assess the evidence presented in the DG’s investigation report and carry out its own independent analysis before arriving at any conclusions.
Investor-State Arbitration 2019 | India
1 Treaties: current status and future developments
1.1 What bilateral and multilateral treaties and trade agreements has your country ratified?
India is a signatory to 83 Bilateral Investment Treaties (“BITs”), of which it has ratified 74. Information available in the public domain as of August 2018 (including the Joint Interpretative Statement for BITs), suggests that 55 are currently in force.
India has signed and ratified trade agreements with several countries such as Korea, Singapore, Japan and Malaysia. Additionally, India is a signatory to several tax treaties as well as intergovernmental agreements such as the General Agreement on Trade-in Services (“GATS”). India has also signed framework agreements with the Association of South East-Asian Nations (“ASEAN”), Mercado Común Sudamericano (“MERCOSUR”) and the European Union (“EU”).
1.2 What bilateral and multilateral treaties and trade agreements has your country signed and not yet ratified? Why have they not yet been ratified?
India has not ratified a total of nine BITs and five other trade agreements.
The making of international treaties is an executive act. Accordingly, in order to ensure that India is in a position to discharge all obligations under a given treaty, the process of ratification is undertaken only after the relevant domestic laws have been amended, or the enabling legislation has been enacted in cases where there are no domestic laws on the subject. While there is no publicly available information on the status of the ratification of treaties, the long, drawn-out process may cause some delay in concluding the ratification.
1.3 Are your BITs based on a model BIT? What are the key provisions of that model BIT?
Indian BITs were largely based on the Model India BIT 2003. On December 28, 2015 a new Model BIT (“Model BIT”) was introduced. This was seen as India’s reaction to the large number of treaty claims brought against India over the last decade. Through the Model BIT, India has adopted an approach which tilts in favour of the State. The Indian government has also expressed its intention to terminate at least 58 of the existing BITs and renegotiate the same on the conservative wording of the 2015 Model BIT. Some of the key provisions of the Model BIT are outlined below:
a) The Model BIT seeks to narrowly define “investment” by adopting a hybrid asset/ enterprise-based definition. An enterprise has been defined to mean any legal entity constituted in compliance with the laws of the Host State and having its real and substantial business operations in the territory of the Host State. For the purpose of the definition of an enterprise, “real and substantial business operations” are required to satisfy certain cumulative criteria, such as, the enterprise must: (i) be a commitment of capital or other resources; (ii) for a certain duration; (iii) for expectation of profit or gain; (iv) involve the assumption of risk; and (v) be of significance for the development of the Host State”.
b) The definition of investor includes both natural and juridical persons who own or control an investment in the Host State.
c) The Model BIT does not include a Most Favoured Nation obligation or a broad Fair and Equitable Treatment obligation. Instead, the Model BIT provides for a defined scope of Standard of Treatment. The 2015 Model BIT however, does accord full protection and security to the investor and its investment and also extends National Treatment to investors.
d) Notably, the Model BIT requires an investor to exhaust local remedies before initiating arbitration proceedings.
1.4 Does your country publish diplomatic notes exchanged with other states concerning its treaties, including new or succeeding states?
India does not maintain publicly accessible treaty preparatory materials.
1.5 Are there official commentaries published by the Government concerning the intended meaning of treaty or trade agreement clauses?
The Government of India does not publish official commentaries concerning the intended meaning of a treaty or trade agreements.
2 Legal frameworks
2.1 Is your country a party to (1) the New York Convention, (2) the Washington Convention and/or (3) the Mauritius Convention?
India is party to the United Nations Convention on the Recognition and Enforcement of Foreign Awards, 1958 (“New York Convention”). India is not however, a signatory to either the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“the Washington Convention”) or the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (“the Mauritius Convention”).
2.2 Does your country also have an investment law? If so, what are its key substantive and dispute resolution provisions?
In addition to compliance with statutes that govern every contract, India is an exchange controlled jurisdiction and investments made by non-resident investors require compliance with the Foreign Exchange Management Act 1999 and Regulations (“FEMA”). Further, depending on the target entity, investments may also require to be made in compliance with the Securities and Exchange Board of India Act 1992 and Regulations (that apply to an entity whose shares are traded on a stock exchange). Further, if the investment crosses certain thresholds, one needs to comply with the Competition Act 2002. There are also specific verticals where specific laws may be applicable, for instance, the Insurance Act, 1938 that governs investments by a non-resident.
Disputes in India are adjudicated in a manner similar to commonwealth jurisdictions. They are dealt with by either civil courts or specialised tribunals. Given the backlog of cases in Indian courts, large commercial contracts often provide for adjudication of disputes by arbitration.
2.3 Does your country require formal admission of a foreign investment? If so, what are the relevant requirements and where are they contained?
The principal law governing foreign investment in India is the FEMA, the rules prescribed under the FEMA and circulars issued by the Reserve Bank of India (“RBI”). Additionally, the Department of Industrial Policy and Promotion (“DIPP”) makes policy pronouncements on foreign investment through press notes or press releases which are notified by the RBI. Such regulations, press notes, press releases, circulars, etc., together constitute the regulatory framework for foreign investment.
In India, foreign investment can be made either:
1. by the Automatic route which does not require formal/prior approvals from the RBI; or
2. by the Government route which requires prior approval from the concerned Ministries/ Departments through a single window: The Foreign Investment Facilitation Portal (“FIFP”). The FIFP is administered by the DIPP, Ministry of Commerce and Industry and the Government of India.
The Government route however, is mandatory in investments made beyond certain thresholds in some sectors such as mining, defence, broadcasting, telecommunications and banking.
3 Recent Significant Changes and Discussions
3.1 What have been the key cases in recent years relating to treaty interpretation within your jurisdiction?
The Indian courts have not yet had the opportunity to interpret the terms and/or standards of protection under an investment treaty.
3.2 Has your country indicated its policy with regards to investor-state arbitration?
Investor-State Arbitration began to gain major traction in India as a result of the treaty award passed against India in White Industries Australia Limited v. Republic of India (“White Industries”). In May 2002, the Investor-Claimant (White Industries Australia Ltd.) obtained an ICC award against Coal India Limited (a State-owned Indian company). For a period of over nine years, White Industries sought to enforce this award before the Delhi High Court. Finally, in 2010, White Industries took the matter to investment treaty arbitration under the India-Australia BIT on the grounds that the inordinate delay in Indian courts to enforce the arbitration award violated various substantive protections afforded under the said BIT.
White Industries led to a drastic shift in India’s stance on Investor-State Arbitration, which is clearly reflected in India’s Model BIT. India recently concluded a BIT with Brazil. While the text of the India-Brazil BIT is not available at present, it has been widely reported that the BIT does not contain a provision for Investor-State Arbitration.
India also recently approved a BIT with Cambodia, which is the first BIT to be based on the Model BIT.
3.3 How are issues such as corruption, transparency, MFN, indirect investment, climate change, etc. addressed, or intended to be addressed in your country’s treaties?
The Model BIT lays down certain obligations pertaining to corruption. These obligations provide that an investor shall not (i) offer, promise, or give any undue pecuniary advantage, gratification or gift whatsoever, either (ii) directly or indirectly, to a (iii) public servant or official of the Host State as an inducement or reward for doing or forbearing to do any official act, or (iv) make any illegal contributions to candidates for public office or to political parties amongst others.
The Model BIT provides for transparency in the form of specific disclosures to be made by an investor from time to time, as well as transparency in arbitral proceedings.
The Model BIT has omitted the MFN obligation altogether. Further, the cumulative requirements to constitute an investment (as outlined in detail in question 1.3 above) leave little scope for an indirect investment to be afforded substantive protections under the Model BIT.
Finally, the Model BIT carves out broad exceptions for actions or measures of the Host State which have been taken with a view to protect and conserve the environment.
3.4 Has your country given notice to terminate any BITs or similar agreements? Which? Why?
As of 2018, India has discontinued several BITs with most of its trading partners and has issued termination notices to about 58 countries, including several EU States. While no other official government clarification is presently available on the subject, several newspaper reports have noted that only a few countries such as Armenia, Belarus, Kyrgyz Republic, Oman, Qatar, Switzerland, Tajikistan, Thailand, Turkmenistan, UAE and Zimbabwe have agreed to renegotiate the treaties after the draft model BIT was approved by the Union Cabinet in December 2015.
4 Case trends
4.1 What investor-state cases, if any, has your country been involved in?
As of September 11 2018, a total of 24 treaty arbitrations have been initiated against India [according to publicly available information, including the website of the United Nations Conference on Trade and Development (“UNCTAD”)]. Currently, 13 claims are pending, nine have been settled, and an award has been passed in two claims. The White Industries award (discussed in question 3.2 above) was decided against India. In what may be termed as India’s first known victory in treaty arbitration – Louis Dreyfus Armateurs SAS v. The Republic of India, India has recently defeated a claim of USD 36 million by Louis Dreyfus (a French investor), under the France-India BIT. This case has not been updated on the UNCTAD website – which still reflects 14 pending cases.
4.2 What attitude has your country taken towards enforcement of awards made against it?
As it has been noted in respect of question 4.1 above, of all the treaty claims that have been made against India, only one has resulted in an adverse award (White Industries) so far. According to publicly available information, Coal India Limited paid AUD 9.8 million to the investor. There are no known cases at present, wherein India has sought to resist the enforcement of unfavourable awards.
4.3 In relation to ICSID cases, has your country sought annulment proceedings? If so, on what grounds?
India has not sought annulment proceedings in relation to ICSID cases.
4.4 Has there been any satellite litigation arising whether in relation to the substantive claims or upon enforcement?
No. Refer to questions 3.1 and 4.2 above.
4.5 Are there any common trends or themes identifiable from the cases that have been brought, whether in terms of underlying claims, enforcement or annulment?
Of the 13 treaty arbitration cases pending against India, a majority of the cases include a claim for indirect expropriation, the most prominent one being the claims brought by the Vodafone Group.
It has also been observed that there is a trend amongst investors to institute parallel commercial proceedings. For instance, Devas Multimedia (a Mauritian entity) pursued treaty arbitration against India for the termination of its contract with government-owned Antrix Corp Ltd., the commercial wing of the Indian Space Research Organisation. Devas Multimedia also pursued a parallel commercial arbitration under the investment contract in which it received a favourable award for an amount of USD 562.5 million. As far as the treaty arbitration is concerned, the investor has received a favourable determination on the issue of liability, the valuation of which is currently pending.
Investment arbitration disputes in India have been growing in number mostly in sectors such as telecommunications, oil and gas.
5.1 Does your country allow for the funding of investor state claims?
Third- party funding has not been blessed with specific legislation in India. Although there is no express bar on obtaining third-party funding (“TPF”), TPF agreements will nevertheless be subject to several complications due to the lack of legislative framework to regulate such funding.
5.2 What recent case law, if any, has there been on this issue in your jurisdiction?
The subject of TPF is still at a very nascent stage in India and there is no recent case law that adequately addresses the subject. However, the Supreme Court of India has in Bar Council of India v. A.K. Balaji & Ors. (2018 5 SCC 379) observed that, there appears to be no restriction on third parties’ funding litigation and getting repaid upon the outcome of the litigation.
5.3 Is there much litigation/arbitration funding within your jurisdiction?
In practice, TPF institutions have claimed to pursue opportunities in India. Due to the absence of publicly available data on the subject, it is, however, not possible to provide a definitive position on this.
6 The Relationship Between International Tribunals and Domestic Courts
6.1 Can tribunals review criminal investigations and judgments of the domestic courts?
Article 14.2 of the Model BIT clearly states that in addition to the specified limits on a tribunal’s jurisdiction, the tribunal will not have jurisdiction to re-examine any legal issue which has been finally settled by any judicial authority of the Host State. It also provides that the tribunal cannot review the merits of a decision made by a judicial authority of the Host State.
However, the bar on a tribunal’s jurisdiction to review judgments of domestic courts is not absolute, insofar as Article 3 of the Model BIT provides that each Party shall not subject investments of investors of the other Party to measures which constitute a denial of justice under customary international law. Thus, it appears that where the tribunal is required to decide as to whether the Host State’s treatment of an investor constitutes denial of justice, the tribunal would be in a position to review the decision of domestic courts.
6.2 Do the national courts have the jurisdiction to deal with procedural issues arising out of an arbitration?
A recent decision of the Delhi High Court in Antrix Corporation Ltd. v. Devas Multimedia (FAO (OS) (COMM) 67/2017) highlights some of the procedural difficulties associated with arbitrations seated in India. Devas initiated arbitration proceedings before the International Chamber of Commerce (“ICC”) for wrongful termination of the contract by Antrix Corporation Limited (“Antrix”) (see question 4.5 above).
The arbitration clause (pertaining to the appointment of arbitrators) substantially departed from the ICC Rules in relation to the appointment of arbitrators. ICC notified the parties that it was not in a position to make such a departure from its Rules. Antrix objected to the position taken by the ICC and filed an application before the Chief Justice of India under Section 11 (for appointment of an arbitrator) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”).
Thereafter, Antrix filed an application under Section 9 of the Arbitration Act (for interim reliefs) before the Bangalore City Civil Court, seeking to restrain Devas from proceeding with the ICC arbitration which was contrary to the parties’ arbitration agreement. In April 2014, the ICC arbitration was stayed by the Chief Justice’s designate and was only subsequently dismissed by the Supreme Court.
Finally, the ICC tribunal awarded Devas USD 562.5 million on the basis that Antrix had wrongfully terminated the agreement with Devas. Upon obtaining the award, Antrix Ltd. proceeded to file a Section 9 application to attach Antrix’s bank accounts in the Delhi Courts. Finally, the Delhi High Court held that designating a seat does not automatically confer exclusive jurisdiction upon the courts of the seat.
In Indian seated arbitrations, parties do, in some cases, run the risk of arbitration-related proceedings being dragged before different forums.
It must be noted however, that the ICC award was passed in relation to the commercial arbitration proceedings initiated against Antrix. The outcome of the treaty arbitration between Devas and Antrix is still pending.
6.3 What legislation governs the enforcement of arbitration proceedings?
The enforcement of a foreign award in India is governed by Part II of the Arbitration Act, which incorporates the provisions of the New York Convention. With respect to enforcement of a domestic award, the same is governed by Part I of the Arbitration Act.
Pertinently, the Delhi High Court in Union of India v. Vodafone Group PLC United Kingdom & Anr. (“Vodafone Case”) (CS (OS) 383/ 2017) held that investment arbitration disputes are fundamentally different from commercial disputes and are thus not governed by the provisions of the Arbitration Act. An appeal before a Division Bench of the Delhi High Court is currently pending.
6.4 To what extent are there laws providing for arbitrator immunity?
A new provision has been introduced in the Arbitration Act by way of the Arbitration and Conciliation (Amendment) Bill, 2018 (“Amendment Bill”). At present, the Amendment Bill has been passed by the Lok Sabha (Lower House) and is pending approval of the Rajya Sabha (Upper House) of the Indian Parliament. The newly inserted Section 42B provides that no suit or other legal proceedings shall lie against the arbitrator for anything which is done in good faith or intended to be done under the Arbitration Act or the rules or regulations made under it.
6.5 Are there any limits to the parties’ autonomy to select arbitrators?
Where India is the seat of arbitration, the parties’ choice of arbitrators would be subject to Schedules V and VII of the Arbitration Act. On October 23, 2015, India became the first jurisdiction to statutorily adopt the IBA Guidelines on Conflicts of Interest in International Arbitration (“IBA Guidelines”) in Schedules V and VII. Schedule V contains circumstances under the Orange List and Schedule VII contains circumstances under the Red List of the IBA Guidelines. Parties can however, waive the bar on the appointment of an arbitrator (where such arbitrator is squarely covered by the circumstances under Schedule VII) after a dispute has arisen between such parties.
6.6 If the parties’ chosen method for selecting arbitrators fails, is there a default procedure?
Where India is the seat, as per Section 11 of the Arbitration Act, if the parties’ chosen method for selecting arbitrators fails, a party may apply to the Supreme Court (in case of an international commercial arbitration) to take the necessary measures to secure an appointment. The Amendment Bill now provides for appointment by arbitral institutions designated by the Supreme Court, for international commercial arbitrations.
6.7 Can a domestic court intervene in the selection of arbitrators?
As addressed in question 6.6 above, in arbitrations where India is not the seat, there would be no court involvement in the selection of arbitrators.
7 Recognition and Enforcement
7.1 What are the legal requirements of an award for enforcement purposes?
Under Article I of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (embodied in the First Schedule of the Arbitration Act), India has declared that the New York Convention applies only to differences arising out of legal relationships, whether contractual or not, that are considered “commercial” under Indian law.
At present, it is uncertain whether investment arbitrations are covered by the Arbitration Act for the purposes of enforcement. This has already been highlighted with respect to the Vodafone Case in question 6.3 above.
India has not officially recognised all of the signatories to the New York Convention and thus, Indian courts will only enforce foreign awards under the Convention if such awards have been issued in a State that has been notified in the Official Gazette of India, as a country to which the New York Convention applies. At present, only Australia, France, China, Hong Kong, Japan, Singapore, the United Kingdom and the United States have been notified by India in the Official Gazette.
7.2 On what bases may a party resist recognition and enforcement of an award?
A party may resist the enforcement of an award in the circumstances set out in Article V of the New York Convention. These circumstances have been incorporated in Part II, Chapter I of the Arbitration Act along with some amendments. Section 44 lays down circumstances in which an award may be declared to be in conflict with the public policy of India. These circumstances have been limited to an award which is (i) induced or affected by fraud or corruption, (ii) in violation of Section 75 of Section 81 of the Arbitration Act, (iii) in contravention with the fundamental policy of Indian law, and (iv) in conflict with basic notions of morality or justice.
An explanation to Section 44 further clarifies that a test as to whether there has been a contravention of the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
7.3 What position have your domestic courts adopted in respect of sovereign immunity and recovery against state assets?
India does not have a separate legislation on foreign State sovereign immunity. Section 86 of the Code of Civil Procedure (“CPC”) provides that no foreign State may be sued in any Court (otherwise competent to try the suit) without prior consent of the Central Government.
While India became a signatory to the the United Nations Convention on the Jurisdictional Immunities of the States and their Property on January 12, 2007, the same has not yet been brought into force. It is however, indicative of India’s inclination to more formally adopt the “qualified” immunity approach, which has, in any case, been adopted by Indian courts. In Ethiopian Airlines v. Ganesh Narain Saboo (“Ethiopian Airlines”) (2011 8 SCC 539), the Supreme Court held that Ethiopian Airlines was not entitled to sovereign immunity with respect to a commercial transaction, which was in consonance with the growing body of international law principles.
7.4 What case law has considered the corporate veil issue in relation to sovereign assets?
As highlighted in the preceding question, the Supreme Court in Ethiopian Airlines made it abundantly clear that a corporate entity which carries on business or trade in India does not fall within the protection of the doctrine of sovereign immunity as embodied in Section 86 of the CPC.
In Qatar Airways v. Shapoorji Pallonji (2013 2 BomCR 65), the Bombay High Court placed reliance upon the decision of the Supreme Court in Andhra Pradesh State Road Transport Corporation v. Income-tax Officer (AIR 1964 SC 1486), to hold that in dealing with corporations established by a State, the corporation, though statutory (or not), has a personality of its own and this personality is distinct from that of the State or other shareholders. In this context, the Supreme Court also referred to the observations made in Tamlin v. Hanna (1950 1 K.B. 18) that, “the corporation is its own master and is answerable as fully as any other person or corporation. It is not the Crown and has none of the immunities and privileges of the Crown. Its servants are not civil servants and its property is not that of the crown”.
These decisions collectively lay down a position that so far as commercial actions of a given corporation are concerned, the corporate veil may not be lifted for the purpose of claiming sovereign immunity.
1. Rajendra Barot, Partner
2. Sonali Mathur, Partner
Delhi High Court imposes costs on Defendant in a Trademark Infringement Action to Curb Dilatory Tactics
Skechers Inc. (‘Skechers’), a US footwear brand, filed a civil suit before the Delhi High Court (‘Delhi HC’) against a local footwear manufacturer, M/s Pure Play Sports and other retailers, on the grounds of trade dress infringement, passing-off, dilution, unfair competition etc., as the defendants were involved in the commercial dealing of lookalikes / replicas of Skechers GOwalk 3 products. On May 25, 2016, the Delhi HC granted an interim injunction restraining the defendants and appointed a local commissioner to visit the premises of the defendants to seize the offending goods.
As the defendants failed to appear and/or file pleadings in their defense, within the prescribed period under the recently introduced Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, the right of all the defendants to file their written statements was declared to have been closed, and the Delhi HC proceeded ex-parte against the defendants, except Pure Play. In view of the above, the Delhi HC passed a summary order for disposal and imposed costs in favor of Skechers and opined that it had the power to pass a summary decree in a suit, even in the absence of a specific application requesting the same, as it is satisfied that nothing would come out of putting the parties through the rigmarole of a trial. Thereafter, Skechers filed an application under Sections 35, 35A and 35B of the Civil Procedure Code read with Chapter 23 of the Delhi High Court Original Side Rules, 2018 (‘DHC Rules’), accompanied with a detailed bill of costs, praying for quantification of the costs of the proceedings due to be paid to it. This application file by Skechers was the first of its kind under the DHC Rules.
The key considerations to be taken into account by a Court when granting such costs are (i) judicial time consumed in litigation; (ii) delay in service of summons or efforts made; (iii) delay caused by any party by raising frivolous issues or unnecessary objections; (iv) failure of a party to effect discovery of documents or refusal to answer interrogatories; (v) incorrect denial of facts/ documents, thus, protracting trial; (vi) monetary and other stakes involved in the proceedings; (vii) costs incurred on execution of commission; and (viii) any other cost which the Court may deem fit and proper. Further, under Rule 2 of the DHC Rules, the Taxing Officer / Joint Registrar of the Court (’JR’) has been empowered to entertain, adjudicate and quantify costs by appreciating the documentary evidence put forth.
After reviewing the bill of costs submitted by Skechers, the JR awarded costs amounting to Rs. 8,698,173 (approx. US$118,000) to Skechers. Pure Play has filed a chamber appeal against the order of JR, which is currently pending adjudication. However, the execution petition of Skechers has been admitted and the Court has directed Pure Play to disclose its assets and remain present before the Court on the next date of hearing.
This case has set an important precedent on two counts. First, it lays down with clarity that a Court has the powers to pass a summary judgment / decree suo motu, even in the absence of a written application. Second, the quantum of costs granted by the JR demonstrate the Court’s seriousness in curbing the dilatory tactics employed by litigants, which will likely act as an effective deterrent / disincentive for infringers, who otherwise find it profitable to continue their illegal activities until shut down by an injunction of the Court (as they are fully aware of general trend of Courts being reluctant to impose financial sanctions in intellectual property matters).
AZB represented Skechers before the Delhi HC.
 Skechers USA Inc. II v Pure Play Sports, CS(COMM) 573/2016, High Court of Delhi
Supreme Court Upholds the Constitutional Validity of Aadhaar Act
The SC, by way of its order in Justice K.S. Puttaswamy (Retd.) & Anr. v. Union of India & Ors., upheld the constitutional validity of the Aadhaar (Targeted Delivery of Financial and other Subsidies, Benefits and Services) Act, 2016 (‘Aadhaar Act’), but struck down certain provisions including its linking with bank accounts, mobile phones and school admissions. The judgment was passed with a majority of 4:1.
