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Madras High Court Strikes Down Policy On Ex Post-Facto Environmental Clearances

The Madras High Court (“HC”) in Fatima vs Union of India & Ors. [W.P.(MD)No.8866 of 2021] has set aside the Standard Operating Procedure dated 07.07.2021 (“SOP”) and Office Memorandum dated 19.02.2021 (“OM”) (collectively “Impugned OMs”) issued by the Ministry of Environment, Forest and Climate Change (“MoEF”). These instruments governed the grant of ex post facto environmental and coastal regulation zone clearances.

Please click here to read the full article by Nawneet Vibhaw and Prannoy Sebastian, published in Mondaq.

Tags Madras High Court, Ministry of Environment, Strikes Down Policy

JSA Brief | September 2024

This edition of the JSA Brief showcases JSA authored articles, updates & newsletters and achievements such as deals and events in all practice area over the preceding month (September 2024).

To read further details, click here or refer to the below document.

For more details, please contact [email protected]

*In case the document is not visible on the device you are using, please click the link above.

Tags Articles, Deal Making, Events, JSA, JSA Prism, Legal Updates, Newsletters, Publications, Recognitions

“India has the foundation to become a global leader in ADR”: Amar Gupta, Partner, JSA

Amar Gupta, Partner at Jyoti Sagar Associates (JSA) and a member of the ICC Commission on Arbitration and ADR, discusses the challenges and opportunities in India’s arbitration landscape. He emphasizes the need for better institutional support, consistency in court rulings, and the development of mediation.

Please click here to read the full article by Amar Gupta, published in ET Legal World.

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

JSA Prism | Dispute Resolution | September 2024

Please click here to download the Prism as a PDF.

The relevant date for determining the conversion rate of foreign award expressed in foreign currency is the date when the award becomes enforceable i.e., when the objections against it are finally decided

In a recent judgment of DLF Ltd. vs. Koncar Generators and Motors Ltd.[1], the Hon’ble Supreme Court of India (“Supreme Court”) formulated the following twin principles:

firstly, following the principle in Forasol vs. Oil and Natural Gas Commission[2], the date when an arbitral award becomes enforceable will be the date for conversion. Under the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), this date is when the objections against the arbitral award are dismissed, and such award attains finality; and
secondly, in terms of the principle in Renusagar Power Co. Ltd. vs. General Electric Co.[3], when the award debtor deposits an amount before the court during the pendency of objections and the award holder is permitted to withdraw the same, even if against the requirement of security, this deposited amount must be converted as on the date of the deposit.

Brief facts

The appellants are Indian companies, and the respondent is a Croatian company. The parties executed a contract for the design, engineering, manufacturing, and supply of 2 (two) generators by the respondent. Certain disputes arosebetween the parties which were referred to International Chamber of Commerce for arbitration. An arbitral award dated May 12, 2004, was passed in favour of the respondent (claimant in the arbitration) and held that the appellants are jointly and severally liable to pay Euro 1,093,989, (Euro one million ninety-three thousand nine hundred and eighty-nine) plus interest (“Arbitral Award”).
The respondent filed for execution of the Arbitral Award in 2004 (“Execution Petition”), while the appellants filed a petition under Section 34 of the Arbitration Act seeking to set aside the Arbitral Award. The Execution Petition under Section 34 of the Arbitration Act was dismissed on April 28, 2010.
Thereafter in 2010, the appellants filed objections in the Execution Petition under Section 48 of the Arbitration Act (“Objections”) and additionally, filed an appeal under Section 37 of the Arbitration Act against order dismissing the Section 34 petition.
The Punjab and Haryana High Court dismissed the appeal (filed under Section 37 of the Arbitration Act) by its order dated October 15, 2010. In terms of the consensus arrived between parties and in accordance with the court directions, the appellants deposited INR 7,50,00,000 (Indian Rupees seven crore fifty lakh) with the executing court on October 22, 2010.
Subsequently, the Executing Court dismissed the Objections filed by the appellant by an order dated April 2, 2011. Against this dismissal, the appellants filed a Revision Petition (“Revision Petition”), which was admitted by the High Court by an order dated June 3, 2011. Additionally, the High Court stayed the operation of the Executing Court order dismissing the Appellant’s Objections (i.e., stayed the order dated April 2, 2011). This was made subject to the appellants depositing with the Executing Court, a further amount of INR 50,00,000 (Indian Rupees fifty lakh), over and above, INR 7,50,00,000 (Indian Rupees seven crore fifty lakh) previously deposited by the appellants.
The Revision Petition was dismissed by the High Court on July 1, 2014, on which date the Arbitral Award attained finality as this order was not challenged any further.
Thereafter, on August 24, 2016, the Execution Court permitted the respondent to withdraw the entire amount of INR 8,00,00,000 (Indian Rupees eight crore) deposited by the appellants. Pursuant to this, the respondent received INR 11,60,12,100 (Indian Rupees eleven crore sixty lakh twelve lakh and one hundred) (i.e., principal sum along with interest) on October 10, 2016, upon furnishing a bank guarantee of an Indian Bank for the release of the deposit.
The Execution Petition was allowed by the Executing Court by order dated February 3, 2017, wherein it was held that the relevant date to convert the Arbitral Award amount expressed in Euro to Indian rupees is July 1, 2014, i.e., the date on which all the Objections against the Arbitral Award were finally decided, as it is only on such date that the award is deemed to be a decree.
The appellants filed a revision petition against the order dated February 3, 2017, which revision petition was dismissed by the High Court by order dated February 26, 2018. In this revision petition, the appellant contended that the exchange rate as on the date of the Arbitral Award should be applied (instead of the date of July 1, 2014).
It is against this order dated February 26, 2018 (dismissing its revision petition) that the Appellants filed a special leave petition before the Supreme Court (“Impugned Order”).

