Interviews

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July 21, 2021 0Comments 251Views

‘IP lawyers are now competing with timelines generated by an AI-driven world, in terms of commercialising business’ intangible assets. This brings up larger volumes of work to deal with on more competitive timelines.’ — Sujata Chaudhri

Sujata Chaudhri is the Founder, Owner and Managing Partner at Sujata Chaudhri IP Attorneys and...

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June 30, 2021 0Comments 1298Views

“Perception and prejudice, which have come to surround individuals accused of white-collar crimes, are a major challenge. Unsubstantiated and ludicrous amounts of money are often projected as having been cheated or laundered.” – Abhir Datt

June 30, 2021 Abhir Datt is a lawyer practicing in Delhi, mainly in the areas...

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June 3, 2021 0Comments 224Views

‘In a few years, India’s arbitration institutions will be a force to reckon with and will be comparable to the LCIA, SIAC or the HKIAC. We have a lot of homegrown talent practicing arbitration in India. India as a destination for arbitration will be much more cost efficient than London or Singapore.’ – Som Mandal

Mr Som Mandal is the Managing Partner of Fox Mandal, India’s oldest law firm that...

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May 27, 2021 0Comments 283Views

Due to the pandemic, protecting the company’s reputation and bottom line are going to be the major focus areas during the next few years for all lawyers working as in-house counsels. – Rahul Singh

Rahul Singh is a lawyer with 20 years of professional experience. Currently working as Head of...

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May 21, 2021 0Comments 590Views

‘Given the level of automation today, repetitive routine tasks are going to go. Analytical skills, strategy, problem-solving are coming to the forefront. Ability to interact with technology is critical and definitely changing legal services and how law students will deliver these services.’

An Interview with Prof (Dr) Amit Jain, Pro- Vice Chancellor of Amity University, Rajasthan and...

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March 18, 2021 0Comments 437Views

“The IT infrastructure available with District Courts must be upgraded to enable effective and smooth functioning of the hybrid system via VC hearing.” – Satyam Thareja

Satyam Thareja is a post-graduate of Indian Law Institute, New Delhi (2015) & graduate of...

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February 18, 2021 0Comments 504Views

‘The Indian Arbitration framework is moving towards a new institutional arbitration-friendly regime. However, with respect to Investment Arbitration, we are still a long way from becoming an encumbrance-free jurisdiction.’ – Anubhab Sarkar

Anubhab Sarkar is the Founding Partner at Triumvir Law which he started three years ago...

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January 28, 2021 0Comments 920Views

‘None of us chose litigation to sit behind computers and argue. But we need to be aware of the realities. Covid still does not have a cure, nor is the vaccine readily available.’ – Shivani Luthra Lohiya

Ms. Shivani Luthra Lohiya is a practicing Advocate in New Delhi. She graduated from Amity...

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November 13, 2020 0Comments 325Views

‘In the past decade there have been many changes in the laws, but these have unfortunately not been properly absorbed in smaller metropolitan regions where lawyers are still likely to face courts that are not exactly aware of these changes.’ – Vibhanshu Srivastava

Vibhanshu Srivastava specializes in dispute resolution and has diverse experience in handling a vast array...

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November 5, 2020 0Comments 492Views

“Legal systems have been built to fit national boundaries. On the cyberspace, transitional is the ‘new normal’. Coping with this legal pluralism in the absence of appropriate cross-border frameworks is a challenge for developed and developing countries alike.” – Dr Subhajit Basu, FRSA

Dr Subhajit Basu, FRSA is Associate Professor in Information Technology Law (Cyberlaw) at the University...

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India’s Cryptocurrency Saga – Hit or Miss? – By Rishika & Urfee Roomi

3 days ago 0Comments 87Views

July 27, 2021

Recently, the Indian Government proposed a ban on all private cryptocurrencies and hinted at the possibility of introducing a sovereign digital currency. But why is that a concern? Before answering that question, we need to delve into the basics.

What are Cryptocurrencies?

Cryptocurrency is a form of decentralized digital system that allows peer-to-peer secure online payments directly between parties without a need of a regulatory body.[1] Although, considered as an alternate form of money, decentralization and non-involvement of an intermediary or a government forms the very core of cryptocurrency exchange.[2] Cryptocurrencies are based on a system of computer networks that allow individuals to operate anonymously using a key, in the form of large numerical value, that is used to encrypt data.[3] Proponents of cryptocurrencies argue that not only can this technology serve all the purposes of traditional money, but also make transactions efficient and more secure than the existing payment systems. Skeptics, on the other hand, have raised concerns about tracing criminal activities, such as trafficking, prostitution, terrorism, money laundering etc., that can be committed using this digital asset.

With the increased popularity of cryptocurrencies around the world, national governments of various countries have given mixed signals about the future of this cutting-edge technology, which, in terms of cryptocurrency, can be broadly categorized into central bank digital currencies (CBDCs)[4] and non-CBDCs. Few major concerns regarding the volatile nature of non-CBDCs are that it would destabilize the monetary systems, be used to fund illegal activities such as trafficking, theft, money laundering, prostitution etc. Major governments have reacted differently to the question of introduction of CBDC and regulation of non-CBDC. The approach of national governments ranges from countries that have banned it, countries that have proposed regulation, and countries that have legalized cryptocurrencies. Countries such as Singapore[5], the United Kingdom, Canada, and Indonesia,[6] have introduced legislations or have made accommodations within their respective existing legal systems, some countries have completely banned them and others, like the USA[7], are yet to decide their stance.

Countries like China have taken a tough stand and have banned cryptocurrencies by declaring them illegal. The Chinese imposed restrictions on privately owned exchange platforms that traded cryptocurrencies.[8] However it is not illegal to hold or trade cryptocurrency in China as long as it is treated like a commodity and not as currency.[9] Interestingly, China has also launched its pilot plan to develop its own CBDC, colloquially known as the Digital Yuan, and has beta tested it in a few selected cities.[10]

India’s Views on Cryptocurrencies

India has had its own struggles with cryptocurrencies since the beginning of the last decade when the movement started to see some momentum and cryptocurrency exchanges began to mushroom in India. With the increasing popularity of cryptocurrencies, like other regulatory bodies of the world, the Reserve Bank of India issued a press release in 2013 cautioning about using cryptocurrencies, including Bitcoin.[11] However, the use and acceptance of cryptocurrencies as an alternate to the traditional Rupee surged after demonetization in November 2016.[12] This massive success of cryptocurrencies prompted the RBI to issue another Press Release in 2017 reiterating its warning of 2013. In the 2017 press release, the RBI further clarified that it had not authorized any entity to operate with any virtual currency.[13] By the end of 2018, the RBI as well as the Finance Ministry had issued many such press releases, even comparing cryptocurrencies to ponzi schemes.[14] It was the RBI Circular of April 2018 that changed the game and showed that the RBI had started taking the cryptocurrency market more seriously.

Through the Circular, the RBI had prevented banks from dealing in virtual currencies and also directed them to stop providing services to entities that dealt in virtual currencies.[15] This had a crippling effect on the cryptocurrency exchanges that actually relied on the banking system for sending and receiving money even for regular administrative operations such as payment of salaries to employees.[16] Consequently, exchanges that were also members of the Internet and Mobile Association of India filed a writ petition before the Supreme Court of India challenging RBI’s Circular.[17] Analyzing the role of RBI, the Supreme Court noted that cryptocurrencies are capable of performing most of the functions of the fiat currency and that the RBI will have to regulate them, since the RBI has the power and the duty to regulate anything that can have an impact on India’s financial system. However, the Hon’ble Court struck down the 2018 Circular stating that the RBI disconnected the cryptocurrency exchanges from the banking system without just cause.

The ambiguity surrounding the cryptocurrencies and the writ petition prompted the Indian Government to up its game and set up a committee to study the issues and propose solutions regarding legalization and regulation of cryptocurrencies.[18] This intergovernmental committee proposed to introduce a bill in the Parliament to ban all private cryptocurrencies. It further suggested that India should consider launching its own digital currency. The Bill is yet to be introduced in the Parliament.

The speculations again took off early this year, when the Union Finance Minister Nirmala Sitharaman said that a high-level internal committee has suggested to prohibit all private cryptocurrencies.

So where does India stand on cryptocurrencies? The answer is that there is no clear answer yet. The Indian government keeps shifting the weights on the balance while waiting for the committee’s recommendations on the issue. Despite the rumors regarding the ban, the Finance Minister recently made a statement that the government is “not shutting all options,” and will give room to stakeholders for experimenting with blockchains, bitcoins and cryptocurrency.[19] On the other hand, inclined towards the launch of a CBDC, the Reserve Bank of India Governor, Shakti Kanta Das shared “major concerns” with the government regarding the impact of cryptocurrencies on the financial stability of the economy.[20]

Despite the concerns, the sentiments towards cryptocurrencies seem to be inching in favour of regulation of cryptocurrencies instead of a blanket ban. Recently, the Indian Government informed the Parliament that gains from investment in cryptocurrencies are taxable in India.[21] The clarification was welcomed by many in the crypto sector as it would make Indian companies more comfortable and welcoming about dealing in cryptocurrencies, eventually making the process more transparent.[22]

Missed opportunities for the cryptocurrency sector?

This ongoing tussle between the stakeholders has created new tensions and raised concerns regarding ownership, legal protection as well as role of intellectual property (IP) law in its growth.

Cryptocurrencies that are based on blockchain technology mostly build upon this technology and expand it in the form of a distributed-ledger based system. Essentially, cryptocurrency based on blockchain technology allows its users to build upon existing blockchain data and create new and competing codes, which could be considered as innovation. It is only logical to say that entities or persons that develop and utilize this technology would try to protect their methods, processes or any other form of innovation. This brings home the question of identifying the owner of these cryptocurrencies transactions for the purpose of protection of IP. While this technology allows its players to set the rules on private ledgers, ownership cannot be determined on community based blockchains.[23] This is one of the reasons why Bitcoin, the first blockchain based cryptocurrency, remains unprotected under the IP laws.[24]

Despite the challenges, 2020 was the year that recorded the maximum number of blockchain and crypto-based patent applications.[25] Parallels have been drawn between cryptocurrencies and computer software, since both are based on algorithms that require performance and competition of a few steps to achieve the desired goal.[26] One of the looming questions is whether cryptocurrency technology should be considered computer software, given the similarities between the two? Determination of the status of cryptocurrency, as a computer software, would be crucial in deciding its fate for the purpose of IP laws around the world. An innovation is considered as an invention, if it solves a problem to qualify for patent protection. While computer software is essentially non-patentable, its application to solve a problem or increase efficiency can be protected by obtaining a patent. By introducing an inventive step in their technologies, companies like Mastercard, PayPal and Amazon have either already filed or obtained patents from the USPTO for methods such as ‘managing fractional reserves of blockchain currency’, ‘technology to enhance the speed of cryptocurrency payments’ etc., that attempt to solve existing problems in the cryptocurrency industry.[27]

Despite the surge in legal awareness, some critics are of the view that cryptocurrencies should not be subject to legal protection. Many skeptics are of the opinion that cryptocurrencies should remain an open source, and that regulation would actually have a chilling effect on its growth.[28] On the other hand, some believe that cryptocurrencies that are based on blockchain technology actually have self-policing mechanisms.[29]

Another question in the realm of IP is that of protection of the cryptocurrency brands via trademarks. A trademark acts as a source identifier of a product or service. If cryptocurrency is treated as an alternative to fiat currency, then it can neither be considered as a product nor as a service. However, if it is treated like a commodity, like in China, or anything beyond a currency for transaction, then it can qualify as a product or for related services. Once it has been categorized as a product, its name must indicate that it emanates from a single source. For example, Bitcoin, which is an open-source software, does not emanate from a single source.[30] Interestingly, the USPTO has declared ‘Bitcoin’ as a generic term for e-commerce services by stating that the term is descriptive and incapable of acting as a source identifier.[31] Having said this, owners of cryptocurrencies have obtained registrations for various services without specifically identifying cryptocurrency as a product.[32]

Despite the skepticism, courts across the globe have been very welcoming towards protecting cryptocurrency brands from trademark infringement and passing off[33], including the Delhi High Court that passed an interim injunction in favor of the US based cryptocurrency company, Metallicus Inc., in a passing off suit.[34]

Instead of protecting cryptocurrency itself, many have also considered using this technology as a solution to many IP related issues such as licensing of copyright and payment of royalties.[35]

Conclusion

What does this say about protection of cryptocurrency in India? Till the Indian government clears its stance on this issue, the fate of cryptocurrency in India is uncertain. Despite the Indian government’s indecisiveness, the crypto sector is more optimistic about the future of cryptocurrencies in India. Many Indians have invested heavily in different types of cryptocurrencies. According to The Chainanalysis 2020 Geography of Cryptocurrency Report, India stands on the 11^th position in the global crypto adoption by nations listing.[36] From the trend, it seems that the Indian Government is looking to follow China’s suit of banning non-CBDCs and stringent regulation of cryptocurrencies, in general. Stakeholders speculate, and rightly so, that a complete ban on private exchanges would lead to yet another wave of brain drain of both business and talent and will set India back in years.[37] On the other hand, younger India has shown an increased interest in digital currencies.

Given the heightened interest in this issue globally and in India, the Indian Government will have to be very careful with its position on the ban-regulation spectrum. Although unregulated transactions and their role in funding illegal activities are real issues that need to be addressed and not avoided, it is crucial to accept that fiat currencies are just as dangerous and have been used in the past and continue to be used for these purposes. Concerns regarding use of cryptocurrencies in consumer protection can be addressed by introducing security standards. It is important to note that regulation of cryptocurrency will not have an isolated effect on the financial sector but also on various segments of the legal sectors. If regulation cripples innovation and the freedom of transactions, it will inhibit people from exploring new territories and stifle creativity and innovation, in which India is considered as a pioneer, eventually acting as a deterrent in utilizing the potential of this technology. Financial regulators, particularly the RBI, as well as the national governments must come out of their comfort zones in light of the technological advancements. Currently, all the issues surrounding cryptocurrencies can be addressed and resolved by a robust regulatory framework. The aim of regulation should be to come up with the least adverse measure providing enough space to experiment with cryptocurrencies. Since the technology behind cryptocurrencies is changing rapidly, it will be very difficult to come up with the right solution soon. A balanced and fluid approach is definitely the need of hour.

