Bhatt & Joshi Associates

Introduction The Supreme Court recently delivered a significant judgment on the modification of an award under Section 34 of the Arbitration & Conciliation Act, 1996. The case is referred to as S.V. Samudram Vs. State of Karnataka and Anr. The Case and Its Context The Hon’ble Bench, presided over by Mr. Justice Abhay Shreeniwas Oka and Mr. Justice Sanjay Karol, examined the provisions of the Arbitration & Conciliation Act, 1996, specifically Section 34 and Section 37. The Judgment on modify an award under Section 34 The Court held that: - The position as to whether an arbitral award can be modified in the proceedings initiated under Sections 34/37 of the A&C Act is no longer res integra. - The Court categorically observed that any attempt to “modify an award” under Section 34 would amount to “crossing the Lakshman Rekha”. - It is a settled principle of law that arbitral proceedings are per se not comparable to judicial proceedings before the Court. - It is also a settled principle of law that an award passed by a technical expert is not meant to be scrutinised in the same manner as is the one prepared by a legally trained mind. - Observation of the court, advisory in nature, for the contractor to have commenced the work for one part of the contract is unwarranted and uncalled for, in fact perverse. - For it is no business of the Court to consider the burden on the exchequer. - Accounting for the legal position, the court could have at best set aside the award and could not modify the same. - The Court under Section 37 had only three options:- (a) Confirming the award of the Arbitrator; (b) Setting aside the award as modified under Section 34; and © Rejecting the application(s) under Section 34 and 37. Conclusion on Section 34 of the Arbitration Act This judgment provides valuable insights into the interpretation of Section 34 of the Arbitration & Conciliation Act, 1996. It underscores the importance of understanding the nature of arbitral proceedings and the role of the Court in scrutinizing an award. The ruling serves as a crucial reminder for all stakeholders in the arbitration process to adhere to the principles and procedures laid down by the law.   #1996 #Arbitralaward #arbitralproceedings #Arbitration&ampConciliationAct #modificationofanaward #Section34oftheArbitration

Introduction The Supreme Court recently delivered a landmark judgment on the principle of insolvency set-off under the IBC. The case is referred to as Bharti Airtel Ltd and Another Vs. Vijaykumar V. Iyer and Others. The Case and Its Context The Hon’ble Bench, presided over by Mr. Justice Sanjiv Khanna and Mr. Justice S.V.N. Bhatti, interpreted various provisions related to set-off and IBC. They described five different categories of the term ‘set-off’, namely, (a) statutory or legal set-off; (b) common law set-off; (c) equitable set-off; (d) contractual set-off; and (e) insolvency set-off. The summary of this landmark judgment is divided into the following points: (a) Contractual Set-off Contractual set-off is a matter of agreement, rather than a separate application of set-off. The parties are free to mutually agree on the outcomes they desire. However, the contract should be within the bounds of legality and public policy. The right to set-off may be explicit in the words of the agreement, or can be gathered by the existence of an oral or implied agreement to set-off, reflecting an understanding to that effect. The foundation of contractual set-off is based on the same ground as in the case of equitable set-off, which is impeachment of title, albeit contractual set-off is a result of mutual agreement that permits set-off and adjustment. (b) Statutory or Legal Set-off Statutory or legal set-off is created by a statute. For example, Order VIII Rule 6 of the Code of Civil Procedure, 1908 states that where a suit for recovery of money is filed, the defendant can claim set-off against the plaintiff’s demand for any ascertained sum of money legally recoverable by the defendant from the plaintiff, but not exceeding the pecuniary limits of the jurisdiction of the court. (c) Equitable Set-off Equitable set-off can also be claimed in respect of an ascertained sum of money. However, the claim for an equitable set-off must have a connection between the plaintiff’s claim for the debt and the defendant’s claim to set-off, which would make it inequitable to drive the defendant to a separate suit. The claim for set-off should arise out of the same transaction, or transactions which can be regarded as one transaction. Equitable set-off is allowed in common law, as distinguished from legal set-off, which is allowed by the court only for an ascertained sum of money and is a statutory right. (d) Insolvency Set-off Rory Derham on the law of set-offs observes that insolvency set-offs should not be equated with equitable set-offs. This statement reflects the development of law in the United Kingdom, which has resulted in the enactment of special provisions on set-off in case of insolvency. Insolvency set-off under the law of the United Kingdom is permitted when there are mutual debts, mutual credits, and other mutual dealings between the parties at

