Dispute Resolution

The previous quarter witnessed another wave of the pandemic and the courts recalibrated accordingly. The Supreme Court, High Courts and NCLAT pronounced important judgments in arbitration and contract law, company law, and insolvency law.

Tine AbrahamPartner

Akshay PuriSenior Associate

Sujoy SurAssociate

2022 started with another Covid-19 wave and one of the most important reliefs for litigants in this context was the extension of limitation by the Supreme Court at the beginning of the year. In insolvency law, the National Company Law Appellate Tribunal (NCLAT) confirmed that acceptance or rejection of a resolution plan is a matter of commercial wisdom of the committee of creditors. In arbitration, the Supreme Court clarified that the jurisdiction of an arbitrator was limited to disputes arising under the agreements that led to the arbitration and did not extend to related agreements. Further, the Bombay High Court provided much-needed clarity on the limits of filing a civil suit for matters concerning companies’ internal affairs.

Key Developments

  • Covid-19 related extension of limitation by the Supreme Court

    The Supreme Court had removed the extension granted on periods of limitation from 3 October 2021. However, due to the third wave of the Covid-19 pandemic, it reinstated the extension on limitation periods till 28 February 2022. Further, the Supreme Court clarified that the period from 15 March 2020 till 28 February 2022 would stand excluded for limitation under general or special laws for judicial or quasi-judicial proceedings. Any limitation period remaining on 3 October 2021 would become available from 1 March 2022.

  • Supreme Court clarifies that an arbitrator can only render findings concerning the agreement under which it is initiated, and not related agreements

    In Indian Oil Corporate Limited v Shree Ganesh Petroleum Rajgurunagar, the Supreme Court ruled that an arbitrator cannot render findings under an agreement separate from the one under which the arbitration had commenced. Such findings would be beyond the scope of submission to arbitration. The parties had executed a lease agreement and a related dealership agreement in this case. However, the manner of appointment of arbitrators in each of the agreements was different. When disputes arose regarding the termination of the agreements, the parties were referred to arbitration. Notably, the dispute resolution mechanism under the dealership agreement was followed.

    In the award, the arbitrator had rendered findings relating to the lease agreement. These findings were set aside by the Supreme Court.

  • Supreme Court allows arbitral proceedings to continue post completion of CIRP

    In the landmark judgment of Committee of Creditors of Essar Steel India Ltd. (Essar Steel), the Supreme Court had held that once the corporate insolvency resolution process (CIRP) concludes, the corporate debtor company starts on a ‘clean slate’. Further, it was observed that adjudication of contingent claims cannot continue after the successful completion of a CIRP.

    However, in an order passed in Fourth Dimension Solutions Ltd. (FDSL) v Ricoh India Ltd. & Ors., the Supreme Court allowed an arbitration proceeding to continue after the completion of a successful CIRP. This arbitration proceeding was for a contingent liability pending on the date of commencement of CIRP.

    This order appears to be contradictory to the clean slate doctrine propounded in the Essar Steel case. Further, it also highlights a serious lacuna present in the Insolvency and Bankruptcy Code, 2016 (IBC) jurisprudence for the adjudication of contingent claims during the CIRP process.

    This order disturbs the prevailing clean slate doctrine and this may open a pandora’s box.

  • Supreme Court clarifies that restitution cannot be granted if the party claiming it was equally or more responsible for the illegality of the contract

    In Loop Telecom and Trading Limited (Loop Telecom) v Union of India and Anr., the Supreme Court clarified that principles of restitution under the Indian Contract Act, 1872 will not apply when the party claiming restitution was equally or more responsible for the illegality of the contract. In this case, Loop Telecom had claimed a refund of the entry fee (restitution) for 2G licenses cancelled by the Supreme Court.

    The Supreme Court refused to refund the entry fee paid by Loop Telecom since it was partly responsible for the illegality behind the 2G licenses. Further, the Court observed that even if Loop Telecom’s promoters are acquitted of criminal charges, it cannot be a ground to grant restitution since the illegal contract would have benefitted Loop Telecom.

  • Bombay High Court furthers shareholders’ rights and corporate democracy in India

    In Invesco Developing Markets Fund v Zee Entertainment Enterprises, the division bench of the Bombay High Court set aside the single-judge bench’s judgment in Zee Entertainment v Invesco. Earlier, the single judge bench had held that the civil court had the jurisdiction to grant an injunction on a requisition under the Companies Act, 2013 and that the proposed resolutions, and the requisition notice itself, could not be legally implemented.

    The injuncted requisition notice called for an extraordinary general meeting (EGM) of Zee under section 100(2) of the Companies Act, 2013 (Companies Act) in respect of resolutions proposed by Invesco. Zee’s position was that the requisition notice was invalid as the proposed resolutions suffered from multiple legal infirmities and would render Zee in violation of numerous statutes. The single judge of the Bombay High Court accepted Zee’s arguments and granted an injunction, thus restraining Invesco from taking any steps in furtherance of the requisition notice, including calling the EGM.

    Invesco appealed against the injunction order. In appeal, the Bombay High Court held that the meaning of a ‘valid requisition’ under section 100(4) of the Companies Act was limited to numerical and procedural compliances. Further, the Bombay High Court held that there is an absolute bar under the Companies Act for a civil court to entertain any suit or proceeding in respect of any matter that the NCLT or the NCLAT is empowered to determine. The bench also noted that in any case, the legal infirmities alleged by Zee did not have merit.

    This judgment affirms the NCLT’s jurisdiction to adjudicate questions arising from the Companies Act. Further, the clarification on section 100(4) ensures greater freedom for corporate democracy and less interference by judicial forums on the grounds of qualitative interpretation of the law.

  • NCLAT holds that the eligibility of a resolution plan under section 29A of the IBC cannot be determined by the resolution professional

    In Sharavan Kumar Vishnoi v Upma Jaiswal and Ors., the NCLAT held that the resolution professional cannot decide the ineligibility of a resolution applicant under section 29A of the IBC. Here, the resolution professional had not placed the resolution plan submitted by the appellant before the Committee of Creditors (CoC) as the resolution applicant was ineligible under section 29A per the resolution professional. The NCLAT directed that the resolution professional should place all the resolution plans with his opinion before the CoC and it will be for the CoC to take a considered view on them.

These judgements have clarified on crucial areas of law such as the IBC, company law and arbitration. We hope this trend continues in the coming months. Further, we expect a decision of the Supreme Court on the scope of the power of an arbitral tribunal to grant interim measures as well as much-awaited clarity about the fee scale for arbitrators under the Fourth Schedule of the Arbitration Act, 1996.

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