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Law once declared to be violative of Part-III of the Constitution to have retrospective effect

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The Constitution Bench of the Supreme Court of India (“Constitution Bench”/“Supreme Court”) recently in the case of Central Bureau of Investigation vs R.R. Kishore[1] held that its decision in Subramanian Swamy vs. Central Bureau of Investigation[2] that Section 6A of Delhi Special Police Establishment Act, 1946 (“DSPE Act”) being unconstitutional, will have retrospective effect. Section 6A of the DSPE Act is held not to be in force from the date of its insertion i.e., September 11, 2003.

Brief Background

The present judgment arises out of an FIR registered by Central Bureau of Investigation (“CBI”) on December 16, 2004 for offences under the Prevention of Corruption Act, 1988 (“Corruption Act”) against the R.R. Kishore (“Respondent”) who was then a Joint Secretary level rank officer.
At such time, Section 6A of the DSPE Act was applicable which mandated prior consent of central government to conduct any investigation or inquiry under the Corruption Act against officials of the rank of Joint Secretary and above.
The Respondent challenged the entire proceedings on non-compliance of Section 6A of DSPE Act. In 2006, the High Court of Delhi (“Delhi HC”) upheld such contentions of the Respondent and set aside the proceedings against him under the Corruption Act. CBI challenged the Delhi HC’s order by way of a special leave petition which was subsequently converted into a Criminal Appeal in 2007.
During the pendency of the present matter in 2014, Section 6A of the DSPE Act was held to be unconstitutional by the Supreme Court being violative of Article 14 of Constitution of India (“Constitution”)[3].
Accordingly in the present matter, the issue arose if the Constitution Bench findings would apply retrospectively or prospectively.

Findings and Observations

The entire issue was examined by the Supreme Court on the touchstone of Article 13 and Article 20 (1) of the Constitution. The Supreme Court held that Section 6A of the DSPE Act is mere procedural in nature. It does not introduce any new offence, nor it enhances the punishment or sentence. Therefore, a challenge to Section 6A of DSPE Act being applicable ex-post facto will not lie as there is no vested right in procedure.

However, after declaration of a statute as unconstitutional by a court of law, it is non-est for all purposes. Once a law is declared to be unconstitutional, being violative of Part-III of the Constitution, then it would be held to be void ab initio, still born, unenforceable and non-est in view of Article 13(2) of the Constitution and its interpretation by authoritative pronouncements.

Conclusion

The judgment reiterates the settled position of law that there is no vested right in procedure. However, to save past transactions, the Supreme Court can give prospective overruling in exercise of power under Article 142 of the Constitution.

Accordingly, unless held otherwise in situations like the present one, if prosecution is vitiated for want of sanction under Section 6A of DSPE Act, it would be liable to be set aside being premised on unconstitutional law.

This Prism has been prepared by:

Dheeraj Nair
Partner

Kumar Kislay
Partner

Ankit Tripathi
Associate

For more details, please contact [email protected]

[1] 2023 SCC OnLine SC 1146, Pronounced on 11-09-2023.

[2] (2014) 8 SCC 682.

[3] Id

Tags Disputes, JSA, Leading Law Firm, Leading Lawyers, Legal Updates

Sidharth Sethi | Speaker – NextGen Legal Rumination Summit | Corporate Counsel Association of India

Our Partner, Sidharth Sethi was a speaker on the session titled ‘Recent Trends in Dispute Resolution, Institutional Arbitration and Third-Party Funding’ at the recently concluded ‘NextGen Legal Rumination Summit’, organised by the Corporate Counsel Association of India (“CCAI”) in Shillong, Meghalaya.

The other notable speakers on the panel were Mr. Manish Lamba, General Counsel, DLF CyberCity Developers, Mr. Mohit Kapoor, EVP and Legal Head, SBI Cards & Payments Services Ltd., Mr. Umakanta Panigrahi, Managing Director, Kroll and Mr. Abhishek Anand, Co-founder, Sarvada.

The session was moderated by Ms. Steffi Mary Punnose, Strategy & Development Manager (South Asia), Singapore International Arbitration Centre.

CCAI comprises and represents leading in-house counsels, both from public and private sectors, and is aimed at providing networking opportunities, knowledge-sharing and continuing legal education to its members. This year’s summit was a unique 3 day-residential conference (from 30 September to 3 October) which brought together in-house counsels, lawyers, arbitrators, mediators, quantum experts and compliance, risk and investigation professionals.

Tags Arbitration, Disputes, JSA, Leading Law Firm, Leading Lawyers

Enforcement Directorate Is Not Expected To Be Vindictive: Supreme Court | Farid Karachiwala

The Supreme Court has recently held that that the Enforcement Directorate under the PMLA Act would have to provide grounds of the arrest in writing while taking the person to custody. Further the Supreme Court held that that the Enforcement Directorate should not engage in vindictive actions and instead conduct its investigations within the ambit of law with fairness and the highest level of integrity. In connection with this matter, our partner, FaridKarachiwala, took part in a special discussion hosted by Parikshit Luthra, Anchor and Chief of Bureau at CNBC TV18.

Tags Dispute Resolution, JSA, Leading Law Firm, Leading Lawyers, Supreme Court

Arbitration clause in a purchase order prevails over a conflicting arbitration clause contained in an invoice

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The Bombay High Court (“Bombay HC”) has in Parekh Plastichem Distributors LLP vs. Simplex Infrastructure Limited[1] considered two conflicting arbitration clauses and held that an arbitration clause contained in a purchase order, which sets out the terms of engagement between the parties, prevails over an arbitration clause contained in an invoice raised by a party.

Brief Facts

Parekh Plastichem Distributors LLP (“Parekh”) supplied micro silica to Simplex Infrastructure Limited (“Simplex”) pursuant to various purchase orders issued by Simplex. These purchase orders contained the terms and conditions governing the relationship between the parties and included an arbitration clause which provided that the venue of arbitration would be Kolkata.

Parekh raised its invoices after successful delivery of the micro silica to Simplex. Simplex made payment of some of these invoices, however, an amount of INR 21,78,910 (Indian Rupees twenty one lakh seventy eight thousand nine hundred ten) remained outstanding. The invoices issued by Parekh also contained an arbitration clause which provided that the venue of arbitration would be Mumbai.

Parekh sent various reminders to Simplex for payment of the outstanding sum, however, Simplex failed to make payment. Given the same, the advocates for Parekh issued a notice dated July 15, 2021 to Simplex invoking the arbitration clause contained in the invoices issued by Parekh (which provided that the venue of arbitration would be Mumbai). Simplex did not issue any response to this notice.

Parekh filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 before the Bombay HC to seek appointment of an arbitrator in terms of the arbitration clause contained in the invoices issued by it to Simplex (“Application”).

