India: HSA | Dispute Resolution & Arbitration Monthly Update | February 2023

TATA Sons Pvt Ltd v. Siva Industries and Holdings Ltd & Ors

Background facts

• In 2006, TATA Sons Pvt Ltd (Applicant), Siva Industries and Holdings Ltd (Respondent No. 1) and Tata Tele Services Ltd (TTSL) executed a Share Subscription Agreement for the issuance and allotment of shares of TTSL to the First Respondent.
• Subsequently, the Applicant, TTSL and NTT Docomo Inc (Docomo) executed a share purchase agreement, whereby Docomo acquired certain equity shares of TTSL from Respondent No. 1. The rights, obligations, and duties of Docomo's ownership of TTSL's shares were recorded in a Shareholders' Agreement (SHA) executed between the three parties.
• The Respondents then entered into an Inter se Agreement with the Applicant and TTSL, which placed an obligation over the Respondents to purchase the TTSL shares on a pro-rata basis if Docomo exercises its sale option under the SHA.
• Thereafter, arbitration proceedings were initiated by Docomo to resolve the dispute between the parties. Pursuant to the decision of the Arbitrator, the Applicant was directed to acquire Docomo's shareholding in TTSL and make the necessary payments for the same to Docomo.
• As per the Inter se Agreement, a foreign resident, Mr. C. Sivasankaran (Respondent No. 2) being the promoter of Respondent No. 1, was liable to the Applicant in the instances where Respondent No. 1 failed to fulfil its obligation and pertaining to the said Agreement, the Respondents were asked to acquire back its shareholdings in TTSL and proportionately pay Docomo.
• Disputes arose between the Applicant and Respondents and the notice of arbitration was issued by the Applicant in 2017. The Respondents failed to appoint their nominee arbitrator. As Respondent No. 2 was a foreign citizen, the Applicant filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (Act) before the Supreme Court (SC) seeking constitution of an arbitral tribunal.
• Vide Order dated January 17, 2018, SC appointed a Sole Arbitrator i.e., (Retd.) Mr. Justice S.N. Variava, who granted extension of six months for delivering the arbitral award, till August 14, 2019, on mutual consent.
• During the pendency of the arbitration proceedings, insolvency proceedings were initiated by the IDBI Bank Ltd against Respondent No. 1. Vide Order dated July 05, 2019, NCLT initiated CIRP under the IBC and a moratorium was placed on all the proceedings, including the arbitral proceedings against Respondent No. 1.
• Vide Order dated June 03, 2022 passed by the SC, Respondent No. 1 was freed from the CIRP, and the moratorium was lifted. In the meantime, Section 29A was amended by the Arbitration and Conciliation (Amendment) Act, 2019, w.e.f August 30, 2019.
• In view of the above, the Applicant filed the present Application before the SC seeking to allow the Sole Arbitrator to continue the proceedings without the need of extension of time, on the grounds that the time limit stated in Section 29A (1) of Act would not be applicable to international commercial arbitrations.

Issues at hand?

• Whether the time limit for passing an award as per the amended Section 29A of Arbitration Act is applicable to 'international commercial arbitration'?
• Whether the amended Section 29A of Arbitration Act applies retrospectively?

Decision of the Court

• At the outset, the SC extensively analyzed the difference in the wording of Section 29A in the 2015 and 2019 Amendment Act, relying upon the intent of the legislature in making the said change. The SC held that the expressions 'as expeditiously as possible' and 'endeavour may be made' indicate that the legislature intends to exclude international commercial arbitrations from the mandatory nature of the Section. The Section implies that the arbitral tribunal shall make an effort to render the arbitral award within a period of 12 months in international commercial arbitration, whereas for domestic commercial arbitration, it is mandatory to render arbitral award within 12 months.
• The SC observed that the need for the relaxation of the said time period for international commercial arbitration stems from the report of the High-Level Committee dated July 30, 2017, chaired by Justice B N Srikrishna, which stated that Section 29A of the 2015 Act was heavily criticized by international arbitral institutions for setting timelines for completion of the international arbitration proceedings, which contended that the conduct of the arbitral proceedings should be monitored by the arbitral institutions and the Courts' intervention is not required as these institutions have their own machinery for case management.
• With regards to sub-Sections 3 and 4 of the Section 29A, SC observed that the rationale behind the extension for 6 months is envisaged for domestic arbitrations where it is mandatory that award shall be granted within 12 months. SC thus held that as the mandate is already absent for international arbitrations, the sub-Sections become inapplicable.
• While dealing with the issue relating to retrospective application of the 2019 Act, the SC applied the parameters set out by previous decisions of the SC and other High Courts. In Thirumalai Chemicals Ltd v Union of India¹ , Jose Da Costa & Anr v. Bascora Sadasiva Sinai Narcomim² and Hintendra Vishnu Thakur v. State of Maharashtra³ , it was held that the procedural laws are generally retrospective, provided there is a clear indication that the legislature did not intend the same, or if the procedural law creates new rights, liabilities or obligations.
• The SC was of the view that the amended Section of 29A does not create any new rights or liabilities on the parties, and on the contrary, the amendment was remedial in nature, as the international commercial arbitration was brought outside the purview of judicial intervention and within the domain of the arbitrator. Further, regarding the intention of legislature for retrospective application, the SC observed that the 2019 Amendment Act does not contain any provision equivalent to Section 26 of the 2016 Act which explicitly indicated the prospective nature of the said Amendment of 2016.
• The decision of the Delhi High Court in the case ONGC Petro Additions Ltd v. Ferns Construction Co Inc⁴ , was highlighted, wherein it was held that Section 29A of 2019 Act was applicable to all the pending arbitrations in India as of August 30, 2019.
• Hence, the said Section being remedial in nature and having no express bar in retrospective application by the legislature, the SC held that Section 29A (1) of the Arbitration Act, 2019 is applicable retrospectively.
• On the basis of the abovementioned observations, the SC allowed the present application and held that the Sole Arbitrator, acting within his domain and jurisdiction, was to decide upon whether further extension was to be given to the parties and the arbitrator is expected to endeavor expeditious conclusion of the arbitration.

