A five-judge bench of the Supreme Court of India has in N.N. Global Mercantile Private Limited v. Indo Unique Flame Limited & Others held by a 3:2 majority that an arbitration clause contained in an instrument that is not duly stamped is non-existent in law until such agreement is validated by payment of the requisite stamp duty following the procedure laid down under the relevant legislation for payment of stamp duty, particularly the Indian Stamp Act, 1899. The minority was of the view that non-payment of stamp duty on an agreement liable to stamp duty, being a curable defect, would not render the arbitration clause contained within such agreement to be void.
The following are the key takeaways from the decision. First, if an arbitration agreement (either standalone or contained as a provision in a contract) is found to be unstamped, it would be impounded immediately and returned only upon payment of the requisite stamp duty and penalty. Second, if such arbitration agreement is insufficiently stamped and the deficit in stamp duty is nominal, parties may undertake a self-assessment and pay the deficit stamp duty and penalty. Should parties not be able to self-assess the deficit in stamp duty, they are required to formally submit the agreement for adjudication with the relevant authority. Third, the judgment expressly notes that it does not comment on Section 9 of the Arbitration Act and Conciliation Act, 1996, as amended, in relation to application by parties to the courts for interim reliefs.
We are pleased to present the India chapter of the Global Investigations Review’s Guide to International Enforcement of the Securities Laws (Second Edition). The India chapter has been authored by Niti Dixit, Shahezad Kazi, Zahra Aziz and Gladwin Issac, all lawyers at S&R.
The India chapter provides information on relevant statutes and the government authorities responsible for investigating and enforcing them, conduct most commonly the subject of securities enforcement, and legal issues that commonly arise in enforcement investigations in India.
There is, often, a complex interplay between transnational legal standards for the enforcement of commercial contracts and various domestic legislations. One such category of legislations in India which affects, and sometimes delays, the enforcement of arbitration agreements are legislations relating to collection of stamp duty, in particular the Indian Stamp Act, 1899 and certain state-specific legislations relating to collection of stamp duty (collectively, the “Stamp Duty Law”). Under the Stamp Duty Law, an insufficiently stamped instrument is liable to be impounded. Further, until such an instrument is sufficiently stamped, the instrument remains inadmissible in evidence. What then is the fate of an arbitration clause within an instrument that is either not stamped or insufficiently stamped? Will the relevant authority before which such instrument is presented under the provisions of the Arbitration and Conciliation Act, 1996 refuse to refer the parties to arbitration; appoint an arbitrator; grant interim relief sought by the party? Or, would the separability doctrine (that an arbitration agreement is separate and distinct from the substantive contract in which it is contained) salvage such an arbitration clause?
We are pleased to share the India chapter of the Global Investigations Review’s Guide on International Enforcement of the Securities Laws (First Edition). The India chapter has been authored by Niti Dixit, Shahezad Kazi, Dhruv Nath and Zahra Aziz with assistance from Muizz Drabu and Gladwin Issac, all lawyers at S&R. The India chapter provides information on relevant statutes and the government authorities responsible for investigating and enforcing them, conduct most commonly the subject of securities enforcement, and legal issues that commonly arise in enforcement investigations in India.
Recently, pursuant to its decision in Ebix Singapore Private Limited v Committee of Creditors of Educomp Solutions Limited and Anr., the Supreme Court of India extensively analyzed the status of a resolution plan approved by the Committee of Creditors but pending approval of the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016. The Supreme Court observed that such a resolution plan binds the Committee of Creditors and the Resolution Applicant and reinforced the strength of the decision of the Committee of Creditors in favor of a resolution plan. The Supreme Court also, once again, clarified the scope of scrutiny, at the stage of approval of a resolution plan, by the National Company Law Tribunal and consequently by the National Company Law Appellate Tribunal.
