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When we study the origins and functioning of the Indian credit recovery infrastructure, it can be seen that originally the only remedy was suits under the provisions of CPC[1] which was long and cumbersome. Here, the process had two parts i.e. debt adjudication which end in a judgment/decree followed by execution proceedings under Order 21 CPC for recovery of decreed amount. Later, with the enactment of the RDBFI Act, 1993[2], DRTs[3] were established as exclusive forums for speedy adjudication and recovery of debts due to Banks and Financial Institutions (FIs). As per the RDBFI Act, DRTs had the power to issue a Recovery Certificate certifying the amount payable by the debtor after debt adjudication in a summary procedure. This amount was thereafter recovered by the Recovery Officer attached to DRT as per the procedure of recovery of tax under Schedule II of the Income Tax Act, 1961. So, the design was to speed up the recovery once the debt adjudication by DRTs. Although, the RDDBFI Act gave 180 days for disposal of recovery applications, cases have been pending for many years due to prolonged hearings. Almost 70,000 cases involving more than Rupees 5 lakh crore were pending in DRTs as of April 2016[4]. Majority of the delay is at the debt adjudication stage with long drawn processes and adjournments in DRTs. It was for overcoming this hurdle and to further speed up recovery that the SARFAESI Act[5] was enacted. This Act give the Banks and FIs the power to recover their debts classified as non-performing assets by various modes including taking possession and sale of the security, without approaching any Court or Tribunal. Interestingly, the SARFEASI Act dispenses the requirement of debt adjudication and the debt amount stated by the creditor in their demand notice issued under Section 13(2) is conferred sanctity to trigger recovery actions under the Act. When we read through the provisions of the aforesaid Acts and the procedure laid down by them for recovery, it is clear that one of the major causes for delay in securing recovery was the time taken for ascertaining the debt amount payable[6].

Most of the litigation in money recovery laws are in the nature of disputes on the amount claimed for recovery by the creditors. This kind of litigation and resultant delay in recovery can be avoided if there is a mechanism for collection, collation, authentication and dissemination of information regarding debts/defaults by independent third parties that are reliable as evidence of debt/default.

The law-makers of the country seem to have appreciated this point while enacting the Insolvency and Bankruptcy Code, 2016 (IBC) which in its Chapter V under Part IV talks about ‘Information Utilities’ (IUs) which is a first of its kind in the world. In this regard, it is significant to note the following statements in the Report of the Bankruptcy Law Reforms Committee[7]:

“Under the present arrangements, considerable time can be lost before all parties obtain this information. Disputes about these facts can take up years to resolve in court. Hence, the Committee envisions a competitive industry of information utilities who hold an array of information about all firms at all times. When the IRP commences, within less than a day, undisputed and complete information would become available to all persons involved in the IRP and thus address this source of delay.”

This article attempts to understand the concept and working of IUs as contemplated under the IBC regime and its utilities in securing the objectives of IBC.

What is ‘Information Utility’?

IUs are entities that would act as data repositories of financial information which would receive, authenticate, maintain and deliver financial information pertaining to a debtor with a view to facilitate the insolvency resolution process in a time-bound manner. IU maintains an information network which would store financial data like borrowings, default and security interests among others of debtors for providing such information to businesses, financial institutions, adjudicating authorities, insolvency professionals and other stakeholders.

As per Section 3(21) of IBC, ‘Information Utility’ is defined as a person registered with the IBBI[8] under Section 210. Furthermore, as per Section 209 of IBC, a person shall be eligible to carry on business as IU only if a certificate of registration is obtained from the IBBI. As per Section 210 of IBC, a certificate of registration shall be issued to an entity to function as IU if all the technical formalities are completed as prescribed by the IBBI.

Historical perspective of ‘Information Utilities’

The setting up of IUs was preceded by a regime of Credit Information Companies (CICs) and Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) that provided credit-related information services including details of security interests.

In his Budget speech made in  Parliament on 28th February 1994, the then Finance Minister of India announced that Reserve Bank of India (RBI) would put in place arrangements for circulating names of defaulting borrowers among the Banks and FIs. The purpose of the same was to alert them and to put them on guard against the borrowers who have defaulted in their dues to other lending institutions. Pursuant to the above announcement, a Working Group was set up under the Chairmanship of Mr N.H. Siddiqui (Chief General Manager, RBI) which submitted its Report in 1999 recommending the establishment of CICs[9]. Accordingly, Credit Information Bureau (India) Ltd. (CIBIL) was incorporated in August 2000. Later, pursuant to the enactment of the Credit Information Companies (Regulation) Act, 2005[10], three other CICs have also been set up in India[11]. Further, in 2013, RBI constituted another Committee under the Chairmanship of Mr Aditya Puri (Managing Director, HDFC Bank) to examine the reporting formats used by CICs and other related issues. This Committees’ report led to the standardisation of data formats for reporting corporate, consumer and MFI[12] data by all credit institutions and streamlining the process of data submission by credit institutions to CICs[13]. In 2015, all credit institutions were directed by RBI to become members of all the CICs and submit current and historical data about specified borrower to them and to update it regularly.

Later, in the year 2011 the then Finance Minister declared in his budget speech about creation of a central registry of equitable mortgages. Pursuant to the same, the Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) was established to maintain and operate a registration system for the purpose of registration of transactions of securitisation, asset reconstruction of financial assets and creation of security interest over property, as contemplated under the SARFAESI Act. CERSAI is providing a platform for filing registrations by the Banks and FIs with an option for other lenders and the public to search its database.

The idea to establish IUs appears to be an outcome of the research and efforts to set up a hybrid model unique to India by incorporating the best features of CICs, CERSAI and other similar agencies across the world that are engaged in financial information services.

How an ‘Information Utility’ can be created under IBC?

As per Section 196 of IBC, IBBI is entrusted with the power to grant, renew, withdraw, suspend or cancel registration to IUs. This provision further empowers IBBI to make regulations for registration and matters connected therewith. In exercise of the said power, IBBI has notified the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017[14] (“the IU Regulations”) which provide detailed regulations for registration and working of IUs.

As per Regulation 3 of the IU Regulations, registration can be applied by any public company having a minimum net worth of fifty crore rupees and; (a) whose sole object is to provide core services and other services under the IU Regulations, and discharge such functions as may be necessary for providing these services; (b) its shareholding and governance is in accordance with Chapter III of the IU Regulations; (c) its bye-laws are in accordance with Chapter IV of the IU Regulations; (d) its promoters, directors, key managerial personnel, and persons  holding more than 5%, directly or indirectly, of its paid-up equity share capital or its total voting power, are fit and proper persons[15].

A person eligible for registration as aforesaid may make an application to IBBI in Form A of the Schedule to the IU Regulations, along with a non-refundable application fee of five lakh rupees. After due enquiry as contemplated under the IU Regulations, IBBI shall issue a Certificate of Registration in Form B of the Schedule within sixty days of receipt of the application excluding the time taken for removal of difficulties and for obtaining additional documents, if any. Such certificate of registration is valid for a period of five years from the date of issue and it may be renewed by filing an application for renewal at least six months before the expiry of its registration along with the renewal fees of five lakh rupees. IUs are also required to pay annual fee of fifty lakh rupees to IBBI, within fifteen days from commencement of the financial year. However, no annual fee shall be payable in the financial year in which an IU is granted registration or renewal[16].