Some of the key observations of the majority decision are set out below:
i. The Aadhaar Act meets the concept of limited government, good governance and constitutional trust, and does not tend to create a surveillance state. It is not held to be violative of the right to privacy under Article 21 of the Constitution of India (‘Constitution’) and serves the legitimate State aim, i.e. to ensure that social benefits reach the deserving community.
ii. The passing of the Aadhaar Act as a ‘Money Bill’ was upheld on the ground that Section 7, which is the core provision of the Aadhaar Act, satisfies the conditions of Article 110 of the Constitution (which sets out the criteria for a ‘Money Bill’).
iii. Authentication records are not to be retained beyond six months (as opposed to six years required under the Aadhaar Act).
iv. Any individual, whose information is sought to be released, will be afforded with an opportunity of being heard. The provision enabling any body corporate/person to seek authentication services on the basis of purported agreement between an individual and such body corporate/ person has been struck down as unconstitutional as it would lead to commercial exploitation of individual biometric and demographic information by private entities.
v. Section 139AA of the IT Act which makes it mandatory to quote Aadhaar when filing tax returns or for allotment of Permanent Account Number, was upheld.
vi. A robust data protection regime, in the form of an enactment on the basis of Justice B.N. Srikrishna (Retd.) Committee Report with necessary modifications, should be adopted. Please refer to our Client Alert dated August 3, 2018 available at https://www.azbpartners.com/bank/the-personal-data-protection-bill-2018/, for key highlights of the Personal Data Protection Bill, 2018.
Dissenting with the majority, Justice D.Y. Chandrachud held the Aadhaar Act to be unconstitutional for failing to meet the requirements of a Money Bill under Article 110(1) of the Constitution. While elaborating on several other infirmities in the Aadhaar Act, he also declared the Aadhaar Act to be violative of various fundamental rights, including the right to privacy and directed the Government to initiate steps to bring a fresh legislation for ensuring conformity with this judgment, till which time the data collected under the Aadhaar Act will neither be destroyed nor be used for any purpose whatsoever. If the Government fails to bring such legislation within a period of one year, it is directed that the data will be destroyed.
 Judgment dated September 26, 2018, in Writ Petition (Civil) No. 494 of 2012
Application for Setting Aside an Arbitral Award to require Examination of Evidence beyond record of the Arbitrator
In its judgment dated August 20, 2018 in M/s Emkay Global Financial Services Limited v. Girdhar Sondhi, the Supreme Court of India examined whether a party can lead evidence in proceedings instituted under Section 34 of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’). Relying on its judgment in Fiza Developers & Inter-Trade Private Limited v. AMCI (India) Private Limited., the Supreme Court held, inter alia, that in order to ascertain whether a party has “furnishe[d] proof” under Section 34(2)(a) of the Arbitration Act, a Court need not examine anything beyond the record of the proceedings before the arbitrator. If the matters relevant to the determination of issues exist, which are not contained in the record of the arbitration proceedings, the same may be brought to the notice of the Court by way of affidavits filed by the parties in the proceedings under Section 34 of the Arbitration Act. It was also held that cross-examination of persons swearing to such affidavits should not be permitted unless absolutely necessary.
M/s Emkay Global Financial Services Ltd. v. Girdhar Sondhi, 2018 SCC OnLine SC 1019
Fiza Developers & Inter-Trade Pvt. Ltd. v. AMCI (India) Private Limited, (2009) 17 SCC 796
Madras High Court directs non-signatories to arbitrate under the ‘Group of Companies’ doctrine
A division bench of the Madras High Court (‘Madras HC’) in its judgment dated July 23, 2018 in SEI Adhavan Power Private Limited & Anr. v. Jinneng Clean Energy Technology Limited & Other, held that non-signatories to an arbitration agreement may be referred to arbitration, on the basis of the ‘group of companies’ doctrine. AZB & Partners successfully represented Jinneng Clean Energy Technology Limited (‘Jinneng’) in this matter.
Jinneng, along with SunEdison Energy Holding (Singapore) Pte Ltd. (‘SunEdison Singapore’) were parties to a Non-Disposal Undertaking (‘NDU’). Upon a breach of the NDU, Jinneng initiated arbitration against SunEdison Singapore as well as SEI Adhavan Power Private Limited (‘SEI’) and SunEdison Solar Power India Private Limited (‘SunEdison India’), neither of which were signatories to the NDU. SEI and SunEdison India therefore filed a suit before the Madras HC, seeking an injunction against the arbitration, on the ground that they were non-signatories to the NDU and thus were not bound by the arbitration agreement thereunder.
The Madras HC (single and division benches) referred SunEdison India and SEI to arbitration under the NDU, on the ground that SEI, SunEdison India and SunEdison Singapore constituted a single economic entity, i.e., the SunEdison group of companies, were “intrinsically connected to each other”, and the transactions between the parties were all in respect of the same project. The Madras HC referred to and relied upon the Supreme Court judgment in Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. and Others, in which it was held, inter alia, that an arbitration agreement entered into by a company within its group of companies can bind its non-signatory affiliates.
 Judgment dated July 23, 2018 in Original Side Appeal Nos.170 to 175 and 206 to 210 of 2018 (Madras High Court)
 Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. and Others, (2013) 1 SCC 641
Payment of Stamp Duty not a Requisite for Enforcement of a Foreign Arbitration Award in India
In the case of Shriram EPC Limited v. Rioglass Solar SA, the SC held that non-payment of stamp duty would not render a foreign arbitration award unenforceable in India. The Supreme Court found that the term ‘award’ under Item 12 of Schedule I of the Indian Stamp Act, 1889 (‘Stamp Act’) has never included a foreign award, from the date of commencement of the Stamp Act till date.
Tracing the history of the Stamp Act, the erstwhile provisions of the Code of Civil Procedure, 1882 and the Indian Arbitration Act, 1899, the SC concluded that the Stamp Act only referred to an award made in the territory of British India provided that such award was not made pursuant to a reference made by an order of the Court in the course of a suit. Accordingly, an award made in a princely State or in a foreign country, if enforced by means of a suit in British India, would not be covered by the expression ‘award’ as contained in Item 12 of Schedule I of the Stamp Act. The Supreme Court noted that this position has remained unchanged even after the introduction of the Arbitration Act, and, therefore, a foreign award is not liable to stamp duty under the Stamp Act.
 Judgment dated September 13, 2018, in Civil Appeal No. 9515 of 2018 (Supreme Court of India)
Update on Amendments to the Commercial Courts Act, 2015
The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Act, 2018 (‘Amendment Act’) came into force with effect from May 3, 2018, amending the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (‘2015 Act’). Some of the notable amendments to the 2015 Act are: (i) decrease in the value of the subject matter in respect of which a commercial suit may be instituted from Rs. 1 crore (approx. US$ 135,000), to Rs. 3 lakh (approx. US$ 4,000); and (ii) a suit not contemplating urgent interim relief cannot be instituted unless the remedy of pre-institution mediation has been exhausted.
Amendments to Specific Relief Act, 1963
The Central Government has, by way of a notification dated August 1, 2018, introduced the Specific Relief (Amendment) Act, 2018 (‘Amendment Act’), which amends the Specific Relief Act, 1963 (‘1963 Act’). However, the date on which the provisions of the Amendment Act will come into effect has not yet been notified.
The 1963 Act provides for, inter alia, parties to a contract to seek specific performance when aggrieved by the non-performance of such contract. Some of the key amendments introduced by the Amendment Act have been set out below:
i. Specific performance: The 1963 Act provided that specific performance is a limited remedy, which may be granted by a Court, at its discretion, subject to certain conditions. The Amendment Act empowers the Court to grant specific performance as a general rule, subject to the certain exceptions. A brief comparison of the conditions, pre and post amendment of the 1963 Act, under which Courts would not grant specific performance are:
|A contract for the non-performance of which compensation is an adequate relief||This condition does not apply|
|A contract which runs into such minute or numerous details or which is so dependent on the volition of the parties or otherwise from its nature is such that the court cannot enforce specific performance of its material terms||These conditions do not apply|
|A contract which is so dependent on the personal qualification of the parties that the court cannot enforce specific performance of its material terms||This condition is still applicable|
|A contract which is in its nature determinable||This condition is still applicable|
|A contract, the performance of which involves the performance of a continuous duty which the court cannot supervise||This condition is still applicable|
ii. Substituted performance: The Amendment Act gives an affected party the option to arrange for performance of the contract by a third party or by his own agency (substituted performance), and costs for such substituted performance may be recovered from the defaulting party. After obtaining substituted performance, specific performance cannot be claimed. However, the affected party’s right to claim compensation will not get affected.
iii. Infrastructure projects: A schedule has been added pursuant to the Amendment Act which broadly describes the infrastructure projects which would be under the purview of the 1963 Act. These projects can be categorized as follows: (i) transport; (ii) energy; (iii) water and sanitation; (iv) communication (such as telecommunication); and (v) social and commercial infrastructure (such as affordable housing).
iii. Injunctions: The Amendment Act prevents Courts from granting injunction in respect of contracts relating to infrastructure projects, if such an injunction would hinder or delay the progress or completion of the infrastructure project.
iv. Special Courts: The Amendment Act requires that State Government will, in consultation with the Chief Justice of the relevant High Court, designate one or more Civil Courts as Special Courts to deal with cases under the 1963 Act, in relation to infrastructure projects. Such cases must be disposed off within 12 months, which period can be extended by six months, of the date of service of summons to the defendant.
v. Experts: The Amendment Act inserts a new provision which empowers the Courts to engage experts in suits where expert opinion may be needed. Such expert may be examined in the Court in relation to the expert’s findings, opinions, etc.
Maintainability of a Derivative Action in India on Behalf of a Foreign Company
DERIVATIVE SUIT BY SHAREHOLDERS IS MAINTAINABLE IN INDIA ONLY IF THE COMPANY IS AMENABLE TO JURISDICTION OF INDIAN COURTS
On November 26, 2018, the Supreme Court (‘SC’) in Ahmed Abdulla Ahmed Al Ghurair v. Star Health And Allied Insurance Company Limited, laid down the law in relation to derivative action on behalf of a foreign company in India, forum non conveniens, under Clause XII of the Letters Patent Act, and declaratory relief in relation to beneficial interest of shares sought in the teeth of Section 89 of the Companies Act, 2013.
A derivative suit was filed in the Madras High Court in January 2017, on behalf of a Dubai incorporated company (‘ETA Star Dubai’), by its Dubai based minority shareholders (holding 34% shares) (‘Minority Shareholders’). The Minority Shareholders of ETA Star Dubai sought to protect and declare the beneficial interest of ETA Star Dubai in the 6.16% shares (‘Shares’) of Star Health Allied & Insurance Private Company Limited (‘Star Health’) (one of the largest health insurance company incorporated in India). It was alleged that, though these Shares were legally registered in the names of defendant Nos. 3 to 7 (being the majority shareholders of Eta Star Dubai) (‘Majority Shareholders’), the company, i.e. ETA Star Dubai was in fact the beneficial owner of the Shares (since the acquisition of these Shares had been indirectly funded by ETA Star Dubai). In light of the above, the Minority Shareholders further claimed that the Majority Shareholders had, in collusion with Star Health, acted against the interest of ETA Star Dubai.
The Single Judge granted Clause XII Leave and allowed the suit to proceed (after rejecting applications for revocation of the leave and for rejection of the Plaint). This order was challenged and overturned by the Division Bench of the Madras High Court, which held the following:
- A Court can decline the exercise of jurisdiction under Clause XII of the Letters Patent Acton the principle of forum non conveniens. This is the first SC decision recognizing the principle of forum non conveniens (i.e. the Court is not the appropriate/ convenient forum) for a Clause XII leave.
- When the dispute is between the shareholder and a company with respect to the shares held in another company, the mere existence of registered office of the subsequent company is not a factor to clothe jurisdiction upon the court which has territorial jurisdiction over the area covering the registered office of the other company.
2. Derivative Action
A derivative action of a foreign company is not maintainable in India as such a company is not amenable to the jurisdiction of Indian Courts. The fundamental test for a derivative action is that ‘such an action will necessary have the sanction of a law and this shall have no obligation to a foreign entity having beneficial interest which can be enforced in India especially when there are provisions dealing with such a situation.’
3. Beneficial Interest
If a person holding beneficial interest in shares fails to make necessary declarations under Section 89 of the Companies Act, 2013, then neither the beneficial owner nor any person claiming through it can thereafter try to enforce the beneficial interest by seeking declaratory relief from an Indian court.
The SC has dismissed all 13 SLPs filed by the Minority Shareholders and affirmed the judgment of the Division Bench of the Madras High Court.
AZB & Partners successfully represented the Majority Shareholders in this case. This decision is significant, not only in law, but also as a means to pave the way for a proposed transaction involving sale of 100% of Star Health’s shares to the private equity investors (for approximately US$ 1 billion). Notably, AZB & Partners had also acted for the promoters for this transaction earlier this year.
 Clause XII of the Letters Patent of the High Court of Madras (‘Letters Patent’) sets the limits of the original jurisdiction of the Court. Except for certain suits, the High Court of Madras has jurisdiction to entertain suits where inter alia part of the cause of action has arisen within its territorial limits. However, for this purpose, the leave of the Court has to be first obtained.
Changing Landscape of Intermediary Liability
The High Court of Delhi (‘Court’), in a spate of recent judgments, has critically evaluated the liability of e-commerce platforms in respect of trademark infringement, by carefully examining the business model of the e-commerce platform and the role played by such e-commerce platform in the overall transaction, involving marketing and sale of products to end consumers. The Court has provided substantive guidance on when an e-commerce player operating a marketplace can claim to be an ‘intermediary’, and claim immunity or ‘safe harbour’ under Section 79 of the Information Technology Act, 2000 (‘IT Act’). Section 79 of the IT Act, more popularly known as the ‘safe harbour’ provision, essentially immunizes certain types of intermediaries from liability qua third-party content and material, hosted or made available by them, provided such intermediaries fulfil the prescribed conditions.
The first and foremost of these judgments was rendered in the matter of Christian Louboutin SAS v. Nakul Bajaj & Ors. In this case, Christian Louboutin (‘Plaintiff’), the registered proprietor of the single-colour mark for its distinctive ‘red sole’ filed a suit against www.darveys.com (‘Defendant’), a website marketing itself as a ‘luxury brands marketplace’ (‘Louboutin Case’), for marketing, offering and selling allegedly counterfeit Louboutin branded products using the name and image of Mr. Christian Louboutin. According to the Plaintiff, the Defendant was also using the Plaintiff’s registered trademarks and the names ‘Christian’ and ‘Louboutin’ as ‘meta-tags’ on its website and in turn, diverting internet traffic. The Defendant, however, argued that the goods sold on the website were genuine. The Defendant further claimed that it was merely booking orders, placed by customers, whose supplies are effected through various sellers and, therefore, it was a mere intermediary, entitled to protection under Section 79 of the IT Act.
At the outset, the Court examined the definition of an ‘intermediary’ under the IT Act and emphasized that its role is limited to ‘receiving, storing, transmitting an electronic record or providing a service with respect to that record’. The Court further observed that in assessing whether an e-commerce platform can be considered as an ‘intermediary’, it is important to assess whether such platform played only an inactive or passive role in the marketing and selling process; in other words, whether such a platform was merely acting as a conduit or passive transmitter of records or of information. Further, the Court also observed that it must be analysed whether such an e-commerce platform is taking adequate measures to ensure that no unlawful acts are committed by the sellers. The Court laid down certain factors to assess this, which include: (i) the terms of agreements entered into between the platform and the sellers; (ii) the manner in which terms were enforced; (iii) whether adequate measures have been put in place to ensure trademark rights are being protected; and (iv) whether the platforms have knowledge of unlawful acts.
The Court found that the Defendant was not an ‘intermediary’ as it was substantively involved in the business operations and had control over the products being sold on the platform. The Court found that the Defendant was actively involved in, inter alia: (a) identifying the sellers; (b) enabling the sellers actively; (c) promoting them; (d) selling the products in India; (e) providing guarantee of authenticity for products on the platform; and (f) claiming that it has relationships with the exclusive distributors of the Plaintiffs’ products etc. The Court further observed that on www.darveys.com, the seller and the person from whom the seller purchases the goods are not known and it is also unclear whether goods are genuine. In view of this, the Court observed that the conduct of the Defendant amounted to ‘conspiring, abetting, aiding or inducing unlawful activity’ as it promoted the infringing products to its members who signed up on the website (by payment of a membership fee). In view of this, the Court came to a finding that the Defendant was not entitled to any protection as an ‘intermediary’ under the IT Act.
The Court, inter alia, directed the Defendant to disclose complete details of all its sellers including their contact information, obtain a certificate of authenticity from its sellers and implement a system whereby upon being notified of any counterfeit product by the Plaintiff, the Defendant must ascertain the authenticity of the product with the seller on its site and thereafter, examine the same with evidence to check if it must be removed. Lastly, the Court further ordered that the Defendant should remove all meta-tags containing the Plaintiff’s mark.
Placing reliance on the Louboutin case, the Court has held two more e-commerce players, being www.kaunsa.com and www.shopclues.com liable for trademark infringement in the cases of Luxottica v. Mify Solutions and L’Oréal v. Brandworld & Anr., respectively.
These decisions are undoubtedly a big step forward in ensuring that brand owners’ rights on e-commerce platforms are protected. The decision in the Louboutin case is especially important as it throws light on specific situations in which an e-commerce marketplace can claim ‘safe harbour’ under the IT Act. Another key practical implication of these cases is that e-commerce marketplaces may now be required to re-evaluate their business models as well as the role they play in the marketing and sale of products on their platforms.
 CS(COMM) 344/2018, order passed by Hon’ble Mrs. Justice Pratibha Singh dated November 2, 2018.
 CS (COMM) 453/2016, Luxottica Group S.P.A. and Ors. vs. Mify Solutions Pvt. Ltd. and Ors. (12.11.2018 – DELHC)
 CS(COMM) 980/2016 – Delhi High Court
SEBI notifies the SEBI (Settlement Proceedings) Regulations, 2018
On November 30, 2018, SEBI issued the SEBI (Settlement Proceedings) Regulations, 2018 (‘New Settlement Regulations’) which are effective from January 1, 2019, on the basis of the report of the High Level Committee chaired by Justice Dave and have replaced the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 (‘Old Settlement Regulations’). The key changes introduced by the New Settlement Regulations are as follows:
(i) Definition of ‘securities laws’ has been widened to include all laws administered by SEBI. The Old Settlement Regulations merely covered the SEBI Act, 1992, the Securities Contract (Regulations) Act, 1956 and the Depositories Act, 1996. Similarly, the definition of ‘specified proceedings’ has been expanded to include proceedings pending before any forum, and not just SEBI.
(ii) The ‘cooling-off’ period of 24 months prescribed under the Old Settlement Regulations between the date of the last settlement order and an application for a new settlement has been done away with. Further, the restriction on applying for a settlement, if the applicant has received two settlement orders in the past 36 months, has also been removed.
(iii) Under the Old Settlement Regulations, violation of laws pertaining to insider trading, communication of unpublished price sensitive information, fraudulent and unfair trade practices having market-wide impact (such as front-running, mis-selling to an investor, violation of internal code of conduct in insider trading), could not be considered for settlement, as these were considered ‘serious offences’. The New Settlement Regulations remove any such restriction, subject to the qualification that SEBI may not consider any such specified proceeding, where the alleged default tends to have a market-wide impact, cause losses to a large number of investors or affect the integrity of the market.
(iv) A person cannot apply for a settlement if he is classified as a willful defaulter, a fugitive economic offender or a person who has defaulted in payment of any fees due or penalty imposed under any securities law.
(v) The New Settlement Regulations additionally grant SEBI the discretionary power to settle a proceeding confidentially, in order to benefit applicants who agree to provide ‘substantial assistance in the investigation, inspection, inquiry or audit, to be initiated or ongoing, against any other person in respect of a violation of securities laws’. The applicant’s identity and any information, evidence or documents provided by the applicant will be kept confidential in such a case.
The New Settlement Regulations have introduced a new concept of ‘settlement schemes’, by way of which SEBI will specify the procedure and terms of settlement of specified proceedings under a settlement scheme for any class of persons involved in respect of any similar defaults specified. A settlement order issued under such a settlement scheme will be deemed to be a settlement order under the New Settlement Regulations.
New SEBI Order in the Satyam Matter
SEBI order dated November 2, 2018 (‘New Satyam Order’) modified its previous orders in the matter of Satyam Computer Services Limited (‘Satyam’), in respect of B. Ramalinga Raju, B. Rama Raju, B. Suryanarayan Raju, and SRSR Holdings Private Limited (collectively, the ‘Satyam Noticees’). In the previous orders, the Satyam Noticees had been restrained from trading in the stock market for a certain period and had been directed to disgorge wrongful gains made by them, inter alia, by falsifying financial statements of Satyam and committing insider trading in Satyam’s shares.
The key legal issue involved in the New Satyam Order was whether the benefit of ‘intrinsic value’ can be given to the Satyam Noticees while computing the disgorgement amount (by deducting the ‘intrinsic value’ of shares from the receipts from sale of such shares in order to arrive at the illegal gain). SEBI, relying on its previous decisions, held that the Satyam Noticees should not be given the benefit of discounting the intrinsic value, as it would amount to conferring undeserving benefits and may act as a moral hazard rather than as a deterrent. Therefore, only the acquisition cost and statutory dues were deducted from the sale proceeds to arise at the disgorgement amount.
SEBI also considered the point in time from which interest may be levied on the disgorgement amount. Relying on a previous decision of the Supreme Court (‘SC’) on this question, SEBI reiterated that interest could be levied right from the inception of the cause of action (i.e. date of commission of the fraudulent actions). However, SEBI did not interfere with its previous orders in this matter which had levied interest on the disgorgement amount from January 7, 2009, being the date on which Mr. Ramalinga Raju confessed that he had committed fraud with respect to Satyam’s books of accounts.
SC upholds Ultratech’s Bid for Binani Cement
The SC, in its decision dated November 19, 2018, upheld the bid of UltraTech Cement (‘Ultratech’) for Binani Cement Limited (‘BCL’). A review petition filed by Rajputana Properties Private Limited (‘RPPL’) challenging the aforesaid order of the SC, was rejected on January 8, 2019.
RPPL and Ultratech, an entity belonging to the Aditya Birla group, had both submitted bids in the corporate insolvency resolution process (‘CIRP’) of BCL under the Insolvency and Bankruptcy Code, 2016 (‘IBC’). RPPL’s bid was declared the highest bidder (‘H1’) (on the basis of the points obtained as per the evaluation criteria) while Ultratech’s bid was declared the second highest (‘H2’). Subsequently, Ultratech raised its bid amount significantly and agreed to deliver a higher payout to all financial and operational creditors. However, by this time the deadline for submission of bids, as set out in the request for resolution plan (‘RFRP’) formulated by the committee of creditors (‘CoC’), had already lapsed. The CoC refused to entertain the bid submitted by Ultratech on the ground of late submission and approved the bid submitted by RPPL. Ultratech challenged the CoC’s decision to select RPPL as the successful bidder, relying on the provision contained in the RFRP, which permitted the CoC to consider bids from any party, till such time that a resolution plan submitted for BCL was approved by the NCLT.