The vexed question of whether two Indian parties can validly choose a foreign seat of arbitration under Indian law and the applicability of interim relief, in the event of such a choice, remained a long-standing debate. It is relevant to note that there was never an express statutory bar on Indian parties’ choice to select a foreign seat of arbitration under the Arbitration and Conciliation Act, 1996 (the “Arbitration Act”). However, the complex interplay of the party-centric definition of “international commercial arbitration” with certain other provisions of the Arbitration Act, in the context of a fundamental principle of Indian law that no Indian party can exclude the application of Indian law to itself, led to conflicting decisions on this issue. The uncertainty forced Indian parties to actively avoid a foreign seat of arbitration to circumvent a potential challenge to the validity of the arbitration agreement at the time of enforcement of the award. Recently, the Supreme Court of India revisited this question in PASL Wind Solutions Private Limited v. GE Power Conversion India Private Limited, 2021 SCCOnLine SC 331 and affirmed that two Indian parties can not only validly select a foreign seat of arbitration but can equally apply to Indian courts for interim relief under Section 9 of the Arbitration Act.
A key feature of the Prevention of Money Laundering Act, 2002 (the “Act”) is the power of the investigating agency under the Act, i.e., the Directorate of Enforcement (the “ED”), to provisionally attach any property believed to be involved in money laundering for an initial period up to 180 days from the date of such attachment. This provision ensures that proceeds that are obtained directly or indirectly from the offences noted under the Act (“scheduled offences”) are not dealt with in any manner so as to frustrate proceedings relating to the confiscation of such proceeds under the Act. Ex facie, this provision appears to be in direct conflict with the rights of bona fide third-parties such as banks, mortgagees, transferee, and lessee etc. who may otherwise have a lawful interest in a property alleged to be involved in money laundering and had no knowledge of such involvement at the time of acquisition of interest in such property. In light of this apparent conflict, does the Act adequately safeguard the rights of such third-parties who have a lawful interest in a property provisionally attached by the ED?
Pursuant to Section 60(5) of the Insolvency and Bankruptcy Code, 2016 the National Company Law Tribunal is bestowed with wide jurisdiction to decide: (i) ‘any’ application or proceeding against a corporate debtor; (ii) ‘any’ claim made by or against a corporate debtor including claims by or against its subsidiaries; and (iii) ‘any’ questions of priority or ‘any’ question of law or facts, arising out of or in relation to insolvency resolution or liquidation proceedings of the corporate debtor. Are there any limits to such jurisdiction of the National Company Law Tribunal?
The Supreme Court of India in the Essar Steel case held that allowing claims apart from those covered in a resolution plan to survive after approval of a resolution plan militates against the rationale of Section 31 of the IBC. The Supreme Court recognized that a successful resolution applicant should be given an opportunity to take over and run the business of the corporate debtor on a clean slate. Subsequently, the legislature introduced Section 32A of the IBC to provide that a corporate debtor shall not be prosecuted for an offence committed prior to the corporate insolvency resolution process, subject to certain conditions. Recently, the Supreme Court dismissed a writ petition challenging the constitutional validity of Section 32A of the IBC. The Supreme Court issued an unequivocal declaration of the need to give the successful resolution applicant a fresh start.
In the recent spate of amendments to the Arbitration & Conciliation Act, 1996 (the “Arbitration Act”), one issue remained overlooked – whether a particular dispute can be referred to arbitration or whether such dispute is exclusively reserved for adjudication by a court. For almost a decade, the sole guidance to courts deciding this question was the test formulated by the Supreme Court of India (the “Supreme Court”) in Booz Allen and Hamilton Inc v. SBI Home Finance Ltd. & Others (2011) 5 SCC 532 (“Booz-Allen Test”). However a closer look at the rulings of the Supreme Court over the last few years reveal that the Booz-Allen Test has failed to withstand the test of time – the ‘nature of rights’ principle on which the test is predicated has been found inadequate to conclusively determine the question of arbitrability. Recently, the Supreme Court revisited this question in Vidya Drolia & Others v. Durga Trading Corporation 2019 SCCOnLine SC 358 (“Vidya Drolia”) and proposed a four-fold test to determine arbitrability under Indian law. The Supreme Court also issued guidance to forums adjudicating this issue.