MULTIPLE REFERENCES IN ONE CONTRACT

MULTIPLE REFERENCES IN ONE CONTRACT

Abhishek Kumar Abhishek Kumar & Siddharth Pandey


21/09/2020

As Arbitration is gaining popularity as preferred mode of alternative dispute resolution mechanism, it has been observed that in commercial contracts, parties refer their disputes to arbitration at different stages of such contracts, by way of separate references. The nature of contracts is such where parties are not required to wait for completion of contractual period, for referring all their disputes to arbitration in one go and the same can be referred even during the currency of such contracts as and when such disputes arise.

 

In another words, parties are free to invoke arbitration agreement more than once by way of separate references at different points of time, though arising out of the same contract. The above, however, may lead to multiplicity of arbitration proceedings before different arbitral tribunals, which may result into conflicting findings on contractual as well as legal provisions. Besides, sometimes, it may not be feasible and effective to invoke multiple arbitrations. In this respect, two recent judgments passed by the Hon’ble High Court of Delhi, will be helpful to understand the web of issues entangled around multiple arbitration proceedings, arising out of a single commercial contract or series of contracts forming a single commercial transaction between the parties.

 

GAMMON INDIA LTD. V/S NATIONAL HIGHWAYS AUTHORITY OF INDIA

The Hon’ble High Court of Delhi, in the case of Gammon India Ltd. vs. National Highways Authority of India[1] (“Gammon India”), has extensively dealt with the aspect of the multiplicity of the arbitral proceedings i.e. multiple invocations, multiple references, multiple Arbitral Tribunals, multiple Awards and multiple challenges, between the same parties, in respect of the same contract or the same series of contracts.

 

The brief facts of abovementioned case are that a contract was executed between Gammon-Atlanta JV and National Highways Authority of India (“NHAI”) on 23.12.2000 for the work of widening and strengthening of existing 2 lane carriageway of NH-5 in the State of Orissa. The date of commencement of project was 15.01.2001 and the total duration of the project was 36 months. The project could not be completed within the scheduled completion date i.e. 14.01.2004, and hence, extensions were granted to the Contractor time to time. However, disputes arose between the parties and three separate arbitrations were invoked by the Contractor, raising various claims, some of which were also overlapping. Consequently, three separate arbitral tribunals were constituted for the purpose of adjudication of disputes between the parties, and subsequently, three separate arbitral awards were passed. While two arbitral awards attained finality after challenge to the same came to an end, the third one was pending for consideration before the Hon’ble Court in the above matter. The Contractor was seeking to set aside the award in the above matter on the basis of findings of the arbitral tribunal arrived at in one of the two awards, which had already attained finality. The question before the Court, therefore, was that whether such argument by the Contractor, was sustainable in law.

 

FINDINGS OF THE COURT

The Court, after dealing with the rival contentions, refused to set aside the Award in question and held that no interference of the Court was required in the matter. The Court rejected Contractor’s submissions that the findings in another Award be relied upon for setting aside the Award in question. The Court while relying upon the judgment of Vijay Karia vs. Prysmian Cavil E. Systemic SRL[2] passed by Hon’ble Supreme Court of India, held that the Award would have to be tested as on the date when it was pronounced, on its own merits, and not on the basis of findings which had been rendered by another Arbitral Tribunal. The Court while interpreting Sections 7, 8 and 21 of the Act, reiterated the settled law that if a dispute is arbitrable, a second reference can be made and the same is legally tenable. It was further held that the commencement of proceedings under Section 21 of the Act, would be different qua each of the disputes, and hence, there can be multiple claims, multiple reference and multiple arbitrations at different stages of a contract.

 

The Court taking note of the legal position that an arbitral proceeding is not strictly governed by the Code of Civil Procedure, 1908(“CPC”), concluded that it was possible for the parties to invoke multiple arbitrations in one contract, unlike a civil suit being filed under CPC. However, while concluding the above, the Court also observed that multiple arbitrations before different Arbitral Tribunals in respect of the same contract is bound to lead to confusion and the same would set the entire arbitration process at naught. Such situation would defeat the very purpose of legislature in making arbitration an expeditious and cost effective remedy. The Court, further observed that in a construction contract, irrespective of the quantum and nature of the claims, the underlying disputes relating to breach, delays, termination, etc. would form the core of the disputes in almost all the claims arising out of such contract. Therefore, a situation may arise where multiple Arbitral Tribunals parallelly adjudicate different claims arising out of the same contract, especially overlapping issues. The Court held that such situations must be avoided.

 

The Court, while referring to the judgment of Hon’ble Supreme Court of India in case titled as Dolphin Drilling Ltd. vs. ONGC[3], held that, if disputes had arisen and arbitration clause was to be invoked at different stages under a contract, then the party invoking arbitration ought to raise all the claims that had already arisen on the date of invocation of arbitration. However, if any dispute was not raised, no separate reference could be brought for such dispute, as the principle of Order II Rule 2 of CPC is applicable to an arbitration proceeding as well, which bars raising any such dispute.

The Court further held that in cases where an Arbitral Tribunal was already constituted for adjudication of a particular dispute arising out of a contract or series of contracts forming a single legal transaction between the parties, any further dispute or claim that might arise between the parties, be ordinarily referred to the same Tribunal, instead of constituting a separate tribunal. In such cases, the Arbitral Tribunal may pronounce separate awards in respect of multiple references, however, since the constitution of the Tribunal would be the same, the possibility of contradictory and irreconcilable findings would be avoided.