Dashrathbhai Trikambhai Patel v. Hitesh Mahendrabhai Patel & Anr

Background facts

• The Appellant issued a statutory notice under Section 138 of the Negotiable Instruments Act, 1881 (Act) to the First Respondent (Accused) alleging that the first Respondent borrowed a sum of INR 20,00,000 from the Appellant and issued a cheque for discharging his liability. However, when the Appellant presented the said cheque, the same was dishonoured due to insufficient funds.
• The First Respondent in his Reply to the Notice stated that the Appellant lent INR 40,00,000 to the First Respondent and the two cheques were given by him as a security which were to be returned as and when the sum lent was paid in full and despite this arrangement, the cheques were misused by the Appellant.
• Another Reply was submitted by the First Respondent seeking to amend the first Reply by replacing the acknowledgment of having received a loan of rupees forty lakhs to rupees twenty lakhs.
• The Trial Court acquitted the First Respondent on the ground that he paid a sum of INR 4,09,315 discharging his liability in part towards the debt and further held that the Appellant has failed to prove that he was owed a legally enforceable debt of Rs.20,00,000.
• The Appellant filed an Appeal against the order of Trial Court in the High Court and the High Court upheld the judgement of the Trial Court thereby acquitting the First Respondent.
• Submissions of the Appellant:
  • There is nothing on record to show that the payment of INR 4,09,315 was made towards the discharge of the debt of Rs.20,00,000.
  • The payment of INR 4,09,315 was made before the issuance of the cheque.
  • The First Respondent did not make any payment of the sum that was due since the statutory notice that was served upon him on April 15, 2014.
• Submissions of the First Respondent:
  • The term 'debt or other liability' as used in Section 138 of the Act has been defined to mean a 'legally enforceable debt or other liability' thus the demand made must be for a sum that is legally enforceable.
  • If the debtor has paid part of debt then a statutory notice seeking the payment of entire sum in the cheque without any endorsement under Section 56 of the part-payment made would be legally unsustainable.
  • As the First Respondent has paid off a part of the debt, the Appellant could not initiate action if the cheque, which represented the principal amount without deducting or endorsing a part payment, has been dishonored.

Issues at hand?

• Whether there is a commission of the offence under Section 138 if the cheque that was dishonored does not represent a legally enforceable debt on the date of its presentation/ maturity?
• If the drawer of the cheque pays a part or whole of the sum between the period when the cheque is presented and the cheque is drawn, is the legally enforceable debt on the day of maturity of the cheque would be the sum represented on the cheque?

Decision of the Court

• The Court while discussing the cases of Sampelly Satyanarayan Rao v. Indian Renewable Energy Development Agency Ltd⁵ and NEPC Micon Ltd v. Magna Leasing Ltd⁶ , resonated with the findings of the two cases that there must be a legally enforceable debt on the date mentioned in the cheque that is the date of maturity.
• The Court held that a post- dated cheque might be drawn to represent a legally enforceable debt at the time of its drawing. However, the cheque must represent a legally enforceable debt at the time of encashment to attract the offence under Section 138 of the Act.
• The Court while reiterating the principles laid down in Indus Airways Pvt Ltd v. Magnum Aviation Pvt Ltd⁷ , Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Ltd (supra) and Sripati Singh v. State of Jharkhand⁸ concluded that the principles in cases where the borrower agrees to repay the loan within a specified timeline and issues a cheque for security but defaults in repaying the loan within the said timeline, the cheque matures for presentation as and when the said cheque is sought to be encashed by the debtor. If the said cheque is dishonoured, Section 138 of the Act is attracted. However, as a rule it is to be seen that when a cheque issued for security, between the date of issuing the cheque and maturing of the cheque, the loan could be repaid through any other mode and only when the loan is not paid, the cheque would mature for presentation. And if the loan is discharged before the said due date, the cheque shall not be presented for encashment.
• It is held that offence under Section 138 arises only when a cheque that represents a part or whole of the legally enforceable debt at the time of encashment is returned by the bank unpaid.
• It is held that offence under Section 138 arises only when a cheque that represents a part or whole of the legally enforceable debt at the time of encashment is returned by the bank unpaid.
• The Court discussed the cases of Joseph Sartho v. Gopinathan⁹ , Alliance Infrastructure Project Ltd v. Vinay Mittal ILR¹⁰ and Shree Corporation v. Anilbhai Puranbhai Bansal¹¹ and a similar view as taken in these cases was reiterated by the Court that the notice of demand which requires the drawer of the cheque to make payment of the whole amount represented in the cheque despite receiving part repayment against the sum before the issuance of the notice, cannot be valid under Section 138(b) of the Act.

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Footnotes

1. (2011) 6 SCC 917

2. (1976) 2 SCC 917

3. (1994) 4 SCC 602

4. OMP (Misc) (Comm) 256/2019

5. (2016) 10 SCC 458

6. AIR 1995 SC 1952

7. (2014)12 SCC 539

8. 2021 SCC OnLine SC 1002

9. (2008) 3 KLJ 784

10. (2010) III Delhi 459

11. 2018 (2) GLH 105

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