****

Rishikaa is an associate at Sujata Chaudhri IP Attorneys. She obtained a B.A.LL.B. degree from Symbiosis International University (First Rank holder) and an LL.M. from Penn State University, with a focus on Intellectual Property law. Previously, she worked with a legal-tech startup company in the US. Rishikaa is most interested in the intersection of Intellectual Property law and emerging technology.

Urfee’s practice focuses on trade mark, copyright and customs prosecution and enforcement matters, including oppositions, cancellations and litigation. He has also worked on prosecuting international applications filed through the World Intellectual Property Organization, and has experience in handling domain name disputes and also works on criminal enforcement efforts for clients.

[1] Gregory S. Rowland& Trevor I. Kiviat, Cryptocurrency and Other Digital Assets for Asset Managers, Blockchain & Cryptocurrency Regulation, First ed. (2019), https://www.acc.com/sites/default/files/resources/vl/membersonly/Article/1489775_1.pdf s

[2] David W. Perkins, Cryptocurrency: The Economics of Money and Selected Policy Issues, Congressional Research Service Report R45427 (Updated 2020), https://fas.org/sgp/crs/misc/R45427.pdf

[3] Id.

[4] Alyssa Hertig, What is a CBDC?, Coindesk, December 5, 2020, https://www.coindesk.com/what-is-a-cbdc

[5] Staff of Global Legal Research Directorate, Regulation of Cryptocurrency Around the World, The Law Library of Congress, Global Legal Research Center, 2018, https://www.loc.gov/law/help/cryptocurrency/cryptocurrency-world-survey.pdf

[6] Id.

[7] Joe Liebkind, Bitcoin Government Regulations Around the World, Investopedia, June 25, 2019, https://www.investopedia.com/news/bitcoin-government-regulations-around-world/

[8] Shen Wenhao, Regulation of Cryptocurrency in China, Mondaq, June 12, 2020 https://www.mondaq.com/china/fin-tech/944330/regulation-of-cryptocurrency-in-china

[9] Id.

[10] Arjun Kharpal, China has Given Away Millions in its Digital Yaun Trials. This is How it Works, CNBC, March 4, 2021, https://www.cnbc.com/2021/03/05/chinas-digital-yuan-what-is-it-and-how-does-it-work.html

[11] Reserve Bank of India, Press Release: 2013-2014/1261, https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=30247

[12] Vipul Kharbanda, Cryptocurrency Regulation In India – A Brief History, The Centre for Internet Society, March 5, 2020, https://cis-india.org/internet-governance/blog/cryptocurrency-regulation-in-india-2013-a-brief-history

[13] Reserve Bank of India, Press Release: 201617/2054, https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=39435 and Press Release: 2017-2018/1530, https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=42462

[14] The Economic Times, Cryptocurrency in India: The Past, Present and Uncertain Future, March 9, 2021, https://economictimes.indiatimes.com/tech/trendspotting/cryptocurrency-in-india-the-past-present-and-uncertain-future/articleshow/81410792.cms?from=mdr

[15] Reserve Bank of India, Circular DBR.No.BP.BC.104/08.13.102/2017- 18,

https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NOTI15465B741A10B0E45E896C62A9C83AB938F.PDF

[16] Supra at 20.

[17] Internet and Mobile Association of India V. Reserve Bank of India, Writ Petition (Civil) No.528 of 2018

[18] Asit Ranjan Mishra, Panel Favours Cryptocurrency Ban in India, LiveMint, July 23, 2019, https://www.livemint.com/industry/banking/government-panel-suggests-ban-on-private-cryptocurrencies-1563796292369.html

[19] The Deccan Herald, India wants Blockchain, will not “shut off” cryptocurrency completely, says FM Sitharaman, March 15, 2021, https://www.deccanherald.com/business/business-news/india-wants-blockchain-will-not-shut-off-cryptocurrency-completely-says-fm-sitharaman-962164.html.

[20] The Economic Times, RBI has major concerns on cryptocurrencies, flagged it to govt: Shaktikanta Das, March 21, 2021, https://economictimes.indiatimes.com/news/economy/policy/rbi-has-major-concerns-on-cryptocurrencies-flagged-it-to-govt-shaktikanta-das/articleshow/81686997.cms.

[21] Cyrptoslate, Despite no laws, Indian minister says traders must pay taxes on Bitcoin, CoinMarketCap, March 31, 2021, https://coinmarketcap.com/headlines/news/despite-no-laws-indian-minister-says-traders-must-pay-taxes-on-bitcoin/.

[22] Rajeev Kumar, Is there a future for Cryptocurrency in India? A look at recent discussions in Parliament, The Financial Express, April 3, 2021, https://www.financialexpress.com/money/is-there-a-future-for-cryptocurrency-in-india-a-look-at-recent-discussions-in-parliament/2226036/.

[23] Arun C Mohan, Trademarks for Digital Currencies, SpicyIP, April 15, 2020, https://spicyip.com/2020/04/trademarks-for-digital-currencies.html.

[24] Id.

[25] Jamie Redman, Report: Blockchain Patents ‘Skyrocket’ in 2020, Alibaba Owns the Most Crypto Patents, Bitcoin.com, September, 19, 2020, https://news.bitcoin.com/report-blockchain-patents-skyrocket-in-2020-alibaba-owns-the-most-crypto-patents/.

[26] Carly Klein, The Relationship Between Patents & Cryptocurrency, OpenMind BBVA, February13, 2019, https://www.bbvaopenmind.com/en/economy/global-economy/the-relationship-between-patents-cryptocurrency/.

[27] Id.

[28] Peggy Keene, The Intersection of Cryptocurrency and Intellectual Property Law, KLemchuk, February 27, 2018, https://www.klemchuk.com/ideate/cryptocurrency-and-intellectual-property-law.

[29] Id.

[30] Anna E. Raimer, Lauren Refinetti Timmons and Mark W. Rasmussen, Show Me the Money: Protecting Your Cryptocurrency Brand, Mondaq, September 19, 2019, https://www.mondaq.com/unitedstates/fin-tech/845962/show-me-the-money-protecting-your-cryptocurrency-brand.

[31] U.S.P.T.O. February 29, 2016 Office Action issued against Application Ser. No. 79/182,945 for BITCOIN.

[32] Supra at 30.; Chris McLeod and Alllister McManus, The Battle for Bitcoin and other Cryptocurrency Brands, The Chartered Institute of Trade Marks, August 20, 2019, https://www.citma.org.uk/resources/trade-marks-ip/intellectual-property-blog/battle-for-bitcoin-and-other-cryptocurrency-brands-trademark-blog.html.

[33] Beverly Potts and David Stone, Cryptocurrency and the Value of Trade Marks, JDSupra, June 3, 2021, https://www.jdsupra.com/legalnews/cryptocurrency-and-the-value-of-trade-3824591/.

[34] Metallicus Inc v. Gaurav Sethi & Ors., CS/COMM 997/2018

[35] Asim Vehbi, Core Issues of Copyright Law in the Digital Environment: The Promise of Blockchain, Internatioanl Journal of Applied Engineering Research, Vol. 13(20), 2018, https://www.ripublication.com/ijaer18/ijaerv13n20_07.pdf .

[36] Anna Baydakova, India’s Millennials Embrace Digital Gold Despite Proposed Bitcoin Ban, CoinDesk, March 29, 2021, https://www.coindesk.com/indias-millennials-embrace-bitcoin.

[37] Supra at 22.

Columns

Sarfaesi Act, 2002, Insertion of Section 17 (4A) by way of Amendment Act of 2016 & its implication on Rights of Tenant under Tenancy Law – By Avijit Roy

July 16, 2021 0Comments 530Views

July 16, 2021

Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 ( in short “SARFAESI”) was enacted to strengthen the Indian banking system by way of efficient or rapid recovery of non-performing assets of the banks and financial institutions which allows banks and financial institutions to auction properties when borrower fail to repay their loans.

This legislation were primarily enacted to facilitate recovery of defaulting loans at reasonable period of time . However, the said SARFAESI Act is yet to live in harmony with tenancy rights created over secured assets .

The relevant provisions of SARFAESI Act regarding recovery procedure prescribed in its Sec 13 which deals with enforcement of security interest. Sec 14 empowers the Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession. Sec 17 is related to application against measures to recover secured debts.

Before the amendment in 2016 in light of Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, the right of a tenant/lessee in case of eviction process initiated under SARFAESI was vague and not definitive. But with the addition of Section 17 (4A) by way of the aforesaid Amendment Act of 2016, these remedies now stand modified since a lessee can now approach the Debt Recover Tribunal to adjudicate upon its tenancy rights.

Moot question is can a bank resort to any of the provisions of the SARFAESI Act for eviction of tenant in light of existence of relevant rent laws and if so, to what extent ? And, whether a tenant is entitled to approach civil court even if the provision of SARFAESI Act is invoked ?

There were a few judgments passed by the Hon’ble Supreme Court on the issue of SARFAESI Act and tenant’s right and the recent one is Bajarang Shyamsunder Agarwal vs Central Bank of India Anr. The Apex Court in the said case held that if lawful possession of secured asset is not with borrower, but with lessee under valid lease then Secured creditor cannot take possession of secured asset until lawful possession of lessee gets determined. Chief Metropolitan Magistrate /District Magistrate can pass order for delivery of possession of secured asset in favour of secured creditor only when he finds that lease has been determined. However, if CMM/DM comes to conclusion that there was no valid lease either before creation of mortgage or after creation of mortgage he can pass order for delivery of possession of secured asset. It is submitted that the right of rightful tenant needs to be respected in appropriate cases and cannot be compromised under SARFAESI Act proceedings. It was also held that if tenants claim that he is entitled to possession of secured asset for term of more than year which to be supported by execution of registered instrument. In absence of registered instrument, if tenant relies on unregistered instrument or oral agreement accompanied by delivery of possession, tenant is not entitled to possession of secured asset for more than period prescribed under section 107 of T.P. Act.

The aforesaid judgment clarified the interplay between laws of tenancy and debt recovery and held that protection from recovery proceedings under the SARFAESI Act is not available to a ‘tenant-in-sufferance’, i.e. a tenant who continues to be in possession even after the expiry of the lease period. But protected those tenant who are within the zone of definitive period of tenancy supported by registered instruments.

The Hon’ble Supreme Court in the case of Vishal N. Kalsaria vs Bank of India & ors held that the SARFAESI Act and the Rent Control Act are two pieces of legislation which operate in two different fields / spheres and the SARFAESI Act cannot be used by a secured creditor to evict a tenant.

The Hon’ble Supreme Court in the case of Vishal N. Kalsaria v. Bank of India (supra) has categorically held that granting of leasehold rights is quite different from a tenancy and once tenancy is created, the tenant is entitled to the protection of the relevant tenancy act and can be evicted only by following the due process of law contained in such tenancy act. Paragraphs 29 and 37 of the said judgment are as below:

“29 . When we understand the factual matrix in the backdrop of the objectives of the above two legislations, the controversy in the instant case assumes immense significance. There is an interest of the bank in recovering the Non Performing Asset on the one hand, and protecting the right of the blameless tenant on the other. The Rent Control Act being a social welfare legislation, must be construed as such. A landlord cannot be permitted to do indirectly what he has been barred from doing under the Rent Control Act, more so when the two legislations, that is the SARFAESI Act and the Rent Control Act operate in completely different fields. While SARFAESI Act is concerned with Non Performing Assets of the Banks, the Rent Control Act governs the relationship between a tenant and the landlord and specifies the rights and liabilities of each as well as the rules of ejectment with respect to such tenants. The provisions of the SARFAESI Act cannot be used to override the provisions of the Rent Control Act (emphasis added) . If the contentions of the learned counsel for the respondent Banks are to be accepted, it would render the entire scheme of all Rent Control Acts operating in the country as useless and nugatory. Tenants would be left wholly to the mercy of their landlords and in the fear that the landlord may use the tenanted premises as a security interest while taking a loan from a bank and subsequently default on it. Conversely, a landlord would simply have to give up the tenanted premises as a security interest to the creditor banks while he is still getting rent for the same. In case of default of the loan, the maximum brunt will be borne by the unsuspecting tenant, who would be evicted from the possession of the tenanted property by the Bank under the provisions of the SARFAESI Act. Under no circumstances can this be permitted, more so in view of the statutory protections to the tenants under the Rent Control Act and also in respect of contractual tenants along with the possession of their properties which shall be obtained with due process of law (emphasis added) .

37. It is a settled position of law that once tenancy is created, a tenant can be evicted only after following the due process of law, as prescribed under the provisions of the Rent Control Act. A tenant cannot be arbitrarily evicted by using the provisions of the SARFAESI Act as that would amount to stultifying the statutory rights of protection given to the tenant .A non obstante clause (Section 35 of the SARFAESI Act) cannot be used to bulldoze the statutory rights vested in the tenants under the Rent Control Act (emphasis added).. The expression “any other law for the time being in force” as appearing in Section 35 of the SARFAESI Act cannot mean to extend to each and every law enacted by the Central and State Legislatures. It can only extend to the laws operating in the same field.”

From the reading of above it appears that bar contained in Section 34 of the SARFAESI Act would not affect the tenant’s right , in as much as, the Hon’ble Supreme Court in the case of Vishal N. Kalsaria vs. Bank of India(supra) has categorically held that the SARFAESI Act does not override the provisions of a Rent Control Act of a State and a tenant is entitled to the protection of such rent control act and the SARFAESI Act cannot be pressed into service to evict a tenant, dehors the provisions of the Rent Control Act.

After the aforesaid Kalsaria judgment (supra) there was an amendment to SARFAESI Act in 2016. Enforcement of Security Interest and Recovery of Debts Law and Miscellaneous Provisions (Amendment) Act, 2016 (No. 44 of 2016) was amended in 2016 . With the addition of section 17 (4A) by way of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, these remedies now stand modified since a lessee can now approach the Debt Recovery Tribunal to adjudicate upon its tenancy rights.

But , is the said Amendment Act of 2016 truly a revalidating Act overriding the Kalsaria judgment (supra) ? On careful reading it appears that the said amendment to the Legislature has not absolutely vested the powers and jurisdiction to determine tenancy with regard to the mortgaged property with the Debts Recovery Tribunal. The interpretation of the law cannot be made in a straitjacket formula and all cases cannot be tried in the said manner. The amended provisions of the SARFAESI Act may not be interpreted to mean that the jurisdiction of the civil court would be barred in all cases. The amendment cannot be said to have taken away the right of a tenant under the rent control act and that the judgment of Vishal N. Kalsaria vs. Bank of India (supra) has been negated by the said amendment.

