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ABOUT THE UNIVERSITY

The Rajiv Gandhi National University of Law (RGNUL), Punjab was established as a National Law University by a legislative act of the state of Punjab in 2006 in order to fulfil the need for a center of excellence in legal education.

Its endeavor is to serve the society through reforms in legal services by way of preparing professionally competent lawyers, inquisitive researchers, able administrators, conscientious judicial officers, and above all, socially responsible citizens, who shall be whole- heartedly and continuously engaged in the process of nation building. In line with its objectives, the University does not only offer various courses but also fosters various research centers which aim to promote legal excellence through research.

ABOUT THE CENTRE FOR ADVANCED STUDIES IN ENERGY LAWS

The Centre for Advanced Studies in Energy Laws (CASEL) was established in 2016 with the objective to cater to the need for research in Energy Law, an area of law which is becoming increasingly important and pivotal in the conversations about sustainability and the future. The Centre, since its inception, has evolved constructively with a special focus on organizing various workshops and sensitization Programmes.

Apart from a focus on renewable energy resources, CASEL also aims to undertake research on and critically analyze various energy related legislations in India, annual reports of the Bureau of Energy Efficiency and other such organizations etc. and suggest amendments to the same.

ABOUT LUTHRA and LUTHRA LAW OFFICES, INDIA

Luthra & Luthra Law Offices is a leading full-service law firm. Since its inception in 1990 which coincides with India’s economic liberalization, L&L has assisted numerous multinational corporations to set up their presence in India, and navigate the complex Indian legal system. Offering kosher solutions to the complex legal issues, the Firm advises on transactions and matters involving Banking & Finance; Capital Markets; Competition & Anti-trust; Corporate Commercial and Acquisitions; Dispute Resolution Arbitration); Anti- Corruption & Compliance; International Trade (WTO) Laws and Policy & Advisory; Project, Infrastructure & Energy; Tax (Direct & Indirect); Real Estate & Construction; Aerospace & Defense (Procurement & Production); Insurance & Re-Insurance; Intellectual Property – Patent & Trademark; Oil & Gas; Health & Pharmaceuticals; Private Equity &Venture Capital Investments.

ABOUT THE COMPETITION

The growth of Energy Sector around the world is unprecedented, more specifically in India. The country with its existing resources and clear goals in place, is making great strides towards its aspiration of transforming the energy sector. With growth of renewables, the energy efficiency in the country is said to break records.

The Power Purchase Agreements (PPAs), at the outset, have significant potential as an energy source. The Agreements are said to enhance power from renewable sources and overcome the paucity faced due to the use of traditional funding sources. Over the period of time, PPA funding has expanded the solar capacity of various companies by ten times. Hence, the progress of such agreements has proven to be a framework of financial stability. The Competition on the basis of the information seeks to engage with the community of law students in India to promote the art of modern legal drafting, in the less talked areas of Energy Law. This aims at providing opportunities to the students to initiate research about legal certainties and further the skills of drafting.

ELIGIBILITY

The Competition is open to all undergraduate law students enrolled in any recognized educational institution within or outside India.

SUBMISSION GUIDELINES

1. Participants may register individually or in a team of two (2).

2. The agreement shall be drafted on the basis of the Problem Statement.

3. The agreement shall not exceed more than five (5) A4-sized typewritten pages, excluding the cover page and the signature page. Five (5) marks shall be deducted as penalty for each page exceeding the page limit.

4. Formatting: Font style — Times New Roman, font size — 12, line spacing — 1.5, justified alignment, paragraph spacing – 0 pt. before and after, 1 inch margin on all sides.

5. Submissions shall be made by sending an email to casel@rgnul.ac.in with the subject “Submission for Agreement Drafting Competition: [Team Code]”.

6. Clarifications on the Problem Statement shall be sent to casel@rgnul.ac.in with the subject

CASH PRIZE

  • Winner: Rs. 15000/-

  • Runners up: Rs. 10,000/-

  • Second Runners up: Rs. 7000/

REGISTRATION

  • Participants shall register themselves for the Competition by submitting the following form: https://forms.gle/Ssfd3SapabBEynQ39 (payment receipt and ID card to be uploaded)

  • Registration Fee: Rs. 500/- (Individual Participation); Rs. 1000/- (Team Participation)

  • Payment shall bemade by accessing the following link: https://www.rgnulerp.org/lsa/eventPortal/loginFrom.jsp

  • A Team Code shall be assigned to each individual participant / participant team, as the case may be, after the successful completion of registration.

IMPORTANT DATES

  • Release of Problem Statement: August 8, 2022

  • Last date for registration: August 24, 2022

  • Last date for seeking clarifications on the Problem Statement: August 28, 2022

  • Release of clarifications: August 30, 2022

  • Submission deadline: September 25, 2022

  • Declaration of Results: October 15, 2022

CONTACT DETAILS

Aryan Bajaj (+91-7901912662)

Prince Agrawal (+91-9460738697)

Case BriefsSupreme Court

Supreme Court: The Division Bench of M.R. Shah* and Sanjiv Khanna, JJ., reversed concurrent findings of the Arbitral Tribunal and the Delhi High Court rejecting the National Highway Authority of India’s (NHAI) application to file a counter-claim in a commercial dispute. The Court held, 

“When there is a provision for filing the counter-claim – set off, which is expressly inserted in Section 23 of the Arbitration Act, 1996, there is no reason for curtailing the right of the appellant for making the counter-claim or set off. If we do not allow the counter-claim made by the NHAI in the proceedings arising out of the claims made by the Contractor, it may lead to parallel proceedings before various fora.” 

Continuous Breach of Contract and Its Subsequent Termination  

NHAI and the respondent-contractor entered into an Engineering Procurement and Construction (EPC) Agreement (hereinafter “the Contract”) in respect of the improvement/augmentation of two laning with paved shoulders of National Highway 210 under National Highways Development Project (NHDP) PHASE-III.  

According to NHAI, the Contractor was in continuous breach of specific obligations under the Contract for which a cure period notice was issued calling upon the Contractor to cure the defaults within 60 days. When the Contractor failed to cure the defects pointed, a notice of intention to terminate the Contract was issued. Having found the Contractor’s reply totally unsatisfactory, the NHAI issued a termination notice under Clause 23.1.2 of the Contract.  

Commencement of Arbitration 

Aggrieved by the untimely termination of the contract, the Contractor invoked the arbitration clause. NHAI joined the arbitration and after two days of filing the Statement of Defence, it sent a letter to the Arbitral Tribunal seeking extension of time for filing the counter-claim which was rejected by the Tribunal, essentially on the ground that the procedure under Clauses 26.1 and 26.2 of the contract had not been followed by the NHAI and therefore, the counter-claim was beyond the scope of the arbitration agreement and adjudication of the said dispute was beyond the jurisdiction of the Tribunal.  

Particularly, the Tribunal held that the counter-claim was a dispute which needed to be first amicably settled by way of conciliation as mandated by Clause 26 and, only then it could be taken to arbitration.  

To challenge the aforementioned order, NHAI preferred the appeal under Section 34 of the Arbitration Act, 1996 before the Delhi High Court. The High Court dismissed the appeal and confirmed the order passed by the Arbitral Tribunal. 

Contentions of the Parties 

NHAI submitted that both in the termination notice as well as in the Statement of Defence, it had reserved its right to claim damages and stated that it would file its counter-claim separately. Hence, it could not be said that claim was raised by surprise or by way of counterblast. Further, the counter-claim was not a separate ‘dispute’ but rather a ‘claim’ and Clause 26 does not contemplate repeated invocation of the same procedure when there is an overlapping cause of action. 

Contesting the stand taken by NHAI, the contractor contended that mere reservation of rights would not entitle either party to bypass the contractually agreed mechanism under Clause 26. Since the EPC Contract does not contemplate parties raising claims by directly resorting to arbitration without going through the steps set out in Clause 26; i.e., Step 1: Notification of Disputes and Step 2: Resolution by amicable settlement.  

Factual Analysis  

Whether Counter Claim was a separate dispute?  

Under the contract, both the parties are given the opportunity to resolve the dispute amicably through conciliation, and thereafter the “Dispute”, which is not resolved shall have to be finally settled by arbitration. Noting that the cause of dispute was the termination of the contract by the NHAI, the Court stated,  

It may be true that in a given case, the “Dispute” may include the claims and/or counter-claims, but, at the same time, the main dispute can be said to be termination of the contract, which as observed hereinabove was required to be resolved through conciliation after following the procedure as above.”  

Hence, opining that NHAI’s request to file counter-claim was a “claim” and not a “dispute”, the Court held that both the Arbitral Tribunal as well as the High Court had failed to appreciate the difference between the expressions “claim”, which may be made by one side and “Dispute”, which by its definition has two sides.  

Whether NHAI bypassed the agreed procedure?  

The Court noted that from the very beginning, the NHAI reserved its right to claim damages, and even in the Statement of Defence, it claimed such a set off of Rs.1.23 crores and also specifically stated it reserved its right to file the counter-claim. Further, there was no delay at all on the part of the NHAI initially praying for an extension of time to file the counter-claim and/or thereafter to file the application under Section 23(2A) permitting it to place on record the counter-claim.  

The Court ruled that once it was established that the counter-claim was a “claim” and not a “dispute” there was no requirement to follow the procedure mentioned under Clause 26, much less a question to bypass the procedure. The Court said,  

“Once any dispute, difference or controversy is notified under Clause 26.1, the entire subject matter including counter-claim/set off would form subject matter of arbitration as ‘any dispute which is not resolved in Clauses 26.1 and 26.2’.” 

Therefore, the Court opined that not permitting the NHAI to file the counter-claim would defeat the object and purpose of permitting to file the counter-claim/set off as provided under Section 28 23(2A) of the Arbitration Act, 1996. 

Findings and Conclusion 

In the light of the above, the Court held that by such a narrow interpretation, the Arbitral Tribunal had taken away the valuable right of the NHAI to submit counter-claim; thereby negotiating the statutory and contractual rights of the NHAI and paving way for a piecemeal and inchoate adjudication. Similarly, the High Court had seriously erred by making a narrow interpretation of Clause 26 while confirming the order passed by the Arbitral Tribunal. 

Consequently, the Arbitral Tribunal order and the impugned judgment of the High Court were quashed and set aside. NHAI’s application to file the counter-claim was allowed. Additionally, the Court directed the time spent in litigation (the period between 18-07-2017 till 11-07-2022) be excluded from computing the period of the passing of the award under Section 29A of the Arbitration Act, 1996.  

[National Highway Authority of India v. Transstroy (India) Ltd., 2022 SCC OnLine SC 832, decided on 11-07-2022]  


*Judgment by: Justice M. R. Shah  

Appearance by:  

For NHAI: ASG Madhavi Diwan 

For the Contractor: Senior Advocate Nakul Dewan 


Kamini Sharma, Editorial Assistant has put this report together 

Financial Creditor
Case BriefsTribunals/Commissions/Regulatory Bodies

   

National Company Law Tribunal, New Delhi: The Bench of Ashok Bhushan J., Chairperson, Rakesh Kumar Jain and Rakesh Kumar, JJ, Judicial Members, and Barun Mitra and Naresh Salecha, Technical Members, have held that lease rentals for business purposes fall under the definition of ‘Operational Debt' as per Section 5(21) of the Insolvency and Bankruptcy Code, 2016 (IBC).

Background of the case

The Appellant, corporate creditor entered into a license agreement with the Respondent, corporate debtor for five years. As per the agreement the appellant granted a license to the respondent to use a building for business purposes with a total super area measuring 31000 sq. ft. The license fee was agreed to be Rs 4,00,000/- plus government taxes on monthly basis.

The respondent made payment to the appellant through two cheques of amount Rs 20,00,000/- each dated 07-05-2018 and 08-10-2018 respectively. Both the cheques were dishonored. On 03-05-2019, the Appellant sent a demand notice under Section 8 of IBC, to which no reply was given by the respondent. Hence, on 09-05-2019, the appellant filed an application for initiation of the Corporate Insolvency Resolution Process against the respondent under Section 9 of IBC.

The Adjudicating Authority dismissed the application under Section 9 of IBC stating that the claim arising out of a grant of license to use the immovable property does not fall in the category of goods or services, thus, the amount claimed in Section 9 Application is not an unpaid operational debt. Therefore, the appellant filed a company appeal before a larger bench.

The issue before the bench

  • Whether the claim of the Licensor for payment of License Fee for use and occupation of immovable premises for commercial purposes is a claim of ‘Operational Debt' within the meaning of Section 5(21) of the Code.”?

Observation and Analysis

The coram made the following observations: –

  • The definition of ‘operational debt' as contained in Section 5 (21) IBC, the definition clause provides that ‘operational debt' means a claim in respect of the provision of goods or services.

  • Definition under Section 5(21) IBC uses the expression ‘services' which is not defined under the IBC. When an expression used in the statute is not defined, the Court has to explain the meaning of the undefined expression under the well-established rules of statutory interpretation.

  • The term operation is derived from “operate” and “operating cost” is an expense incurred in the conduct of the principal activities of the enterprise therefore, operational debt is also a debt that is incurred in the conduct of the principal activities of the enterprise.

  • Further, Coram stated that Bankruptcy Law Reforms Committee Report can be treated as an aid for interpretation for IBC which explicitly provides that a lessor can be treated as an operational creditor.