 

The Hon’ble Court further proceeded to hold that parties while filing an application under Section 9, 11 or an application under Section 34 of the Act, should also disclose pendency of any other petition or application, relating to the same contract, so that all of them could be decided appropriately, preferably together, wherever possible in order to avoid any kind of confusion or legal infirmity. The ratio laid down in the above judgment is a much needed reform in today’s scenario, where multiple arbitrations arising out of same contract is a very common sight.

 

The focus of the Hon’ble Court in the above judgment is that parties should avoid constituting separate arbitral tribunals for adjudicating upon the disputes arising out of same contract, as the said situation will only lead to conflicting findings on the facts and contractual clauses involved in the matter, causing disruption to the administration of justice.

 

HERO WIND ENERGY PVT. LTD. V/S INOX RENEWABLES LTD.

The Division Bench of the Hon’ble High Court of Delhi, in the recent judgment of Hero Wind Energy Pvt. Ltd. vs. Inox Renewables Ltd.[4] (“Hero Wind”), inter alia has also touched upon another aspect of multiple references and multiple Arbitral Tribunals arising out of same contract.

 

The brief facts of the present case were that the Inox Group was engaged in the business of developing, constructing, operating and maintaining various wind energy projects across the country. They entered into three separate agreements with Hero for the following purpose:

 

  • A wrap agreement between Inox Group and Hero for sale of land for the wind farm in favour of Hero, supply of parts of wind turbine generators (“WTGs”) and erection & commissioning of the said WTGs. This agreement showed the entire transaction between the parties as one transaction;
  • Agreement for providing shared infrastructure for the shared services in the wind park, for evacuation of electricity and a right in favour of Hero to use the shared services;
  • Agreement for Operation & Maintenance (“O&M”) of wind farm and the WTGs installed there and Operation & Maintenance of shared infrastructure for shared services

 

In so far as third agreement was concerned, the part related to O&M of wind farm and WTGs was terminable, however, for the other part i.e. O&M of shared infrastructure for shared services, parties were required to enter into an agreement for O&M charges to be paid by Hero to Inox Group for shared infrastructure for shared services post termination of first part. The commissioning of the aforesaid project was completed, however, during the O&M period certain disputes arose between the parties. Subsequently, Hero invoked the arbitration clause contained in the agreement and an arbitral tribunal was constituted for deciding upon the disputes, which arose between the parties. During the pendency of the abovementioned arbitration, Hero proceeded to terminate the first part of the agreement i.e. O&M agreement for wind farm and WTGs. Faced with termination, Inox Group stopped providing O&M services of shared infrastructure for shared services, which formed second part of third agreement. Hero, feeling aggrieved by such action of Inox Group approached Delhi High Court under Section 9 of the Act, seeking an interim relief against Inox Group, praying that Inox Group should continue providing its O&M services of shared infrastructure for shared services.

 

The petition filed by Hero was rejected by the Single Judge of Delhi High Court on the ground that an arbitral tribunal was already in place, which was adjudicating upon some of the disputes between the parties and therefore, in terms of Section 9(3) of the Act, Court could not grant any interim relief. The Court further held that Hero should approach the arbitral tribunal under Section 17 of the Act for seeking any interim relief. Feeling aggrieved by the aforesaid order of Single Judge, Hero challenged the same before the Division Bench of Delhi High Court.

 

FINDINGS OF THE COURT

The Division Bench while dealing with the judgment of Single Judge framed the following question of law:

 

“if an Arbitral Tribunal has already been constituted to adjudicate the disputes which have arisen out of an agreement or set of agreements containing an arbitration clause, whether the remedy of approaching the Court for interim measure with respect to disputes subsequently arising from the same agreement or set of agreement is barred by Section 9(3) of the Act.”

 

The Court while discussing the above question of law, firstly concluded that use of words ‘arbitral proceedings in respect of a particular dispute’ in Section 21 of the Act, was clearly indicative of the legal position that there could be separate Arbitral Tribunals with respect to successive disputes which might arise between the same parties, out of the same agreement or set of agreements. The Court thereafter proceeded to interpret Section 9(3) of the Act and held that the Arbitral Tribunal constituted with reference to the disputes which had earlier arisen, cannot be the Arbitral Tribunal within the meaning of Section 9(3) of the Act, for the disputes which had arisen subsequently, though under the same contract. The Court observed that the above principle holds good even when the composition of the Arbitral Tribunal is same for separate references under one contract.

 

In the aforesaid circumstances, the Division Bench held that the arbitral tribunal constituted for the adjudication of the first set of disputes could not be said to be the arbitral tribunal for subsequent disputes raised by Hero. The Division Bench, therefore, found the appeal of Hero maintainable on merits and set aside the order passed by the Single Judge. The Court thereafter proceeded to grant the interim relief sought by Hero in its Section 9 petition, as no arbitral tribunal in respect of disputes involved in Section 9 petition was constituted as on date of filing of petition.

 

CONCLUSION

Gammon India judgment passed by Hon’ble High Court of Delhi is a pragmatic and farsighted approach shown by the Court, which will benefit the arbitration law enormously. Reference of subsequent disputes to the same Arbitral Tribunal, which is existing at the time of such reference, shall not only reduce the duplicity of the proceedings and be cost effective but will also enable the tribunal to take a wholesome approach while deciding various disputes some of which may be inter linked.