The aforesaid Amendment Act of 2016 does not appear to be a revalidating Act. The Hon’ble Supreme Court in catena of judgments held that judgment and order of court declaring a legislative action invalid can be rendered ineffective by the legislature by retrospectively altering or removing very basis of invalidity on which the judgment and order is made. These judgments were reported in :i) 2003(4)SCC 298A , ii) 1984(4) SCC 545 , iii) 1993 Supp (4) SCC 461, & iv) 2003(9) SCC 92.

The aforesaid Amendment Act of 2016 does not contain any non-obstante clause and right to approach before the civil court had not been taken away. The judgment in Vishal N. Kalsaria vs. Bank of India (supra) still seems to hold as good law laid down by the Hon’ble Supreme Court and is a prevailing law under Article 141 of the Constitution of India and same was not negated by the said Amendment Act of 2016 in view of the fact that the said judgment was passed making distinction between SAFAESI Act and Rent Control Act and the tone and tenure of the Amendment Act, 2016 clearly reflects that the tenant is not barred from taking legal recourse for its protection under relevant Rent Control Act. Further , the Hon’ble Supreme Court in S.T. Sadiq vs State of Kerala & ors held that :

“ It is settled law by a catena of decisions of this Court that the legislature cannot directly amend a judgment of court . The legislative function consists in “making” law (see Article 245 of the Constitution ). If the legislature were at liberty to annul judgments of courts, the ghost of bills of attainder will revisit us to enable legislature to pass legislative judgments on matters which are inter parties. …..”

The Amendment Act, 2016 only provides that the DRT can determine whether the said tenancy was created after the issuance of the notice of default and demand by the bank under section 13 (2) of the SARFAESI Act and in such an event the DRT can pass such orders as it deems fit in accordance with the provisions of the SARFAESI Act, meaning thereby that the DRT can grant the reliefs as contemplated under the provisions of the SARFAESI Act. The DRT therefore cannot grant the relief/reliefs as contemplated under the Rent Control Act, which is a complete code in itself and as held in the judgment of the Hon’ble Supreme Court in Vishal N. Kalsaria vs. Bank (supra) and intention of the Hon’ble Supreme Court was that the provisions of the SARFAESI Act cannot be used to bulldoze a tenant out of his tenanted premises.

Further, the tenancy suit is a declaratory in nature and the DRT has not power even by way the Amendment Act of 2016 to pass declaratory decree and such right was not taken away by any express provision by the said amendment.

On above context , if we go through Section 9 of Code of Civil Procedure, 1908 which stipulates that :-

“The Courts shall (subject to the provisions herein contained) have jurisdiction to try all Suits of a civil nature excepting suits of which their cognizance is either expressly or impliedly barred.”

Now, let’s read Section 34 of the SARFAESI Act which stipulates that :-

“Civil Court not to have jurisdiction – No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and 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 this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993).”

Conjoint reading of the aforesaid Section 9 CPC and Section 34 of SARFAESI Act, it can be observed that under Section 9 of CPC, the Civil Court is barred from trying only those cases which is specifically or impliedly barred through enactment. Interestingly, Section 34 of SARFAESI Act specifically ousts the jurisdiction of civil court in respect of two legislations only , i.e. i) SARFAESI Act and ii) the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. But it does not specifically bar those suits where relief is claimed under the Rent Control Act, which is a totally different piece of legislation and same was specifically kept out from the purview of the Section 34 of SARFAESI Act. The Hon’ble Supreme Court has also through Vishal N Kalsaria (Supra)judgment upheld the primacy of the Rent Control Act over the SARFAESI Act for the protection of tenants. Further, aforesaid Section 34 of the SARFAESI Act was not amended by the aforesaid Amendment Act of 2016 and as such, there seems to be no bar on the civil court to proceed with the case by any aggrieved tenant under the Rent Control Act.

Thelaw laid down by the Hon’ble Supreme Court in Vishal N Kalsaria (Supra) unequivocally laid down the law that SARFAESI Act cannot be override the Rent Control Act. In absence of any revalidating legislation and non-obstante clause to such Amendment Act, 2016 to that effect , it seems there is no negation to the ration laid down in Vishal N Kalsaria (Supra) judgment .

Under Rent Control Act, a tenant is not liable to be evicted so long as the tenant pays the rent to the full extent allowable under the said Rent Control Act and performs the conditions of the tenancy. Therefore, the tenants are entitled to the protection as a tenant under the provisions of the Rent Control Act and cannot be evicted from the scheduled premises without following the due process of law as laid down in the relevant Rent Control Act as well as the law laid down in aforesaid Vishal N. Kalsaria (supra) & Bajarang Shyamsunder Agarwal( supra) judgment.

While going through the Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd., and Section 13 (13) of the SARFAESI Act, it can be observed that the provisions of the SARFAESI Act relate to a lease and not at tenancy. The inter-se rights and obligations of the parties to a lease are governed by the Transfer of Property Act, 1882 whereas the relationship between a landlord and tenant are governed by the relevant tenancy Act of a State. The case of Harshad Govardhan Sondagar (supra) is in relation to a lease created under the transfer of property act and not a tenancy under the relevant Tenancy Act. Moreover Section 13 (13) of the SARFAESI Act prohibits the “transfer” of the mortgaged property by way of sale, lease or otherwise, after the issuance of the notice under section 13 (2) of the SARFAESI Act without the prior written consent of the secured creditor. But tenancy created in respect of the scheduled premises is not a “transfer” within the meaning of the said section. Transfer of an immovable property can take place only by the modes provided in the transfer of property act and tenancy is not a transfer within the meaning of law.

The ratio in various decisions cited hereinabove clearly lay down the principle to be followed about the tenancy rights of an independent bona fide third party which take precedence over other rights. That being said, the practice of creation of tenancy rights for the purposes of defeating the interests of secured creditor has been looked upon by the courts. The courts, thus being wary of the menace that such non-performing assets and slow recoveries create, had made endeavour to maintain balance in interpreting SARFAESI Act and relevant Rent Control legislations as harmoniously as possible.

****

Avijit Roy, LL.M., is Advocate on Record, Supreme Court of India.He has been practicing law since 1995. He practices before the Supreme Court of India, the Gauhati High Court, the Delhi High Court, NGT, NCLT & APTEL. Previously he has acted as Standing Counsel for the State of Assam in the Supreme Court from 2007 to 2016.

Columns

The Arbitrability of Fraud – By Parthiv K. Goswami

July 13, 2021 0Comments 967Views

July 13, 2021

The efficacy of arbitral proceedings to resolve the issue of fraud as the subject matter of dispute has drawn the attention of courts from time to time. As observed by the Supreme Court, every civil or commercial dispute which is capable of being decided by a civil court is in principle capable of being resolved through arbitration unless it is excluded either expressly by statute, or by necessary implication. Moreover, the Courts, on the basis of public policy and common law practices, have, generally treated certain categories of subject matters to be incapable of resolution through arbitration.

In the present article, I will briefly examine the following aspects relating to arbitrability of fraud as the subject matter of dispute:

The position of law on the above subject under the Arbitration Act, 1940 (hereinafter referred to as the “1940 Act”) vis-à-vis the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “1996 Act”);
The scope and extent of arbitrability of fraud under Part I of the 1996 Act and the nuances with respect to overlapping civil and criminal aspect of fraud;
The position of law in the above regard with respect to International Commercial Arbitration held outside the territory of India.

Position of law relating to arbitrability of fraud under the 1940 Act:

The leading case on the issue of arbitrability of fraud under the 1940 Act is the case of Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak ^{^[1]}.

Before dealing with the said case, it may be relevant to note the relevant provisions under the 1940 Act dealing with the subject issue.

Section 20 of the 1940 Act reads as follows: –

“20. Application to file in Court arbitration agreement.— (1) Where any persons have entered into an arbitration agreement before the institution of any suit with respect to the subject-matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them, instead of proceeding under Chapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates, that the agreement be filed in Court.

….

(4) Where no sufficient cause is shown, the Court shall order the agreement to be filed, and shall make an order of reference to the arbitrator appointed by the parties, whether in the agreement or otherwise or, where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court.…”

As is evident from a bare perusal of Section 20 of the 1940 Act, which was also noted by the Supreme Court in Abdul Kadir (supra), a wide discretion was vested in the court to refuse to refer the parties to arbitration if “sufficient cause” is made out in terms of sub-section (4) of Section 20 of the 1940 Act even if the subject matter of dispute is covered by the arbitration agreement.

Further, under Section 35 of the 1940 Act, even where arbitral proceedings are on-going, all further proceedings in the pending reference shall become invalid the moment legal proceedings upon the whole of the subject matter of reference have been commenced between all the parties to the reference and a notice thereof has been given to the arbitrators or umpire unless a stay of proceedings is granted under Section 34 thereof.

Section 35 of the 1940 Act, thus, indicates that the scheme of the 1940 Act appears to have been tilted in favor of an adjudication by the civil court rather than recourse to arbitration.

Coming back to Abdul Kadir (supra), while dealing with the issue of fraud in an application under Section 20 of the 1940 Act, the Three Judge Bench of the Supreme Court referred to various English judgments including the leading case of Russel v. Russel[2] where the Court, as noticed by the Supreme Court in paragraph 9, held as follows:

“in a case where fraud is charged, the court will in general refuse to send the dispute to arbitration if the party charged with the fraud desires a public inquiry. But where the objection to arbitration is by the party charging the fraud, the court will not necessarily accede to it, and will never do so unless a prima facie case of fraud is proved”.

Another relevant English judgment, namely, Charles Osenton & Co. v. Johnston[3] was also referred to in Abdul Kadir (supra), and thereafter, the Supreme Court laid down the law as follows:

“13. There is no doubt that where serious allegations of fraud are made against a party and the party who is charged with fraud desires that the matter should be tried in open court, that would be a sufficient cause for the court not to order an arbitration agreement to be filed and not to make the reference. But it is not every allegation imputing some kind of dishonesty, particularly in matters of accounts, which would be enough to dispose a court to take the matter out of the forum which the parties themselves have chosen. This to our mind is clear even from the decision in Russel case [1880 14 Ch D 471] . In that case there were allegations of constructive and actual fraud by one brother against the other and it was in those circumstances that the court made the observations to which we have referred above. Even so, the learned Master of the Rolls also observed in the course of the judgment at p. 476 as follows:

“Why should it be necessarily beyond the purview of this contract to refer to an arbitrator questions of account, even when those questions do involve misconduct amounting even to dishonesty on the part of some partner? I do not see it. I do not say that in many cases which I will come to in the second branch of the case before the Court, the Court may not, in the exercise of its discretion, refuse to interfere; but it does not appear to me to follow of necessity that this clause was not intended to apply to all questions, even including questions either imputing moral dishonesty or moral misconduct to one or other of the parties.”

We are clearly of opinion that merely because some allegations have been made that accounts are not correct or that certain items are exaggerated and so on that is not enough to induce the court to refuse to make a reference to arbitration. It is only in cases of allegations of fraud of a serious nature that the court will refuse as decided in Russels case [1880 14 Ch D 471] to order an arbitration agreement to be filed and will not make a reference.………It is only when serious allegations of fraud are made which it is desirable should be tried in open court that a court would be justified in refusing to order the arbitration agreement to be filed and in refusing to make a reference.”

While turning to the facts of the case before it and holding that the allegations made in the said case do not amount to serious allegation of fraud, it significantly added as follows:

“14…It seems to us that every allegation tending to suggest or imply moral dishonesty or moral misconduct in the matter of keeping accounts would not amount to such serious allegation of fraud as would impel a court to refuse to order the arbitration agreement to be filed and refuse to make a reference. ………”

Thus, the Three Judge Bench of the Supreme Court opined as follows –

(i) It will constitute a sufficient cause for the court to refuse reference to arbitration whereserious allegations of fraud are made against a party and the party who is charged with fraud desires that the matter should be tried in open court. However, where the objection to arbitration is made by the party charging the fraud, the court will not necessarily accede to it, and will never do so unless a prima facie case of fraud is proved.

(ii) It is not every allegation imputing some kind of dishonesty, particularly in matters of accounts, which would be enough for the court to refuse reference to arbitration.

(iii) Every allegation tending to suggest or imply moral dishonesty or moral misconduct in the matter of keeping accounts would not amount to such serious allegation of fraud as would impel a court to refuse to order the arbitration agreement to be filed and refuse to make a reference.

Before travelling to the scheme under the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “1996 Act”), it is relevant to mention that the aforesaid judgment in Abdul Kadir (supra) has to be read and understood in the context of the scheme under the 1940 Act.

Policy and Scheme under the 1996 Act

The 1996 Act marks a significant departure from the scheme of the 1940 Act and the whole policy of the 1996 Act was designed towards encouraging resolution of disputes expeditiously and economically through the process of arbitration with minimal intervention by courts. The 1996 Act has not made any specific provision excluding any category of disputes from the ambit of arbitration. However, the scheme of the 1996 Act indicates and recognizes that certain disputes or subject matters are not capable of being resolved through arbitration. Section 2(3), Section 34(2)(b)(i) and Section 48(2)(a) of the 1996 Act, inter-alia, are some of the provisions which indicate the above position.

That apart, the Supreme Court, based on ‘public policy’ and ‘common law practices’, has, inter-alia, carved out certain categories of dispute or subject matters which are generally considered to be falling outside the ambit of arbitration.

In the case of Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd ^{^[4]}, the Supreme Court, in paragraph 27, while dealing with Section 89 of the Code of Civil Procedure, 1908, delineated six categories of subject matters which are normally considered not to be suited for Alternative Dispute Resolution process. For the purpose of this article, category (iv) and (vi) are relevant and are reproduced hereinbelow:

“27. The following categories of cases are normally considered to be not suitable for ADR process having regard to their nature:

…

(iv) Cases involving serious and specific allegations of fraud, fabrication of documents, forgery, impersonation, coercion, etc.

…

(vi) Cases involving prosecution for criminal offences.”

Further, the Two Judge Bench of the Supreme Court in Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.,^{^[5]} dealt with the issue of the term “arbitrability” and its facets and further laid down the law regarding arbitrability and non-arbitrability. The Supreme Court, in paragraph 36, again delineated certain categories of subject matters which are well recognized examples of non-arbitrable disputes. The relevant paragraphs are extracted hereinbelow:

“34. The term “arbitrability” has different meanings in different contexts. The three facets of arbitrability, relating to the jurisdiction of the Arbitral Tribunal, are as under:

(i) Whether the disputes are capable of adjudication and settlement by arbitration? That is, whether the disputes, having regard to their nature, could be resolved by a private forum chosen by the parties (the Arbitral Tribunal) or whether they would exclusively fall within the domain of public fora (courts).