Simplex inter alia contended that the Bombay HC did not have jurisdiction to entertain the Application since the purchase orders issued by it contained an arbitration clause which provided that the venue of the arbitration would be Kolkata. The arbitration clause was unilaterally inserted by the Applicant in the invoices and could not supersede the arbitration clause contained in the purchase orders.

Issue

Whether the parties intended to be bound by the arbitration clause in the purchase orders issued by Simplex or the arbitration clause in the invoices raised by Parekh?

Findings and Analysis

The Bombay HC dismissed the Application and inter alia observed as follows:

The purchase orders issued by Simplex constituted the main agreement between the parties which contained the terms and conditions for supply of goods. It cannot be disputed that the arbitration clause contained in the purchase orders was agreed to by the parties.
In order to consider whether there is any arbitration agreement between the parties and also in order to consider what is that arbitration agreement, the intention of the parties is paramount. The parties intended to be bound by the arbitration clause in the purchase orders and not the arbitration clause contained in the invoices.
The act of Simplex in accepting the supplies made by Parekh and making payment towards the supply would not have the effect of the arbitration clause in the invoices superseding the arbitration clause in the purchase orders. There was no express agreement between the parties to override or supersede the arbitration clause contained in the purchase orders with the arbitration clause contained in the invoices.
The Supreme Court’s decision in Balasore Alloys Limited v. Medima LLC[2] considered a similar situation. In that case, the Supreme Court held that there was consensus ad idem between the parties to an arbitration clause contained in the comprehensive and all-encompassing agreement to the exclusion of the arbitration clause contained in an ancillary agreement. The ratio of this decision would apply to the facts of the present case since the purchase orders were comprehensive and contained all the terms of engagement between the parties. The arbitration clause in the purchase orders would govern the parties and not the arbitration clause contained in the invoices issued by Parekh.

Conclusion

This judgment may be of significance in cases where parties have standard form purchase orders containing an arbitration clause and subsequent documents which contain a conflicting arbitration clause. In such cases, the court will look at the contents of the documents under reference and the intention of the parties to decide which arbitration clause prevails.

This Prism has been prepared by:

Farhad Sorabjee
Partner

Pratik Pawar
Partner

Siddhesh Pradhan
Senior Associate

Meher Mistri
Associate

For more details, please contact [email protected]

[1] Arbitration Application No. 250 of 2021

[2] (2020) 9 SCC 136

Tags Arbitration, Bombay HC, Corporate, Dispute Resolution, JSA, Leading Law Firm, Leading Lawyers, Legal Updates, Merger and Acquisition

JSA Prism | Insolvency | September 2023

Abstract arrangement of Indian Rupee symbols forming a circular structure with reflections and surrounding smoke.

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NCLAT: Stock broking companies are ‘financial service providers’ under IBC, proceedings for initiation of CIRP not maintainable against them

In a recent decision in the case of Nitin Pannalal Shah Vs. Vipul H Raja & Ors.[1] and National Stock Exchange of India Limited Vs. Mr. Hemant Kumar Gupta[2], the principal bench of the NCLAT has held that a stock broking company is a ‘financial service provider’ under Section 3(16) of the Insolvency and Bankruptcy Code, 2016 (“IBC”), and thus, outside the purview of the IBC. Therefore, an application for corporate insolvency resolution process (“CIRP”) against a stockbroker (being a financial service provider) is not maintainable.

Financial service providers under IBC

Under the IBC, CIRP can be initiated against a ‘corporate debtor’. A corporate debtor is a ‘corporate person’ who owes a debt to any person.
A ‘corporate person’ means a company defined under Section 2(20) of the Companies Act, 2013, a limited liability partnership under Section 2(1)(n) of the Limited Liability Partnership Act, 2008, or any other person incorporated with limited liability under any law for the time being in force “but shall not include any financial service provider” (Section 3 (7) of the IBC).
Under Section 227 of the IBC, the central government has the power to notify ‘financial service providers’ against whom CIRP can be conducted under the IBC.
A ‘financial service provider’ means a person engaged in the business of providing financial services in terms of authorisation issued or registration granted by a financial sector regulator (Section 3(17) of the IBC).
The list of ‘financial services’ is listed in Section 3(16) of the IBC and a ‘financial sector regulator’ means an authority or body constituted under any law for the time being in force to regulate services or transactions of financial sector and includes the Reserve Bank of India, the Securities and Exchange Board of India (“SEBI”), the Insurance Regulatory and Development Authority of India, the Pension Fund Regulatory Authority and such other regulatory authorities as may be notified by the central government (Section 3(18) of the IBC).

Brief Facts

This decision arises out of 2 (two) appeals decided together by the NCLAT on a common issue:

The first appeal arises out of an erstwhile director’s challenge to NCLT, Ahmedabad’s order admitting Simandhar Broking Ltd. into CIRP[3]; and
The second appeal arises out of the National Stock Exchange’s (“NSE”) challenge to NCLT, Delhi’s order admitting Astitva Capital Market Pvt. Ltd into CIRP[4].

Appeal regarding Simandhar Broking Ltd.:

Simandhar Broking Ltd. was a registered stockbroker with SEBI and a trading member of the NSE. A client of Simandhar Broking Ltd. filed an application under Section 7 of the IBC seeking initiation of CIRP against the stockbroker.
In a nutshell, NCLT, Ahmedabad held that if companies engaged in the stock broking business, or in derivative transactions, were considered as a ‘financial service provider’ and were excluded from the purview of the IBC, then Section 5(8)(g) of the IBC[5] would have not been in existence. Hence, NCLT, Ahmedabad concluded that Simandhar Broking Ltd. was not a financial service provider, and upon proof of debt and default, there was no bar in admitting this company into CIRP.
In the appeal by the erstwhile director of Simandhar Broking Ltd., NSE intervened to clarify the position on NSE trading members and SEBI-registered stockbrokers being a financial service provider.

Appeal regarding Astitva Capital Market Pvt. Ltd.:

Astitva Capital Market Pvt. Ltd was also stockbroker registered with SEBI and a trading member of the NSE.
The erstwhile director of Astitva Capital Market Pvt. filed an application under Section 7 of the IBC seeking initiation of CIRP against the stockbroker.
NCLT, Delhi admitted the petition and NSE (a non-party to the Section 7 IBC proceedings) filed an appeal against the admission order, being an ‘person aggrieved’ under Section 61(1) of the IBC.

Issue

Whether a stockbroker registered with SEBI is a ‘financial service provider’ under Section 3(16) of the IBC and should, therefore, be kept outside purview of the IBC.