The shareholding pattern and governance of IUs should be in compliance to the requirements under Chapter III of the IU Regulations. Furthermore, all changes in the shareholding and voting power of IUs are to be reported to the IBBI. As per Regulation 8 of the IU Regulations, no person shall at any time, directly or indirectly, either by itself or together with persons acting in concert, acquire or hold more than 10% of the paid-up equity share capital or total voting power of an IU. However, there are certain exemptions to the said restriction as follows:

  • None of the restrictions on shareholding are applicable to the holding of shares or voting power by the Central Government or a State Government[17].
  • A government company, stock exchange, depository, bank, insurance company and public financial institution either by themselves or together in concert, acquire or hold up to 25% of the paid-up equity share capital or total voting power of an IU[18].
  • Holding up to 51% of paid-up equity share capital or total voting power of an IU by a person directly or indirectly, either by itself or together with persons acting in concert, is allowed up to 3 years from the date of its registration[19], if the IU is registered before 30th September, 2018.
  • Indian companies (i) which are listed on a recognised stock exchange in India, or (ii) where no individual, directly or indirectly, either by himself or together with persons acting in concert, holds more than 10% of the paid-up equity share capital, may hold up to 100% of the paid-up equity share capital or total voting power of an information utility up to three years from the date of its registration[20], if such IU is registered before 30th September, 2018.

Importance and Utility of Information Utilities

The Bankruptcy Law Reforms Committee (BLRC) led by Mr T. K. Viswanathan which designed the IBC, visualised four pillars of supporting institutional infrastructure to make the processes under IBC to work efficiently. They are:  (1) a private industry of IUs, (2) a private industry of Insolvency Professionals (IPs) with oversight by private insolvency professional agencies (IPAs), (3) adjudication infrastructure at the National Company Law Tribunal (NCLT) and DRT, and (4) a regulator i.e.  IBBI[21]. As noted rightly by the BLRC, IU is a very significant institution for the successful operation of the processes under IBC.

IBC was enacted with a view to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximisation of the value of assets of such persons[22]. Section 12 of IBC thus mandates that the Corporate Insolvency Resolution Process (CIRP) of a corporate debtor (CD) must conclude within 330 days[23] from the insolvency commencement date which includes (a) normal CIRP period of 180 days, (b) one-time extension, if any, up to 90 days of such CIRP period granted by the adjudicating authority, and (c) the time taken in legal proceedings in relation to the CIRP of the corporate debtor. This ambitious time-limit prescribed for concluding CIRP appears to be based on an assumption that information relevant for the process will be easily accessible to the parties involved viz. creditors, adjudicating authorities, insolvency resolution professionals, etc. This assumption appears to be based on the confidence of the framers of the law in the idea of IUs envisaged under IBC. As the timelines specified by IBC are strict, they can be met only if the IUs stand ready to provide all relevant information quickly.

The relevant financial information in this stage includes the details of the default, disputes on the same, other financial information of debtors such as records of its debt, liabilities at the time of solvency, assets over which the security interest is created by debtor, timely records of its default and its financial statements of preceding years. Furthermore, it is quintessential for the adjudicating authority to ascertain the existence of default as claimed by the applicant and such existence would decide the fate of the application for CIRP.

As per the scheme of IBC, once CIRP gets initiated against any  corporate debtor, the management of its affairs vest in the Interim Resolution Professional (IRP) and thereupon all the powers of its Board of Directors stands suspended and the same is exercised by the IRP. During such phase, there is every possibility for the Resolution Professionals to face non-cooperation from the management and the suspended Board of the  corporate debtor in disseminating relevant financial information. In these circumstances, an independent and reliable third party which is a repository of validated information regarding debt/default that is capable of providing the same quickly can add significant value to the process.

IBBI has now strengthened the role of IUs by allowing it to access the data of MCA-21[24] database and CERSAI portals to speed up the process of debtor default authentication[25]. By ensuring access of MCA-21 and CERSAI portal data to an IU, IBBI is also providing the mechanism for quick and reliable data for all the stake-holders in the processes under IBC. It may also be noted that RBI has directed all the Scheduled Commercial Banks (Including RRBs), small finance banks, local area banks, non-banking financial companies and all the co-operative banks of the country to put in place appropriate systems and procedures for submission of financial information to IUs[26].

Functions of ‘Information Utility’ as contemplated under the IBC

As per Section 213 of IBC, IUs shall provide services which include core services to any person, if such person complies with the terms and conditions of the IU Regulations. Furthermore, as per Section 3(9) of IBC, “core  services” means – (a) accepting electronic submission of financial information; (b) safe and accurate recording of financial information; (c) authenticating and verifying financial information submitted by person; and (d) providing access to information stored with IUs to persons as may be specified.

As per Section 3(13) of IBC, “financial information”, in relation to a person, means one or more of the following categories of information, namely:  (a) records of the debt of the person; (b) records of liabilities when the person is solvent; (c) records of assets of person over which security interest has been created; (d) records, if any, of instances of default by the person against any debt; (e) records of the balance sheet and cash-flow statements of the person; and (f) such other information as may be specified.

Section 214 of the IBC elaborate the functions to be performed by IUs for the purpose of providing core services. The major obligations of IUs as per Section 214 can be summarised as follows:

  • Acceptance of financial information in electronic form from persons who are under obligation to submit the same under IBC and also from other persons who intend to submit the same. This acceptance is to be in such form and manner as specified under the IU Regulations.
  • Authentication of the financial information so received by all the parties concerned.
  • Storage of the financial information received as aforesaid in a universally accessible format after the same is duly authentication by all the parties concerned.
  • Providing the financial information stored by it as aforesaid to any person who intend to access such information in such manner as may be specified by the IU Regulations.
  • Publication of such statistical information as may be specified by the IU Regulations.

While performing aforesaid obligations, IUs are required to meet such minimum service quality standards as may be specified by IBBI and they are also required to ensure systems to facilitate inter-operatability with other IUs[27]. As per Section 215 of IBC, while it is mandatory for the financial creditors[28] to submit financial information and information relating to assets in relation to which any security interest has been created; submission of information is optional for the operational creditors[29]. Insolvency professionals also may submit reports, registers and minutes in respect of any insolvency resolution, liquidation or bankruptcy proceedings to an IU for storage[30].

Significance of Information Utility in the operation of processes under IBC

As per the scheme of IBC, a CIRP can be triggered by the corporate debtor itself or by the financial or operational creditors of such corporate debtor[31]. Application for CIRP by a financial creditor is governed by Section 7 of the IBC read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016[32].  The application is to be filed as per Form 1 of the said Rules along with the record of the default recorded with the IU or such other record or evidence of default as may be specified. As per Part V of the said Form 1, record of default with IU is listed among the documents acceptable as evidence of default. Upon submission of application, NCLT is required to ascertain the existence of default from the records of an IU or on the basis of other evidence furnished by the financial creditor. It is significant to note that this activity is to be completed by NCLT within fourteen days of the receipt of application. This timeline can be met only if such ascertainment can be done from the records of an IU. Furthermore, upon initiation of CIRP when public announcement is made by the IRP calling for claims, financial creditors may submit their claims along with sufficient proof of such claims. In this regard, it may be noted that the records available with an IU is accepted as a proof of existence of debt due[33].