(ii) Whether the disputes are covered by the arbitration agreement?…

(iii) Whether the parties have referred the disputes to arbitration?…

……

36. The well-recognised examples of non-arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences;

….

38. Generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not however a rigid or inflexible rule. Disputes relating to subordinate rights in personam arising from rights in rem have always been considered to be arbitrable.”.

The aforesaid aspect of the matter has also been discussed in paragraph 105-109 of a recent Three Judge Bench judgment of the Supreme Court in the case of N.N. Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd. & Ors.^{^[6]}.

Further, it may also be mentioned that the Three Judge Bench of the Supreme Court in the case of Vidya Drolia v. Durga Trading Corporation ^{^[7]} * in paragraph 76 to 76.6, has laid down a fourfold test for determining when the subject matter of dispute in an arbitration agreement is not arbitrable.

The stage at which a judicial authority or a court is confronted with an objection that the subject matter though covered by an arbitration agreement is not arbitrable can be at the reference stage under Section 8 or Section 11 or it can be raised before the arbitral tribunal under Section 16 or it can be post the award as a ground of challenge to the award under Section 34(2)(b)(i) of the 1996 Act. It can also be at the Section 9 stage. The nature and scope of the adjudicatory process when such an objection is raised has been discussed threadbare in the recent case of Vidya Drolia v. Durga Trading Corporation (supra)by a Three Judge Bench.

The aforesaid provisions of law under the 1996 Act, particularly Sections 5, 8 & 16, signify the shift in the approach and policy towards resolution of disputes through arbitration with minimal intervention of the courts in cases where the subject matter of dispute is covered by the arbitration agreement.

Case laws dealing with arbitrability of fraud under Part – I of the 1996 Act:

The Two Judge Bench of the Supreme Court in the case of N. Radhakrishnan v. Maestro Engineers ^{^[8]} while dealing with the issue of non-arbitrability of the subject matter on account of serious allegation pertaining to fraud and malpractices held as follows:

“21. In our opinion, the contention of the respondents relating to the jurisdiction of the arbitrator to decide a dispute pertaining to a matter of this proportion should be upheld, in view of the facts and circumstances of the case. The High Court in its impugned judgment has rightly held that since the case relates to allegations of fraud and serious malpractices on the part of the respondents, such a situation can only be settled in court through furtherance of detailed evidence by either parties and such a situation cannot be properly gone into by the arbitrator.

…

23. …..In this connection, reliance was placed on a decision of this Court in Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oakin which this Court under para 17 held as under: (AIR p. 411)

“17. There is no doubt that where serious allegations of fraud are made against a party and the party who is charged with fraud desires that the matter should be tried in open court, that would be a sufficient cause for the court not to order an arbitration agreement to be filed and not to make the reference.”

In our view and relying on the aforesaid observations of this Court in the aforesaid decision and going by the ratio of the abovementioned case, the facts of the present case do not warrant the matter to be tried and decided by the arbitrator, rather for the furtherance of justice, it should be tried in a court of law which would be more competent and have the means to decide such a complicated matter involving various questions and issues raised in the present dispute.

…

25. The learned counsel for the respondents further elaborated his contention citing the decision of the High Court of Judicature at Madras in H.G. Oomor Sait v. O. Aslam Sait [(2001) 3 CTC 269 (Mad)] wherein it was held: (CTC pp. 269-70)

‘..The civil court can refuse to refer matter to arbitration if complicated question of fact or law is involved or where allegation of fraud is made…’

We are in consonance with the above referred decision made by the High Court in the matter concerned.”

It is relevant to mention that while following the law in Abdul Kadir (supra), the Two Judge Bench of the Supreme Court quoted only part of the law as laid down by the Three Judge Bench of the Supreme Court in Abdul Kadir (supra), leaving out certain relevant aspects of the law which have been paraphrased by me hereinabove under sub-paras (ii) & (iii)[9]. Significantly, as noted in a subsequent Three Judge bench in Avitel Post Studioz Limited v. HSBC PI Holdings (Mauritius) Limited ^{^[10]} , the Supreme Court in N. Radhakrishnan (supra) failed to appreciate that Abdul Kadir (supra) was a decision rendered under the 1940 Act and that the scheme of the 1996 Act, more particularly, Section 5, 8 & 16 thereof, marked a sea change in approach and policy in contrast to the scheme under the 1940 Act. I shall deal with this case in more detail when I discuss Avitel(supra), wherein, the Three Judge Bench of the Supreme Court has declared the said decision of the Two Judge Bench in N. Radhakrishnan (supra) to be lacking in precedential value.

In a proceeding under Section 11 (4) read with Section 11 (6) of the 1996 Act, the Ld. Single Judge of the Supreme Court in the case of Swiss Timings Ltd. V. Commonwealth Games 2010 Organising Committee ^{^[11]} held that the law laid down in N. Radhakrishnan (supra) was per-incurium on two grounds. Firstly, the judgment of the Supreme Court in Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums ^{^[12]} which casts a mandatory obligation upon the judicial authority to refer the subject matter pending before it to arbitration if it is covered by the arbitration agreement, though noted, was not followed and a similar view of the Supreme Court in P. Anand Gajapathi Raju & Ors. v. P.V.G. Raju & Ors.^{^[13]} was not even brought to the notice of the Court. Secondly, Section 16 of the Arbitration Act was not brought to the notice of the Court in that case.

The next significant judgment on the issue of arbitrability of fraud is the case of A. Ayyasamy v. A. Paramasivam ^{^[14]} wherein two learned Judges of the Supreme Court by way of separate concurring judgments analysed and laid down the law in detail. After analyzing Abdul Kadir (supra) and N. Radhakrishnan (supra), the Supreme Court speaking through Justice A.K. Sikri explained the law as follows:

“18. When the case involves serious allegations of fraud, the dicta contained in the aforesaid judgments would be understandable. However, at the same time, mere allegation of fraud in the pleadings by one party against the other cannot be a ground to hold that the matter is incapable of settlement by arbitration and should be decided by the civil court. The allegations of fraud should be such that not only these allegations are serious that in normal course these may even constitute criminal offence, they are also complex in nature and the decision on these issues demands extensive evidence for which the civil court should appear to be more appropriate forum than the Arbitral Tribunal. Otherwise, it may become a convenient mode of avoiding the process of arbitration by simply using the device of making allegations of fraud and pleading that issue of fraud needs to be decided by the civil court. The judgment in N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] does not touch upon this aspect and the said decision is rendered after finding that allegations of fraud were of serious nature.”

The observation of Law Commission as contained in paragraph 50 and 51 of the 246^th Law Commission Report dealing with the issue of arbitrability of fraud was noted in paragraph 22 and based on a perusal of the same, the Supreme Court held as follows:

“23.…It, thus, follows that those cases where there are serious allegations of fraud, they are to be treated as non-arbitrable and it is only the civil court which should decide such matters. However, where there are allegations of fraud simpliciter and such allegations are merely alleged, we are of the opinion that it may not be necessary to nullify the effect of the arbitration agreement between the parties as such issues can be determined by the Arbitral Tribunal.”

In paragraph 24, the Supreme Court, based on its decision in the case of State of West Bengal v. Associated Contractors ^{^[15]} clarified that decision of the Ld. Single Judge in the Swiss Timings (supra) does not have any precedential value and therefore, it cannot be deemed to have overruled the proposition of law laid down in N. Radhakrishnan (supra). Ultimately, the Supreme Court speaking through Justice A.K. Sikri crystalized the law in paragraph 25 and held as follows:

“25. In view of our aforesaid discussions, we are of the opinion that mere allegation of fraud simpliciter may not be a ground to nullify the effect of arbitration agreement between the parties. It is only in those cases where the court, while dealing with Section 8 of the Act, finds that there are very serious allegations of fraud which make a virtual case of criminal offence or where allegations of fraud are so complicated that it becomes absolutely essential that such complex issues can be decided only by the civil court on the appreciation of the voluminous evidence that needs to be produced, the court can sidetrack the agreement by dismissing the application under Section 8 and proceed with the suit on merits. It can be so done also in those cases where there are serious allegations of forgery/fabrication of documents in support of the plea of fraud or where fraud is alleged against the arbitration provision itself or is of such a nature that permeates the entire contract, including the agreement to arbitrate, meaning thereby in those cases where fraud goes to the validity of the contract itself of the entire contract which contains the arbitration clause or the validity of the arbitration clause itself. Reverse position thereof would be that where there are simple allegations of fraud touching upon the internal affairs of the party inter se and it has no implication in the public domain, the arbitration clause need not be avoided and the parties can be relegated to arbitration. While dealing with such an issue in an application under Section 8 of the Act, the focus of the court has to be on the question as to whether jurisdiction of the court has been ousted instead of focusing on the issue as to whether the court has jurisdiction or not. It has to be kept in mind that insofar as the statutory scheme of the Act is concerned, it does not specifically exclude any category of cases as non-arbitrable. Such categories of non-arbitrable subjects are carved out by the courts, keeping in mind the principle of common law that certain disputes which are of public nature, etc. are not capable of adjudication and settlement by arbitration and for resolution of such disputes, courts i.e. public fora, are better suited than a private forum of arbitration. Therefore, the inquiry of the Court, while dealing with an application under Section 8 of the Act, should be on the aforesaid aspect viz. whether the nature of dispute is such that it cannot be referred to arbitration, even if there is an arbitration agreement between the parties. When the case of fraud is set up by one of the parties and on that basis that party wants to wriggle out of that arbitration agreement, a strict and meticulous inquiry into the allegations of fraud is needed and only when the Court is satisfied that the allegations are of serious and complicated nature that it would be more appropriate for the Court to deal with the subject-matter rather than relegating the parties to arbitration, then alone such an application under Section 8 should be rejected.”

Justice D.Y. Chandrachud in his separate concurrent judgment elaborately dealt with the law relating to arbitrability of fraud. While dealing with N. Radhakrishnan(supra), the Supreme Court speaking through Justice D.Y. Chandrachud in paragraph 40 observed that the decision in Abdul Kadir (supra) arose under 1940 Act and was in the context of Section 20 thereof. It further noted that wide discretion was available to a Court under sub-section (4) of Section 20 of the 1940 Act and in contrast the scheme of 1996 Act made a radical departure from the position under the erstwhile enactment. A marked distinction is made in Section 8 where no option has been left to the judicial authority but to refer parties to the arbitration. The Court in paragraph 43 held the allegations of criminal wrongdoing or of statutory violation would not detract from the jurisdiction of the Arbitral Tribunal to resolve a dispute arising out of a civil or contractual relationship on the basis of the jurisdiction conferred by the arbitration agreement.

The Supreme Court speaking through Justice Chandrachud placed a word of caution qua the decision in N. Radhakrishnan (supra) and read down the said judgment by holding as follows:

“45. …The judgment in N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] has, however, been utilised by parties seeking a convenient ruse to avoid arbitration to raise a defence of fraud:

45.1. First and foremost, it is necessary to emphasise that the judgment in N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] does not subscribe to the broad proposition that a mere allegation of fraud is ground enough not to compel parties to abide by their agreement to refer disputes to arbitration. More often than not, a bogey of fraud is set forth if only to plead that the dispute cannot be arbitrated upon. To allow such a plea would be a plain misreading of the judgment in N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] . As I have noted earlier, that was a case where the appellant who had filed an application under Section 8 faced with a suit on a dispute in partnership had raised serious issues of criminal wrongdoing, misappropriation of funds and malpractice on the part of the respondent. It was in this background that this Court accepted the submission of the respondent that the arbitrator would not be competent to deal with matters “which involved an elaborate production of evidence to establish the claims relating to fraud and criminal misappropriation”. Hence, it is necessary to emphasise that as a matter of first principle, this Court has not held that a mere allegation of fraud will exclude arbitrability. The burden must lie heavily on a party which avoids compliance with the obligation assumed by it to submit disputes to arbitration to establish the dispute is not arbitrable under the law for the time being in force. In each such case where an objection on the ground of fraud and criminal wrongdoing is raised, it is for the judicial authority to carefully sift through the materials for the purpose of determining whether the defence is merely a pretext to avoid arbitration. It is only where there is a serious issue of fraud involving criminal wrongdoing that the exception to arbitrability carved out in N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] may come into existence.

45.2. Allegations of fraud are not alien to ordinary civil courts. Generations of judges have dealt with such allegations in the context of civil and commercial disputes. If an allegation of fraud can be adjudicated upon in the course of a trial before an ordinary civil court, there is no reason or justification to exclude such disputes from the ambit and purview of a claim in arbitration….”

Thereafter, Justice D.Y. Chandrachud referred to the position of law qua arbitrability of fraud in various jurisdiction including United Kingdom where the statutory scheme has undergone a change towards allowing conferring arbitral tribunal the jurisdiction to consider and rule on issues of fraud. The Court also referred to the American judgment on the said aspect of the matter and various leading authors including Russel in arbitration and International Commercial Arbitration by Gary B Borne. In the above context, paragraph 53 and 56 reads as follows:

“53. The Arbitration and Conciliation Act, 1996, should in my view be interpreted so as to bring in line the principles underlying its interpretation in a manner that is consistent with prevailing approaches in the common law world…”

…..

56. The legal position has been succinctly summarised in International Commercial Arbitration by Gary B. Born [ 2nd Edn., Vol. I, p. 846] thus:

“…The fact that one party may have fraudulently misrepresented the quality of its goods, services, or balance sheet generally does nothing to impeach the parties’ agreed dispute resolution mechanism. As a consequence, only fraud or fraudulent inducement directed at the agreement to arbitrate will, as a substantive matter, impeach that agreement. These circumstances seldom arise: as a practical matter, it is relatively unusual that a party will seek to procure an agreement to arbitrate by fraud, even in those cases where it may have committed fraud in connection with the underlying commercial contract.”

In the case of Ameet Lal Chand Shah v. Rishabh Enterprises ^{^[16]}, the Supreme Court reiterated in paragraph 37 that it is only where serious questions of fraud are involved, the arbitration can be refused.