  • As the ‘operational debt' as defined in Section 5(21) IBC has a meaning much wider than the essential goods and services. Essential goods and services are entirely different concepts and the protection under Section 14(2) IBC as provided for is an entirely different context.

  • The observations made in the case of M. Ravindranath Reddy v. Mr. G. Kishan, 2020 SCC OnLine NCLAT 84 that there has to be nexus to the direct input or output produced or supplied by the Corporate Debtor, is a much wider observation not supported by the scheme of the IBC. Therefore, the case does not consider the extent and expanse of the expression ‘service' used in Section 5(21) of the IBC and does not lay down the correct law.

  • The observation made in the case of Promila Taneja v. Surendri Design Pvt. Ltd. – 2020 SCC OnLine NCLAT 1105 in respect definition of “service” as mentioned under the Consumer Protection Act, 2019 and the Goods and Services Act, 2017 (CGST Act) cannot be referred to for interpretation of the term “Operational Debt” as these acts are not mentioned under Section 3(37) of the IBC. It reiterated the law laid down in the M. Ravindranath Reddy case and hence, the judgment cannot be followed.

In the light of the above observations made, the Bench opined that in the present case, where the agreement itself contemplates payment of GST for the services under the agreement, the definition of ‘service' under the CGST Act can be referred. Hence, the expression ‘service' in Section 5(21) of the IBC includes license payments. Therefore, the claim of the Licensor for payment of license fee for use of Demised Premises for business purposes is an ‘operational debt' within the meaning of Section 5(21) of the IBC.

[Jaipur Trade Expocentre Pvt Ltd versus Metro Jet Airways Pvt Ltd, Company Appeal (AT) (Insolvency) No. 423 of 2021, decided on- 05-07-2022]


Advocates who appeared in this case :

Ms. Sanjana Saddy, Mr. Sanyat Lodha & Ms. Harshita Singhal, Advocate, for the Appellant;

Mr. Vikrant Arora & Mr. Manish Verma, Advocates, for the Respondent.

Case BriefsDistrict Court

Tis Hazari Court, Delhi: While deciding the instant complaint filed under S. 138 of Negotiable Instruments Act, 1881, wherein the dispute revolved around the non-compliance of the clauses of Non-Competing Agreement (NCA) executed between the parties to the dispute; the accused company was acquitted from the charges levied under S. 138. Presiding over the matter, Devanshu Sajlan, D.J.S., while making detailed observations concerning S. 138 of NI Act and S. 27 of Contact Act and, held that the accused company has successfully raised a probable defence in its favour and the complainant has failed to prove his case beyond reasonable doubt.

Facts of the Case: The accused company  and complainant  had signed into a Non-Competing Agreement (NCA) stating that a compensation of Rs. 3,80,00,000 was required to be paid in 120 equal installments of Rs. 3, 16, 666 each to the complainant  for agreeing to resign from the accused company under clause 4.1 of the NCA. In partial discharge of the aforesaid liability, the accused company issued the cheque(s) in question thus giving the complainant the right to proceed under section 138 of the NI Act in the event of dishonour of the said cheques.

The parties  also signed a share purchase agreement (SPA) in violation of which both parties invoked arbitral proceedings, which they settled with a consent award which stated the requirement of furnishing fresh bank guarantee which would be considered valid till the payment of the last instalment. As a security for payment of monthly installments, cheques were given.

The case revolved around the non-compliance of the clauses of NCA due to which the accused  is not obligated to make any payment and possess no legal liability towards the complainant. The case also concerns with the arbitral award give liberty to the complainant in order to explore its legal remedies under the NCA. It is filed to pursue the remedies given under NCA.

The complainant further alleged that the present cheque(s) which were given to the complainant towards payment of the installment of the compensation contemplated under NCA, were returned dishonoured with remarks ‘Funds insufficient’. Thereafter, the complainant sent a legal demand notice to the accused persons, but the accused persons allegedly failed to pay the cheque amount and therefore, thus complainant was compelled to file the present complaint.

Issues:

  1. Whether the accused had committed breach of consent award by not paying the cheque amount as agreed upon in the NCA?
  2. Whether the liability has arisen if the requirements under S. 138 of NI Act are not met with?
  3. Whether a post-dated cheque is for “discharge of debt or liability” U/S 138 of NI Act depends on the nature of the transaction?
  4. Whether a mutually settled arbitral award demarcates the liability of payment signed under NCA?

Submissions: The submissions of the accused were centred around the second ingredient of S. 138 of NI Act i.e. “The cheque was drawn by the drawer for discharge of any legally enforceable debt or other liability”.

 

It was submitted that the cheque(s) were given as advance payment towards the monthly instalment amount pertaining to the total compensation under the non-compete agreement. The said cheque(s) were not issued in discharge of any existing/ subsisting debt.

Accused contended that payments were made regularly to the complainant until the breach of terms of contract came to their notice. It was submitted that the accused had no liability to pay non-competing fees to the complainant  as he  failed to  comply with statutory obligations.

It was further argued by the accused that since the complainant is being aptly compensated for not practicing the competing business, hence it cannot be said that NCA is in restraint of trade and is in violation of S.27 of Contract Act, 1872. It was also submitted that cheque(s) were suspended as advance payment constituting to total compensation procured under NCA.

 

Meanwhile, the complainant submitted that there can be no challenge for the validity of the NCA since the arbitral consent award under NCA is legally enforceable.  It was also submitted to the court that since the legal liability of giving payment liquidates due to non-performance of NCA, it does not matter if the issued cheque was dated for advance payment of a liability debt.

Observations – Upon perusal of the contentions, the Court made the following salient observations:

  • The liability had crystallised/ matured when the cheque(s) in question were presented. The monthly liability to pay non-compete fee arose in the present matter upon performing of non-competing service by the complainant for the said month. Thus, the cheque(s) in question cannot be held to be not for a subsisting liability.
  • It was further observed that the NCA clearly stipulated that in case the consent award is breached, the complainant can file a complaint under S. 138 of NI Act. It was noted that there was not even a shred of evidence available on record to support the assertion of the accused no. 2 that complainant breached the terms of the NCA. Therefore, the burden of proof placed upon the accused persons have not been discharged as regards the contention of breach of NCA.
  • The Court also referred to Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Ltd., (2016) 10 SCC 458, which held that the crucial test for applicability of S. 138 of NI Act is that such liability should have arisen on the date mentioned on the post-date cheque or the date when the cheque is handed over in order for it to constitute as an offence under S. 138 of NI Act.
  • The Court made detailed observations regarding the NCA being voidable in light of S. 27 of the Indian Contract Act. It was stated that the NCA in the present case is a simplicitor contract of restraint of trade by which the complainant has been refrained from involving in a trade of similar domain for a period of 10 years after he files his resignation. The Court pointed out that this case does not fall within the ambit of the exception of sale of goodwill of business. The NCA or the connected SPA between the same parties nowhere mentions that the complainant is transferring goodwill of the business of the accused company to the new management. Thus, such non-compete agreements such as the NCA in question, squarely falls within the mischief prohibited under S. 27 of Indian Contract Act, 1872. Thus, the instant NCA is void agreement under S. 27. It was observed that the right against restraint of trade cannot be waived off by the conduct of the parties. The court cannot enforce a void contract based on the waiver of the respective parties, especially in a case when a clause is based on the public policy of India.

 

Decision: It was held that since the NCA is void pursuant to S. 27 of the Indian Contract Act, the cheque(s) in question given to discharge the liability under the NCA cannot be held to be issued in discharge of a legally enforceable liability. In the present case, since the complainant’s promise (to not do competing business) is unlawful, there is no legal reciprocal consideration to make the NCA a valid binding contract. Regarding the validity of NCA vis-a-vis the arbitral consent award, the Court held that while it is correct that the arbitral consent award was passed to settle the disputes under the NCA and SPA, there is no specific undertaking that the cheques in question, which were issued prior to the arbitral award, will be used to secure the consent arbitral award. “It would have been a different case if the cheques in question would have been issued pursuant to the arbitral award since the same would then have been considered to have been issued to enforce the consent award (which is akin to a consent decree), and hence enforceable”. [Anil Thakur v. Blazeflash Courier Ltd., 2022 SCC OnLine Dis Crt (Del) 23, decided on 31-05-2022]

Counsel for Complainant: S.K. Gupta

                                          Vikas Gupta

Counsel for Accused: S N Gupta

                                    Sanjay Goel


*Sucheta Sarkar, Editorial Assistant has reported this brief.

Gauhati High Court
Case BriefsHigh Courts

Gauhati High Court: While addressing a matter with regard to maintenance of wife, Rumi Kumari Phukan, J., expressed that, the statutory right of a wife of maintenance cannot be bartered, done away with or negatived by the husband by setting up an agreement to the contrary.

Petitioner has challenged the judgment passed by the Sub-Divisional Judicial Magistrate, in a case filed by the petitioner/wife under Section 125 of the CrPC, rejecting her prayer for maintenance by the impugned judgment.

Factual Background


After three months of the marriage of petitioner/wife and respondent/husband, the family members of the respondent started to torture the petitioner, both physically and mentally and demanded 5 lakhs dowry but as she could not fulfil their demand, the respondent abused the petitioner.

Petitioner also stated that the sister-in-law of the respondent also used to abuse the petitioner by using filthy language, assaulting her by pulling her hair and preventing her from talking to her husband.

On being aggrieved with husband’s behaviour, the petitioner lodged an FIR which was registered but on assurance of the family members of the respondent that they won’t harass her in future, the case was compromised, and she was allowed to stay at her parental house for the completion of her studies. Though the respondent never provided any maintenance, nor contacted her and since the petitioner had no income it became difficult for, her to bear the daily expenses.

In view of the above-said grievances, a petition under Section 125 CrPC was filed.

Husband’s Counsel submitted that there was no irregularity in the order so passed by the trial Court in as much as the petitioner herself resided in the parental house, admittedly by making an agreement that during her stay, her maintenance will be borne by her parents.

Analysis and Decision


High Court noted that the uncorroborated testimony of the 1st party and her witnesses established the fact that the 1st party was subjected to torture in her matrimonial house which gave her sufficient ground to live separately from the 2nd party.

The Bench noted that the respondent/husband in his cryptic written objection had not narrated any detail as to under what circumstances, the petitioner began to reside in the parental house and as to why the FIR was also against him and imply it was stated that the matter had been settled between the parties.

In Court’s view, such evasive denial on the part of the husband indicated that he had not taken proper care of his wife, while she was in her parental house.

Since after filing of the FIR, she began to reside in her parental house and that does not itself absolve the respondent/husband to provide maintenance to his wife, even though her parent might have maintained her.

On perusal of the facts and circumstances of the case, it was found that the petitioner had entered into marriage at her tender age, while she was a college-going student and due to some household conflict, the relation between the parties turned sour, as a result of which she returned to her parental house and also filed an FIR.

High Court expressed that,

“…the statutory right of a wife of a maintenance cannot be bartered, done away with or negatived by the husband by setting up an agreement to the contrary. Such an agreement in addition to it being against public policy would also be against the clear intendment of this provision. Therefore, giving effect to an agreement, which overrides this provision of law, that is, Section 125 of Cr.P.C. would tantamount to not only giving recognition to something, which is opposed to public policy, but would also amount to negation of it.”

In the present matter, the respondent/husband could not prove that he had no sufficient means to discharge his obligation and that he did not neglect or refused to maintain his wife, whereas the petitioner had been able to prove that there was neglect on the part of the respondent.

Therefore, the trial Court’s decision was set aside, and a fresh Judgment will be passed in the instant case. [Bulbuli Saikia v. Jadav Saikia, 2022 SCC OnLine Gau 820, decided on 17-5-2022]


Advocates before the Court:

Advocate for the Petitioner: MR. A DUTTA

Advocate for the Respondent: MR. K K BHATRA

Case BriefsDistrict Court

Karkardooma Courts, Delhi: While addressing a case of alleged criminal conspiracy, Virender Bhat, ASJ-03, expressed that,

“The circumstances in a case, when taken together on their face value, should indicate the meeting of minds between the conspirator for the intended object of committing an illegal act or an act which is not illegal, by illegal means. A few bits here and a few bits there on which the prosecution relies cannot be held to be adequate for connecting the accused with the commission of crime of criminal conspiracy.”

The prosecution’s case was that the accused were members of an unlawful assembly on 25th and 26th February, 2020 and the object of which was to take revenge for the death of the several Hindus during riots and to teach Muslims a lesson, and in order to achieve the said, they hatched a conspiracy to which they bludgeoned to death innocent persons namely Aas Mohammad.

As per the charge sheet, three persons were apprehended, and their mobile phones were seized and the data was checked. As per the WhatsApp data on the phone of Mohit Sharma and Shivam Bhardwaj, it was revealed that they were members of the WhatsApp group “Kattar Hindu Ekta”. An accused Lokesh Solanki was found to be a member of this group and messages had also been sent to group by him.

Analysis, Law and Decision


Court expressed that the offence of criminal conspiracy has its foundation in an agreement to commit an offence, it consists not merely in the intention of two or more, but in the agreement of the two or more to do an unlawful act by unlawful means.

“…the essence of criminal conspiracy is an agreement to do an illegal act and such an agreement can be proved by direct evidence or by circumstantial evidence or both.”

Elaboration further with regard to conspiracy, Bench stated that it requires an act and an accompanying mental state.