The National Company Appellate Tribunal (‘NCLAT’) referred to the aforementioned provision in the RFRP and approved the resolution plan submitted by Ultratech on the ground that it was offering a higher amount, thereby ensuring compliance with the primary objective of IBC, i.e. ensuring maximization of the value of the assets of the corporate debtor. The NCLAT also noted that the bid submitted by RPPL was discriminatory on the ground that it differentiated between financial creditors who are equally situated (i.e. financial creditors to whom the corporate debtor owed a debt in its capacity as the primary borrower and financial creditors to whom the corporate debtor owed a debt in its capacity as a guarantor for third party debt) and did not balance the interests of the other stakeholders, such as operational creditors. Finally, the NCLAT also observed that any resolution plan, which is shown to be discriminatory against one or other financial creditor or operational creditor, can be held to be violative of the IBC. RPPL appealed the NCLAT’s decision before the SC. However, the SC refused to set aside the NCLAT’s judgement, while observing that there was no infirmity in the order.
Commencement of TRAI Tariff Order, Interconnection Regulations and Quality of Service Regulations for Broadcasting and Cable Services
As reported in the September 2018 issue of Inter alia, the validity of the Telecommunication (Broadcasting and Cable) Services (Eighth) (Addressable Systems) Tariff Order, 2017 (‘Tariff Order’) and the Telecommunication (Broadcasting and Cable) Services Interconnection (Addressable Systems) Regulations, 2017 (‘Interconnection Regulations’) issued by the TRAI on March 3, 3017 had been upheld by the Madras High Court. Consequently, the Tariff Order, the Interconnection Regulations and the Telecommunication (Broadcasting and Cable) Services Standards of Quality of Service and Consumer Protection (Addressable Systems) Regulations, 2017 came into effect from July 3, 2018. Subsequently, Star India preferred an appeal before the SC against the Madras High Court judgement arguing, inter alia, that the Tariff Order and the Interconnection Regulations regulated the content of the transmission, which was solely within the ambit of the Copyright Act, 1956 and fell outside the jurisdiction of the TRAI. The SC, by its judgment dated October 30, 2018, upheld the jurisdiction of the TRAI to regulate the content of transmission in light of the larger public interest involved and upheld the validity of the Interconnection Regulations and the Tariff Order in their entirety.
Passing-off and Design Infringement can be tried together in a Composite Suit
In the matter of Carlsberg Breweries v. Som Distilleries and Breweries, the special bench of the Delhi High Court has, in its order dated December 14, 2018, held that the joinder of two separate causes of action, one for infringement of a registered design and the other for passing-off is permissible and can be tried together in a composite suit. The plaintiffs in this suit alleged both infringement of a registered design as well as passing-off of the plaintiff’s trade dress in respect of the bottle and overall get up of its ‘Carlsberg’ mark. The defendants, in response, raised the threshold objection that such a composite suit was not maintainable in view of the judgment of the full bench (three judges) of the Delhi High Court in the matter of Mohan Lal v. Sona Paint The Single Judge hearing this matter was of the opinion that the decision in Mohan Lal required a second look and based on the Chief Justice’s instructions, the present Special Bench (five judges) was constituted.
The majority in the Mohan Lal case had held that two separate suits would have to be filed for actions arising out of the infringement of a registered design and passing-off. The Court in the Mohan Lal case had however clarified that if such actions are filed at the same time, or in close proximity, they may be tried together as there may be some aspects which may be common.
The special bench of the Delhi High Court overruled the decision of the full bench of the Delhi High Court, inter alia on the ground that the full bench overlooked provisions of Order II Rule 3 of the Code of Civil Procedure, 1908, which permits joinder of multiple causes of action. The special bench further observed that the cause of action of passing-off and that of design infringement, in the instant case, emanated from the same transaction and therefore it was inconceivable for the cause of action to be ‘split’ in some manner and presented in different suits. Therefore, the Special Bench held that to avoid multiplicity of proceedings, on account of common questions of law and fact, a joinder of such causes of action would be permissible.
 CS(OS) 1485/2015.
 Mohan Lal v. Sona Paint, 2013 (55) PTC 61 (Del) (FB).
SC confirms Applicability of Limitation Act to Applications made under Section 7 and 9 of IBC
The SC, in its decision dated October 11, 2018, in B. K. Educational Services Private Limited v. Parag Gupta and Associates, addressed the issue of the applicability of the recently amended Section 238A (which came into effect on June 6, 2018) of the IBC, which deals with applicability of the Limitation Act, 1963 (‘Limitation Act’) to all applications made under the IBC. SC held that the Limitation Act applies to all applications filed under the IBC from the inception of the IBC, i.e. December 1, 2016 since Section 238A was a clarification of the existing position under the IBC and the law of limitation is procedural in nature and, therefore, can be applied retrospectively.
 Civil Appeal No. 23988 of 2017.
SC distinguishes between ‘Place’, ‘Venue’ and ‘Seat’ of Arbitration
The SC had referred Union of India v. Hardy Exploration and Production to a three-judge bench of the SC to decide the basis and principles on which the ‘seat’ of the arbitration is to be determined when the arbitration agreement specifies the ‘venue’ for holding the arbitration sittings but not the ‘seat’. In the present case, the law governing the substantive contract was Indian law. The law governing the arbitration proceedings was the UNCITRAL Model Law. The venue of the arbitration proceedings was Kuala Lumpur. Article 20 of the UNCITRAL Model Law provides that the parties are free to agree on the ‘place’ of arbitration, failing which the arbitral tribunal shall determine the place of arbitration.
The three-judge bench of the SC, in its decision dated September 25, 2018, observed that when the ‘place’ is specified, and no other condition is attached to it, it is equivalent to ‘seat’ and that finalizes the issue of jurisdiction. However, if a condition is attached to the term ‘place’, the attached condition has to be satisfied for the ‘place’ to become equivalent to ‘seat’. The three-judge bench concluded that in this case neither the parties had chosen a juridical seat nor the tribunal had made an express determination of the ‘seat’ in the arbitral award. Therefore, the conditions attached to the term ‘place’ had not been satisfied. Reiterating the settled distinction between the ‘juridical seat’ and ‘venue’ of arbitration, the SC held that Kuala Lumpur could not be considered to be the ‘juridical seat’ merely because it was the venue and that the award was signed in Kuala Lumpur. In view of the above, the three-judge bench came to the conclusion that the courts in India have jurisdiction to hear the application for setting aside under Section 34 under the Arbitration and Conciliation Act, 1996 (‘A&C Act’).
 Civil Appeal No. 4628 of 2018.
SC interprets scope of Definition of ‘International Commercial Arbitration’ under Arbitration and Conciliation Act
The SC in its decision dated October 3, 2018 in Larsen and Toubro Limited v. Mumbai Metropolitan Region Development Authority addressed the issue of: (i) whether a consortium formed between an Indian company (i.e. L&T) and a foreign company (i.e. Scomi Engineering BHD) is a ‘body corporate’ or an ‘association’; and (ii) whether an arbitration proceeding in which such consortium is a party, would be considered to be an International Commercial Arbitration under the A&C Act. The SC held that it was not open for L&T and Scomi to act as independent entities while dealing with Mumbai Metropolitan Region Development Authority as they will have to deal with the MMRDA only as a consortium only and not as two separate entities. Thus, it was held that the consortium formed by L&T and Scomi falls within the meaning of an association under Section 2(1)(f)(iii) of the A&C Act. The SC further held that since the lead member of the consortium was L&T, a company incorporated in India, and the consortium’s office was in Mumbai, the central management and control of the consortium was in India and, therefore, the matter did not qualify as an international commercial arbitration under the A&C Act.
 Arbitration Petition (C) No. 28 OF 2017.
 An ‘international commercial arbitration’ is defined at Section 2(1)(f) of the A&C Act as an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is—(i) An individual who is a national of, or habitually resident in, any country other than India; or (ii) A body corporate which is incorporated in any country other than India; (iii) A company or an association or a body of individuals whose central management and control is exercised in any country other than India; (iv) the Government of a foreign country.
SC holds Jurisdiction of Consumer Courts cannot be Curtailed Despite Existence of Arbitration Agreement
The SC, in its decision dated December 10, 2018, in Emaar MGF Land Limited v. Aftab Singh has held that the remedy available to a consumer under the Consumer Protection Act, 1986 (‘CPA’) is a special remedy in law. Hence, the jurisdiction of consumer courts cannot be curtailed despite the existence of an arbitration agreement between the parties to a dispute. The SC further stated that the 2015 amendment to Section 8 of the A&C Act were not to override special / additional remedies provided under different statutes, including the CPA.
 2018 SCC OnLine SC 2771.
SC upholds Optional Arbitration Clause
The SC, in its decision dated September 14, 2018, in Zheijang Bonly Elevator Guide Rail Manufacture Co. Ltd. v. Jade Elevator Component has upheld the validity of optional arbitration clauses i.e. dispute resolution clauses which present parties with a choice to resolve disputes between them either through arbitration or through litigation in court. The SChas held that where parties have agreed to such an optional clause, and one party invokes arbitration, the dispute shall be referred to arbitration and not litigation. This decision alters the previously settled position of law that a court shall refer parties to arbitration only if there is a clear and unequivocal intention of parties to arbitrate disputes arising out of a contract.
 2018 (9) SCC 774.
Supreme Court Upholds the Constitutionality of the IBC
The constitutional validity of the Insolvency & Bankruptcy Code, 2016 (“IBC”) had been challenged in the Supreme Court on various grounds. In its Order today, the Supreme Court has upheld the constitutional validity of the IBC in its entirety, and has made certain observations to narrow the ambit of Section 29A of the IBC. The Order of the Supreme Court has been recently published, and we will circulate our detailed analysis of the Order shortly.
Mr. Bahram N. Vakil, one of the founding partners of AZB & Partners was a member of the Indian Government’s Bankruptcy Law Reform Committee which was instrumental in drafting the policy and legislative framework of the IBC. He is now a member of the Indian Government’s Insolvency Law Committee, constituted to conduct an ongoing review of the IBC and recommend amendments/clarifications.
Supreme Court Upholds Constitutionality of the Insolvency and Bankruptcy Code, 2016
On January 25, 2019, in the matter of Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India, the Supreme Court (‘SC’) delivered a landmark verdict upholding the constitutionality of various provisions of the Insolvency and Bankruptcy Code, 2016 (‘Code’). While declaring the Code to be a beneficial legislation with a primary focus on revival and continuation of the corporate debtor, and not being a mere recovery legislation for the creditors, the SC has, inter-alia, dealt with the following issues:
1. Classification of Operational and Financial Creditors is not Unconstitutional
One of the key challenges to the Code was on account of differential treatment between operational and financial creditors, and such differentiation being violative of the principle of equality enshrined under Article 14 of the Constitution of India. Keeping in mind that the primary objective of the Code is resolution and not liquidation, the classification was alleged to be arbitrary and unreasonable. The SC upheld the classification / differential treatment between “financial creditors” and “operational creditors” and held that such distinction is neither unreasonable nor discriminatory and hence, is not violative of Article 14.
Following are some of the various differences in the nature of the two classes of creditors outlined and examined by the SC:
(i) Role of financial and operational creditors
Financial creditors, unlike operational creditors, are involved in assessing the viability of the corporate debtor from the very beginning and are also involved in the restructuring / reorganization of the borrower in the event there is financial stress. Further, the difference also lies in the nature of agreements with the two kinds of creditors (in terms of secured / unsecured, long term / short term, dispute resolution process and so on). Therefore, there is an intelligible differentia between the two which has a direct relation to the object of the Code, i.e. maximum recovery while preserving the corporate debtor as a going concern.
(ii) No Voting Rights
When dealing with the issue of operational creditors not having voting rights in the Committee of Creditors (‘CoC’), the SC referred to the Report of the Bankruptcy Law Reforms Committee and the Report of the Insolvency Law Committee and observed that financial creditors, i.e., banks and financial institutions, are best equipped to assess the viability and feasibility of the business of the corporate debtor; whereas operational creditors are only involved in the recovery of amounts and are typically unable to assess the viability and feasibility of the business.
(iii) Notice and Hearing
On the issue of notice and hearing, the SC referred to various provisions of the Code and its judgement in Innoventive Industries Ltd. v. ICICI Bank. The SC observed that a corporate debtor is served with a copy of the application with the adjudicating authority and has the opportunity to file a reply and be heard. The Code prescribes penalties for furnishing false information and for fraudulent or malicious initiation of proceedings. Further, a financial creditor has to prove ‘default’ as opposed to an operational creditor who has to merely ‘claim’ a right to payment of liability or obligation in respect to the debt which may be due.
Upon bearing this aspect in mind, the difference between triggering an insolvency resolution process by financial creditors under Section 7 and by operational creditors under Sections 8 and 9 of the Code becomes clearer.
(iv) Safeguards for Operational Creditors
The SC further noted that while looking into the viability and feasibility of resolution plans that are approved by the CoC, tribunals always examine whether or not the operational creditors were given roughly the same treatment as the financial creditors and whether plans have been modified such that the rights of the operational creditors are safeguarded. Further, the operational creditors are required to be paid liquidation value at the minimum. The amended Regulation 38 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 further strengthens the rights of operational creditors by providing priority in payment over financial creditors.
2. Constitutional Validity of Settlement Post Admission [Section 12A]
On settlement of proceedings under the Code post initiation of corporate insolvency resolution process under Section 12A, the SC observed that the proceedings under the Code are a collective proceeding and therefore, the body which is to oversee the resolution process should be consulted before any corporate debtor is permitted to settle its debt. As a result, the SC deferred to legislative intent on the requirement of 90% voting share of the CoC for approval or withdrawal of application. It was further clarified that between the initiation of the insolvency resolution process and the constitution of the CoC, applications for withdrawal or settlement are to be made to the NCLT under Rule 11 of the National Company Law Tribunal Rules, 2016. It further clarified that if the CoC arbitrarily rejects a just settlement and/or withdrawal claim, the National Company Law Tribunal (‘NCLT’), and thereafter, the National Company Law Appellate Tribunal (‘NCLAT’) can set aside such decision under Section 60 of the Code.
3. Persons not Eligible to be Resolution Applicant [Section 29A and Section 35(1)(f)]
Section 29A of the Code declares certain persons as not eligible to be resolution applicants and the liquidator is also barred from selling property or actionable claims of the corporate debtor to such persons. The constitutionality of the provision was challenged on the ground that Section 29A(c) is not restricted to malfeasance and is retrospective and, therefore, arbitrary.
The SC clarified that categories of persons who are held ineligible from submitting a resolution plan under the section is not restricted to people who are malfeasant (such as an undischarged insolvent). Following the observations made by the SC in Arcelor Mittal India Private Limited v. Satish Kumar Gupta, the SC held that a promoter or any resolution applicant has no vested right to apply for being considered as a resolution applicant.
It is settled law that a statute is not retrospective merely because it affects existing rights; nor is it retrospective merely because a part of the requisites for its action is drawn from a time antecedent to its passing. On the issue of time period of one year provided in Section 29A(c), the SC observed that the primary basis for Section 29A lies in the fact that a person who is unable to service its own debts for such a long period of time is unfit to be a resolution applicant. It referred to circulars issued by the Reserve Bank of India which grant a long grace period to persons unable to pay debts, before an asset is classified as a non-performing asset.
Related Party and Relatives
While dealing with the concept of ‘related parties’ and ‘relatives’ under the Code, the SC has, however, read down this Section to provide that in relation to ‘connected persons’ it should only be persons who are connected with the business activity of the resolution applicant who are disqualified under Section 29A, rather than the original scope, which covered all ‘connected persons’.
4. Distribution of Assets in Liquidation [Section 53]
The challenge to Section 53 on the ground that operational creditors are subordinate to all other creditors, including other unsecured financial creditors, in the liquidation process was rejected. The SC observed that the reason for differentiating between secured financial debts and unsecured operational debts is the relative importance of the two types of debts when it comes to the object sought to be achieved by the Code. Repayment of financial debt infuses capital in the economy.
With reference to workmen dues, which are also unsecured, it was observed that they have traditionally been placed above most other debts. Unsecured debts are of various kinds, and as long as there is some legitimate interest sought to be protected, having relation to the object sought to be achieved by the statute in question, Article 14 does not get infringed.
5. Other Key Observations
- The exemption granted to micro, small and medium enterprises under section 29A is valid. The rationale for excluding such industries from the eligibility criteria laid down in Section 29A(c) and 29A(h) is because in the case of MSME industries, other resolution applicants may not be forthcoming, which may inevitably lead to liquidation and not resolution.
- The resolution professional is a facilitator of resolution plans whose administrative functions are overseen by the CoC and the NCLT. Therefore, it only has administrative and no quasi-judicial powers. On the other hand, when the liquidator ‘determines’ the value of claims admitted under Section 40, such determination is a ‘decision’, which is quasi-judicial in nature.
- Circuit benches of the NCLAT are to be established by the Union of India within 6 months from the date of the order.
- The NCLT and NCLAT must function under the Ministry of Law and Justice and not the Ministry of Corporate Affairs and the executive should follow the earlier judgements of the Court in this regard.
- The constitutional challenge to the Code based on information utilities being private bodies and use of their records as conclusive evidence of default was rejected by the Court. It was noted that such evidence is only prima facie evidence of default, which is rebuttable by the corporate debtor and further referred to the requirements of authentication and verification by the corporate debtors.
 (2018) 1 SCC 407
 Section 35(1)(f) of the Code.
 Civil Appeal Nos. 9401-9405/2018, decided on October 4, 2018.
A Look Back at 10 Years Of CCI’s Penalties
The behavioural provisions of Competition Act, 2002 (‘CA02’), i.e., Section 3 relating to anti-competitive agreements and Section 4 relating to abuse of dominant position, were operationalised on May 20, 2009. Section 27 of CA02 empowers Competition Commission of India (‘CCI’) to impose penalties on any person or enterprise violating these provisions. Given the passage of nearly a decade since the behavioural provisions of CA02 were operationalised, this article attempts to analyse the penalties levied by CCI.
Types of Penalties that CCI may Impose
Section 27 of CA02 empowers CCI to use the following metrics to impose penalties:
(i) For vertical restraints and abuse of dominant position: penalty of up to 10% of the average turnover for the last three preceding financial years upon the infringing person or enterprise (‘Average Turnover Metric’); and
(ii) For cartels:
(a) penalty of up to 10% of the average turnover for the last three preceding financial years upon the infringing person or enterprise (‘Cartel Average Turnover Metric’); or
(b) penalty of up to three times of the profit of the infringing producer, seller, distributor, trader, or service provider for each year of the continuance of cartel or 10% of its turnover for each year of the continuance of cartel, whichever is higher (‘Cartel Profit Metric’).
Further, Section 48 of CA02 also allows CCI to penalise individuals in-charge of and responsible to the enterprise for the conduct of the business of the enterprise or any a director, manager, secretary or other officer of the enterprise whose consent, connivance, or negligence resulted in the contravention by the enterprise.
A Look at the Penalties on Enterprises in relation to Cartels
CCI imposed its first penalty on May 25, 2011 – two years after the enforcement of the behavioural provisions. A review of the 55 decisions issued by CCI in relation to cartels so far shows that lowest penalty imposed by CCI on an enterprise in the last decade is approximately INR 15,000 (approximately US$211) and the highest penalty imposed by CCI on an enterprise is INR 1,323.6 crores (approximately US$186.06 million), with the highest cumulative being approximately INR 6,300 crores (approximately US$885.58 million).
A further analysis indicates that CCI prefers to use the Cartel Average Turnover Metric, having done so in approximately 80% of the cases. CCI has started imposing penalties using the Cartel Profit Metric only recently, having used it in only 6 out of the 55 aforementioned cases.
It is also noteworthy that while CCI has not hesitated to use the highest possible Cartel Average Turnover Metric of 10% (25 cases), its decisions do not provide any rationale for meriting imposition of high penalties on these enterprises. However, a visible pattern apparent is that CCI has imposed the highest possible Cartel Average Turnover Metric in cases where the absolute value of the turnover of the enterprise was relatively low. Accordingly, despite the use of the highest possible metric, the final penalty amount in each of these cases was less than/approximately INR 1 crore (approximately US$140,000).
When using the Cartel Profit Metric to determine penalty, CCI has only gone up to two times the profits of the enterprise over the last three years and has not imposed the maximum possible penalty of up to three times the profits of the enterprise in the last three years.
Based on the nature of offence, CCI has consistently used a higher Cartel Average Turnover Metric in cases involving limitation of production, with the average being approximately 9.5%. CCI has used a broad range of 3%-10% when using the Cartel Average Turnover Metric to determine penalties in price-fixing cases.
A leniency regime was introduced in India in 2009. CCI has issued five decisions involving varying reductions in penalty from 20%-100%, pursuant to this regime in the last two years. However, CCI’s decisions do not detail the rationale for the reduction in penalty. For instance, in Brushless DC Fans case, CCI granted a penalty reduction of 75% to the first applicant (who was eligible for a reduction of up to 100%). CCI’s reasons for granting a lesser reduction were: (a) the applicant approached CCI at a later stage in investigation; and (b) CCI already possessed some evidence. However, it is not clear why the CCI chose to reduce the penalty by 75% in particular rather than, for instance, 85% or even 70%.
Analysis of Abuse of Dominance (‘AoD’) Penalties
In AoD cases, CCI is only empowered to use the Average Turnover Metric. A review of CCI orders relating to AoD suggests that CCI has imposed fines in fewer AoD cases, as compared to cartels – a total of only 16 orders. The lowest penalty imposed by CCI is INR 7 lakh (approximately US$9,840). The lower figure was possibly on account of the recent decision of the Supreme Court of India (‘Supreme Court’) clarifying that penalties must be calculated only on the basis of relevant turnover. The highest penalty imposed by CCI on an enterprise, Tata Motors, is INR 1,346.46 crores (approximately US$189.27 million as of January 2019), with the highest cumulative penalty being nearly INR 3,000 crores (approximately US$421.7 million) in the same CCI decision. Further, unlike cartel cases, CCI has used the highest possible Average Turnover Metric of 10% sparingly (only 2 out of 16 cases). In one such case, CCI noted that the ‘quantum of penalties imposed must correspond with the gravity of the offence and the same must be determined after having due regard to the mitigating and aggravating circumstances of the case’. However, CCI decision failed to apply this test to the facts of the case. The table below also shows the penalty imposition trend based on allegations against the enterprise:
|Allegation||Number of cases||Lowest penalty percentage||Highest penalty percentage||Average|
|Discriminatory pricing||5||1% of average turnover||7% of average turnover||approximately 3.6%|
|Discriminatory conditions||1||NA||5% of average turnover||5%|
|Denial of market access||2||4.48% of average turnover||6% of the average turnover||approximately 5.24%|
|Multiple allegations||8||2% of average turnover||10% of average turnover||approximately 5.38%|
As may be discerned from the table above, CCI has usually imposed higher penalties in cases involving multiple allegations of AoD. A review of all the penalties imposed by CCI in AoD cases reveals that the average penalty imposed by CCI has been 4.78% of the average turnover of the enterprise for the preceding three years.
Penalties on individuals
CCI first imposed penalties on individuals in 2014 – approximately three years after it began imposing penalties on enterprises for contravention of the provisions of CA02. The penalties imposed on individuals largely mirror the penalties imposed on the corresponding enterprises in the same case and are based on the individuals’ income statements. It is noteworthy that CCI has so far not imposed penalties on individuals in AoD cases.