Then comes the judgment in the case of Rashid Raza v. Sadaf Akhtar ^{^[17]} where the Three Judge Bench of the Supreme Court while following A. Ayyasamy (supra) laid down two working tests as follows:

“4. The principles of law laid down in this appeal make a distinction between serious allegations of forgery/fabrication in support of the plea of fraud as opposed to “simple allegations”. Two working tests laid down in para 25 are: (1) does this plea permeate the entire contract and above all, the agreement of arbitration, rendering it void, or (2) whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain.”

In a recent significant judgment in the case of Avitel (supra), the Three Judge Bench of the Supreme Court, while dealing with a case arising out of a Section 9 proceeding, succinctly dealt with the entire history of the law. It may be mentioned that though the seat of arbitration in this case was outside the territory of India, the parties by contract had agreed that Section 9 of Part I will apply. The Supreme Court while holding N. Radhakrishnan (supra) to be lacking in precedential value, broadly relied upon the reasoning of the Ld. Single Judge in Swiss Timing (supra). The Court while acknowledging that the judgment delivered by the Ld. Single Judge in exercise of his jurisdiction under Section 11 of the Act in Swiss Timing (supra) cannot be said to be a binding precedent, however, the Supreme Court held that the Ld. Judge’s reasoning has strong persuasive value which the Court was inclined to adopt and held as follows:

“17. These provisions, together with section 8 of the 1996 Act, which now makes it mandatory to refer an action which is brought before a judicial authority, which is the subject matter of an arbitration agreement, to arbitration, if the conditions of the section are met, all point to a sea change from the 1940 Act which was repealed by this 1996 Act….

18. It will be seen from section 20 of the 1940 Act, as was held in Abdul Kadir (supra), that a wide discretion is vested in the Court if sufficient cause is made out not to refer parties to arbitration. It was in that context that the observations in Abdul Kadir (supra) as to serious allegations of fraud triable in a civil court, being “sufficient cause” shown under section 20(4) of the 1940 Act were made….

19. ….As against this, sections 5, 8 and 16 of the 1996 Act reflect a completely new approach to arbitration, which is that when a judicial authority is shown an arbitration clause in an agreement, it is mandatory for the authority to refer parties to arbitration bearing in mind the fact that the arbitration clause is an agreement independent of the other terms of the contract and that, therefore, a decision by the arbitral tribunal that the contract is null and void does not entail ipso jure the invalidity of the arbitration clause. Even otherwise, N. Radhakrishnan (supra) did not refer to the ratio of Abdul Kadir (supra) correctly. As has been seen by us hereinabove, Abdul Kadir (supra) held that serious allegations of fraud are not made out when allegations of moral or other wrongdoing inter parties are made. In particular, it was held that discrepancies in account books are the usual subject matter in account suits, which are purely of a civil nature. For all these reasons, we are broadly in agreement with the observations of Nijjar, J. rendering N. Radhakrishnan (supra) lacking in precedential value.”

The Supreme Court after further noticing the judgment in Ameet Lal Chand Shah (supra) and Rashid Raza (supra) held as follows:

“34. After these judgments, it is clear that “serious allegations of fraud” arise only ifeither of the two tests laid down are satisfied, and not otherwise. The first test is satisfied only when it can be said that the arbitration clause or agreement itself cannot be said to exist in a clear case in which the court finds that the party against whom breach is alleged cannot be said to have entered into the agreement relating to arbitration at all. The second test can be said to have been met in cases in which allegations are made against the State or its instrumentalities of arbitrary, fraudulent, or malafide conduct, thus necessitating the hearing of the case by a writ court in which questions are raised which are not predominantly questions arising from the contract itself or breach thereof, but questions arising in the public law domain.

35. At this stage, it is necessary to deal with the broad statement of the law in Afcons (supra) and Booz Allen (supra). When Afcons (supra) refers in paragraph 27(iv) to “cases involving serious and specific allegations of fraud, fabrication of documents, forgery, impersonation, coercion, etc.”, this must now be understood in the sense laid down in Ayyasamy (supra) and Rashid Raza (supra)…”

With regard to the issue of non-arbitrariness on the ground of ‘cases involving prosecution of criminal offences’, the Supreme Court analysed the law on the subject threadbare and stated that it is well settled that the same set of facts may have civil as well as criminal consequences and findings rendered in a civil proceeding do not bind the criminal proceeding and vis-a-versa, as standard of proof required in the two proceedings is entirely different. Civil cases are decided on preponderance of evidence while in a criminal case, the burden lies on the prosecution to prove the case beyond reasonable doubt. Ultimately, the Supreme Court in paragraph 42 held as follows:

42. In the light of the aforesaid judgments, paragraph 27(vi) of Afcons (supra) and paragraph 36(i) of Booz Allen (supra), must now be read subject to the rider that the same set of facts may lead to civil and criminal proceedings and if it is clear that a civil dispute involves questions of fraud, misrepresentation, etc. which can be the subject matter of such proceeding under section 17 of the Contract Act, and/or the tort of deceit, the mere fact that criminal proceedings can or have been instituted in respect of the same subject matter would not lead to the conclusion that a dispute which is otherwise arbitrable, ceases to be so.”

The Supreme Court further dealt with Sections 10, 14, 17 and 19 of the Indian Contract Act and drew the difference between contracts obtained by fraud and performance of contract (which is perfectly valid) being vitiated by fraud and cheating and the latter would fall outside Section 17 of the Indian Contract Act in which the remedy for damage would be available but not the remedy of for treating the contract itself as void. The Court held that the fraud that is practiced outside Section 17 of Contract Act i.e., in the performance of contract may be governed by tort of deceit, which would lead to damages, but not rescission of contract itself. Significantly, in paragraph 46, the Supreme Court held as follows:

“46. Both kinds of fraud are subsumed within the expression “fraud” when it comes to arbitrability of an agreement which contains an arbitration clause.”

The Three Judge bench of Supreme Court in Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties & Ors. ^{^[18]} followed Avitel (supra) and held as follows:

“4.…If the subject matter of an agreement between parties falls within section 17 of the Indian Contract Act, 1872, or involves fraud in the performance of the contract, as has been held in the aforesaid judgment, which would amount to deceit, being a civil wrong, the subject matter of such agreement would certainly be arbitrable. Further, we have also held that merely because a particular transaction may have criminal overtones as well, does not mean that its subject matter becomes non-arbitrable…”.

The Three Judge bench of Supreme Court speaking through Justice Sanjiv Khanna in Vidya Drolia (supra), while holding that the tenancy landlord dispute under the Transfer of Property Act is arbitrable, concurred with the view of Avitel (supra) in paragraphs 73 and 74 and overruled N. Radhakrishnan (supra) in paragraph 78 which are quoted hereinbelow:

“78. In view of the aforesaid discussions, we overrule the ratio in N. Radhakrishnan inter alia observing that allegations of fraud can (sic cannot) be made a subject matter of arbitration when they relate to a civil dispute. This is subject to the caveat that fraud, which would vitiate and invalidate the arbitration clause, is an aspect relating to nonarbitrability…..”

In a significant recent judgment, a Three Judge Bench of the Supreme Court in the case of N.N. Global Mercantile (supra)analysed the law in great detail and, inter alia, held that even disputes voluminous evidence and documents are arbitrable, thereby, diluting the earlier position of law in this aspect of the matter to some extent. The relevant paragraphs of the aforesaid judgment are as follows:

“96. The judgment in N. Radhakrishnan (supra) is based on an outdated view of the law propounded in Russel v. Russel, which ante-dates even the first English Arbitration Act of 1899. Arbitrability of fraud is no longer an issue relating to the competence of the arbitrator, or dealing with voluminous evidence. Arbitrators are competent to deal with allegations of civil fraud. The judgment in Russel is obsolete, …

…

110. The civil aspect of fraud is considered to be arbitrable in contemporary arbitration jurisprudence, with the only exception being where the allegation is that the arbitration agreement itself is vitiated by fraud or fraudulent inducement, or the fraud goes to the validity of the underlying contract, and impeaches the arbitration clause itself. Another category of cases is where the substantive contract is “expressly declared to be void” under Section 10⁴⁴ of the Indian Contract Act, 1872 where the agreement is entered into by a minor (without following the procedure prescribed under the Guardian and Wards Act, 1890) or a lunatic, which would be with a party incompetent to enter into a contract.

111. The civil aspect of fraud can be adjudicated by an arbitral tribunal. The civil aspect of fraud is defined by Section 17 of the Indian Contract Act, 1872 …

…

113. In the case of voidable agreements, such disputes would be arbitrable, since the issue whether the consent was procured by coercion, fraud, or misrepresentation requires to be adjudicated upon by leading cogent evidence, which can very well be decided through arbitration. Until it so proved and upheld as per Sections 2(i) and (j) of the Indian Contract Act, 1872 such an agreement would remain enforceable, and is not void.

…

116. The ground on which fraud was held to be non arbitrable earlier was that it would entail voluminous and extensive evidence, and would be too complicated to be decided in arbitration. In contemporary arbitration practice, arbitral tribunals are required to traverse through volumes of material in various kinds of disputes such as oil, natural gas, construction industry, etc. The ground that allegations of fraud are not arbitrable is a wholly archaic view, which has become obsolete, and deserves to be discarded. However, the criminal aspect of fraud, forgery, or fabrication, which would be visited with penal consequences and criminal sanctions can be adjudicated only by a court of law, since it may result in a conviction, which is in the realm of public law.

…”

Thus, there are two aspects of fraud that may come in the way of reference to arbitration being (I) serious allegations of fraud; and (II) cases involving prosecution of criminal offences.

So far as the ground of serious allegations of fraud is concerned, a Two Judge Bench of the Supreme Court in A. Ayyasami (supra) had held that reference to arbitration can be refused when (i) there are very serious allegations of fraud which make a virtual case of criminal offence or where the allegations of fraud are so complex that it would be more appropriate that the same may be decided by a civil court on account of voluminous evidence that would be required to be produced; (ii) where there are serious allegations of forgery/ fabrication of documents in support of the plea of fraud; (iii) where the fraud is alleged against the arbitration provisions itself or is of such a nature that permeates the entire contract including the agreement to arbitrate.

However, refusal to refer the parties to arbitration was held to be impermissible where there are simple allegations of fraud touching upon the internal affairs of the parties inter se and it has no implication in the public domain.

In Rashid Raza (supra), while interpreting A. Ayyasamy (supra) the Three Judge Bench of the Supreme Court culled out two working principles therefrom which are as follows: (1) does this plea permeate the entire contract and above all, the agreement of arbitration, rendering it void, or (2) whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain.

The Three Judge bench of the Supreme Court in the case of Avitel (supra) read the aforesaid judgments to mean that “serious allegations of fraud are satisfied only if either of the two tests are satisfied and not otherwise and further explained the two tests as stated above. The Supreme Court further held that paragraph 27 (iv) of Afcons (supra), namely, ‘cases involving serious and specific allegations of fraud, fabrication of documents, forgery, impersonation, coercion, etc.’ must now be understood in the sense as laid down in A. Ayyasamy (supra) and Rashid Raza (supra). The Three Judge Bench of the Supreme Court, in the case of N.N. Global Mercantile (supra), inter alia, held that the ground that allegations of fraud are not arbitrable is a wholly archaic view, which has become obsolete, and deserves to be discarded. The Court, thus, appears to have diluted the earlier position of law to some extent and has clearly held that even dispute involving voluminous documents and evidence are also arbitrable.

As per Avitel (supra), the aforesaid first test is satisfied only when it can be said that the arbitration clause or agreement itself cannot be said to exist in a clear case in which the court finds that the party against whom breach is alleged cannot be said to have entered into the agreement relating to arbitration at all. The Supreme Court in N.N. Global Mercantile (supra)further explained that arbitration can be refused if the substantive contract is void in the sense that it is entered into by an incompetent party. A composite reading of the aforesaid two judgments would show that serious allegations of fraud for refusing reference to arbitration will take place only if the substantive contract and/ or the arbitration clause itself is void on account of the same being entered into by an incompetent person as per the Indian Contract Act. Other aspects of fraud even if it invalidates the underlying contract and/ or the arbitration clause itself perhaps, in my humble view, have to be gone into by the arbitral tribunal since as per N.N. Global Mercantile (supra) even issues involving voluminous documents and evidence can be adjudicated through arbitration. The Court in the said case further held that in case of voidable agreements covered by Section 19 of the Indian Contract Act, disputes would be arbitrable since the issue whether the consent was procured by coercion, fraud, or misrepresentation requires to be adjudicated upon by leading cogent evidence, which can very well be decided through arbitration.

Thus, taking a cumulative view of the matter, the position of law is stated as follows:

(i) The civil aspect of fraud falling under Section 17 of the Contract Act, 1872 is considered to be arbitrable in contemporary arbitration jurisprudence. This is subject to the exception of serious allegation of fraud which vitiates and invalidates the underlying contract and/ or the arbitration clause itself, thereby, rendering it void. A composite reading of the aforesaid judgments would show that serious allegations of fraud for refusing reference to arbitration will take place only if the substantive contract and/ or the arbitration clause itself is void on account of the same being entered into by an incompetent person as per the Indian Contract Act.

(ii) Other aspects of fraud even if it invalidates the underlying contract and/ or the arbitration clause itself perhaps, in my humble view, have to be gone into by the arbitral tribunal since as per N.N. Global Mercantile (supra) even issues involving voluminous documents and evidence can be adjudicated through arbitration;

(iii) Mere allegations of fraud simplicitor relating to the internal affairs of the parties inter se without any implication in the public domain is not a permissible ground to refuse reference to arbitration;

(iv) Reference to arbitration can be refused when allegations are made against the State or its instrumentalities of arbitrary, fraudulent or malafide conduct, thus, necessitating hearing by a writ court in which questions are raised which are not predominantly arising from the contract itself or breach thereof, but questions arising in the public law domain;

(v) Fraud that is practiced outside Section 17 of Contract Act, i.e., in the performance of contract may be governed by tort of deceit, which would lead to damages, but not rescission of contract itself, has also been held to be arbitrable;

(vi) In case of voidable agreements covered by Section 19 of the Indian Contract Act, disputes would be arbitrable since the issue whether the consent was procured by coercion, fraud, or misrepresentation requires to be adjudicated upon by leading cogent evidence, which can very well be decided through arbitration;

(vii) The ground on which fraud was held to be non-arbitrable earlier was that it would entail voluminous and extensive evidence, and would be too complicated to be decided in arbitration. In contemporary arbitration practice, arbitral tribunals are required to traverse through volumes of material in various kinds of disputes such as oil, natural gas, construction industry, etc. The ground that allegations of fraud are not arbitrable is a wholly archaic view, which has become obsolete, and deserves to be discarded.

