Financial Creditor
Case BriefsTribunals/Commissions/Regulatory Bodies

   

National Company Law Tribunal, Mumbai: The Bench of P.N. Deshmukh, J., Judicial Member, and Shyam Babu Gautam, Technical Member admitted an application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) for the initiation of Corporate Insolvency Resolution Process (CIRP) against Sahara Hospitality Ltd. (Sahara).

In 2018, a company petition was filed by Delta Electro Mechanical Pvt. Ltd. (Delta Electro), which got disposed of in 2021, when Sahara agreed to settle the matter for Rs 20,00,00,000 in 14 installments. Delta Electro again approached the tribunal seeking the revival of the company petition after Sahara failed to perform the commitment. A new settlement agreement was drawn up. But Sahara failed again with its commitments and tried to shrug off its liabilities stating that it entered into the settlement to maintain good business relations with Delta Electro. Further, it stated that the agreement settlement failed, and hence the company petition was disposed of. Hence, contended that the petition cannot be admitted without a prayer of restoration.

Hence, Delta Electro filed a company petition seeking to initiate the CIRP against the Sahara by invoking the provisions under Section 9 of the IBC for default of Rs 51,77,97,495/-.

The Bench stated that Delta Electro had sent a demand notice dated 25-05-2018 under Section 8 of the IBC for an unpaid amount of Rs. 32,72,03,256/-. Further, the Bench stated that Sahara in its written submissions dated 24-03-2022 submitted that rental dues or dues under a leave and license agreement cannot be considered an operational debt by relying upon the judgment in Anup Sushil Dubey v. National Agriculture Co-operative Marketing Federation of India Ltd., 2020 SCC OnLine NCLAT 674 , wherein it was held that the subject lease rentals arising out of use and occupation of a cold storage unit which is for Commercial Purpose is an ‘Operational Debt' as under Section 5(21) of the IBC. Therefore, the Bench held that Sahara is liable to pay the dues payable against the facilities extended by Delta Electro.

Hence, the Bench admitted the Company Petition and ordered to initiate CIRP against Sahara. For the process, Mamta Binani was appointed as the Insolvency Professional.

[Delta Electro Mechanical Pvt. Ltd. V. Sahara Hospitality Ltd., CP No. 2430/2018, decided on- 15-07-2022]


Advocates who appeared in this case :

Shyam Kapadia, Advocate, for the Applicant;

Sandeep Bajaj, Advocate, for the Respondent.

Financial Creditor
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, New Delhi: The bench of Abni Rajan Kumar Sinha, Judicial Member and Hemant Kumar Sarangi, Technical Member has held, that default made in payment of instalment amount as per the terms of the settlement agreement does not fall under the definition of operational debt.

Facts of the case

Operational creditor, Ahluwali Contracts (India) Pvt. Ltd. entered into a Memorandum of Understanding (MoU)/ Settlement Agreement with corporate debtor, Logix Infratech Pvt. Ltd. on 30-09-2019 for the final settlement against the work done by the operational creditor according to the ‘Work Contracts’.

The operational debtor defaulted in making payments of instalments as determined under the settlement agreement. Operational creditor filed a company petition seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against corporate debtor by invoking the provisions of Section 9 r/w Rule 6 of the Insolvency and Bankruptcy Code, 2016 (IBC) for a resolution of Operational Debt of Rs 7,72,00,000.

Issue Whether the breach of terms and conditions mentioned under the settlement agreement comes within the purview of ‘operational debt’?

Analysis and decision

Firstly, the Bench noted that operational debt means a claim in respect of provision of goods and services including employment. In the present petition, the claim of the operational creditor did not fall under the category of either goods or services provided by the operational debtor. Rather, the present application was being pressed by the operational creditor only in respect of default made due to the breach of terms and conditions mentioned under the settlement agreement.