Issues

The Supreme Court adjudicated on the following issues:

what is the correct and appropriate date to determine the foreign exchange rate for converting the award amount expressed in foreign currency to Indian rupees? and
what would be the date of such conversion, when the award debtor deposits some amount before the Court during the pendency of proceedings challenging the award?

Findings of the Supreme Court

Following are the 3 (three) key findings of the judgement:
- the relevant date for determining the conversion rate of foreign award expressed in foreign currency is the date when the award becomes enforceable;
- when the award debtor deposits an amount before the court during the pendency of objections and the award holder is permitted to withdraw the same, even if against the requirement of security, this deposited amount must be converted as on the date of the deposit; and
- after the conversion of the deposited amount, the same must be adjusted against the remaining amount of principal and interest pending under the arbitral award. This remaining amount must be converted on the date when the arbitral award becomes enforceable, i.e., when the objections against it are finally decided.
In arriving at the above conclusions, the Supreme Court formulated twin principles while applying the law laid down in Forasol (supra) and Renusagar (supra).
- Re: Principle 1: The date when an arbitral award becomes enforceable shall be the date for conversion (i.e., when the objections against the arbitral award are dismissed, and such award attains finality.)
  - Applying the principle in Forasol, the Supreme Court held that the statutory scheme under the Arbitration Act does not require a judgment or decree to be passed for a foreign award to be enforceable. Rather, the enforceability of a foreign award is automatic and deemed under Section 49 of the Arbitration Act, after the objections against such an award under Section 48 of the Arbitration Act are finally decided and disposed of. At this point, the award is enforceable as a decree of a court (Section 49 of the Arbitration Act). Therefore, the date on which the objections are finally decided and dismissed would be the proper date for determining the exchange rate to convert an amount expressed in foreign currency.
  - In the present case, such date was July 1, 2014, i.e., when the High Court dismissed the Revision Petition against the Executing Court order dismissing the appellants’ Objections. No further appeal was preferred from this order and hence, it attained finality.
- Re: Principle 2: If the award amount or part of it is deposited in court pending objections, enabling withdrawal by the decree holder, the date of deposit shall be the relevant date for conversion.
  - the Supreme Court drew a distinction between the 2 (two) deposits made by the appellants in the present case. As regards the first deposit of INR 7,50,00,000 (Indian Rupees seven crore fifty lakh), the Supreme Court held that such deposit stands converted as on the date of deposit i.e., October 22, 2010.
  - the Supreme Court reasoned that through a deposit, the award debtor parts with the money on that date and provides the benefit of that amount to the award holder. Provided that the award holder is permitted to withdraw this amount, it can convert, utilise, and benefit from the same at that point in time. Considering that the deposited amount inures to the benefit of the award holder, it would be inequitable and unjust to hold that the amount does not stand converted on the date of its deposit.

- - As regards the second deposit of INR 50,00,000 (Indian Rupees fifty lakh) pursuant to the High Court order dated June 3, 2011, the Supreme Court held that the same stands on a different footing from the first deposit. This order did not permit the Respondent to withdraw this amount till the completion of the proceedings. Hence, the amount cannot be converted as on the date of deposit as the Respondent could not have benefitted from the same. This amount could be withdrawn only in 2016, pursuant to the Executing Court’s order dated August 24, 2016. The Respondent withdrew the entire deposit of INR 8,00,00,000 (Indian Rupees eight crore), along with the interest that accrued on this amount, on October 10, 2016.

- - Thus, the first deposit of INR 7,50,00,000 (Indian Rupees seven crore fifty lakh) must be converted as on the date of deposit being October 22, 2010. The second deposit of INR 50,00,000 (Indian Rupees fifty lakh) as well as the remaining amount due under the award must be converted when the Objections proceedings attained finality on July 1, 2014.
  - After the conversion of the deposited amount, the same must be adjusted against the remaining amount of principal and interest pending under the arbitral award. This remaining amount must be converted on the date when the arbitral award becomes enforceable, i.e., when the objections against it are finally decided.
Therefore, in the present case, the exchange rate on July 1, 2014, must be used for converting the entire arbitral award and interest.