 

The second judgment of Hero Wind settles the issue of applicability of Section 9(3) of the Act to subsequent Arbitral Tribunals constituted pursuant to subsequent references in the same contract. As seen from above, a party may approach the Court under Section 9 seeking interim measures for subsequent causes of action, irrespective of existence of an arbitral tribunal, constituted for earlier disputes based on different causes of action.

 

It is therefore, essential that the guidelines issued by the Court in above two cases  are strictly adhered to by the parties so that alternative dispute resolution becomes truly alternative and efficacious remedy.

 

 

[1] MANU/DE/1284/2020; OMP (COMM.) No. 392/2020 decided on 23.06.2020

[2] Vijay Karia vs. Prysmian Cavil E. Systemic SRL [Civil Appeal No. 1544 of 2020 decided on 13.02.2020]

[3] AIR 2010 SC 1296; (2010) 3 SCC 267

[4] MANU/DE/1349/2020; FAO(OS)(COMM.) No. 60/2020 decided on 07.07.2020

INSOLVENCY AND BANKRUPTCY CODE (AMENDMENT) ACT, 2020:  A STEP FORWARD

INSOLVENCY AND BANKRUPTCY CODE (AMENDMENT) ACT, 2020: A STEP FORWARD

Abhishek Kumar Abhishek Kumar & Siddharth Pandey


27/04/2020

 

INTRODUCTION:

The Insolvency and Bankruptcy Code, 2016 (‘Code’) was enacted by the Parliament with the aim to provide and revamp the framework for insolvency resolution in India in a time bound manner and for the promotion of entrepreneurship, credit availability and balancing of different interests of each and every stakeholder of a Company.

 

The Code has been amended time to time since its enactment to remove bottlenecks and to streamline the Corporate Insolvency Resolution Process (“CIRP”) under the Code. In December, 2019, the legislature introduced “The Insolvency and Bankruptcy Code (Amendment) Bill, 2019, however, the same could not be passed during the then parliament session and was implemented by way of an ordinance w.e.f. 28.12.2019. In 2020, the parliament passed the Insolvency and Bankruptcy Code (Amendment) Act, 2020 [No. 1 of 2020] (‘Amendment Act’) and it received President’s assent on March 13, 2020. As per Section 1 (2) of the Amendment Act, the amendments deemed to have come in force on December 28, 2019. The Amendment Act has amended Sections 5, 7, 11, 14, 16, 21, 23, 29A, 32A, 227, 239 and 240 of the Code.

 

This Article highlights the amendments introduced to the aforesaid provisions of the Code, in order to understand the current position of law relating to insolvency in India.

 

HIGHLIGHTS OF THE AMENDMENT ACT:

 

A.  SECTION 5

 

The Amendment Act has introduced the following two amendments in Section 5 of the Code:

 

(i)    proviso to Clause 12 of Section 5 of the Code has been omitted, which means that now the ‘insolvency commencement date’ shall be the date on which the application filed either under Section 7, 9 or 10 of the Code, for initiating the CIRP against any corporate debtor has been admitted by the Adjudicating Authority, irrespective of the fact whether an Insolvency Resolution Professional is appointed on such date or not. Earlier, the insolvency commencement date was the date on which Interim Resolution Professional (“IRP”) used to be appointed by the Adjudicating Authority. The amendment shall certainly expedite the entire process of CIRP under the Code.

 

(ii)     In Clause 15, at the end, the words “…and such other debt as may be notified” have been inserted, which intends to include any other debt as “interim finance”, if so notified, in addition to the one, which may be raised by the resolution professional during CIRP.

 

B.  SECTION 7

The Amendment Act has also amended Section 7 of the Code thereby inserting three provisos in sub-section (1) of Section 7, right before the Explanation. Section 7(1) of the Code provides that a financial creditor either itself or jointly with other financial creditors, may file an application before NCLT when a default has occurred. The amendments made herein provide a minimum threshold for certain class of financial creditors to enable them to maintain insolvency proceeding under the Code. The three provisos introduced are as under:

 

  • As per the first proviso, an application for initiating CIRP against a Corporate Debtor by the financial creditors referred under sub-section (6A) of Section 21, can now only be filed jointly by (a) not less than 100 of such creditors in the same class, or (b) not less than 10% of the total number of such creditors in the same class, whichever is less. The necessary consequence of the insertion of aforesaid proviso is that now a creditor falling under sub-section (6A) of Section 21 of the Code, will not be able to maintain an application for insolvency against a corporate debtor individually.
  • The second proviso inserted in Section 7(1), puts a similar condition on the financial creditors, who are allottees under a real estate project. It provides that an application for initiating CIRP against a corporate debtor shall only be filed jointly by (a) not less than 100 of such allottees under the same real estate project, or (b) not less than 10% of the total number of such allottees under the same real estate project, whichever is less. Again, the purpose of inserting the second proviso is same as above, i.e. to prevent individual allottees from initiating the CIRP against real estate developers.
  • The third proviso inserted in Section 7(1) of the Code relates to pending applications, which have not been admitted by respective NCLTs, as on date of introduction of abovementioned provisos. This proviso makes it mandatory for the Applicants to modify their applications suitably, to fulfill the requirements contained in 1st and 2nd proviso within 30 days of the commencement of the Amendment Act i.e. within 30 days from 28.12.2019, failing which such applications shall be deemed to be withdrawn.