To convict a person for the offence of conspiracy, the prosecution must show that he agreed with others that together they would accomplish the unlawful object of the conspiracy.

In the present matter, the only evidence with regards to hatching the conspiracy of the accused were the chats on the WhatsApp group “Kattar Hindu Ekta”.

On perusal of the chats, it nowhere indicated that the said group had been formed for any particular illegal object i.e., to kill the persons belonging to the Muslim community as well as to vandalize/burn their properties and that the members had agreed with each other that they would accomplish any such unlawful object of the conspiracy.

Infact, as per the Court’s opinion, the said chats revealed that the members were keeping themselves ready for any attack from other communities.

“There was nothing in the WhatsApp Chats to lead this Court to any conclusive or irresistible inference that the members of the group had agreed for any particular unlawful object and for accomplishment of that unlawful object.”

Further, the Court analyzed that the messages posted in the group nowhere indicated that the members had formed the requisite mental state to launch an offensive against the members of the other community and to commit vandalization/arson of their properties and kill them.

In fact as per the prosecution’s case, except for Lokesh Solanki, none of the other accused were a member of the said group, hence it would be unfathomable as to how an agreement between all the accused to do an illegal act can be inferred merely from the message posted in the said WhatsApp group.

In view of the above discussion, the charge of the conspiracy failed.

Another statement relied upon by the Special PP was of Nisar Ahmed who stated that the accused were asking Hindus to come out of their homes, to bring out the Muslims from their homes, kill them and rob/usurp their homes. Even if the said statement was taken at its face value, it would still only indicate exhortation.

For the above, Court stated that,

“Mere exhorting others to come out and indulge in criminal activities does not tantamount to any agreement between the person who holds out exhortation and the person to whom the exhortation is held out, to commit a crime.”

Therefore, no offence of criminal conspiracy was made out. [State v. Lokesh Kumar Solanki, 2022 SCC OnLine Dis Crt (Del) 20, decided on 15-3-2022]

Case BriefsHigh Courts

Orissa High Court: S. Muralidhar, CJ. dismissed the petition, declined the appointment of arbitrator and left it open to the petitioners to avail other remedies as may be available to them in accordance with law.

The facts of the case are such that opposite parties 1 and 2 floated a tender having two components viz., technical and financial. According to the Petitioner, the technical bids were wrongly awarded to Opposite Party 4 in violation of the tender conditions.  According to the Petitioner i.e. L2 the tender ought to have been awarded to it as OSMC called for the Petitioner to give its consent to supply the item quoted as per the L-1 approved rate and, the petitioner expressed its willingness to supply the said item at L-1 rates “on the condition that it is awarded the entire quantity mentioned in item 39 for supply”. OSMC via email accepted the matching offer stating that the purchase order would be issued in its favour as per the terms and conditions of the tender. However, the said letter was silent on whether the Petitioner would be given a purchase order for the entire quantity. Thereafter, no purchase order was placed by OSMC with the Petitioner and there was no communication either. Thus, this gave rise to the disputes between the parties and a petition was filed invoking Clause-6.34 of the General Conditions of Contract (Section VI) seeking the appointment of an Arbitrator, under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (A and C Act).

Counsel for petitioner Mr. Kamal Bihari Panda submitted that the applicable procedure in the event of dispute between the parties arising out of the bid document was to be referred to the arbitration in terms of the A and C Act and therefore, this petition was maintainable.

Counsel for respondent OSMC Mr. P K Muduli submitted that as per Clause-6.34.1, the dispute or difference could arise only between the tender inviting authority (i.e. OSMC) and the “successful bidder in connection with/or relating to the contract”. Thus, Opposite Party 4 and not the Petitioner was the successful bidder, the Petitioner could not invoke the above clause. It was further submitted that the dispute that had arisen was not in relation to the contract but in relation to the bidding process.

The Court relied on judgment BSNL v. Telephone Cables Limited, (2010) 5 SCC 213 wherein it was observed

“29. Therefore, only when a purchase order was placed, a ‘contract’ would be entered; and only when a contract was entered into, the General Conditions of Contract including the arbitration clause would become a part of the contract. If a purchase order was not placed, and consequently the general conditions of contract (Section III) did not become a part of the contract, the conditions in Section III which included the arbitration agreement, would not at all come into existence or operation. In other words, the arbitration clause in Section III was not an arbitration agreement in praesenti, during the bidding process, but a provision that was to come into existence in future, if a purchase order was placed.”

The court thus observed that since no purchase order was in fact placed with the Petitioner, there was no concluded contract and therefore the question of any dispute arising therefrom being referred to arbitration did not arise.

The Court thus held “the Court declines the prayer of the Petitioner for the appointment of an Arbitrator” [Emcure Pharmaceuticals v. OSMC, 2022 SCC OnLine Ori 1368, decided on 13-05-2022]


Arunima Bose, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal, New Delhi (NCLAT): The Coram of Justice Ashok Bhushan (Chairperson) and Shreesha Merla (Technical Member) held that, the territorial jurisdiction of NCLT to decide a case under Insolvency and Bankruptcy Code, 2016 cannot be taken away by the Facility Agreement between the parties.

Instant appeal was filed against the order passed by the National Company Law Tribunal, New Delhi, by which the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 had been admitted.

The Appellant’s counsel submitted that there was no jurisdiction with the Principal Bench, Delhi to entertain Section 7 Application. He referred to a Clause from the Facility Agreement, as per which Courts at Mumbai had jurisdiction in respect of any matter of the Facility Agreement.

Analysis, Law and Decision

First, the Tribunal referred to Section 60(1) of the Code provides for Adjudicating Authority for Corporate Persons. Section 60(1) is as follows:

  1. (1) The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate persons located.

Coram expressed that, Adjudicating Authority in relation to Insolvency Resolution shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate persons is located.

Tribunal stated that, the appellant cannot rely on clause 24.12 of the Facility Agreement which provides jurisdiction to the Mumbai Courts.

Noting the above, Coram held that, for filing an Application under Section 7 of the Code, the provisions of Section 60(1) read with Section 238 of the Code shall be overriding clause 24.12 of the Facility Agreement.

Further, not denying that Corporate Debtor’s registered office was situated in New Delhi where the territorial jurisdiction to entertain such application was with NCLT, Delhi, Coram did not accept the submissions of Counsel for the appellant.

In view of the above, the appeal was dismissed. [Anil Kumar Malhotra v. Mahindra & Mahindra Financial Services Ltd., 2022 SCC OnLine NCLAT 200, decided on 19-4-2022]


Advocates before the Tribunal:

For Appellant:  Mr. Yajur Bhalla, Mr. Siddharth Srivastava, Sumeir Ahuja, Advocates

Advocate Gunjan Chauvey, for R-1

For Respondent: Mr. Rajesh Kumar Mittal, Advocate for IRP, R-2.

Case BriefsHigh Courts

Karnataka High Court: B.M. Shyam Prasad, J., held that there cannot be a complete adjudication of the petitioner’s rights unless the third parties are also heard.

In the present matter, the petitioner was a society registered under the Karnataka Societies Registration Act, 1960 and first respondent was a company registered under the Companies Act, 1956 engaged in the business of real estate development and construction of multi-storied apartments.

Further, the second respondent was a company registered under Section 25 of the Companies Act.

What is the Dispute?

The dispute was with regard to handing over vacant possession of certain apartments constructed in the property situated at Norris Road, Municipal ward No. 76, Richmond Town, Bengaluru. [Subject Property]

The said building was constructed by the first respondent in performance of the terms of the Joint Development Agreement and the Supplemental Agreement of even date. The said agreements were executed and registered amongst the petitioner and respondents.

 The J.D. Agreement was executed contemporaneously with a Power of Attorney. The said agreement provided for the resolution of disputes/difference amongst the parties.

As per the terms of the JD Agreement, the second respondent was the owner of the subject property with the petitioner being described as the Administrative Trustee managing the affairs of the subject property, and the revenue records for the subject property were made in the respondent’s name.

A dispute arose between the parties with respect to the allotment of the apartments. Hence the petitioner had filed a petition under Sections 11(4) and 11(6) of the Arbitration and Conciliation Act, 1996.

Analysis, Law and Decision

Firstly, the High Court referred to the Supreme Court decision in Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1.

The respondent’s objection to the reference of the dispute to arbitration was on multiple grounds such as that the dispute was essentially between two trusts, because of the fraud that was played by the first respondent in tandem with Sri Michael Sreenivasan, the dispute was time-barred, the parties did not agree upon mandatory arbitration and the dispute could not be just amongst the parties to the present petition.

Further, the respondent contended that certain third parties entered into the shoes of the petitioner with the assignment of their respective rights in the subject apartments in favour of third parties and therefore, the claim was non-arbitrable.

High Court stated that the proceeding under Section 11 of the Arbitration Act is not a stage for the Courts to enter into a mini-trial.

It emerged from the facts that the dispute was about the delivery of 3 apartments. The petitioner and the respondents entered into MOUs with third persons agreeing to assign their rights in the said apartments in favour of Kaveri Bai and Sudhir Jaganathan Kamath, who were not parties to the present petition.

It was added that the petitioner was categorical in his pleadings in the application under Section 9 of the Arbitration Act that such MOUs had been executed in favour of the above-said. The petitioner while admitting creation of third-party rights, proposed adjudication of its right to recover possession of the subject apartments in the absence of the third parties.

In this Court’s view, the dispute encompassed the question of facts which would have to be necessarily decided with due opportunity to the third parties who will not be parties to the arbitration proceedings.

Bench noted that, the petitioner did not even assert that the third parties would be bound by the arbitration clause as contained in the JD Agreement. The larger questions of facts involved the third-party rights, which were to be decided and such third parties would not even be parties to the arbitration proceedings.

Lastly, the High Court concluded that, respondents must be protected from being forced to arbitrate when the matter was demonstrably non-arbitrable.

Hence, since the dispute was non-arbitrable, parties must necessarily work out the remedies in properly instituted proceedings with the third parties. [South Indian Biblical Seminary v. Indraprastha Shelters (P) Ltd., Civil Miscellaneous Petition No. 129 of 2020, decided on 28-3-2022]


Advocates before the Court:

For the Petitioner: Joshua Hudson Samuel, Advocate

For the Respondents: Navakesh Batra, Advocate and B.R. Dhanalakshmi, Advocate for R1; V.B. Shivakumar, Advocate for R2

Case BriefsHigh Courts

Bombay High Court: A very interesting question was considered by G.S. Kulkarni, J., the question being, whether mere filing of a proceeding under Section 7 of the Insolvency and Bankruptcy Code, 2016 would amount to an embargo on the Court considering an application under Section 11 of the Arbitration and Conciliation Act, 1996, to appoint an arbitral tribunal?

Factual Background


 In the present matter, the respondent provided financial assistance to the applicant of an amount of Rs 4,50,00,000 for which a loan agreement was entered between the applicant and the respondent, referred to as Agreement 1.

Due to a change in the business scenario, another Agreement was executed referred to as Agreement 2, under which the date of repayment of the borrowing was extended.

There were defaults on the part of the applicant in the payment of the loan instalments.

Applicant’s case was that in the discharge of its liability towards the respondent under the above-stated agreements, the applicant issued a cheque to the respondent, of an amount of Rs 31,08,33,457 being the repayment of the respondent’s dues, which was in accordance with the terms and conditions of the loan agreement.

Respondent had approached the NCLT by initiating proceedings against the applicant under Section 7 of the Insolvency and Bankruptcy Code, 2016.

Though, so far, no order had been passed by the NCLT admitting the petition as per the provisions of Section 7(5) of the IBC.

Analysis and Decision


High Court observed that there was no dispute in regard to the arbitration agreements between the parties and there was a dispute in regard to the invocation of the arbitration agreement.

Thus, the primary considerations for this Court to exercise jurisdiction under Section 11(6) were certainly present.

The Bench stated that, even if an application under Section 8 of the ACA is filed, the adjudicating authority has a duty to advert to the contentions put forth under an application filed under Section 7 of the IBC by examining the material placed before it by the financial creditor and record a satisfaction as to whether there is default or not.

“…if the irresistible conclusion of the adjudicating authority (NCLT) is that there is default and the debt is payable, the bogey of arbitration to delay the process would not arise despite the position that the agreement between the parties contains an arbitration clause.”

The Bench observed that,

“…mere filing of the proceedings under Section 7 of the IBC cannot be treated as an embargo on the Court exercising jurisdiction under Section 11 of the ACA, for the reason that only after an order under sub-section (5) of Section 7 of the IBC is passed by the NCLT, the Section 7 proceedings would gain a character of the proceedings in rem, which would trigger the embargo precluding the Court to exercise jurisdiction under the ACA, and more particularly in view of the provisions of Section 238 of IBC which would override all other laws.”

Hence, as noted in the present case, the Corporate Insolvency Resolution Process initiated by the respondent is yet to reach a stage of the NCLT passing an order admitting the said proceedings, the Court would not be precluded from exercising its jurisdiction under Section 11 of the ACA, when admittedly, there was an arbitration agreement between the parties and invocation of the arbitration agreement had been made, which was met with a refusal on the part of the respondent to appoint an arbitral tribunal.

While concluding the matter, Bench held that, the Court would be required to allow the present application by appointing an arbitral tribunal for adjudication of the disputes and differences which arose between the parties under the agreements in question.

