Corporate Insolvency Resolution Process: A New Recovery Mechanism for Operational Creditors

Corporate Insolvency Resolution Process: A New Recovery Mechanism for Operational Creditors

Supreme Court Provides Clarity on Exclusive Jurisdiction Clause in Arbitration Agreement

Supreme Court Provides Clarity on Exclusive Jurisdiction Clause in Arbitration Agreement-Vikrant Rana and Akshay Gupta

On April 19, 2017, a two-judge bench of the Supreme Court bench passed their judgment in Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited and Ors.[1] holding that in cases where the parties include an exclusive jurisdiction clause in an arbitration agreement designating a particular place as the seat of the arbitration, the Court in whose jurisdiction the seat of the arbitration falls would have sole jurisdiction to entertain petitions in respective of non-arbitrable issues arising out of the agreement, to the exclusion of any other Courts.

Use of Exclusive Jurisdiction Clauses in Agreements

Exclusive Jurisdiction Clauses are widely used by parties to an agreement as often it may not be convenient for the parties to sue at the place at which the cause of action for the dispute may have arisen. In such cases the exclusive jurisdiction clause offers a party the opportunity to establish a convenient pre-determined place where disputes arising in regard to the contract would be referred to, if and when they arise.

Factual Background

• Datawind Innovations Private Limited (hereinafter referred to as Respondent No.1) having its registered office at Amritsar in Punjab was engaged in the manufacture, marketing and distribution of mobile phones, tablets and other accessories.
• Indus Mobile Distribution Private Limited (hereinafter referred to as the Appellant) wished to conduct business with Respondent No.1, acting as their Retail Chain Partner.
• In furtherance of the above, an agreement dated October 25, 2014 was entered into between the Parties with Respondent No.1 supplying goods to the Appellant at Chennai from New Delhi.
• The Dispute Resolution Mechanism was provided under Clauses 18 and 19 of the agreement dated October 25, 2014.  Clause 18 provided that in case of disputes between the parties, if the dispute could not be resolved by discussion between senior officials of the parties, then the matter would finally be settled through arbitration, presided by a sole arbitrator, conducted under the provisions of the Arbitration and Conciliation Act, 1996 with the seat of the Arbitration being Mumbai.
• Further, Clause 19 provided that all disputes arising out of, or in connection with the Agreement would be subject to the exclusive jurisdiction of the Courts of Mumbai alone.
• Disputes arose between the parties and Respondent No.1 sent a notice dated September 25, 2015 to the Appellant. Further, the arbitration clause provided under Clause 18 of the Agreement was invoked. The Appellant denied the contents of the notice and asked Respondent No.1 to withdraw the same.
• In the meantime, Respondent No. 1 filed a petition before the Delhi High Court under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”) seeking various interim reliefs.
• In October 2015 Respondent No.1 filed a second petition before the Delhi High Court under Section 11 of the Act to appoint the sole Arbitrator.

The Impugned Decision of the Delhi High Court

• The Delhi High Court while disposing off the two petitions held that as no part of the cause of action arose in Mumbai, the Courts of Mumbai would have no jurisdiction over the matter with only the Courts of Amritsar, Chennai and Delhi having jurisdiction.
• Since, the Delhi High Court had been approached first, it would continue to have jurisdiction in the matter. Further, the Court restrained the Appellant from transferring, alienating or creating any third-party interests in the Appellant’s property in Chennai and also appointed the sole Arbitrator.

Issue before the Supreme Court

In case no cause of action arises at the place where the seat of arbitration is situated, whether the Court within whose jurisdiction the seat of arbitration is located would have exclusive jurisdiction in all proceedings.  