Conclusion

By conclusively establishing the law on currency conversion of arbitral awards, the Supreme Court has provided the much-needed clarity on the relevant date for converting foreign currency amounts to Indian Rupees.

The Supreme Court has further settled the law covering a situation where the award debtor deposits the award amount in part during the pendency of execution proceedings/challenge to the award. Where the award holder is permitted to withdraw such amount, even if against the requirement of security, this deposited amount must be converted as on the date of the deposit.

This judgement provides an impetus to the enforcement of foreign arbitral awards by making it clear that the appropriate date to determine the foreign exchange rate for converting the award amount expressed in foreign currency to Indian Rupees, is the date on which such award attains finality.

This Prism is prepared by:

Sidharth Sethi
Partner

Shreya Sircar
Partner

For more details, please contact [email protected].

[1] [2024] 8 S.C.R. 291:2024 INSC 593 (decided on August 8, 2024)

[2] 1984 Supp SCC 263

[3] 1994 Supp (1) SCC 644

Tags Dispute Resolution, Foreign Currency, JSA, JSA Prism, Leading Law Firm, Leading Lawyers, Legal Updates, Supreme Court

Madras High Court mandates proportionality in freezing of bank accounts by investigating authorities

Please click here to download the Prism as a PDF.

The Hon’ble Madras High Court (“Madras HC”), in the matter of Mohammed Saifullah vs. Reserve Bank of India and Ors[1] has delivered a significant ruling on the freezing of bank accounts in cases of ongoing investigations, particularly concerning cybercrimes. The judgment addresses the need to balance investigative needs with the rights of account holders. It also provides clear directions on conducting such actions in a manner that prevents unnecessary hardship to account holders.

Brief facts

Mohammed Saifullah (“Petitioner”) filed a writ of mandamus before the Madras HC after HDFC Bank froze his account based on the instructions from the Cyber Crime Bureau, Telangana. This action was taken as part of an investigation into cryptocurrency-related activities.
While only INR 2,48,835 (Indian Rupees two lakh forty-eight thousand eight hundred and thirty-five) of the account’s balance was suspected to be involved in the crime, the bank froze his account which had a balance of INR 9,69,580 (Indian Rupees nine lakh sixty-nine thousand five hundred and eighty).
The Petitioner argued that neither the investigating agency nor the bank had informed him of the reasons for the freezing of the account or how long it would last, causing undue hardship in his financial affairs.

Issues

Whether the blanket freezing order is justified in cases where the suspected amount is lower than the total account balance?
Should the account holder be notified of the reasons for freezing their bank account?

Analysis and findings

The Madras HC, while acknowledging the statutory powers granted to investigation agencies to freeze accounts under Section 102 of the Code of Criminal Procedure, 1973 (now Section 106 of the Bhartiya Nagarik Suraksha Sanhita, 2023)[2], emphasised that these powers must be exercised responsibly. Below is the summary of the Madras HC’s findings:

account holders must be notified promptly of the reasons for freezing their accounts, and a timeline should be provided for the freeze. The failure to do so violates basic principles of natural justice;
freezing the entire account balance when only INR 2,48,835 (Indian Rupees two lakh forty-eight thousand eight hundred and thirty-five) was suspected to be linked to the crime was unjustified. It held that investigative agencies should freeze or mark a lien only the amount related to the investigation/alleged crime and not the entire account, unless circumstances warrant it; and
indiscriminate freezing of accounts could severely affect individuals’ right to livelihood and business, violating Article 19(1)(g) of the Constitution of India, which guarantees the right to carry on business. The Madras HC stressed that actions by investigating authorities should not infringe upon these fundamental rights without proper justification.

The Madras HC concluded by directing HDFC Bank to immediately de-freeze the Petitioner’s account, allowing him to utilise the remaining funds. However, the bank was instructed to retain a lien on INR2,50,000 (Indian Rupees two lakh fifty thousand), slightly higher than the amount under suspicion, until the investigation was concluded. The Petitioner was also directed to ensure that this amount remain in his account.

Conclusion

This judgment is a significant step toward protecting the rights of individuals and businesses affected by arbitrary account freezes by investigating agencies. By setting guidelines, the Madras HC has reinforced the importance of proportionality and transparency in freezing orders during investigations. Authorities must now ensure that: (a) such freeze is limited to the amount under investigation; and (b) they must promptly inform account holders of the reasons and duration of the freeze.

Additionally, the judgment places a responsibility on law enforcement agencies to conduct thorough investigations, particularly in cases where no specific amount of fraud has been quantified by the complainant. The police will need to carefully evaluate such situations to ensure that the accused is not unjustly enriched whilst also preventing severe prejudice to the complainant. This careful balancing act is essential to avoid unnecessary hardship on the account holders while ensuring that victims of fraud are adequately protected. This ruling will help mitigate the financial and operational challenges caused by unnecessarily broad freezing orders, ensuring a fairer process for account holders while allowing investigations to proceed effectively.