CCI has been imposing penalties for over a decade. Its decisions during this period should have yielded some trends and guidance on its methodology in calculating the appropriate penalty level. Unfortunately, the analysis does not provide much clarity. CCI’s orders also do not provide any reasoning on the parameters applied by CCI in choosing the metric to calculate fines or calculating the quantum of the fine. Thus, it is imperative that CCI issues clear guidelines detailing (i) how it chooses the appropriate metric to impose fines; and (ii) how it calculates the quantum of the fine. Such guidelines would encourage more leniency applications by giving businesses greater certainty on how the quantum of penalty and any reductions to it will be calculated and will also be instrumental in safeguarding due process.
 FICCI – Multiplex Association of India v. United Producers/Distributors Forum, Case Number 01 of 2009.
 This number reflects the final decisions issued by CCI i.e. where cases were remanded back to CCI, this analysis only takes into account the final penalty imposed by CCI. This analysis does not take into account the sole CCI decision relating purely to vertical restraints. Further, the data in this article only reflects cases published on CCI’s website until January 11, 2019.
 All US$ figures are as of January 2019.
 M/s Arora Medical Hall Ferozpur v. Chemists & Druggists Association Ferozpur, Case Number 60 of 2012.
 Builders Association of India v. Cement Manufacturers’ Association, Case Number 29/2010. CCI issued its first decision on June 20, 2012, which was remanded by the Competition Appellate Tribunal on procedural grounds. Subsequently, CCI reissued its decision on August 31, 2016 albeit with the same penalties.
 Section 46 of CA02 provides an opportunity to producer, seller, distributor, trader or service provider included in the cartel to approach CCI and claim a reduction in the penalty by making full and true disclosure in respect of the alleged violations. CCI (Lesser Penalty) Regulations, 2009 provide detailed guidelines in this respect.
 In Re: Cartelisation in respect of tenders floated by Indian Railways for supply of Brushless DC Fans and other electrical items, Suo Moto Case Number 03 of 2014.
 This number reflects only the final AoD-related decisions issued by CCI i.e. where cases were remanded back to CCI, this analysis only takes into account the final decisions issued by CCI.
 Hemant Sharma v. All India Chess Federation, Case Number 79 of 2011.
 In Excel Crop Care Limited v. Competition Commission of India, Civil Appeal Number 2480 of 2014 (‘Excel Crop’), the Supreme Court held that for multi-product companies, the penalty provisions of CA02 apply to the turnover generated from the product/service at issue. The Supreme Court further held that including all products’ turnover (which were not a part of the arrangement/cartel) for the purpose of imposition of penalties is not justified. This principle was then adopted by the CCI in its subsequent decisions.
 As Tata Motors was penalised prior to the Supreme Court’s decision in Excel Crop, the penalty was computed on the basis of its total turnover and not the relevant turnover.
 Shri Shamsher Kataria v. Honda Siel Cars India Limited, Case Number 03 of 2011.
 House of Diagnostics LLP v. Esaote S.p.A, Case Number 09 of 2016.
 M/s Arora Medical Hall Ferozpur v. Chemists & Druggists Association Ferozpur, Case Number 60 of 2012.
NCLT dismisses Efforts from Erstwhile Promoters to Once Again Drag Bhushan Steel into Insolvency, Post Approval of Tata Steel’s Resolution Plan
The Hon’ble National Company Law Tribunal, Principal Bench (‘Adjudicating Authority’) has, by way of its judgment dated February 26, 2019, dismissed a petition filed by Vistrat Real Estates Private Limited (‘Vistrat’) against Bhushan Steel Limited (now known as Tata Steel BSL Limited) (‘BSL’) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’). The judgment also imposes a cost of ₹ 50,000 (approx. US$ 700) on Vistrat. Vistrat has been found to be a related party to the erstwhile promoters of BSL, including Mr. Neeraj Singal and Mr. Brijbhushan Singal (‘Singals’).
Earlier, in the largest resolution under the IBC, the Adjudicating Authority had, by way of its judgment dated May 15, 2018 (‘Approval Order’), approved the resolution plan (‘Plan’) submitted by Tata Steel Limited (‘TSL’) in the corporate insolvency resolution process (‘CIRP’) of BSL, which had been initiated on July 26, 2017. The order of the Adjudicating Authority was also subsequently confirmed by the Hon’ble National Company Law Appellate Tribunal. This had resulted in successful resolution of accumulated debt of BSL amounting to approximately ₹ 58,000 crores (approx. US$ 8 billion) and realization by banks of approximately ₹ 36,000 crores (approx. US$ 5 billion). This has also resulted in the revival of BSL in the control of TSL (through its subsidiary Bamnipal Steel Limited).
Shortly after the Approval Order, Vistrat filed a petition under Section 9 of the IBC seeking initiation of CIRP against BSL. The following facts are noteworthy:
(a) Vistrat is a private limited company registered in India. The erstwhile promoters of BSL, the Singals, were the signatories to the Memorandum of Association of Vistrat. There are various other connections between Vistrat and the erstwhile promoter group of BSL.
(b) Vistrat owns premises in New Delhi, which was leased to BSL pursuant to a memorandum of lease (‘MoL’) dated May 1, 2015. The MoL acted as a lease discounting facility for a loan availed by Vistrat from IndusInd Bank (‘IndusInd’). The MoL provided Vistrat an option of termination with the prior approval of IndusInd. However, no express right of termination was provided to BSL.
(c) During the CIRP of BSL, the Resolution Professional (‘RP’) had, pursuant to an independent valuer’s report, found the terms of the MoL to be onerous and leading to value leakage. Since the lease rental under the MoL was above the market rate, during the CIRP of BSL the RP had paid a reduced amount to Vistrat towards lease rental for the premises.
(d) The Plan approved by the Adjudicating Authority recognized the MoL as a value leakage transaction and provided for its termination. The Plan also provided for no liabilities to related parties, associates and joint venture of the erstwhile promoters of BSL. Pursuant to the change in control of BSL upon the successful completion of the CIRP, TSL immediately terminated the MoL and handed over possession of the premises to Vistrat on September 10, 2018.
(e) The petition claimed a default in payment of lease rental by the RP of BSL for the period during the CIRP, for which a reduced lease rental amount was paid to Vistrat.
Highlights of the Judgment
Some of the key highlights of the judgment are:
(a) The Adjudicating Authority recognized the independent valuer’s report submitted by the RP and accepted the decision of the RP to pay a reduced lease rental during the CIRP period basis the same. The Adjudicating Authority also accepted that the MoL was described as a value leakage and an onerous transaction in the Plan, and the Plan provided for no liability to related parties, associates and joint ventures of BSL.
(b) Based on facts before it, the NCLT accepted that Vistrat was a related party to BSL (prior to commencement of CIRP) and its erstwhile promoters and, thus, liabilities of BSL to Vistrat stood excluded in terms of the Plan.
(c) The relationship between Vistrat and the erstwhile promoter group of BSL has been noted through: (i) the presence of Neeraj Singal and Brijbhushan Singal as the signatories to the Memorandum of Association of Vistrat and its initial shareholders; (ii) the authorisation in favour of the Singals to act on behalf of Vistrat, including in connection with the loan from IndusInd, and operate the loan facility, even though they were not directors of Vistrat at that time; and (iii) the transfer of shares of Vistrat to Ritu Singal (wife of Neeraj Singal) taking place less than two years prior to the commencement of CIRP of BSL. The Adjudicating Authority has held that given the fact that the Singals exercised control and were persons on whose advice / directions / instructions the directors of Vistrat were accustomed to act, coupled with Neeraj Singal’s wife being a director of Vistrat, BSL (prior to commencement of CIRP) had substantive control over Vistrat. Further, given the nature of the transaction and the timing of the transfer of shares of Vistrat being within the look-back period in respect of BSL’s CIRP, the transactions are capable of being examined during the CIRP and deemed to be preferential transactions.
(d) Whilst there is no bar under Section 11 of the IBC from a fresh petition being filed post the Approval Order, the only course open to Vistrat was to file its claim before the RP during the CIRP. The remedy of filing of claim has been exhausted and has resulted in acceptance of Vistrat’s claim partially by the RP. The rejected claim cannot find basis for a new petition, more particularly, when (i) the Plan has even specifically excluded the claim of related parties, and (ii) BSL has terminated the MoL and handed over possession of the premises after the Approval Order.
In dismissing the petition, the judgment has taken note of various actions of the RP during the CIRP of BSL and accepted the same. Further, the Adjudicating Authority has also implemented terms of the Plan, including for termination of value leakage agreements and no liability for related party transactions, in order to hold that no amount was due to Vistrat. Finally, the Adjudicating Authority has also held that absence of a bar under Section 11 of the IBC from filing a fresh petition post the Approval Order does not permit a party to file fresh proceedings for initiating insolvency for claims which arose prior to the Approval Order. The Adjudicating Authority has recognized that in such cases, the remedy is filing of claim before the RP during the CIRP.
The judgment shows that the Adjudicating Authority is accepting the decision of the successful resolution applicant and the committee of creditors in identifying and terminating value leakage agreements. It also shows that the Adjudicating Authority is dismissing efforts from erstwhile promoters to, directly or indirectly, stall or disrupt the actions to effectively resolve a distressed company.
Buyer – Seller Arrangements: Is CCI Expanding The Cartel Horizons?
On January 15, 2019, Competition Commission of India (‘CCI’) imposed a penalty on Godrej and Boyce Manufacturing Company Limited (‘Godrej’) and four of its officials for entering into a price fixing arrangement with Panasonic Energy India Company Limited (‘Panasonic’) in violation of Section 3(3) of the Competition Act, 2002 (‘Competition Act’) (‘Godrej Order’). By way of a separate order, involving similar facts, CCI imposed a penalty on Geep Industries (India) Private Limited (‘Geep’) and its officials for a similar arrangement with Panasonic (‘Geep Order’).
To appreciate the implications of the Godrej Order and the Geep Order, the background and facts of these cases are particularly important: (i) on one hand, Panasonic was a manufacturer of zinc-carbon dry cell batteries (‘DCBs’), on the other hand, Godrej did not have the capability to manufacture DCBs; (ii) Panasonic and Godrej entered into a product supply agreement (‘PSA’) for supply of DCBs starting from early 2012 until late 2014; (iii) similar to customary contract manufacturing arrangements, the DCBs were procured by Godrej from Panasonic in a ready to sell form i.e., the labelling and packaging of the battery was also done by Panasonic; (iv) the DCBs procured by Godrej from Panasonic were sold by Godrej under its own brand name, giving due credit to Panasonic as manufacturer of such batteries, on the labelling of the DCB.
In parallel, Panasonic entered into a price fixing arrangement with its competitors i.e., Eveready Industries India Ltd. (‘Eveready’) and Indo National Limited (‘Nippo’) during the period between May, 2009 and August, 2016. Panasonic filed a leniency application before CCI disclosing this conduct and CCI found Panasonic, Eveready and Nippo guilty of a cartel conduct. In the Godrej Order, CCI specifically notes that Panasonic used its knowledge of future prices fixed with Eveready and Nippo and used ‘its position of leverage to extract higher procurement price’ from Godrej, by indicating that the prices will go up. Yet, CCI held Godrej guilty of entering into a cartel with Panasonic on the basis of: (i) a specific mutual comfort clause under the PSA effectively stating that the buyer and seller would not act against each other’s market interests; and (ii) e-mails that were exchanged between the officials of Panasonic and Godrej in relation to procurement price of DCBs pursuant to the PSA.
CCI’s reasoning appears to be primarily based on the following premise: (i) Godrej and Panasonic were identified as ‘independent principals’ under the agreement and therefore, a mutual comfort clause was inherently anti-competitive; and (ii) none of the e-mail exchanges used the term ‘procurement price’ and therefore, could not have been viewed as negotiation between buyer and seller in relation to procurement price. As a corollary, CCI reasoned that price related discussion on e-mails could only be viewed as an anti-competitive price fixing of DCBs.
The Godrej Order appears to suggest that an agreement entered between a buyer and seller on a principal-to-principal basis could be viewed as akin to an agreement between independently operating competitors and therefore, could be scrutinized under the ambit of Section 3(3) of the Competition Act. Section 3(3) of the Competition Act (i.e., horizontal agreements) which precludes collusion between competitors i.e., independent operating entities at the same level of the production chain. In contrast, Section 3(4) (i.e., vertical agreements) of the Competition Act deals with agreements between two or more enterprises that are at different stages of the production chain. Vertical agreements manifest an interdependent relation between (non-competing) enterprises as a result of being staged at different points of a value chain and generally proscribe harm associated with unilateral conduct. On the other hand, Section 3(3) of the Competition Act governs agreements between competitors, who were otherwise required to act independently. EU does not consider agreements between enterprises at different levels of the production chain as horizontal agreements, unless the parties are potential competitors. By way of an example, a seller could be considered to be a potential competitor to a buyer if in the event of non-supply or increase in prices of products provided by the seller, the buyer could be reasonably expected to manufacture the product supplied on its own in a short period of time.
In fact, the EU and US antitrust regimes do not view the type of arrangement entered into between Panasonic and Godrej in the present matter as akin to a horizontal agreement between competitors. The very reason for not considering these types of agreements between competitors as horizontal, but only as vertical, is the inability of one party to compete at the manufacturing level with the other and therefore, an inherent inability of the buyer to enter the market where the manufacturer is present. CCI appears to have overlooked the fact that Godrej and Panasonic could not have been treated as competitors, i.e. Godrej could not have reasonably been expected to start manufacturing DCBs and therefore, could not have been expected to compete independent of Panasonic’s manufacturing capabilities.
The Godrej Order rings an alarm, given that buyer-seller, distributorship, dealership or contract manufacturing arrangements which are generally viewed as vertical arrangements and are all entered on a principal to principal basis could potentially be categorized, scrutinized and punished under the cartel provisions of the Competition Act.
Another key takeaway is that a buyer, distributor, or dealer needs to exercise caution in terms of their agreement and interactions with their respective manufacturer, contract manufacturer, and supplier, as the case may be, if both of them are present in the market for sale of products or provision of services. Such agreements and interactions/price negotiations pursuant to such agreements could, contrary to commercial realities, be viewed and scrutinized under Section 3(3) of the Competition Act as agreement between competing enterprises.
In order to mitigate the possibility of any potential risk, until there is settled jurisprudence on this issue, entities involved in similar arrangements should closely look at their existing legal arrangements and all communications should clearly reflect the necessity of negotiations in such commercial arrangements.
 Suo Moto Case No. 3 of 2017.
 For the purposes of this article, we have referred to the specific facts in the Godrej Order.
CCI Dismisses Allegations against Royal Western Turf Club India Limited
On January 15, 2019, CCI dismissed information filed by Mr. Habib Rajmohamad Patel (‘Informant’) against Chairman/Secretary, Royal Western Turf Club India Ltd. (‘RWTCIL/ OP’) alleging violation of Section 3 and Section 4 of the Competition Act. 
The Informant alleged that the OP controlled horse racing activity and imposed unfair and discriminatory conditions for getting results in their favour. The RWTCIL comprises three committees i.e., (i) Management Committee; (ii) Stewards of the Club; and (iii) Board of Appeal. It was alleged that members of these committees were race horse owners, stud farm owners or breeders having a direct interest in the horse races. Without RWITCL’s prior approval, no person could own any race horse, train any horse or ride any horse. The Stewards of the Club could revoke or suspend the approved race horse owners and levied fines if any jockey/ horse owner/ trainer violated racing rules that ultimately caused loss to racing punters. The approval of licenses was done by the seven members of Managing Committee having vested interest. The members of Board of Appeal deciding contentious issues were horse owners themselves.
The OP argued that horse racing was regulated under Bombay Race Course Licensing Act, 1912 and racing licenses are typically granted for a year. The terms and conditions for these licenses were stringent and had to be adhered to. There were additional checks and balances in place to govern horse racing. The objections regarding any race event are taken up under close public vigilance and there was no scope for foul play. It was also argued that betting for horse racing was legalized in India after obtaining a license under the abovementioned statute.
CCI noted that the allegations were vague and lacked evidence. With respect to Section 3 allegations i.e. allegations with respect to anti-competitive agreements, the Informant did not provide evidence of any agreement. The Section 4 allegations i.e. allegations regarding abuse of dominance were made without defining any relevant market. CCI defined the market as ‘market for organization of horse races by turf clubs in India’. In the said market, CCI assessed whether OP was in dominant position. However, it was found that OP had a market share of only 23%. Therefore, OP was not found to be dominant and CCI concluded that there was no contravention of Section 3 or 4 of the Competition Act and the complaint was dismissed.
 Case No. 40 of 2018
 Dr. K R Lakshmanan v. State of Tamil Nadu, AIR 1996 SC 1153
CCI dismisses complaint against KAFF Appliances on minimum resale price by Snapdeal
On January 15, 2019, CCI dismissed allegations of resale price maintenance (‘RPM’) filed by Jasper Infotech Private Limited (‘Snapdeal’) against KAFF Appliances (India) Private Limited (‘KAFF’). 
KAFF’s products were being sold on Snapdeal for a discounted price. KAFF, on its website, displayed a caution notice alleging that KAFF’s products sold on Snapdeal’s website were counterfeit and that Snapdeal would not honour warranties.
Snapdeal alleged that this statement was due to Snapdeal’s discounts on KAFF’s products on its online portal. Snapdeal further provided the documentary evidence i.e., an email by KAFF which revealed that KAFF tried to impose the market operating price on Snapdeal (‘MOP’).
CCI in its prima facie order found contravention of Section 3(4)(e) read with Section 3(1) of the Competition Act and the Director General (‘DG’) was asked to further investigate. After the investigation, the DG concluded that KAFF did not violate Section 3(4) (e) of the Competition Act.
The DG concluded that since Snapdeal was a marketplace, facilitating exchange of products between buyers and sellers, it would not form a part of the vertical chain. The DG, in its investigation report, noted that an online platform does not perform any material function which could make it a part of the vertical chain. With respect to RPM, there needs to a presence of a buyer–seller relationship, which in this case was not present; further, Snapdeal did not influence the price of the products listed on its website.
CCI observed that online platforms act as a parallel distribution chain, to their offline counterparts. CCI relied on its previous decisions and observed that online and offline platforms are not two separate relevant markets, but two different channels of distribution in the same relevant market. While noting that the DG had taken a myopic view, CCI stated that the online platforms are peculiar in nature and cannot be compared to the traditional buyer–seller relationship. CCI stated that instead of looking at the vertical chain in a traditional manner, the test for determining whether a firm can be deemed to be a part of the product chain should be whether it contributes value to the product (or service). Online platforms can influence the prices by giving discounts or cashback that are limited only to online platforms.
KAFF argued that the caution notice was a knee jerk reaction to the excessively low priced products being displayed on Snapdeal’s online portal which raised a genuine apprehension on the part of KAFF of such products being counterfeit.
KAFF further demonstrated that it never hindered the sale of its products on online portals and the caution notice was not followed by any concrete action on its part and hence, there was no impact on the online sale of OP’s products.
While dismissing the information, CCI held that the manufacturers have a right to choose the most efficient distribution channel, unless the said choice leads to AAEC. Therefore, the contravention of Section 3(4)(e) read with Section 3(1) of the Competition Act was not established and the complaint was dismissed.
 Case No. 61 of 2014
 Mr. Deepak Verma Vs. Clues Network Pvt. Ltd., Case No. 34 of 2016; Confederation of Real Estate Brokers’ Association of India Vs Magicbricks.com & Ors., Case No. 23 of 2016
The need for settlements and commitments under the Competition Act
Background – The Problem of Pendency
The Competition Commission of India (‘CCI’ or ‘Commission’) receives a number of cases year on year pertaining to antitrust matters (i.e., cases relating to anticompetitive agreements and abuse of dominant position). Unlike combinations, these ‘behavioural’ cases before CCI take several years to dispose of.
For instance, CCI took five years to issue its decision in India Glycols Limited v. Indian Sugar Mills Association and Others and seven years to issue its decision in East India Petroleum Private Limited v. South Asia LPG Company Private Limited. On average, CCI has taken approximately four years to reach the final decisions it had issued in the year 2018 under Section 27 of the Competition Act, 2002 (‘Act’). Further, approximately 476 orders of CCI have been appealed before the Competition Appellate Tribunal (‘COMPAT’), between the years 2009 and 2017. The COMPAT has set aside 213 matters i.e., about 44.75% of these orders. There is also a growing backlog of cases pending before CCI’s investigative arm, the Office of the Director-General (‘DG’). As per the CCI Annual Report 2016-17 (‘Report’), 129 cases were pending before the DG in the year 2016-2017. Pertinently, the Report notes the following: “It is observed that the investigations are taking increasingly more time for completion. This partly reflects inadequate staff strength in the office of the DG and partly reflects increasing complexity of cases being referred to the DG by the Commission.”
The above statistics demonstrate that a significant amount of CCI’s resources are being expended on long-drawn investigations and defending appeals against its orders. It is therefore imperative to consider adopting new methods through which CCI’s resources may be utilized more optimally, , i.e., a mechanism which ensures that the adjudication of cases by CCI is put on a fast track and consumes fewer of CCI’s resources, without affecting the quality of adjudication and investigation.
In more mature jurisdictions, such as the European Union (‘EU’) and the United Kingdom (‘UK’), competition law enforcement is streamlined and expedited by way of ‘commitments’ and ‘settlements’. The adoption of these mechanisms has been recently considered by the Competition Law Review Committee (‘CLRC’), a panel set up by the Government of India with a view to review and amend the Act. Drawing from such other jurisdictions, this article will examine the effects of adopting these enforcement tools in India.
Commitment decisions in antitrust cases are enforcement tools by which a competition authority can terminate the investigation initiated against a party, on the basis of certain behavioural remedies (‘Commitments’). This is carried out by accepting such behavioural remedies, voluntarily proposed by the parties to address the initial concerns identified by the authority. Barring the United States of America (‘US’), Commitments are a relatively new enforcement tool for most competition authorities worldwide. For example, the European Commission (‘EC’) formally adopted the commitment procedure only in the year 2004.
Notably, Commitments cannot be offered in every case. Agencies worldwide consider certain criteria when deciding whether to accept a Commitment. These are: (i) the nature of the suspected infringement; (ii) the nature and ability of the Commitments offered to quickly and effectively solve the competition concerns; and (iii) ensuring sufficient deterrence in the future. In addition, agencies consider the interests of the parties involved in the investigation, interests of third parties and of the market in general.
In the US, the Federal Trade Commission (‘FTC’) and the Department of Justice (‘DOJ’) follow parallel procedures to impose commitment decisions. The DOJ files consent decrees, or civil consent judgments, in a US federal district (trial) court to obtain effective relief without taking a case to trial while the FTC issues negotiated administrative consent orders to resolve violations without a trial under its statutory authority. In addition to using consent decrees/orders in merger cases, the DOJ and FTC also use these tools to settle alleged competition violations that include both unilateral conduct, such as exclusive dealing and monopolization, and unlawful vertical agreements. Separately, the EC, though not obligated to do so, may consider a commitment decision if and when:
i. The companies under investigation are willing to offer Commitments which remove the EC’s initial competition concerns as expressed in a preliminary assessment;
ii. The case is not one where a fine would be appropriate (this therefore excludes commitment decisions in hardcore cartel cases);
iii. Efficiency reasons justify that the EC limits itself to making the Commitments binding, and does not issue a formal prohibition decision; and
iv. The Commitments can be either behavioural or structural and may be limited in time. Moreover, the EC can reassess the situation if a material change takes place in any of the facts on which the decision was based. It is also possible for the company to ask the EC to lift a Commitment which is no longer appropriate.