Decision of the Supreme Court

• The Supreme Court referring to its earlier judgments in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc[2], Enercon (India) Ltd. v. Enercon Gmbh[3], and Reliance Industries Ltd. v. Union of India[4], the Court observed that in its previous judgments, it has time and again been reiterated that once the seat of arbitration has been fixed, it would be in the nature of an exclusive jurisdiction clause as to the courts which exercise supervisory powers over the arbitration.
• Further, in Union of India v. Reliance Industries Limited and Others[5], the Court referred had held that the supervisory jurisdiction of courts over the arbitration goes along with seat.
• Under the law of Arbitration, a reference to seat is a concept that has been developed to facilitate parties to choose a neutral venue for Arbitration. It is not necessary for any cause of action to have arisen at the neutral venue as the provisions of Section 16 to 21 of the Code of Civil Procedure, 1908 would not be attracted.
• Therefore, while setting aside the impugned order of the Delhi High Court with regard to its jurisdictional power, the Supreme Court held that since the parties had established the seat of the arbitration at Mumbai, exclusive jurisdiction would vest in Mumbai, the Courts of Mumbai would have exclusive jurisdiction for purposes of regulating arbitral proceedings arising out of the agreement between the parties.

Observations

This decision of the Supreme Court is a welcome clarity on the issue that often arises with the parties to a contract approaching Courts whose jurisdiction has been ousted by the terms of the exclusive jurisdiction clause in the agreement. Parties should ensure that the seat of arbitration is selected by them after due consideration as this judgment prevents forum shopping, once the seat of arbitration is agreed to by the parties.

To view all formatting for this article (eg, tables, footnotes), please access the original here.

SS Rana & Co - Vikrant Rana and Akshay Gupta

Contractual penalty clauses: Supreme Court weighs in :- Shardul Amarchand Mangaldas & Co

Introduction

In 2015 the Supreme Court(1) settled the law on contractual penalty clauses. In essence, the term 'contractual penalty clause' refers to a clause in a contract whereby a party in breach of an obligation under the contract is required to pay the other party an amount which is greater than the reasonable proportion of the damage or loss suffered due to such breach.

This update captures the legal framework surrounding contractual penalty clauses in India.

Contractual penalty clauses in India

While common law has a significant role to play in the development of contractual liability in India, contract law is largely codified under the Contract Act 1872. Chapter VI of the Contract Act deals with the consequences of a breach of contract. Section 73 provides for compensation for immediate and direct loss or damage caused by breach of contract in the nature of unliquidated damages. Section 74 applies to contracts with a predetermined damages clause. However, under this section, the courts will award the aggrieved party only reasonable compensation, not exceeding the pre-estimate or penalty stipulated. In view of the same, two questions arise in relation to a contractual penalty clause:

• Are the damages sought of a penal nature and what is the criteria for determining the same?
• Assuming that a clause is of a penal nature, is it enforceable in India?

Case overview

In 2015 the Supreme Court had to address whether a clause providing for forfeiture of the earnest sum was considered a penalty and whether it was enforceable.

In this case, the respondent (the Delhi Development Authority) allotted plots to the highest bidder in accordance with an allotment agreement, which provided that 25% of the consideration was to be paid upfront by the highest bidder, and the remaining amount was to be paid within a stipulated timeframe. The appellant (Kailash Nath) failed to pay the remaining amount. Consequently, the respondent forfeited 25% of the total amount paid as earnest money. One of the issues before the court was whether the respondent's 25% forfeiture was penal in nature in view of the fact that the respondent had earned profit by re-auctioning the plot. While allowing the appeal, the court set out the following tests:

• If the contract provides for a sum as a liquidated amount payable by way of damages, the liquidated amount will be given only if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the court. The amount awarded cannot exceed the amount stated in the contract.(2)
• In cases where the amount fixed is penal in nature, only reasonable compensation can be awarded, not exceeding the penalty so stated.(3)
• Reasonable compensation will be fixed on well-known principles that apply to the law of contract, which can found in, among other places, Section 73 of the Contract Act.(4)
• Where it is possible to prove actual damage or loss, such proof cannot be discounted. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if it is a genuine pre-estimate of damage or loss, can be awarded.(5)

Comment

The Indian courts have removed the distinction between liquidated damages and penalty insofar as awarding the eventual sum is concerned. In all cases, where there is either a stipulation in the nature of a genuine pre-estimate of damage or a stipulation in the nature of a penalty, the court has jurisdiction to award such sum only as it considers reasonable, but not exceeding the amount specified in the contract (either as a genuine pre-estimate of damage or a penalty).