Though the Court added that a formal order appointing an arbitral tribunal was not required to be made as after the judgment was reserved, the parties just two days back, settled the disputes stating that arbitration was not warranted. [Jasani Realty (P) Ltd. v. Vijay Corpn., 2022 SCC OnLine Bom 879, decided on 25-4-2022]


Advocates before the Court:

Dr. Birendra Saraf, Senior Advocate a/w. Anshul Anjarlekar i/b. Raval- Shah & Co., Advocate for the Applicant.

Mr.Yusuf Iqbal Yusuf i/b. Y. and A Legal, Advocate for the Respondent.

Case BriefsHigh Courts

Calcutta High Court: The Division Bench of Soumen Sen and  Ajoy Kumar Mukherjee, JJ., dismissed an appeal concerned with a breach of contract. The appeal arose out of a judgment in a suit for recovery of possession and injunction. Trial Court had decreed the suit on contest and dismissed the counter claim filed by the defendant.

Plaintiff was the landlord in respect of the suit premises, he had filed a suit for eviction in the Small Causes Court at Calcutta for eviction of the defendant/appellant who was a tenant under the plaintiff in respect of the second floor of the suit premises. During the pendency of the eviction suit appellant expressed her willingness to purchase the second floor of the suit premises and purchased the same for a consideration of Rs 13 lakhs.

The parties thereafter executed an agreement for sale on 15th February, 2006 which contained the detailed terms and conditions for the sale. Under the said agreement it was agreed that the entire consideration amount of Rs.13 lakhs shall be paid in installments commencing from December, 2006 and ending with November, 2008. It was further agreed that a sum of Rs.5 lakhs shall be paid within March 2007 as a condition precedent. The purchaser/defendant/appellant also agreed to pay a sum of Rs.40,000/- at the time of execution of the agreement which she paid by an account payee cheque bearing no. 253304 dated December 11,2006.

The plaintiff/respondent received Rs.40,000/- by cheque as the first installment. It should be noted that the balance consideration money was not paid. The defendant/appellant had also failed to make the payment of Rs.5 lakh within March 2007 as agreed between the parties. In view of such breach the plaintiff/respondent rescinded the said agreement and sued the defendant/appellant for recovery of possession.

Ms Sabita Mukherjee Roy Chowdhury, the Counsel for the appellant submitted that the Trial Judge completely erred in arriving at a finding that by reason of the execution of the agreement for sale, the relationship of the plaintiff and defendant as landlord and tenant ceased to exist. She further submitted that the intention of the parties was to continue with the relationship of the landlord and tenant until the execution of the sale deed. The termination of the agreement does not, ipso facto, give right to the landlord to evict the tenant on the ground of surrender of tenancy.

Mr Sourav Sen, the Counsel for the respondent, submitted that it was interesting to note that the agreement for sale used the expression ‘occupancy charge’ as opposed to “rent” thereby giving a clear indication that the period for which the appellant would remain in possession she would pay occupancy charges. He further submitted that when the appellant was inducted as tenant it meant that both the parties agreed that their relationship was to be that of landlord and tenant, which position however altered later when the landlord decided to sell the suit property to the tenant.

The Court clearly inferred that the parties consciously entered into the agreement for sale thereby altering their respective status. The agreement for sale was entered to at a point of time when the earlier suit for eviction was pending.

The defendant/appellant did not deny the due execution of the said agreement. The Court noted that evidence showed that the said agreement was acted upon and parties have altered their position on the basis of the said agreement. Once the agreement was entered into and acted upon the old relationship of landlord and tenant came to an end.

The Court reiterated the relevant paragraph of the Supreme Court ruling in R. Kanthimathi v. Beatrice Xavier, (2000) 9 SCC 339 which stated:

“This decision clearly spells out that once there is agreement of sale between a land lord and a tenant, the old relationship as such comes to an end. It goes on to record that even after the cancellation of such agreement of sale the status of tenant is not restored as such. In other words, on the date of execution of the aforesaid agreement of sale their status as that of landlord and tenant changed into a new status as that of a purchaser and a seller.”

The Court in these circumstances dismissed the appeal holding that parties who have acted in terms of the agreement for sale and altered their relationship consciously cannot now go back to their old relationship and seek relief in terms of such relationship. There is a clear and conscious act on the part of the appellant to surrender her right as a tenant to acquire a superior right of an owner of the second floor of the suit premises. [Sashi Jain v. Sandip Sarkar, 2022 SCC OnLine Cal 388, decided on: 02-03- 2022]


Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsHigh Courts

Delhi High Court: Amit Bansal, J., expressed that an LLP or any other business entity can carry out business in different parts of the country, but that would not mean that a suit with regard to disputes between the partners, could be filed in any place where the business of the firm/LLP is carried out.

A petition was filed under Article 227 of the Constitution of India which impugned the order passed by the District Judge whereby the application was filed on behalf of the petitioners/defendants under Order VII Rule 10 and 11(d) of the Code of Civil Procedure, 1908 had been dismissed.

The plaint from which instant petition arose was filed by the respondent/plaintiff, being one of the partners of the petitioner 3/defendant 3 which was a Limited Liability Partnership (LLP) and against the respondents 1 and 2/defendants 1 and 2 who were the remaining partners of the said LLP.

Petitioners/Defendants counsel submitted that the registered office of the LLP was in Hyderabad, hence the Courts in Delhi did not have any jurisdiction.

Respondent/Plaintiff submitted that the business of the LLP was duly being carried out in Delhi through the respondent/plaintiff and therefore, the cause of action would arise in Delhi. Hence, the Courts in Delhi would be competent to try and entertain the present suit.

Grievance in the Matter

Respondent/plaintiff was aggrieved that he had been denied access to the business accounts of the respondent 3/defendant 3.

Analysis and Discussion

In the plaint it was nowhere submitted that the business accounts, in respect of which access has been sought were kept in Delhi, in fact, the plaint is conspicuously silent on the aspect of the cause of action for filing of the suit.

The entire basis of the respondent/plaintiff for filing the suit in Delhi was on account of the fact that the LLP carried out business in Delhi and that the products of the LLP were regularly sold in Delhi by means of online sales as well as through physical stores such as Nature’s Soul, which is in Delhi.

High Court opined that the fact that business of the LLP was being carried out in Delhi would not vest the Courts of Delhi with jurisdiction to try and entertain the present suit.

Additionally, the Bench stated that Section 13 of the LLP Act provides that every LLP shall have a registered office, where all communications and notices may be addressed and shall be received. In terms of Section 34(1) of the LLP Act, the books of account in respect of an LLP shall be maintained at the registered office.

Further, in view of the facts and circumstances of the case, Court decided that the jurisdiction to entertain the present suit shall vest with the Courts in Hyderabad.

Since there was no principal or subordinate office of the LLP in Delhi and neither the books of accounts were kept in Delhi, therefore, there was no cause of action in respect of the present suit which was arising within the territorial limits of the Courts in Delhi.

Parties by agreement cannot give jurisdiction to a Court which otherwise does not have such jurisdiction. 

Maintainability in Civil Court

Bench elaborated that, merely because the definition of the “body corporate” under Section 2(1)(d) of the LLP Act includes an LLP, it is not automatically implied that the NCLT would be the competent forum for deciding all disputes inter se the partners of an LLP. Unlike Section 430 of the Companies Act, 2013, there is no bar on the jurisdiction of the Civil Courts under the provisions of the LLP Act. Therefore, in terms of Section 9 of the CPC, the suit shall be maintainable in a Civil Court.

Decision

Courts in Delhi lack the territorial jurisdiction to try and entertain the present suit.

In view of the above discussion, the present suit stood allowed. [Aanchal Mittal v. Ankur Shukla, 2022 SCC OnLine Del 633, decided on 25-2-2022]


Advocates before the Court:

For the Petitioners: K.C. Mittal with Yugansh Mittal and Sanjay Kumar, Advocates

For the Respondent: Vishal Singh, Advocates

Cyril Amarchand MangaldasExperts Corner

The Supreme Court of India has retrospectively applied a prohibition inserted by a 2015 amendment, where employees of a party cannot be appointed as arbitrators, to arbitrations commenced even before the amendment.

In Ellora Paper Mills v. State of M.P.,[1] the Supreme Court (Court) held that a tribunal comprised entirely of officers of the State had “lost its mandate” by virtue of the 2015 amendment (2015 amendment) to the Arbitration and Conciliation Act, 1996 (Act), which inter alia prevents appointing arbitrators who are the employees, consultants, or advisors, or persons that have any other past or present business relationship with a party to the dispute.

A reading of the judgment suggests that the Court premised its ruling on the fact that the underlying arbitration did not technically commence because the State had obtained a stay on proceedings from the Madhya Pradesh High Court. Therefore, the arbitration was deemed to have commenced after the 2015 amendment, due to which the judgment does not strictly apply the 2015 amendment retrospectively. However, as we explain below, obtaining a stay on proceedings presupposes that those proceedings have commenced. On that basis, this decision could serve as precedent for extending the 2015 amendment retrospectively.

The 2015 amendment inserted Section 12(5) and the Fifth, Sixth, and Seventh Schedules to the Act. Under Section 12(5), persons who fall within the Seventh Schedule are ineligible to act as arbitrators, unless the parties by way of express agreement waive the disqualification after the dispute arises. Besides the appointment of employees or consultants, other examples of such ineligibilities include having a significant financial interest in the outcome of the case, or being a lawyer in the same law firm which is representing one of the parties.

Under Section 12 of the Act, an arbitrator must disclose grounds that may give rise to “justifiable doubts” about his impartiality and independence. The grounds for this purpose are mentioned in the Fifth Schedule. Some of these grounds (namely, Entries 1-19) also appear in the Seventh Schedule, which governs when an arbitrator becomes ineligible for appointment. There is a commonality of grounds in the Fifth and Seventh Schedules for the sole purpose of ensuring that the grounds in the Seventh Schedule are made aware to the parties by the arbitrator due to her obligations in the Fifth Schedule. In this sense, the 2015 amendment creates a dichotomy between grounds that may give rise to justifiable doubts, which become the subject of a challenge to the arbitrator, and grounds in the Seventh Schedule that automatically render an arbitrator ineligible and terminate her mandate.

The Fifth and Seventh Schedules are inspired by the IBA Guidelines on the Conflicts of Interest in International Arbitration (IBA Guidelines), issued by the International Bar Association (IBA). However, they depart from the IBA Guidelines on the point of waiver. Unlike the IBA Guidelines, the proviso to Section 12(5) allows parties to waive the ineligibility in the Seventh Schedule after a dispute arises by way of an express agreement in writing.

In its judgment in Ellora Paper Mills[2], the Court ruled that because the Arbitral Tribunal constituted to hear the underlying dispute was composed of employees of the State, they became ineligible after the 2015 amendment, thereby terminating their mandate. Therefore, the Court ruled that the Tribunal could not continue, and a fresh arbitrator had to be appointed as per the Act.

The Court’s decision is a useful consolidation of the various rulings on Section 12(5) of the Act, and serves as a reminder for parties to assess whether arbitration agreements concluded before the various amendments to the Act need a rethink in light of the changing legal landscape. However, the decision’s impact on arbitrations commenced before the 2015 amendment is worrisome, as it has the potential effect of: (1) applying this substantive retrospectively (although, as discussed below this is based on the court’s interpretation that the arbitration did not “commence” before 2015 – which we argue is not accurate); and (2) compelling pre-amendment arbitrations to start afresh by reconstituting the Tribunal—to the extent the Tribunal has become ineligible and loses its mandate to act—even if the arbitration is at an advanced stage.

Facts

At the heart of controversy is a government tender issued by the State of Madhya Pradesh for the supply of specialised paper for the year 1993-1994. Ellora Paper Mills (Ellora) bid successfully and was awarded a contract through a supply order.

Subsequently, Ellora remonstrated that the State did not honour its payment obligations under the contract and had also rejected some consignments without justification. The State informed Ellora that the paper supplied did not conform to its specifications and could not be utilised.

From 1994 onwards, Ellora filed a variety of civil actions against the State. One of these was a civil suit for the recovery of money. The State approached the civil court under Section 8 of the Act, seeking a stay of the civil proceeding and requesting that the parties be referred to arbitration. The civil court rejected this application. On appeal, the Madhya Pradesh High Court in 2000 referred the parties to arbitration. A tribunal called the “Stationery Purchase Committee” was then constituted in the same year. It comprised of five officers of the State, including Deputy Secretary, Department of Revenue, Deputy Secretary, General Administration Department, and Deputy Secretary, Department of Finance.

Between 2000 and 2019, the arbitration did not progress in view of Ellora’s numerous objections to the Tribunal’s jurisdiction and consequent litigation on the matter. Ultimately, in 2019 Ellora filed an application before the Madhya Pradesh High Court under Section 14 (failure or impossibility to act) read with Sections 11 (appointment of arbitrators) and 15 (termination of mandate and substitution of arbitrator) of the Act. It requested that a new tribunal be constituted, as the Stationery Purchase Committee had become ineligible pursuant to the 2015 amendment inserting Section 12(5) in the Act.

Before the High Court, Ellora argued that because the nominated arbitrators were all employees of the State, they were hit by the ineligibility in Entry 1 of the Seventh Schedule of the Act, which bars an arbitrator from being an employee, consultant, advisor or having any other past or present business relationship with a party. By reason of their ineligibility, Ellora asserted that the ineligible arbitrators could not appoint their replacement arbitrators either.