Adopting commitment mechanisms to address competition concerns has a number of benefits for the enforcers, the enterprises involved in these proceedings, and for the market at large. First, commitment decisions are often driven by procedural economy. If negotiations start early in the process, the timelines of the investigation will shorten as a full investigation will become unnecessary. Second, commitment procedures can facilitate a quicker resolution of cases with swifter changes to the market, and certain and ready results, as opposed to long, costly and often uncertain outcomes. They are beneficial for the business of the companies as the time invested in resources, and burdensome and lengthy antitrust investigations would be saved. Third, the investigated companies are not required to admit liability for the alleged infringement and in many jurisdictions, companies can avoid the threat of high, unpredictable fines associated with a possible infringement decision. In addition, as there is no fining of infringement, aggrieved third parties would not be successful in suing for damages (for losses suffered as a result of the alleged anticompetitive practises). Other factors, such as the positive media exposure (as the firm or company in question, is perceived as co-operative and willing to solve a possible competition concern) are also added benefits of the commitments process.
Presently, the Act is silent on the possibility of offering Commitments to CCI, although this may be amended in the near future. The obvious benefits of Commitments are the proficient disposal of cases while still addressing competition concerns, as well as the effect on CCI’s caseload as a result. The person/enterprise should be willing to offer commitments to remove CCI’s competition concerns, without an admission of infringement. Therefore, if the commitment procedure is adopted in India, the facility to offer Commitments should be available to less egregious practices – unlike cartels under Section 3(3) of the Act. Such an amendment will be consistent with the position in various other jurisdictions, including the EU.
Like Commitments, settlements allow agencies/regulators to terminate cartel and other investigations early on, thus saving investigative resources. The investigated parties are rewarded for their cooperation with a reduction of the fine that would have otherwise been imposed by the agency. In some jurisdictions, settlements also offer ‘finality’ as they provide certainty to the outcome of the investigation.
There are important differences between settlement procedures and commitment procedures:
i. To enter into a settlement negotiation, the agency is typically required to establish an infringement of the competition law as full investigation is required;
ii. Settlements require the company to admit liability for the infringement, whereas Commitments usually do not require the company to do so;
iii. Settlements still require the imposition of a fine, albeit with a reduction for cooperation with the agency; and
iv. Settlements constitute legal precedents for the treatment and establishment of an infringement, which have precedential value and can be used for establishment of recidivism or for purposes of filing a private action for damages.
The EU uses a settlement mechanism to speed up the procedure for adoption of a cartel decision when the parties admit to the EC’s objections, and in return such parties receive a 10% reduction in the fine. The EC has to show the parties that it has sufficient evidence to bring a final decision, and the parties must respond with a statement of objections. Since the ‘Settlement Notice’ was announced in June 2008 in the EU, several cartel cases have been settled.
Some jurisdictions also allow settlements for all types of antitrust proceedings. In Germany, on December 23, 2013, the Federal Cartel Office (‘FCO’) through its settlement note clarified that settlements are possible in all types of antitrust proceedings. The US has a longstanding practice of using the settlement mechanism and settles a large majority of its cartel cases. A credible track record and clear fining guidelines provide useful guidance to defendants and their counsel when they assess the benefits and costs of entering into a settlement. Therefore, by implementing a settlement process, competition authorities can save resources that would have otherwise been utilized for more detailed investigations, prosecutions, reasoning of detailed decisions and litigation of cartel cases.
The Act is silent on the adoption of a settlement process. However, the concept of settlements is not unknown in India. Notably, the Securities and Exchange Board of India (‘SEBI’) has already implemented a mechanism for settlements. The SEBI Act, 1992 (‘SEBI Act’) read with the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 (‘SEBI Settlement Regulations’), envisages a mechanism for settlement of specific violations of various laws in relation to the securities market, by the payment of fees without admitting guilt. Any person, against whom any proceedings have been initiated or may be initiated under Section 11, Section 11B, Section 11D, Section 12(3) or Section 15-I of SEBI Act, may file an application in writing to SEBI seeking a settlement (without admitting or denying the findings of fact and conclusions of law) of the proceedings initiated or to be initiated for the alleged defaults. On receipt of the application, SEBI may, after taking into consideration the nature, gravity and impact of defaults, agree to the proposal for settlement, on payment of such sum by the alleged defaulter or on such other terms as may be determined by SEBI. Therefore, CCI would not be the first regulatory body adopting such a settlement mechanism.
From an enterprise’s perspective, the main advantage of settlement mechanisms and commitment procedures is the ability to expedite the closure of the matter. The broad principle of these procedures, the importance of transparency and predictability, are additional benefits to an enterprise. By choosing a settlement/commitment process, an enterprise negates the impact an investigation may have on its reputation. This includes the negative impact of an unclear outcome of the investigation (i.e., the possibility of a high amount of penalty on the enterprise or its employees) and the negative influence of the investigation on an enterprise’s stock prices.
The end purpose of any antitrust legislation and its related agency should be to provide consumers and competitors a free market with healthy competition. For this, CCI should be given the necessary flexibility and discretion to perform its function in such a manner that it meets the objectives of the Act. Bringing an end to antitrust concerns should be the primary objective of the CCI, and by instituting mechanisms for settlements and commitments procedures, it should be possible to achieve this goal in a more efficient manner.
 Case No. 21, 29, 36, 47, 48, 49/2013.
 Case No. 76/ 2011.
 Available at https://one.oecd.org/document/DAF/COMP(2016)7/en/pdf.
 Available at https://one.oecd.org/document/DAF/COMP(2016)7/en/pdf.
 Available at http://ec.europa.eu/competition/cartels/legislation/cartels_settlements/settlements_en.html.
 Available at http://ec.europa.eu/competition/cartels/legislation/settlements.html.
 Till 2016, EC had successfully settled cases of varying degrees of complexity and with different unique feature in the pragmatic resolution of cartel cases: 21 out of 35 cases decided since 2010 are settlement cases, while eight out of 10 cases settled in 2014, and two out of five cases settled in 2015.
 Available at:
 Available at https://www.globallegalinsights.com/practice-areas/cartels-laws-and-regulations/singapore.
 Last amended on December 27, 2017
 SEBI had settled 378 cases during 2014-15 to 2017-18 and collected approximately Rs52.25 crore as settlement amount
CCI Dismisses Allegations of imposing vertical restraints against Inox Leisure Limited and Hindustan Coca-Cola Beverages Private Limited
On February 28, 2019, CCI dismissed allegations of violations of Section 3 of the Act by Inox Leisure Limited (‘Inox’) and Hindustan Coca-Cola Beverages Private Limited (‘Coke’), made by Mr. Vijay Gopal (‘Informant’).
The allegations pertained to an arrangement between Inox and Coke whereby Inox would only sell Coke’s products in its multiplexes, to the exclusion of its competitors, amounting to an exclusive supply agreement as well as an exclusive distribution agreement between Inox and Coke (in violation of Section 3(4)(b) and (c) of the Act). Further, given that Inox did not allow its patrons to carry any eatables from outside to within its premises, the patrons were forced to purchase essential commodities such as water from within the premises of Inox, and to this extent the sale of such commodities were in essence tied to the provision of watching movies in Inox’s theatre, in violation of Section 3(4)(a) of the Act. Additionally, it was also alleged that Coke’s products that were sold within Inox’s premises were priced differently (higher) than the retail price at which they were generally available in the market, leading to a loss to consumers.
CCI in its analysis relied on its observations in In Re M/s Cine Prekshakula Viniyoga Darula Sangh v. Hindustan Coca Cola Beverages Private Limited and In Re Consumers Guidance Society v. Hindustan Coca Cola Beverages Private Limited and Inox Leisure Private Limited (decided collectively by a common order dated May 23, 2011) and noted that in these cases, the DG had delineated two markets for the purpose of the investigation namely; (i) “market of retail sale of bottled water and cold drinks inside the multiplexes of Inox”; and (ii) “the market of supply of bottled water and cold drinks to the owners of closed market of multiplexes and to other commercial enterprises where it is treated as the preferred beverage supplier”.
Thereafter, CCI specified the pre-requisites which were to be satisfied for a violation of Section 3(4), detailed as follows:
i. Existence of an agreement;
ii. Between ‘enterprise’ or ‘persons’;
iii. Engaged at different stages or levels of the production chain in different markets;
iv. With respect to production, supply, distribution, storage, sale or price of, or trade in goods, or provisions of services;
v. Including tie-in-arrangement, exclusive supply agreement, exclusive distribution agreement, refusal to deal, and resale price maintenance; and
vi. Which agreement causes or is likely to cause an appreciable adverse effect on competition (‘AAEC’) in India.
CCI observed that points (i), (ii), (iii), and (iv) were applicable to the present case. However, it clarified that the allegation of a tie-in was not made out given the facts on record. As per CCI, there was no explicit condition that the consumers had to necessarily buy Coke’s products to watch the movies. Therefore, Coke’s products were incidental to the activity of watching a movie and not the main driving force for customers to visit Inox’s multiplexes. CCI also noted that, in any case, free water was available within Inox’s multiplexes.
Regarding the allegation of an exclusive supply arrangement between Inox and Coke, CCI observed that Coke did not have significant market power, given the presence of multiple competitors. Further, after analysing the Sale and Supply Agreement between Inox and Coke (‘Agreement’), CCI noted that the Agreement was only for a period of three years initially, but Inox and Coke had continued their arrangement through fresh agreements thereafter. However, the successive agreements had been revised to the extent that Coke was no more an exclusive partner to Inox, thereby providing complete autonomy to Inox to market products from any manufacturer, including Coke’s competitors. CCI also noted that the Agreement could be terminated by either party by giving a 60 days notice and to this extent, there were no exit barriers which were implemented by Inox or Coke.
Accordingly, after considering the factors for determining AAEC as specified under Section 19(3) of the Act, CCI observed that the impugned arrangement: (i) lacked any entry/exit barriers; (ii) did not posses any ability to drive any existing competitors out of the market (or had not driven any existing competitors out of the market); and (iii) did not result any market foreclosure.
 Case No. 29/2018.
 Case No. RTPE 16/2009.
 Case No. UTPE 99/2009.
National Company Law Appellate Tribunal
NCLAT affirms CCI’s order dismissing allegations of collusive bid-rigging against Bharat Heavy Electricals Limited, IL&FS Technologies Limited, and Hitachi Systems Micro Clinic Private Limited
On February 26, 2019, the National Company Law Appellate Tribunal (‘NCLAT’) dismissed an appeal filed by Reprographic India (‘Appellant’) filed against the order of CCI dismissing allegations of collusive bid-rigging against Bharat Heavy Electricals Limited (‘BHEL’), IL&FS Technologies Limited (‘ILFS’), and Hitachi Systems Micro Clinic Private Limited (‘Hitachi’) (collectively ‘Respondents’), in violation of Section 3(3) of the Act.
The Appellant was an ancillary to BHEL’s Haridwar unit, engaged in the manufacture of folding and finishing systems as well as the manufacture and distribution of information technology (‘IT’) products and provision of services. The Appellant had been supplying IT products to BHEL directly, or through System Integrators (‘SI’) of Original Equipment Manufacturers (‘OEMs’). ILFS and Hitachi were SIs, which sourced Hewlett Packard (‘HP’) products and provided IT solutions. As per the Appellant, BHEL floated a tender on April 1, 2017, for supply, installation and maintenance of personal computers (‘PCs’) and peripherals for more than 20 locations, for a period of five years on lease basis on ‘Corporate Rate Contract’ (‘Tender’). The total items which were being sought pursuant to the Tender were grouped into two categories, namely, group-A comprising 24 items pertaining to PCs and peripherals, and group-B comprising 47 items pertaining to ‘Enterprise Equipment’. The bidders were at liberty to bid for either group A or both groups A and B. As per the conditions of the Tender, with regard to group A, only OEMs and SIs were eligible to bid. Further, all items in each group were supposed to be of the same OEM. Pursuant to the Tender, only two bids, i.e., of ILFS and Hitachi were received with regard to group A products and ultimately the Tender was awarded to Hitachi. As per the Appellant, both Hitachi and ILFS acted in collusion through out this process in violation of Section 3(3) of the Act.
CCI in its observation noted that the Tender was an open tender with no embargo on any SI or OEM to participate. Moreover, various SIs and OEMs had participated in the pre-bid discussions. It further observed that only ILFS and Hitachi submitted bids with regard to group A since the Tender with regard to group A mandated a provision for maintenance and other services for a five year lease period. CCI noted that the stringent requirements of group A may have resulted in low bidding. Additionally, it stated that the facts on record did not support the allegation of supportive bidding on part of ILFS, or that ILFS and Hitachi were engaged in bid rotation. Moreover, the fact that both ILFS and Hitachi had common business links with HP was not in itself sufficient to confirm an allegation of collusion. Further, CCI also did not consider the fact that some employees of one Respondent were working with the other Respondent at some point of time, as relevant for the purposes of the allegations, clarifying that this was a routine affair in the IT industry. In sum, CCI was of view that a meeting of minds for purposes of bid rigging/collusive bidding could not be inferred from mere proximity and the Appellant had failed to furnish any evidence that would suggest otherwise. Accordingly, CCI through an order under Section 26(2) of the Act had dismissed the allegations.
NCLAT at the outset clarified that directing an investigation to be conducted by the DG is entirely dependent on existence of a prima facie case warranting such investigation, and unless CCI is so satisfied, the informant has no vested right to seek investigation into the alleged contravention of the provisions of the Act. It further clarified that it was the obligation of the informant to make out a prima facie case based on proven facts warranting an investigation by the DG. Further, NCLAT stated that as the successful bidder, Hitachi had the discretion to quote products of any OEM, especially given that it would have to provide maintenance and other services during the entire lease period. Additionally, it reiterated that there may have been business links between ILFS and Hitachi; however, in the absence of any material to suggest any collusion between ILFS and Hitachi, no adverse inference suggesting collusive bidding could be drawn against them. Accordingly, NCLAT affirmed CCI’s observations and dismissed the appeal filed by the Appellant.
 Case No. 41/2018.
India Chapter in The Dispute Resolution Review – Eleventh Edition
I INTRODUCTION TO DISPUTE RESOLUTION FRAMEWORK
As with most common law countries, Indian law may broadly be classified as substantive or procedural law. While substantive law determines rights and liabilities of parties or confers legal status or imposes and defines the nature and extent of legal duties, procedural laws prescribe practice, procedure and machinery for the enforcement or recognition of rights and liabilities.2 To put it another way, substantive laws are those that are enforced while procedure deals with the rules through which the substantive law is enforced.3
Dispute resolution in India may be through courts, specialised tribunals (such as those for recovery of debt by banks or company disputes, among others) or alternative dispute resolution mechanisms that include arbitration, mediation and conciliation. The recent introduction of the Commercial Courts Act 2015 (the Commercial Courts Act) also provides for the constitution of commercial courts at a district level, except areas where the High Court exercises ordinary civil jurisdiction, commercial divisions (in all High Courts having ordinary civil jurisdiction) and commercial appellate divisions in each High Court for the adjudication and speedy disposal of commercial disputes4 of a specified value of not less than 10 million rupees or such other notified value within the limits of the relevant territorial jurisdiction.5
The primary laws codifying court procedure in India are the Code of Civil Procedure 1908 (CPC) and the Code of Criminal Procedure 1973 (CrPC). Charter High Courts such as the High Courts of Bombay, Calcutta, Delhi and Madras may also apply Letters Patent Rules, which when applicable may override the provisions of the CPC. The procedure to be applied by tribunals is often governed by the statute that establishes the tribunal (and rules framed thereunder). Courts have held that the principles contained in the CPC would continue to apply to the tribunals even if the tribunals are not bound to follow specific provisions of the CPC.6
While the legislative and executive branches of the Indian government follow a federal structure, the Indian judicial system comprises a unified three-tier structure with the Supreme Court of India (the Supreme Court) holding the position of the apex court. Below the Supreme Court are the High Courts, functioning (in most cases) in each state. Lower in the hierarchy are the subordinate courts, which include courts at district level and other lower courts.
Law declared by the Supreme Court is binding on all other courts in India.7 By acceptance of the doctrine of stare decisis, law declared by High Courts binds subordinate courts8 and may have persuasive value over High Courts of other states.9 The Supreme Court and the High Courts are charged with original, appellate and writ jurisdiction. Under the writ jurisdiction they have the power to review administrative action including for the purposes of the enforcement of constitutional and fundamental rights granted under Part III of the Constitution of India.
The Arbitration and Conciliation Act 1996 (the Arbitration Act) governs the law related to domestic arbitration, foreign-seated arbitration and enforcement of foreign awards, in India. The Arbitration Act is based on the UNCITRAL Model Law as adopted by the United Nations Commission on International Trade Law on 21 June 1985. Mediation and conciliation have also been given statutory recognition through the Arbitration Act.
As a recent trend, even courts often promote alternative dispute resolution. This was discussed in great detail in the case of Afcons Infrastructure Limited v. Cherian Varkey Construction,10 where the Supreme Court laid down guidelines for courts to follow for the effective implementation of Section 89 of the CPC, which encourages parties to settle their disputes by means of alternative dispute resolution.
II THE YEAR IN REVIEW
The year 2018 witnessed a series of amendments aimed at introducing greater ease of doing business in India, and at bringing the current law in tune with the rapid economic growth in the country in order to aid foreign direct investments, public private partnerships, public utilities infrastructure developments, etc.
One of the primary legislative changes brought about during 2018 are the amendments to the Insolvency and Bankruptcy Code 2016 (IBC), which introduce significant changes on the substantive as well as procedural aspects of the IBC. The IBC, which came into effect on 1 December 2016, is a comprehensive legislation that seeks to replace extant insolvency and restructuring laws in India and proposes to cover corporate persons (i.e., companies and limited liability partnerships), individuals and partnerships. The National Company Law Tribunals (NCLT) have been vested with the jurisdiction in respect of insolvency and restructuring proceedings against corporate persons in India, while the Debt Recovery Tribunal will oversee proceedings against individuals and partnerships. Some of the important amendments to the IBC include the following.
Under the IBC, various categories of creditors,11 including foreign creditors, may trigger the insolvency resolution process and provide a single forum to oversee resolution and liquidation proceedings. The recent amendment to the definition of ‘financial debt’ includes amounts raised from allottees in respect of a real estate project (as defined under the Real Estate (Regulations and Development) Act 2016), thereby recognising their status as financial creditors.12 Homebuyers can now initiate the insolvency process against errant real estate developers and will be entitled to representation on the Committee of Creditors (CoC) of the corporate debtor. Homebuyers will be treated as a class of creditors. Given the large number of homebuyers for a project, they will be represented in the CoC by an authorised representative to be appointed by the National Company Law Tribunal.
The IBC provides that the Corporate Insolvency Resolution Process (CIRP) may be initiated on the occurrence of a single payment default of 100,000 rupees and the NCLT will determine whether a payment default has taken place. Accordingly, a CIRP application can be admitted against the corporate debtor.13 The recent amendment14 provides that the law of limitation will apply to IBC applications, removing earlier confusion in this regard.
Under the IBC, the NCLT is required to declare a moratorium of 180 days (that may be extended for a further period of 90 days) against any recovery actions and new cases filed against the corporate debtor and its assets,15 and appoint an interim resolution professional who will oversee the formulation of the restructuring plan.16 However, in a few cases, courts took the view that the moratorium in an ongoing CIRP will also stay enforcement of guarantees or security interest from promoters and group companies of the corporate debtor. The amendment now clarifies that the moratorium period shall not apply to the enforcement of guarantees granted by promoter guarantors or other group companies that are not undergoing a CIRP.17 The Supreme Court has also clarified that this does not cover the assets of the personal guarantor of the corporate debtor.18 Where there is conflict, especially when there is a direct clash between moratoriums under the two statutes, then the IBC will take precedence over any other legislation.19
Once the CIRP has been initiated, the NCLT becomes the sole forum to entertain disputes either initiated by the corporate debtor or against the corporate debtor.20 In order to protect the interest of all creditors, the amendment:
a. bars withdrawal of corporate insolvency proceedings even if the matter is settled between the parties, unless it is approved by 90 per cent of the Committee of Creditors;21
b. reduces the threshold from 75 per cent to 66 per cent for the CoC22 to approve certain actions such as appointment of a resolution professional, approval of the resolution plan, approaching the NCLT for passing of liquidation order, etc.;
c. lists disqualifications23 to restrict the participation of persons in the resolution process who are likely to rig the resolution process, such as the promoters of the corporate debtor or persons responsible for the default of the corporate defaulter in the past, including persons related to such defaulters; and
d. states that the consent of shareholders of the corporate debtor is generally required for significant corporate actions.24
The Ministry of Corporate Affairs (MCA) released a clarification in the past year to the effect that approval of shareholders of the company for any corporate action in the resolution plan (otherwise required under any law) is deemed to have been given on its approval by the NCLT. The IBC is amended to incorporate the clarifications proposed by the MCA.
The IBC provided that financial creditors who were related to the corporate debtor would not be allowed to participate, attend or vote in CoC meetings. Financial institutions that had converted their debt into substantial equity stakes in the corporate debtor under any previous restructuring were deemed related to the corporate debtor and were thereby precluded from attending or voting in CoC meetings. The amendment provides an exemption from this prohibition for such financial creditors provided they are regulated by a financial sector regulator.25
Another significant legislative change brought about in the past year is the recent amendments to the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act 2015, which established special courts governed by procedures tailored for the speedy resolution of commercial disputes. Reducing the ceiling limit from 1 million to 300,000 rupees,26 the recent amendment has increased the pecuniary jurisdiction of commercial courts. In order to reduce the caseload of all commercial cases to be heard by a high court, additional commercial courts,27 based on their pecuniary threshold, have been created below district judge levels for states where high courts do not have original civil jurisdiction, and at the district judge level for states where high courts have ordinary original civil jurisdiction. Appeals from the orders of the commercial courts below district judge level would be filed before commercial appellate courts28 specially created for the purpose. Interestingly, with a view to encourage resolution of commercial disputes by alternate dispute redressal mechanisms, the amendment provides that no commercial suit can be instituted unless the plaintiff exhausts the remedy of pre-institution mediation,29 except in cases where urgent interim relief is contemplated.
Further, the Specific Relief Act 1963 that prescribes remedies for enforcement of certain civil rights also introduced key amendments in its provisions dealing with specific performance of contracts. Prior to the amendment, specific performance of contract would be granted by the courts subject to their discretion30 only if:
a. the monetary compensation for breach of contract was inadequate; or
b. if the damage caused by the breach could not be determined.
However, under the amended law,31 the conditions for the grant of specific performance are better defined. The amendment bars grant of injunction32 in suits involving infrastructure project or contracts where injunctions would delay or hinder the progress of the projects. Special courts33 will be designated for hearing suits in respect of infrastructure project contracts. The amendment posits that disposal of suits within a period of 12 months34 from the service of process are subject to extension for an aggregate period of six months.
There were a number of significant judgments of courts in 2018.
