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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).
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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.
Please click here to download the Prism as a PDF.
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:
Brief facts
Issues
The Supreme Court adjudicated on the following issues:
Findings of the Supreme Court
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 |
Shreya Sircar |
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
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.
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:
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.
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:
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Varghese Thomas |
Hormuz Mehta |
Ahsan Allana |
[1] W.P.No.25631 of 2024
[2] Power of police officer to seize certain property
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:
The session was moderated by Hon’ble Mr. Justice (Retd.) AK Sikri, Former Judge, Supreme Court of India.
Please click here to download the Prism as a PDF.
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:
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:
The Supreme Court also dealt with the rationale provided by the Calcutta HC in the following manner:
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:
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Dheeraj Nair |
Divyam Agarwal |
Vishrutyi Sahni |
Aniket Aggarwal |
[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
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:
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.
Please click here to download the Prism as a PDF.
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:
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:
Farhad Sorabjee |
Pratik Pawar |
Shanaya Cyrus Irani |
For more details, please contact [email protected]
[1] 2024 SCC OnLine Del 6099
[2] 2022 SCC OnLine SC 1028
Please click here to download the Prism as a PDF.
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:
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.
This Prism is prepared by:
Vinod Kumar |
Srinivasan M.D |
Dharaniya Sri K.M |
For more details, please contact [email protected].
[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].
JSA successfully advised and represented Jayant Agro-Organics Limited (“Jayant Agro”) and Jayant Finvest Limited (“Jayant Finvest”) in a scheme of merger by absorption wherein the holding company – Jayant Finvest was merged into its subsidiary – Jayant Agro, which is listed on the BSE and NSE. The petition for sanction of the scheme was heavily contested by the Income Tax Authority (“ITA”) on the grounds that the scheme falls under the Impermissible Avoidance Agreement (IAA) under Section 96 of the Income Tax Act, 1961. After considering the objections of ITA and our submissions, the NCLT sanctioned the scheme of merger.
The ITA had objected to the sanction of the scheme on the grounds that the scheme was nothing but a mechanism to avoid tax. This was defended on the basis that once the Scheme is found to be not violative of any law and not contrary to public policy, the NCLT will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who have given their approval.
On this basis, the NCLT whilst sanctioning the scheme held that the Scheme is permissible under Section 230 of the Companies Act and squarely falls under the provisions of Section 2(1)B of the Income Tax Act which may result in exemption of income tax in the hands of Jayant Finvest, Jayant Agro and their respective shareholders.
Our Transaction Team Comprised Lead Partner – Varghese Thomas and Vikram Raghani, Of Counsel – Saeeda Bandukwala, Senior Associate – Ahsan Allana.
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