The High Court rejected Ellora’s application. It relied on the Supreme Court’s decisions in BCCI v. Kochi Cricket (P) Ltd.[3] and Union of India v. Parmar Construction Co.,[4] where the Court had ruled that provisions of the 2015 amendment will not apply to arbitral proceedings commenced before the 2015 amendment unless the parties otherwise agreed. In this case, the High Court ruled that the prohibition in Section 12(5) read with the Seventh Schedule­—inserted by the 2015 amendment—preventing a party from appointing its own employees to an Arbitral Tribunal did not apply to the arbitration, as it had commenced before the 2015 amendment. Ellora appealed this decision to the Court.

Arguments by the parties

Before the court, Ellora argued that in the absence of an express agreement in writing to continue with the arbitration proceedings, the mandate of the Stationery Purchase Committee had terminated after the insertion of Section 12(5) of the Act.

In response, the State argued that since the Arbitral Tribunal was constituted in 2000, Section 12(5) would not apply. The State asserted that the 2015 amendment, which was brought into effect from 23-10-2015 did not have retrospective application.

The Court’s decision

The Court observed that though the Tribunal was formed in 2000, there was no real progress in the arbitration due to the various litigations initiated by Ellora, which culminated in a stay granted by the Madhya Pradesh High Court from 2001 to 2017. “[T]he fact remains”, the Court said, that “no further steps whatsoever have been taken in the arbitration proceedings and therefore technically it cannot be said that the arbitration proceedings by (the Stationery Purchase Committee) has commenced”.

Accepting that the Arbitral Tribunal—comprising officers of the State—were hit by the disqualification in Section 12(5) read with Entry 1 in the Seventh Schedule of the Act, the Court ruled that all the members had become ineligible to continue as arbitrators. When the arbitration clause is found to be foul with the amended provision, the appointment of arbitrators would be “beyond the pale of the arbitration agreement”, empowering a court to appoint an arbitrator as may be permissible, the Court ruled.

 

As a result, the Court ruled that a fresh arbitrator had to be appointed under the provisions of the Act. It set aside the decision of the High Court. Interestingly, instead of remanding the matter to the High Court for appointing a fresh arbitrator, the Court went ahead and appointed its own choice of an arbitrator (retired Justice Abhay Manohar Sapre). It did so because the dispute was pending for over 21 years.

Comment

The Court in Ellora Paper Mills[5] engaged on the limited legal question (for the first time) of whether an ineligibility, when it exists, applies to arbitration proceedings initiated before the 2015 amendment. Previous decisions, though sharing the commonality of a contract concluded before the 2015 amendment, were nevertheless in respect of arbitration proceedings commenced after the 2015 amendment. The implications of the judgment in Ellora Paper Mills[6] on arbitral proceedings before the 2015 amendment are worrisome and against business prudence.

(1) 2015 amendment given retrospective applicability without legal basis

Firstly, the Court said because the arbitration did not progress since 2000, the arbitration proceedings did not “technically” commence.[7] This finding, it may be argued, can be looked at differently since Ellora could have never obtained a stay on proceedings that did not commence at all. Therefore, the Court’s observation that the arbitration did not “technically” commence is contrary to the stay having been granted.

At any rate, the court seems to have relied on the nascent stage of the underlying arbitration to make the ineligibility in Section 12(5) read with the Seventh Schedule applicable to members of the Arbitral Tribunal, by virtue of their relationship with the State. While this ruling is correct in attempting to remedy the wrongs that the Fifth and Seventh Schedules to the Act aim to redress, it allows a subsequent judicial forum to halt arbitral proceedings at an advanced stage and appoint a new arbitrator if a party petitions to have the Tribunal’s mandate terminated retrospectively on applying the standards of the 2015. This would seriously hamper the efficacy of the previous proceedings and would require the whole dispute to be heard afresh. One way to distinguish this case is the Court ruled as it did since it found that the arbitral proceedings had not commenced and therefore that they are deemed to have been commenced after 2015. However, as described above, this finding is also open to other interpretations.

The Court’s reliance on previous decisions on Section 12(5) to arrive at its ruling deserves some inspection.

By way of background, the genesis of the legal discussion surrounding Section 12(5) is in two decisions of the Court in Voestalpine Schienen GmbH v. Delhi Metro Rail Corpn. Ltd.[8] and HRD Corpn. v. GAIL (India) Ltd.[9] In these cases, the Court characterised an arbitrator’s ineligibility in the Seventh Schedule as one which goes to the “root of the appointment”. This is because the arbitrator’s ineligibility is by operation of law, and renders her without any inherent jurisdiction to continue. In such cases, the Court ruled that a challenge to the arbitrator (or the Tribunal) is not needed. An aggrieved party needs to instead file an application under Section 14(2) of the Act, which deals with an application to a court for terminating an arbitrator’s mandate.

In TRF Ltd. v. Energo Engg. Projects Ltd.[10] (TRF) the Court considered whether the Managing Director of a party designated as an appointing authority, and subsequently rendered ineligible under Section 12(5) read with the Seventh Schedule could then nominate an arbitrator as his/her replacement. The Court invoked the maxim qui facit per alium facit per se (what one does through another is done by oneself), and ruled that the nomination of an arbitrator by an ineligible arbitrator would be tantamount to the ineligible arbitrator carrying on the arbitration herself. This was not allowed.

Subsequently, in Bharat Broadband Network Ltd. v. United Telecoms Ltd.,[11] (BBNL) the Court ruled that the decision in TRF[12] does not save appointments by ineligible managing directors even if such appointments were made before the judgment in TRF.[13] Both TRF[14] and BBNL[15] are decisions where the contract was concluded before the 2015 amendment but the dispute itself arose after the 2015 amendment.

At this juncture, it is noteworthy to mention that the proviso to Section 12(5) allows parties to waive an arbitrator’s ineligibility once the dispute arises “by an express agreement in writing”. Interpreting these words, the Court in BBNL[16] said the requirement under Section 12(5) is to have an express agreement in writing, which disallows implied agreements (or conduct) such as filing a statement of claim in the arbitration. In any case, the Court added, party autonomy in waiving the ineligibility under Section 12(5) by express agreement “is to be respected only in certain exceptional situations” such as family arbitrations or situations where the ineligible person commands blind faith by both parties to the dispute.

In Jaipur Zila Dugdh Utpadak Sahkari Sangh Ltd. v. Ajay Sales & Suppliers[17] the Court considered whether the chairman of one of the parties could act as a sole arbitrator in the dispute. The contract in this case was also before the 2015 amendment, but disputes arose after the 2015 amendment. Observing that since an arbitrator derives her power of appointment from the arbitration agreement, if the arbitration agreement itself becomes contrary to law, the Court said the ineligible arbitrator can no longer continue to act. In such cases, it would be appropriate for a party to approach a court and have a replacement arbitrator appointed.

On facts, the Court in Jaipur Zila Dugdh[18] ruled that a chairman would be ineligible under the Seventh Schedule since he (i) has a business relationship with one of the parties to the dispute; (ii) has a controlling influence over one of the parties; and (iii) represents or advises one of the parties or their affiliates.

 

In Ellora Paper Mills[19], the contract and arbitration were both before the 2015 amendment—a unique factual matrix not seen in TRF[20], BBNL[21], or Jaipur Zila Dugdh[22]. Yet the Court relied on these three decisions and extended the 2015 amendment to an arbitration proceeding commenced before the 2015 amendment. While it is true that an arbitrator becomes ineligible by virtue of the 2015 amendment, the question before the Court was whether that ineligibility would operate in the arbitration in question, commenced several years prior in time. The Court ruled that it did on the basis that the underlying arbitration never commenced because of the stay order. However, the Court did not engage any further on whether its ruling meant all pre-2015 amendment arbitrations would now expose themselves to the 2015 amendment.

The applicability of the 2015 amendment to arbitral proceedings, while the subject of some initial controversy, is now a settled question in view of the judgment in BCCI v. Kochi Cricket (P) Ltd.[23] where the Court ruled that the 2015 amendment applies prospectively to arbitral proceedings i.e. to arbitrations commencing after 23-10-2015, which is the date when the 2015 amendment came into effect. As for court proceedings relating to arbitration proceedings, the Court ruled that the 2015 amendment would apply to all court proceedings even if initiated before the 2015 amendment.

The Government sought to nullify this ruling through the Arbitration and Conciliation (Amendment) Act, 2019, which inserted a new Section 87 that provided that (unless the parties agreed otherwise) the 2015 amendments would apply prospectively to all arbitral and court proceedings commenced after 23-10-2015 and not otherwise. The Court struck this down as unconstitutional in Hindustan Construction Co. Ltd. v. Union of India.[24] As a result, the position in BCCI[25] is the law today.

Therefore, the judgment in Ellora Paper Mills[26] read in the context of these cases seems to be a deviation from the effect of the ruling in BCCI[27]. Both BCCI[28] and Ellora Paper Mills[29] were rendered by two-Judge Benches. Section 26 of the 2015 amendment is also designed to apply prospectively since it states, “Nothing contained in the (2015 amendment) shall apply to the arbitral proceedings commenced, in accordance with the provisions of Section 21 of (the Act) unless the parties otherwise agree….”

The only remaining issue on the retrospective applicability of the 2015 amendment to arbitral proceedings is when can parties said to have agreed to make the amendment applicable to their arbitration. Case law suggests that the standard of proof for such an agreement is high. For example, S.P. Singla Constructions (P) Ltd. v. State of H.P.[30] ruled that a contractual clause that said any statutory modifications or re-enactments to the Arbitration Act, 1940 shall also apply to the arbitration proceedings under that clause were itself not sufficient to make the 2015 amendment to Section 12(5) applicable to arbitral proceedings commenced in 2013. The Court in Ellora Paper Mills[31] did not consider that commencing an arbitration before the 2015 amendment was itself evidence that the parties did not intend to make the 2015 amendment apply to their arbitration.

(2) Amending existing arbitration agreements and powers of the court as an appellate forum

Nevertheless, Ellora Paper Mills[32] and the judgments it relies on has an important commercial implication. Arbitration agreements, particularly in government contracts, concluded before 2015 may still stipulate the appointment of an arbitrator in contravention of the Seventh Schedule.

Where a party believes it would not prefer to waive this disqualification in future, it must initiate negotiations to amend the arbitration clause and bring it in line with the Act. This would save a lot of legal costs and precious time after a dispute arises.

Section 14 of the Act inter alia says an arbitrator’s mandate terminates if he becomes de jure unable to perform his functions. The effect of case law on Section 12(5) read with the Seventh Schedule is an ineligible arbitrator becomes de jure unable to perform his functions, consequently seeing his mandate terminated. If the parties disagree on this fact that the mandate is terminated, they can apply to a court under Section 14 to receive a judicial decision on this point.

Another important aspect of Ellora Paper Mills[33] is the Court’s decision to appoint a replacement arbitrator itself, instead of remanding the case to the Madhya Pradesh High Court. The Court cites the sheer delay in proceedings as a ground for exercising its powers (presumably under Article 142 of the Indian Constitution) to appoint a replacement arbitrator.[34] This is a welcome move, as it shows the Court’s willingness to exercise its powers as an appellate forum to do justice.

(3) Impact of Ellora Paper Mills on government maintained panels of arbitrators

In Voestalpine Schienen GmbH v. Delhi Metro Rail Corpn. Ltd.[35] (DMRC case) the arbitration clause stipulated that the Delhi Metro Rail Corporation would forward names of five persons from a 31-member panel it maintains to the other party, which would then have to choose its nominee arbitrator from the shortlisted names. The other party challenged this procedure on grounds that the panel comprises of government employees who did not qualify as independent arbitrators.

The Court said the fact that one of the members of the panel was a government employee did not by itself make the person ineligible under Section 12(5), as such persons would possess the necessary technical background to decide the case. The true test was whether such a panel member could be treated as an employee or consultant or advisor of the Delhi Metro Rail Corporation specifically.

As a result, maintaining a panel of arbitrators is not disallowed under the scheme of Section 12(5) of the Act. Nevertheless, the Court in its judgment in the DMRC[36] observed that it is not appropriate for the other party to have been given only five names from a larger pool of 31 names. The Court also said the scope of the panel ought to be expanded, with even retired private sector technical persons as well as persons with a legal background brought under its ambit.

Government contracts today are likely to contain arbitration clauses that fall foul of the prohibition in Section 12(5) read with the Seventh Schedule. As a final takeaway, these clauses should be amended to address the rulings of the series of judgments culminating with Ellora Paper Mills[37] and to address the observations in the DMRC[38]. In particular, clauses that specify designations of government employees as arbitrators can no longer remain, unless those arbitrators are employees of a different government department. Equally, a panel of arbitrators maintained by a government department (or the Government itself) must be diverse, and should allow the opposite party scope to select from a wide pool of people.

Conclusion

The importance of choosing a technically qualified arbitrator can never be overstated. However, the law installs some protections to prevent a party, especially when it is a government entity, from breaching the rule against bias by appointing their own employee, consultant or advisor or anyone with a past business relationship as an arbitrator. While applying this welcome change in Indian law however, care should be taken such that its impact does not unsettle past arbitrations. Of course in this case, the Court was trying to correct a historical long and galvanise a slow moving arbitration – this however should not be read to mean that all pre-amendment arbitrations would now open themselves up to the rigours of the 2015 amendment standards on appointment. A fine balance in this regard has to be maintained to apply these changes even handedly.