 

C.  SECTION 11

Moving further, the legislature has inserted one more explanation as ‘Explanation II’ in Section 11 of the Code thereby clarifying that the restrictions provided in Section 11, shall not prevent a Corporate Debtor which is under insolvency, from initiating CIRP against its own Corporate Debtor. The unamended Section 11 prohibited a Corporate Debtor from initiating CIRP under certain circumstances, due to which a Corporate Debtor was not able to initiate CIRP against its own defaulting debtors/borrowers. The legislature, by way of this amendment, has taken care of the above grievance, and has enabled various entities, who are already in CIRP, to initiate CIRP proceedings against the corporate defaulters, to recover their own dues.

 

The above amendment has clarified the ambiguity caused due to divergent views taken by various NCLTs in India regarding the interpretation of Section 11, particularly in respect of the issue whether a Corporate Debtor, against whom CIRP was pending could initiate CIRP against another Corporate Debtor in order to recover its outstanding debts. In this regard reference is invited to the view taken by the NCLT Mumbai in the matter of Jai Ambe Enterprise vs S.N. Plumbings Pvt. Ltd. (CP 1268/I&BC/NCLT/MB/MAH/2017), whereby it was held that, “…it is one of the duties of the RP to recover the outstanding debts of a Corporate Debtor against whom CIRP is already in progress and it is a right course of action for managing the affairs of the financially stressed company.” The amendment is in line with the interpretation adopted by Mumbai NCLT.

 

D.  SECTION 14

The Amendment Act has further introduced amendments in Section 14 of the Code, which provides for declaration of moratorium by the Adjudicating Authority during the pendency of CIRP. The amendments are as follows:

 

  • an explanation has been inserted in sub-section (1) of Section 14 of the Code, thereby explaining that any license, permit, registration, quota, concession, clearance or any other similar grant issued by the Central Government, State Government, local authority or any other statutory authority, in favour of a corporate debtor, shall not be suspended or terminated on the ground of insolvency, during the moratorium period. However, such protection has been granted subject to the condition that there should not be any default in payment of current dues, arising out of use or continuation of such license or similar grant or right, by the Corporate Debtor during the moratorium period.
  • Further a new sub-section (2A) has also been inserted, which provides that any supply of goods or services, which the IRP or RP, considers critical for protecting and preserving the value of the Corporate Debtor and for managing the operations of Corporate Debtor as a going concern, shall not be terminated, suspended or interrupted during the period of moratorium, provided there is no default in payment by the Corporate Debtor, of dues arising from such supply during the moratorium period or such other circumstance, which may be so notified.

 

The aforesaid amendment has been brought to run the operation of a corporate debtor without any obstacles or hindrances so as to maintain its status as a going concern. Further the purpose of such amendment is to protect such entities which are capable of being revived, however, suffer during the moratorium period due to the initiation and pendency of CIRP against them, where a supplier or service provider becomes apprehensive of any further dealing with such entities.

 

  • The Legislature has further substituted the entire sub-section (3)(a) of Section 14 of the Code, which now provides that the provisions of sub-section (1) of Section 14 shall not apply to such transactions, agreements or other arrangements, which may be notified by the Central Government in consultation with any financial sector regulator or any other authority. The scope of sub-section 3(a) has been expanded by adding the words ‘agreements’ and ‘other arrangements’, in addition to transactions. The scope has further been enhanced by adding the words “any other authority”, which was earlier restricted to “financial sector regulator” only.

 

E.  SECTION 16

The Amendment Act has amended Section 16 of the Code as well, thereby providing that the IRP shall be appointed on the insolvency commencement date itself instead of 14 days’ period provided earlier for such appointment. The said amendment shall no doubt, expedite the process of CIRP.

 

F. SECTION 21

An amendment has also been introduced in Section 21 of the Code, whereby in the 2nd proviso of sub-section (2) of Section 21, the words “or completion of such transactions as may be prescribed” has been inserted after the words “convertible into equity shares”. The consequence of aforesaid amendment is that now first proviso of Section 21(2) shall not apply also to such financial creditors who are related to a Corporate Debtor on account of such completed transactions, which may be prescribed by the Central Government under Section 239(2)(fa) of the Code, prior to the insolvency commencement date. The above amendment has empowered the Central Govt. to prescribe any other completed transaction, while determining whether a financial creditor is a related party of the Corporate Debtor or not.

 

G.  SECTION 23

Section 23 of the Code has also been amended, wherein the proviso to Section 23(1) has been completely substituted. The new proviso now empowers the Resolution Professional to continue to manage the operations of a Corporate Debtor even after the expiry of prescribed period of CIRP, and till the time when the Adjudicating Authority by an order approves the resolution plan under Section 31(1) or appoints a liquidator under Section 34 of the Code. Such amendment has taken care of a grey area in the Code, as to who should be in control of the affairs of a Corporate Debtor after the period prescribed under the Code for completion of CIRP has expired and the matter is still pending adjudication before the Adjudicating Authority. It certainly resolves some practical difficulties being faced by Resolution Professionals as well as the Corporate Debtors/ COC.