So far as the ground relating to ‘prosecution for criminal offence’ is concerned, the Supreme Court in Avitel (supra) has held that the said ground is “subject to the rider that the same set of facts may lead to civil and criminal proceedings and if it is clear that a civil dispute involves questions of fraud, misrepresentation, etc. which can be the subject matter of such proceeding under section 17 of the Contract Act, and/or the tort of deceit, the mere fact that criminal proceedings can or have been instituted in respect of the same subject matter would not lead to the conclusion that a dispute which is otherwise arbitrable, ceases to be so”.

In N.N. Global Mercantile (supra) the Three Judge Bench further held that the criminal aspect of fraud, forgery, or fabrication, which would be visited with penal consequences and criminal sanctions can be adjudicated only by a court of law, since it may result in a conviction, which is in the realm of public law. However, this would, in my humble opinion, be subject to the rider mentioned hereinabove in Avitel(supra).

Position of law in foreign seated arbitration/ foreign awards:

The applicability of Part I of the 1996 Act to International Commercial Arbitrations held outside India has been the subject matter of various decisions of the Supreme Court. The Supreme Court in Bhatia International v. Bulk Trading SA ^{^[19]} had held that provisions of Part I of the 1996 Act will apply to international commercial arbitrations held out of India unless the parties by agreement, express or implied, excludes all or any of its provisions. This was followed in Venture Global Engg. LLC v. Tech Mahindra Ltd. & Anr. ^{^[20]}. However, the Constitutional Bench of the Supreme Court in the case of BALCO ^{^[21]} held that Part I of the 1996 Act is applicable only to arbitrations which take place within the territory of India but held that the judgment will apply prospectively. However, by way of the 2016 amendment, a proviso has been inserted to Section 2 (2) which reads as follows:

“Provided that subject to an agreement to the contrary, the provisions of section 9, section 27 and clause (a) of sub-section (1) and sub-section (3) of section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognized under the provisions of part II of this Act”[22].

The issue of arbitrability of fraud in the case of a foreign seated arbitration governed by Part II of the Act, in my humble opinion, can be raised at the stage of Section 9 or at the stage of enforcement under Section 48(2)(a) of the 1996 Act.

It may also be pointed out that even if the issue of fraud is adjudicated upon by a foreign seated arbitral tribunal, the issue of arbitrability of fraud can be gone into at the stage of enforcement if it is sought to be enforced in India inasmuch as Section 48 (2) (a) clearly provides that enforcement of an arbitral award may be refused if the court finds that the subject matter of the difference is not capable of settlement by arbitration under the law of India.

So far as adjudication of fraud in a proceeding under Section 45 of the 1996 Act is concerned, the Two Judge Bench of the Supreme Court in the case of World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pte. Ltd. ^{^[23]} has held that fraud cannot be adjudicated in a Section 45 proceedings and has held as follows:

“36…In the case of such arbitrations covered by the New York Convention, the Court can decline to make a reference of a dispute covered by the arbitration agreement only if it comes to the conclusion that the arbitration agreement is null and void, inoperative or incapable of being performed, and not on the ground that allegations of fraud or misrepresentation have to be inquired into while deciding the disputes between the parties.”

It may, however, be humbly pointed out that the said observations are perhaps, made in the context of allegation of fraud in the normal sense requiring detailed examination of evidences/ documents etc. but may perhaps not cover situations of fraud, as stated above, where the contract and/or the arbitration clause itself is void on the ground of the same being entered into by an incompetent party.

****

Parthiv K. Goswami is an Advocate. Research inputs for this article were provided by Ishan Bisht, Advocate.

[1] (1962) 3 SCR 702

[2] [1880] 14 Ch D 471

[3] [1942] AC1 130

[4] (2010) 8 SCC 24

[5] (2011) 5 SCC 532

[6] (2021) 1 SCALE 475

[7] (2021) 2 SCC 1

* The Three Judge Bench of the Supreme Court in N.N. Global Mercantile Pvt. Ltd. (supra) has, in paragraphs 95-96 thereof, doubted the correctness of the view of the Three Judge Bench in Vidya Drolia (supra) with regard to another aspect of the matter and has referred the said issue to a Constitution Bench of Five judges.

[8] (2010) 1 SCC 72

[9] See page 4 above

[10] 2020 (9) SCALE 733

[11] (2014) 6 SCC 677

[12] (2003) 6 SCC 503

[13] (2000) 4 SCC 539

[14] (2016) 10 SCC 386

[15] (2015) 1 SCC 32

[16] (2018) 15 SCC 678

[17] (2019) 8 SCC 710

[18] AIR 2020 SC 4047

[19] (2002) 4 SCC 105

[20] (2018) 1 SCC 656

[21] Bharat Aluminium and Co. v. Kaiser Aluminium and Co., (2012) 9 SCC 552

[22] w.e.f. 23.10.2015.

[23] (2014) 11 SCC 639

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Opinion on the interpretation and determination of procedural requirement provided under Section 25B (4) of the Delhi Rent Control Act 1958, if leave to defend is refused. – By Harshit Thareja

July 6, 2021 0Comments 323Views

July 6, 2021

Delhi has suffered from shortage of residential as well as commercial premises which has become a permanent problem for the residents of Delhi. It is well known that the legislation of Delhi Rent Control Act, 1958 (‘1958, Act’ is short) regulate & control the letting and rent of accommodations and also contains the provisions restricting the eviction of tenants except on the grounds specified under the 1958, Act. This article is intended to deal with one question concerning the legislation. What procedure is enacted by the legislature under Section 25B of the 1958, Act, special procedure for eviction of tenants of specified categories for landlords on the grounds specified under Section 14(1)(e) or under Section 14A or under 14B or under 14C or under 14D of the 1958 Act, if leave to contest is refused by the Rent Controlling Authority?

The answer to the question depends upon the construction and interpretation of Section 25B of the 1958, Act which has dealt with the procedure to be followed, if an application has been filed for the recovery of possession on the grounds specified in Section 14(1)(e) or under 14A or under 14B or under 14C or under 14D of the 1958 Act. As provided under the special procedure,the tenant on whom the summons is served in the application for recovery of possession on the abovementioned grounds in the form specified in the Third Schedule shall not contest the prayer for eviction from the premises unless he files an affidavit stating the grounds on which he seeks to contest the application for eviction within 15 days and obtains leave from the Rent Controlling Authority.

The proviso clause provided under Section 25B (4) of the 1958, Act has only dealt in cases wherein tenant is (i) in default of his appearance in pursuance of the summons, or (ii) in default of his obtaining such leave, in both the situations the grounds of eviction preferred by the landlord shall be deemed to be admitted by the tenant. The Section as provided in the legislation is reiterated hereinbelow:

25B (4) The tenant on whom the summons is duly served (whether in the ordinary way or by registered post) in the form specified in the Third Schedule shall not contest the prayer for eviction from the premises unless he files and affidavit stating the grounds on which he seeks to contest the application for eviction and obtains leave from the Controller as hereinafter provided; and in default of his appearance in pursuance of the summons or his obtaining such leave, the statement made by the landlord in the application for eviction shall be deemed to be admitted by the tenant and the applicant shall be entitled to an order for eviction on the ground aforesaid.

It is a settled principle of interpretation that the court should neither add or delete the words used in the legislation. Where the words of the legislation are not clear and ambiguous, the principles of construction and interpretation can be resorted. The language used in the legislation is the determinant of the legislative intent. The scope of Section 25B (4) of the 1958, Act is restricted to in what form the summons is to be duly served and in what manner the application to contest the eviction be preferred along with a proviso clause which is expressed in word as ‘in default’. The word used in subsection (4) of section 25B of the 1958, Act is ‘in default’ in obtaining which means ‘absence’ in obtaining. The word ‘default’ cannot be construed as ‘refusal’. The legislature while enacting the law, used the word ‘in default of tenant appearance in pursuance of the summons or his obtaining the leave’ which can only be construed by the words expressed as in default of tenant appearance in pursuance of the summons or in default of filing the leave to contest within the period specified. However, the legislature did not contemplate on the procedure to be adopted if leave to contest is refused.

Even if the word ‘default in obtaining’ is considered as ‘refusal’ then the altercations with the procedure will be that the application to contest the eviction has to be decided within 15 days which is contrary to the mechanism being followed by the Rent Controlling Authorities. The Third Schedule as provided in the legislation is reiterated hereinbelow: –

“You are hereby summoned to appear before the Controller within fifteen days of the service hereof and to obtain the leave of the Controller to contest the application for eviction on the ground aforesaid; in default whereof; the applicant will be entitled to any time after the expiry of the said period of fifteen days to obtain an order for your eviction from the said premises”

The words used in the Third Schedule of the 1958 Act if read as suggests than after the expiry of 15 days the landlord is entitled to obtain an order for eviction of the tenant from the said premises meaning thereby only 15 days’ time, from the day the summon is received, is provided to the tenant to file the application for leave to contest and receive the decision in his favor within the timeframe as specified, is practically not possible and neither being followed by the Rent Controlling Authorities. It is not necessary that the words used in the legislation are always clear, explicit and unambiguous. Thus, interpretation of legislation is the process of ascertaining the actual connotation of the words used in the legislation. The words as expressed ‘to obtain the leave of the Controller’ can only be construed as filing of leave to contest in within the period specified.

In Precision Steel & Engineering Works & Anr. Vs. Prem Deva Niranjan Deva Tayal,^{^[1]} the apex court discussed the legal position that emerges out of Section 25B (4) of the 1958, Act and did came close in dealing with the Section, however did not consider that the Section 25B (4) of the 1958, Act include the word ‘default of his appearance in pursuance of the summons or his obtaining such leave’ which can only be interpreted as default in filing of leave to contest within the period specified and the legislation has left the issue if leave to contest is refused, ambiguously. The relevant paragraph of the judgement is reiterated hereinbelow:

On the combined reading of Section 14(1) proviso (e) with Section 25B (1) and (4) the legal position that emerges is that on a proper application being made in the prescribed manner which is required to be supported by an affidavit, unless the tenant obtains leave to defend as contemplated by subsection (4) and (5) of section 25B, the tenant is deemed to have admitted all the averments made in the petition filed by the landlord. The effect of these provisions is that the Controller would act on the admission of the tenant and there is no better proof of fact as admission, ordinary because facts which are admitted need not be proved. But what happens if the tenant appears pursuant to the summons issued under sub-section (2) of Section 25-B, files an affidavit stating the grounds on which he seeks to contest the application. As a corollary it would transpire that the facts pleaded by the landlord are disputed and controverted. How is the Controller thereafter to proceed in the matter. It would be open to the landlord to contest the application of the tenant seeking leave to contest and for that purpose he can file an affidavit in reply but production and admission and evaluation of documents at that stage has no place. The Controller has to confine himself to the affidavit filed by the tenant under sub-section (4) and the reply, if any. On perusing the affidavit filed by the tenant and the reply if any filed by landlord the Controller has to pose to himself the only question: Does the affidavit disclose, not prove, facts as would disentitle the landlord from obtaining an order for the recovery of possession on the ground specified in Clause (e) of the proviso to Section 14(1). The Controller is not to record a finding on disputed questions of facts or his preference of one set of affidavits against other set of affidavits………….

However, the apex court in Precision Steel & Engineering Works & Anr. Vs. Prem Deva Niranjan Deva Tayal considered the provision of section 58, i.e. Facts admitted need not be proved, of the Indian Evidence Act, 1872 as provided as ‘deemed to be admitted’ by the legislature in 1958, Act nevertheless failed to consider the concept of onus probandi, the essence of Sections 101 and 102 of the Indian Evidence Act, 1972. It is pertinent to note herein the essential ingredients of chapter VII burden of proof provided under Section 101 of the Indian Evidence Act, 1872 is (i) whenever a person desires that the court should give a decision in his favour (ii) he has to prove the relevant facts and the facts in issue on which his case depends (iii) burden of proof lies on the person who has to prove the existence of any fact. It is the landlord who has to prove the bonafide requirement. The presumption of deemed to be admitted even if the application for recovery of possession is challenged cannot be termed as doctrine of estoppel.

Broadly speaking, the expressed word used is ‘in default’ cannot be construed as ‘refusal’. The expression by words used by the legislature in Section 25B of the 1958, Act, if read in a whole it means default in filing the application for leave within the period specified. Thus, the procedure followed by the Rent Controlling Authorities, if leave to defend is refused is highly improper as is not at all contemplated by the legislature in 1958, Act.

The procedure to be followed if leave is granted is provided under Section 25B (6) of the 1958 Act. Section 25B (6) and Section 25B (7) of the 1958 Act reads as follows:

(6) “Where leave is granted to the tenant to contest the application, the Controller shall commence the hearing of the application as early as practicable.”

(7) Notwithstanding anything contained in sub-section (2) of section 37, the Controller shall, while holding an inquiry in a proceeding to which this Chapter applies, follow the practice and procedure of a Court of Small Causes, including the recording of evidence.

The words as expressed in Section 25B (6) is clear that if leave is granted to the tenant to contest the application, hearing shall commence by the Rent Controlling Authority followed by an enquiry in a proceeding as per practise and procedure of a court of Small Causes, including the recording of evidence be conducted as provided in Section 25B (7) of the 1958 Act. The legislation is silent in Section 25B (7) of the 1958 Act, whether the same is applicable where leave is refused?

To answer this question, it is relevant to discuss the principle of beneficial construction. The rule may be beneficial construction. The principle is based upon that the legislation to be fair, accommodating and just. The fundamental principle of statutory interpretation is that the words of the legislation be read in their entire context, the object of the Act and the intention of the Act. The legislation is silent to the question on which this procedure provided under Section 25B (7) of the 1958 Act is to be followed. In my considered opinion, the principle of beneficial construction be followed, if leave to defend is refused the an enquiry as contemplated in section 25B (7) of the 1958 Act to be followed.

The recording of evidence includes the right to cross examine by the adverse party. The object of cross-examination as provided under Section 138 of the Indian Evidence Act, 1872 is to impeach the accuracy, credibility of the statement, to detect and expose discrepancies in the statement of the party by the adverse party. The tenant shall be provided to cross examine the landlord to testify the facts and to test his veracity, mentioned in the application for eviction and may be at the end the landlord may fail to justify the bonafide requirement. It is pertinent to mention that not providing a fair opportunity to cross-examine, the same cannot be the basis of judicial pronouncement.