At this juncture, the bench referred to the decision of NCLT, Allahabad in Delhi Control Devices Pvt. Ltd. v. Fedders Electric and Engineering Ltd. (Company Petition (IB) No. 343/ALD/ 2018 wherein the bench held that, “unpaid instalment as per the agreement cannot be treated as operational debt a per Section 5(21) of IBC. The failure or Breach of settlement agreement can’t be a ground to trigger CIRP against corporate debtor under the provision of IBC 2016 and remedy may lie elsewhere not necessarily before the Adjudicating Authority”. A similar view was followed in the case Nitin Gupta v. International Land Developers Pvt. Ltd. (IB No. 507/ND/2020).

Hence, the bench applied the same principle as laid down in the aforementioned cases and considered that the default of payment of settlement agreement does not come under the definition of operational debt.

Therefore, the bench dismissed the application.

[Ahluwali Contracts (India) Pvt. Ltd. v Logix Infratech Pvt. Ltd., 2022 SCC OnLine NCLT 169, decided on 03-06-2022]


Advocates before the Tribunal

For the Applicant: Adv. Dhruv Rohatgi

For the Respondent: Adv. Nitish K. Sharma


Case BriefsHigh Courts

Delhi High Court: Sanjeev Narula, J., allowed an arbitration petition by appointing a sole arbitrator to adjudicate the disputes between the contesting parties.

Instant petition sought appointment of a Sole Arbitrator to adjudicate the disputes that were stated to have arisen under a Settlement Agreement containing an arbitration agreement.

Facts in a Nutshell

Sellers hold the complete shareholding in petitioner 1 company.

Buyers and Sellers entered into a Memorandum of Understanding for transferring the seller’s shareholding in petitioner 1 company to the buyers for a consideration of Rs 84.43 crores.

Under the terms of the MoU, initial payments were made by the Buyers in favour of the Sellers. Thereafter, the Buyers defaulted, and cheques issued by them were dishonoured. Sellers issued legal notices to the Buyers for breaches of the terms of the MoU and sought specific performance thereof. In some cases, the Sellers even proceeded under Section 138 of the Negotiable Instrument Act, 1881.

Further, a Settlement Agreement was entered into between all the Petitioners and Respondents (except Respondent 3) wherein it was agreed that the MoU stood terminated and cancelled and the parties would be restored to pre-MoU status, thereafter the buyers claimed a refund of Rs 21 crores from the sellers and in return offered re-possession of the project land.

Petitioners vide notice invoking arbitration, called upon the contesting Respondents to pay compensation to the tune of Rs. 25 crores, or in alternative, settle disputes in terms of the Clause 11 of the Settlement i.e., through arbitration mechanism.

On receiving no response from the respondent’s present petition was filed.

Respondent’s contentions:

  • Claims urged by the Sellers are barred by limitation, and hence, should not be referred to arbitration.
  • The claims sought to be referred to arbitration, arise under the MoU and not under the Settlement.

Analysis, Law and Decision

Whether court should refuse to refer the disputes to arbitration on account of non-arbitrability of disputes?

In Court’s opinion, respondent’s objection with regard to arbitrability of claims is an aspect that has to be agitated before the Arbitral Tribunal.

Prima facie, the contesting Respondents were correct in contending that in light of execution of the Settlement, the MoU stood cancelled and ceased to exist, and therefore, no claim could arise from a cancelled agreement.

Court stated that it was an admitted position that payments were partially made under the Settlement, by way of cheques. It can also not be denied that the contesting Respondents did not receive entire payment under the MoU as they had admittedly initiated criminal proceedings under the Negotiable Instrument Act, 1881 on account of dishonour of cheques.

Sellers contended that the Settlement was executed under coercion.

Factual Dispute:

Whether the settlement was executed under duress or coercion; whether payments under the Settlement were due or not whether claims against the contesting respondents were barred under Section 62 of the Indian Contract Act, 1872 in view of the novation of contract?

Court found no merit in the arguments by the contesting respondents.

Whether court should refuse to refer the disputes to arbitration on account of being barred by limitation?

Limitation is a mixed question of fact and law.

In the Supreme Court decision of Indian Farmers Fertilizers Cooperative Ltd. v. Bhadra Products, (2018) 2 SCC 534,  Supreme Court held that the issue of limitation, being a jurisdictional issue, should be left to be decided by the Arbitral Tribunal under Section 16 of the Act, the said is based on the principle of “kompetenz-kompetenz” which favoured minimum judicial intervention at the pre-reference stage.

