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Commercial Laws - Newsletter | April - May 2023

This commercial law newsletter provides a brief summary of the latest developments and updates in the months of April & May 2023 through judgments, notifications, circulars, and other updates in the commercial sector in India including Arbitration, Taxation, Insolvency & Bankruptcy, etc.

Operational Debt must be crystallized, undisputed and not something which requires adjudication by a competent authority

NCLAT Mumbai held that the claim for compensation does not become an Operational Debt until the liability is adjudicated upon and damages are assessed by a competent authority in law. The Bench was of the considered view that the Operational Debt claimed by the Petitioner must be crystallized, undisputed and not something which requires adjudication by a competent authority.

[Chandrashekhar Export Pvt. Ltd. vs Babanraoji Shinde Sugar & Allied Industries Ltd. C.P. No. 3667/IBC/MB/2019]

Payment of advance amount to receive the supply of goods and services from the Corporate Debtor does not come within the ambit of Operational Debt

NCLT Chennai relying upon NCLAT Delhi’s judgment in the case of Kavita Anil Taneja v. ISMT Ltd. held that the person who has supplied any goods or provided any services but has paid an advance to receive the supply of goods from the Company would not come within the meaning of “Operational Creditor”.

[Mr. V. Umadevi vs. Kumarna Gin & Pressing Pvt. Ltd. IBA/840(CHE)/2020]

The illegality of appointment procedure does not render the entire arbitration agreement invalid

The Bombay High Court held that merely because the procedure for the appointment of the arbitrator under the arbitration agreement is rendered invalid on account of the insertion of Section 12(5) in the Arbitration & Conciliation Act, 1996 and the Supreme Court judgment in Perkins Eastman Architects DPC and another vs. HSCC (India) Ltd. AIR 2020 SC 59, the same would not make the entire arbitration agreement unworkable. The Court further observed that the choice of getting the dispute resolved by arbitration is one thing and the choice of a specific arbitrator, is another thing and both are severable from each other.

[Sunil Kumar Jindal v. Union of India, Misc. Civil Application No. 543 of 2022]

Cause of action to appoint Arbitrator commences from the “Breaking Point” between parties

The Supreme Court, while rejecting the arbitration petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, (‘Act’) on account of being barred by limitation, observed that it is imperative to ascertain the “Breaking Point” at which any reasonable party would have abandoned efforts at arriving at a settlement and would refer the dispute for arbitration. The Court also observed that the entire history of the negotiation between the parties must be placed on record, in order to facilitate the Court to find out the “Breaking Point” for the purpose of computing limitation.

[M/s B and T AG vs. Ministry of Defence, Arbitration Petition (C) No. 13 of2023]

Modified resolution plan cannot be placed before National Company Law Tribunal (‘NCLT’) without being approved by Committee of Creditors (‘CoC’)

The Resolution Plan was approved by the CoC, however, in view of dissent by some of the financial creditors, the plan was sent back to the CoC in order to make it compliant with the provisions of Insolvency and Bankruptcy Code, 2016. The resolution applicant submitted the revised resolution plan. However, the Resolution Professional directly presented it to the NCLT for approval without placing it before the CoC. The Supreme Court while upholding the rejection of the resolution plan by the National Company Law Appellate Tribunal held that “There is no and there cannot be any concept of post facto approval of any resolution plan by CoC which had not been placed before it prior to the filing before the Adjudicating Authority.”

[M.K. Rajagopalan vs. Dr. Periasamy Palani Gounder & Anr., Civil Appeal Nos. 1682-1683 of 2022]

Clause prohibiting payment of interest on delayed payments, does not prohibit the arbitrator from granting interest under Section 31(7) of the Act

The High Court of Delhi while upholding the award of the arbitral tribunal observed that the power of Arbitral Tribunal to award interest for all the three periods namely, pre-reference, pendente lite and post award, is settled. Further, it was observed that a clause in a contract that prohibits payment of interest on delayed payments, does not restrict the “arbitrator” from granting interest under Section 31(7) of the Act.

[M/s Mahesh Construction vs. Municipal Corporation Of Delhi & Anr., 2023/ DHC/ 3728 ]

Income tax exemption on voluntary payment made out of appreciation by the employer to the employee

Income Tax Appellate Tribunal, Pune Bench (“ITAT”) while examining the scope of Section 17(3)(iii) of the Income-tax Act, 1961 held that as per the provision, it is evident that any payment received whether in lump sum or otherwise by an assessee from any person after cessation of his employment with that person is also considered as profit in lieu of salary and is to be brought to tax accordingly being defined inclusively as per the Act. However, in this case, when the employer itself stated that the payment has been made voluntarily by them out of appreciation for the employee, it thus falls outside the rigours of section 17(3)(iii) of the Income-tax Act. ITAT observed that there are no documents or evidence on record to show that the payment received from the employer was coupled with some legal obligation on the part of the employer to pay the employee.

[Mahadev Vasant Dhangekar vs. The Asstt. CIT, NFAC, Delhi 472/PUN/2022 - 03.04.2023]

A non-Indian company is said to be resident in India if the control and management of its affairs is situated wholly in India.

The Supreme Court of India held that for a company to be considered a resident of India under the Income-tax Act, 1961, the domicile or the registration of the company is not at all relevant and the determinate test is where the sole right to manage and control of the company lies.

