We are delighted to share this month's AKP Dispute Resolution Monthly Digest.
1. Taxation Law
1.1. Financial Services
1.1.1. Supreme Court slams INR 2 Lakh fine on Income Tax Department for launching prosecution without ITAT approval
The Supreme Court, in an appeal, recently resolved a nearly four-decade-old (1988 suit) dispute involving Odisha State Financial Corporation ("OSFC") over a supply made in 1985 by Vigyan Chemical Industries to a borrower company. OSFC was later drawn into litigation as a defendant after taking over the defaulting unit. The trial court awarded compound interest under the Interest on Delayed Payment Act, 1993, vastly inflating the claim. The Supreme Court found that the Act was inapplicable since the supply happened before the enforcement of the Act, and that OSFC, a state entity, could not be made liable, without a statutory notice under Section 80 of the Code of Civil Procedure, 1098 or privity of contract. The Supreme Court declared the trial court's order against OSFC invalid and unenforceable, citing serious procedural lapses. It directed Vigyan Chemical Industries to refund INR 2.92 Crore (Indian Rupees Two Crore Ninety-Two Lakh only) to OSFC without interest if paid in three months, else with 6 per cent (six per cent) interest. Noting a forty-year delay, the Court invoked Article 142 to set aside all prior orders and ordered parties to bear their own costs.
2. Electricity Law
2.1. Power and Energy
2.1.1. Supreme Court upholds encashment of bank guarantee, rules that contractual remedies for delay are not automatic
A solar developer in Karnataka was unable to meet deadlines under its Power Purchase Agreement ("PPA") as the state utility, Karnataka Power Transmission Corporation Limited ("KPTCL"), delayed construction of evacuation lines. The distribution licensee, also the appellant in this case, Chamundeshwari Electricity Supply Company Ltd. ("CESC"), encashed the developer's performance bank guarantee of INR 24.9 Crore (Indian Rupees Twenty-Four Crore Ninety Lakh only). The issue was whether such encashment was justified when the delay stemmed from another state agency. The Supreme Court upheld CESC's action, holding that commercial contracts must be enforced strictly. It clarified that extensions or relief are not automatic; the developer had neither sought an extension under the PPA nor issued a Force Majeure notice. Without invoking the remedies expressly provided in the agreement, the developer remained bound by its obligations, and CESC was entitled to encash the guarantee.
3. Insolvency and Bankruptcy Code
3.1. Micro, Small and Medium Enterprises
3.1.1. NCLAT rules that NCLT has the power to enforce pre-CIRP arbitral awards under the Insolvency and Bankruptcy Code 2016
In the present case, Jindal Lifestyle Ltd., the appellant, challenged a National Company Law Tribunal ("NCLT") order enforcing an arbitral award of INR 44.99 Lakh (Indian Rupees Forty-Four Lakh Ninety-Nine Thousand only) comprising the principal amount of INR. 21.5 Lakh (Indian Rupees Twenty-One Lakh Fifty Thousand only) and interest of INR. 23.4 Lakh (Indian Rupees Twenty-Three Lakh Forty Thousand only) obtained by the respondent Arkin Creations Pvt Ltd., under the Micro, Small and Medium Enterprises Development Act, 2006 ("MSME Act, 2006").1 The appellant argued the award was invalid due to delay, lack of proper procedure, insufficient stamping, and that enforcement lay only before a civil court under the Arbitration and Conciliation Act, 1996. The key legal issue was whether NCLT, under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 ("IBC"), could enforce such an award during pre-Corporate Insolvency Resolution Process ("CIRP"). The National Company Law Appellate Tribunal, New Delhi bench held that the IBC overrides other laws, the award had attained finality, and enforcement by the Resolution Professional was valid. Accordingly, the appeal was dismissed, affirming NCLT's order.
3.2. Banking and Finance
3.2.1. NCLAT rules liquidator entitled to fee even when secured creditors sell assets independently
In the present case2, the NCLT denied a liquidator appointed under the IBC his fee. The dispute arose because the secured creditors (two banks) did not waive their security interest on a factory and sold the same for INR 55.10 Crore (Indian Rupees Fifty-Five Crore Ten Lakh only). The banks argued that since the liquidator neither realised nor distributed the asset himself, no fee was payable to him based on its sale value. The issue before the NCLAT, New Delhi bench, was whether a liquidator was entitled to payment of a fee on the sale of an asset realised directly by a secured creditor under the IBC. (Liquidation Process) Regulations, 2016, held that the liquidator is entitled to fees even when secured creditors sell assets independently. The regulation mandates that creditors must bear liquidation expenses, including the liquidator's fee, as if the asset had been sold through him. Noting the liquidator's role in facilitating the sale, the NCLAT directed the banks to pay the outstanding liquidation expenses of INR 1.87 Crore. (Indian Rupees One Crore Eighty-Seven Lakh only).