Broadly speaking, the doctrine of audi alteram partem, a fair opportunity be provided to the tenant to test the veracity of the bonafide need of the landlord. The same has been considered in Charan Dass Duggal Vs. Brahma Nand,^[2] the apex court considered the requirement of granting leave to defend, and expressed its anguish by using the words as reiterated hereinbelow:

4. What should be the approach when leave to defend is sought? There appears to be a mistaken belief that unless the tenant at that stage makes out such a strong case as would non-suit the landlord, leave to defend cannot be granted. This approach is wholly improper. When leave to defend is sought, the tenant must make out such a prima facie case raising such pleas that a triable issue would emerge and that in our opinion should be sufficient to grant leave. The test is the test of a triable issue and not the final success in the action (see Santosh Kumar v. Bhai Mool Singh, 1958 S. C. R. 1211). At the stage of granting the leave parties rely in support of their rival contentions on affidavits and assertions and counter-assertions on affidavits may not afford such incontrovertible evidence to lead to an affirmative conclusion one way or the other. Conceding that when possession is sought on the ground of personal requirement, an absolute need is not to be satisfied but a mere desire equally is not sufficient. It has to be something more than a mere desire. And being an enabling provision, the burden is on the landlord to establish his case affirmatively……

5. Recently in a good number of cases from Delhi we have noticed that long contested judgments are written refusing leave as if the trial has been concluded after recording evidence and a final decision is being reached. That is certainly not apposite at the stage of granting leave.

6. The genesis of our procedural laws is to be traced to principles of natural justice. The principles amongst them being that no one shall suffer civil or evil or pecuniary consequence at his back without giving him an adequate and effective opportunity to participate to disprove the case against him and prove his own case. Summary procedure does not clothe an authority with power to enjoy summary dismissal. Undoubtedly wholly frivolous defence may not entitle a person leave to defend. But equally a triable issue raised, enjoins a duty to grant leave. May be in the end the defence may fail. It is necessary to bear in mind that when leave to defend is refused the party seeking leave is denied an opportunity to test the truth of the averments of the opposite party by cross-examination and rival affidavits may not furnish reliable evidence for concluding the point one way or the other. It is not for a moment suggested that leave to defend must be granted on mere asking but it is equally improper to refuse to grant leave though triable issues are raised and the controversy can be properly adjudicated after ascertainment of truth through cross-examination of witnesses who have filed their affidavits. Burden is on the landlord to prove his requirements and his assertion is required to be tested more……….

In the alternative, the Madhya Pradesh Accommodation Control Act, 1961 squarely covers the procedure to be followed if leave is refused. The Madhya Pradesh Accommodation Control Act, 1961 came into force after 1958, Act. It is relevant to reproduce Section 23C of the Madhya Pradesh Accommodation Control Act, 1961 which has appropriately dealt with the issue if leave to contest is refused.

23C. Tenant not entitled to contest except under certain circumstances. – (1) The tenant on whom the summons is served in the form specified in the Second Schedule shall not contest the prayer for eviction from the accommodation unless he files within fifteen days from the date of service of the summons, an application supported by an affidavit stating the grounds on which he seeks to contest the application for eviction and obtains leave from the Rent Controlling Authority as hereinafter provided, and in default of his appearance in pursuance of the summons or in default of his obtaining such leave, or if such leave is refused, the statement made by the landlord in the application for eviction shall be deemed to be admitted by the tenant………

The proviso clause provided under Section 23C (1) of the Madhya Pradesh Accommodation Control Act, 1961 has dealt in cases wherein tenant is (i) in default of his appearance in pursuance of the summons, or (ii) in default of his obtaining such leave or (iii) if such leave is refused, in all the situations the grounds of eviction preferred by the landlord shall be deemed to be admitted by the tenant. The words used by the legislature in Madhya Pradesh Accommodation Control Act, 1961 is the same as in 1958 Act, with an additional proviso if leave to defend is refused.

In B Johnson Bernard Vs. C.S. Naidu,^{^[3]} the Hon’ble Madhya Pradesh High Court observed the words expressed by the legislature on M.P. Accommodation Control Act, 1961 ‘in default in obtaining such leave’ as failure of the tenant to make such an application within the period specified, the statement made by the landlord in his application for eviction shall be deemed to be admitted. The same is reiterated herein below:

Section 23C lays down that the tenant is not entitled to contest the landlord’s application, unless he applies for grant of leave to contest within 15 days from the date of service, by an application supported by an affidavit, stating the grounds on which he seeks leave to contest. It also provides that on failure of tenant to make such an application within the period specified, the statement made by the landlord in his application for eviction shall be deemed to be admitted and the same result ensures where leave to contest is refused to the tenant.

It is significant from the 1958, Act in corroboration with the Madhya Pradesh Accommodation Control Act, 1961 that the proviso provided under Section 25B (4) of the 1958, Act has never dealt with the issue if the leave to contest is refused.

Therefore, in view of the words used in the 1958 Act, the writer would venture to make suggestion for an amendment of the provision in the 1958, Act relating to the procedure to be followed if leave to contest is refused the statement made by the landlord in the application for eviction shall be deemed to be admitted by the tenant or, on the principles of beneficial construction, an enquiry to be conducted as provided under Section 25B (7) of the 1958 Act. A fair opportunity be provided in accordance with law by the Rent Controlling Authority to the tenant, before tenant is deprived of his liberty or property, as provided in the legislation. The tenant shall be allowed to cross-examine the bonafide need of the landlord and test the veracity of the relevant facts and the facts in issue.

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Harshit Thareja practises as an independent legal practitioner in Delhi. He has been rendering assistance to Mr. G.P. Thareja who retired as an Additional District Judge and now actively practises in Delhi. Experience with Mr. G.P. Thareja provides additional exposure in matters pertaining to Arbitration, Criminal law, Civil law including Delhi Rent Control Act.

[1] (1982) 3 SCC 270

[2] (1983) 1 SCC 301

[3] 1985 M.P.L.J. 675

Columns

Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021: Finding Settled Shores? – By Abhinav Mathur

June 29, 2021 0Comments 289Views

June 29, 2021

Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (Rules) was introduced on 25^th February, 2021 by the Central Government in suppression of the Information Technology (Intermediaries Guidelines) Rules, 2011. Much anticipated, the new Rules were brought in with an intention to provide clarity on the vexed area surrounding the liability and obligations of Intermediaries.

The Rules provide due diligence obligations which are required to be performed by the Intermediaries. Before moving further, it is imperative to define the contours of the Intermediary. The Rules have bifurcated Intermediary into 2 classes viz. Social Media Intermediary (SMI) and Significant Social Media Intermediary (SSMI) based on user registration. Intermediaries having more than 50 lakh users are classified as SSMI. Under the Rules, Intermediary is defined as a platform which enables online interaction between users for creation and sharing of information.

Due Diligence Obligations

The Intermediary shall prominently publish, on its website or mobile-based application, the rules and regulations, privacy policy and user agreement for access or usage of its computer resource by any person. Further, it is mandatory for the Intermediary to inform the user not to host, display, upload, modify, publish, transmit, store, update or share any information that is prohibited under the Rules. Further, it is obligated that the Intermediary shall, not later than seventy-two hours of the receipt of an order, provide information under its control or possession, or assistance to the Government agency which is lawfully authorised for investigation. The Rules also cast obligation on Intermediaries, upon receiving actual knowledge in the form of an order from a court or notification from Government authority that certain information hosted by it is prohibited information, to remove or disable access to such information within 36 hours of the receipt of such order or notification.

In addition to the obligations imposed on Intermediaries, SSMI, which is a distinct class, have an additional requirement to appoint three officers with different responsibilities. The officers are:

a Chief Compliance Officer, responsible for ensuring compliance with the Information Technology Act, 2000 (the IT Act) and the Rules made there under, and liable for proceedings in this regard;
a nodal person of contact, for “24×7 coordination” with law enforcement agencies; and
a Resident Grievance Officer, with similar responsibilities as the Grievance Officer.

Mechanism for Digital Media

Evolvingly, the Rules impose various obligations on digital media entities which carry out systematic business of making content available within India. These digital media entities would essentially include publishers of news and current affairs and publishers of online curated content (Publishers), who shall adhere to a Code of Ethics (Code) prescribed under Part III of the Rules. Interestingly, even foreign news publishers with an online presence in India shall be regulated by this Code. Part III envisage three-tier structure for addressing the grievance regarding content published by Publisher. Level I will be the self-regulating structure wherein Publisher shall establish grievance redressal mechanism and shall appoint grievance officer who will be entrusted for addressing the grievances. If a grievance is not redressed by Grievance Officer within 15 days, the grievance is automatically escalated to Level II which is the self-regulating body of one or more Publishers or their associations. Further, at Level III, the Rules provide for the establishment of an Inter-Departmental Committee which shall hear grievances from the decision of the self-regulating body or other complaints about violation of the Code. It is imperative to note that the said committee will comprise of representatives of different ministries viz. Ministry of Information and Broadcasting, Ministry of Women and Child Development, Ministry of Law and Justice, etc.

Rule 7 deals with the punitive measure which states that where an intermediary fails to observe these Rules, the safe harbour provision enshrined under Section 79 of the IT Act shall apply to such Intermediary and consequently Intermediary shall be liable for punishment under any law for the time being in force including the provisions of the IT Act and the Indian Penal Code.

Rule 4(2) – Major bone of Contention

Rule 4(2) is one of the most debatable amongst other Rules. It casts obligation on the Intermediary to identify the first originator of the information on its computer resource as required by the judicial order passed by the Court. The aforesaid Order can be passed for the purposes of prevention, detection, investigation, prosecution or punishment of an offence related to the sovereignty and integrity of India, security of the State, friendly relations with foreign States, or public order. Now, these big words are subject to the judicial interpretation. The said Rule further provides that the Order shall not be passed in the cases where less cumbersome means are available for identifying the originator of information.

Another interesting provision of the aforesaid Rule is that where the first originator of any information on the computer resource of an intermediary is located outside the territory of India, the first originator of that information within the territory of India shall be deemed to be the first originator of the information.

Analysis

While the objectives of the Rules are sacred, it is onerous to justify the provision of traceability requirement by Intermediaries on the vexed grounds. There are roundabouts that even though the traceability requirement is implemented in letter and spirit, it is difficult to track the mischief of the real culprit. So, it is not a cakewalk to come closer to the actual ‘originator’ of the offending content. Further, the problem does not come to an end here as in the event first originator of the offending content is located beyond the boundaries of India, then in that event the first originator of that information or offending content within the territory of India shall be deemed as the first originator of that offending content. Putting it simply, if X forwarded the message (content prohibited in India) received from Y (who is sitting outside India), then by virtue of operation of law and limited wherewithal to track Y outside the locales of India, X would be facing the music of law and would be liable of all the consequences which Y should have ideally faced.

Traceability concept of the Intermediaries may work in the event they break their fundamental and much sold principle of end to end encryption. It is near to impossible that Intermediary giants who are operating at the global level will forgo their most valued feature of end to end encryption for Indian users. Consequently, Intermediaries may lose interest in the Indian market and may end up shutting down their operations.

Following the traceability system and breaking the encryption would prejudice the privacy aspect of users. Ensuring privacy of users is one of the most important aspects of the Intermediaries which enable Intermediaries to hold the trust of their users. Moreover, fear of identification and sanction may lead to the chilling effect on the Freedom of Speech and Expression as Individuals will be reluctant to share information. Further, considering the amount of data/messages generated on the platforms of the Intermediaries, it will be highly unlikely that Intermediaries will be keen to break the encryption concept solely for the Indian market.

The combination of these stipulations tilted more in favour of the government, irrespective of whether its takedown request is legitimate or not. An Intermediary under the threat of criminal sanction is heavily incentivised to helplessly comply with a government order than exercise the due care and restraint it could under a normal scenario. This may lead to rampant government censorship.

It is vital to note that the IT Act does not contemplate digital news and publisher of online curated content. Thus, the act of covering digital news and online curated content under the Rules tantamount to executive overreach and thus not permissible within the constitutional framework.

Way Forward

The Freedom of Expression and Privacy are interpreted as basic and quintessential principles by the Judiciary. Looking in entirety, the Rules aim to strengthen the overall legal framework for the Intermediaries. However, one may not rule out the possibility of prejudicing the privacy and Freedom of Expression of individuals. Rule 4(2) seems to be problematical as it will all boil down to the interpretation of the Judiciary with regard to the broad grounds for traceability of information. Further, tracing the originator of information would undermine the commitment to free and secure communication that underpins data protection principles and cybersecurity best practices. The Intermingling of Executive is also a cause of concern for effective and transparent regulation of digital media. Courts are already witnessing a series of challenges being filed, questioning the sanctity of the Rules. With all hullabaloos around, one thing is sure that the Intermediaries and media giants should prepare themselves for a more tightened legal framework in the time to come.

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Abhinav Mathur is Associate Partner in Chir Amrit Legal LLP, Jaipur

Interviews

Interviews, Trending

Time for judiciary to introspect and see what can be done to restore people’s faith – Justice Lokur

February 3, 2020 0Comments 1286Views

Justice Madan B Lokur, was a Supreme Court judge from June 2012 to December 2018. He is now a judge of the non-resident panel of the Supreme Court of Fiji. He spoke to LegitQuest on January 25, 2020.

Q: You were a Supreme Court judge for more than 6 years. Do SC judges have their own ups and downs, in the sense that do you have any frustrations about cases, things not working out, the kind of issues that come to you?

A: There are no ups and downs in that sense but sometimes you do get a little upset at the pace of justice delivery. I felt that there were occasions when justice could have been delivered much faster, a case could have been decided much faster than it actually was. (When there is) resistance in that regard normally from the state, from the establishment, then you kind of feel what’s happening, what can I do about it.

Q: So you have had the feeling that the establishment is trying to interfere in the matters?

A: No, not interfering in matters but not giving the necessary importance to some cases. So if something has to be done in four weeks, for example if reply has to be filed within four weeks and they don’t file it in four weeks just because they feel that it doesn’t matter, and it’s ok if we file it within six weeks how does it make a difference. But it does make a difference.

Q: Do you think this attitude is merely a lax attitude or is it an infrastructure related problem?