Recently, the Supreme Court in BSNL v. Nortel Networks, (2021) 5 SCC 738      observed that only in very limited category of cases, where there is not even a vestige of doubt that the claim is ex facie time barred, or that the dispute is non-arbitrable, should a Court decline to make reference to an Arbitrator. However, at the same time, the Supreme Court also added a cautionary note that if there is even the slightest doubt, the rule is to refer the disputes to arbitration, otherwise it would encroach upon what is essentially a matter to be determined by the Tribunal.

Bench noted that the parties are undoubtedly at loggerheads since they have ongoing criminal litigations against each other.

Petitioners gave an explanation that they did not have any occasion to invoke arbitration prior to such date, since they received a copy of the Settlement Agreement only in the cheque bouncing proceedings initiated by the contesting respondents. From the said date when they gained knowledge, the invocation was within time.

Thus, the question of limitation was indeed a question of both fact and law.

Hence, the genuineness of the parties’ stand was a matter of trial, and the Court found the question of limitation in the instant matter to be disputed. Court did not find the instant case to be falling in the exceptional category of cases set out in the BSNL v. Nortel Networks, (2021) 5 SCC 738      where, on a prima facie basis, the Court concluded that the petition was ex facie barred by limitation.

Accordingly, Justice J.R. Midha, (Retd.) Former Judge of this Court was appointed as the Sole Arbitrator to adjudicate the disputes between the parties.

High Court allowed the present petition in view of the above. [Pooja Infotech (P) Ltd. v. Prabhuprem Infotech (P) Ltd., 2021 SCC OnLine Del 4749, decided on 21-10-2021]


Advocates before the Court:

For the Petitioners:

Sanjay Goswami, Advocate

For the Respondents:

Mr. Sanat Kumar, Senior Advocate with Mr. Sanjay Sharma Darmora, Advocate for Respondent No. 1-4. Mr. Pawan Kumar Mittal, Advocate for Respondent No. 5.

Mr. Akhil Sachar, Advocate for R-6.

Tis-hazari
Case BriefsDistrict Court

Tis Hazari Court: Man Mohan Sharma, District Judge, partly disposed of a trademark infringement suit filed by Bennett Coleman and Co. Ltd., noting that the plaintiffs and the defendants reached a settlement agreement.

Factual Background

Plaintiff was aggrieved by the actions of the Defendants who committed the trademark infringement and further illegally used and masthead which was exclusively owned by the plaintiff.

The statutory proprietary right of exclusive use of the trademarks wherein TIMES is used as distinguishing, key, essential and dominant feature is used was with the plaintiff.

Plaintiff is evidently recognized and distinguished as “Times Group” and the trademark TIMES is identified vis-à-vis the goods, business and services originating or associated with the plaintiff and none else.

Trademark TIMES this constituted a valuable intellectual property owned by the plaintiff.

Proceedings

It was submitted that there are various unknown infringing portals operated by unknown entities which are engaged in unauthorized and illegal use of the trademarks and mastheads of the plaintiff and circulating/broadcasting/communicating the same to users/customers and the general public.

The details of the above-stated websites are unknown and as such have been arrayed as “John Doe/Ashok Kumar” defendants

Adding to the above submissions it was stated that the trademarks, tradenames/mastheads of the plaintiff company were being used by the defendant on their customized and personalized gifts, décor, accessories, etc, are identical and/or similar in order to deceive the public at large to the effect that customized and personalized gifts, décor, accessories etc., are related to the plaintiff in some manner.

It was submitted in the present matter that defendants 1,2,7 and 11 had reached a settlement with the plaintiff and that the said defendants were prepared to suffer an injunction in terms of their respective settlement agreements and that nominal damages of Re 1 had been paid by each of the defendants to the plaintiff.

It was added that the terms of settlement had been reduced into writing in the respective application under Order XXII Rule 3 CPC read with Section 151 CPC and the accompanying settlement agreements.

