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We are delighted to share this month's AKP Dispute Resolution Monthly Digest. Please feel free to write to us with your feedback at info@akandpartners.in.
1. Contract law
1.1. Real Estate
1.1.1. Supreme Court Holds Tender Authority Cannot Introduce New Rejection Grounds Post-Decision
The Supreme Court has held that a tender inviting authority cannot reject a technical bid on a ground not specified in the Notice Inviting Tender ("NIT") and cannot later invent new reasons to justify that rejection during a court proceeding. This dispute arose when Kimberley Club Pvt. Ltd. challenged the rejection of its technical bid by the Krishi Utpadan Mandi Parishad ("Mandi Parishad"). The Mandi Parishad had rejected the bid because the appellant's 'haisiyat praman patra' was issued by a private architect and not by a District Magistrate, even though the NIT did not specify who must issue the certificate. The issue was whether the Mandi Parishad could disqualify a bidder for failing to meet an unstated, or "implied," condition. The Court ruled that if the authority intended for the certificate to be from a District Magistrate, it "ought to have specified so in the NIT conditions". Furthermore, the Court rejected the authority's subsequent argument that were raised for the first time in court that the certificate was invalid because it didn't disclose encumbrances. The Court emphatically stated that an order of rejection must be sustained only on the grounds originally stated and "additional grounds cannot be subsequently pressed into service to justify such rejection". The matter was remanded for reconsideration of the bid.
2. Consumer Law
2.1. Insurance Sector
2.1.1. Supreme Court Upholds Insurer's Liability To Compensate Third Parties Despite Permit Violations
The Supreme Court has held that even if a vehicle deviates from its permitted route, the insurance company is still obligated to pay compensation to the third-party victim first and then recover the amount from the vehicle's owner. This ruling affirmed a Karnataka High Court decision in a claim filed by the dependents of Srinivasa alias Murthy, who was killed when his motorcycle was hit by a bus. The New India Insurance Co. Ltd. ("Insurance Company") had challenged its liability, arguing that the bus had deviated from its permitted route i.e Bengaluru to Mysore and entered Channapatna City, where the accident occurred. The High Court had fixed the compensation payable to the deceased's family to INR 31,84,000/- (Indian Rupees Thirty-one Lakh Eighty-four Thousand only) but simultaneously granted the insurer "pay and recover" rights due to the permit violation. The Court reasoned that to deny compensation to the victim, who is not at fault, simply because the vehicle was outside its permitted area would be "offensive to the sense of justice". At the same time, it would be unfair to force an insurer to cover a risk that was clearly outside the bounds of the policy contract. The Supreme Court, therefore, upheld the High Court's order, confirming that 'pay and recover' is the just and proper remedy in cases of route deviation.
2.1.2. Supreme Court Rules Insurer Must Prove Fire Was Deliberate, Upholds Insured's Full Claim
The Supreme Court has held that in a fire insurance claim, the fire is presumed to be accidental, and the precise cause is immaterial unless the insurer can prove the insured was the instigator. This ruling came in cross-appeals between policyholder M/s Orion Conmerx Pvt. Ltd. ("Insured") and the National Insurance Co. Ltd. ("Insurance Company") after the insurer repudiated a claim for over INR 3.3 Crore (Indian Rupees Three Point Three Crore only). The insurer's repudiation was based on a final surveyor's report suggesting the fire was not accidental. The National Consumer Disputes Redressal Commission ("National Commission") had rejected this defense but only awarded INR 61,39,539/- (Indian Rupees Sixty-one Lakh Thirty-nine Thousand Five Hundred Thirty-nine only), the amount the surveyor had assessed. The Court found the repudiation "untenable in law," as the surveyor's report was inconclusive and never alleged fraud by the Insured. Furthermore, the Court found the surveyor's loss assessment "perverse" and "deeply flawed," as he had ignored 5,855 pages of business records, arbitrarily assigned a uniform value of Rs. 450/- to all damaged stock , and completely ignored goods burnt to ash. The Court also held that the policy term "FFF" clearly covered "Furniture, Fixtures, and Fittings" and thereby allowed the Insured's appeal.