Whereas, application for CIRP by operational creditors is governed by Section 9 of the IBC read with Rules 5 & 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. On the occurrence of a default, operational creditors are required to deliver either a demand notice of the unpaid debt to the debtor as per Form 3 of the said Rules or a copy of an invoice attached with a notice in Form 4. On receipt of notice, the debtor may, within 10 days, bring to the notice of the creditor about any pre-existing dispute on such debt and get out of the clutches of IBC. On expiry of 10 days from the said notice, if the payment is not done by the defaulter, the operational creditor can file application for CIRP in Form 5 of the aforesaid Rules. As per the aforesaid Forms 3 and 5, record of default with IU is listed as one of the documents to prove the debt. Furthermore, upon initiation of CIRP when the public announcement is made by the IRP calling for claims, operational creditors may submit their claims along with records available with IU which are acceptable as proof for the debt.

Similarly, in an application for CIRP by corporate applicants and in the claims submitted by the other categories of claimants/creditors including workmen, records with IU is accepted as proof of such debt/default. Furthermore, as per IBC and the Rules, the records with IUs can be accessed and relied by the adjudicating authority as evidence for the default/debt in their proceedings. Hence, IUs play a very significant role in enabling timely completion of the processes under IBC.

Operating Procedure of ‘Information Utility’ under IBC

IBC provides little guidance on how IUs are to function, leaving the details to subordinate regulation. Section 240 of IBC empowers the IBBI to make regulations by notification with regard to the registration of IUs, their functioning and on matters connected thereto. The IU Regulations were notified in exercise of this power in order to prescribe the details on how IUs shall operate to meet their objectives as contemplated under IBC.

As per the IU Regulations, a person shall register itself with an IU for submitting information to; or for accessing information stored with any of the IUs. Upon such registration, IU shall verify the identity of the applicant and assign him with a unique identifier and intimate the same to him. A person registered once with an IU shall not register itself with any IU again. A registered user may submit information to any IU and not only to the IU with which he is registered. Different parties to the same transaction may use different IUs to submit, or access information in respect of the same transaction and a user may access information stored with an IU through any IU[34].

A user can submit information of debts or defaults to the IU[35] and on receipt of the same, IU is to assign a unique identifier to the information and intimate the same to the user along with an acknowledgement. In the case of information of default, IU is to expeditiously undertake the process of authentication and verification of the information of default. For this purpose, IU is to deliver the information of default to the debtor seeking confirmation of the same within the specified time. If the debtor fails to respond, IU is to send three reminders giving 3 days’ time in each case for the debtor to respond. If the debtor do not respond even after three reminders as aforesaid, the information is deemed to be authenticated[36]. In case if the debtor confirms the information of default, the information is treated as authenticated and green colour is assigned to the status. If the debtor disputes the information of default the information is treated as disputed and red colour is assigned to the status. Whereas, in cases where the debtor does not respond even after three reminders, the information is‘Deemed to be authenticated’ and yellow colour is assigned to the status. After recording the status of information of default, IU is to communicate the status of authentication in physical or electronic form of the relevant colour, as aforesaid, to the registered users who are- (a) creditors of the debtor who has defaulted; (b) parties and sureties, if any, to the debt in respect of which the information of default has been received[37].

IUs are required to store the information received by it in their facilities located in India and they shall allow the following persons to access the information stored with it- (a) the user which has submitted the information; (b) all the parties to the debt and the host bank[38], if any, if the information is regarding record of debts or assets or instances of default by a person against any debt; (c) the corporate person and its auditor, if the information is of liabilities of a person during solvency or balance sheet and cash-flow statements of the person; (d) the insolvency professional; (e) the adjudicating authority; (f) the IBBI; (g) any person authorised to access the information under any other law; and (h) any other person who the persons referred to in (a), (b) or (c) have consented to share the information.

Provisions to ensure protection of the data with Information Utilities

As per the provisions of IBC, data entrusted with the IUs by the users are to be held as a custodian and hence they shall not have ownership over the data available with them. As such, it is one of the most important duties of the IUs to ensure safety of the data and its protection from unauthorised interferences and data theft. To ensure safety of the data, the IU Regulations prescribe the following to be complied by the IUs:

  • Establish adequate procedures and facilities to ensure that its records are protected against loss or destruction and adopt secure systems for information flows.
  • Storage of all information in a facility located in India shall be governed by the laws of India.
  • Not to outsource the provision of core services to a third-party service provider.
  • Not to use the information stored with it for any purpose other than providing services under these Regulations, without the prior approval of the Board.
  • Not to seek data/details of users except as required for the provision of services under IBC[39].
  • Adequate arrangements, including insurance is to be made for indemnifying the users for losses that may be caused to them by any wrongful act, negligence or default of the IU, its employees or any other person whose services are used for the services[40].
  • Appoint external auditor having relevant qualifications to audit its information technology framework, interface and data processing systems every year. The auditor’s report along with the comments of the Governing Board of IU is to be submitted to the IBBI within one month from the receipt of the same[41].
  • Establish an appropriate risk management framework in line with the Technical Standards[42].
  • Declare a Preservation Policy providing for the form, manner and duration of preservation of information stored with it; and details of the transactions of the IU with each user in respect of the information stored with it[43].
  • Inspection by the IBBI with such periodicity as may be considered necessary[44]. Disciplinary actions can be taken by IBBI including imposition of penalty under Section 220(3) of IBC.

Evidentiary Value of Information with Information Utilities

Authenticated information stored by IUs with regard to a debt or its default amounts to admission of such debt and default thereto by and between the parties to such debt or default. In the light of this fact, evidentiary value of information with IUs can be appreciated by referring to certain provisions of the Evidence Act, 1872. As per Section 65-B of the Evidence Act, information contained in any electronic record shall be deemed to be a document and shall be admissible in the court of law. Furthermore, Section 31 of the Evidence Act state that admissions are not conclusive proof of the matters admitted, but they may operate as estoppels under the provisions hereinafter contained.  In the context of information with IUs, Section 115 of the Evidence Act is significant, which state as follows:  “When one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person or his representative, to deny the truth of that thing.”

When we examine the provisions of IBC with regard to IUs as explained in the preceding paragraphs of this article, it can be noted that the adjudicating authorities are given the option to accept records with IUs as proof/evidence of debts and defaults. This is on the basis of estoppel which would operate against the parties as per the aforesaid provisions of the Evidence Act. In Swiss Ribbons Pvt. Ltd. v. Union of India[45], constitutional validity of the various provisions of IBC was considered by the Supreme Court of India. One of the arguments in the matter was that IBC provides for private information utilities not only to collect financial data, but also to check whether a default has occurred or not. It was also argued that certification of debt/default by IUs is in the nature of a preliminary decree issued without any hearing and without any process of adjudication. On this ground along with others, the constitutional validity of IBC was challenged in this matter. However, the  Supreme Court of India upheld the constitutional validity of IBC and on the basis of statements made by the then Attorney General of India, declared at para 57 of the judgment that the record of default with IU is only a prima facie evidence of default, which is rebuttable by the  corporate debtor. So, the records with IUs are not conclusive proof and they are only a prima facie evidence of default, which is rebuttable by the corporate debtor.