Analysis and Decision

District Court noted that the terms of respective applications and Settlement Agreements appeared to be within the four corners of law. Hence the said settlement agreement was accepted.

In view of the above, a consent decree was passed and the suit was disposed of vis a vis the plaintiff and defendants 1, 2, 7 and 11.

Also, in view of the statement of plaintiff’s counsel, name of defendant 10 was directed to be removed from array of parties.

Matter to be listed for the appearance of the served defendants and further proceedings on 18-12-2021.[Bennett Coleman and Co. Ltd. v. Giftcart Ecommerce Pvt. Ltd., CS (Comm) 1932 of 2021, decided on 1-11-2021]


Advocates before the Court:

Rahul Malhotra, Counsel for the plaintiff.

Anushkaa Arora, Counsel for the defendant nos. 1, 2 and 10.

Defendant 7 on video conferencing

Rahul Shukla, Counsel for the defendant 7.

Manish Kumar, Counsel for the defendant 14

Case BriefsHigh Courts

Calcutta High Court: Shekhar B. Saraf, J., while dismissing the present petition and upholding the interpretation placed by the Labour Court with regard to the “Service” Charge”, quoted prose by V.R. Krishna Iyer, J., —

“The Constitution of India is not a non-aligned parchment but a partisan of social justice with a direction and destination which it sets in the Preamble and Art. 38, and so, when we read the evidence, the rulings, the statute and the rival pleas we must be guided by the value set of the constitution. We not only appraise Industrial Law from this perspective in the disputes before us but also realize that ours is a mixed economy with capitalist mores, only slowly wobbling towards a socialist order, notwithstanding Sri Garg’s thoughts. And, after all, ideals apart, “law can never be higher than the economic order and the cultural development of society brought to pass by that economic order.”

Coming to the present application, filed which is with respect to a dispute between the Management and Labour, wherein Management assailed an award passed by Labour Court.

Issue before the Labour Court was:

“Interpretation of Clause 5 of the ‘Settlement Agreement’ that had been reached between the petitioner company and the employees of the petitioner company in reference under Section 36 A of the Industrial Disputes Act, 1947.”

Contentions

Counsel for the petitioner company, Ranjay De submitted that the service charge that is collected on Food and Beverage sales was decided to be disbursed amongst all the employees and the managerial personnel connected with the hotel functioning.

Adding to his submissions, he stated that, Service charge is only payable to personnel who are functioning in the hotel, and not to personnel that have been suspended.

There was no question of service charge being treated as part of wages.

Placing reliance on Section 2(rr) of West Bengal Payment of Subsistence Allowance Act, 1969 counsel for the petitioner canvassed the argument that unless the employee was functioning, he could not be entitled to any service charge.

Bank of India v. T.S. Kelawala, (1990) 4 SCC 744:

Petitioner’s counsel placed reliance on the above case to buttress the argument that wages are payable to the employees only upon fulfilment of the contract and not otherwise.

State of Punjab v. Jaswant Singh Kanwar, (2014) 13 SCC 622:

Supreme Court held that a person, who is suspended would be debarred from any privilege.

“…increment is an incidence of employment and an employee gets an increment upon working the full year and drawing full salary, and therefore, if he is under suspension, no such increment can be given to him.”

With reference to the present application and decision of Labour Court, the counsel submitted that:

Labour Court erred in law in holding that the service charge was payable to employees that were under suspension. Interpretation of the clause ‘service charge’ collected on Food and Beverage sales will be disbursed amongst all employees including managerial personnel connected with the hotel functioning by the tribunal is absolutely incorrect, as the Tribunal has held that the term ‘connected with the hotel functioning’ is redundant.

Counsel appearing on behalf of the Union of Employees, argued that there was no scope for interference by the High Court to Labour Court’s Order.  He further submitted that, Supreme Court in several of its decisions has held that,

“…beneficial interpretation is required to be given in favour of the employees, wherein settlement has been reached between the management and the workers.”