Findings and Rationale

The NCLAT allowed both the appeals and set aside the orders of the respective NCLTs, answering the issue in the affirmative to hold that stockbrokers registered with SEBI and being trading members of NSE are financial service providers under IBC. The NCLAT held that:

Section 3(16) of the IBC is an inclusive definition. Hence, in view of Section 3(16)(e)[6], the stockbrokers that are registered with SEBI and are NSE trading members are providing ‘financial services’, these stockbrokers are “financial service providers”.
The definition of ‘corporate debtor’ under Section 3(17) expressly excludes any ‘financial service provider’. Therefore, in view of Sections 3(7), Section 3(8) and Section 227 of the IBC, the IBC applications filed against the stockbrokers are not maintainable.
The NCLAT relied upon the Report of Sub-Committee of the Insolvency Law Committee (constituted for insolvency of financial service providers)[7] which recognised that SEBI-Registered Stockbrokers are financial service providers.
On a consideration of – (a) the nature of activities contained in the memorandum of association of both the stockbrokers, (b) the registration of these stockbrokers with SEBI, and that (c) these stockbrokers are regulated by SEBI (Stockbrokers and Sub-Brokers) Regulations, 1992, and (d) these stockbrokers were subject to various obligation and duties towards Investors, the NCLAT concluded that these stockbrokers fall within the definition of ‘financial service provider’ under the IBC.
In the case of Simandhar Broking Ltd., the NCLAT held that the NCLT’s application and interpretation of Section 5(8)(g) of the IBC is also incorrect. Section 5(8)(g) has to be read harmoniously with Section 7, Section 5(7) and Section 5(8) of the IBC. The derivative transactions contemplated under Section 5(8)(g) cannot be read to include the services of financial service providers, thus, these services cannot constitute ‘financial debt’ under IBC.
In the case of Astitva Capital Market Pvt. Ltd., the NCLAT held that the NCLT failed to consider that the erstwhile director of the stockbroker had maliciously initiated CIRP proceedings against itself to take shelter under the moratorium to stall the proceedings initiated by the NSE against this stockbroker.

Conclusion

In a big relief to stockbrokers, the NCLAT brings quietus to the conflicting views of the NCLTs and NCLAT to finally decide that stockbrokers do not fall under the purview of IBC.

The NCLAT has applied a literal interpretation of the IBC provisions to determine the status of stockbrokers as a ‘financial service provider’ under the IBC. The NCLAT’s reliance on the NSE’s submissions and the Sub-Committee Report will go a long way in this decision attaining finality.
This judgement throws light on the Sub-Committee’s rationale behind the exclusion of financial service providers from the purview of the IBC. The Sub-Committee takes a view that financial firms are different from other firms. The Sub-Committee takes a view that while other firms mostly rely on equity and debt, many financial service providers handle large amounts of consumers’ money. Thus, some of these financial service providers are systemically important as their failure has the effect of disrupting the financial system and having an adverse effect on the country’s economy.

The NSE’s proactivity in these proceedings is laudable and noteworthy. It is unusual and noteworthy for the NSE to proactively file an appeal and an intervention (in cases where it was not a party) to safeguard its trading members from the purview of the IBC. Typically, regulators only plead their position on sectoral matters when they are called upon by courts and do not usually interfere unless the regulator is directly affected.

This Prism has been prepared by:

Dheeraj Nair
Partner

Vishrutyi Sahni
Senior Associate

Vedika Gandhi
Associate

For more details, please contact [email protected]

[1] (Company Appeal (AT) (Insolvency) No. 379 of 2021.

[2] Company Appeal (AT) (Insolvency) No. 749 of 2022.

[3] Order dated April 6, 2021, CP (IB) No.510/7/NCLT/ AHM/2019, NCLT, Ahmedabad.

[4] Order dated November 25, 2021, CP(IB) No.397 of 2021, NCLT, Delhi.

[5] (8) “financial debt” means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes– (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account;

[6] 3(16) “financial service” includes any of the following services, namely: – (e) rendering or agreeing, for consideration, to render advice on or soliciting for the purposes of––

(i) buying, selling, or subscribing to, a financial product;

(ii) availing a financial service; or

(iii) exercising any right associated with financial product or financial service.

[7]Sub-Committee constituted under Section 227 of the IBC by the MCA’s order dated August 16, 2019.

Tags Dispute Resolution, Insolvency Law, JSA, Leading Law Firm, Leading Lawyers, Legal Updates, Nclat

JSA Prism | Dispute Resolution | September 2023

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Delhi High Court delineates the procedure and modalities that can be followed while dealing with petitions under Section 11 of the Arbitration Act involving unstamped or insufficiently stamped arbitration agreement(s).

Recently, the Hon’ble High Court of Delhi (“Delhi HC ”), in Splendor Landbase Ltd. vs. Aparna Ashram Society & Anr.[1], disposed of a batch of petitions under Section 11 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), where the arbitration agreement, or the instrument/agreement containing the arbitration agreement, was unstamped or inadequately stamped.

The Delhi HC outlined the procedure and modalities that can be followed while dealing with petitions under Section 11 of the Arbitration Act, where appointment of an arbitrator was sought, involving unstamped or insufficiently stamped arbitration agreement(s). The Delhi HC, while doing so, considered the observations made by the Hon’ble Supreme Court of India (“Supreme Court”) in N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd[2] (“N.N. Global”). For a detailed analysis, please refer to the JSA Prism of May 6, 2023.

Issues

The Delhi HC framed and answered the following 4 (four) issues:

Issue No. 1. Whether it is incumbent on the petitioner, in a petition filed under Section 11 of the Arbitration Act, to file the original of the duly stamped arbitration agreement or whether it would suffice for a ‘true copy’ thereof to be filed?
Issue No. 2. Whether, under the Indian Stamp Act, 1899 (“Stamp Act”), it is permissible for the petitioner to pay the deficient stamp duty together with the penalty in these proceedings or whether it is mandatory to send the concerned agreement to the Collector for adjudication as to the proper stamp and penalty payable thereon?
Issue No. 3. Whether the adjudication by the Collector under Section 40 of the Stamp Act can be made time bound?
Issue No. 4. Whether the stamping of the arbitration agreement must conform to the local laws prescribed at the place where the arbitration agreement was executed and/or the place where the petition under Section 11 of the Arbitration Act has been filed?

Findings and Analysis

While answering Issue No.1, the Delhi HC observed that while entertaining a petition under Section 11 of the Arbitration Act, the function being performed by the court is akin to receiving evidence. Accordingly, it was held that whether the agreement/instrument is duly stamped or not, has to be examined in the backdrop of Section 17 of the Stamp Act, which contemplates that all instruments chargeable with duty and executed by a person in India, will be stamped before or at the time of execution. The Delhi HC observed that this task of examining and impounding any instrument can be delegated to an officer appointed by the court in terms of proviso (b) to Section 33(2) of the Stamp Act.