Conclusion

It can be concluded that creation of IU is definitely a step towards ensuring an information-rich environment for the working of IBC. IUs certainly provide an infrastructure which ensure relevant financial information of debtors easily accessible at anytime from anywhere. This infrastructure undoubtedly empower the creditors and lenders to make informed choices and also provide essential financial information enabling time-bound insolvency resolution process. While, the purpose of setting up the above regime of IUs was to reduce information asymmetry; IUs not only reduce information asymmetry, but it is also enable the processes of IBC to meet the strict timelines prescribed. It can also be seen that the IUs are significant as they provide for improved credit risk assessment and improve the recovery processes. Though there is no doubt about the significance of the IUs; it may take a while before they become relevant as expected. As the first step, IBBI has registered National E-Governance Services Limited (a Union Government company) as the first IU of the country on September 25, 2017. Being sanguine about the developments thus far, we can expect that the data available with the IUs will grow in terms of quantity and quality over a period of time making them an important pillar in the overall resolution process.


* BA LLB (Hons.), LLM, currently working as Manager-Legal with Hindustan Petroleum Corporation Limited at Zonal Administrative Office, Chennai.

[1] Civil Procedure Code, 1908 (Act  5 of 1908).

[2] Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (Act  51 of 1993).

[3] Debts Recovery Tribunal.

[4]Indu Bhan, “Long Due – Banks can now confiscate security in case of a loan default”, Financial Express, August 19, 2016, available at https://www.financialexpress.com/opinion/long-due/351486/, last visited on 15.05.2020.

[5]Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Act  54 of 2002).

[6] Prasanth V. Regy and Shubho Roy, “Understanding Judicial Delays in Debt Tribunals”, Paper No. 195 in the Working Paper Series of National Institute of Public Finance and Policy at New Delhi, May 2, 2017, available at https://www.nipfp.org.in/media/medialibrary/2017/05/WP_2017_195.pdf, last visited on 15.05.2020.

[7] Government of India, “Report of the Bankruptcy Law Reforms Committee” (Ministry of Finance, November 2015).

[8] Insolvency and Bankruptcy Board of India established under Section 188 of the Insolvency and Bankruptcy Code, 2016 (Act 31 of 2016).

[9]Reserve Bank of India, “Report of the Working Group to explore the possibilities of setting up a Credit Information Bureau in India” (Department of Banking Operations and Development, October 1999)

[10] Credit Information Companies (Regulation) Act, 2005 

[11] Equifax Credit Information Services Private Limited, Experian Credit Information Company of India Private Limited and CRIF High Mark Credit Information Services Private Limited have been granted Certificate of Registration by RBI.

[12]Monetary Financial Institutions.

[13]Reserve Bank of India, “Report of the Committee to Recommend Data Format for Furnishing of Credit Information to Credit Information Companies”, (Department of Banking Operations and Development, January 2014)

[14] Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017

[15]As per Explanation to Regn. 3 of Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, a person is considered as fit and proper, if he (a) is having integrity, reputation, character and financial solvency (b) has never been convicted by a Court for an offence or sentenced to imprisonment for a period less than 6 months, and (c) has not suffered any restraint order issued by financial sector regulator or adjudicating authority.

[16] IBBI (Information Utilities) Regulations, 2017, Regns. 5 and 6.

[17]Id, Regn.  8(3).

[18]Id,  proviso to Regn. 8(1)

[19]Id, Regn. 8(2)(a).

[20]Id,  Regn. 8(2)(b).

[21]Supra Note 7.

[22]Government of India, “Report of the Working Group on Information Utilities” (Ministry of Corporate Affairs, January 2017).

[23] This cap of 330 days was brought by the Insolvency and Bankruptcy Code (Amendment) Act, 2019 (w.e.f. 16-8-2019).

[24]MCA-21 is an e-Governance initiative of Ministry of Company Affairs (MCA), Government of India that enables an easy and secure access of the MCA services to the corporate entities, professionals and citizens of India. It is designed to fully automate all processes related to the enforcement and compliance of the legal requirements under the Companies Act, 1956, the New Companies Act, 2013 and the Limited Liability Partnership Act, 2008. Its database will contain the master data and the charges registered on companies and LLP.

[25]Insolvency and Bankruptcy Board of India, Circular No. IBBI/IU/025/2019 dated 07-09-2019.

[26] Notification No: DBR.No.Leg.BC.98/09.08.019/2017-18 dated December 19, 2017 issued by Reserve Bank of India, available at https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11189&Mode=0, last accessed on 16.05.2020.

[27] Insolvency and Bankruptcy Code, 2016 (31 of 2016), Ss. 214(d) and (h).

[28] As per Section 5(7) of IBC, “financial creditor” means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred. Eg. – Banks and financial lenders.

[29] As per Section 5(20) of IBC, “operational creditor” means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred. Eg. – Suppliers and vendors.

[30]Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, Regn. 38.

[31] Insolvency and Bankruptcy Code, 2016 (31 of 2016), S.6.

[32] Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016

[33]Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, Regn. 8(2)(a)

[34]Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, Chapter V (Regns.17 to 27).

[35]Id, Form C of the Schedule.

[36]Deemed authentication was inserted by Notification No. IBBI/2019-20/GN/REG046 dated 25/07/ 2019. Prior to this, there was no option for deemed authentication when debtor do not respond to notice for authentication.

[37] Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, Regn. 21.

[38] Host bank means the financial institution hosting the repayment account.

[39] Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, Regn. 30.

[40]Id, Regn. 31.

[41]Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, Regn 34.

[42]Id,  Regn. 33.

[43]Id, Regn. 35.

[44]Id,  Regn.37.

[45] 2019 SCC OnLine SC 73.

Case BriefsSupreme Court

Supreme Court: The bench of SK Kaul and Indu Malhotra, JJ has recommended the Central Government to consider the efficacy of the advance tax ruling system and make it more comprehensive as a tool for settlement of disputes rather than battling it through different tiers, whether private or public sectors are involved. It suggested that a council for Advance Tax Ruling based on the Swedish model and the New Zealand system may be a possible way forward.

Writing two postscripts, the Court said that it was forced to do so on account of the backbreaking dockets which are ever increasing and as a move towards a trust between the Tax Department and the assessee. The Court said that it hoped that both the aspects meet consideration at an appropriate level.

Postscript 1:

The Indian legal system is reeling under a docket explosion. The Government and public authorities are active contributories to this deluge. To top it, a number of litigations arise inter se the Government and its bodies and, thus, the only question, as stated in the beginning, is which pocket of the Government will be benefitted?

The Central Government and the State authorities have been repeatedly emphasising that they have evolved a litigation policy. Our experience is that it is observed more in breach. The approach is one of bringing everything to the highest level before this Court, so that there is no responsibility in the decision-making process – an unfortunate situation which creates unnecessary burden on the judicial system.

“The object appears to be that a certificate for dismissal is obtained from the highest court so that a quietus could be put to the matter in the Government Departments. Undoubtedly, this is complete wastage of judicial time and in various orders of this Court it has been categorized as “certificate cases”, i.e., the purpose of which is only to obtain this certificate of dismissal.”