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Introduction The Himachal Pradesh High Court recently made a significant ruling regarding the jurisdiction of civil courts in Debt Recovery cases where the action of the secured creditor is alleged to be fraudulent or untenable. The case is referred to as Nishant Guleria Vs. Punjab National Bank and Anr. The Case and Its Context The Hon’ble Bench, presided over by Mr. Justice Sushil Kukreja, examined the provisions of the SARFAESI Act, specifically Section 34, and the Civil Procedure Code (CPC), specifically Section 100 and Order 6 Rule 4. Himachal Pradesh HC: Key Ruling on Debt Recovery Jurisdiction The Court held that: (i) The existence of a substantial question of law is a prerequisite for the exercise of jurisdiction under the provisions of Section 100 CPC. The second appeal does not lie on the ground of erroneous findings of facts based on the appreciation of the relevant evidence. (ii) Upon perusal of Section 34 of the SARFAESI Act, it is clear that no civil court shall have any jurisdiction to entertain any suit or proceeding in respect of any matter, which the Debt Recovery Tribunal is empowered by or under the SARFAESI Act to determine. Furthermore, no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under the said Act. (iii) The jurisdiction of the civil court would not be absolutely barred where the action of the secured creditor is alleged to be fraudulent or his claim may be so absurd and untenable which may not require any probe whatsoever. (iv) In the instant case, except for the use of the word “fraud”, no particulars of the allegations of fraud have been specifically pleaded as mandated by the provisions of Order 6 Rule 4 of the Civil Procedure Code, 1908. Conclusion: Debt Recovery Legal Insights This judgment provides valuable insights into the interpretation of the SARFAESI Act and the Civil Procedure Code in the context of debt recovery. It underscores the importance of the jurisdiction of civil courts and the role of the Debt Recovery Tribunal in such cases. The ruling serves as a crucial reminder for all stakeholders in the debt recovery process to adhere to the principles and procedures laid down by the law. #CivilProcedureCode(CPC) #DebtRecovery #HimachalPradeshHighCourt #Jurisdiction #Order6Rule4 #SARFAESIAct #Section100 #Section34

Introduction The National Company Law Tribunal (NCLT), Kolkata Bench, recently made a crucial decision regarding the payment to Operational Creditors and Dissenting Financial Creditors in a Resolution Plan under Section 30(2)(b). The case is referred to as Shankar Mukherjee and Anr Vs. Ravi Sethia (RP of Suasth Healthcare Foundation and Ors). The Case and Its Context The Hon’ble Bench, consisting of Ms. Bidisha Banerjee (Judicial Member) and Shri Arvind Devanathan (Technical Member), examined the provisions of the Insolvency and Bankruptcy Code (I&B Code), 2016, specifically Section 30(2)(b). The Judgment: Significance of Section 30(2)(b) The Bench held that: (i) The Code allows for a scenario where a provision made to an operational creditor or dissenting financial creditor in a Resolution Plan could be less than what they would have received in the event of liquidation as per section 53(1). (ii) The phrase “not less than” used in Section 30(2)(b) indicates that if the legislature intended to limit the amount payable to them to the liquidation value at most, then the words “not more than liquidation value” would have been used. (iii) The Code mandates allocation to dissenting financial creditors and operational creditors. The allocation would be the amount provided in the plan or liquidation value, whichever is higher. The argument that such creditors can be paid NIL value because their liquidation value is NIL would undermine the beneficial amendment made in Section 30(2) of the I&B Code. (iv) Upon careful examination of Section 30(2)(b) of the I&B Code, 2016, two legal propositions emerge: - (a) Reference to Section 53(1) of the I&B Code is solely for calculating the amount payable to operational creditors and dissenting financial creditors. Otherwise, Section 53 (1) has no relevance in the resolution of a corporate debtor under the CIR Process. - (b) Some amount should be allocated for operational creditors as well as dissenting financial creditors, and the amount so provided cannot be NIL. Conclusion: Interpreting Section 30(2)(b) for Fair Treatment This judgment provides valuable insights into the interpretation of Section 30(2)(b) of the I&B Code, 2016. It underscores the importance of fair treatment of operational creditors and dissenting financial creditors in the resolution process. The ruling serves as a reminder for all stakeholders in the insolvency process to adhere to the principles and procedures laid down by the Code. #FinancialCreditors #INSOLVENCY #LIQUIDATION #NationalCompanyLawTribunal #NCLT #OperationalCreditors #ResolutionPlan #Section30(2)(b) #section53(1)