† Partner at Cyril Amarchand Mangaldas.

†† Associate at Cyril Amarchand Mangaldas.

[1] 2022 SCC OnLine SC 8.

[2] 2022 SCC OnLine SC 8.

[3] (2018) 6 SCC 287.

[4] (2019) 15 SCC 682.

[5] 2022 SCC OnLine SC 8.

[6] 2022 SCC OnLine SC 8.

[7] 2022 SCC OnLine SC 8, Para 6

[8] (2017) 4 SCC 665.

[9] (2018) 12 SCC 471.

[10] (2017) 8 SCC 377.

[11] (2019) 5 SCC 755.

[12] (2017) 8 SCC 377.

[13] (2017) 8 SCC 377.

[14] (2017) 8 SCC 377.

[15] (2019) 5 SCC 755.

[16] (2019) 5 SCC 755.

[17] 2021 SCC OnLine SC 730.

[18] 2021 SCC OnLine SC 730.

[19] 2022 SCC OnLine SC 8.

[20] (2017) 8 SCC 377.

[21] (2019) 5 SCC 755.

[22] 2021 SCC OnLine SC 730.

[23] (2018) 6 SCC 287.

[24] (2020) 17 SCC 324 : 2019 SCC OnLine SC 1520.

[25] (2018) 6 SCC 287.

[26] 2022 SCC OnLine SC 8.

[27] (2018) 6 SCC 287.

[28] (2018) 6 SCC 287.

[29] 2022 SCC OnLine SC 8.

[30] (2019) 2 SCC 488.

[31] 2022 SCC OnLine SC 8.

[32] 2022 SCC OnLine SC 8.

[33] 2022 SCC OnLine SC 8.

[34] 2022 SCC OnLine SC 8, Para 11.

[35] (2017) 4 SCC 665.

[36] (2017) 4 SCC 665.

[37] 2022 SCC OnLine SC 8.

[38] (2017) 4 SCC 665.

National Consumer Disputes Redressal Commission
Case BriefsTribunals/Commissions/Regulatory Bodies

National Consumer Disputes Redressal Commission, New Delhi (NCDRC): The Coram of R.K. Agrawal (President) and Dr S.M. Kantikar (Member) addressed a matter wherein the builder took money from the purchaser for the formation of a co-operative housing society but failed to do so and when asked for the refund, he did not return the money as well.

An agreement was entered between the complainant and the OP to construct Bungalow and as per that, the complainant had paid Rs 10,00,000 as consideration. The said agreement was not notarized, after handing over the possession and Occupancy Certificate, OP had to form a Co-operative Society, for which an amount was collected from the complainant, which was Rs 75,000, but OP failed to do so and also did not enroll the complainant as a member or executed independent Deed of Sale.

Later it came to the complainant’s knowledge that the OP had executed a few individual sale deeds in respect of some purchasers but not for the complainant. The complainant got drafted a sale deed, but the OP demanded a further amount even after agreeing initially that he would execute the same.

The complainant even obtained a NOC under FEMA. Yet the sale deed was not executed by the builder.

Hence, on being aggrieved with the above circumstances, the party reached the consumer forum for a refund of Rs 10,00,000 along with interest @18% p.a.; compensation of Rs 5,00,000 and Rs 50,580 towards travel expenses due to postponement of Air Ticket to USA.

Analysis, Law and Decision

Coram noted that the appellant builder executed individual Sale Deeds in respect of some purchasers.

Commission found that the Complainant had agreed to join Co-operative Housing Society, but the appellant did not form any and also did not refund the money paid by the complainant as ‘advance towards the maintenance and formation of the Co-operative Housing Society”.

Based on the above discussion, the OP was liable for deficiency in service. [Dilip Sagun Naik v. Dr Maliyil Cheriyan Mathai, 2022 SCC OnLine NCDRC 30, decided on 17-2-2022]


Advocates before the Commission:

For the Appellant: Mr. Dileep Poolakkot, Advocate

For the Respondent: Mr. S.N. Joshi, Advocate

Op EdsOP. ED.

Arbitration being a private procedure established by agreement, it is possible for the parties to agree (whether by subscription to the printed code of procedure of an institution or otherwise) to lay down for themselves the procedure to be followed.[1] Arbitrators are the Arbitral Tribunal whose jurisdiction is wholly derived from contract.[2] When parties agree to enter into an institutional arbitration, they agree to be bound by the rules and procedures of that arbitral institution.[3] Not only the parties, but the arbitrator/s (whether nominated by the parties or by the institution itself) are also bound to follow the rules and procedure of the chosen arbitral institution unless otherwise agreed. An arbitration is said to be institutional when the parties agree to an institution’s arbitration rules and have delegated to this arbitral institution the power to make binding decisions on certain procedural matter.[4]

According to the Black’s Law Dictionary, the breaking or violating of a law, right, or duty, either by commission or omission is called as “breach”. When parties intend to enter into an institutional arbitration, in case of any future disputes the standard language of the arbitration clause is (ICC Rules[5], for example)—

All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.

The Black’s Law Dictionary defines “breach of contract” as failure, without legal excuse, to perform any promise which forms the whole or part of a contract.

As stated hereinabove, the arbitration clause in the contract itself states that any future dispute shall be settled by way of rules of the chosen arbitral institution. As the language suggests, the contract between the two disputing parties indirectly binds the parties and the arbitral institution to the arbitral institutional rules, being in connection or a part of the contract or the arbitration agreement, and can be understood to be a breach of contract by either of the party if obligations/ duties by which such party is bound to follow fails to comply with the same. In many common law countries, the legal relationship between the arbitral institution and the parties are considered to be contractual in nature.[6] Moreover, the main features of a contract are (a) offer, (b) acceptance, and (c) consideration. A contract is equally binding even if it is oral in nature. The parties offer the
arbitral institution to become the administrative body of their dispute resolution with the monetary consideration in terms of the administrative fees. When the arbitral institution accepts the offer, it becomes a contract, legally enforceable by law.

Therefore, it will not be wrong to interpret that even a failure of performing an obligation or violating a duty of commission of the arbitral institutional rules, by either of the party may constitute a breach of contract. For example, if in an institutional arbitration the claimant fails to deposit requisite administrative fee to the arbitral institution or any requisite document, papers, etc., (which the parties are mandatorily bound to comply as in terms of the arbitral institutional rules) the arbitration procedure may come to a halt.

As far as repudiatory nature of such breach is concerned, let us first understand the exact legal meaning of the term “repudiation”. A repudiation means a contracting party’s words or actions that indicate an intention not to perform the contract in the future; a threatened breach of contract.[7] In Heyman v. Darwins Ltd.[8], the term “repudiation” has been interpreted in wide aspect which may form relevancy to the proposition in concern —

“Repudiation in relation to a contract may mean (a) a denial that there was a contract in the sense of an actual consensus ad idem; (b) a claim that apparent consent was vitiated by fraud, duress, mistake, or illegality; (c) a claim that the contract is not binding owing to a failure of condition or breach of duty which invalidates the contract; (d) an unequivocal refusal to proceed with an admittedly binding contract, or mostly commonly; and (e) an anticipatory breach whereby one party to a contract indicates an intention not to be bound thereby, whereupon the other party accepts repudiation and rescinds the contract.”

If we look into the Indian context as well, according to Section 39 of the Contract Act, 1872[9], if a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promise may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.

In Samsung Electronics v. Qimonda AG[10], the parties had entered into a licence contract wherein they agreed to refer any future disputes, if any, to ICC arbitration. However, when a dispute arose and they referred the same to International Chamber of Commerce (ICC), it was observed that the contract had derogated from two integral factors, attempting to exclude the most invasive powers of ICC. Due to this derogation, the ICC Secretariat refused to administer the arbitration and when the parties refused to remove the adversaries, the ICC institution terminated the arbitration proceedings. The parties then opted for ad hoc arbitration.

Continuing with the previous example, if the claimant, during an institutional arbitration, fails to pay the requisite administrative fee to the institution, the institution may, at its discretion, repudiate the complete proceedings on account of such non-payment and breach of rules thereof, unless otherwise provided. On an alternative, there is also a view that even if a party has committed serious procedural defaults or has completely ignored the arbitration process, institutional arbitration rules and national arbitration laws generally require that an Arbitral Tribunal still examine the merits of the claim based on whatever evidence has been put before it.[11] If insufficient evidence has been provided to prove a claim to the necessary standard, the claim will still fail, regardless of the opposing party’s procedural defaults.[12] However, the fact that must be kept in mind that such situation is subjective in nature and differs from institution to institution as to the manner in which different arbitral institutional rules are made. Usually, the arbitration institutions have the right to identify and decide which of their rules are derogatable and non-derogatable. Breach of such institutional rules occurs when either of the parties derogate from performing its mandatory duties provided under the arbitral institutional rules. If the construction of the arbitration clause in the contract is such that it derogates from a mandatory rule of the chosen arbitral institution, the arbitral institution shall have a right to halt the proceedings and terminate the contract.


Advocate. Author can be reached at <garimasharma97@gmail.com>.

[1]P.C. Markanda, Building & Engineering Contracts, Law & Practice, p. 1432 (LexisNexis, 4th Edn., Vol. 2, 2013).

[2]P.C. Markanda, Building & Engineering Contracts, Law & Practice, p. 1432 (LexisNexis, 4th Edn., Vol. 2, 2013).

[3]Eric Robine, The Liability of Arbitrators and Arbitral Institutions in International Arbitrations under French Law, Arbitration International, Vol. 5, Issue 4, 1989, pp. 323- 332.

[4]Ulrich G. Schroeter, Ad Hoc or Institutional Arbitration — A Clear-Cut Distinction? A Closer Look at Borderline
Cases, p. 185.

[5] ICC Arbitration Rules, 2017.

[6]Timar, Kinga, The Legal Relationship between the Parties and the Arbitral Institution, ELTE Law Journal, 2013 (last visited on 23-8-2021 at 9.18 a.m.), <https://eltelawjournal.hu/the-legal-relationship-between-the-parties-and-the-arbitral-institution/>.

[7]P. Ramanatha Aiyar’s Advanced Law Lexicon, p. 4079 (LexisNexis, 3rd Edn.).

[8] 1942 AC 356 : (1942) 1 All ER 337.

[9]  Contract Act, 1872, S. 39.

[10]Samsung Electronics v. Qimonda AG, Tribunal de Grande Instance (TGI) (ordinary court of original jurisdiction)
Paris, 22-1-2010, 10/50604, 571 (Fr.).

[11]Latham & Watkins, Guide to International Arbitration, p. 8, (last visited on 23-8-2021 at 8.20 a.m.),
<https://www.lw.com/thoughtleadership/guide-to-international-arbitration-2017>.

[12]Latham & Watkins, Guide to International Arbitration, p. 8, (last visited on 23-8-2021 at 8.20 a.m.),
<https://www.lw.com/thoughtleadership/guide-to-international-arbitration-2017>.

Case BriefsTribunals/Commissions/Regulatory Bodies

National Consumer Disputes Redressal Commission (NCDRC): Ram Surat Maurya (Presiding Member) addressed a matter wherein the date of issue of the Risk Confirmation Letter was in a serious dispute leading to Insurance Broker’s fraudulent act.

The complainant had a factory, and the OP was engaged in the business of providing insurance services. Further, the complainant obtained standard Fire and Special Peril Policy from the OP, for a period of 10-2-2005 to 9-2-2006 for its buildings, furniture, fixtures, fittings and electrical installation, Plant and Machinery, machinery parts, Dies & moulds and stock for a sum of Rs 23 crores. The said policy was renewed.

In February 2008, the complainant invited offers from Insurances brokers for renewal of the above-said policy. It was stated that the Western Regional Office of the OP accepted the proposal form and issued risk confirmation for fire and allied perils insurance policy and Satyan Insurance Broker sent a Risk Confirmation letter to the complainant on 18-2-2008.

On 17-2-2008, a major fire occurred at the factory premises of the complainant causing extensive loss to the buildings, plant & machineries, furniture and stock etc. The complainant informed the insurer about the said incident and the insured appointed a surveyor and loss adjuster, and further the surveyor declined to proceed in the absence of the insurance policy.

The complainant received a letter (bearing the date 18-02-2008) on 28-02-2008 from the Insurer, stating therein that the consideration received for covering the risk was less than the offer given by them. Hence, they were not in a position to cover the risk as requested.

The Insurer, vide dated 13-03-2008, denied issuance of Risk Confirmation on 14-02-2008.

The complainant then gave a legal notice, to the Insurer for either making payment of Rs 2.70 crores within seven days or to refer the dispute to an Arbitrator. The Insurer, vide reply declined to refer the dispute to an Arbitrator or to pay.

Further, the complainant filed an arbitration application in the Bombay High Court which was ultimately rejected on the ground that in the absence of an arbitration agreement between the parties, the application was not maintainable. Then the present complaint was filed.

What is the serious dispute about?

The dispute between the parties was with regard to the date of issue of Risk Confirmation letter and the letter of the Insurer, declining to issue policy on the ground that the premium was deficient.