In Board of Control for Cricket in India v. Kochi Cricket Private Limited,35 the Supreme Court laid to rest the ambiguity that existed around the applicability of the amended provisions of the Indian Arbitration and Conciliation Act 1996 (the Arbitration Act), especially to court proceedings that arise out of an arbitration that commenced before 23 October 2015, the date of commencement of the amendment. Prior to 23 October 2015, mere filing and pendency of an application for setting aside an arbitration award would lead to an automatic stay against its enforcement. The 2015 amendment did away with this provision (under Section 36 of the Arbitration Act), but its applicability on the pending applications for setting aside the arbitral awards caused conflicting decisions by various high courts in India. The Supreme Court has held that amended provisions would apply to pending applications for setting aside the arbitral award. The judgment debtor would now need to specifically seek a stay of the arbitration award or prepare to pay the award notwithstanding the pending challenge to set aside the award.
In Union of India v. Hardy Exploration and Production (India) INC,36 the Supreme Court decided on the principle to be applied for determining the seat of an arbitration when the arbitration agreement specifies the venue for holding the arbitration but does not specify the seat. The Supreme Court held that when an arbitration clause only specifies the term ‘place’ and no other condition is attached to it, it is equivalent to ‘seat’ and that finalises the issue of jurisdiction. However, if a condition is attached to the term ‘place’, the same has to be satisfied for the place to become equivalent to seat.
In M/s Emkay Global Financial Services Ltd. v. Girdhar Sondhi,37 the Supreme Court has held that an application to set aside an arbitration award are summary proceedings and the courts should ordinarily not allow the parties to lead evidence unless necessary.
In Cheran Properties Ltd v. Kasturi and Sons Ltd and Ors,38 the Supreme Court has paved the way for expedient execution of arbitral awards. The Supreme Court held that an arbitral award is capable of being enforced as if it were a decree of the Court, and that to effectuate transfer of shares awarded in arbitration, recourse to the remedy of the rectification of the register was appropriate and necessary. Thus, armed with this decree, a party is entitled to seek rectification of the register by approaching the NCLT under the relevant provisions of the Companies Act 1956. The Supreme Court, relying on the Group of Companies doctrine, further held that since the facts of the present case indicate a mutual agreement by parties (including non-signatories) to be bound by the arbitral award, an arbitral award can be enforced against a third party. In a similar vein, the Division Bench of the Madras High Court in SEI Adhavan Power Private Limited and Ors v. Jinneng Clean Energy Technology Limited and Ors39 set aside an anti-arbitration injunction and stated that the duty of the court is to impart a sense of business efficacy to the commercial understanding reflected in the terms of the agreement between the parties. Applying the Group of Companies Doctrine, the court held that a non-signatory or third party could be subjected to arbitration only in exceptional cases. In addition to factors such as the direct relationship of the party signatory to the arbitration agreement, direct commonality of the subject matter and the agreement between the parties being a composite transaction, the Court would have to examine whether a composite reference of such parties would serve the ends of justice.
In Ahmed Abdulla Ahmed Al Ghurair v. Star Health And Allied Insurance Company Limited & Ors,40 the Supreme Court of India held that a derivative action of a foreign company is not maintainable in India and upheld the principle of forum non conveniens while granting leave to a party to institute a suit before the Madras High Court under Clause XII of the Letters Patent Act.41 It further held that if a person holding beneficial interest in shares fails to make necessary declarations under Section 89 of the Companies Act 2013 then neither the beneficial owner nor any person claiming through it can thereafter try to enforce the beneficial interest by seeking declaratory relief from an Indian court.
III COURT PROCEDURE
i Overview of court procedure
It can be seen in connection with the Indian legal system (as a criticism more than a compliment) that ‘there is ample – sometimes excessive – due process; and one has to be patient and persevering’.42 Broadly, court procedure in India is governed by the CPC for civil matters and the CrPC for criminal matters. As discussed above, even where statutes create specialised tribunals and courts to deal with particular disputes, it is sometimes recognised that the principles contained in the CPC and CrPC would continue to apply. This is often so because provisions in the CPC and the CrPC are recognised as the embodiments of the principles of fair play, natural justice and due process.
ii Procedures and time frames
The primary statute governing limitation is the Limitation Act 1963. As a general rule, most suits, especially those relating to contracts and accounts have a limitation period of three years for filing. Some suits relating to immovable property may fall within a longer limitation ranging from 12 to 30 years.43 The periods prescribed under the Limitation Act may not apply in the event a specific statute prescribes a period of limitation.44
Where a plaintiff approaches a court for injunctive relief, especially at an interlocutory stage, the court may require the plaintiff to demonstrate (quite aside from being within limitation) that the plaintiff has acted in a timely manner and has not acquiesced to the infringement of its rights.45
A writ court may require a petitioner (although no limitation is prescribed for writs) to demonstrate that he or she has approached the court without delay, since a delay may disentitle a petitioner to relief.46
After amendments in 2002, the CPC requires written statements of defence to be filed in a timely manner. This is normally within 30 days of the service of summons, which may be extended by a further 60 days.47 The CPC also curtails the number of adjournments that may be sought and attempts to curtail practices that are often perceived as dilatory, such as belated amendments to pleadings48 and belated production of documents.49
It is pertinent to note that the Arbitration Amendment Act now mandates time-bound arbitrations. A time limit of 12 months has been prescribed from the date that the arbitrators have received notice in writing of their appointment. Parties may also agree in writing to have their dispute resolved by fast-track procedures, which would require the award to be made within six months from the date of entry of the arbitral tribunal upon reference.50 If the court passes any interim measure under Section 9 of the Arbitration Act, the arbitral proceedings must commence within 90 days of the court passing such an order.51
The Commercial Court Act has also set a time of 30 days for the submission of written arguments and 90 days from the date of conclusion of arguments for the pronouncement of a judgment. Appeals have to be disposed of by the appellate body within 60 days from the date of the appeal.
The IBC provides a period 180 days from the date of admission of an application for initiating CIRP as the period of the insolvency resolution process that culminates with the submission of a resolution plan to the NCLT.52
In spite of these recent developments to reduce time frames, the time taken for the completion of a trial in civil and criminal proceedings may be several years.
iii Class actions
The CPC recognises that where there are numerous persons with the same interest in one suit, one or more of such persons may, with the permission of the court, sue or be sued, or may defend such suit on behalf of or for the benefit of all persons interested.53
The Companies Act 1956 and the Companies Act 2013 stipulate that a specified number of members or depositors may, if they are of the opinion that the management or control of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors, file an application before the company law tribunal on behalf of the members or depositors.54
The Supreme Court has in the exercise of its writ jurisdiction long recognised the ability of an individual or a group of individuals to bring ‘public interest litigations’ to espouse the cause of larger sections of society.55
iv Representation in proceedings
The Constitution of India guarantees the right of a person accused of an offence to be represented by a legal practitioner of his or her choice.56
In other proceedings, while litigants are typically represented by advocates enrolled under the Advocates Act 1961, there may be exceptions to the rule. For instance, the Family Courts Act57 stipulates that a party may be represented by an advocate only if the court thinks that it is necessary for a fair trial. Further, the Industrial Disputes Act58 restricts the conditions under which a lawyer can appear before the industrial tribunal. The Advocates Act59 empowers a court to permit any person who has not been enrolled as an advocate to appear before it in any particular case.
v Service out of the jurisdiction
The CPC60 and the CrPC61 contain provisions for service out of the territory of India. India has also entered into bilateral treaties and multilateral conventions for these purposes.
Under the CPC, when a defendant resides outside India and no agent in India is empowered to accept service, summons or notice may be sent by courier or post service as approved by the appropriate High Court. This provision must, however, be read together with the procedure prescribed by the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters 1965 to which India is a party.
The CrPC recognises bilateral arrangements and makes compliance with such an arrangement mandatory. It is prescribed that summons or warrants issued by a court in India should be served and executed in accordance with the bilateral arrangement, if any. Also, the Ministry of Home Affairs in India has, by a circular dated 11 February 2009, clarified the procedure to be followed for the issuance of summons to a foreign resident (the MHA Circular). Under the MHA Circular, all requests for service of summons, notices or judicial processes on persons residing abroad shall be addressed to the Under Secretary (Legal) of the Ministry of Home Affairs. Thereafter, the Ministry, after scrutinising the request, can forward it to the relevant foreign officer.
vi Enforcement of foreign judgments
A money decree obtained from a court of a jurisdiction notified by the Indian Union government as a reciprocating territory under the CPC can be enforced in India directly by filing an execution petition in a court of competent jurisdiction.62 As a result, judgments of courts not notified as reciprocating territories or decrees other than money decrees cannot be executed directly in India. A decree holder in such a case may file a fresh lawsuit in the Indian courts on the basis of the foreign judgment. In either execution proceedings or fresh suits filed on the basis of foreign judgments, parties may rely on Sections 1363 and 1464 of the CPC.
Section 44 of the Arbitration Act prescribes that a foreign award that arises out of (1) an agreement to which the New York Convention on the Recognition and Enforcement of Foreign Awards (the New York Convention) applies and (2) is made in one of the territories in respect of which the Central Government declares that the New York Convention applies on satisfaction that reciprocal provisions are being made, may be enforced in India. In this regard, the Arbitration Amendment Act has clarified that a foreign arbitration award may be set aside if it violates the public policy of India on the same grounds as described for domestic awards above. However, unlike domestic awards, foreign awards cannot be set aside on the ground of patent illegality.
vii Assistance to foreign courts
Assistance may be given to foreign courts65 on the basis of bilateral agreements with the reciprocating territories. In civil matters, the CPC provides for the service of foreign summons issued by certain specified courts only. In such cases, assistance is given when a defendant resides or works for gain or carries on trade or business within India and the summons itself may be a summons for the appearance of the defendant, production of documents or furnishing of information.66
Also as discussed above, India is a signatory to the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters 1965, whose key objective is to improve the organisation of mutual judicial assistance by simplifying and expediting procedures.
viii Access to court files
Rules relating to access to court files may vary depending on the nature of the proceeding, who is seeking access and whether the proceeding is ongoing or concluded. In most cases a person who is a party to the proceeding is allowed to search, inspect or have copies of all pleadings and other documents or records of the case. A third party seeking the information or record may need to apply to the court and show cause to be allowed to do so.
ix Litigation funding
Disinterested third-party funding is not common. While some courts have found that third-party funding may be permissible,67 other courts have often declined to uphold such agreements on the grounds of public policy or professional ethics.68
IV LEGAL PRACTICE
i Conflicts of interest and Chinese walls
The Bar Council of India Rules (the BCI Rules), notified by the Bar Council of India (BCI) under the Advocates Act 1961, impose standards on advocates to ensure that conflicts of interest are avoided. These include:
a prohibition on appearing for opposite parties in the same matter, and from taking instructions from anyone other than the client and the client’s authorised agent;
a prohibition on lending to a client, or converting funds in the advocate’s hands to a loan, or adjusting fees against personal liability owed by an advocate to the client;
a prohibition on bidding for, or acquiring an interest in property of actionable claim involved in litigation;
a prohibition on appearing in matters where the advocate has a pecuniary interest;
a prohibition on representing establishments of which the advocate is a member;
a prohibition on appearing in matters where he or she is a witness;
a prohibition on appearing before relatives who are judges;
the obligation to make a full and frank disclosure to client relating to his or her connection with the parties and any interest in or about the controversy likely to affect his or her client’s judgement in either engaging him or her, or continuing the engagement; and
the obligation not to disclose information or instructions provided by the client.
ii Money laundering, proceeds of crime and funds related to terrorism
While there are no specific obligations on lawyers with respect to money laundering, India has a strong legislative framework, including the Prevention of Money Laundering Act 2002, the Income Tax Act 1961, the Foreign Exchange Management Act 1999, the Foreign Contribution Regulation Act 2010 and the Companies Act 2013, that serves to detect and prevent money laundering and the proliferation of the proceeds of crime.
iii Data protection
Data protection in India is primarily governed by the Information Technology Act 2000 and the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules 2011 (the IT Rules). These rules define sensitive personal data and information (SPDI)69 and prescribe the manner in which SPDI may be collected, processed, transferred, disclosed or stored. The IT Act provides for damages in the event that the SPDI is not protected and wrongful loss is caused as a result.
The introduction of the IT Rules has affected how lawyers may collect and use SPDI. To the extent that SPDI is collected directly from the data subject, the consent of the data subject is required for the purpose of using the SPDI or transfer of SPDI.
In the context of due diligence and onward sharing of data with other law firms and LPOs, the levels of compliance appear higher in as much as data sharing agreements usually incorporate the requirements of the IT Rules.
However, compliance with the procedures specified in the IT Rules by lawyers generally appear to be relatively lax when it comes to collection and use of data in the course or for the purposes of litigation, especially as damages may be claimed only if wrongful loss can be proved.
iv Other areas of interest
As discussed above, most provisions of the Companies Act 2013 have been notified. There are certain significant changes with respect to the liability of actors such as directors70 and auditors71 under the Companies Act 2013.
For instance, directors of companies facing civil and criminal proceedings are now required to demonstrate that they had ‘acted diligently’ in connection with the subject matter of the dispute in order for them to be excused from personal liability.72 Under the previous jurisprudence, it was acceptable in some circumstances for non-executive and independent directors to take the defence that they were not involved in the day-to-day operations or management of the company.73 It is likely that this defence will no longer be available.
V DOCUMENTS AND THE PROTECTION OF PRIVILEGE
Subject to specified exceptions,74 Section 126 of the Indian Evidence Act, 1872 (the Evidence Act) prohibits an attorney75 from disclosing without his or her client’s express consent any communication made to him or her in the course of and for the purpose of his or her employment as an attorney. Recognising the role of interpreters, clerks and other support staff employed by attorneys, the privilege is extended by Section 127 of the Evidence Act to facts coming into their knowledge in the course of their employment. Section 129 protects a client from being compelled to disclose any confidential communication that has taken place with his or her ‘legal professional adviser’.
As discussed above, an advocate is also prohibited by the BCI Rules from disclosing client communications or advice given by him or her to the client.
A contemporary area of interest around this question is whether the protection of attorney–client communication extends to in-house counsel. The area is not free from doubt. While the Bombay High Court in its judgment in Municipal Corporation of Greater Bombay v. Vijay Metal Works76 took the view that in-house counsel would be covered by privilege, this view was doubted by the same court in Larsen & Toubro Limited v. Prime Displays Private Limited77 in light of the observations of the Supreme Court in Satish Kumar Sharma v. Bar Council of Himachal Pradesh.78
ii Production of documents
Under the CPC, the court can, at any time during the pendency of any suit, order the production (under oath) of such documents, relating to any matter in question in such suit. Further, the Evidence Act provides that a witness summoned to produce a document must, if it is in his or her possession, bring it to court regardless of any objection to its production or admissibility.79
If a party asserts privilege over a document that it is asked to produce and this assertion is disputed by the opposite party or not accepted by court, it is likely that the court would review the claim for privilege and possibly the documents under seal and decide on whether the protection of privilege applies.80
VI ALTERNATIVES TO LITIGATION
i Overview of alternatives to litigation
Since India has permitted foreign investments in various industries and sectors through its new liberal policies, there is a considerable increase in the number of commercial disputes. As a mechanism to deal with its heavy caseload, India has striven to encourage alternative dispute resolution (ADR) mechanisms. In several areas and even at the level of the High Courts and the Supreme Court, the law has allowed for parties to be directed towards ADR.81
Apart from the Arbitration Act, the Supreme Court of India in Salem Bar Association v. Union of India82 recommended the adoption of arbitral rules that were formulated by the Jagannadha Rao Committee. The draft rules made by the Committee were circulated to all the High Courts. The rules provide for the procedure according to which the referral to ADR mechanisms under Section 89 of the CPC can take place, including the stage at which the referral can take place. Guidelines to be observed by the court before making such referral have also been set out.
The arbitration framework, however, has been outlined in the central Arbitration Act, which provides for various matters such as the interpretation of the arbitration agreement, interim measures that can be taken, appointment and termination of arbitrators, place and procedure for the arbitration and grounds for challenges. India is also party to the three main international conventions that govern international arbitrations in different territories and that have been consolidated under the Arbitration Act:
the Geneva Protocol on Arbitration Clauses of 1923;
the Convention on the Execution of Foreign Awards 1923 (the Geneva Convention); and
the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention).
The Arbitration Act is applicable both to domestic and foreign-seated arbitrations. Part I covers the scope of domestic arbitrations, whereas Part II covers foreign-seated arbitrations and the enforcement of foreign awards. Part I defines the scope of what constitutes arbitration,83 the essentials of an arbitration agreement84 and the procedure for determining the validity of such an agreement.85 It is important to note in this regard that there are limited instances and time-bound procedures for challenging the validity of such an agreement and the arbitral tribunal has the power to determine its jurisdiction. Section 5 of the Arbitration Act specifically provides, with respect to Part I, that no judicial authority may intervene in arbitration except in a case where a stipulation to this effect has been made.
The initial years of the implementation of the Arbitration Act saw regressive interpretation that allowed frequent and wide-sweeping judicial intervention from Indian courts. The judgments of the Supreme Court and High Courts have, however, broken the trend and are serving to restore confidence in India as a potential arbitration destination. The Arbitration and Conciliation (Amendment) Act 2015 has also introduced various provisions that promote arbitration by reducing the timelines and costs involved.
Further, although statistically there are more ad hoc arbitrations conducted in India, the use of institutional arbitration is growing gradually. This has to do in part with the reputed arbitration institutions, such as the Singapore International Arbitration Centre, setting up establishments in India. India’s first international arbitration centre, the Mumbai Centre for International Arbitration, was set up in Mumbai in 2016. The High Courts at Delhi, Karnataka, Punjab and Haryana, and Madras, inter alia, have set up arbitration centres with the objective of providing recourse to credible yet affordable arbitration.
The most important component of mediation is that it is the parties to the dispute who decide the terms of settlement. In conciliation on the other hand, the conciliator makes proposals, and formulates and reformulates the terms of settlement. Mediation was first given statutory recognition in the Industrial Disputes Act 1947, where officers appointed under Section 4 of the Act are ‘charged with the duty of mediating in and promoting the settlement of industrial disputes’. Mediation, as a form of dispute resolution has not obtained independent force in India but is mostly institutionally annexed to the courts through Section 89 of the Code of Civil Procedure Code 1809. To that extent, this might compromise the independence of mediations from court-related procedures and interference. Nevertheless, it gives mediations greater legitimacy and compatibility with the formal dispute resolution processes in society.
Another point to be noted is the growing importance of mediation clauses in commercial agreements. Both mediation and consultation form a mandatory aspect of pre-arbitration procedure. It has also been held by courts that mediation and consultation are a substantial part of the agreement and are to be followed prior to any arbitration being initiated.86 In the event that the dispute is referred first to arbitration, the tribunal has the power to render the petition inadmissible on the grounds of the pre-arbitration procedure prescribed by the agreement being violated by the parties.
Akin to the Arbitration Rules 2006, the judges of the Salem bench also recommended the adoption of the Civil Procedure Mediation Rules 2006. These rules govern almost the whole of the mediation process starting from the procedure for appointment of the mediator by both the parties from a panel of mediators who have already been formed for this purpose by the district courts. The qualifications and disqualifications for the panel, the venue of the mediation, the removal of a mediator from the panel, their impartiality and independence, the procedures during the mediation itself, confidentiality, privacy, the settlement agreement and many other aspects are governed by these rules.
It is pertinent to note also the popularity of court-annexed mediation whereby mediation centres have been set up by various High Courts including in Delhi, Madras and Bangalore.
iv Other forms of ADR
Conciliation has been inserted in Part III of the Arbitration Act and is less formal than arbitration, but more formal than mediation. To the extent that it requires only mutually consenting parties and not a formal written document executed to be able to conciliate,87 it proves an easier form of dispute resolution. The parties can appoint up to three conciliators.88 An important requirement of conciliation proceedings is the independence and impartiality of the conciliator and the attempt to ensure the appointment of a conciliator not having the nationality of either of the parties.89 The conciliators form a medium of communication between the parties inviting them for proceedings and helping them exchange documents and evidence. When the conciliators are of the opinion that elements of a settlement exist, they can draw up the terms of conciliation and, after being signed by the two parties, it shall be final and binding on both to the same extent as an arbitral award.90
VII OUTLOOK and CONCLUSIONS
In India, the judge-to-population ratio is not adequate to meet the huge volume of litigation, effectively adding to the delay in redressal. This phenomenon is often referred to as the ‘docket explosion’. Considering the extensive legal framework and significant backlog of litigation, Indian arbitration has made strong attempts to bring about a dynamic change. However, the ordinances, especially if enacted by Parliament, are expected to reduce many difficulties with regard to timing, cost, finality of awards and interim reliefs faced by both foreign and Indian parties wishing to arbitrate in India.
i Arbitration in India
In a practical scenario, a foreign investor will have the ability to approach a court for protective relief with respect to Indian shares and Indian assets and for other support, such as the recording of evidence in India. On the other hand, the ability to apply to an Indian court for annulment of an award may not be beneficial in all cases. Indian courts in exercise of jurisdiction under Section 34 of the Arbitration Act have previously taken an expansive interpretation of the grounds for challenge of an award. While the Arbitration Amendment Act has attempted to narrow the scope of interpretation around the term ‘public policy’, this remains untested in Indian courts. Therefore, it is possible that an Indian arbitral award may be re-litigated in an Indian court.
ii Arbitration outside India
Unlike the previous regime, where parties to arbitrations seated outside India did not have recourse to Indian courts under Part I of the Arbitration Act, the Arbitration Amendment Act extends certain provisions of Part I (discussed above) to foreign-seated arbitrations, subject to an agreement to the contrary. This amendment may therefore enable a foreign investor who thinks an Indian party may dissipate its assets or transfer or devalue Indian shares, to approach an Indian court for interim relief. Therefore, even if the Indian party does not have a presence or assets at the foreign location where the arbitration is seated, given the extension of certain provisions of Part I of the Arbitration Act by the Arbitration Amendment Act, foreign investors may be able to obtain protective orders in India. This reduces the risks attached to waiting until an award is finally pronounced by the tribunal.
In this regard, an award of a foreign tribunal, if required to be enforced in India, would need to be presented for enforcement under Section 48 of the Arbitration Act. An Indian court can review the foreign award to the limited extent provided under Section 48 of the Arbitration Act to examine whether it may be enforced. As stated above, since the definition of ‘court’ under the Arbitration Act has been amended to mean the jurisdictional High Court for international commercial arbitrations, the proceedings for enforcement of foreign arbitral awards will now lie before the High Court. Additionally, if the subject matter of the dispute resulting in the foreign award is in excess of the ‘specified value’ as defined under the Commercial Courts Act, all such matters will be heard and disposed of by the commercial appellate division of that High Court. The impact of judicial precedents on the arbitration regime in India remains, however, to be seen. It may be too soon to ascertain the prospects for a young country such as India.
1 Zia Mody is the founder and managing partner and Aditya Vikram Bhat is a partner at AZB & Partners. The authors would like to acknowledge Priyanka Shetty, who is a senior associate and Jomol Joy, who is an associate at AZB & Partners for their assistance.
2 Glanville Williams, Learning the Law (Sweet & Maxwell, 1982) p. 19; Law Commission of India, 54th Report, p. 8.
3 Bharat Barrel and Drum Manufacturing Company Private Limited v. Employees State Insurance Corporation AIR 1972 SC 1935.
4 Section 2(c) of the Commercial Courts Act.
5 Sections 3, 4 and 2(i) of the Commercial Courts Act.
6 See e.g., Groz Beckert Sabool Ltd v. Jupiter General Insurance Co Ltd and Ors AIR 1965 P&H 477 and Sri Ramdas Motor Transport Limited v. Karedla Suryanarayana 110 ComCas 193 (Andhra Pradesh).