For further information on this topic please contact Saanjh Purohit, Sanyam Saxena, Aishvary Vikram or Nimrah Alvi at Shardul Amarchand Mangaldas & Co by telephone (+91 11 4159 0700) or email (saanjh.purohit@AMSShardul.com, sanyam.saxena@AMSShardul.com, aishvary.vikram@AMSShardul.com or nimrah.alvi@AMSShardul.com). The Shardul Amarchand Mangaldas & Co website can be accessed at www.amsshardul.com.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.

Endnotes

(1) Kailash Nath Associates v DDA (2015) 4 SCC 136.

(2) Supra, Para 43.1.

(3) Supra, Para 43.1.

(4) Supra, Para 43.2.

(5) Supra, Para 43.6.

Impersonation, identity theft most common cyber crimes

The National Crime Records Bureau (NCRB) pegged the number of cyber crimes reported in Bengaluru at 1,041–higher than Bengaluru police figures–giving the IT city the top spot in cyber crime among the largest Indian cities. Hyderabad stands a distant second with 354 cases and Kolkata third with 111, followed by Delhi, Mumbai and Chennai with 90, 26 and 29 cases, respectively. In all, 11,592 cyber crimes were registered across the country in 2015, 8.9% of these in Bengaluru.

Elizabath Mani , BS, June 22, 2017 Last Updated at 08:10 IST

Bengaluru: Impersonation, identity theft most common cyber crimes



NCRB pegged the number of cyber crimes reported in Bengaluru at 1,041

RBI defies Supreme Court order, refuses to disclose list of loan defaulters

RBI defies Supreme Court order, refuses to disclose list of loan defaulters: In 2015, court stated that RBI is supposed to make this information public.



According to the government, gross non-performing assets (NPA) of the public sector banks stood at Rs 6.06 lakh crore as on December 31, 2016.

RBI had denied information citing clauses of economic interests of the state, the commercial confidence and information held in fiduciary capacity.

It had also cited the provisions of Section 45-E of the RBI Act, 1934 which prohibits disclosure of credit information.

On December 16, 2015 the apex court had clearly rejected these arguments of the RBI, in a matter filed by another RTI applicant, and ordered disclosure of defaulters' list, upholding a Central Information Commission (CIC) order.

Still, the Bankers' Bank cited same arguments to deny information to Agrawal, who escalated the matter to the CIC.



P.T.I.-Business Standard:- May 23, 2017. 

Phishing attack hits Google docs and the hack is spreading like wildfire

Recipients who fell for scam gave attackers access to their Google email messages and contact list

Robert McMillan | WSJ May 4, 2017 Last Updated at 11:50 IST

An unusual computer attack that mimicked Google’s cloud-based document software spread across US news organizations and other institutions on Wednesday.

The attack involved malicious emails masquerading as a message from Google Docs, often sent from a known source. Recipients who clicked on the embedded link and then clicked yes on a follow-up link inadvertently gave the attackers access to their Google email messages and contact list, said Matt Tait, a cybersecurity expert based in the U.K. who researched the incident. That access was then used to send more malicious emails to addresses found in the victim’s contact list, Mr. Tait said

The attack leverages a well-known scam technique called phishing, in which attackers attempt to trick users into clicking on malicious web links by pretending to be something they are not. But the use of Google’s Web-app authentication system was unusual and appeared to catch off guard even many users who are wary of email scams.

The attack was particularly noteworthy because the perpetrators were able to automatically flood victims’ contacts with malicious messages using a system that seems safer, causing the phishing attacks to spread with unusual rapidity, said Liam O’Murchu, director of security technology and response at antivirus vendor Symantec Inc. “What’s new here is that they made it into a worm.”

Victims of the scam included journalists at CNN, the Washington Post, BuzzFeed, Vice Media and The Wall Street Journal. But it also hit a large number of nonmedia companies, said Gary Warner, chief threat scientist with PhishMe Inc., company that protects against email attacks.