4. Debt Recovery
4.1. Banking and Finance
4.1.1. Swift NPA recovery is vital - Punjab and Haryana High Court cracks down on SARFAESI delays
AU Small Finance Bank filed a writ petition before the Punjab & Haryana High Court after authorities failed to execute an order under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI Act"), directing the delivery of possession of secured assets. The issue was whether such non-compliance defeated the objective of speedy non-performing assets (NPAs) recovery. The Court, noting delays by the Tehsildar/Duty Magistrate, held that executing Section 14 orders is a statutory and time-bound duty. It directed possession to be handed over within 30 (thirty) days, mandated training of District Magistrates and Tehsildars, and warned that failure to act on such orders would amount to contempt.
4.1.2. DRAT rules banks, as trustees, must ensure procedural rigour under the SARFAESI Act
The case arose when a bank had initiated a recovery under the SARFAESI Act against a defaulting borrower and auctioned the borrower's property. The bank claimed recovery of around INR 10.98 Lakh (Indian Rupees Ten Lakh Ninety-Eight Thousand only), but alleged the borrowers defaulted. The borrowers contended that notices under Sections 13(2) and 13(4) of the SARFAESI Act were not properly served, the property was undervalued, and excessive security was sold. The main legal issues were whether the bank followed due process in serving notices, obtaining a valuation, and conducting the sale. On appeal, the Debt Recovery Appellate Tribunal ("DRAT") Chennai, upheld the lower tribunal's decision to cancel the sale, citing serious lapses by the bank. The DRAT noted three key failures: (i) the property, valued at INR98 Lakh (Indian Rupees Ninety-Eight Lakh only) in 2007, was sold in 2011 for only INR 50.5 Lakh (Indian Rupees Fifty Lakh Fifty Thousand only) based on a doubtful valuation; (ii) the bank sold the entire property to recover a debt of just INR 11 Lakh (Indian Rupees Eleven Lakh only), amounting to "excessive execution"; and (iii) there was no clear proof that the mandatory sale notice had been affixed on the property. The DRAT stressed that under the SARFAESI framework, banks act as trustees of secured assets and must strictly comply with all procedural safeguards before auction.
5. Arbitration Law
5.1. Mining
5.1.1. Supreme Court confirms arbitration clause is binding without signature if parties act on the terms of a contract
The Supreme Court recently addressed a dispute centred on a simple but critical question: whether an arbitration agreement could be binding if one of the parties never signed the formal contract. The dispute arose when the respondent in the present appeal, Shree Ganesh Metals, an Indian buyer, challenged the appellant, Glencore International AG's invocation of standby letters of credit under a 2016 zinc supply contract valued at about INR 8 Crore (Indian Rupees Eight Crore only). The core issue was whether an arbitration agreement under the 2016 contract was valid, given that the buyer never signed it. The Delhi High Court held that there was no binding contract or arbitration clause; however, the Supreme Court reversed, finding that the parties had acted upon the contract, with shipments made, invoices raised, and letters of credit issued, thereby implying acceptance. The Court ruled that an arbitration agreement need not be signed if the conduct and written exchanges show consensus and directed the matter to arbitration under the London Court of International Arbitration.
6. Consumer Protection Law
6.1. Real Estate and Infrastructure
6.1.1. Supreme Court clarifies extent of Consumer Protection Act's enforcement, clears execution roadblock in consumer disputes
In the case of Palm Groves Cooperative Housing Society v. M/s Magar Girme & Gaikwad Associates, the dispute concerned the developer's failure to execute conveyance deeds for apartments as promised, coupled with alleged defects and denial of access to common facilities for some members. The cooperative society initially obtained orders directing the developer and bungalow owners to convey properties and pay compensation. These orders were challenged through a series of appeals and revision petitions before the District Forum, State Commission, and National Consumer Disputes Redressal Commission. The main legal issue was whether, after the 2002 amendment to the Consumer Protection Act, 1986, final orders (and not just interim ones) could be enforced, and how remedies and appeals in execution proceedings should be interpreted under the 1986 and 2019 Acts.
The Supreme Court held that the 2002 amendment wrongly limited enforcement to interim orders and clarified that "interim order" in Section 25(1) should be read as "any order," making final orders enforceable like civil court decrees under the Code of Civil Procedure, 1906. The Court further ruled that appeals in such enforcement matters end at the State Commission, and directed quick resolution of pending cases to ensure consumer remedies are effective in practice.
Footnotes
1 Comp. App. (AT) (Ins.) No. 1180 of 2024
2 Company Appeal (AT) (Insolvency) No. 461 of 2025
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