7 Article 141 of the Constitution of India.
8 Baradakanta Misra v. Bhimsen Dixit (1973) 1 SCC 446.
9 Pradip J Mehta v. CIT (2008) 14 SCC 283.
10 (2010) 8 SCC 24.
11 Sections 7 and 9 of the IBC.
12 Inserted by the Insolvency and Bankruptcy (Second Amendment) Act 2018 as Section 6A of the IBC.
13 Sections 7 and 9 of the IBC.
14 Inserted by the Insolvency and Bankruptcy (Second Amendment) Act 2018 as Section 238A of the IBC.
15 Section 14 of the IBC.
16 Section 13 of the IBC.
17 Section 14 of the IBC amended by the Insolvency and Bankruptcy (Second Amendment) Act 2018.
18 State Bank of India v. Ramakrishnan Civil Appeal No. 3595/2018.
19 (2018) 1 SCC 40.
20 Section 60(5) of the IBC.
21 Section 12A of the IBC inserted by the Insolvency and Bankruptcy (Second Amendment) Act 2018.
22 Amended by the Insolvency and Bankruptcy (Second Amendment) Act 2018.
23 Section 29A of the IBC inserted by the Insolvency and Bankruptcy (Second Amendment) Act 2018.
24 Section 10 of the IBC amended by the Insolvency and Bankruptcy (Second Amendment) Act 2018.
25 Section 21 of the IBC amended by the Insolvency and Bankruptcy (Second Amendment) Act 2018.
26 Section 3 of the principal Act was amended by the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Act 2018.
28 Section 3A to the principal Act inserted by the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Act 2018.
29 Section 12A to the principal Act inserted by the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Act 2018.
30 Section 10 of the Specific Relief Act 1963.
31 Section 10 is amended by the Specific Relief (Amendment) Act 2018.
32 Section 20A inserted in the principal Act by the Specific Relief (Amendment) Act 2018.
33 Section 20B inserted in the principal Act by the Specific Relief (Amendment) Act 2018.
34 Section 20C inserted in the principal Act by the Specific Relief (Amendment) Act 2018.
35 (2018) 6 SCC 287.
36 AIR 2018SC 4871.
37 2018 (10) SCALE 15.
38 2018 SCC OnLine (SC) 431.
39 Original Side Appeal Nos.170 to 175 and 206 to 210 of 2018.
40 2018 (15) SCALE 133.
41 Clause XII of the Letters Patent of the High Court of Madras sets the limits of the original jurisdiction of the Court. Except for certain suits, the High Court of Madras has jurisdiction to entertain suits where, inter alia, part of the cause of action has arisen within its territorial limits. However, for this purpose, the leave of the Court has to be first obtained.
42 Fali S Nariman, ‘India and International Arbitration’, 41 Geo Wash Intl L Rev 367.
43 Schedule I to the Limitation Act 1963.
44 For instance, the Consumer Protection Act 1986 sets out a period of limitation of two years from the date when the cause of action arose for filing a complaint. Or, for instance, under the Arbitration Act an application for setting aside a final award can be made within three months from the date of the award. A court at its discretion taking on record reasons for delay can grant an extension of 30 days.
45 Power Control Appliances v. Sumeet Machines Limited (1994) 2 SCC 448.
46 AP Steel RE Rolling Mill v. State of Kerala (2007) 2 SCC 725.
47 Order VIII, Rule 1 of the CPC.
48 Order VI, Rule 17 of the CPC.
49 Order VII, Rule 14 of the CPC; Order XII Rule 2 of the CPC.
50 Section 15 of the Arbitration Amendment Act.
51 Section 5 of the Arbitration Amendment Act.
52 Section 12 of the IBC.
53 Order I, Rule 8 of the CPC.
54 Section 241 read with Section 244 and Section 245 of the Companies Act 2013. Sections 397, 398 and 399 of the Companies Act 1956.
55 People’s Union for Democratic Rights v. Union of India 1983 SCR (1) 456.
56 Article 22 of the Constitution of India.
57 Section 13 of the Family Courts Act 1984.
58 Section 36 of the Industrial Disputes Act 1947.
59 Section 32 of the Advocates Act 1961.
60 Order V, Rule 25 of the CPC.
61 Section 105 of the CrPC.
62 Section 44A of the CPC.
63 Section 13 of the CPC states:
A foreign judgment shall be conclusive as to any matter thereby directly adjudicated upon between the same parties or between parties under whom they or any of them claim litigating under the same title except (a) where it has not been pronounced by a Court of competent jurisdiction; (b) where it has not been given on the merits of the case; (c) where it appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognise the law of India in cases in which such law is applicable; (d) where the proceedings in which the judgment was obtained are opposed to natural justice; (e) where it has been obtained by fraud; (f) where it sustains a claim founded on a breach of any law in force in India.
64 Section 14 of the CPC states:
The Court shall presume upon the production of any document purporting to be a certified copy of a foreign judgment that such judgment was pronounced by a Court of competent jurisdiction, unless the contrary appears on the record; but such presumption may be displaced by proving want of jurisdiction.
65 Section 2(5) of the CPC defines a ‘foreign court’ as a court situated outside India and not established or continued by the authority of the central government.
66 Section 29 of the CPC.
67 Intertoll Ics Cecons O & M Co Private Limited v. National Highways Authority of India 129 (2006) DLT 146.
68 Re KL Gauba AIR 1954 Bom 478; In Re: Mr ‘G’, A Senior Advocate of The Supreme Court AIR 1954 SC 557.
69 The ‘sensitive personal data or information’ is defined in the IT Rules as personal information that consists of (1) the password; (2) financial information such as bank account, debit or credit card; (3) physical, psychological and mental health condition; (4) sexual orientation; (5) medical records and history; (6) biometric information; (7) any detail relating to the above as provided to the body corporate for providing a service; or (8) any of the information received under each of the heads by the body corporate for processing, or to be stored or processed under a lawful contract.
70 See, for instance, Section 2(60), which includes directors within the definition of ‘officers in default’. Section 166 also lays down duties of directors, which if contravened would result in penal consequences in the form of fines. Section 42(10) stipulates that contravention of the procedure of private placement would impose liability on the directors of the company for a penalty up to 20 million rupees or the amount involved in the offer, whichever is higher. In general, the penal provisions are Sections 447 to 457 of the Companies Act 2013.
71 See, for instance, Section 140, which empowers NCLT to suo moto or on an application, if it is satisfied that an auditor has acted in a fraudulent manner, direct a company to change its auditor. Such auditor will also be liable to penal action under Section 447. Section 147 also penalises auditors for contravention of duties of auditors and auditing standards as set out under the Companies Act 2013. Separately, Section 247 of the Companies Act 2013 imposes penalties on a valuer who has not exercised adequate due diligence.
72 Section 166(3) imposes a specific duty on a director to exercise his or her duties, inter alia, with due and reasonable care. Separately, however, Section 463(1) empowers the court to grant relief if the director has acted honestly and reasonably.
73 Section 149 read with Schedule IV provides for a code of conduct to be followed by independent directors. Specifically, Section 149(12) imposes a liability of independent directors in respect of actions or omissions that had occurred through his or her knowledge or where he or she had not acted diligently.
74 There are two statutory exceptions to the rule of client–attorney privilege. First, any communication made in furtherance of any illegal purpose is not protected and second, facts observed by the attorney in the course of his or her employment, showing that any crime or fraud has been committed since the commencement of his or her employment, are not protected.
75 The Evidence Act predates the Advocates Act 1961. The expressions ‘barrister’, ‘attorney’, ‘pleader’ or ‘vakil’ refer to various categories of legal practitioners recognised when the Evidence Act was enacted. The Advocates Act 1961 now recognises a single category of legal practitioner qualified to practise law, and defines them as ‘advocates’.
76 AIR 1982 Bom 6.
77 (2003) 114 CompCas 141 (Bom).
78 (2001) 2 SCC 365.
79 Section 162 of the Indian Evidence Act 1872.
80 See, for instance, the judgment of the Bombay High Court in Larsen & Toubro Limited v. Prime Displays Private Limited (2003) 114 CompCas 141 (Bom).
81 Afcons Infrastructure Limited v. Cherian Varkey Construction (2010) 8 SCC 24.
82 AIR 2005 SC 3353.
83 Section 2(1)(f) of the Arbitration Act.
84 Section 7 of the Arbitration Act.
85 Section 16 of the Arbitration Act.
86 Thermax Limited v. Arasmeta 2008 (1) ALT 788.
87 Section 62 of the Arbitration Act.
88 Section 63 of the Arbitration Act.
89 Section 64(2) of the Arbitration Act.
90 Sections 73 and 74 of the Arbitration Act.
Zia Mody, Founder & Managing Partner
Aditya Vikram Bhat, Partner
Legal Privilege & Professional Secrecy in India
Attorney-client communications doctrine
Identify and describe your jurisdiction’s laws, regulations, professional rules and doctrines that protect communications between an attorney and a client from disclosure.
Professional communication between a legal adviser and a client is accorded protection under the Indian Evidence Act, 1872 (the Act), the Advocates Act, 1961 (Advocates Act) and the Bar Council of India Rules (BCI Rules).
Sections 126 to 129 of the Act is a codification of the principles of common law on professional communications between attorneys and clients. Any person who seeks advice from a practicing advocate, registered under the Advocates Act, would have the benefit of the attorney-client privilege and his or her communication would be protected. Attorneys cannot, without the express consent of the client:
• disclose any communication made during the course of or for the purpose of his or her employment as such attorney, by or on behalf of his or her client;
• state the contents or condition of any document with which he or she has become acquainted in the course of and for the purpose of his or her professional employment; or
• disclose any advice given by him or her to his or her client in the course and for the purpose of such employment.
There are certain limitations to the privilege and the law does not protect the following from disclosure:
• disclosures made with the client’s express consent;
• any such communication made in furtherance of any illegal purpose; or
• any fact observed by any attorney in the course of his or her employment, showing that any crime or fraud has been committed since the commencement of his or her employment. The fact that the attention of the attorney was or was not directed to such fact by or on behalf of his or her client in not material in this regard.
Further, under section 129 of the Act, no one shall be compelled to disclose to the court any confidential communication that has taken place between him or her and his or her attorney, unless they have offered themselves as a witness in which case they may be compelled to disclose any communication as may appear to the court necessary to be known in order to explain any evidence that they have given, but no other.
Communications between an attorney and client are privileged even if they contain information from third parties. Prohibition of disclosure also extends to any interpreters, clerks or servants of the attorney. While the attorney-client privilege continues even after the employment has ceased, there is no privilege to communications made before the creation of an attorney-client relationship (Kalikumar Pal v Rajkumar Pal 1931 (58) Cal 1379).
The above prohibitions on disclosure of attorney-client communications is further bolstered by the provisions of the BCI Rules enacted under the Advocates Act, which govern the conduct of advocates in India.
The BCI Rules stipulate certain standards of professional conduct and etiquette for all attorneys. These provide that ‘An advocate shall not, directly or indirectly, commit a breach of the obligations imposed by section 126 of the Act’, thus reiterating the spirit of attorney-client privilege (Rule 17, Chapter II, Part VI).
Further, Rules 7 and 15 of the BCI Rules on An Advocate’s Duty Towards the Client provides as follows:
• Rule 7. Not disclose the communications between client and himself: An advocate should not by any means, directly or indirectly, disclose the communications made by his client to him. He also shall not disclose the advice given by him in the proceedings. However, he is liable to disclose if it violates section 126 of the Indian Evidence Act, 1872.
• Rule 15. An advocate should not misuse or takes advantage of the confidence reposed in him by his client.
A breach of the above Rules would subject an advocate to disciplinary proceedings. In view of the above, privileged communication between an attorney and a client are not admissible as evidence.
Since the law on privilege is governed by the Act, one (possibly unintended) consequence is the argument that attorney-client communications are strictly not protected from law enforcement agencies in course of investigations. Having said that, any privileged material, if produced, may not be admissible as evidence in court proceedings.
In-house and outside counsel
Describe any relevant differences in your jurisdiction between the status of private practitioners and in-house counsel, in terms of protections for attorney-client communications.
The issue regarding the position of an in-house counsel on the question of attorney-client privilege in India is not free from doubt. This question has been the subject matter of judicial interpretation. In this regard, the relevant provisions of law in this regard are as under:
Section 2(a) of the Advocates Act defines advocate as an advocate entered in any roll under the provisions of the Act.
Section 29 of the Advocates Act states that only advocates are entitled to practise the profession of law in India, which has judicially defined to include:
• appearance before court (ie, to practise in courts); and
• to practise the profession of law outside court by giving legal advice as attorney and counsel at law or by drafting or drawing legal documents or advising clients on non-contentious matters.
Rule 49 of the BCI Rules states that an advocate shall not be a full-time salaried employee of any person, government, firm, corporation or concern, as long as he or she continues to practise and shall, on taking up any such employment, disclose the fact to the Bar Council on whose roll his or her name appears, and shall thereupon cease to practise as an advocate so long as he or she continues in such employment.
It is therefore often argued that an in-house lawyer (ie, one who draws a salary) cannot practise as an advocate until such time that he or she is in full-time employment (Sushma Suri v Government of National Capital Territory of Delhi (1999) 1 SCC 330).
The Supreme Court of India clarified this question of law in Satish Kumar Sharma v Bar Council of Himachal Pradesh (2001) 2 SCC 365. On whether a salaried employee can be an ‘advocate’ under the Advocates Act, the court held:
The test, therefore, is not whether such person is engaged on terms of salary or by payment of remuneration, but whether he is engaged to act or plead on its behalf in a court of law as an advocate. In that event the terms of engagement will not matter at all . . . If the terms of engagement are such that he does not have to act or plead, but does other kinds of work, then he becomes a mere employee of the Government or the body corporate. Therefore, the Bar Council of India has understood the expression advocate as one who is actually practicing before courts which expression would include even those who are law officers appointed as such by the Government or body corporate.
However, the above distinction between lawyers who are engaged to act or plead as advocates and lawyers who are employees does not materially alter the position of law in respect of attorney-client privilege. This has been clarified by the Bombay High Court in the following cases:
• In Municipal Corporation of Greater Bombay v Vijay Metal Works, AIR 1982 Bom 6, the Bombay High Court, while considering whether privilege would extend to communications between an in-house counsel and the client, has held that a paid or salaried employee who advises his or her employer, on all questions of law and relating to litigation, must get the same protection of law and therefore any such communication made in confidence by his or her employer to him or her for the purpose of seeking legal advice or vice versa should get protection of sections 126 and 129 of the Act. The Court further distinguished that such protection may not extend to the work undertaken by an in-house legal counsel for his or her employer that is in another capacity (such as work of an executive nature). Communications exchanged in any other capacity (not legal) would not be subject of legal professional privilege under sections 126 to 129 of the Act.
• In Larsen & Toubro Ltd v Prime Displays (P) Ltd  114 Comp Cas 141 (Bom), the Bombay High Court observed that:
It is, thus, clear that, even according to the applicant, in order that an advice given by an internal legal department of the applicant becomes entitled to protection, under Section 129, that advice must be given by a person who is qualified, to give legal advice.
This observation appears to indicate that where the in-house counsel would, save for his or her employment with the concerned litigant, be otherwise be qualified to give legal advice, then privilege under sections 126 and 129 of the Act would attach itself to advice given by that in-house counsel. The Court in Larsen & Toubro, however, did not make any finding on this issue, due to lack of pleadings on the issue. In Larsen & Toubro, the Court also permitted a claim of privilege in the case of certain documents, which included communications between company and in-house counsel, but solely on the ground that the same had been created in anticipation of litigation.
Identify and describe your jurisdiction’s laws, regulations, professional rules and doctrines that provide protection from disclosure of tangible material created in anticipation of litigation.
All materials created (tangible or intangible) and communication exchanged between a client and attorney in anticipation of litigation will be privileged communication (Larsen & Toubro). This includes communication for the purpose of obtaining advice for the litigation; for obtaining or collecting evidence to be used in the litigation; and for obtaining information that will lead to such evidence, drafts of notices, pleadings and so forth exchanged between the attorney and the client.
Information called for by the client and provided by an employee or a third-party agent, on the request of, and for the purpose of submission to, the attorney may also be protected (Woolley v North London Railway (1868-69) LR 4 CP 602).
However, communication between the employees of the client in the ordinary course of business, which may have utility for anticipated litigation, is not protected. Accordingly, there is no protection accorded to the following:
• for statements made by an employee regarding the subject matter of certain suit proceedings which were not to be submitted to their attorney (The Central India Spinning Weaving And Manufacturing Co Ltd v G.I.P Railway Co, AIR 1927 Bom 367); and
• letters written by one employee to another regarding information that could potentially become useful to their attorney (Bipro Doss Dey v Secretary of State for India in Council (1885) ILR 11 Cal 655).
Recent case law
Identify and summarise recent landmark decisions involving attorney-client communications and work product.
In Vijay Metal Works, the Bombay High Court held that a salaried employee who advises his or her employer on legal questions would be afforded the same privileges and protections under sections 126 and 129 of the Act as afforded to practising advocates.
In Larsen & Toubro, a petition for winding up filed by the respondents against the petitioner company, the Bombay High Court held in favour of the petitioner company that attorney-client work in anticipation of litigation is entitled to protection under sections 126 and 129 of the Act.
The Right to Information Act, 2005 (RTI Act) enables Indian citizens to access information held by public authorities. This has raised interesting questions about attorney-client privilege as grounds for refusing to disclose professedly public information in the hands of public authorities. In Mukesh Agarwal v Public Information Officer, Reserve Bank of India  CIC 11210, the Central Information Commission (CIC) held that while there may be a fiduciary relationship in respect of communication from the client to his or her attorney, there is no fiduciary relationship in respect of communication from the attorney to the client when the client is a public body with public responsibility under the RTI Act. Section 8.1(e) of the RTI Act excludes from disclosure of information available to a person in his or her fiduciary relationship, unless the competent authority is satisfied that the larger public interest warrants the disclosure of such information. The CIC in this case held that there was a larger public interest warranting disclosure, and accordingly ruled in favour of the citizen seeking information.
The same principle was applied by the CIC in 2015 in Alok Srivastava v CPIO, English & Foreign Language University, where the client (being a public university with an aforementioned public responsibility) was directed to disclose material information as there was a public interest that outweighed the protected interest. These CIC cases show that traditional attorney-client privilege does not apply to governmental entities if the exception provided in section 8.1(e) of the RTI Act applies.
In the Superintendent, High Court v The Registrar, Tamil Nadu Information Commission and M Sivaraj, 2010 (5) CTC 238, it was held that even though the office of the public prosecutor is a public authority, the Act only requires the public prosecutor to furnish such information, which is available to him or her and capable of being furnished, subject to section 8(1)(e) of the Act. Here, the public prosecutor, bound by attorney-client privilege to not disclose information provided to it by the State of Tamil Nadu, directed a citizen seeking information to approach the State of Tamil Nadu directly. The Madras High Court, which was approached in this connection, held that:
Instead of asking the [Public Prosecutor], who holds such an information in the capacity of counsel, the petitioner is very well entitled to approach the client, ie, the State of Tamil Nadu directly for getting such information.
In Cecilia Fernandes v State represented by the Director General of Police Goa and Anr, Criminal Miscellaneous Application No. 9 of 2005, the Bombay High Court held that the right to consult a legal practitioner under article 22(1) of the Constitution of India could only be exercised meaningfully in confidence. Thus a police officer, while entitled to stay within a certain distance of an accused, cannot insist on being within hearing distance so as to prevent an accused from instructing his lawyer in confidence.
Describe the elements necessary to confer protection over attorney-client communications.
Section 126 of the Act prohibits an attorney from disclosing an attorney-client privileged communication. The communication may be of any form and nature, verbal or documentary. It even covers facts observed by an attorney in the course and purpose of the attorney-client relationship. The elements necessary to confer protection are:
There must be:
• communication between a client and his attorney;
• documents exchanged between a client and an attorney, the contents and condition of which the attorney should be acquainted with; or
• advice from the attorney to the client.
• The above information must have been provided in the course of and for the purpose of the professional engagement with the attorney or in anticipation of litigation, and cannot just be general information.
• The communication should not be in furtherance of any illegal purpose, or such information should not relate to the commission of any fraud or crime after the commencement of engagement with the attorney.
• Whether the attention of the attorney was specifically directed by the client (or someone on behalf of the client) to a particular fact is not relevant.
Section 129 of the Act provides protection to a client from being compelled to disclose any ‘confidential communication’ with his or her legal professional adviser. The scope of attorney-client privilege under this section extends to all communications, oral or written. Based on observations in case laws on this issue, it appears that for any communication to qualify as being privileged under section 129, there are two tests that have to be satisfied, namely:
• whether the person is a professional legal adviser; and
• if yes, whether the communication is confidential and whether it is in relation to any legal issue or litigation, or in relation to legal advice sought by the client from the professional legal adviser.
To claim privilege, the communication must be of a private and confidential nature, and must have been provided sub sigillo confessionis (ie, in confidence). Where the communication is made in the presence of third parties, the court will examine whether the person intended it to be confidential or not. The position occupied by the third party and whether the third party had the same interests is relevant.
In Bhagwani Choithran v Deoram, AIR 1933 Sind 47, a client made a statement to his attorney in the presence of the client’s friends. The court held that since the friends occupied more or less the same position as the client, and had the same interests, privilege was not destroyed; however, the court held that it could be evidence that communication was not being made in confidence.
In Memon Hajee v Moulvi Abdul, (1878) 3 Bom 91, the defendants, in the presence and within the hearing of the plaintiff, had communicated information to their attorney who was at the relevant time also the attorney for the plaintiff. This information was held to be not confidential in light of the conduct of the defendants, and given that the statements were made to the attorney not exclusively in his character as attorney for the defendants but also as attorney for the plaintiffs.
Describe any settings in which the protections for attorney-client communications are not recognised.
Under section 129 of the Act, no one shall be compelled to disclose any confidential communication to the court, which has taken place between a client and his or her attorney, unless the client offers himself or herself as a witness in which case he or she may be compelled to disclose any such communication as may appear to the court necessary to be known in order to explain any evidence which he or she has given, but no other.
Any fact observed by any attorney in the course of his or her employment, showing that any crime or fraud has been committed since the start of his or her employment is not accorded protection under the Act. The fact that the attention of the attorney was or was not directed to such fact by or on behalf of his or her client is not material in this regard.
Further, under section 91 of the (Indian) Code of Criminal Procedure, a court can compel the production of any document, and the person in whose possession it is, if the document is necessary or desirable for the purpose of any inquiry, trial or other proceeding. The court in Chandubhai v State, AIR 1962 Guj 290, held that the protection against production or disclosure, however, does not extend to any original document that might have come into the possession of an attorney from his or her client. The attorney is but the agent of the client to hold the document and if the client is compellable to produce the document, there is no reason either on principle or authority on which the attorney can refuse to produce the document. The document handed over to the attorney by the client cannot be said to be privileged under section 120 of the Act unless the document contains any communication made to the attorney by the client in the course and for the purpose of the engagement as an attorney. The letter of which production was sought in the present case from the attorney of the accused was obviously not a letter in respect of which any privilege could be claimed by the attorney of the accused under section 126 of the Act.
Who holds the protection?