It is important to note that these guidelines are currently limited to the jurisdiction of the Madras HC and, by extension, the state of Tamil Nadu. Similar guidelines will need to be issued by other High Courts or the Supreme Court to provide uniform protection across the country. Nonetheless, this judgment will carry considerable weight and may be cited as persuasive precedent in other courts dealing with similar issues.

This Prism is prepared by:

Varghese Thomas
Partner

Hormuz Mehta
Partner

Ahsan Allana
Senior Associate

[1] W.P.No.25631 of 2024

[2] Power of police officer to seize certain property

Tags Arbitration, Dispute Resolution, JSA, Leading Law Firm, Leading Lawyers, Legal Updates

Sidharth Sethi | India ADR Week 2024 | Delhi

Our Partner, Sidharth Sethi, was invited as a speaker at the recently concluded India ADR Week 2024. Sidharth shared his insights on the topic “Competence-Competence or Incompetence-Incompetence? Court intervention in tribunal jurisdiction”.

Sidharth was joined by:

Dr. Birendra Saraf, Senior Advocate & Advocate General, State of Maharashtra
Mr. Niraj Modha, Barrister and Arbitrator, 39 Essex Chambers
Ms. Tejal Patil, General Counsel, Wipro
Mr. Zameer Nathani, Group General Counsel, CarDekho Group

The session was moderated by Hon’ble Mr. Justice (Retd.) AK Sikri, Former Judge, Supreme Court of India.

JSA Prism | Dispute Resolution | September 2024

Please click here to download the Prism as a PDF.

Supreme Court clarifies that an application seeking extension of arbitral tribunal’s mandate under Section 29A of the Arbitration and Conciliation Act, 1996 can be filed even after the expiry of the mandate

In the recent case of Rohan Builders vs. Berger Paints[1] (“Rohan Builders Case”), the Hon’ble Supreme Court of India (“Supreme Court”) has conclusively settled the long-standing issue concerning the time of filing an application for extension of time to render an arbitral award under Section 29A of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). While deciding the issue in the affirmative, the Supreme Court ruled that such an application can be filed even after the expiry of the prescribed time period.

Background

Under Section 29A of the Arbitration Act, arbitral awards in domestic arbitrations must be delivered within 12 (twelve) months from the date of completion of pleadings[2]. This time period can be extended by another 6 (six) months by the consent of the parties. If the arbitral tribunal is unable to pass the award within this time period of 12 (twelve) months (or 18 (eighteen) months, where parties have consented to the 6 (six)month extension), the mandate of the arbitral tribunal terminates. Thereafter, the mandate can be further extended only by the court under Section 29A(4) of the Arbitration Act, on an application from either party to continue the arbitration process.

In the Rohan Builders Case, the Supreme Court held that under Section 29A(4) of the Arbitration Act, the power to extend the mandate of the arbitral tribunal can be exercised by courts even after the mandate has expired.

This judgement puts to rest the convergent views taken by the High Courts of Calcutta, Delhi, Patna, Bombay, Madras, Kerala and Jammu and Kashmir on this issue.

Brief facts

Rohan Builders (the “Petitioner”) filed an application under Section 29(4) of the Arbitration Act seeking an extension of the arbitral tribunal’s mandate before the Hon’ble High Court at Calcutta (“Calcutta HC”) as the arbitral tribunal had failed to render the award in the prescribed time. Berger Paints (the “Respondent”) contested the application arguing, inter alia, that the Petitioner ought to have sought an extension during the subsistence of the arbitral tribunal’s mandate and that any application filed thereafter is not maintainable.

By a judgment dated September 6, 2023[3], the Calcutta HC agreed with the Respondent, holding that applications seeking extension of time under Section 29A(4) of the Arbitration Act cannot be filed after the prescribed time period (12 (twelve) months or 18 (eighteen) months from the date of completion of pleadings, as the case may be) had expired. The Calcutta HC provided the following reasons for its decision:

Section 29A of the Arbitration Act provides for: (a) ‘termination’ of the arbitral tribunal’s mandate on the expiry of the prescribed period; and (b) ‘extension’ of the mandate. Read together, this means that the mandate of the arbitral tribunal must be ‘continuing’ for it to be extended;
there is a conscious omission of the words ‘renewal’ or ‘revival’ in the provisions empowering courts to extend the mandate of an arbitral tribunal. Such words would have been used (instead of ‘extension’) if the legislature intended that an application under Section 29A(4) of the Arbitration Act could be made even after the expiry of the arbitral tribunal’s mandate; and
allowing parties to approach courts for extension of time even after the expiry of the arbitral tribunal’s mandate would: (a) render the time limits for making an award inconsequential; and (b) encourage rogue litigants who could stall arbitrations by filing extension applications long after the expiry of the arbitral tribunal’s mandate.