After reproducing the observations made by the Delhi HC in N.N. Global and reading the same in conjunction with the scheme of the Arbitration Act and Stamp Act, the Delhi HC held that it would be incumbent for a petitioner who files a petition under Section 11 of the Arbitration Act on the basis of an unstamped/insufficiently stamped agreement to file the original instrument as executed.

However, the requirement of filing the original of the concerned agreement/instrument can be obviated when the instrument/agreement is duly stamped and a statement to that effect has been specifically made in the petition under Section 11 of the Arbitration Act.

As per N.N. Global, if a certified copy of an agreement is filed along with a petition under Section 11 of the Arbitration Act, the party filing it must necessarily declare the stamp duty which has been paid in respect of the original instrument.

When, at any stage, the issue as to the sufficiency of stamping arises, it would be open for the court to require the concerned party (in possession of the original agreement) to file the same.

While dealing with Issue No.2, the Delhi HC held that after impounding the unstamped instrument/agreement, as mandated under Section 33 of the Stamp Act, it would be open for the court to either:

Send the impounded agreement/ instrument to the concerned Collector of Stamps, who will adopt the procedure under Section 40 of the Stamp Act to require payment of stamp duty along with the penalty (as contemplated).

Take recourse under Section 35 of the Stamp Act to enable deposit of the requisite stamp duty along with penalty.

The Delhi HC recommended following the latter procedure in cases where the quantum of stamp duty payable was not in dispute. In such cases, Section 40 of the Stamp Act would not apply. After payment of stamp duty (along with penalty), such amount will be sent to the concerned Collector of Stamps, along with an authenticated copy of such duly endorsed instrument and a certificate in writing stating the amount of duty levied in respect thereof.

The Delhi HC observed that following the abovementioned procedure would effectuate the mandate under Section 11(13) of the Arbitration Act and ensure that the disposal of petitions under Section 11 of the Arbitration Act is not inordinately delayed on account of the adjudicatory exercise to be carried out by the Collector of Stamps.

The Delhi HC further observed that, as per the Supreme Court’s decision in Black Pearl Hotels Pvt. Ltd. v. Planet M. Retail Ltd.[3], while taking recourse to Section 35 of the Stamp Act, the following duties can be delegated to its office or the registrar of the court in exercise of the powers conferred under Chapter-II of the Delhi High Court (Original Side) Rules, 2018:

Duty of examining and impounding an unstamped or insufficiently stamped instrument; and
Duty to prepare “report” on the nature and character of the document and the amount of duty and penalty payable thereon; and
Duty to endorse on the original instrument, in terms of Section 42(1) of the Stamp Act, and confirm payment of the deficit stamp duty and penalty (if any) stating the details of the payee; and
Duty to prepare a copy of the original instrument (after endorsement), to ensure authenticity of the contents thereof and expressly marking the copy thus prepared as an ‘authenticated copy’ of the original instrument; and
Duty to transmit the authenticated copy, certificate, and the amounts collected to the concerned Collector of Stamps, located at the place where the instrument was executed.

Answering Issue No.3, the Delhi HC held that it would be appropriate for a court to issue time bound directions to the concerned Collector of Stamps, to ensure that the statutory mandate under Section 11(13) of the Arbitration Act is not defeated. In arriving at this conclusion, the Delhi HC took note of its earlier decision in Uno Minda Ltd. v. Revenue Department[4] (“Uno Minda”), wherein 30 (thirty) days were granted to the Collector of Stamps to adjudicate the stamp duty payable and communicate it to the parties therein. The Delhi HC in Uno Minda observed that a maximum of 3 (three) months’ time can be granted to the Collector of Stamps to determine the stamp duty payable in cases where the matter involved any complex/extraordinary circumstances. The Delhi HC also took note of its inherent powers as conferred on it under Rule 16 of Chapter I of the Delhi High Court (Original Side) Rules, 2018 to come to this conclusion.

While answering Issue No.4, the Delhi HC relied on the Supreme Court’s judgment in New Central Jute Mills Co. Ltd. v. State of West Bengal[5]. In that judgment, the Supreme Court held that the instrument must first be stamped in accordance with the law of the state where it has been executed, since the liability of an instrument to stamp duty arises on execution. It held that in cases where the stamping rate on the instrument is higher in a state where the document is sought to be enforced (“second state”), the instrument would be required to be stamped only with the excess amount and in accordance with the law and the rules in force in such second state.

Conclusion

The judgment offers a much-needed roadmap for navigating the legal procedures involved in cases where parties seek to rely on an unstamped or insufficiently stamped arbitration agreement in a petition under Section 11 of the Arbitration Act.

Recently, issues pertaining to stamp duty have acted as impediments in appointment of arbitrators, leading to inordinate delays in the initiation of the arbitration proceedings. Parties often opt for arbitration to avoid the delays usually faced in conventional litigation, and such issues can defeat this very purpose. By outlining a clear procedure for courts to follow in these instances, the judgment is likely to fulfil 2 (two) crucial objectives. First, it advances the overarching goal of the Arbitration Act by promoting a more efficient arbitration process. Second, it aligns with the parties’ original intention in choosing arbitration as a dispute resolution mechanism, thus facilitating a more seamless path to resolution.

This Prism has been prepared by:

Ananya Kumar
Partner

Nikhil Ratti Kapoor
Senior Associate

Kartikey Gupta
Associate

For more details, please contact [email protected]

[1] Arb. P. 366/2021 decided on 22 August 2023

[2] (2023) 7 SCC 1

[3] (2017) 4 SCC 498

[4] 2023 SCC OnLine Del 3598

[5] AIR 1963 SC 1307

Tags Delhi HC, Dispute Resolution, JSA, Leading Law Firm, Leading Lawyers, Legal Updates, Supreme Court

Spotlight on Draft 7th (seventh) Edition of the Singapore International Arbitration Centre (“SIAC”) Rules

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Spotlight on Draft 7th (seventh) Edition of the Singapore International Arbitration Centre (“SIAC”) Rules

On August 22, 2023, SIAC published the much-anticipated Draft 7th (seventh) Edition of the SIAC Rules (the “Draft Rules”) for public consultation. The Draft Rules are aimed at enhancing efficiency, speed and cost-effectiveness. We focus the spotlight on relevant innovations and amendments found within the Draft Rules.

Key Innovations:

SIAC Gateway (Draft Rule 4.2)

Draft Rule 4.2 proposes the launch of SIAC Gateway – an in-house digital case management platform for online case filing, case management and online payment processing. This would allow parties and the tribunal to access the entire arbitral record at one place. SIAC would now join other arbitral institutions that offer digital case management platforms such as ICC Case Connect, the SCC platform and HKIAC Case Connect.