 

H.  SECTION 29A

Furthermore, the Amendment Act has amended the respective ‘Explanation I’ as provided in clauses (c) and (j) of Section 29A of the Code. In both the aforesaid explanations, after the words “convertible into equity shares”, the words “or completion of such transactions as may be prescribed” have been inserted. Section 29A of the Code provides for the persons, who are not eligible to be resolution applicants. The consequence of aforesaid amendments is that now Central Govt. is empowered to prescribe any such completed transaction, for determining the eligibility of any person to be a resolution applicant, in addition to the restrictions/ prohibitions/ criteria, already specified in Section 29A of the Code.

 

I.  SECTION 32

The Amendment Act has inserted a whole new section after Section 32 of the Code as Section 32A. The said section has been inserted, inter alia, to provide security and immunity to the Corporate Debtor and its new management/ officials, as well as its properties, from the offences committed by the Corporate Debtor prior to the commencement of the CIRP, once the resolution plan is approved by the Adjudicating Authority. While Section 32A(1) protects the new management/ officials, Section 32A(2), protects the properties of the Corporate Debtor, which were part of the resolution plan. The protection is provided to the following persons under Section 32A:

  • a person, who was neither a promoter or in the management or control of the Corporate Debtor or was related to such person;
  • a person, who in the opinion of an investigating authority was not involved in the abetment, conspiracy for commission of an offence by the Corporate Debtor and had filed a complaint with the concerned authority or court;

 

The 1st proviso attached to Section 32A(1), also provides that subject to fulfillment of requirements provided in this sub-section, the Corporate Debtor shall stand discharged automatically from the date of approval of the resolution plan from any prosecution, which was initiated during the CIRP.

 

Further, the 2nd proviso to Section 32A(1) provides that a person being a “designated partner”, in terms of LLP Act, 2008, or an “officer who is in default”, in terms of Companies Act, 2013, or was involved in any manner in day to day conduct of company’s business, shall continue to be liable to be prosecuted and be punished for such offence committed by the Corporate Debtor, despite the fact that no liability shall be fastened upon the Corporate Debtor.

 

The ‘Explanation’ to Section 32A(2) clarifies that an action in relation to a property shall include attachment, seizure, retention or confiscation of such property. It is further provided that, the provisions of Section 32A(2) shall not be a bar against initiating action against property of any other person, who is neither the corporate debtor nor a person who acquired such property through CIRP or liquidation process, and who fulfills the two conditions stipulated in Section 32A.

 

Sub-section (3) to Section 32A, further cast an obligation on the Corporate Debtor to extend its assistance in investigation of an offence committed prior to commencement of CIRP.

 

The effect and impact of this amendment is far reaching and benevolent in nature, in so far as it protects the new management and its officials from unnecessary harassment and litigation, which new management used to face after taking over the Corporate Debtor. The scope and ambit of Section 32A came to be discussed by the Hon’ble Company Law Appellate Tribunal, recently, in the matter of JSW Steel Ltd. vs Mahender Kumar Khandelwal & Ors. [Company Appeal (AT)(Insolvency) No. 957 of 2019], whereby citing Section 32A, the Appellant i.e. JSW Steel Ltd. was granted protection from attachment of the properties of Bhushan Power & Steel Ltd. which JSW became owner after being the successful Resolution Applicant. The officials of JSW were also granted protection citing Section 32A(1)(b).

 

J.  SECTION 227

The Amendment Act has further introduced an amendment in Section 227 of the Code, thereby replacing the words “examined in this Code” with the words “contained in this Code”. It is clearly evident that the above amendment has been made to provide certainty to the provisions of the Code and to remove the ambiguity in the Section.

 

Further, an Explanation has also been inserted in Section 227, providing that the insolvency and liquidation proceedings for notified financial service providers or their categories may be conducted with some modifications and in such manner as may be prescribed by the Central Government. The said explanation has been added to provide teeth to the Central Govt. to suggest modifications in the insolvency process to be followed in an insolvency proceedings, which may be initiated against a financial service provider, which otherwise could be carried out in the same manner under the Code as that of any other entity.

 

K.  SECTION 239

Section 239 of the Code has also been amended, whereby in sub-section (2), three more clauses have been inserted after clause (f) being (fa), (fb) and (fc). The above amendment has been carried out to empower the Central Government, to make rules in respect of transactions introduced in 2nd proviso of Section 21(2), Explanation-I of Section 29A(c) and 2nd proviso of Section 29A(j) by amending the said provisions under the Amendment Act.

 

L.  SECTION 240

Lastly Section 240 of the Code has been amended, whereby clause (ia) has been inserted in Section 240(2). The said amendment now provides that the Board may now make regulations in respect of circumstances under which supply of critical goods or services can be terminated or suspended during the moratorium period pursuant to Section 14(2A) of the Code.

 

CONCLUSION:

The Amendment Act has endeavored to remove various bottlenecks and practical difficulties being faced while implementing the provisions of the Code and has also attempted to streamline the Corporate Insolvency Resolution Process (“CIRP”). The highlight of amendments are:

 

  • insolvency commencement date is now the date of admission of an application for initiating CIRP;
  • IRP to be appointed on the date of admission of application itself;
  • IRP shall continue to manage the affairs of a Corporate Debtor till the time the resolution plan is approved by the Adjudicating Authority or an order for liquidation of Corporate Debtor is passed;
  • a minimum threshold has been provided for the Financial Creditors falling under sub-section 6A of Section 21 and in respect of real estate allottees.
  • during moratorium there shall not be termination of any licence, concession, permit, quota, clearance or any other similar right during the moratorium period, unless the Corporate Debtor does not default in necessary payment;
  • protection from prosecution granted to new management/ officials for offences committed prior to commencement of CIRP;
  • protection granted in respect of properties of Corporate Debtor from attachment/ seizure/ retention etc. for the offences committed prior to commencement of CIRP

 

Although the Amendment Act has cleared many doubts which subsisted earlier and paved the way for the easy and speedy resolution process under the Code, however, has its own flaws which may not be ultimately beneficial to all the stakeholders. One of such instances is introduction of minimum threshold for a real estate allottee.