Introduction A recent landmark judgment by the National Company Law Appellate Tribunal (NCLAT) has shed light on the critical issue of accepting late claims during the Resolution Plan approval process. The case in question, D.S. Kulkarni Associates Vs. Manoj Kumar Aggarwal (RP of D.S. Kulkarni Developers Ltd), has far-reaching implications for the insolvency resolution framework. Background of the Case The Committee of Creditors (CoC) granted approval to the Resolution Plan on August 13, 2021. However, a noteworthy turn of events occurred when the Appellants submitted their applications in February 2023—well over a year and a half after the CoC had endorsed the Resolution Plan. Details of the Ruling The NCLAT bench, led by Mr. Justice Ashok Bhushan (Chairperson) and Mr. Arun Baroka (Technical Member), delivered a nuanced judgment with two key observations: (i) The Memorandum of Understanding (MoU) submitted by the Appellant, intended to establish financial debt, did not distinctly demonstrate that the transactions fell under the purview of Section 5, sub-section (8) of the Code. (ii) The mere pendency of an application for Resolution Plan approval with the Adjudicating Authority does not automatically confer the right upon the Appellant(s) to file a claim more than one and a half years post the CoC's approval of the Resolution Plan. Conclusion: NCLAT Ruling on Late Claims in Resolution Plan This ruling underscores the critical importance of adhering to prescribed timelines during the insolvency resolution process, emphasizing the role of the CoC in meticulously approving claims. Late submissions, as in this case, may lack merit, potentially compromising the overall efficacy of the process. The decision sets a precedent, reinforcing the significance of procedural compliance for all stakeholders in insolvency proceedings, contributing to the fairness and robustness of the broader legal landscape. In essence, the NCLAT's decision establishes a precedent that reinforces the significance of adhering to the established legal framework. This case serves as a reminder to all parties involved in insolvency proceedings—creditors, debtors, and resolution professionals—of the paramount importance of procedural compliance, contributing to the robustness and fairness of the insolvency resolution process within the broader legal landscape. #CommitteeofCreditors #LateClaims #NationalCompanyLawAppellateTribunal #NCLAT #ResolutionPlan

