Litigation & Arbitration
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 email@example.com, firstname.lastname@example.org, email@example.com, firstname.lastname@example.org or email@example.com. 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