Aggrieved, the Petitioner challenged the Calcutta HC’s judgement before the Supreme Court.

Issue

Whether an application for extension of time under Section 29A of the Arbitration Act can be filed even after the expiry of the prescribed period for making of the arbitral award?

Findings

The Supreme Court recognised the divergent views on the issue while the Calcutta HC and High Court of Patna had held that the power of extension under Section 29A(4) of the Arbitration Act cannot be invoked after the arbitral tribunal’s mandate had ended. The High Courts at Delhi, Bombay and Madras had held that parties are entitled to seek an extension of time under Section 29A(4) of the Arbitration Act even after the end of the prescribed time for making an award.

The Supreme Court concurred with the latter view and held that an application for extension of time to make an arbitral award can be filed after the expiry of the prescribed time period. The Supreme Court reasoned that:

Section 29A(4) of the Arbitration Act provides that the mandate of the arbitral tribunal will stand terminated unless extended by the court “either prior to or after the expiry of the period” prescribed for making an arbitral award. The plain language of the provision was unambiguous, and it clearly empowered courts to extend the time for making an award even after the expiry of the mandated period; and
courts should be wary of prescribing a limitation period where the legislature has refrained from doing so.[4] Since no limitation period was prescribed by Section 29A(4) of the Arbitration Act, requiring parties to file extension applications within a specific timeframe would amount to rewriting the statute.

The Supreme Court also dealt with the rationale provided by the Calcutta HC in the following manner:

the Supreme Court noted that the Calcutta HC’s decision turned on the interpretation of the word ‘terminate’ used in Section 29A of the Arbitration Act. However, the Supreme Court clarified that the word ‘terminate’ is followed by the word ‘unless’. As such, the termination of the arbitral tribunal’s mandate is qualified by the succeeding part of the provision, which provides that the mandatory period for making an arbitral award may be extended by the court “either prior to or after the expiry of the period”; and
the Supreme Court appreciated the Calcutta HC’s concern that if parties are allowed to approach the court for extension of time even after expiry of the prescribed time period, rogue litigants may misuse the provision to defeat the mandatory timelines for making an award. However, the Supreme Court highlighted that Section 29A provided for various safeguards against such rogue litigants: (a) the power to extend time is not to be exercised mechanically, but only for ’sufficient cause’; and (b) while extending the time for making an award, the court can impose terms and conditions and even substitute the arbitral tribunal’s member(s).

Conclusion

As observed by the Supreme Courts, High Courts across India have provided conflicting answers to the question of whether extension of time in an arbitration can be sought after the end of the arbitral tribunal’s mandate. With the decision in the Rohan Builders Case, the Supreme Court has rightly ended the conflict by unequivocally declaring that parties are permitted to seek, and courts are empowered to grant, extension of time even if it is sought after the end of the prescribed time period for making an award.

Holding otherwise would have rendered portions of Section 29A(4) of the Arbitration Act meaningless, which expressly empower courts to grant extension of time “either prior to or after the expiry of the period” prescribed for making an arbitral award. As such, the decision is in consonance with the well-settled principle ut res magis valeat quam pereat, which requires courts to lean in favour of interpretations that make statutory provisions intra vires.[5]

Earlier, in Chief Engineer (NH) PWD (Roads) vs. BSC&C and C JV^[6], the Supreme Court had settled conflicting views regarding the territorial jurisdiction under Section 29A of the Arbitration Act for seeking extension of time. It held that the power to extend the time for making an arbitral award vests with principal civil court of original jurisdiction (including a High Court, provided the High Court has ordinary original civil jurisdiction). Now, with the Rohan Builders Case, parties can also enjoy certainty with respect to the time periods governing extension applications under Section 29A of the Arbitration Act.

This judgement also addresses the recent trend of courts mechanically allowing extension applications under Section 29A of the Arbitration Act and reminds parties that such applications can only be allowed for sufficient cause.

This Prism is prepared by:

Dheeraj Nair
Partner

Divyam Agarwal
Partner

Vishrutyi Sahni
Principal Associate

Aniket Aggarwal
Senior Associate

[1] 2024 INSC 686

[2] As per Section 23(4) of the Arbitration Act, pleadings are required to be completed within 6 (six) months from the date of constitution of the arbitral tribunal.