  • In 1988, the 126th Law Commission of India Report titled ‘Government and Public Sector Undertaking Litigation Policy and Strategies’ debated the Government versus Government matters which weighed heavily on the time of the Courts as well as the public exchequer.
  • In 2010, the National Litigation Policy (for short ‘NLP’) was formulated with the aim of reducing litigation and making the Government an efficient and responsible litigant. Five (5) years later it reportedly saw a revision to increase its efficacy, but it has hardly made an impact.
  • In 2018, the Central Government gave its approval towards strengthening the resolution of commercial disputes of Central Public Sector Enterprises (for short ‘CPSEs’)/ Port Trusts inter se, as well as between CPSEs and other Government Departments/Organisations. The aim was and is to put in place a mechanism within the Government for promoting a speedy resolution of disputes of this kind, however it excluded disputes relating to Railways, Income Tax, Customs and Excise Departments. This now been made applicable to all disputes other than those related to taxation matters.
  • Insofar as non-taxation matters are concerned, the Administrative Mechanism for Resolution of CPSEs Disputes was conceptualised to replace the Permanent Machinery of Arbitration and to promote equity through collective efforts to resolve disputes. It has a two-tiered structure. At the first level, commercial disputes will be referred to the Committee comprising Secretaries of the Administrative Ministries/Departments to which the disputing parties belong and the Secretary, Department of Legal Affairs. In case the two disputing parties belong to the same Ministry/Department, the Committee will comprise Secretary of Administrative Ministry/Department concerned; the Secretary, Department of Legal Affairs and the Secretary, Department of Public Enterprises. If a dispute is between a CPSE and a State Government Department/Organisation, the Committee will comprise of the Secretary of the Ministry Department of the Union to which the CPSE belongs, the Secretary, Department of Legal Affairs and the Chief Secretary of the State concerned. Such disputes are ideally to be resolved at the first level itself within a time schedule of three (3) months, and in the eventuality of them remaining unresolved, the same may be referred to the Cabinet Secretary at the second level, whose decision will be final and binding on all concerned.

The Court, however, noticed that one of the main impediments to such a resolution, plainly speaking, is that the bureaucrats are reluctant to accept responsibility of taking such decisions, apprehending that at some future date their decision may be called into question and they may face consequences post retirement.

“In order to make the system function effectively, it may be appropriate to have a Committee of legal experts presided by a retired Judge to give their imprimatur to the settlement so that such apprehensions do not come in the way of arriving at a settlement.”

It was hence, noticed that a serious thought should be given to the aspect of dispute resolution amicably, more so in the post-COVID period.

Postscript 2:

This part dealt with the issue of matters pertaining to CPSEs and Government authorities insofar as taxation matters are concerned, because they are consistently sought to be carved out as a separate category of cases. One of the largest areas of litigation for the Government is taxation matters. The petition rate of the tax department before the Supreme Court is at 87%.

The Court was of the opinion that a vibrant system of Advance Ruling can go a long way in reducing taxation litigation. This is not only true of these kinds of disputes but even disputes between the taxation department and private persons, who are more than willing to comply with the law of the land but find some ambiguity.

“Instead of first filing a return and then facing consequences from the Department because of a different perception which the Department may have, an Advance Ruling System can facilitate not only such a resolution, but also avoid the tiers of litigation which such cases go through as in the present case. In fact, before further discussing this Advance Ruling System, we can unhesitatingly say that, at least, for CPSEs and Government authorities, there would be no question of taking this matter further once an Advance Ruling is delivered, and even in case of private persons, the scope of any further challenge is completely narrowed down.”

  • In 1971 that a report was submitted by the Direct Taxes Enquiry Committee recognising the need for providing Advance Ruling System, particularly in cases involving foreign collaboration with the aim to give advance rulings to taxpayers or prospective taxpayers, which would then considerably reduce the Revenue’s workload and decrease the number of disputes.
  • In 1993, a scheme of Advance Ruling was brought into effect, with the introduction of a new Chapter in the Income Tax Act, 1961. A quasi-judicial tribunal was established as the Authority for Advance Rulings (AAR) to provide certainty and avoid litigation related to taxation of transactions involving non-residents.
  • The scope of the transactions on which an advance ruling can be sought from the AAR has gradually increased to now include both residents and non-residents, who can seek the same for issues having a substantial tax impact. Chapter XIX-B of the IT Act deals with advance rulings and it has been defined in Section 245N(a) of the 43 IT Act. These rulings are binding both on the Income Tax Department and the applicant, and while there is no statutory right to appeal, the Supreme Court has held that a challenge an advance ruling first lies before the High Court, and subsequently before the Supreme Court. The advance ruling may be reversed in the event a substantial question of general public importance arises or a similar question is already pending before the Supreme Court for adjudication.

The Court, however, noticed that the ground level situation is that this methodology has proved to be illusionary because there is an increasing number of applications pending before the AAR due to its low disposal rate and contrary to the expectation that a ruling would be given in six months (as per Section 245R(6) of the IT Act), the average time taken is stated to be reaching around four years!

“There is obviously lack of adequate numbers of presiding officers to deal with the volume of cases. Interestingly, the primary reason for this is the large number of vacancies and delayed appointments of Members to the AAR. In view of the time taken, the very purpose of AAR is defeated, resulting in the mechanism being used infrequently as is evident from the everincreasing tax related litigation.”

Noticing a significant development in Section 245N of the IT Act, the Court said that in 2000, public sector companies were added to the definition of ‘applicant’, and in 2014, it was made applicable to a resident who had undertaken one or more transactions of the value of Rs. 100 crore or more.

“Insofar as a resident is concerned, the limit is so high that it cannot provide any solace to any individual, and we do believe that it is time to reconsider and reduce the ceiling limit, more so in terms of the recent announcement stated to be in furtherance of a tax friendly face-less regime!”

Referring to the international scenario where there has been an incremental shift towards mature tax regimes adopting advance ruling mechanisms, the bench noticed that the increase in global trade puts the rulings system at the centre-stage of a robust international tax cooperation regime. The Organisation for Economic Cooperation and Development (OECD) lists advance rulings as one of the indicators to assess trade facilitation policies, making it an aspirational international best practice standard.

The Court, hence, said,

“The aim of any properly framed advance ruling system ought to be a dialogue between taxpayers and revenue authorities to fulfil the mutually beneficial purpose for taxpayers and revenue authorities of bolstering tax compliance and boosting tax morale. This mechanism should not become another stage in the litigation process.”

The Court concluded by referring to the legal legend Mr. Nani A. Palkhivala, who while addressing a letter of congratulations to Mr. Soli J. Sorabjee on attaining his appointment as the Attorney General on 11.12.1989 referred to the greatest glory of Attorney General as not to win cases for the Government but to ensure that justice is done to the people. In this behalf, he refers to the motto of the Department of Justice in the United States carved out into the Rotunda of the Attorney General Office:

“The United States wins its case whenever justice is done to one of its citizens in the courts.”

The Court said that the Indian citizenry is entitled to a hope that the aforesaid is what must be the objective of Government litigation, which should prevail
even within the Indian legal system. In the words of Martin Luther King, Jr.,

“We must accept finite disappointment, but never lose infinite hope.”

[National Co-operative Development Corporation v. Commissioner of Income Tax, 2020 SCC OnLine SC 733, decided on 11.09.2020]

Op EdsOP. ED.