Introduction The Insolvency and Bankruptcy Code (IBC) has been a subject of intense legal scrutiny and interpretation in recent years. One of the most contentious issues pertains to the entitlement of dissenting financial creditors under the IBC. The Contention: Security Interest of Financial Creditors A frequently vexed question arises as to the claim of a secured financial creditor either on the basis of the security interest it holds or otherwise. Such creditors, along with workmen, are first in the order of priority under Section 53(1) of the Code. However, what the other creditors would receive also depends upon how the secured creditors are settled. Divergent Rulings: The Need for Clarification In Essar Steel (India) Ltd. v. Satish Kumar Gupta, the Supreme Court observed that a secured creditor would be entitled to the value of its security. On the other hand, in India Resurgence ARC (P) Ltd. v. Amit Metaliks Ltd., the Court held that the secured creditor would not be entitled to the value of its security but would receive in proportion to what the others in the same class receive. These rulings seem to contradict one another but according to some legal experts, it is not so. The CoC’s Role: Exercising Commercial Wisdom In both cases, the Court proceeded on the premise that in the insolvency regime, the Committee of Creditors (CoC) is entitled to exercise commercial wisdom in dealing with the revival of the ailing corporate debtor and determine what amounts were to be paid to each class of creditors. Dissenting Financial Creditors : A Position of Compromise? The Supreme Court in Essar Steel (India) Ltd. v. Satish Kumar Gupta has held that in a corporate insolvency resolution process, as per Section 30(2)(b), a dissenting financial creditor would be entitled to at least what it would receive under Section 53(1) in case of liquidation (i.e., minimum liquidation value). However, the position in corporate insolvency resolution process (CIRP) is much different than that in an insolvency process. In insolvency process, there is a moratorium in place where there is a freeze on the assets of the corporate debtor and all the financial creditors come together to form the CoC. Approval to a resolution plan by the requisite majority is binding on all the stakeholders including dissenting financial creditors. It is thus, possible that under the approved resolution plan a dissenting financial creditor may not receive the value of the security held by it. Dissenting Financial Creditors : Court's Clarification for Larger Bench The Court also rejected the argument of the respondent that Section 30(2)(b)(ii) is unworkable because it involves deeming fiction relating to liquidation, which is inapplicable during the CIRP period. It noted that the dissenting financial creditor has to statutorily forgo and relinquis

A Landmark Judgment by the Punjab & Haryana High Court Introduction The Punjab & Haryana High Court has recently clarified that a detailed inquiry is not necessary for waiving the cooling off period in divorce proceedings under the Hindu Marriage Act, when the divorce is by mutual consent. The Court’s Stand: Waiving the Cooling Off Period A division bench of Justice Sudhir Singh and Justice Sumeet Goel stated that the court, while considering the waiver of the cooling off period, should be satisfied that there are sufficient grounds to grant such permission and that there is no concealment or misrepresentation by the parties. The court needs to satisfy itself as per Section 23 of the Act. No Need for Detailed Inquiry The court further added that no detailed inquiry, similar to a trial, is usually required while considering such an application. The court is well within its rights to examine the pleadings and affidavits presented before it for such evaluation. Case Background These observations were made during the hearing of a plea against the order of a Family Court. The court had rejected an application filed under Section 13-B of the Hindu Marriage Act, 1955 (HMA) for waiving off the statutory period of six months. The Parties Involved The parties involved were married in 2018 and started living separately since January 2020 due to temperamental issues. They filed for mutual divorce in August 2023. Family Court’s Decision The Family Court recorded that the requirement of Section 13B(1) of the Act had been satisfied as the parties had been living separately for more than one year. However, with regard to Section 13B(2) of the Act, the parties were required to move a second motion, as per the timeframe provided therein. Consequently, the matter was adjourned to March 2024. Appeal to the High Court: Waiving the Cooling Off Period Application In September 2023, they jointly moved an application before the Family Court seeking to waive off the statutory period of six months under Section 13B(2) of the Act. The Family Court dismissed the application, stating that the case of the appellants did not fall within the parameters fixed for waiving off the stipulated period of six months as mentioned under Section 13B(2) of the Act. High Court’s Observations The High Court noted that Section 13-B of HMA is irenic in essence, compared to Section 13 of the Act, which is based on fault-proving philosophy. Hence, the provision of Section 13-B deserves to be interpreted and applied accordingly since it aims at bringing about a peaceful and mutually agreeable final solution to matrimonial discord. Factors for Waiving the Cooling off Period The bench also summarised the following factors which need to be considered for waiving the cooling off period under Section 13-B(2) of the Hindu Marriage Act, 1955: - Duration o