[3] Rohan Builders vs. Berger Paints, A.P. 328/2023

[4] North Eastern Chemicals vs. Ashok Paper Mill, 2023 SCC OnLine SC 1649; Ajaib Singh vs. Sirhind Cooperative, (1999) 6 SCC 82

[5] Johri Mal vs. Director of Consolidation of Holdings, AIR 1967 SC 1568

[6] SLP (Civil) No. 10544/2024

Tags Arbitration Act, Dispute Resolution, JSA, JSA Prism, Leading Law Firm, Leading Lawyers, Legal Updates

JSA successfully defends a large German auto manufacturer – Mercedes-Benz India Private Limited – against a product liability claim before the National Consumer Disputes Redressal Commission

In a significant judgment on the law relating to product liability in India (Mohd. Hyder Khan v. Mercedes-Benz India Private Limited & Anr., First Appeal No. 10 of 2013, decided on 20 September 2024), the Hon’ble National Consumer Disputes Redressal Commission (“National Commission”), has ruled that an allegation of manufacturing defect must be established by cogent evidence and that compliance with Section 13(1)(c) of the Consumer Protection Act, 1986 is mandatory. The National Commission’s judgment puts to rest and clarifies certain key aspects regarding functioning of airbags. It also underscores the importance of seatbelts and that a vehicle’s deformation pattern alone (i.e., physical damage) cannot be a deciding factor in airbag deployment.

The National Commission’s Judgment assumes significance and lays down the below important principles:

Seatbelt is the primary restraint mechanism in a vehicle. If a seat belt is not worn, the airbag would not deploy, and this aspect is clearly mentioned in the Owner’s Manual.
To prove that a good suffers from a defect, especially a manufacturing defect, testimony of an expert is necessary.
Section 13 (1) (c) of the Consumer Protection Act, 1986 is mandatory and requires that if there is any allegation that goods are defective, the Consumer Commission must get them inspected
For the principle of res ipsa loquitor to apply, the facts must speak for themselves. But if there are no such facts on record, the principle cannot be applied.
The damage pattern of a vehicle or the amount spent in repairing the vehicle cannot alone be determinative to apply the principle of res ipsa loquitor.
A crumple zone in a vehicle is designed to absorb, reduce and redirect the energy. The crumple zone of a vehicle is meant to crumple, and this is to ensure that the integrity of the passenger compartment is maintained and protected. It is therefore a misconception that if a vehicle is badly damaged, airbags ought to have deployed.

Our disputes team comprised Lead Partner – Sidharth Sethi and Senior Associate – Avinash Das.

Tags JSA, Leading Law Firm, Leading Lawyers, Manufacturing

JSA Prism | Dispute Resolution | September 2024

Please click here to download the Prism as a PDF.

Pre-litigation mediation under Section 12A of the Commercial Courts Act, 2015 is mandatory to file a counterclaim in a commercial suit

The single bench of the Hon’ble High Court of Delhi (“Delhi High Court”) in Aditya Birla Fashion and Retail Limited vs. Saroj Tandon[1] has held that pre-litigation mediation under Section 12A of the Commercial Courts Act, 2015 (“Commercial Courts Act”) is a mandatory requirement, even in respect of counterclaims in a commercial dispute.

Brief facts

Saroj Tandon (“Respondent”) owned a shop which was leased to Aditya Birla Fashion and Retail Limited (“Petitioner”). Owing to the COVID-19 pandemic, the Petitioner was constrained to close its business operation from the leased shop and issued a notice terminating the lease while demanding a refund of its security deposit. The Respondent failed to refund the security deposit. Accordingly, the Petitioner considered filing a suit against the Respondent seeking recovery of the security deposit.

Prior to instituting a suit, the Petitioner filed an application in terms of Section 12A of the Commercial Courts Act for pre-institution mediation and settlement. Despite due service of the notice of summons, the Respondent failed to appear and the process of mediation was declared a non-starter. Consequently, a commercial suit was filed by the Petitioner.

After the institution of the suit, the Respondent filed its written statement and counter claims for recovering rentals from the Petitioner. Considering that the Respondent’s counter claims involved a commercial dispute, a commercial suit was registered. No urgent relief was contemplated in respect of the Respondent’s counter claims.

Given that the Respondent had failed to invoke pre-institution mediation prior to lodging its counter claims, the Petitioner filed an application for rejection of the counter claims under Order VII Rule 11 of the Code of Civil Procedure, 1908 (“Code”). However, the Petitioner’s application was rejected by the Ld. Trial Court on the ground that the process for pre-institution mediation under Section 12A of the Commercial Courts Act was not mandatory for counterclaims. In these circumstances, the Petitioner filed a petition under Article 227 of the Constitution of India.

Issue

Whether recourse to pre-institution mediation under Section 12A of the Commercial Courts Act is obligatory for filing counterclaims in commercial disputes when no urgent relief is contemplated?