 

The minimum threshold now introduced, shall result in making the remedy provided under the Code to a real estate allottee, completely toothless, in as much as a real estate allottee is a person, who invested his hard earned money in buying a property and shall now feel harassed to find out 99 more buyers or 10% of the total number of buyers, before he could approach the Court for redressal of his grievances. Ultimately, this ought to have been kept in mind by the legislature that real estate allottees were included in the definition of ‘financial creditor’ after a huge number of defaults by real estate developers across the country. This legislation so brought was a welfare legislation, which has been diluted substantially to the grave prejudice of real estate allottees. As a matter of fact, the validity of this amendment was challenged before the Hon’ble Supreme Court of India and the Hon’ble Court has granted a status quo order in respect of pending matters. The final order is still awaited.

 

Having said that, undoubtedly the amendments brought in the Code by the Amendment Act, are a step forward towards the effective implementation of the Code and removing the hindrances in the way of its implementation.

SELECTION AND APPOINTMENT OF ARBITRATORS IN INDIA

SELECTION AND APPOINTMENT OF ARBITRATORS IN INDIA

Abhishek Kumar


21/06/2017  

The Arbitration and Conciliation (Amendment) Act, 2015 grants the liberty to the parties to appoint an arbitrator mutually.

The Act provides that the parties are free to determine the number of arbitrators, provided that such number shall not be an even number. However, if the parties fail to do so, the arbitral tribunal shall consist of a sole arbitrator.1

The procedure in relation to appointment of arbitrator(s) is provided under Section 11 of the Act. A person of any nationality may be an arbitrator, unless otherwise agreed by the parties. The aforesaid section also deals with the contingency wherein the parties fail to appoint an arbitrator mutually. In such a situation, the appointment shall be made, upon request of a party, by the Supreme Court or any person or institution designated by such Court, in the case of an International Commercial arbitration or by High Court or any person or institution designated by such Court, in case of a domestic arbitration.

Before the appointment of arbitrator is made, the concerned Court or the person or institution designated by such Court is required to seek a disclosure in writing from the prospective arbitrator in terms of Section 12(1) of the Act and also give due regard to any qualifications required for the arbitrator by the agreement of the parties and the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.

It may be noted that under Section 12(1) of the Act, an obligation has been cast upon the prospective arbitrator to make an express disclosure on (a) circumstances which are likely to give rise to justifiable doubts regarding his independence or impartiality; or (b) grounds which may affect his ability to complete the arbitration within 12 (twelve) months.

The purpose of this provision is to secure the appointment of an unbiased and impartial arbitrator.

Fifth Schedule to the Act (Annexure-A) contains a list of grounds giving rise to justifiable doubts as to the independence or impartiality of an arbitrator. The Seventh Schedule (Annexure-B) lays the grounds which make a person ineligible to be appointed as an arbitrator.

The Act provides that in an International Commercial Arbitration, an arbitrator of a nationality other than the nationalities of the parties may be appointed where the parties belong to different nationalities.

Expeditious disposal of application for appointment of an arbitrator(s) is emphasized by the Act and an endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party.

Footnote

1 Section 10 of the 2015 Act

INDIA: ARBITRATION & CONCILIATION (AMENDMENT) ACT, 2015: WHETHER APPLICABLE TO COURT PROCEEDINGS ARISING OUT OF PRE-EXISTING ARBITRATIONS

INDIA: ARBITRATION & CONCILIATION (AMENDMENT) ACT, 2015: WHETHER APPLICABLE TO COURT PROCEEDINGS ARISING OUT OF PRE-EXISTING ARBITRATIONS

Abhishek Kumar & Arushi Gupta


21/10/2016  

The Arbitration & Conciliation (Amendment) Act, 2015 (hereinafter known as “Amended Act“) has come into force w.e.f. 23.10.2015 whereby various amendments have been introduced in the Arbitration and Conciliation Act, 1996 (hereinafter known as “1996 Act”). The amendments have largely been lauded as an encouraging step towards making India an arbitration friendly nation and also towards making arbitration/ ADR a speedy, efficacious and cost-effective method of dispute resolution in India. Nonetheless, it has also brought to the fore certain ambiguities with respect to its application on various proceedings. The confusion regarding applicability of the Amended Act is especially noticed in court proceedings which were pending as on date when the Amended Act was notified and fresh court proceedings to be initiated immediately after the Amended Act came into force, arising out of arbitrations, invoked prior to Amended Act coming into force. The lack of clarity in this respect has led to various courts in India giving different interpretations as to the applicability of the amendments to such court proceedings as mentioned above. These conflicting judgments have given rise to further misconceptions regarding the applicability of Amended Act.