Analysis and Discussion

The Commission stated that two circumstances clearly proved the fraudulent act of Satyan Insurance Broker, firstly cheque of Rs 6,825 was bearing a date of 13-02-2008. The complainant issued his cheque of Rs 23,891 on 13-02-2008. Had Satyan Insurance Broker informed the complainant that an insurance premium of Rs 30,176 was payable then the complainant instead of issuing a cheque of Rs 23,891 would have issued the cheque of the full amount. Secondly, it was not a normal conduct that any insurance agent would give a premium of a client from his account.

Section 19 of Contract Act, 1872, provides that when the consent of an agreement is caused by coercion, fraud, or misrepresentation, the agreement is voidable at the option of the party whose consent is so caused.

In Supreme Court’s decision of Reliance Life Insurance Company v. Rekhaben Nareshbhai Rathod, (2019) 6 SCC 175 and New India Assurance Company Ltd. v. Satpal Singh Muchal, (2009) 12 SCC 673, it was held that a contract insurance is a contract of uberrima fide and non-disclosure of material fact, vitiates the insurance policy.

Therefore, no illegality in not issuing the insurance policy by the Insurer as the Risk Confirmation letter was obtained on concealment of material facts relating to the fire incident.

Coram concluded by stating that,

“If Risk Confirmation letter had been issued on 14.02.2008, the complainant would not have committed two days delay in informing the Insurer in respect of fire incident. Appointment of the surveyor on 20.02.2008 was an innocent mistake, the complainant cannot get any benefit of it.”

In view of the above, no merit was found in the complaint and it was dismissed. [Tainwala Personal Care Products (P) Ltd. v. Royal Sundaram Alliance Insurance Co. Ltd., 2022 SCC OnLine NCDRC 11, decided on 25-1-2022]


Advocates before the Commission:

For the Complainant: Ms. Fareshte Sethna, Mr. Munindra Dvivedi, Ms. Divya Bhalla, Ms. Aathira Pilllai, Advocates

For the OP: Mr. S.M. Tripathi, Advocate and Ms. Deepa Chacko, Advocate

Advani LawExperts Corner


Introduction


Many construction contracts require the contractor to enter into an agreement with a subcontractor for a specialised task of the contractor’s scope of work. The subcontractor can be either selected by the contractor or the employer of the contractor. When the subcontractor is selected and employed solely by the contractor the subcontractor is termed as a domestic subcontractor, however when the subcontractor is selected and employed by the employer, the subcontractor is then termed as a nominated subcontractor. Although the employer has selected the subcontractor, the contractor signs the agreement with the subcontractor and remains responsible for the works done. In simple words, a nominated subcontractor is selected by the employer and imposed on the contractor. However, whether the nominated subcontractors’ defaults and delays place a liability on the employer or the contractor has always been a point of contention.

 

Domestic subcontractors.– The contractor and the employer will shortlist certain number of potential subcontractors for the purpose of issuing the tender but will be finally selected and employed by the contractor. Therefore, the main contractor is solely responsible and liable for that subcontractor. Even though the employer is involved in the selection process of the subcontractor, the contractor is the one that chose the subcontractor for the specialised work and is responsible for the completion of the work without delay.

 

Nominated subcontractors.– The contractor and the employer will shortlist a certain number of potential subcontractors, but it is the employer that negotiates the terms of the contract, selects and employs the subcontractor. However, the contractor is responsible for the completion of the work, the liability of the subcontractor falls in the hands of the employer and the contractor has no cause of action against the employer in respect of any delay or default on the part of the nominated subcontractor.[1]


Development in law


  • Foreign jurisprudence

 

The concept of nominated subcontractors has been more nuanced in English law. As per various authorities, the contractor cannot bear liability of a subcontractor over which it has no control over.

  1. In Young & Marten Ltd. v. McManus Childs Ltd.[2], the Court of Appeal held that the contractor is not liable to the employer for any defects in design, quality of workmanship and materials provided by the subcontractor.
  2. In Gloucestershire County Council v. Richardson[3], the House of Lords held that the main contractor’s liability to the employer was limited to the extent of the nominated supplier’s liability to the main contractor by operation of the terms of the nominated subcontract.
  3. In North West Metropolitan Regional Hospital Board T.A. Bickerton & Son Ltd.[4], the Court held that in the absence of clear language, to make the contractor liable for a nominated subcontractor over whose appointment or activities he has little control is simply unjust.
  4. In Sinclair Woods of Winchester Ltd.,[5] the Court held that the main contractor has no liability for the design under the terms of the main contract, and that he cannot mysteriously acquire that liability merely because he is instructed to enter a subcontract with a nominated subcontractor who is going to do some design work on behalf of the employer.

 

Under JCT Standard Form of Building Contract, 1998, the contractor is entitled to claim an extension of time (EOT) but is not entitled to claim loss and expenses as confirmed in Norwest Holst Construction Ltd. v. Coop. Wholesale Society Ltd.[6] If the subcontractor is nominated, the contractor will be entitled to an extension of time since he had very less control over the subcontractor’s selection and therefore on the performance too (for example under Cl. 25.4.7 of the JCT, 1998). However, things have changed under the JCT 2005 Standard Form nomination which has done away with nomination. Instead the JCT has adopted the “the three persons” scheme which gives the employer the advantage of specifying a competent specialist subcontractor whilst leaving the risk of defective work and delay on the part of the subcontract with the contractor.[7]

Non-performance by the nominated subcontractor, does not entitle the contractor to additional time or expense, according to FIDIC’s Red Book Form of Contract, 1999. Under FIDIC 1999, the employer may appoint the subcontractor, once the subcontractor has accepted the nomination, the employer becomes responsible for the actions of the nominated subcontractor. Therefore, the contractor may not claim for any failures of the nominated subcontractor. The idea that the contractor is liable for the actions of nominated subcontractors is predicated on the fact that the main contractor has the option to object to the employer’s nomination at the outset. The contractor can make a legitimate objection by stating the reasons why the subcontractor chosen by the employer is unsuitable.

 

  • Indian jurisprudence

Indian law does not make a distinction between domestic subcontractors and nominated subcontractors. The Indian courts have adhered to the rules of privity of contract and have held that the relationship between the employer and the contractor is on one hand and the relationship between the contractor and the subcontractor is on the other hand keeping it distinct and separate as was held in Ircon International Ltd. v. Vinay Heavy Equipments[8]. In order to avoid legal battles on the issue of liability of the subcontractor, careful consideration must be given to drafting the terms and conditions of the subcontract.

 


Conclusion


The English law on nominated subcontractor seems to be more nuanced. The relationship between a subcontractor and the contractor depends upon the construction of the subcontract.[9] Much will be influenced by what the main contractor agreed to with the employer in the contract, and the contract’s provisions are always the launching point for determining the contractor’s liabilities. In the absence of any clause which expressly permits the contractor to claim time or cost, the risk of a nominated subcontractor lies with the contractor.[10]

 

Furthermore, because Indian courts have not dealt with the issue of nominated subcontractor defaults and delays, there is very little jurisprudence on the subject. However, based on the approach taken by English Courts, it is best to conclude that the most important factor in determining the contractor’s liability for defects and delays caused by the nominated subcontractor would be influenced by the selection process, negotiation of the terms of the subcontract, the employment and the subcontract.


† Hiroo Advani, Founder and Chairman, Advani Law.

†† Kanika Arora, Partner, Advani Law.

††† Surbhi Ahuja, Associate, Advani Law.

* Ria Garg, Associate, Advani Law.

[1]North West Metropolitan Regional Hospital Board v. T.A. Bickerton & Son Ltd., (1970) 1 WLR 607 at 615 : (1970) 1 ALL ER 1039.

[2](1969) 1 AC 454 : (1968) 3 WLR 630.

[3](1969) 1 AC 480.

[4](1970) 1 WLR 607 : (1970) 1 ALL ER 1039.

[5] 2006 EWHC 3003.

[6]1998 EWHC Technology 339

[7]JCT Standard Form of Building Contract, 2005, Cl. 3.8.

[8](2015) 13 SCC 680

[9]Calder v. H. Kitson Vickers & Sons (Engineers) Ltd., [1987] EWCA Civ J0730-9

[10]Percy Bilton Ltd. v. Greater London Council, (1982) 1 WLR 794.

Case BriefsHigh Courts

Delhi High Court: “It is the consideration which puts enforceability in the agreements to make promises legally binding”, Asha Menon, J., stated that the importance of ‘consideration’ cannot be belittled.

Background

Instant suit was filed to seek specific performance of a Collaboration Agreement for granting of a permanent and mandatory injunction against the defendant. Damages to the tune of Rs 2,10,00,000 were claimed against the defendant for attempting to cancel the said Collaboration Agreement.

Defendant was stated to be having 75% share in the said property and in actual, physical possession of his share, while his brother had 25% share in the said property, which the wife of the plaintiff claimed to have purchased through an Agreement to Sell from him for a sum of Rs 3,23,00,000, Rs 30,00,000 having been paid towards earnest money.

Contentions

Kishore M. Gajaria, Plaintiff’s counsel submitted that a Collaboration Agreement was entered into between the plaintiff and the defendant for re-development of the property and the same had been duly signed by the defendant. However, subsequently, a notice was issued to the plaintiff stating that the said agreement was an invalid document as it lacked in ‘consideration’ and had been forced upon the defendant, taking advantage of his age.

There were WhatsApp communications and talks on the phone between the parties, but the defendant claimed he was being prevented from acting on the Collaboration Agreement by his son and daughter-in-law.

Due to the defendant’s conduct, plaintiff suffered a loss as he had raised huge loans from the market and had purchased building materials worth Rs 10,00,000 too.

Further, the counsel submitted that the Collaboration Agreement contained reciprocal promises, plaintiff had undertaken to construct the property and the defendant did not have to spend any money, in return the defendant had to transfer two floors and 25% of the stilt parking to the plaintiff.

Hence consideration was the amount to be spent on construction and each party’s promise was the consideration for the reciprocal promise. Since the said promise of constructing two floors and handing over the same to the defendant was “valuable”, it satisfied the definition of ‘consideration’ under Section 2(d) of the Indian Contract Act, 1872.

Further, the counsel relied on the Supreme Court decisions in Union of India v. Chaman Lal Loona, 1957 SCR 1039 and Chidambara Iyer v. P.S. Renga Iyer, (1966) 1 SCR 168, and urged that what was “valuable” was determinable also by the Court and therefore, this Court may accept that consideration had passed, even if not in money.

Analysis, Law and Decision

High Court expressed that the reliance on Chidambara Iyer v. P.S. Renga Iyer, (1966) 1 SCR 168 was misplaced.

Question:

Whether the Collaboration Agreement contains promises that are valid and are binding?

Bench noted that there was no reference in the Collaboration Agreement to the consideration being paid for the transfer of the property by the defendant to the plaintiff, there was also no undertaking mentioned in the agreement as to the liability of the plaintiff to meet the construction cost and finally, not even an estimate of the construction cost was mentioned, though there was some reference to the quality of construction being ‘good’.

What all reciprocal promises made, and constituted consideration were not revealed or explained.

Bench also expressed that another significant fact was that the reply to the Legal Notice recorded that the conversion from leasehold to freehold did not take place. In fact, the said reply also revealed that the Agreement to Sell with the brother of the defendant was also dependent on the said conversion and as per the WhatsApp communication placed on record, the plaintiff’s wife seemed to have called off that deal too.

Court stated that in any event, payment of Rs 30,00,000 to the brother of the defendant can, by no means, be read as ‘consideration’ being paid to the defendant.

Elaborating further, WhatsApp communication addressed to the brother of the defendant which was sent by the plaintiff and his wife affirmed the position and because of the inability to convert the property, had requested that the Agreement to Sell between them be treated as cancelled. Hence, the refund of entire amount paid to him was also called for.

“Importance of ‘consideration’ cannot be belittled.” 

“Even where the ‘promisor’ intends to bind himself by the promise, ‘consideration’ is essential to make the promise binding and enforceable.”

Bench held that the agreement was completely silent on the value of the property, now belonging to the defendant, and the estimated cost of construction.

The Court opined that the ‘Agreement’ seemed to be more in the nature of a note of assurances and not a ‘concluded’ contract.

Further, the averments in the plaint and the documents filed by the plaintiff did not disclose any cause of action. Supreme Court in T. Arivandandam v. T.V. Satyapal, (1977) 4 SCC 467 has held that

while considering an application under Order VII Rule 11 CPC, what is required to be decided is whether the plaint discloses a “real cause of action” or something “purely illusory”. If, on a meaningful and not a mere formal reading of the plaint, it appears to be manifestly vexatious and meritless and fails to disclose a clear right to sue, but through clever drafting creates an illusion of a cause of action, the court being guided by the mandatory provisions of Order VII Rule 11 CPC should not hesitate to exercise powers vested in it to “nip it in the bud”.

In view of the above discussion, the plaint was rejected under Order VII Rule 11 (a) CPC. [Sameer Madan v. Ashok Kumar Kapoor, 2021 SCC OnLine Del 5290, decided on 15-12-2021]


Advocates before the Court:

For the plaintiff: Kishore M. Gajaria and Aayush Paranjpe, Advocates

Case BriefsHigh Courts

Delhi High Court: Rajnish Bhatnagar, J., while addressing the allegations of forged agreement, stated that the effect of the same would be considered during trial and no comments to reach any conclusion could be stated at this stage.

Instant anticipatory bail was sought under Sections 420/406/120-B of Penal Code, 1860.