Justice V.R. Krishna Iyer in KCP Employees’ Assn. v. Management of KCP Ltd, (1978) 2 SCC 42 stated that,

“…In Industrial Law, interpreted and applied in the perspective of Part IV of the Constitution, the benefit of reasonable doubt on law and facts, if there is such doubt, must go to the weaker section, that is labour.”

Justice Ashok Ganguli in Harjinder Singh v. Punjab State Warehousing Corpn., (2010) 3 SCC 192, held that,

“…it is the Court’s duty to interpret statute with social welfare benefits in such a way as to further the statutory goal and not to frustrate the same.”

Conclusion

To get a clear understanding of the issue at present, Bench has quoted Clause 5:

5. SERVICE CHARGE

It is agreed between the parties that effective 1st October 1994, 70% of Service Charge collected on Food & Beverage sales will be disbursed amongst all employees including managerial personnel connected with the hotel functioning. The Industrial Trainees and the hotel operation trainees coming for on the job training from different Institutes/source will not get share of service charge. The tipping zone employees will get 50% less service charge than the amount payable to the non-tipping zone employees. From 1st October 1996 disbursement of service charge will be 75%.”

Court while concluding its decision, stated that, it is clear that the service charge is not a part of the exclusive clause. It further appears that the same may not be part of the inclusive clause either as the service charge is neither an allowance or is it a payment for house accommodation/travelling concession/commission payable.

“Service charge comes within the first portion of Section 2(rr) of the West Bengal Payment of Subsistence Allowance Act, 1969 wherein it is stated that ‘wages’ means all remuneration capable of being expressed in terms of money.”

High Court while reasoning and upholding the Labour Court’s decision stated that the term ‘hotel functioning’ would only apply to the managerial personnel due to the fact that the settlement agreement is between the management and the employees.

With regard to service charge, agreement clarifies that the managerial personnel connected to the hotel functioning shall also obtain a share as they are actively involved in the ‘service’ being provided to the customers.

“Treating the term ‘employees’ in the said clause as only employees that are presently working and excluding those who are suspended would amount to a very narrow interpretation of the said clause.”

Hence, to eschew delay that is deleterious to the Labour, it is the duty of the High Court to only interfere in such matters where there exists gross perversity in findings and/or the High Court finds an egregious error in law. [Peerless Inn v. First Labour Court, 2020 SCC OnLine Cal 335, decided on 10-02-2020]

Case BriefsForeign Courts

Constitutional Court of South Africa: Bench comprising of Cachalia, Dlodlo, Goliath and Petse, AJ., Froneman, Jafta, Khampepe, Madlanga, and Theron, JJ., confirmed two declarations of constitutional invalidity given by the High Court of South Africa, Gauteng Division.

The facts of the case are that a settlement agreement was concluded between Nxasana, former National Director of Public Prosecutions (NDPP), President Zuma, Minister of Justice and Correctional Services whereby payment was made to Nxasana if he vacated his office. Following which Abraham was appointed as NDPP. Issue before Constitution Court was to confirm if the manner in which Mr Nxasana vacated office and Abraham was appointed thereafter were constitutional compliant.

Court was of the view that independence of office of National Director of Public Prosecution (NDPP) is essential to maintain and the fact that former President Zuma wanted to get rid of Nxasana suggested by a blank check offered to Nxasana to fill any amount he wanted, why the president did not go with the inquiry and rather went for huge payment in form of a settlement agreement. Thus, independence of NDPP office was compromised as all the terms of settlement agreement was constitutionally invalid. On the same reasoning Section 12(4) and (6) of the National Prosecuting Authority Act, 1998 were also constitutionally invalidated. This led to the question of constitutional validity of Advocate Abraham’s appointment to which court concluded that if the first act is set aside, a second act that depends for its validity on the first act must be invalid as the legal foundation for its performance was non-existent. Now that the manner in which Mr Nxasana vacated office has been declared constitutionally invalid, it follows that the appointment of Advocate Abrahams is constitutionally invalid. Court though invalidated removal of Nxasana and appointment of Abraham it did not reinstate Nxasana and directed that a new person should be appointed. [Corruption Watch NPC v. President of the Republic of South Africa,2018 SCC OnLine CCSA 14, order dated 13-08-2018]