BACKGROUND:

The Law Commission1, to its credit, in the proposed Section 85(A), had attempted to create a clear distinction between fresh applications to the court for pending arbitrations and fresh arbitrations to be initiated after the amendments. It was clarified that, fresh applications to the court regarding arbitration matters would come under the purview of the Amended Act even if the arbitration proceedings had been initiated as per the unamended Act. However, this proposal was not incorporated by the legislature while approving and enacting the Amendment Act. Instead, Section 26 was inserted in the Amendment Act regarding the applicability of the amendments to the arbitration proceedings, which states the following:

Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act.”

Had the initial proposal been accepted, there would have been a uniform application of the Amended Act to all petitions/applications/ appeals either pending before the courts or to be filed, after the amendments came into effect. Having said that, there is no doubt that court proceedings arising out of such arbitrations which have commenced or will be commenced subsequent to the amendments coming into force i.e. on or after 23.10.2016, are unquestionably governed by the Amended Act. The lack of clarity is only with respect to applicability of the Amended Act to the court proceedings either pending or fresh in nature, which arose out of such arbitrations which were invoked prior to the Amended Act coming into force. The issue, therefore, which requires clarification, is that whether the provisions of the Amended Act, can be said to be applicable for the court proceedings either pending as on date when the Amended Act came into force or filed afresh, pursuant to the arbitrations invoked prior to the amendments coming into force i.e. before 23.10.2016. This article makes an attempt to deal with the above issue while discussing the conflicting judgments passed by various courts in India on the said issue.

CONFLICTING JUDGMENTS:

Not only there are conflicting judgments by High Courts of different States, but conflicting decisions even within the same high court. The Kolkata High Court was the first court that faced the question regarding the applicability of the provisions of the Amended Act to court proceedings arising out of such arbitrations which were initiated prior to amendments, based on the reading of the aforementioned Section 26 of Amendment Act. The Ld. Single Judge in the matter of Electrosteel Castings Limited vs Reacon Engineers (India) Private Ltd.2 held that the ‘repeal and savings clause of the Amendment Act of 2015 did not make applicable the amendment Act in case of arbitration which commenced before its enactment‘.

Since the subject arbitration commenced much prior to coming into force of the Amendment Act, nothing in it applies to the subject arbitration‘.

Subsequently, in the matter of Sri Tufan Chatterjee vs. Sri Rangan Dhar3, a division bench of Kolkata High Court held in contrast, while arriving at a conclusion that even pending court proceedings relating to such arbitration, which was pending as on date when the amendments were notified, must be governed by the Amended Act and not the unamended one. The Bombay High Court’s decision in the matter of Mahanagar Telephone Nigam v SRV Telecom4 was also congruent to the judgments of Sri Tufan (supra). However, it can be observed that while discussing Section 85(2)(a) of the principal Act i.e. Arbitration & Conciliation Act, 1996 and Section 26 of the Amendment Act, the Ld. Division Bench of Kolkata High Court proceeded on the premise that the words “in relation to” is missing in Section 26, which is ex facie incorrect. A bare perusal of the abovementioned provisions would reveal that the provisions are more or less similar, and the words “in relation to” are very much available in Section 26 as well. Therefore, the judgment may be questioned being based upon incorrect reading of above provisions.

The view taken by Kolkata High Court in the matter of Electrosteel Castings (supra) was followed by Madras High Court in the matter of New Tirupur Area Development Corporation Ltd. vs. M/s Hindustan Construction Co. Ltd5, whereby Madras High Court decided against the use of provisions contained in the Amended Act to court proceedings, for such arbitrations which commenced prior to amendments being notified.

Furthermore, the decisions of Bombay High Court in two connected matters of BCCI vs RSW, Kochi Cricket Private Ltd.6 and BCCI vs Global Asia Venture Co. & Arup Deb adds to the already existing confusion. BCCI contended in both the abovementioned matters that since the petitions challenging the awards under Section 34 of the Act were filed by it, prior to the promulgation of Arbitration Ordinance, the same would be governed by Section 36 of the unamended Arbitration Act, and therefore, the awards can be executed only after the petitions are refused by the Court. Any other interpretation would lead to causing grave prejudice to BCCI. However, the Bombay High Court, rejected the said contention. While holding that amendments brought to Section 36 of the Act has a prospective effect, the Court concluded that it is merely procedural in nature and is removing shadow over the rights of the award holder, which cannot be said to be prejudicial against rights of award-debtor as Section 34 is there in existence giving right to award-debtor to challenge the award, and the same is not being taken away. It was also stated that the amended Section 36 balances the rights of both parties as the aggrieved party can file an application seeking stay on enforcement of the arbitral award, pending which, the other party need not face the negative consequences of the mere filing of the application. Therefore, BCCI was directed to file an application seeking stay against enforcement of arbitral awards under challenge.

The Bombay High Court in the above judgments have given due consideration to Delhi High Court’s judgment in Ministry of Defence, Government of India v. Cenrex SP. Z.O.O. & Ors.7 but ultimately held differently. Delhi High Court while relying upon Section 6 of the General Clauses Act, came to a conclusion that an Act (or an Ordinance for that matter) cannot have retrospective operation unless so provided in the Act and any vested right in such Act/ provision cannot be deemed to be taken away by means of the amending or the repealing Act. It was further held that once the objections are filed under existing Section 34 of the Act, such vested right to have the award set aside on the basis of Section 34 existing on the date of filing of the petition cannot be taken away by holding that by the 2015 amendment Ordinance such a vested right has been impliedly taken away.