Analysis and findings

The single bench of the Delhi High Court dismissed the petition and inter alia observed as follows:

the Commercial Courts Act and the Code do not contain any provision providing different treatment for counterclaims. A counterclaim is a suit in its individual and distinct capacity. Once counterclaims are lodged, it must be treated as a regular suit for all practical and procedural purposes. Like any other commercial suit, the counterclaims in a commercial dispute must go through all stipulated rigours scrupulously as may be prescribed for any general commercial suit;
as per Rule 2(g) of the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018 (“Rules”), an opposite party means a party against whom relief is sought in a commercial dispute. The scheme of the Rules is not to oust the requirement of pre-institution mediation and settlement for any party. Consequently, an opposite party in respect of a counterclaim has a legal right to participate in mediation prior to the institution of counterclaims;
the process of pre-institution mediation is mandatory for every suit including a commercial suit and no distinction can be drawn when it comes to a counter claim involving a commercial dispute which does not contemplate any urgent relief;
the objective behind the pre-institution mediation is a benevolent one and it does not frustrate speed trial at all. To the contrary, it aims and visualises a situation where there may not be institution of any fresh case, once the matter is settled through such pre-institution mediation. Thus, attempting to settle disputes through mediation cannot be labelled a futile exercise;
merely because the defendant in a suit did not participate in settling the matter does not ipso facto mean that such defendant is not bound by the mandate of law. It would be incorrect for the defendant to presume that the plaintiff may also not participate in such process. The state of mind of any such party cannot be decoded mechanically;
the fact that the same parties had already participated or had opportunity to participate in the pre-institution mediation would not render Section 12A of the Commercial Courts Act a nugatory in the context of any such counterclaim, not contemplating any urgent relief; and
in Patil Automation Private Limited vs. Rakheja Engineers Private Limited[2], the Supreme Court of India has held:
- that recourse to Section 12A of the Commercial Courts Act is mandatory in nature and non-compliance thereof would entail rejection of the plaint under Order VII Rule 11 of the Code; and
- the cut-off date for rejection of plaints filed in non-compliance of Section 12A of the Commercial Courts Act is August 20, 2022. Any such plaint filed in violation of Section 12A of the Commercial Courts Act after the jurisdictional High Court has declared Section 12A of the Commercial Courts Act to be mandatory would disentitle the plaintiff from seeking any relief.

In the facts of the above case and the observations made, given that the counterclaim was filed on February 21, 2022 (before the cut-off date of August 20, 2022), the Delhi High Court allowed the Respondent’s counterclaim. However, the Delhi High Court held that Section 12A of the Commercial Courts Act is not only mandatorily applicable to suits but also to counterclaims.

Conclusion

Pursuant to this judgement, a defendant in a suit under the Commercial Courts Act, 2015 who seeks to raise a counterclaim is mandatorily required to initiate pre-litigation mediation under Section 12A of the Commercial Courts Act, 2015 when it raises a counterclaim. The judgement clarifies that a defendant raising a counterclaim in a commercial suit is required to exhaust the remedy of pre-institution mediation so long as no urgent relief is contemplated. This decision promotes a comprehensive and holistic pro-mediation approach prior to initiating long drawn court proceedings.

This Prism is prepared by:

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[1] 2024 SCC OnLine Del 6099

[2] 2022 SCC OnLine SC 1028

Tags Dispute Resolution, JSA, JSA Prism, Leading Law Firm, Leading Lawyers, Legal Updates, Litigation

JSA Prism | Dispute Resolution | September 2024

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The Madras High Court clarifies the law on presentation, stamping and registration requirements of a sale certificate issued by the authorised officer under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

The Madras High Court (“Madras HC”) in its recent judgement in M/s. Sri Balaji Fibre vs. The Inspector General of Registration and Ors.[1], has held that, no stamp duty in terms of the Indian Stamp Act, 1899 (“Stamp Act”) or registration fee, as per the Registration Act, 1908 (“Registration Act”), is payable when a sale certificate issued under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) is forwarded by the authorized officer to the registering authorities, for filing as required under the Registration Act ; and the requirement of payment of stamp duty and registration fee would arise only when the person in whose favour the sale certificate is issued, voluntarily presents the sale certificate for registration or when the sale certificate is used to establish right/title over the property, in any proceedings. This judgement of the Madras HC is significant since it consolidates and clarifies the law on the presentation, stamping and registration requirements of a sale certificate issued by an authorized officer under the SARFAESI Act.

Brief facts

The petitioners were the purchasers of properties sold in public auction conducted by various authorised officers of the secured creditors under the SARFAESI Act and sale certificates were issued in their favour. When copies of the sale certificates were forwarded to the jurisdictional registering authorities by the authorised officers, the registering authorities demanded payment of stamp duty and registration fee, as applicable for conveyance, as a precondition for filing the sale certificate as required under Section 89(4) of the Registration Act. In another set of cases, when the sale certificates were presented for registration by the persons in whose favour they were issued, the registering authorities treated the transaction as undervalued and demanded stamp duty and registration fee on the market value of the underlying properties and/or referred the sale certificate under Section 47-A of the Stamp Act for ascertaining market value of the property and consequential orders were passed for payment of deficit stamp duty. The Registration Department’s stand was that the sale certificate issued under SARFAESI Act is a sale inter vivos, hence it is an instrument required to be stamped as conveyance and is compulsorily registrable as the authorised officer is neither a civil nor revenue officer as per Section 17(2)(xii) of the Registration Act. Writ petitions were filed before the Madras HC challenging the actions of the registration department.

