Commercial Laws - Newsletter | January 2023
This commercial law newsletter provides a brief summary of the latest developments and updates through judgments, notifications, circulars, and other updates in the commercial sector in India including Arbitration, Taxation, Insolvency & Bankruptcy, etc.
Jurisdiction of the Arbitral Tribunal cannot be challenged at an Appellate stage if the parties have participated in the arbitral proceedings without any objection
The State of Madhya Pradesh preferred an appeal under Section 37 of the Arbitration and Conciliation Act, 1996, against the award of the Arbitrator as also the order of the Commercial Court affirming the order of the sole arbitrator on the ground that the arbitral award was passed without jurisdiction.
The High Court of Madhya Pradesh while dismissing the appeal observed that the issue of jurisdiction was never raised in the earlier proceedings and was raised for the first time under Section 37 of the Act. The Court held that as per Section 4 of the Act, the jurisdiction was accepted, hence, the same cannot be raised for the first time at the appellate stage.
The Court further observed that ‘the amended definition in Section 2(1)(d) of the Act of 1996 was introduced on 27.02.2017 and the dispute was returned by the Tribunal in the year 2015 and the application under Section 34 of the Act of 1996 has been decided on 11.11.2016 which is much prior to introduction of the amended definition.’
State of Madhya Pradesh v. Nathuram Yadav, Arbitration Appeal No. 11 of 2017
Contractual issues cannot be resolved by initiating proceedings under Section 9 of the Insolvency and Bankruptcy Code, 2016 (‘Code’)
The National Company Law Appellate Tribunal (‘NCLAT’) in its recent judgment held that “The disputes pertaining to contractual issues are not to be resolved in Section 9 proceedings.”
NCLAT while upholding the view of the Adjudicating Authority observed that there being a preexisting dispute, application under Section 9 was rightly rejected by the Adjudicating Authority.
a’XYKno Capital Services Pvt. Ltd. v. Rattan India Power Ltd., CA (AT) (Ins.) 913 of 2022
Clauses contemplating reference of disputes arising out of tax invoice would amount to an arbitration clause
The High Court of Bombay while highlighting the essentials of an arbitration agreement observed that where the parties have acted upon the invoices and there was no denial of the invoices raised, the clause contained in the invoices which clearly stipulate a reference to arbitration, deserve to be construed as an arbitration clause.
The Court further observed that the arbitration clause is separable from the other clauses and the Arbitration clause constitutes an agreement by itself.
Bennett Coleman & Co. Ltd. v. MAD (India) Pvt. Ltd., Comm. Arb. App. No. 211 of 2022
Courts can partly set aside an arbitral award under Section 34 of the Arbitration & Conciliation Act, 1996
The High Court of Delhi while dealing with a Petition under Section 34 of the Arbitration & Conciliation Act, 1996 (“A&C Act”) which had challenged arbitrator’s decision only on some of the claims or counterclaims, has held that it is not necessary for the court to set aside the entire arbitral award viz. the decision on all claims and counterclaims.
The High Court, however, reiterated the settled position of law that a court exercising power under Section 34 of the A&C Act cannot “modify” an arbitral award, however, when the arbitrator’s decisions on multiple claims and counterclaims are severable and not inter-dependent, the court is empowered under Section 34 to set aside or uphold the arbitrator’s decisions on individual and severable claims or counter-claims; without having to set aside the entire arbitral award. That would not amount to a modification of the arbitral award.
Union of India & Anr. v. Alcon Builders and Engineer Pvt. Ltd. 2023/DHC/000304
If the parties opt to have the arbitration's seat in a specific nation, that nation's rules governing arbitration proceedings will take effect and its courts will have supervisory jurisdiction over the arbitration.
The High Court of Delhi, while relying upon a judgment Enka Insaat Ve Sanayi AS vs. OOO Insurance Company Chubb, held that the Arbitrator had applied the wrong governing law while adjudicating the disputes between the parties as he had relied on Indian laws and judicial pronouncements while arriving at his findings when the parties had opted to have the arbitration’s seat in UAE. The entire dispute was to be adjudicated by the substantive law of the UAE.
Monika Oli v. M/s CL Educate Ltd. 2023/DHC/000371
Irrevocable & unconditional Bank Guarantee can be invoked even during moratorium
In view of the amended provision under Section 14 (3) (b) of the IBC, an irrevocable & unconditional Bank Guarantee can be invoked even during a moratorium.
IDBI Bank v. IOCL Company Appeal (AT) (Ins) No. 543 of 2021 - NCLAT, New Delhi
Proposed changes in the Insolvency & Bankruptcy Code, 2015 (“Code”) by Ministry of Corporate Affairs, Government of India
Occurrence of Default and Fulfilment of Procedural Requirements - only two criteria for admitting a Section 7 Application
It is proposed to amend Section 7 of the Code to clarify that while considering an application for initiation of the Corporate Insolvency Resolution Process (“CIRP”) by the financial creditors, the Adjudicating Authority (“AA”) is only required to be satisfied about the occurrence of default and fulfilment of procedural requirements for this specific purpose. Nothing more is required.
Fast-Track Corporate Insolvency Resolution Process (“FIRP”)
It is proposed that the provisions dealing with FIRP may be amended to provide that unrelated Financial Creditors (“FCs”) of a Corporate Debtor (“CD”) may select and approve a resolution plan through an informal out-of-court process and involve the AA only for its final approval (or a moratorium, if needed).
Improving recoveries for operational creditors in liquidation
It is proposed to treat all unsecured creditors (FCs, Operational Creditors (“OCs”) and any government or authority) other than the workmen and employees equally for distribution under Section 53 of the Code.
Use of Technology to handle several processes with minimum human interference
It is proposed to launch an e-platform for a better case management system, automated processes to file applications with the AAs, delivery of notices, enabling interaction of IPs with stakeholders, storage of records of CDs undergoing the process, and incentivising participation of other market players in the IBC ecosystem.
Other proposed changes
Amendment in Section 33(5) of the Code to introduce a provision for a stay on the continuation of proceedings during the liquidation process.
To add the supervisory role of the Committee of Creditors (“CoC”) during the liquidation process.
Other proposed changes can be accessed here.
Companies allowed to conduct their Annual General meetings through Video Conferencing (VC) or Other Audio Visual Means (OAVM)
In continuation of the Ministry of Corporate Affairs (‘MCA’) general circular dated 05.05.2020, (available here) MCA vide its general circular dated 28.12.2022 (available here) has stated that the companies whose annual general meetings (“AGM”) are due in the year 2023, can conduct their AGM through VC or OAVM on or before September 30, 2023, in accordance with the requirements laid down by MCA under general circular dated 05.05.2020.
This newsletter was authored by Kushank Sindhu (Counsel), Anmol Singh (Associate Counsel) & Gazal Ghai (Associate Counsel). The authors may be contacted at email@example.com.
DISCLAIMER. THIS CONTENT HAS BEEN PREPARED FOR INFORMATIONAL PURPOSES ALONE AND IS NOT A SUBSTITUTE FOR LEGAL ADVICE. PLEASE OBTAIN LEGAL ADVICE PRIOR TO ACTING ON OR RELYING ON THE CONTENTS OF THIS PAGE.