Consequent to Bombay High Court’s ruling in BCCI’s cases (Supra) on 22nd June 2016, BCCI has now challenged the said decisions before the Supreme Court of India contending that this issue requires “authoritative backing” by the Apex court. The appeals are presently pending consideration before the Apex Court and have garnered a great deal of importance.

CONCLUSION:

Currently, the question about whether the Amended Act is applicable to court proceedings arising out of arbitrations which commenced prior to the Amended Act coming into force remains ambiguous. It may be opined that, logically, if pending arbitrations are not governed by the new amendments then neither should related court proceedings, whether pending or fresh, however, at the same time, the language of the provision seems flawed. The various judgments which are at odds with one another across the spectrum of High Courts in the country have created great confusion over this important issue. While examining various judgments mentioned above, it is observed that lots of emphasis has been made on the words “in relation to arbitral proceedings”, however, somehow, courts did not appreciate the legality and intention expressed by the Apex Court in the matter of Thyssen Stahlunion v Steel Authority of India8, whereby while dealing with the similar issue of applicability of Arbitration & Conciliation Act, 1996 to the court proceedings arising out of arbitrations commenced under The Arbitration Act, 1940, it was held that if the words “in relation to” are read in conjunction with “the provisions” of the old Act, then the whole ambit of arbitration including enforcement of the award would come under the unamended Act and therefore, old Act will be applicable to all such proceedings despite the fact that award was passed after the amended Act was notified. Applying the same logic, provisions of unamended Act should be applied to all such court proceedings which relate to arbitrations, invoked prior to amendments being notified i.e. prior to 23.10.2016.

Having said so, it is necessary that the confusion is clarified/ settled by either the legislature or the Apex Court, otherwise, the ambiguity will continue to make parties suffer. The unclear nature of this issue requires urgent consideration to provide uniformity to the law and its effective application. The ambiguities relating to this particular question should be cleared up at the earliest to avoid a stockpiling of cases that are facing this hurdle and can potentially defeat the very objective with which the amendments were brought into effect.

Footnotes

1 Law Commission of India, ‘Amendments to the Arbitration and Conciliation Act 1996’ (Report 246), 2014.

2 (2016) 2 Cal LT 277

3 AIR (2016) Cal 213

4Appeal No. 79 of 2016 in Arbitration Petition No. 1543 of 2015 decided on 25 April 2016

5 Application No. 7674 of 2015 in O.P. No. 931/2015

6 Execution application (L) no.2481 of 2015 decided on 22 June 2016

7 2016 (1) Arb LR 81

8 (1999) 9 SCC 334

THE SEVENTH SCHEDULE [SECTION 12 (5)] – GROUNDS FOR REMOVAL OF ARBITRATORS

THE SEVENTH SCHEDULE [SECTION 12 (5)] – GROUNDS FOR REMOVAL OF ARBITRATORS

Abhishek Kumar


21/06/2017  

Arbitrator’s relationship with the parties or counsel

1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.

2. The arbitrator currently represents or advises one of the parties or an affiliate of one of the parties.

3. The arbitrator currently represents the lawyer or law firm acting as counsel for one of the parties.

4. The arbitrator is a lawyer in the same law firm which is representing one of the parties.

5. The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration.

6. The arbitrator’s law firm had a previous but terminated involvement in the case without the arbitrator being involved himself or herself.

7. The arbitrator’s law firm currently has a significant commercial relationship with one of the parties or an affiliate of one of the parties.

8. The arbitrator regularly advises the appointing party or an affiliate of the appointing party even though neither the arbitrator nor his or her firm derives a significant financial income therefrom.

9. The arbitrator has a close family relationship with one of the parties and in the case of companies with the persons in the management and controlling the company.

10. A close family member of the arbitrator has a significant financial interest in one of the parties or an affiliate of one of the parties.

11. The arbitrator is a legal representative of an entity that is a party in the arbitration.

12. The arbitrator is a manager, director or part of the management, or has a similar controlling influence in one of the parties.

13. The arbitrator has a significant financial interest in one of the parties or the outcome of the case.

14. The arbitrator regularly advises the appointing party or an affiliate of the appointing party, and the arbitrator or his or her firm derives a significant financial income therefrom.

Relationship of the arbitrator to the dispute

15. The arbitrator has given legal advice or provided an expert opinion on the dispute to a party or an affiliate of one of the parties.

16. The arbitrator has previous involvement in the case.

Arbitrator’s direct or indirect interest in the dispute

17. The arbitrator holds shares, either directly or indirectly, in one of the parties or an affiliate of one of the parties that is privately held.

18. A close family member of the arbitrator has a significant financial interest in the outcome of the dispute.

19. The arbitrator or a close family member of the arbitrator has a close relationship with a third party who may be liable to recourse on the part of the unsuccessful party in the dispute.

Explanation 1.—The term “close family member” refers to a spouse, sibling, child, parent or life partner.

Explanation 2.—The term “affiliate” encompasses all companies in one group of companies including the parent company.

Explanation 3.—For the removal of doubts, it is clarified that it may be the practice in certain specific kinds of arbitration, such as maritime or commodities arbitration, to draw arbitrators from a small, specialised pool. If in such fields it is the custom and practice for parties frequently to appoint the same arbitrator in different cases, this is a relevant fact to be taken into account while applying the rules set out above.’.