Background

A complaint was lodged by a 90-year-old person against the petitioner and her husband alleging that he practices Vaidacharya and runs a manufacturing unit of some Ayurvedic medicines.

It was alleged that he used to propagate his advice about benefit of Ayurveda on various TV channels. Further, he came in contact with co-accused Sunil Kumar Jha, who introduced himself as channel head of Katyani Devotional TV channel and the complainant started telecasting his programs on the said channel in the year 2010-2011.

Complainant also said that Sunil Kuma Jha introduced the petitioner as his wife by saying that she is an expert having all technical knowledge to run TV channel, broadcasting etc.

Husband/co-accused of the petitioner also apprised the complainant that he had worked in Doordarshan and he alongwith the petitioner is the Director of a company namely M/s Viceroy Engineering Pvt. Ltd. It is alleged that after gaining the trust of the complainant, both the accused persons i.e. the present petitioner and her husband gave a proposal about establishing his own TV channel by purchasing majority shares of M/s Express Broadcasting Pvt. Ltd., which runs a channel namely “Zonet Zawlbuk” (earlier ENTV) and assured the complainant to create all the required infrastructure for establishment of TV channel.

Primary allegation was that the accused person trapped the complainant in the year 2016-17 and the complainant thereafter transferred Rs 2.21 Crores to the bank account of M/s Viceroy Engineering and also gave cash of Rs 25 lacs.

Further, it was added that the accused persons started promotion/ advertisement of complainant’s programme on a channel namely “Sanskriti TV” on which accused persons used content/programme of the complainant and sometimes it was live and sometimes recorded tapes were played.

In 2017, the telecast of the complainant’s programme was stopped and he was neither given payment for telecasting his programme nor he was returned the amount given for the purchase of the channel.

It was also alleged that on the advice of the accused persons, the complainant through bank transferred Rs 19,83,375/- to AV Edit Solution, Rs 27,01,542/- to Planet Cast Media Services Ltd. and Rs 1,50,50,000/- to Dish TV India Ltd. but later on the complainant came to know that the accused persons purchased the channel Sanskriti TV through shareholding of M/s Express Broadcasting Pvt. Ltd. in the name of Bindu Jha (petitioner herein) and not in the name of complainant as promised.

Complainant had also paid a sum of Rs 1.50 Crore in cash additionally for the development of the studio in the premises of the accused persons situated at Chander Nagar, Ghaziabad.

Analysis, Law and Decision

High Court noted that the matter was sent for mediation for settlement but the same could not be settled between the parties.

Court stated that as of now since the charge sheet was already filed without the arrest of the petitioner, all the material evidence and documents were collected, the petitioner was also granted interim protection and there were no allegations that during the period of interim protection she ever tried to influence the witnesses or tamper with the evidence, in the said circumstances, the bail application was allowed and the petitioner was admitted to bail.

In view of the above discussion, bail application was disposed of. [Bindu Jha v. State, 2021 SCC OnLine Del 5194, decided on 2-12-2021]


Advocates before the Court:

For the Petitioner:

Mr Mohit Mathur, Sr. Advocate with Mr Vipul Wadhwa, Advocate.

For the Respondent:

Ms Rajni Gupta, APP for the State with SI Vikram Singh, EOW.

Mr Chirag Mudgal, Advocate for the complainant.

Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India (CCI): Noting that Maruti Suzuki India Limited used to impose penalties on its dealers for the reason of the violation of its ‘Discount Control Policy’, Coram of Ashok Kumar Gupta (Chairperson) and Sangeeta Verma and Bhagwant Singh Bishnoi (Members) held that,

Maruti Suzuki India Limited was not a third-party in the enforcement of the Discount Control Mechanism.

When a significant player such as MSIL imposes minimum selling price restrictions in the form of maximum discount that can be offered by the dealers, RPM can decrease the pricing pressure on competing manufacturers.

Factual Matrix

Instant matter was taken up suo motu by the Commission based on an anonymous e-mail received from a purported Maruti Suzuki India Limited (MSIL) dealer, wherein it was alleged that MSIL’s sales policy was against the interest of customers as well as the provisions of the Competition Act, 2002.

Discount Control Policy

Further, it was alleged that, in the West-2 Region, (Maharashtra State other than Mumbai & Goa) the dealers of MSIL were not permitted to give discounts to their customers beyond that prescribed by MSIL is the announced ‘consumer offer’. In case, a dealer was found giving extra discounts, a penalty was levied upon the dealer by the MSIL.

Penalty amount imposed was required to be paid via cheque in the name of Swati Kale, wife of Vinod Kale who was the Vice-President of Wonder Cars Pvt. Ltd., an MSIL dealership in Pune, Maharashtra. Prior to charging the penalty, MSIL management would send an email with a ‘Mystery Shopping Audit Report’ to the errant dealership asking for clarification.

The above-said similar Discount Control Policy was implemented by MSIL all across India – specifically in cities where more than 4 to 5 dealerships operated.

Commission vide an order dated 4-7-2019 passed under Section 26(1) of the Act, formed an opinion that there exists a prima facie case of contravention of the provisions of Section 3(4)(e) of the Act, i.e. Resale Price Maintenance, by MSIL.

In view of the above background, Commission had directed the Director General to cause an investigation into the matter and submit a report.

The Commission directed MSIL to furnish its audited balance sheets and profit and loss accounts/turnover details for FYs 2017–18, 2018–19 and 2019–20 along with details of the revenue and profits generated by it from the sale of ‘passenger vehicles in India’ during these FYs by way of Affidavits supported by certificates from Chartered Accountants.

Analysis Law and Decision

Commission noted that MSIL was the manufacturer dealing in the upstream market while its dealers were distributors dealing in the downstream market.

Manufacturer and dealers entered into an agreement which could be examined within the scope of Section 3(4) of the Act, being an agreement amongst enterprises engaged at different stages or levels of the production chain in different markets.

Whether there was an agreement between MSIL and its dealers in terms of Section 3(4) on restricting discounts that may be offered by dealers?

‘Agreement’ for the purposes of Competition Law, is not the same as ‘agreement’ for the purposes of Contract Law.

The definition of ‘agreement’ under Section 2(b) of the Act is very wide and covers all possible agreements/ arrangements/understanding, not only in written form but also in tacit and informal form.

Since MSIL argued that only agreement between them with the dealers was the Dealership Agreement and the same contained no clause restricting discounts but rather allowed dealers to offer any discounts as they deem fit.

Coram opined that such agreement/arrangement/understanding with regard to discount control policy between MSIL and its dealers may exist dehors the Dealership Agreement entered into on writing between them.

Did MSIL have a Discount Control Policy? DG’s investigation

DG in its investigation while looking through the email dump found multiple email exchanged between MSIL and its dealers which showed that MSIL did, in fact, have an agreement with its dealers to not let them offer discounts to customers beyond those permitted from time to time by MSIL without MSIL’s prior approval.

“…dealers were discouraged from giving extra discounts, freebies, etc. to consumers beyond what was permitted by MSIL.” 

“If found to be violating the Discount Control Policy, the dealers were threatened with imposition of penalty, not only upon the dealership, but also upon its individual persons, including Direct Sales Executive, Regional Manager, Showroom Manager, Team Leader, etc., and stopping of supplies.”

MSIL’s contention:

Discount Control Policy, even if found to be existing in certain region, was only a form of policing amongst the dealers themselves inter se, and MSIL had no role in formulating such a policy, except to enforce the same on behalf of the dealers as an independent third-party.

Commission’s Opinion:

Commission noted that, meetings on Discount Control Policy were conducted by MSIL and it formulated policies wherein discounts were defined by way of limiting maximum discount allowed in cash or in terms of accessories, etc.

Adding to the above, it was noted that, MSIL dictated that any dealership, after price rise, if found selling/billing on old price, will be considered violating selling norms and it will be treated as a discount offered to customers

MSIL circulated communications of warning and threats of imposing high penalties in case dealers offered extra discounts without prior approval

Hence, Coram opined that MSIL did not seem to be merely a third-party in the Discount Control mechanism as contended.

MSIL nowhere could establish that the discounts were given by the dealers without seeking any prior approval from MSIL.

Significantly, the Commission observed that MSIL was the approving authority of the maximum discounts that may be offered by its dealers to customers, despite its claim that it had a principal-to-principal relationship with the dealers.

MSAs Role with respect to Discounting Policy

To enforce its Discount Control Policy, MSIL used to appoint MSAs who used to pose as customers to MSIL dealerships to find out if any additional discounts were being offered by such dealerships to customers or not. If found offered, the MSA would report to MSIL management with proof (audio/video recording) who, in turn, would send an e-mail to the errant dealership with a ‘Mystery Shopping Audit Report’, confronting them with the additional discount offered and asking for clarification.

If clarification was not to the satisfaction of MSIL, penalty would be imposed on the dealership and its employees, accompanied in some cases, by the threat of stopping supplies. MSIL would even dictate to the dealership where the penalty had to be deposited.

MSIL contended:

Appointment of MSAs was done by the dealers only and MSIL had no role to play in this regard.

Commission’s view:

Commission opined that MSIL had tried to pick-up isolated statements from its emails, which appeared to be self-serving statements, to allege that it was the dealers who has appointed the MSAs.

Adding to its opinion, Coram stated that there was absolutely no indication in the e-mails that the appointment of MSAs was done by the dealers themselves.

DG when questioned Swati Kale, she submitted that her role was to receive cheques as per the instructions of Regional Manager of MSIL and deposit the same in her account and issue cheques as per his instructions when required.

It was further noted that the amount collected in the account of Ms Swati Kale was used by MSIL to pay the bills of advertisements.

Whether any AAEC in the market had been caused or was likely to be caused as aresult of such an agreement between MSIL and its dealers?

In Commission’s opinion, the imposition of maximum discount limits by MSIL upon its dealers amounted to Resale Price Management (RPM) as defined under Explanation (e) to Section 3(4) of the Competition Act.

RPM can prevent effective competition both at the intra- brand level as well as at the inter-brand level.

 Present Scenario

In the present matter, RPM imposed upon the dealers led to the denial of benefits to the consumers in terms of competitive prices being offered by MSIL dealers.

Restriction on intra-band competition

Coram stated that, when all the dealers are controlled by a Discount Control Policy, they are forced to sell the same product at the same price which, to a large extent, eliminates price competition amongst them.

Due to almost nil intra-brand competition amongst MSIL dealers, the consumers would have had to purchase MSIL vehicles at fixed prices without flexible discounts being offered to them by MSIL dealers, thereby leading to charging of higher prices/ denial of discounts in kind, to them.

Hence, had there been no discount control policy enforced by MSIL, customers of MSIL would have been able to buy MSIL vehicles at lower prices.

Anti-competitive impact of the above practice of MSIL was reinforced by the fact that MSIL had more than 50% market share in the passenger vehicles segment, as observed by the DG.

Commission, however, opined that, imposition and enforcement of RPM by a player like MSIL, having a significant market share, not only thwarts intra-brand competition but also leads to the lowering of inter-brand competition in the passenger vehicles market.

Noting the above discussion, Coram expressed that RPM as a practice by multiple manufacturers is conducive for monitoring of tacit collusion among such manufacturers.

Arrangement/ Agreement perpetuated by MSIL hindered in the distribution of goods and the provision of services in relation to new cars, further it resulted in creating barriers to new entrants/dealers in the market as the new dealers would take into consideration restrictions on their ability to compete with respect to prices in the intra-brand competition of MSIL brand of cars.

Another significant observation made by the Commission was that by controlling the dealers’ margin, inter brand competition softens due to ease of monitoring of retail prices by the competitors, providing the manufacturer more liberty to regulate its own margin freely.

All dealers of MSIL are subjected to the SOP/SPG and non-compliance with the same also results in the imposition of penalties. As such, the justification put forth by MSIL, that RPM is required to eliminate the problem of free-riding, is not tenable.

Conclusion

Commission concluded that Maruti Suzuki India Limited not only entered into an agreement with its dealers across India for the imposition of ‘Discount Control Policy’ amounting to RPM, but also monitored the same by appointing MSAs and enforced the same through the imposition of penalties, which resulted in Appreciable Adverse Effect on Competition (AAEC) within India, thereby committing contravention of the provisions of Section 3(4)(e) read with Section 3(1) of the Act.

Competition Commission of India having considered the nature of infringing conduct and the post-pandemic phase of recovery of automobile section, deemed it fit to appropriate to impose a penalty of Rs 200 Crores upon MSIL as against a maximum penalty permissible under the provisions of the Act which may extend upto ten percent of the average of the turnover of the entity for the last three preceding financial years.

Order

Commission directed MSIL in terms of Section 27(a) to cease and desist from indulging in RPM directly and or indirectly.  [Alleged anti-competitive conduct by Maruti Suzuki India Ltd. in implementing discount control policy vis-a vis dealers, In re.;    2021 SCC OnLine CCI 45, decided on 23-08-2021]


Advocates before the Commission:

For Maruti Suzuki India Limited (MSIL): Dr. Abhishek Manu Singhvi and Mr. Rajshekhar Rao, Senior Advocates, with Ms. Shweta Shroff Chopra, Mr. Rohan Arora and Ms. Supritha Prodaturi, Authorized Representatives of MSIL and Ms. Manjaree Chowdhary, Executive Director and General Counsel of MSIL