In your jurisdiction, do the protections for attorney-client communications belong to the client, or is secrecy a duty incumbent on the attorney?
Section 126 of the Act prohibits an attorney from disclosing attorney-client communications, without the express consent of the client. Therefore, the client may release the attorney from his or her obligation to maintain secrecy. However, in the absence of express consent, the attorney has a duty to maintain secrecy. If the attorney fails in his or her duty and discloses confidential information, that information may be held inadmissible (Bakaulla Mollah v Debiruddi Mollah, (1911-12) 16 CWN 742 (Cal)).
Underlying facts in the communication
To what extent are the facts communicated between an attorney and a client protected, as opposed to the attorney-client communication itself?
The facts between an attorney and a client are privileged as far as they are exchanged after the attorney’s engagement and subject to the exceptions set out above (such as such facts not in relation to an illegal purpose, etc).
In what circumstances do communications with agents of the attorney or agents of the client fall within the scope of the protections for attorney-client communications?
Section 126 of the Act includes communications made to the attorney ‘on behalf of’ the client within the scope of the protection. This will arguably extend protection to communications made by the agent of the client to the attorney on the client’s behalf in relation to legal advice or in anticipation of legal proceedings. Section 127 of the Act extends protection under section 126 to all interpreters and clerks or servants of the attorney.
Corporations claiming protection
Can a corporation avail itself of the protections for attorney-client communications? Who controls the protections on behalf of the corporation?
Yes. The protection is granted for a ‘client’, the meaning of which is not restricted to individuals. Communication between a corporation (through its agents) and external attorney in relation to legal advice or in anticipation of litigation are considered to be privileged communication under sections 126 to 129 of the Act. Such protection is not absolute and subject to limitations as set out in question 1.
Under Indian law, the board of directors of a corporation, or an authorised representative thereof, are understood to be in control of the corporation. In the case of protection of attorney-client communications, the board of directors, or a duly authorised representative, may be understood to be in control.
Communications between employees and outside counsel
Do the protections for attorney-client communications extend to communications between employees and outside counsel?
Yes, the protection for attorney-client communications will extend to communications in relation to legal advice or in anticipation of litigation between employees (as agents of the corporation) and outside counsel provided. Such protection is not absolute and subject to limitations as set out in question 1.
Communications between employees and in-house counsel
Do the protections for attorney-client communications extend to communications between employees and in-house counsel?
Yes, the protection for attorney-client communications will extend to communications in relation to legal advice or in anticipation of litigation between employees (as agents of the corporation) and outside counsel provided. Such protection is not absolute and subject to limitations as set out in question 1. Further, such protection may not extend to the work undertaken by an in-house legal counsel for his or her employer which is undertaken in another capacity (such as work of an executive nature). Communications exchanged in any other capacity (not legal) would not be subject to legal professional privilege under sections 126 to 129 of the Act (Vijay Metal Works).
Communications between company counsel and ex-employees
To what degree do the protections for attorney-client communications extend to communications between counsel for the company and former employees?
Privilege under section 126 of the Act extends to attorney communication with employees (working in a client corporation) in the course of and for the purpose of their professional employment. Section 126 specifically states that the obligations of such persons continue after the employment has ceased.
Further, section 126 of the Act protects communication between an attorney and a client or on behalf of his or her client. Any communication between a former employee, as an agent of the client with an attorney, can be considered as privileged communication. Such a protection is not absolute and subject to limitations as set out in question 1.
Who may waive protection
Who may waive the protections for attorney-client communications?
The privilege accorded under sections 126 to 129 of the Act is established for the protection of the client. Hence, such a privilege can only be waived by the client.
Actions constituting waiver
What actions constitute waiver of the protections for attorney-client communications?
Under section 126 of the Act, a client is required to expressly consent to the waiver of privilege. This need not be in writing necessarily, and could be inferred from the facts and circumstances. Further, under section 128, if a client calls his or her attorney as a witness and, in the course of examination, asks questions that specifically require a disclosure of attorney-client privileged information, then such a client is understood to have waived privilege.
Does accidental disclosure of attorney-client privileged materials waive the privilege?
Waiver of privilege under section 126 of the Act occurs only when the client expressly consents to it, or in the case of section 128, consents to it by implication. While there is no judicial pronouncement by the courts of India on this issue, considering any waiver must be deliberate (indicating consent), accidental disclosure may not be considered as a waiver of privilege.
Sharing communications among employees
Can attorney-client communications be shared among employees of an entity, without waiving the protections? How?
While confidential communications between principal and agent, even if relating to matters in a suit (or other litigation advice or proceedings) are not privileged, attorney-client communications are privileged correspondence. Only the client entity can waive such privilege. Therefore, sharing the attorney-client communication among employees of a client entity does not waive protection.
Describe your jurisdiction’s main exceptions to the protections for attorney-client communications.
Section 126 of the Act lays down two exceptions to attorney-client privilege, namely:
• communication made in the furtherance of any illegal purpose; and
• any fact observed by an attorney in the course of his or her employment that shows a crime or fraud has been committed since the start of his or her employment.
Litigation proceedings overriding the protection
Can the protections for attorney-client communications be overcome by any criminal or civil proceedings where waiver has not otherwise occurred?
Under section 91 of the Code of Criminal Procedure, a court can compel the production of any document, and the person in whose possession it is, if the document is necessary or desirable for the purpose of any inquiry, trial or other proceeding.
The court in Chandubhai held that the protection against production or disclosure, however, does not extend to any original document that might have come into the possession of an attorney from his or her client. The attorney, when holding a document on behalf of a client, is acting as the agent of the client, and if the client is compellable to produce the document, there is no reason based on principle or authority on which the attorney can refuse to produce the document. The document handed over to the attorney by the client cannot be said to be privileged under section 120 of the Act unless the document contains any communication made to the attorney by the client in the course and for the purpose of the engagement as an attorney. The letter requested in Chandubhai from the attorney of the accused was obviously not a letter in respect of which any privilege could have been claimed by the attorney of the accused under section 126 of the Act.
In civil proceedings, under section 30 (order XI) of the Code of Civil Procedure, a party can seek discovery or summons by issuing interrogatories, demanding production of documents by the other party and so forth. In such circumstances, attorney-client privilege is a ground to object to discovery.
Recognition of foreign protections
In what circumstances are foreign protections for attorney-client communications recognised in your jurisdiction?
This is not a settled question of law in India. In a given case, the question of whether foreign protections for attorney-client privilege exist or not would be a question of foreign law. Under Indian law, questions of foreign law are treated as questions of fact. Therefore, foreign protections for attorney-client communications will be recognised if the same is proven as a fact before an Indian court.
Best practice to maintain protection
Describe the best practices in your jurisdiction that aim to ensure that protections for attorney-client communications are maintained.
There are no prescribed best practices in India to maintain protections for attorney-client communications. It is advisable to mention the words ‘privileged and confidential’ in attorney-client correspondence.
Describe the elements necessary to confer protection over work product.
Indian law follows the English position in relation to work product. The work product must be prepared by counsel or at the request of counsel in anticipation of litigation to confer protection.
Describe any settings in which the protections for work product are not recognised.
See question 3.
Who holds the protection
Who holds the protections for work product?
See question 7.
Types of work product
Is greater protection given to certain types of work product?
No, different levels of protection are not granted to work product depending on their nature. If the elements necessary to confer protection over work product are satisfied, the work product will be protected.
In-house counsel work product
Is work product created by, or at the direction of, in-house counsel protected?
Yes, work product created by or at the direction of in-house counsel in anticipation of litigation will be protected. However, such protection may not extend to the work undertaken by an in-house legal counsel for his or her employer that is in another capacity (such as work of an executive nature).
Work product of agents
In what circumstances do materials created by others, at the direction of an attorney or at the direction of a client, fall within the scope of the protections for work product?
See question 3.
Third parties overcoming the protection
Can a third party overcome the protections for work product? How?
No, protection for work product can only be overcome when the client waives privilege; a third party cannot overcome the protections.
Who may waive work-product protection
Who may waive the protections for work product?
See question 14.
Actions constituting waiver
What actions constitute waiver of the protections for work product?
See question 15.
Client access to attorney files
May clients demand their attorney’s files relating to their representation? Does that waive the protections for work product?
Yes, clients may demand their attorney’s files relating to their representation. The mere demand of files will not amount to waiver, as it does not amount to express consent on the part of the clients, to release the attorney from the duty of privilege.
Accidental disclosure of work product
Does accidental disclosure of work-product protected materials waive the protection?
See question 16.
Describe your jurisdiction’s main exceptions to the protections for work product.
See question 18.
Litigation proceedings overriding the protections
Can the protections for work product be overcome by any criminal or civil proceedings where waiver has not otherwise occurred?
See question 19.
Recognition of foreign protection
In what circumstances are foreign protections for work product recognised in your jurisdiction?
See question 20.
Who determines what is protected
Who determines whether attorney-client communications or work product are protected from disclosure?
Whether communications or work products are protected under attorney-client privilege is a determination made by the courts in India. In civil proceedings (see question 19), under the Code of Civil Procedure, when an opposite party makes an application for discovery, a party can resist production on the grounds of attorney-client privilege. The civil court is entitled to decide whether the documents or communications in question are privileged or not.
If a court issues a summons in a criminal proceeding under section 91 of the Code of Criminal Procedure, then attorney-client privilege over documents or communications cannot prevent a court from examining the same. It cannot be argued that the section 91 order is illegal simply because it overrides the privilege conferred under section 126 of the Act. The power to issue notice under section 91 is not limited by section 126. The court in the appropriate cases can make an order under section 91 that would override the provisions of section 126 of the Act.
The issuance of summons is a discretion exercised by the court and the possibility of the court not to make an order that violates the privilege conferred under section 126, in the exercise of its discretion, cannot be ruled out.
Can attorney-client communications or work product be shared among clients with a common interest who are represented by separate attorneys, without waiving the protections? How may the protections be preserved or waived?
Section 126 of the Act does not contemplate sharing of attorney-client communications or work product among persons with a common interest without waiving protections. As per the language of section 126, a client may waive privilege entirely or not at all.
Can attorney-client communications or work product be disclosed to government authorities without waiving the protections? How?
Sections 126 to 129 of the Act do not contemplate limited waiver. As per the language of section 126, a client may waive privilege entirely or not at all.
Other privileges or protections
Are there other recognised privileges or protections in your jurisdiction that permit attorneys and clients to maintain the confidentiality of communications or work product?
Apart from sections 126 to 129 of the Act and rule 17, chapter II, part VI of the BCI Rules, there are no formal recognised privileges or protections. Attorneys and clients may in their contract enter into arrangements to maintain confidentiality of communications or work product. This will be capable of protection under (Indian) contract law.
Akansha Aggarwal, Partner
Ashwini Vaidialingam, Associate
Priyanka Shetty, Associate
SC Decision on Definition of ‘Basic Wages’ under the EPF Act
The Supreme Court of India (‘SC’) heard multiple appeals arising from various High Courts raising a common question of law i.e., whether special allowances paid by an establishment to its employees would fall within the expression ‘basic wages’ for computation of contribution towards the employees provident fund.
In its judgment dated February 28, 2019, the SC reiterated the position that had been earlier laid out in relation to the question of what would constitute ‘basic wages’ for the purposes of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (‘EPF Act’). The SC applied the tests laid down in, inter alia, Bridge and Roof Co. (India) Limited v. Union of India and Manipal Academy of Higher Education v. Provident Fund Commissioner, and reaffirmed the position that had been set out in these judgements, viz. where an allowance is universally, necessarily and ordinarily paid to all across the board, such allowances would be ‘basic wages’ for the purpose of the EPF Act. This is not a new position, but the SC has simply reinforced the position that had already been laid out clearly. However, it appears to have created a ripple amongst employers who continued to exclude all allowances, even those that are paid universally to all employees, for the purposes of computation of basic wages under the EPF Act.
 (1) Regional Provident Fund Commissioner v. Vivekananda Vidyamandir (Civil Appeal No. 6221 of 2011), (2) Surya Roshni Ltd. v. Employees Provident Fund (Civil Appeal Nos. 3965-66 of 2013), (3) U-Flex Ltd. v. Employees Provident Fund (Civil Appeal Nos. 3969-70 of 2013), (4) Montage Enterprises Pvt. Ltd. v. Employees Provident Fund (Civil Appeal Nos. 3967-68 of 2013), and (5) Management of Saint-Gobain Glass India Ltd. v. The Regional Provident Fund Commissioner, Employees’ Provident Fund Organisation (Transfer Case (C) No.19 of 2019, arising out of T.P. (C) No. 1273 of 2013).
 Bridge and Roof Co. (India) Limited v. Union of India, (1963) 3 SCR 978.
 Manipal Academy of Higher Education v. Provident Fund Commissioner, (2008) 5 SCC 428.
SC Clarifies that Plea of Territorial Jurisdiction cannot be Raised through Application for Revocation of the Leave Granted under the Letters Patent Act, 1865
SC, in its decision dated March 7, 2019 in Isha Distribution House Private Limited v. Aditya Birla Nuvo Limited, has considered if the High Court was justified in allowing the defendants’ application for revoking the leave granted to the plaintiff under Clause XII of the Letters Patent Act, 1865 (‘LPA’). Setting aside the order of the High Court, SC held that a plea of territorial jurisdiction is a mixed question of fact and law, which ought to be raised in the written statement to enable the Court to try it on merits in accordance with Order XIV of the Code of Civil Procedure, 1908 and other relevant provisions. As such, a plea of such a nature cannot be tried by filing an application for revocation of the leave granted under Clause XII of the LPA. Accordingly, SC remanded the case to the High Court for deciding the plea of territorial jurisdiction afresh in accordance with the above observations.
 Isha Distribution House Private Limited v. Aditya Birla Nuvo Limited, Civil Appeal Nos. 25542555 of 2019 (arising out of S.L.P.(C) Nos. 1977719778 of 2017).
SC Strikes Down the Requirement of 10% Pre-Deposit for Initiating Arbitration against a State Entity
SC, in its decision dated March 11, 2019 in Icomm Tele Limited v. Punjab State Water Supply & Sewerage Board, had to judge the validity of an arbitration clause that provided for a deposit of 10% of the claim amount in a scheduled bank in the name of the arbitrator, as a condition for initiation of arbitration by a claimant, prescribed in tender documents of a State entity.
SC held that deterring a party from invoking the arbitration process by a pre-deposit of 10% would discourage arbitration, contrary to the object of de-clogging the courts, and would render the arbitral process ineffective and expensive. Accordingly, the impugned clause was held to be violative of Article 14 of the Constitution and was struck down to such extent. SC has also reiterated that terms of an invitation to tender are not open to judicial scrutiny, as they are in the realm of contract, unless they are arbitrary, discriminatory or actuated by malice.
 Icomm Tele Limited v. Punjab State Water Supply & Sewerage Board, Civil Appeal No. 2713 of 2019 (arising out of SLP (Civil) No. 3307 of 2018).
SC Clarifies Regarding Appointment of an ‘Independent Arbitrator’
SC, in its decision dated March 29, 2019 in Union of India v. Parmar Construction Company, has held that with respect to appointment of an independent arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 (‘A&C Act’), there should be emphasis to act on the agreed terms and to first resort to the procedure in the arbitration agreement, which should be given effect to as closely as possible. Therefore, an independent arbitrator should be appointed by the Court under Section 11(6) of the A&C Act after the remedies provided for in the agreement had been exhausted. The SC also held that the Arbitration and Conciliation (Amendment Act), 2015, which came into force on October 23, 2015, would not apply to arbitral proceedings which had commenced (in accordance with Section 21 of the A&C Act) before the coming into force of such amendment, unless the parties had otherwise agreed.
 Union of India v. Parmar Construction Company, Civil Appeal No(s). 3303 of 2019 (arising out of SLP(C) No(s). 6312 of 2018).
Delhi HC Refuses to Grant an Anti-Bilateral Investment Treaty Arbitration Injunction
The Delhi High Court in its decision dated January 29, 2019 in Union of India v. Khaitan Holdings (Mauritius) Limited has refused to grant an anti-Bilateral Investment Treaty (‘BIT’) arbitration injunction to restrain Khaitan Holdings (Mauritius) Limited from relying upon the arbitration provision in the BIT agreement entered into between India and Mauritius. It was held that: (i) the A&C Act, would not apply to BIT arbitrations as they were not commercial arbitrations and therefore, the provisions of the Code of Civil Procedure, 1908 would apply; (ii) while the Indian Courts did have jurisdiction to grant anti-BIT arbitration injunctions, such injunctions would only be granted in very rare circumstances given that it is a principle of public policy that the Government has to honour its commitments; and (iii) an arbitral tribunal constituted under a BIT is competent to decide its own jurisdiction.
 Union of India v. Khaitan Holdings (Mauritius) Limited, CS (OS) 46 of 2019.
Bombay High Court Decides on Enforceability of a Put Option in a Share Purchase / Shareholders’ Agreement
The Bombay High Court in its decision dated March 27, 2019 in Edelweiss Financial Services Limited v. Percept Finserve Private Limited has set aside an arbitral award which had held that a put option provided to Edelweiss Financial Services Limited was void and unenforceable. The arbitral award held that such put option was a forward contract and in any event a derivative contract under the Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and therefore illegal under the notifications issued under Section 16 and also contrary to Section 18A of the SCRA. The Bombay High Court set aside the arbitral award on the ground of ‘patent illegality’ and held that such a put option is enforceable as the contract of sale comes into existence only after the exercise of such option. Therefore, such an option is neither a forward contract nor a derivative contract under Section 2(ac) of the SCRA. The Court further held that even assuming the option is a derivative, its illegality must not be borne from Section 18A of the SCRA – which only positively provides for legality and validity of contracts in derivative. The Court has also ruled that cross objections filed by a respondent in a petition under Section 34 of the A&C Act are not maintainable since the provisions of Civil Procedure Code, 1908 are not applicable to proceedings under Section 34 as the A&C Act is a code in itself and Section 34 does not make any provision for filing of cross objections.
 Edelweiss Financial Services Limited v. Percept Finserve Private Limited, Arbitration Petition No. 220 of 2014.
NCLAT holds that it is not necessary to Initiate IBC Proceedings against the Principal Borrower before Initiating CIRP against the Corporate Guarantors
The National Company Law Appellate Tribunal (‘NCLAT’), in its decision dated January 8, 2019, in Ferro Alloys Corporation Limited v. Rural Electrification Limited, has reasoned that the Insolvency and Bankruptcy Code, 2016 (‘IBC’) does not exclusively prescribe any inter-se rights, obligations and liabilities of a guarantor qua a financial creditor. Thus, the NCLAT has held that, in the absence of any express provisions to this effect, the same will have to be noticed from the provisions of the Indian Contract Act, 1872 and therefore it is not necessary to initiate Corporate Insolvency Resolution Process (‘CIRP’) under the IBC against the ‘Principal Borrower’ before initiating it against the ‘Corporate Guarantors’. Without initiating any CIRP against the ‘Principal Borrower’, it is open to the financial creditor to initiate CIRP against the ‘Corporate Guarantors’, as such financial creditor is also the ‘Financial Creditor’ qua the ‘Corporate Guarantor’ under Section 7 of the IBC.
 Ferro Alloys Corporation Limited v. Rural Electrification Limited, Company Appeal (AT) (Insolvency) No. 92 of 2017.
SC Strikes Down RBI Circular dated February 12, 2018
In Dharani Sugars and Chemicals Limited v. Union Of India, the SC dealt with various petitions challenging the constitutional validity of RBI circular dated February 12, 2018 (‘RBI Circular’). The SC struck down the RBI Circular and declared it as ultra-vires.
With respect to the scope of RBI’s power to issue the RBI Circular under Section 35AA of the Banking Regulation Act, 1949 (‘BR Act’), the SC held that RBI can direct banking institutions to initiate insolvency proceedings if two conditions are fulfilled, namely if: (i) there is a Central Government authorization to do so, and (ii) the direction is in respect of specific defaults. Section 35AA, by necessary implication, prohibits RBI to exercise the power in any manner other than as set out in Section 35AA. Whilst prior to the enactment of Section 35AA of the BR Act, RBI could have issued directions under Section 21 and Section 35A of the BR Act to initiate an insolvency resolution process under the IBC; after the enactment of Section 35AA, this can be done only within the four corners of Section 35AA.
With respect to the scope of Section 35AB of the BR Act, the SC interpreted the words “without prejudice” appearing in Section 35AB to be only illustrative of a general power which does not restrict such general power. Therefore, the power to issue directions under Section 35AB is in addition to the power under Section 35A. Additionally, Section 35AB is not without prejudice to the provisions contained in Section 35AA and, therefore, the power under Section 35AB (read with Section 35A) is to be exercised separately from the power conferred by Section 35AA. The SC held that the scheme of Sections 35A, 35AA, and 35AB of the BR Act is as follows:
i. Section 35AA is the only source of power to issue directions to initiate the insolvency resolution process under IBC;
ii. When it comes to issuing directions in respect of stressed assets, which directions are directions other than resolving the problem of stressed assets under IBC, such power falls within Section 35AB (read with Section 35A).
The SC was of the view that all actions taken under the RBI Circular, including actions by which IBC has been triggered, falls along with this RBI Circular. As a result, all cases in which debtors have been proceeded against by financial creditors under Section 7 of IBC, only because of the operation of the RBI Circular, have been declared to be non-est.
 Dharani Sugars and Chemicals Limited v. Union Of India, Transferred Case (Civil) No. 66 of 2018 in Transfer Petition (Civil) No. 1399 of 2018.
NCLAT Dismisses Tata Steel’s Appeal Against Liberty in the Matter of Bhushan Power & Steel
The NCLAT, in its judgment dated February 4, 2019, has dismissed the appeal filed by Tata Steel Limited (‘TSL’) against Liberty House Pte. Ltd. (‘Liberty’). TSL had challenged the order of the National Company Law Tribunal, Principal Bench (‘NCLT’) dated April 23, 2018 whereby the Committee of Creditors (‘CoC’) of Bhushan Power & Steel Limited (‘BPSL’) was directed to consider the resolution plan submitted by Liberty after expiry of the last date for submission of the same. During the CIRP of BPSL, TSL and JSW Steel Limited (‘JSW’) had submitted their respective bids within the timelines provided by the resolution professional. Whilst TSL’s appeal against the NCLT’s order dated April 23, 2018 was pending before the NCLAT, JSW revised its earlier bid and, thereafter, continued to revise its bid, which was also challenged by TSL before the NCLAT (along with actions of the CoC in connection with the same).
The issues for consideration before the NCLAT were whether the NCLT/CoC could provide multiple opportunities to resolution applicants to revise their respective resolution plans and if the CoC was authorized to entertain fresh or revised resolution plans without exhausting available bids. The NCLAT relied upon the judgment in the Binani Industries case and confirmed that prior to the voting on resolution plans placed before the CoC, the CoC can call for and consider the ‘improved financial offer(s)’ in order to ensure value maximization and within the IBC timelines it was open for the CoC to grant multiple opportunities to the resolution applications to revise their respective financial offers.
The NCLAT also held that the appeal filed by TSL was premature in absence of any final decision taken by the NCLT as to the approval of the resolution plan. The NCLAT took note of the approval of the resolution plan of JSW by the CoC during the pendency of the appeal and directed that proceedings could be initiated before the NCLT for approval of the same. Subsequently, the resolution professional has filed an application before the NCLT for approval of the resolution plan of JSW, which is currently pending.