The goal of the attack wasn’t entirely clear, but it may have been to harvest email addresses from victims to break into online accounts, Mr. Warner said.

The software used in the attack was a web-based application called “Google Docs,” that used the same name as Google’s software but was developed by a third party. The web application developer used the name Eugene Pupov, but that was likely a pseudonym, Mr. Tait said. An email sent to an address linked to the account went unanswered Wednesday.

Mr. Tait said either Google or individual users need to revoke the access of the fake Google Docs app to their information to prevent the attackers from having continued access.

A Google spokeswoman couldn’t immediately say whether the company was doing that. “We have taken action to protect users against an email impersonating Google Docs, and have disabled offending accounts,” she said in an email message. The company had removed the fake pages used by the attackers and is “working to prevent this kind of spoofing from happening again,” she said.

Users can revoke access to Google applications themselves by clicking on the permissions page of their Google accounts.

Attachment of Immovable Properties ( Land / Buildings and Houses) in India

Attachment of immovable property ( Land / Buildings and Houses)  is a legal process of taking, apprehending, or seizing the property, by virtue of any forms of judicial order to the satisfaction of judgement or during the pendency of litigation. Immovable properties are defined in Sec 3(26) of the General Clauses Act, 1897, and shall include land, and things attached to earth, or permanently fastened to anything attached to earth. The transfer of Properties Act, 1882, Sec 3 defines -“attached to the earth” means:-

(1) rooted in the earth, as in the case of trees and shrubs;

(2) imbedded in the earth, as in the case of walls or buildings; or

(3) attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached.

Attachment of Immovable Properties as per Rule 54 of Order 21 of the Code of Civil Procedure 1908, states:-

(1) Where the property is immovable, the attachment shall be made by an Order prohibiting the judgment debtor from transferring or charging the property in any way, and all persons from taking any benefit from such transfer or charge.

(1) The Order shall also require the judgment debtor to attend court on a specified date to take notice of the date to be fixed for settling the terms of the proclamation of sale.

(2) The Order shall be proclaimed at some place on or adjacent to such property by beat of drum or other customary mode, and a copy of the Order shall be affixed on a conspicuous part of the property and then upon a conspicuous part of the court house, and also, where the property is land paying revenue to the government, in the office of the Collector of the District in which the land is situate and, where the property is land situate in village, also in the office of the Gram Panchayat, if any, having jurisdiction over that village.)

This, however, is subjected to various High Court Amendments.

The Categories of Properties which are exempted from attachment is provided under Civil Procedure Code Section  60, with concerned State Amendments.

Sec :-60. Property liable to attachment and sale in execution of decree.--

(1) The following properly is liable to attachment and sale in execution of a decree, namely, lands, houses or other buildings, goods, money, bank notes, cheques, bills of exchange, hundis, promissory notes, Government securities, bonds or other securities for money, debts, shares in a corporation and, save as hereinafter mentioned, all other saleable property, movable or immovable, belonging to the judgment-debtor, or over which, or the profits of which, he has a disposing power which he may exercise for his own benefit, whether the same be held in the name of the judgment-debtor or by another person in trust for him or on his behalf:

Provided that the following particulars shall not be liable to such attachment or sale, namely:-- 

(a) the necessary wearing-apparel, cooking vessels, beds and bedding of the judgment-debtor, his wife and children, and such personal ornaments as, in accordance with religious usage, cannot be parted with by any woman;

(b) tools of artisans, and, where the judgment-debtor is an agriculturist, his implements of husbandry and such cattle and seed-grain as may, in the opinion of the Court, be necessary to enable him to earn his livelihood as such, and such portion of agricultural produce or of any class of agricultural produce as may have been' declared to be free from liability under the provisions of the next following section;

(c) houses and other buildings (with the materials and the sites thereof and the land immediately appurtenant thereto and necessary for their enjoyment) belong­ing to ²[an agriculturist or a labourer or a domestic servant] and occupied by him;

(d) books of account;

(e) a mere right to sue for damages;

(f) any right of personal service;

