Search News and Articles
Litigation and Dispute Resolution
Case Laws
Arbitration and Conciliation Act, 1996
Uzi Justman v. Telephone Cables Ltd. and Anr.
The issue for consideration before the Delhi HC in this case was whether application under Section 22 of Sick Industrial Companies (Special Provisions) Act (“SICA”), 1985 for suspension/stay of proceedings acts as a bar for execution of an arbitral award and for recovery of dues.
Certain important and recent case laws in this area are set out below.
Case Laws
Arbitration and Conciliation Act, 1996
Uzi Justman v. Telephone Cables Ltd. and Anr.
The issue for consideration before the Delhi HC in this case was whether application under Section 22 of Sick Industrial Companies (Special Provisions) Act (“SICA”), 1985 for suspension/stay of proceedings acts as a bar for execution of an arbitral award and for recovery of dues.
Delhi HC rejecting the contentions of the Petitioner held that the object of enacting SICA would be defeated if execution of arbitral award is permitted. The sole purpose of enacting SICA was to protect the properties of a sick company under rehabilitation from being attached/sold in execution at the instance of individual creditors. The arbitral award under Section 36 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) is executable as a decree. Delhi HC held that there is no reasonable nexus for carving out a distinction between execution of a decree and of an arbitral award having the force of the decree, the effect of Section 22 (1) of SICA cannot be whittled down. Further, the Petitioner being an employee, the law relating to workmen cannot be made applicable. However, Delhi HC while dismissing the petition held that the time-period, during which the Petitioner is prohibited from executing the award owing to the provisions of Section 22 of SICA, should be excluded in computing the limitation period for applying the execution proceedings so that no prejudice is suffered by the petitioner.
Gujral Security Services v. D.S.C. Limited
The dispute in the present case was regarding the enforcement of an arbitration clause in the contract between two parties. In the present case, the contract contained an arbitration clause which provided for the Director of D.S.C. Limited (“DSC”) as the arbitrator. Gujral Security Services (“GSS”) contended that the arbitration clause in the contract was unfair and approached the Delhi HC for appointment of an independent Arbitrator.
The Delhi HC referred to earlier Supreme Court (“SC”) judgments, wherein it was decided that when parties have entered into an agreement with a government/statutory corporation/public sector undertaking which has an arbitration clause with one of the employees of such authority as the arbitrator, it is assumed that the parties are agreeable to such clause. The SC had held that parties to such agreements cannot subsequently turn around and agree to be bound by a part of an arbitration clause and disagree to the other part unless such a part is rendered void for being contrary to the provisions of the Arbitration Act. Thus, Delhi HC relying on the earlier SC judgment rejected the petition for appointment of an independent Arbitrator different from the one provided in the contract, stating that a party could not take benefit of the arbitration clause for resolving the dispute while ignoring the appointment procedure stated therein.
N. Radhakrishnan v. Maestro Engineers and Ors.
The issue for consideration before the SC in the present case was regarding the jurisdiction of civil courts to entertain petitions in cases where the parties were governed by an agreement containing an arbitration clause. Alleging collusion for personal gain, commission of malpractices and manipulation of accounts of the Partnership Firm, the appellant voluntarily offered to retire from the partnership firm on payment of his legal dues and share of profits. The Appellant also sought to invoke the arbitration clause as contained in the Agreement for adjudication of the disputes between the parties.
Subsequently, the Respondents approached the civil courts for redressal of the claims between the parties. However, the Appellant filed an application under Section 8 of the Arbitration Act contending that since the Partnership Agreement (“Agreement”) contained an arbitration clause, the civil courts had to refer the matter to an Arbitrator in case of any disputes arising between the parties. The SC after perusing the various judgments relied upon by the parties, held that in cases where serious questions of law/facts are involved or allegations of fraud have been raised by parties, civil courts were within their jurisdiction to refuse to refer matter for arbitration.
General
AGI Logistics Inc and Anr. v. Mr. Sher Jang Bhadhur and Anr.
SJB filed an application under Order 39 Rules 3 and 4 of Civil Procedure Code, 1908 (“CPC”) for vacation of an ex parte ad interim injunction. Delhi HC discussed the relevance of compliance under Order 39 Rule 3 of CPC. SJB had not been served with a copy of the plaint, the applications, the affidavits and documents filed by AGI along with the Plaint within the period of one week as granted by Delhi HC.
Delhi HC vacated the interim order stating that that every document filed by AGI, on the basis of which they had obtained an ad interim ex parte injunction, had to be necessarily “delivered” to SJB. The compliance of Order 39 Rule 3 has been made mandatory and strict compliance is demanded, enabling the opposite party to know what the case against it is and approach the court at the earliest point in time to seek, if necessary, a variation of the interim order. Delhi HC referring to SC decisions held that the Parliament had prescribed a particular procedure for passing of an order of injunction without notice to the other side, under exceptional circumstances. Such ex parte orders have far reaching effect, as such a condition has been imposed that court must record reasons before passing such order. If it is held that the compliance of the proviso aforesaid is optional and not obligatory, then the introduction of the proviso by the Parliament shall be a futile exercise and that part of Rule 3 will be a surplusage for all practical purpose. Proviso to Rule 3 of Order 39 of the Code attracts the principle that if a statute requires a thing to be done it should be done in a particular manner or not at all. After hearing both the parties, Delhi HC held that the requirement of Order 39 Rule 3 of CPC was not complied with and the mandatory procedure was not carried out by the parties. Hence, the application was dismissed.