Interest republicae ut sit finis litium, meaning it is in the interest of the State that there should be an end to litigation. In pursuance of this objective, the Indian legal regime adopted various alternative forms of adjudicatory mechanism. The capital market regulator, Securities and Exchange Board of India (hereinafter referred as ‘SEBI’) introduced the consent mechanism efficacy of which has been discussed in this article.

Concept

The Code of Civil Procedure, 1908 and the Criminal Procedure Code, 1973 enumerate concepts of ‘compromise’ and ‘compounding of offences’ respectively. Similarly, under Section 15-JB[1] of the Securities and Exchange Board of India Act, 1992 is vested with the power to settle cases of securities law violation in the capital market. The idea was adopted from the success of its US counterpart, the Securities and Exchange Commission. Initially, the consent mechanism was proposed vide circular, Circular No. EFD/ED/Cir-1/2007 that enumerated the Guidelines for Consent Orders, introduced in 2007. The mechanism has evolved over the past years to take the form of the Settlement Regulations, 2018.[2]

The consent mechanism may be defined as “a proceeding in which the regulator and the alleged violator, may at any stage of the proceeding negotiate a settlement in lieu of administrative/civil proceeding, in the process saving cost, time and efforts for the parties involved. The mechanism does not require admission or denial of findings.”

Interpreting settlement orders

To test the proposition in respect of the success of this mechanism, a few cases of settlement have been analysed. The vital question that arises is “Where the interest of investors is at stake, is settlement a viable solution?”

The recent settlement order passed by SEBI in the matter of HDFC AMC (hereinafter referred to as ‘the applicant’) provides insight to the above question. The applicant was served with a show-cause notice for violation of the SEBI (Mutual Funds) Regulations, 1996.  The applicant had invested in the debt instruments of Essel group of companies through its various mutual fund schemes. As per the show-cause notice, the investment made did not adhere to the (Mutual Funds) Regulations, 1996 as it failed to maintain proper due diligence that led to the loss of the unit-holders. In furtherance of the notice, the applicant filed a settlement application with SEBI and the High Powered Committee (constituted under the Settlement Regulations, 2018) agreed to settle the matter. As a part of the settlement terms, the applicant ensured that the unit-holders were compensated along with redressal of their complaints. Further, it was agreed that the settlement amount would be paid by the funds of the applicant.

Certainly, the above order was in the interest of the investors and the regulator. The alleged violations were committed in May 2019, and within a span of a year, the settlement process has been concluded. Settlement in the present case indeed served as an expeditious solution contrary to the prolonged administrative/legal proceedings.

One major concern that has hindered the growth of the settlement mechanism is the conundrum surrounding the settlement of serious offences like insider trading and fraudulent unfair trade practices. It is pertinent to note here that such offences were a part of the initial guidelines issued under the circular in 2007. Subsequently, the amended Settlement Regulations, 2014 removed serious offences based on the severity of such offences. However, the Committee set up under the chairmanship of Justice Dave that drafted the Settlement Regulations, 2018, undertook an alternative approach by vesting discretion with the Board to decide based on facts and circumstances of each case than make it principle based by creating an absolute bar to settle such offences.

The question that requires attention is that “Has the discretion vested with the Board regarding the nature of offences to be settled been exercised wisely by it?”

On observation of previously adjudicated cases that have been settled, it was noticed that only those cases where market interests and market impact was limited and loss to the investors was minuscule, were taken through the settlement route. In  Abhay Gandhi and Kiran Abhay Gandhi, the CEO of Ranbaxy Laboratories Limited, was charged under the  Prohibition of Insider Trading Regulations, 2015[3] for selling shares while in possession of Unpublished Price Sensitive Information, the matter was settled by remitting an amount of Rs Thirty-five lakhs, that would have been evaluated considering the profit made by the applicants, the multiplier for deciding penalty as provided in  Chapter VI[4] of the Settlement Proceedings Regulations, 2018.    

Settlement – An Antidote to Litigation?

On considering the above proposition, it raises two further questions.

1. Will SEBI in all cases allow the settlement process?

2. Is the settlement mechanism a full proof mechanism where the interests of SEBI, stakeholders and investors can be balanced?

To answer the former, the essential grounds for the basis of the settlement are laid down exhaustively under the purview of Regulation 10 of the Settlement Regulations, 2018. The Board established under Section 5 of the Act may reject matters for settlement that have a wide impact on investors, are repetitive in their defaults or the person making the application is a wilful defaulter. SEBI has adopted a stringent approach in accepting applications for Consent Orders. For instance, NSE was alleged to have deals with brokers and unduly favouring and assisting them in unauthorised trading, and it applied for settlement. SEBI rejected the NSE settlement application and ordered disgorgement by asking them to pay over INR 1000 Crores.

After the infamous IL&FS scam where credit rating agencies were under the scanner for not changing the credit rating of the instruments before the default, SEBI based on a reasoned order categorically stated that the matter involved wide market impact including an adverse effect on the interest of the investors thereby questioned the integrity of the market, and rejected ICRA’s application for settlement.   

To answer the latter, no mechanism can be a panacea, it comes with its fragilities. In the author’s opinion, the biggest drawback of this mechanism is that it may undermine the problem which may in a certain point of time be the tip of the iceberg. To illustrate, in the case of Yes Bank, it was charged for violating the disclosure norms prescribed in Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, that required the disclosure of material information.

Yes Bank as per the settlement order made selective disclosure of divergence and partially concealed the report the issued by RBI and its settlement then, concluded the matter but all those along with a gamut of other issues including a liquidity crisis and failure of the corporate governance bounced back together and led to its collapse. Therefore, in certain cases, it may not be possible for the regulator to see through and understand the actual reasons behind the violation, divergence. 

The way ahead

The increasing role of the consent mechanism can be witnessed from the fact that an average of ten settlement orders were passed in the year 2019. It is evident that the Settlement Regulations, 2019 have ushered a fresh air in the arena of ‘Consent Orders’. Certain key features of the regulations are that transparency is ensured by vesting limited discretion with the Board. The penalty payable by the applicant is derived based on a comprehensive multiplier on consideration of the number of defaults, the stage of proceedings along with the stage at which settlement is introduced. It will not be a misnomer to say that capital market regulations in India have evolved tremendously along with the market and provided an effective adjudication process that serves the need of the hour. In cases where all three chords of prompt action, investor interest, and effective enforcement are struck, it is only then the underlying objective of consent orders will be achieved in its essence.


*Legal professional, with an avid interest in Securities Law and previously worked with KPMG as a part of the Forensic Investigation Team.

[1] Section 15-JB, Securities and Exchange Board of India Act, 1992    

[2] Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018

[3] The SEBI (Prohibition of Insider Trading) Regulations, 2015 

[4] Ch. VI, SEBI (Settlement Proceedings) Regulations, 2018  

Hot Off The PressNews

Supreme Court: The Court has sought Centre’s response on a PIL seeking direction from the Government to immediately restore high-speed internet  services and fixed landline phone services across all hospitals and medical establishments in Jammu and Kashmir. A bench headed by Chief Justice Ranjan Gogoi issued a notice to the Centre and tagged the matter along with other related pleas in connection with the Kashmir issue.