Streamlined Procedure (Draft Rule 13 and Draft Schedule 2)

Streamlined Procedure is proposed to be an enhanced version of Expedited Procedure for arbitrations involving lower value or less complex disputes. The main difference between the two would be: (a) the maximum amount in dispute is not more than SGD 1,000,000 (one million Singapore Dollars) as compared to SGD 10,000,000 (ten million Singapore dollars) for Expedited Procedure, and (b) the arbitral tribunal is to issue its award within 3 (three) months instead of 6 (six) months stipulated for the Expedited Procedure. Additionally, it offers a 50% discount on SIAC’s maximum administration fees calculated in accordance with the Schedule of Fees.

Disclosure of third-party funding relationships (Draft Rule 38)

Draft Rule 38 would make it mandatory for parties to disclose the existence of any third-party funding (“TPF”) agreement and the identity of the third-party funder in the notice of arbitration, the response to the notice or immediately upon concluding a TPF agreement. The Draft Rule appears to promote greater transparency. This would reduce the risk of conflicts of interest from the outset, especially between members of the tribunal and the third-party funder.

Coordinated Proceedings (Draft Rule 17)

The Draft Rules include a new provision permitting coordinated proceedings. This addresses situations where there is a common question of law or fact involved in two or more arbitrations, before the same tribunal. The tribunal is empowered to:

conduct the coordinated arbitrations concurrently or sequentially;
align any procedural aspects and hear the coordinated arbitrations together; or
suspend any of the coordinated arbitrations pending a determination of any of the others. The coordinated proceedings continue to be separate proceedings, with separate orders or awards, unless parties agree otherwise.

Preliminary determination of an issue (Draft Rule 46)

The Draft Rule 46 now permits a party to approach the arbitral tribunal for the preliminary determination of an issue where parties so agree, or where one party can demonstrate that such determination might save time and costs. Preliminary determinations could be of assistance in narrowing down the issues for consideration, disposing of the arbitration altogether or a substantial part of the claims.

Key Amendments:

Expedited Procedure (Draft Rule 14)

SIAC was one of the first few arbitral institutes to introduce the Expedited Procedure providing for faster and cost-effective resolution of disputes of a lower monetary value or complexity. The Draft Rules propose to increase the monetary threshold for Expedited Procedure from SGD 6,000,000 (six million Singapore dollars) to SGD 10,000,000 (ten million Singapore dollars) (as the amount in dispute), enabling the use of Expedited Procedure in a larger number of cases.

Emergency Arbitration (Draft Rule 12 and Schedule 1)

The Draft Rules now allow a party to apply for the appointment of an emergency arbitrator even prior to the filing of the notice of arbitration. The 2016 Rules only permitted filing of the emergency arbitrator application along with or following the filing of the notice of arbitration.

This change could mean that parties would be able to seek emergency relief prior to commencing arbitration, without having to approach a local court for pre-arbitration interim measures of protection.

The other key change is the shortening of timelines within which an order/ award is to be passed by the emergency arbitrator – it is now 10 (ten) days instead of 14 (fourteen) days.

Appointment of arbitrators (Draft Rule 19)

The Draft Rules make several changes to the appointment procedure which are important for parties to bear in mind. These include:

Draft Rule 19.7 requiring the sole arbitrator or the presiding arbitrator to be of a different nationality from the parties, where the parties are of different nationalities; and
Draft Rule 19.11 permitting the President of the SIAC to deviate from the parties’ agreed appointment procedure where there is a risk of unequal treatment that may affect the award’s enforceability. This provision could be of particular use where there are unilateral or one-sided appointment clauses, which may be unenforceable under national law.

Award

The major changes proposed in the Draft Rules pertain to:

reduced timeline from 45 (forty-five) days to 30 (thirty) days for submitting the draft award to the SIAC Registrar for scrutiny (Draft Rule 53);
signing of the award electronically or in counterparts, enabling simultaneous signing of the award where the members of the tribunal may be in different locations (Draft Rule 52); and
publication of the redacted award, decision, ruling or order by the SIAC unless parties object to such publication within 6 (six) months from the conclusion of the arbitration (Draft Rule 60).

Express provisions on security for costs (Draft Rule 48) and security for claims (Draft Rule 49)

Draft Rule 48 proposes a dedicated separate provision catering to security for costs. Security for costs allows parties to apply to the tribunal for an order that any party asserting a claim, counterclaim or cross-claim provide security for legal costs and expenses and the costs of the arbitration. The provision empowers tribunals to make any consequential direction if a party fails to comply with an order to provide security for legal costs and expenses and the costs of arbitration. Similarly, Draft Rule 49 allows parties to apply to the tribunal for an order that any party responding to a claim, counterclaim or cross-claim is to provide security for the claim.

Concluding Remarks:

The public consultation on the Draft Rules closes on November 21, 2023. The Draft Rules, if adopted in a form closely resembling their current structure, holds significant potential for further bolstering efficiency.

For further queries or information on the Draft Rules and how it impacts current and future SIAC dispute resolution clauses, please reach out to any of the contacts listed.

This Prism has been prepared by:

Anjali Anchayil
Principal Associate

Aiman Kler
Of- Counsel

Tags Disputes, JSA, Leading Law Firm, Leading Lawyers, SIAC

Mediation Act, 2023: Salient Features

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On September 15, 2023, the Central Government notified the Mediation Act, 2023 (“Act”) in India[1]. The Act is introduced to promote and facilitate mediation as a means of dispute resolution (commercial or otherwise), enforcement of mediated settlement agreements, and to provide for a body for registration of mediators. The Act also aims to encourage community mediation and to make online mediation an acceptable and cost-effective process.

In a nutshell, the Act:

recognizes online, community and institutional mediations in India;
lays down a time-bound procedure for conducting mediations in India (timelines, appointments, confidentiality, etc.);
provides for the enforcement and challenge of (only)domestic mediated settlement agreements;
establishes a regulator to regulate mediators and mediation institutions (Mediation Council of India) and introduces, inter alia, disclosure safeguards for mediators.

Salient features of the Act

India has always had a mediation regime in the core of many civil commercial legislations. However, the Act institutionalizes the mediation regime in India.

What is “Mediation”?

Under the Act, Mediation is defined expansively to include any process where parties request a third person (mediator) to assist them in reaching an amicable settlement and includes (a) pre-litigation mediation; (b) online mediation; (c) community mediation; (d) conciliation; or any other expression having a similar meaning.