(g) stipends and gratuities allowed to pensioners of the Government  [or of a local authority or of any other employer], or payable out of any service family pension fund  notified in the Official Gazette by  [the Central Government or the State Government] in this behalf, and political pension;

 [(h)] the wages of labourers and domestic servants, whether payable in money or in kind  [***];

 [(i) salary to the extent of  [the first  [ [one thousand rupees]] and two-thirds of the remainder]  [in execution of any decree other than a decree for maintenance]:

 [Provided that where any part of such portion of the salary as is liable to attachment has been under attachment, whether continuously or intermittently, for a total period of twenty-four months, such portion shall be exempt from attachment until the expiry of a further period of twelve months, and, where such attachment has been made in execution of one and the same decree, shall, after the attachment has continued for a total period of twenty-four months, be finally exempt from attachment in execution of that decree;]]

 [(ia) one-third of the salary in execution of any decree for maintenance;]

 [(j) the pay and allowances of persons to whom the Air Force Act, 1950 (45 of 1950), or the Army Act, 1950 (46 of1950), or the Navy Act, 1957 (62 of 1957), applies;]

(k) all compulsory deposits and other sums in or derived from any fund to which the Provident Funds Act,  [1925] (19 of1925), for the time being applies in so far as they are declared by the said Act not to be liable to attachment;

 [(ka) all deposits and other sums in or derived from any fund to which the Public Provident Fund Act, 1968 (23 of 1968), for the time being applies, in so far as they are declared by the said Act as not to be liable to attachment;

(kb) all moneys payable under a policy of insurance on the life of the judgment-debtor;

(kc) the interest of lessee of a residential building to which the provisions of law for the time being in force relating to control of rents and accommodation apply;]

  [(l) any allowance forming part of the emoluments of any  [servant of the Government] or of any servant of a railway company or local authority which the  [appropriate Government] may by notification in the Official Gazette declare to be exempt from attachment, and any subsistence grant for allowance made to  [any such servant] while under suspension;]

(m) an expectancy of succession by survivorship or other merely contingent or possible right or interest;

(n) a right to future maintenance;

(o) any allowance declared by  [any Indian law] to be exempt from liability to attachment or sale in execution of a decree; and

(p) where the judgment-debtor is a person liable for the payment of land-revenue ; any movable property which, under any law for the time being applicable to him, is exempt from sale for the recovery of an arrears of such revenue.

Order 21 Rule 58 CPC –Attachment of mortgaged Property

A suit under O.21 Rule 58, attachment before judgement, to release the property from attachment on the ground that property is under attachment by a mortgagee , when the possession is not actual , the objections under above Rule 58 cannot be maintainable.

The Hon’ble Supreme Court in Kabidi Venku Sah Vs. Sayed Abdul Hai and another , 1984 AIR (SC)117, held that :-

  On the basis of  a simple  mortgage  executed  in     his

favour in  the year 1948, the appellant obtained a decree on

4-9-1967, brought the mortgaged property to sale, purchased

it himself  on 24-7-1968 and got the sale confirmed by court

on 28-8-1968.  The first respondent who  held a  promissory

note executed  in his  favour  by  the   owner  of  the said

property in  1961, instituted a suit for recovery of the sum

on 24-9-1964  and got  the property attached before judgment

on the     same day  and thereafter  obtained a money decree on

30-3-1967, and filed an execution petition for realising the

money due under the decree by bringing the property to sale.

Thereupon the  appellant filed a claim petition under O.21,

r. 58  C.P.C., for  getting the attachment raised. The claim

petition was  resisted by the first respondent inter alia on

the ground  that it  was incompetent  as the  appellant had

neither any  interest in the equity of redemption nor was he

in possession  of the  property. The trail court allowed the

claim petition holding inter alia that what was attached on

24-9-1964 was  the entire  property and not the  equity  of

redemption alone.  The Civil  Revision Petition filed by the

first respondent  against the  order of     the trial court was

allowed by  the High  Court which  held that  the  appellant

having failed  to prove  that he  had  an  interest  in    the property on the date of the attachment and was in possession

of the property, either actual or constructive, on that date

he was not entitled to have the attachment raised.