On September 11, an advocate named Satya Mitra had filed the plea on behalf of doctor Sameer Kaul and one Salim Jahangeer Kirmani. The petition also sought direction to the central government to desist and refrain in future from blocking or suspending internet and fixed landline phone services in hospitals and medical establishments, along with mobile phone services of doctors and other staff members working in hospitals and medical establishments in Jammu and Kashmir.

The court sent to constitution bench a plea filed by Kashmir Times Executive Editor Anuradha Bhasin seeking the removal of communication blockade in Jammu and Kashmir after the abrogation of provisions under Article 370 and free movement of journalists in the region.

On August 13, Bhasin had moved the plea, claiming Kashmir Times was not published owing to the curbs on communication services and movement. She had alleged that a bar was put on journalists’ rights provided under the different provisions of the Constitution.
The court also sent to constitution bench a PIL filed by child rights expert Enakshi Ganguly and Professor Shanta Sinha, alleging illegal detention of children in Jammu and Kashmir in the wake of abrogation of Article 370.

The court will commence hearing on the pleas relating to Article 370 from Tuesday.

On August 5, the Centre had abrogated Articles 370 and 35A of the Indian Constitution and the Parliament had passed the Jammu and Kashmir (Reorganisation) Act, 2019, bifurcating the former state into two Union Territories – Jammu and Kashmir and Kashmir) with legislature and Ladakh without one. Following this, a batch of petitions was filed in the top court challenging the
move.

(Source: ANI)


More from Supreme Court on Article 370

SC seeks report from J&K HC CJ on claims about people being unable to approach HC

SC asks Central govt to restore normalcy in Jammu & Kashmir

5-judge bench to begin hearing in plea challenging J&K Reorganisation Bill from tomorrow

Won’t rush into passing any direction on removal of restrictions on the media in J&K: SC

No urgent hearing on plea challenging J&K Reorganisation Bill

Also read

Parliament passes the J&K Reorganisation Bill, 2019!

The Jammu and Kashmir Reservation (Amendment) Bill, 2019– What it says?

Rajya Sabha approves the Jammu and Kashmir Reservation (Second Amendment) Bill, 2019!

Jammu and Kashmir Reorganisation (Amendment) Bill, 2019 — Passed by Rajya Sabha; Formation of J&K as a Union Territory!

Hot Off The PressNews

Supreme Court: Terming as “very very serious” the claim that people are finding it difficult to approach the Jammu and Kashmir High Court, the 3-judge bench of bench of Ranjan Gogoi, CJ and S A Bobde and S A Nazeer, JJ has decided to verify it by asking the Chief Justice there to “forthwith” submit a report in this regard.

“If you are saying so, we are bound to take serious note of it. Tell us why it is very difficult for people to approach the high court. Is anybody stopping the people from going to high court? Then it is a very very serious issue,”

The Court said that it will verify the claim after senior advocate Huzefa Ahmadi appearing for two child rights activists claimed that it is very difficult for the people in the state to access the high court there.

The CJI said he would himself visit Srinagar, if required, and he would also speak to the chief justice of high court about this.

“It is stated by Huzefa Ahmadi, senior counsel for the petitioners, that access to the high court of Jammu and Kashmir is seriously affected by the present situation in the state. We request the chief justice of the high court to submit a report on the above issue forthwith,”

Taking note of Ahmadi’s submissions, the CJI said, “You are saying that you cannot go to the high court. We have called for a report from Chief Justice of the high court. If required, I will myself go there.” He further said:

“We must know if there is denial of access to justice. I will personally talk to the chief justice of the high court after this matter is over because what you have said is very very serious thing.”

The bench warned however that if the allegations are found to be incorrect then the petitioners should be ready to face the consequences.

The Court was considering a public interest litigation (PIL) seeking the Supreme Court’s intervention on the issue of detention of children in Kashmir. During the hearing, the bench referred to the prayer made in the petition and said that petitioners have themselves said that children be produced before the juvenile justice committee of the high court. Ahmadi, however, said it is very difficult to approach the high court in the state.

Solicitor General Tushar Mehta, appearing for Jammu and Kashmir, told the bench that all the courts in the state are functioning and even the Lok Adalats have been conducted there. When Mehta said that he wanted to make statement in the court on the issue, the bench said,

“We do not want anybody to make any statement. We will look into it. If people are not able to approach the high court, then we will have to look into it.”

The petition has been filed by child rights activists Enakshi Ganguly and Professor Shanta Sinha against the alleged illegal detention of children in Jammu and Kashmir in the wake of revocation of Article 370 and bifurcation of state. The plea has contended that all persons below the age of 18 years who have been detained be identified through an age census. Seeking directions that illegally detained children be produced before the Juvenile Justice Committee of the high court, the plea has also sought compensation from them.

Last month, Parliament had passed the Jammu and Kashmir (Reorganization) Act, 2019, bifurcating the state into two Union Territories — Jammu and Kashmir with legislature and Ladakh without it. Following this, a batch of petitions were filed in the top court challenging it.

(Source: PTI)


Also read:

Parliament passes the J&K Reorganisation Bill, 2019!

The Jammu and Kashmir Reservation (Amendment) Bill, 2019– What it says?

Rajya Sabha approves the Jammu and Kashmir Reservation (Second Amendment) Bill, 2019!

Jammu and Kashmir Reorganisation (Amendment) Bill, 2019 — Passed by Rajya Sabha; Formation of J&K as a Union Territory!

Case BriefsHigh Courts

Orissa High Court: A Single Judge Bench of Dr A.K. Rath, J., allowed the petition which challenged the order of the trial court whereunder the application of the plaintiffs filed under Order 1 Rule 10 CPC to implead the wife of Defendant 1 was rejected.

The facts of the case were that the plaintiffs-petitioners had instituted the suit for permanent injunction and recovery of possession impleading the wife of the defendant as Defendant 2.

The contention of Mr A.P. Bose, Advocate for the petitioners, was that a part of the suit land had been alienated to the wife of the defendant. The said fact came to the knowledge of the plaintiffs after the written statement was filed. The hearing of the suit had not begun. The intervenor was a necessary party to the suit.

The counsel for defendants Mr S. Udgata, submitted that the written statement was filed in the year 2011. But then, the petition for impleadment was filed after a gap of five years. The intervenor was neither necessary nor proper party to the suit.

The Court relied on the case of Razia Begum v. Sahebzadi Anwar Begum, AIR 1958 SC 886, wherein the Apex Court had held that it is firmly established as a result of judicial decisions that in order that a person may be added as a party to a suit, he should have a direct interest in the subject matter of the litigation whether it raises questions relating to movable or immovable property. The suit scheduled land had been alienated to the wife of the defendant. In view of the same, the intervenor was a necessary party to the suit thus the petition was allowed. [Ramesh Chandra Sahoo v. Ranjit Kumar Singh, 2018 SCC OnLine Ori 436, decided on 19-12-2018]

Case BriefsForeign Courts

Constitutional Court of South Africa: A Single Judge Bench comprising of Mogoeng, CJ. Dlodlo, Goliath, Petse, AJ, Froneman, Jafta, Khampepe, Madlanga, and Theron, JJ., unanimously granted the applicants rescission in terms of the Uniform Rules of Court and granted leave to intervene to applicants in the trial.