Decision of the High Court

The Madras HC dealt with various judicial precedents on the subject matters and held as under:

Authorised officer as civil or revenue officer: The Madras HC relied on the judgment of the Supreme Court in Shanti Devi L. Singh v. Tax Recovery officer[2], and held that the term ‘revenue officer’ used under Section 89 of the Registration Act must be liberally construed to include persons effecting compulsory sale for recovery of dues in terms of a statute. The Court, considering the nature of powers exercised by an authorized officer under the SARFAESI Act, held that the authorized officer will be a revenue officer under Section 89 of the Registration Act.
Sale certificate is not compulsorily registrable: The Madras HC clarified that since the authorised officer is a revenue officer under the Registration Act, in terms of Section 17(2) of the Registration Act, the sale certificate does not require registration, when it is forwarded by the authorized officer, in terms of section 89(4) of the Registration Act. Considering that the Transfer of Property Act, 1882 applies only to transfer by act of parties[3] and that a sale under the SARFAESI Act is an involuntary transfer by operation of law, Madras HC clarified that the provisions of the Transfer of Property Act, 1882 requiring mandatory registration for transfers involving value above INR 100 (Indian Rupees one hundred), does not apply to the sale certificate issued under the SARFAESI Act.
Sale certificate is not an instrument of conveyance: The Madras HC clarified that the transfer and vesting of title to the immovable property in favour of the auction purchaser takes place, when the sale is confirmed by the authorised officer. A sale certificate issued by the authorised officer merely records and evidences the sale.[4] Therefore, the sale certificate is not an instrument of conveyance.
Stamping of sale certificates: The Madras HC held that the sale certificates will have to be compulsorily stamped in terms of Article 18 of Schedule 1 to the Stamp Act and not as per Article 23 dealing with conveyances. In case the sale certificates are not stamped, the same will not be admissible in evidence as per Section 35 of the Stamp Act; any authority or court before whom a sale certificate is submitted for any purpose, can impound it and refer it for assessment of duty; and the person relying on the certificate will have to pay the stamp duty and penalty, as applicable.
Sale price mentioned in the sale certificate alone to be considered: The Madras HC clarified that the sale price mentioned in the sale certificate alone will have to be considered for the purpose of calculating the stamp duty; and the registration department cannot treat the transaction as undervalued and exercise powers under Section 47A of the Stamp Act.
Recording of sale certificate forwarded by the authorised officer: The Madras HC relied on judgments of the Supreme Court[5] and held that, upon receipt of the copy of the sale certificate forwarded by the authorised officer in terms of Section 89(4) of the Registration Act, the jurisdictional sub-registrars are required to record the details in Book I as per the Registration Act, subject to receipt of filing fees; and for this purpose, they cannot insist on payment of stamp duty or registration fee as payable on conveyances or sale certificates.

Based on the above, the Madras HC passed suitable orders in each of the writ petitions directing the registration department to refund excess duties paid by the purchaser; register the sale certificates presented by the parties on payment of requisite stamp duty and registration fee; reduced the penalty levied; and quashed the proceedings initiated to ascertain the market value of the properties; and directed the registration department to release the impounded documents.

Conclusion

The judgement consolidates and clarifies the position of law on stamping and registration requirements for a sale certificate issued by the authorized officer under the SARFAESI Act. There were conflicting judgements of the Madras HC on these issues including, scope of the term ‘revenue officer’ under the Registration Act, powers of the registration department to ascertain the market value of the property covered under the sale certificate, levy of transfer duty on a sale certificate, etc. This judgement resolves such conflicting views and consolidates the position of law on the subject. There have been instances where the registration department has taken a stand that the exemption available under the Registration Act applies only to the sale certificates issued by nationalised banks. This judgement has clarified that the exemption is applicable to sale certificates issued by an authorized officer under the SARFAESI Act, irrespective of whether the secured creditor is a nationalised bank or not. This judgement will assist auction purchasers who purchase properties under the SARFAESI Act.

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[1] Judgement dated July 23, 2024, in W.P. Nos. 415, 3696, 23276 & 22555 of 2023 and W.M.P.Nos.3791, 22815, 22816 and 22817 of 2023; and W.P. Nos. 859, 6807, 6808, 6810, 9728, 9886, 10285, 10454, 11503, 12097, 12742, 12788, 15704, 16520, 16911, 17613, 18044 and 17205 of 2024.

[2] (1990) 3 SCC 605.

[3] Relied on Bharat Petroleum Corporation vs. P. Kesavan and Anr [(2004) 9 SCC 77].

[4] Relied on B. Arvind Kumar vs. Govt of India [(2007) 5 SCC 745]; and K. Chidambara Manickam vs. Shakeena [(2007) 6 MLJ 488].

[5] Esjaypee Impex Private Limited vs. Assistant General Manager and Authorised Officer, Canara Bank [2021 (11) SCC 537]; Inspector General of Registration and Anr vs. Madhurambal [2022 SCC OnLine SC 2079].