3. Insolvency and Bankruptcy Code
3.1. Edtech Industry
3.1.1. NCLAT Rules Insolvency Law Cannot Be Used to Interfere in a Subsidiary's Management
The National Company Law Appellate Tribunal ("NCLAT") has held that the Insolvency and Bankruptcy Code, 2016 ("IBC") does not empower a Resolution Professional or Committee of Creditors ("CoC") to interfere in the internal corporate affairs of a separate, solvent subsidiary company in which the Corporate Debtor holds shares.1 This dispute involved GLAS Trust Company LLC which is the main financial creditor of M/s Think and Learn Pvt. Ltd. ("TLPL"), the company under insolvency and GLAS Trust is attempting to injunct an Extraordinary General Meeting of M/s Aakash Education Services Ltd. ("Aakash"). TLPL holds a 25.41% stake in Aakash. GLAS Trust argued that Aakash's proposal to increase its share capital through a rights issue would dilute TLPL's shareholding and irreparably harm the value of its assets, which the CoC is bound to protect. The central issue was whether the IBC's objective to "maximise the asset value" of the corporate debtor allows its CoC to veto the legitimate business decisions of a subsidiary. This judgement is crucial for the clarification on the limits of a Resolution Professional's power. The NCLAT ruled that while the Code aims to protect the Corporate Debtor's assets, it does not sanction the idea that a subsidiary "should sacrifice its own interest to stay, grow and sustain itself commercially" for the benefit of the insolvent parent's creditors. The Tribunal held that a subsidiary is a distinct juristic person with its own right to commercial existence, and any grievances regarding dilution or oppression are matters to be addressed under the Companies Act and not the IBC.
3.2. Banking and Finance
3.2.1 NCLAT Upholds Insolvency Against Personal Guarantor, Resignation Does Not Extinguish Liability
The National Company Law Appellate Tribunal ("NCLAT") has held that a personal guarantor remains liable for a company's debts under a "continuing guarantee," even after resigning as a director from that company.2 This judgment arose from an insolvency application filed by the State Bank of India against Mr. Subhash Aggarwal, a personal guarantor for M/s J.V. Strips Ltd.. Mr. Aggarwal had signed a personal guarantee in 2009 but resigned from the company in 2012. He argued that he was not liable for any credit facilities renewed or enhanced after his resignation and further claimed his signatures on subsequent documents were forged. The core issue was whether a director's resignation automatically revokes a personal guarantee that was executed as a "continuing guarantee." The NCLAT held that the 2009 deed was unequivocally a continuing guarantee meant to cover all subsequent transactions and that the guarantor had never formally communicated any revocation to the bank. While acknowledging the forgery allegations regarding post-resignation documents, the Tribunal ruled that his liability under the original, undisputed 2009 guarantee remained intact. The NCLAT, however, modified the order, limiting his liability to the amount specified in that original 2009 deed.
4. Arbitration Law
4.1. Real Estate
4.1.1. Supreme Court Rules, Undue Delay Can Vitiate an Arbitral Award if it Leads to Perverse Findings
The Supreme Court held that while undue and unexplained delay in pronouncing an arbitral award is not, by itself, a ground to set it aside, such a delay can vitiate the award if it is so inordinate that it adversely reflects on the findings, rendering the award patently illegal or in conflict with the public policy of India . This appeal involved a developer, M/s. Lancor Holdings Limited, challenging an arbitral award in its dispute with landowners, Prem Kumar Menon and others. Lancor argued that the award was void because the arbitrator pronounced it nearly four years after hearings concluded, and the award itself was "unworkable," leaving the core dispute unresolved. This case concerned a dispute under a Joint Development Agreement where the arbitrator reserved the award in July 2012 but pronounced it in March 2016, a gap of nearly three years and eight months. The central issue was whether this delay, which occurred before the Arbitration and Conciliation Act, 1996 introduced mandatory timelines, was fatal to the award. The Court ruled that such a long gap creates a "real and substantial risk" that the arbitrator has forgotten oral arguments, and an unexplained delay strikes at the heart of fair adjudication. Furthermore, the Court found the award "patently illegal" because it failed to finally resolve the dispute, invalidating the developer's rights while leaving it no choice but to initiate fresh litigation. Finding the situation irreversible, the Court invoked its powers under Article 142 to set aside the award and impose a final, equitable solution.
Footnotes
1 I.A. No.1514 of 2025 in Company Appeal (AT) (CH) (Ins) No.139 of 2025
2 Company Appeal (AT) (Insolvency) No. 512 of 2024
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