Dispute Resolution

While dispute resolution in India has still been reeling under the pressures of the pandemic, the Supreme Court has been active in issuing seminal judgments in the realm of commercial law. It has also continued to address the changing needs of the litigants through the pandemic.

Shankh SenguptaPartner

Varuna BhanraleCounsel

Akshay PuriSenior Associate

The quarter of July-September 2021 saw important judgments being delivered by the Supreme Court of India, especially in the realm of arbitration and insolvency law. The Supreme Court issued a landmark judgment holding that awards issued by emergency arbitrators under rules of arbitral institutions are enforceable in India. In the insolvency space, the Supreme Court clarified the limitation period for filing applications seeking to initiate insolvency proceedings against corporate debtors. On the procedural side, with the reduction in Covid-19 cases across India, the Supreme Court directed that the orders extending limitation period will come to an end.

Key Developments

  • Covid-19 related - Supreme Court's order lifting extension of limitation period

    Indian law typically sets out limitation periods within which an aggrieved/disputing party must initiate legal action so as to not lose its right to claim relief against the counterparty. However, on account of the Covid-19 pandemic, the Supreme Court passed an order on 23 March 2020 directing the extension of limitation periods for all legal proceedings before any court or tribunal until further orders. The court lifted this order on 8 March 2021, but reinstated it on 27 April 2021, in the wake of the second wave of Covid-19 cases.

    To compute the limitation period for any proceeding, the period from 15 March 2020 till 2 October 2021 will stand excluded. Where the limitation period would have expired between 15 March 2020 and 2 October 2021 in the regular course, notwithstanding the balance period of limitation remaining, all litigants will have a limitation period of 90 days from 3 October 2021 unless the actual balance period remaining is greater than 90 days.

  • Insolvency - Clarification on limitation period to file petition for initiation of corporate insolvency resolution process

    The Insolvency and Bankruptcy Code, 2016 (IBC) does not specify a limitation period within which a creditor must file a petition to initiate a corporate insolvency resolution process (CIRP) for the corporate debtor. The Supreme Court in Dena Bank v. Shivakumar Reddy threw light on this issue while considering the case of a financial creditor who had filed a petition for initiation of CIRP of a corporate debtor.

    The Court held as follows:

    • The limitation period to file a petition seeking initiation of CIRP is 3 years from the date of default. This is in accordance with the Limitation Act, 1963 which prescribes a 3-year limitation period for any application for which a limitation period is not specified.
    • If a final judgment, decree or recovery certificate is issued by any court/tribunal in favour of a financial creditor in connection with a default, a fresh cause of action arises in favour of such creditor from the date of such judgment, decree or recovery certificate being issued. Accordingly, the limitation period to file a petition for initiation of a CIRP starts afresh from the date a final judgment, decree or recovery certificate is issued.
    • An offer for a one-time settlement by the corporate debtor amounts to an acknowledgement of debt, which refreshes the limitation period. This is further to the settled principle that the limitation period begins anew where a defaulting debtor acknowledges the debt owed.

    The judgment is significant as it is keeping in line with the judiciary’s efforts to facilitate the enforcement of the rights of financial creditors.

  • Arbitration - Supreme court upholds the enforcement of Emergency Awards as interim awards

    In recent years, various arbitral institutions, such as SIAC, ICC and LCIA have introduced the concept of emergency arbitrators to issue urgent interim relief (Emergency Awards) pending the constitution of an arbitral tribunal. However, the Indian Arbitration and Conciliation Act, 1996 (Arbitration Act) does not specifically recognise emergency arbitrators or provide for enforcement of Emergency Awards. Despite multiple recent amendments to the Arbitration Act, the issue of Emergency Awards remained unclarified. This resulted in significant confusion on the enforceability of Emergency Awards, which in turn reduced the efficacy of institutional arbitrations. Further, despite provisions for Emergency Awards in the rules of various arbitral institutions, parties, erring on the side of caution, felt constrained to approach courts for interim relief resulting in avoidable delays.

    The Supreme Court has now clarified this issue in Amazon.com v. Future Retail, where it considered the issue of enforcement of an Emergency Award issued in a domestic arbitration. The court held that Emergency Awards made under rules of arbitral institutions are akin to orders made by an arbitral tribunal under section 17(1) of the Arbitration Act and therefore are enforceable as an order of a court. Consequently, disobedience of Emergency Awards may also amount to contempt of court. Further, the court also held that orders made by courts for enforcement of Emergency Awards are not appealable.

    The Supreme Court, by validating Emergency Awards, has yet again honoured party autonomy and reflected its progressive stance towards arbitration, in line with international practice. That said, given that the judgment is in the context of domestic arbitration, there continues to be lack of clarity on the enforcement of Emergency Awards (and interim orders of arbitral tribunals) issued in foreign-seated arbitrations.

The judgments of the Supreme Court discussed above are consistent with the policy objectives of the Indian legislature and judiciary, which are developing creditor friendly insolvency jurisprudence and arbitration law respecting party autonomy. Further, as the Supreme Court has lifted the order extending limitation periods, we can expect that the functioning of the Indian legal system will approach greater levels of normalcy in the coming months.

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