Applicability of the Act

The Act only applies to mediations conducted in India, and
where all, or both, parties reside / are incorporated / have their place of business in India; or
the mediation agreement[2] provides for the disputes thereunder to be resolved by the Act; or
where there is an international mediator; or
commercial disputes where the central / state government is a party; or
any other dispute notified subsequently.
The First Schedule sets out the list of disputes which are not fit for mediation:
These are disputes involving criminal prosecutions, land acquisitions or pertaining to minors, deities and persons with intellectual disabilities.
Even disputes involving persons who are not parties to the mediation are not covered by the Act.
Disputes in regulated subjects like competition, telecom, electricity, securities, environment, and taxation.
Non-commercial disputes by or against the government (or their agencies).
This Act does not apply to Lok Adalat and Permanent Lok Adalat proceedings under the Legal Services Authorities Act, 1987.

Mediator(s)

A mediator is a person who is appointed to undertake mediation – (a) by the parties or (b) by a mediation service provider. This includes a person registered as a mediator with the Mediation Council of India.
Qualification: Unless the agreement between the parties provides otherwise, a mediator must be registered with the Mediation Council or be empanelled with (a) a court annexed mediation centre; (b) an authority constituted under the Legal Services Authorities Act, 1987; or (c) a mediation service provider.
Appointment: Parties may appoint a mediator by – (a) reaching an agreement; or (b) making an application to mediation service provider for appointment[3].
Termination: A mediation service provider may terminate the term of a mediator upon (a) receipt of an application from either party; (b) receipt of information about the mediator’s conflict of interest; or (c) the mediator’s withdrawal from the proceedings. If and when terminated, the mediator may be replaced in the manner set out under the Act.
Admissibility and privilege against disclosure: Subject to just exceptions[4], no mediator (or participant including experts and advisers) will at any time be permitted, or compelled to disclose to any court, tribunal, or in any adjudicatory proceedings, any communication, contents, conditions or any information of which they have been acquainted during the mediation.

The Mediation Process & Procedure

Pre-litigation mediation

The process of undertaking mediation for settlement of disputes prior to the filing of a suit or proceeding of civil or commercial nature[5] before a court or notified tribunal is as mentioned briefly below:

Parties may voluntarily and with mutual consent take steps to settle the disputes by pre-litigation mediation in accordance with the Act.
Jurisdiction: Unless agreed otherwise, mediation must be undertaken within the territorial jurisdiction of the court or tribunal of competent jurisdiction to decide the subject matter of dispute.
Timelines: The mediation process is required to be completed within 180 (one hundred eighty) days from the date fixed for first appearance before the mediator, with a further 180 (one hundred eighty) days period extendable by the consent of parties.
Withdrawal or non-appearance: A party may withdraw from the mediation after the first 2 (two) sessions. In case the party fails to attend even the first 2 (two) mediation sessions, costs may be imposed at the time of the subsequent litigation on the same subject matter.
Even if the parties fail to reach a settlement through pre-litigation mediation, the court or tribunal may at any stage refer the parties to mediation if they request.
Costs: Unless otherwise agreed by the parties, all costs of mediation, including the fees of the mediator and the charges of the mediation service provider will be borne equally by the parties.
Confidentiality: A mediator, mediation service provider, the parties and participants in the mediation will keep confidential matters relating to the mediation proceedings (list of these matters are set out under Section 22(1)). No party can rely on or introduce as evidence any information or communication.

Mediated settlement agreement (and its enforcement)

An agreement between some or all of the parties, settling some or all of the disputes between such parties as a result of the mediation. The terms of a mediated settlement agreement can extend beyond the terms of reference.
Form: The agreement must be in writing, signed by the parties and authenticated by the mediator.
The mediated settlement agreement will be final and binding upon the parties.
Registration: The mediated settlement agreement must be registered with an authority constituted under the Legal Services Authorities Act, 1987 within 180 (one hundred eighty) days of the authenticated copy from the mediator.[6]
Enforcement: It will be enforceable in accordance with the provisions of Code of Civil Procedure, 1908 as if it was a decree passed by a court.

Non-Settlement Report

In case there is no settlement between the parties under mediation, the mediator will prepare a non-settlement report (without disclosing any details for the reasons thereof, parties’ conduct, etc.) and submit the same to the parties, or the mediation service provider (in case of institutional mediation).

Interim reliefs by courts pending pre-litigation mediation

The court or tribunal referring the parties to mediation may pass suitable interim order to protect the interest of any party if deemed appropriate.

Challenge to a mediated settlement agreement

A mediated settlement agreement can be challenged by either party before the court or tribunal of competent jurisdiction by filing an application within 90 (ninety) days[7] on the grounds of – (a) fraud; (b) corruption; (c) impersonation; and (d) dispute not being fit for mediation.

Statutory exclusion of certain period under limitation

The period of time from commencement of the mediation till, either (i) submission of non-settlement report, or (ii) termination of mediation, will be excluded while computing limitation while initiating proceedings relating to the same dispute.

Corresponding amendments to other legislations

Since the Act now applies to all civil and commercial disputes in India, naturally, the Act incorporates corresponding amendments to existing statutes in this field, including the Indian Contract Act, 1872, the Code of Civil Procedure, 1908, the Legal Services Authorities Act, 1987, the Arbitration and Conciliation Act, 1996, the Micro, Small and Medium Enterprises Development Act, 2006, the Companies Act, 2013, the Commercial Courts Act 2015 and the Consumer Protection Act, 2019.

The Regulator: Mediation Council of India

The central government will establish the Mediation Council of India (“Council”) as per the constitution prescribed under the Act. The Council has been constituted to register, recognize and regulate mediation institutions and mediators in India. The Council is also tasked to promote international and domestic mediation in India, facilitate and conduct continuous training, education and certifications in mediation, and also maintain a depository of mediation settlement agreements made in India.

JSA Comment

While mediation in India is not new and there are several legislations that already contemplate mediation as a means for dispute resolution / pre-litigation dispute resolution, the Act institutionalizes the mediation regime in India demonstrating the growth and recognition of mediation as an effective (alternate) dispute resolution mechanism.

A welcome framework to the mediation regime in India: The Act manages to streamline, structure and create a regulatory framework for mediations in India in the endeavour to resolve civil and commercial issues before they become a dispute that requires judicial resolution. The significant provisions of the Act, viz., the mediated settlement enforcement agreements, its finality and binding effect, its enforceability and its amenability to challenge gives more credence to the mediation process. This pre-litigation resolution framework can be presented to foreign investors as a factor for ease of doing business in India in as much as it mitigates the risk, expense and delays in judicial adjudication in India.
Lacunas: The most significant and glaring lacuna is that the Act does not provide for enforcement of mediated settlement agreements from international mediations conducted outside India. The other aspects which leave too much room for interpretation are the provisions for interim reliefs and appointment of mediators (especially when compared to the provisions under the Arbitration and Conciliation Act, 1996).
Judicial Intervention – a necessary evil: The Act provides that the enforcement and challenge of a mediated settlement agreement lies before the court or tribunal of competent jurisdiction. While these elements are essential for making the mediated settlement agreements final, binding and enforceable, judicial interference in India threatens the expedited timelines of resolution of any disputes in India (much like what is happening to the arbitration regime in India today).
The Act departs from the Singapore Convention on Mediation – a warranted miss or a fundamental lacuna?: In 2019, India was amongst the first to sign the United Nations Convention on International Settlement Agreements resulting from Mediation, also called the Singapore Convention on Mediation[8]. However, in 2023, when India promulgated its first standalone legislation on mediation, it chose not to incorporate the Singapore Convention.