[Mansarovar Commercial Pvt. Ltd. vs. Commissioner of Income Tax, Delhi Civil Appeal No. 5769 of 2022 - 10.04.2023]

A party which is non-signatory to the agreement can be impleaded as a necessary party in arbitration proceedings

The High Court of Delhi held that a party which is non-signatory to the agreement can be impleaded as a necessary party in Arbitration Proceedings. However, it further held that the Arbitral Tribunal’s order rejecting the application for impleadment of party does not constitute an ‘Interim Award’, and hence, it cannot be challenged under Section 34 of the Arbitration & Conciliation Act, 1996.

[Goyal Mg Gases Pvt Ltd vs. Panama Infrastructure Developers Pvt Ltd. 2023/DHC/2276-DB]

No Priority For Workers' Dues After Liquidation Of Company Under Insolvency & Bankruptcy Code, 2016 (“IBC”): Supreme Court

The Supreme Court of India upheld the constitutionality of Section 327(7) of the Companies Act, 2013 which holds that workers' dues will not get preferential payment in the event a company undergoes liquidation as per the provisions of the Insolvency and Bankruptcy Code 2016.

[Moser Baer Karamchari Union through its President Mahesh Chand Sharma vs Union of India W.P.(C) No. 421/2019]

Petition under Section 9 of the IBC can not be dismissed if some of invoices are time-barred

The Supreme Court of India held that when a petition under Section 9 of IBC is filed based on several invoices and some of the invoices are time barred, then NCLT must consider the remaining invoices which are within limitation and whether they cross the minimum threshold of Rs. 1 Crore. The Section 9 petition cannot be dismissed on the sole ground that some of the invoices are time-barred.

[M/s Next Education India Pvt. Ltd. vs. M/s K12 Techno Services Pvt. Ltd. Civil Appeal No.1775 OF 2021]

NCLAT does not have the power to condone delay beyond 15 days

NCLAT Delhi has held that there is no scope for condonation of delay beyond the period of 15 days much less 45 days, as there is no window available for NCLAT to exercise its jurisdiction for condonation of delay.

[Diwakar Sharma vs. Anand Sonbhadra Company Appeal (AT) (Ins.) No. 1446 of 2022]

Arbitration Agreement In Unstamped Contract Which Is Exigible To Stamp Duty Not Enforceable

The Supreme Court holds by a 3:2 majority that an instrument which is exigible to stamp duty may contain an arbitration clause and which is not stamped cannot be said to be a contract enforceable in law within the meaning of S. 2(h) of the Contract Act and is not enforceable under S. 2(g) of the Contract Act.

[M/s. N.N. Global Mercantile Pvt. Ltd. vs. M/s. Indo Unique Flame Ltd. And Ors. CA No. 3802-03/2020]

National Company Law Tribunal urges Petitioners (“NCLT”) to comply with Regulation 20(1A) of Insolvency and Bankruptcy Board of India (Information Utilities) Regulation, 2016 (“Information Utility Regulation”)

The NCLT has released a Circular dated 03.04.2023, requesting the Petitioners in Sections 7 and 9 of IBC proceedings to produce the record of Information Utility (NeSL certificate) for effective hearing of their case and comply with Regulation 20(1A) of Information Utility Regulation.

Regulation 20(1A) of the Information Utility Regulation reads as follows:

“20. Acceptance and receipt of information.

(1A) Before filing an application to initiate corporate insolvency resolution process under section 7 or 9, as the case may be, the creditor shall file the information of default, with the information utility and the information utility shall process the information for the purpose of issuing record of default in accordance with regulation 21.”

The Circular can be accessed here.

India International Arbitration Centre (“IIAC”) notifies regulations for the empanelment of arbitrators to IIAC

IIAC notified India International Arbitration Centre (Criteria for Admission to the panel of arbitrators) Regulations, 2023 (“Regulations”) on 31.03.2023. As per the Regulations, the Chamber of Arbitration, consisting of experienced and reputable arbitration practitioners at the national and international level, will empanel arbitrators for a maximum period of five years.

Regulations can be accessed here.

Central Board of Direct Taxes (“CBDT”) has issued a clarification regarding Employer’s TDS obligation

It is understood that the new tax regime is the default tax regime applicable to all individuals. However, under Section 115 BAC (6) a person may exercise an option to opt out of the new tax regime. A person who does not have income from a business or profession can exercise this option every year. Representations have been received by CBDT expressing concerns regarding tax to be deducted at source (TDS) on the salary income of a person under Section 192 of the Income-tax Act, 1961 (“Act”) as the deductor, being an employer, would not know if the person, being an employee, would opt out from taxation under sub-section (1A) of Section 115 BAC of the Act or not.

CBDT directed that a deductor, being an employer, shall seek information from each of its employees having income under Section 192 regarding their intended tax regime. The employee shall intimate it to the deductor, being his employer, regarding his intended tax regime for each year, and upon intimation, the deductor shall compute his total income and deduct tax at source thereon according to the option exercised.

CBDT further clarified that if no intimation is made by the employee, it shall be presumed that the employee continues to be in the default tax regime and has not exercised the option to opt out of the new tax regime. Therefore, in such a case, the employer shall deduct tax at source on income under section 192 of the Act in accordance with the rates provided under sub-section (lA) of section 115 BAC of the Act.

The Circular can be accessed here.

This newsletter was authored by Kushank Sindhu (Counsel), Anmol Singh (Associate Counsel), Gazal Ghai (Associate Counsel), Apali Kaushal (Associate Counsel) and Sanya Singh (Associate Counsel) . The authors may be contacted at


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