Upaid Systems Limited v. Satyam Computer Services and Anr.
The issue for discussion before Delhi HC was regarding the procedure under Order 26 Rules 19 to 22 of the CPC. In the present case, Upaid Systems Limited (“Upaid”), a British Virgin Island Corporation, claimed reliefs under Section 78 read with Order 26 Rule 19 and 20 of the CPC for appointment of a Local Commissioner, as well as Letter of Request/ Letters Rogatory (issued by foreign courts that cannot access evidence which is beyond their territorial limits) from foreign court for recording deposition of witnesses, to written questions, appended to the Letter of Request, and request for production of certain documents by the witnesses.
Satyam Computer Services Limited (“Satyam”) contended that Delhi HC had no jurisdiction to entertain the petition and that the Letter of Request was issued pursuant to the ‘Hague Convention on Taking of Evidence Abroad in Civil or Commercial Matters 1970’ (“Treaty”). It was the contention of Satyam that though India was a signatory to the Treaty, yet since no law had been enacted by Parliament to give effect to the same under Article 253 of the Constitution of India; the Court was not competent to take cognizance and execute the Letter of Request issued by the foreign court. It was further contended that even assuming that this power may be derived by the courts from Order 26 Rules 19 to 22 of the CPC yet the court could not order discovery/production of documents by mandate of Rule 19 in the light of the specific declaration made by India while signing the Treaty.
Delhi HC after hearing the parties, allowed the petition of Upaid on the ground that CPC itself provided the manner in which Letters of Request are to be dealt with under Order 26, Rules 19 to 22 CPC. While allowing the petition, the Delhi HC court held that in such cases the domestic court, upon receiving such a request from a foreign court for assistance has to satisfy itself about three conditions, i.e. (i) the proceeding is in the foreign court; (ii) it is a “civil” proceeding and; (iii) the witness whose deposition is sought lives within the territorial jurisdiction of the domestic court.
Lawyers Collective v. Bar Council of India
In the present case, the issue before the Bombay HC was whether the permissions granted by RBI to the foreign law firms to establish LO under Section 29 of the Foreign Exchange Regulation Act, 1973 were legal and valid.
The petitioner in the present case opposed the entry of foreign law firms in India contending that it was essential for the foreign law firms to get enrolled under the Advocates Act, 1961 (“Advocates Act”) to carry on with their activities even in non-litigious matters. The foreign law firms argued that the Advocates Act covers only litigation practice in Court and not advisory work pertaining to foreign law in India. They further contended that the Advocates Act enacted under Entries 77 and 78 of List I of the Constitution of India, dealt only with matters pertaining to the constitution and organization of the Supreme Court and the High Court, and could be extended only to litigious practice before the High Courts and the Supreme Court. All other legal practices would be governed as per Entry 26 in List III or else the very entry would be rendered meaningless.
The Bombay HC relying on the statement of objects and reasons of the Advocates Act rejected the arguments put forth by the foreign law firms stating that the legislative intent was to deal with “practice in any part of the country” as well as with “practice in any court”. Therefore, “practice in any part of the country” must be held to include within its ambit non-litigious practice. Further, practicing the profession of law involves a larger concept whereas; practicing before the courts is only a part of that concept and the Advocates Act is not confined to litigious practice before the High Courts and the Supreme Court.
The Bombay HC held that the right of an Advocate to practice envelopes a lot of activities to be performed by him in discharge of his professional duties, which apart from appearing in the courts, also includes giving his legal opinion, pleadings, affidavits or any other documents whenever sought for, and work in any office or firm as a legal officer. Furthermore, the expression ‘to practice the profession of law' under Section 29 of the Advocates Act is wide enough to cover the persons practicing in litigious matters as well as persons practicing in non litigious matters Therefore, the Bombay HC held that the foreign law firms were bound to follow the provisions contained in the Advocates Act, and thus the permission granted by RBI to open liaison offices was held to be bad in law.
Cochin International Airport Limited v. Presiding Officer, DRT and Ors.
The issue for consideration before the Delhi HC in this writ petition was whether “debt” as defined under Section 2 (g) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (“Recovery Act”) includes within its ambit a claim for share certificates thereby deciding the issue of maintainability of an application under Section 19 of the Recovery Act for issuance/delivery of share certificates.
The expression ‘debt’ as defined under Section 2(g) of the Recovery Act only refers to a liability which is claimed as due from any person during the course of any business activity undertaken by it under any law for the time being in force, in cash or otherwise and subsisting, and legally recoverable on the date of the application, an application for the recovery of the same is maintainable before Debt Recovery Tribunal (“DRT”).
Delhi HC held that the term ‘debt’ has to be considered in its widest amplitude but cannot transcend the boundaries specified in Section 2 (g) itself and thereby the application for recovery of dues before the DRT is not maintainable. Delhi HC further observed that shares in a company do not constitute debts as company essentially contains two sources of funds share capital and borrowings. Shares are not a part of the liabilities of the company and are not part of the total debt of the company as they represent the shareholders contribution towards the share capital. Debt and equity are two different and distinct concepts. The term ‘debt’ as defined under the Recovery Act has reference to a claim or liability in terms of money in cash or otherwise but has no reference to shares. Therefore, a claim for issuance/delivery of shares cannot be regarded as an action seeking the recovery of a ‘debt’ as defined under Section 2(g) of the Recovery Act.
Authors
Atul Dua (e-mail: atul.dua@sethdua.com) is a Senior Partner with Seth Dua & Associates, Solicitors & Advocates, India .