Fundamentally, the Singapore Convention contemplates enforcement of mediated settlement agreements in the courts of the home country of the counter party. However, as stated above, the Act does not provide for enforcement of mediated settlement agreements from international mediations conducted outside India.

The Centre explains this departure by stating that since the Singapore Convention has only just recently come into force, India would prefer to wait for greater acceptance. As only 11 (eleven) non-major economies have ratified the Singapore Convention, India would prefer to observe the course of implementation by other major economies. However, we were wondering in India’s decision to be overtly conscious, whether we lost an opportunity to promulgate an all-encompassing regime where mediated settlements between parties from any part of the world could be enforced in India.

This Prism has been prepared by:

Dheeraj Nair
Partner

Vishrutyi Sahni
Senior Associate

Ridhima Sharma
Associate

[1] The Act was introduced in the Rajya Sabha for the first time on December 20, 2021 and was referred to the Parliamentary Standing Committee on Personnel, Public Grievances, Law and Justice (“Standing Committee”) for a detailed examination. The Standing Committee gave its report on July 13, 2022. It was passed in the Rajya Sabha on August 1, 2023 and passed in the Lok Sabha on August 7, 2023. The Act finally received presidential assent on September 14, 2023 and has come into force by Gazette Notification No.35 dated September 15, 2023.

[2] A “mediation agreement”, much like an arbitration agreement, is any written document which records the parties’ intention to submit disputes to mediation. It is valid in the form of a clause to an agreement, or a separate agreement or in a series of communications.

[3] After receipt of application for appointment of mediator, the mediation service provider will appoint a mediator within a period of 7 (seven) days.

[4] Exceptions to the disclosure safeguard is laid down in the Proviso to Section 23(1) and Section 23(2).

[5] Proviso to Section 5(1) provides that pre-litigation mediation in matters of commercial disputes of Specified Value must be undertaken in accordance with the provisions of section 12A of the Commercial Courts Act, 2015, and the rules made thereunder.

[6] Such registration will not be mandatory till the time regulations under Section 22(7) of the Act are not made.

[7] Period of 90 (ninety) days for challenge of a mediated settlement agreement is extendable by a further period of 90 (ninety) days by the court or tribunal upon finding sufficient case (Proviso to Section 28(3) of the Act).

[8] The Singapore Convention on Mediation is a uniform framework for international settlement agreements resulting from mediation. This was introduced to facilitate international trade and commerce by enabling disputing parties to easily enforce and invoke settlement agreements across borders. It applies to international settlement agreements resulting from mediation, concluded by parties to resolve a commercial dispute. The Singapore Convention is to mediation what the New York Convention is to foreign arbitration awards.

Tags Dispute Resolution, JSA, Leading Law Firm, Leading Lawyers, Mediation Act

JSA Prism | Insolvency Law | September 2023

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Supreme Court interprets Regulation 39(1A) of the CIRP Regulations to hold that prior modification/ amendment of resolution plans received does not bar the committee of creditors from taking recourse to a challenge mechanism to enable resolution applicants to improve/ better their plans

On August 25, 2023, the Supreme Court of India (“Supreme Court”) in the case of Vizag Minerals and Logistics Pvt. Ltd. vs. Ravi Shankar Devarakonda & Ors[1], while dismissing the civil appeal filed by Vizag Minerals and Logistics Pvt. Ltd. (unsuccessful resolution applicant), has clarified that Regulation 39(1A) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”) does not bar the committee of creditors of Meenakshi Energy Limited to adopt a challenge process/mechanism for value maximisation even after resolution plans have been modified/ amended. In doing so, the Supreme Court has upheld the order dated June 27, 2023 in the case of Consortium of Prudent ARC Ltd. vs. Mr. Ravi Shankar Devarakonda & Ors[2] (“Impugned Order”) passed by National Company Law Appellate Tribunal, Chennai (“NCLAT”).

Brief Facts

Please refer to our JSA Prism of July 31, 2023 detailing the brief facts, issues and analysis/rationale of the Impugned Order. The Impugned Order was challenged by a member of the prospective resolution application vide civil appeal before the Supreme Court.

Findings of the Supreme Court

The Supreme Court vide its order dated August 25, 2023, has upheld the Impugned Order by agreeing with NCLAT’s findings in the Impugned Order. Supreme Court has interpreted Regulation 39(1A) of the CIRP Regulations to hold that, the word ‘or’ in Regulation 39(1A) of CIRP Regulations has to be read as ‘in addition to’ and not ‘to the exclusion of’. Accordingly, the Supreme Court has clarified that the resolution professional may, if envisaged in the request of the resolution plan, allow modification of the resolution plan received, but only once. This, however, will not bar the Committee of Creditors to tale recourse to a challenge mechanism to enable resolution applicants to improve/better their plans.

Conclusion

The Supreme Court has brought much needed clarity to Regulation 39(1A) CIRP Regulations by clarifying that the word ‘or’ is not used disjunctively to prevent the committee of creditors from undertaking a challenge process even after seeking amendments/ modifications to resolution plans. Prior to this judgment, the conundrum faced by the resolution professionals and committee of creditors with regards to the issue was whether both processes envisaged under Regulation 39(1A) of CIRP Regulations can be adopted by the stakeholders for value maximisation and if so, in what circumstances. This Judgment provides much needed clarity on this and aids in achieving the objective of the Insolvency and Bankruptcy Code, 2016 which is value maximization of the corporate debtor.

This Prism has been prepared by:

Varghese Thomas
Partner

Tushar Nagar
Principal Associate

Akhil Nene
Associate

[1] Civil Appeal (Diary) Nos 27746 of 2023

[2] (2023) SCC OnLine NCLAT 287

Tags Disputes, Insolvency Law, JSA, Leading Law Firm, Leading Lawyers, Legal Updates

JSA Prism | Dispute Resolution | August 2023

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Delhi High Court (“Court”) Upholds Contractors’ Rights: Supplementary Agreements (“SA”) Signed Under Pressure Not a Barrier to Claims for Damages

The Court in the case of National Highways Authority of India v. M/s T.K. Toll Road Private Limited, has inter alia held that a SA executed between parties to an infrastructure project whereby the contractor has relinquished his claim to damages, does not prevent it from seeking damages against the employer, especially if the SA was executed as a pre-requisite to obtain a Provisional Completion Certificate (“PCC”), which is crucial for toll collection in Build, Operate, Transfer (“BOT”) contracts.