This application was filed for leave to appeal against an order of Supreme Court Appeal where a refusal of rescission and dismissal of an application for leave to intervene by the High Court of South Africa was upheld. The issue before the Court was whether rescission and leave to intervene should have been granted.

Facts of the case are that a group of individuals acquired a company to use the same as a vehicle for commercial opportunities for the benefit of black people. Applicants were shareholders of this company. The company was converted into a public company in order to open up the shareholding to more than 50 persons. It was renamed NC Housing Services and Development Co. Ltd. Due to failure to file annual company returns ROC removed the name of the company from companies register. Later company wanted to sell its major asset for which they applied for re-registration and were subsequently re-registered. A dispute arose between the applicants and the second and third respondents, regarding the proportion of shares owned by the various shareholders.

The respondent filed an application in High Court against the company where the matter was referred to Trial. High Court held that the shareholders could not have been a party in trial as they could not have personally fought the case as they were representative directors. Supreme Court of Appeal held that although the applicants had been participating in the proceedings both as directors and as shareholders, the resolution passed by them barred them from participating in the litigation due to their failure to have set aside the above resolution.

Therefore, this Constitutional Court held that when an individual shareholder is presented as “shareholder” in court proceedings, he becomes party in the litigation in his personal capacity. Orders of the Supreme Court of Appeal and High Court of South Africa were set aside. Court granted rescission in terms of the Uniform Rules of Court and leave to appeal to intervene in the trial. [Morudi v. NC Housing Services and Development Co. Ltd. , (2018) ZACC 32, dated 25-09-2018]

Case BriefsSupreme Court

Supreme Court: Abhay Manohar Sapre, J. speaking for himself and his brother Judge Uday U. Lalit, gave judgment in a civil appeal arising out of matrimonial dispute whereby the appellant challenged the decree of divorce passed by family court and affirmed by High Court of Jharkhand.

The appellant-wife was married to the respondent-husband, and they had a daughter born out of the wedlock who was of marriageable age. The parties married in 1997, but their relations were not cordial from soon after the marriage. This led to the filing of a divorce petition by the husband against the wife on grounds of cruelty and desertion. The Family Judge dissolved the marriage and the decree was confirmed by the High Court.  Aggrieved thus, present appeal was filed by the wife.

The Supreme Court heard the parties and perused the record. It was noted that the parties were living separately for more than a decade. All attempts to conciliation through mediation had failed. There was absolutely no chance of them living together to continue their marital life.  While referring to Naveen Kohli v. Neelu Kohli, (2006) 4 SCC 558 and Sanghamitra Ghosh v. Kajal Kumar Ghosh, (2007) 2 SCC 220, the Court held that in order to ensure that parties may live peacefully in future and their daughter would be settled properly, a quietus must be given to all litigation between the parties. Consistent with the broad consensus arrived at between the parties, the Court directed the husband to pay Rs 10 lakhs towards permanent alimony and maintenance to the appellant and the daughter. [Manju Kumari Singh v. Avinash Kumar Singh,2018 SCC OnLine SC 739, dated 25-07-2018]

Case BriefsForeign Courts

Supreme Court of Canada: While considering the issue regarding the powers of investigation of the syndic that whether the assistant syndic of the Chambre de l’assurance de dommages (the syndic) was empowered to demand from the Insurer the production of documents subject to litigation privilege, for inspection, the Bench of McLachlin C.J. and Abella, Cromwell, Moldaver, Karakatsanis, Wagner, Gascon, Côté and Brown, JJ., held that Section 337 of the Act Respecting the Distribution of Financial Products and Services is a general production provision that does not specifically indicate that the production must include records for which privilege is claimed, thereby not abrogating litigation privilege attached to a document. It was further observed that, “Although litigation privilege is distinguishable from solicitor-client privilege, it is nevertheless a class privilege and gives rise to a presumption of inadmissibility for a class of communications, namely those whose dominant purpose is preparation for litigation. Thus, any document that meets the conditions for the application of litigation privilege will be protected by immunity from disclosure unless the case is one to which one of the exceptions to that privilege applies.”

In the instant case, the appellant, an assistant syndic of the Chambre de l’assurance de dommages asked the respondent to send her a complete copy of its claim file with respect to one of its insured. The syndic based this request on Section 337 of the Act Respecting the Distribution of Financial Products and Services (ADFPS). However the insurer expressed its inability to present certain documents, citing that they were either covered by solicitor- client privilege or by litigation- privilege. The appellant contended that the aforesaid provision is sufficient to lift the privilege, because it created an obligation to produce ‘any document’.

Perusing a plethora of case laws on the development of law of litigation privilege in Canada, the Court referred to its previous decision in Blank v. Canada (Minister of Justice), 2006 SCC OnLine Can SC 39 : 2006 SCC 39, to highlight the present position vis-à-vis litigation privilege, which states that solicitor-client privilege and litigation privilege are distinct. However that Court observed that, “litigation privilege is subject to clearly defined exceptions, not to a case-by-case balancing test. In the context of privileges, the exercise of balancing competing interests is associated with case-by-case privileges, not class privileges. The exceptions that apply to solicitor-client privilege are all applicable to litigation privilege. These include the exceptions relating to public safety, to the innocence of the accused and to criminal communications.” It was further stated that litigation privilege can be asserted against third parties, including third party investigators who have a duty of confidentiality, therefore the insurer can very well assert the litigation privilege against the syndic, which cannot be lifted by Section 337 of ADFPS. [Lizotte v. Aviva Insurance Company of Canada, 2016 SCC OnLine Can SC 35 : [2016] SCC 52, decided on 25.11.2016]

Case BriefsSupreme Court

Supreme Court: Stating that the virus of seeking adjournments needs to be controlled in order to avoid the abuse of the process of law, the bench of Dipak Misra and R. F. Nariman, JJ said that such act causes colossal insult to justice and to the concept of speedy disposal of civil litigation.

In a suit relating to recovery of possession, the examination- in-chief continued for long and the matter was adjourned seven times. The defendant sought adjournment after adjournment for cross-examination on some pretext or the other as if it was his right to seek adjournment on any ground whatsoever and on any circumstance. The Court said that a counsel appearing for a litigant has to have institutional responsibility and the professional ethics decries such practice. It was further reiterated that it is desirable that the recording of evidence should be continuous and followed by arguments and decision thereon within a reasonable time. That apart, the Courts should also constantly endeavour to follow such a time schedule so that the purpose of amendments brought in the Code of Civil Procedure are not defeated.

Quoting the saying of Gita “Awake! Arise! Oh Partha” for guidance of trial courts, the Court said that in the cases where the Judges are little proactive and refuse to accede to the requests of unnecessary adjournments, the litigants deploy all sorts of methods in protracting the litigation and it is not surprising that civil disputes drag on and on. The misplaced sympathy and indulgence by the appellate and revisional courts compound the malady further. The Court, hence, directed the defendant to deposit Rs, 50, 000 to the State Legal Service Authority, Karnataka within 8 weeks of this order and it was further made clear that if the amount is not deposited, the right of defence to examine its witnesses shall stand foreclosed. [Gayathri v. M. Girish, 2016 SCC OnLine SC 744, decided on 27.07.2016]