     Dismissing the appeal,

     HELD: The trial court erred in observing that what was

attached before   judgment on 24-9-1964 was not the equity of redemption but    the entire property. There could be no doubt

that on    24-9-1964 when the property  was  attached  before judgment long  after the  mortgage dated  31-7-1948 and  two years before the suit was filed on the mortgage in 1966, the mortgagor had  the equity  of redemption and that what could have been  attached in    law on    24-9-1964 was  the equity of redemption  alone   and  not  the  entire  interest  in the property. The  property.  The  appellant  had  no  doubt  an interest in the property as mortgagee, but he could not have been in possession of the property as he was only a simple mortgagee.  He was a secured  creditor as  he had  a mortgage in  his favour,  and any  attachment effected after the date  of the  mortgage and   during its subsistence could only be subject to  that mortgage. Since he had no interest in the equity of  redemption on  the date of attachment, he could not  have had  any objection  to   that  right  of    the mortgagor being attached by the first respondent. Therefore,

he wasnot a  person who  could, in  law,  file  any  claim

petition under    O. 21;     r. 58 objecting to the attachment of the equity of redemption. [116 A; C-D; F-H]

     The attaching  creditor can  bring the property to sale only subject  to the  mortgage as  long as it is subsisting.That is to say,  he could bring only the mortgagor's equity of  redemption to  sale   if it   had  not  already been extinguished by it sale in execution of any decree obtained on that mortgage. But if  the       equity    of  redemption      has already been  sold after  the date  of the  attachment, the attaching decree  holder  could proceed only against the balance, if any, of the sale price left after satisfying the mortgagee  decree-holder's   claim  under  the     decree.     The mortgagee's right is thus not affected all. [117 B-C]

Further,  in  2007 (4) MLJ 1252 (D.Saraswathy and others vs. Krishnasamy and others), the scope of Section 47 came up for consideration before this Court and this Court reiterated the principle that the Execution Court cannot go behind the decree and it is to execute the decree as it stands.

Finally in 2006 (4) SCC 416 (Manish Mohan Sharma and others vs. Ram Bahadur Thakur Limited and others), the Hon'ble Supreme Court held that an Executing Court cannot go behind the decree unless the decree is a nullity for a lack of inherent jurisdiction and the lack of jurisdiction is patent on the face of the decree.

 Immovable Property Attachments under Criminal Procedural Code 1973.

Criminal Procedural Code Sec 87 and 88 provide for the attachment and sale of the property of any accused person or witness whose presence is required by a criminal court as a last remedy for compelling his attendance. The procedure laid down must be adhered; else, sale will be liable to be set aside. Schedule 5 of Cr. P.C prescribes the form for proclamation, attachment e.t.c.

However, Police can attach only the movable property as per Sec 102 Cr.PC.  In this regard, a bench of the Bombay High Court on Monday gave a split judgment on attachment of property of the accused in criminal cases, with the majority observing that police cannot attach immovable property under Section 102 of the CrPC. The term property, which police can attach, is only is 'movable'.

The Customs (Attachment of property of defaulters for recovery of Government dues) Rules, 1995.

The rules as to:-

Private alienation to be void in certain cases.

(a)    Where a notice has been served on a defaulter under rule 4 , the defaulter or his representative in interest shall not be competent to mortgage, charge, lease or otherwise deal with any property belonging to him except with the written permission of the Proper Officer.

(b)    Where an attachment has been made under these rules, any private transfer or delivery of       the property attached or any debt, divided or other moneys contrary to such attachment, shall be void as against all claims enforceable under the attachment.

(c) Where the property to be attached consists of the share or interest of the defaulter in property belonging to him and another as co-owners, the attachment shall be made by a notice to the defaulter prohibiting him from transferring the share or interest or charging it in any way.

Similarly, the concerned State rules as to civil rules of practice provides the rules applicable to alienation after service of attachment notice, in cases of Attachment of Immovable Properties as per Rule 54 of Order 21 of the Code of Civil Procedure 1908.