Brief Facts:

In December 2006, NHAI invited proposals for the design, engineering, finance, construction, operation and maintenance of Trichy-Karur Section from Km. 135.800 to Km. 218.000 of National Highway – 67 in the state of Tamil Nadu. This project intended to augment the current roadway of the Trichy-Karur Section, expand it to four lanes, and enhance its operation and upkeep using a BOT concession model.
In March 2007, Reliance Energy Limited (“the Contractor”) was declared as the successful bidder for the project, and NHAI issued a Letter of Acceptance in their favour. The parties executed a Concession Agreement on July 19, 2007. Additionally, a tripartite State Support Agreement was also executed with the Government of Tamil Nadu.
The project was set to be completed 30 (thirty) months from the designated Appointed Date, with a concession tenure of 30 (thirty) years. The Appointed Date, as declared by NHAI, was January 15, 2008. Thus, the scheduled completion date for the project was set as July 14, 2010, with the concession duration extending until January 14, 2038.
On November 14, 2013, both parties signed a SA which granted the Contractor a PCC, thereby allowing it to start toll collection in a section of the project. The parties also agreed to waive claims on project delays up to the SA date, and the completion date was rescheduled to February 24, 2014.
On account of disputes arising between the parties, the Contractor issued a notice of arbitration to NHAI on December 17, 2018.
On October 1, 2022, the arbitral tribunal passed its final award, awarding the Contractor a sum of INR 10,56,54,93,214 (ten trillion fifty-six billion five hundred forty-nine million three hundred fourteen thousand two hundred fourteen). Vis-à-vis the SA, the tribunal found that it had been executed under coercion.
NHAI challenged the award before the Court, under Section 34 of the Arbitration and Conciliation Act, 1996 (“A&C Act”), whereas the Contractor filed an application under Section 36(1) of the A&C Act for enforcement of the award. NHAI also sought a stay against the operation of the award under Section 36(3) of the A&C Act.

Issue:

While hearing NHAI’s application for stay of the operation of the award, the Court was called upon to answer whether the arbitral tribunal failed to appreciate that the SA, under which parties had agreed not to raise any claims on account of delay and extension of the project, was a bar on the claims.

NHAI’s Primary Grounds of Challenge:

Plea of coercion not taken: NHAI contended that there was no substantial evidence to support the claim that the SA was signed under economic pressure or coercion. They highlighted that although the SA was signed in November 2013, the Contractor first questioned its validity only in August 2016, and the allegation of coercion was first made in October 2016.
Challenge to the validity of the SA was barred by limitation: NHAI asserted that if there was genuine coercion during the signing of the SA, it should have been contested promptly or upon grant of the PCC in February 2014. However, this was never done. Thus, the limitation to challenge the SA expired in February 2017.

Findings and Analysis:

The Court declined to stay the operation of the arbitral award, observing that:

Based on the evidence put forth by the Contractor’s expert witness, a delay of 1668 (one thousand six hundred and sixty-eight) days was attributable to NHAI on account of failure to hand over the project site, while a delay of 300 (three hundred) days was attributable to the Contractor. Such a delay by NHAI could not have been overlooked by the Contractor unless there was pressure to sign the SA. This finding was further corroborated by the testimony of NHAI’s witness. During cross-examination, the witness acknowledged the absence of any documentation indicating that the request for the SA originated from the Contractor. The witness had also admitted that without receiving the PCC and the rights to collect tolls, the Contractor could not have recovered any portion of its investment.
NHAI had issued a circular which approved the execution of an SA in the given circumstances. However, the circular mandated that the SA must include an undertaking by the Contractor to forego any claims against the NHAI under any clause of the CA, for delay in handing over the affected stretch of the project highway.
During cross-examination, NHAI’s witness admitted that had the SA not been signed, the PCC and extension of time would not have been granted to the Contractor. NHAI had also stated in its Statement of Defence that had the Contractor not given an undertaking not to make any claims against NHAI, the SA would not have been executed.
Further, the arbitral record showed that the drafts of the SA underwent two revisions, and the Contractor had raised objections to the clause stating that neither party would seek damages against the other.
Regarding the issue of limitation, the Court observed that NHAI had not dismissed the immediate claims put forward by the Contractor, and without such dismissal, the limitation period had not started. The Court also noted that since the project was ongoing, the payable dues under each claim could be quantified only after completion of the project. Therefore, there was no question of the claims being barred by limitation.
Drawing from the above findings, the Court observed that there was a clear effort on NHAI’s part to protect itself from potential financial repercussions stemming from its own delays. Consequently, the Court found that NHAI was unable to demonstrate any apparent glaring error which would entitle it to a stay on the operation thereof. Accordingly, the application filed by NHAI challenging the arbitral award was dismissed with the observation that no stay was warranted. NHAI was directed to pay 50% (fifty percent) of the awarded sum to the Contractor within 4 (four) weeks, and the balance 50% (fifty percent) within 4 (four) weeks thereafter.

JSA Comment:

In recent times, it has become increasingly common for supplementary agreements to be executed, often limiting contractors’ abilities to pursue damages. Given the state-backed authorities’ control over aspects such as time extensions and the imposition of liquidated damages, contractors frequently find themselves cornered into meeting these demands. This judgment correctly recognises the glaring power imbalance in such cases and takes a step towards restoring the legal and contractual rights of the contractors. It must be noted, however, that a plea of coercion and/or duress must be made out on the facts of each case.

Tags Delhi High Court, Dispute Resolution, JSA, Leading Law Firm, Leading Lawyers, Legal Updates

New Filters: Dispute Resolution and Arbitration

Financial service providers under IBC

Brief Facts

Issue

Findings and Rationale

Conclusion

Delhi High Court delineates the procedure and modalities that can be followed while dealing with petitions under Section 11 of the Arbitration Act involving unstamped or insufficiently stamped arbitration agreement(s).

Spotlight on Draft 7th (seventh) Edition of the Singapore International Arbitration Centre (“SIAC”) Rules

Key Innovations:

Key Amendments:

Concluding Remarks:

Salient features of the Act

What is “Mediation”?

Applicability of the Act

Mediator(s)

The Mediation Process & Procedure

Corresponding amendments to other legislations

The Regulator: Mediation Council of India

JSA Comment

Delhi High Court (“Court”) Upholds Contractors’ Rights: Supplementary Agreements (“SA”) Signed Under Pressure Not a Barrier to Claims for Damages

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