A: I don’t know. Sometimes on some issues the government or the establishment takes it easy. They don’t realise the urgency. So that’s one. Sometimes there are systemic issues, for example, you may have a case that takes much longer than anticipated and therefore you can’t take up some other case. Then that necessarily has to be adjourned. So these things have to be planned very carefully.

Q: Are there any cases that you have special memories of in terms of your personal experiences while dealing with the case? It might have moved you or it may have made you feel that this case is really important though it may not be considered important by the government or may have escaped the media glare?

A: All the cases that I did with regard to social justice, cases which concern social justice and which concern the environment, I think all of them were important. They gave me some satisfaction, some frustration also, in the sense of time, but I would certainly remember all these cases.

Q: Even though you were at the Supreme Court as a jurist, were there any learning experiences for you that may have surprised you?

A: There were learning experiences, yes. And plenty of them. Every case is a learning experience because you tend to look at the same case with two different perspectives. So every case is a great learning experience. You know how society functions, how the state functions, what is going on in the minds of the people, what is it that has prompted them to come the court. There is a great learning, not only in terms of people and institutions but also in terms of law.

Q: You are a Judge of the Supreme Court of Fiji, though a Non-Resident Judge. How different is it in comparison to being a Judge in India?

A: There are some procedural distinctions. For example, there is a great reliance in Fiji on written submissions and for the oral submissions they give 45 minutes to a side. So the case is over within 1 1/2 hours maximum. That’s not the situation here in India. The number of cases in Fiji are very few. Yes, it’s a small country, with a small number of cases. Cases are very few so it’s only when they have an adequate number of cases that they will have a session and as far as I am aware they do not have more than two or three sessions in a year and the session lasts for maybe about three weeks. So it’s not that the court sits every day or that I have to shift to Fiji. When it is necessary and there are a good number of cases then they will have a session, unlike here. It is then that I am required to go to Fiji for three weeks. The other difference is that in every case that comes to the (Fiji) Supreme Court, even if special leave is not granted, you have to give a detailed judgement which is not the practice here.

Q: There is a lot of backlog in the lower courts in India which creates a problem for the justice delivery system. One reason is definitely shortage of judges. What are the other reasons as to why there is so much backlog of cases in the trial courts?

A: I think case management is absolutely necessary and unless we introduce case management and alternative methods of dispute resolution, we will not be able to solve the problem. I will give you a very recent example about the Muzaffarpur children’s home case (in Bihar) where about 34 girls were systematically raped. There were about 17 or 18 accused persons but the entire trial finished within six months. Now that was only because of the management and the efforts of the trial judge and I think that needs to be studied how he could do it. If he could do such a complex case with so many eyewitnesses and so many accused persons in a short frame of time, I don’t see why other cases cannot be decided within a specified time frame. That’s case management. The second thing is so far as other methods of disposal of cases are concerned, we have had a very good experience in trial courts in Delhi where more than one lakh cases have been disposed of through mediation. So, mediation must be encouraged at the trial level because if you can dispose so many cases you can reduce the workload. For criminal cases, you have Plea Bargaining that has been introduced in 2009 but not put into practice. We did make an attempt in the Tis Hazari Courts. It worked to some extent but after that it fell into disuse. So, plea bargaining can take care of a lot of cases. And there will be certain categories of cases which we need to look at carefully. For example, you have cases of compoundable offences, you have cases where fine is the punishment and not necessarily imprisonment, or maybe it’s imprisonment say one month or two month’s imprisonment. Do we need to actually go through a regular trial for these kind of cases? Can they not be resolved or adjudicated through Plea Bargaining? This will help the system, it will help in Prison Reforms, (prevent) overcrowding in prisons. So there are a lot of avenues available for reducing the backlog. But I think an effort has to be made to resolve all that.

Q: Do you think there are any systemic flaws in the country’s justice system, or the way trial courts work?

A: I don’t think there are any major systemic flaws. It’s just that case management has not been given importance. If case management is given importance, then whatever systematic flaws are existing, they will certainly come down.

Q; And what about technology. Do you think technology can play a role in improving the functioning of the justice delivery system?

I think technology is very important. You are aware of the e-courts project. Now I have been told by many judges and many judicial academies that the e-courts project has brought about sort of a revolution in the trial courts. There is a lot of information that is available for the litigants, judges, lawyers and researchers and if it is put to optimum use or even semi optimum use, it can make a huge difference. Today there are many judges who are using technology and particularly the benefits of the e-courts project is an adjunct to their work. Some studies on how technology can be used or the e-courts project can be used to improve the system will make a huge difference.

Q: What kind of technology would you recommend that courts should have?

A: The work that was assigned to the e-committee I think has been taken care of, if not fully, then largely to the maximum possible extent. Now having done the work you have to try and take advantage of the work that’s been done, find out all the flaws and see how you can rectify it or remove those flaws. For example, we came across a case where 94 adjournments were given in a criminal case. Now why were 94 adjournments given? Somebody needs to study that, so that information is available. And unless you process that information, things will just continue, you will just be collecting information. So as far as I am concerned, the task of collecting information is over. We now need to improve information collection and process available information and that is something I think should be done.

Q: There is a debate going on about the rights of death row convicts. CJI Justice Bobde recently objected to death row convicts filing lot of petitions, making use of every legal remedy available to them. He said the rights of the victim should be given more importance over the rights of the accused. But a lot of legal experts have said that these remedies are available to correct the anomalies, if any, in the justice delivery. Even the Centre has urged the court to adopt a more victim-centric approach. What is your opinion on that?

You see so far as procedures are concerned, when a person knows that s/he is going to die in a few days or a few months, s/he will do everything possible to live. Now you can’t tell a person who has got terminal cancer that there is no point in undergoing chemotherapy because you are going to die anyway. A person is going to fight for her/his life to the maximum extent. So if a person is on death row s/he will do everything possible to survive. You have very exceptional people like Bhagat Singh who are ready to face (the gallows) but that’s why they are exceptional. So an ordinary person will do everything possible (to survive). So if the law permits them to do all this, they will do it.

Q: Do you think law should permit this to death row convicts?

A: That is for the Parliament to decide. The law is there, the Constitution is there. Now if the Parliament chooses not to enact a law which takes into consideration the rights of the victims and the people who are on death row, what can anyone do? You can’t tell a person on death row that listen, if you don’t file a review petition within one week, I will hang you. If you do not file a curative petition within three days, then I will hang you. You also have to look at the frame of mind of a person facing death. Victims certainly, but also the convict.

Q: From the point of jurisprudence, do you think death row convicts’ rights are essential? Or can their rights be done away with?

A: I don’t know you can take away the right of a person fighting for his life but you have to strike a balance somewhere. To say that you must file a review or curative or mercy petition in one week, it’s very difficult. You tell somebody else who is not on a death row that you can file a review petition within 30 days but a person who is on death row you tell him that I will give you only one week, it doesn’t make any sense to me. In fact it should probably be the other way round.

Q: What about capital punishment as a means of punishment itself?

A: There has been a lot of debate and discussion about capital punishment but I think that world over it has now been accepted, more or less, that death penalty has not served the purpose for which it was intended. So, there are very few countries that are executing people. The United States, Saudi Arabia, China, Pakistan also, but it hasn’t brought down the crime rate. And India has been very conservative in imposing the death penalty. I think the last 3-4 executions have happened for the persons who were terrorists. And apart from that there was one from Calcutta who was hanged for rape and murder. But the fact that he was hanged for rape and murder has not deterred people (from committing rape and murder). So the accepted view is that death penalty has not served the purpose. We certainly need to rethink the continuance of capital punishment. On the other hand, if capital punishment is abolished, there might be fake encounter killings or extra judicial killings.

Q: These days there is the psyche among people of ‘instant justice’, like we saw in the case of the Hyderabad vet who was raped and murdered. The four accused in the case were killed in an encounter and the public at large and even politicians hailed it as justice being delivery. Do you think this ‘lynch mob mentality’ reflects people’s lack of faith in the justice system?

A: I think in this particular case about what happened in Telangana, investigation was still going on. About what actually happened there, an enquiry is going on. So no definite conclusions have come out. According to the police these people tried to snatch weapons so they had to be shot. Now it is very difficult to believe, as far as I am concerned, that 10 armed policeman could not overpower four unarmed accused persons. This is very difficult to believe. And assuming one of them happened to have snatched a (cop’s) weapon, maybe he could have been incapacitated but why the other three? So there are a lot of questions that are unanswered. So far as the celebrations are concerned, the people who are celebrating, do they know for certain that they (those killed in the encounter) were the ones who did the crime? How can they be so sure about it? They were not eye witnesses. Even witnesses sometimes make mistakes. This is really not a cause for celebration. Certainly not.

Q: It seems some people are losing their faith in the country’s justice delivery system. How to repose people’s faith in the legal process?

A: You see we again come back to case management and speedy justice. Suppose the Nirbhaya case would have been decided within two or three years, would this (Telangana) incident have happened? One can’t say. The attack on Parliament case was decided in two or three years but that has not wiped out terrorism. There are a lot of factors that go into all this, so there is a need to find ways of improving justice delivery so that you don’t have any extremes – where a case takes 10 years or another extreme where there is instant justice. There has to be something in between, some balance has to be drawn. Now you have that case where Phoolan Devi was gangraped followed by the Behmai massacre. Now this is a case of 1981, it has been 40 years and the trial court has still not delivered a judgement. It’s due any day now, (but) whose fault is that. You have another case in Maharashtra that has been transferred to National Investigating Agency two years after the incident, the Bhima-Koregaon case. Investigation is supposedly not complete after two years also. Whose fault is that? So you have to look at the entire system in a holistic manner. There are many players – the investigation agency is one player, the prosecution is one player, the defence is one player, the justice delivery system is one player. So unless all of them are in a position to coordinate… you cannot blame only the justice delivery system. If the Telangana police was so sure that the persons they have caught are guilty, why did they not file the charge sheet immediately? If they were so sure the charge sheet should have been filed within one day. Why didn’t they do it?

Q: At the trial level, there are many instances of flaws in evidence collection. Do you think the police or whoever the investigators are, do they lack training?

A: Yes they do! The police lacks training. I think there is a recent report that has come out last week which says very few people (in the police) have been trained (to collect evidence).

Q: You think giving proper training to police to prepare a case will make a difference?

A: Yes, it will make a difference.

Q: You have a keen interest in juvenile justice. Unfortunately, a lot of heinous crimes are committed by juveniles. How can we correct that?

A: You see it depends upon what perspective we are looking at. Now these heinous crimes are committed by juveniles. Heinous crimes are committed by adults also, so why pick upon juveniles alone and say something should be done because juveniles are committing heinous crimes. Why is it that people are not saying that something should be done when adults are committing heinous crimes? That’s one perspective. There are a lot of heinous crimes that are committed against juveniles. The number of crimes committed against juveniles or children are much more than the crimes committed by juveniles. How come nobody is talking about that? And the people committing heinous crimes against children are adults. So is it okay to say that the State has imposed death penalty for an offence against the child? So that’s good enough, nothing more needs to be done? I don’t think that’s a valid answer. The establishment must keep in mind the fact that the number of heinous crimes against children are much more than those committed by juveniles. We must shift focus.

Q: Coming to NRC and CAA. Protests have been happening since December last year, the SC is waiting for the Centre’s reply, the Delhi HC has refused to directly intervene. Neither the protesters nor the government is budging. How do we achieve a breakthrough?

A: It is for the government to decide what they want to do. If the government says it is not going to budge, and the people say they are not going to budge, the stalemate could continue forever.

Q: Do you think the CAA and the NRC will have an impact on civil liberties, personal liberties and people’s rights?

A: Yes, and that is one of the reasons why there is protest all over the country. And people have realised that it is going to happen, it is going to have an impact on their lives, on their rights and that’s why they are protesting. So the answer to your question is yes.

Q: Across the world and in India, we are seeing an erosion of the value system upholding rights and liberties. How important is it for the healthy functioning of a country that social justice, people’s liberties, people’s rights are maintained?

A: I think social justice issues, fundamental rights are of prime importance in our country, in any democracy, and the preamble to our Constitution makes it absolutely clear and the judgement of the Supreme Court in Kesavananda Bharati and many other subsequent judgments also make it clear that you cannot change the basic structure of the Constitution. If you cannot do that then obviously you cannot take away some basic democratic rights like freedom of assembly, freedom of movement, you cannot take them away. So if you have to live in a democracy, we have to accept the fact that these rights cannot be taken away. Otherwise there are many countries where there is no democracy. I don’t know whether those people are happy or not happy.

Q: What will happen if in a democracy these rights are controlled by hook or by crook?

A: It depends upon how much they are controlled. If the control is excessive then that is wrong. The Constitution says there must be a reasonable restriction. So reasonable restriction by law is very important.

Q: The way in which the sexual harassment case against Justice Gogoi was handled was pretty controversial. The woman has now been reinstated in the Supreme Court as a staffer. Does this action of the Supreme Court sort of vindicate her?

A: I find this very confusing you know. There is an old joke among lawyers: Lawyer for the petitioner argued before the judge and the judge said you are right; then the lawyer for the respondent argued before the judge and the judge said you’re right; then a third person sitting over there says how can both of them be right and the judge says you’re also right. So this is what has happened in this case. It was found (by the SC committee) that what she said had no substance. And therefore, she was wrong and the accused was right. Now she has been reinstated with back wages and all. I don’t know, I find it very confusing.

Q: Do you think the retirement age of Supreme Court Judges should be raised to 70 years and there should be a fixed tenure?

A: I haven’t thought about it as yet. There are some advantages, there are some disadvantages. (When) You have extended age or life tenure as in the United States, and the Supreme Court has a particular point of view, it will continue for a long time. So in the United States you have liberal judges and conservative judges, so if the number of conservative judges is high then the court will always be conservative. If the number of liberal judges is high, the court will always be liberal. There is this disadvantage but there is also an advantage that if it’s a liberal court and if it is a liberal democracy then it will work for the benefit of the people. But I have not given any serious thought onthis.

Q: Is there any other thing you would like to say?

A: I think the time has come for the judiciary to sit down, introspect and see what can be done, because people have faith in the judiciary. A lot of that faith has been eroded in the last couple of years. So one has to restore that faith and then increase that faith. I think the judiciary definitely needs to introspect.

Interviews

‘IP lawyers are now competing with timelines generated by an AI-driven world, in terms of commercialising business’ intangible assets. This brings up larger volumes of work to deal with on more competitive timelines.’ — Sujata Chaudhri

“Perception and prejudice, which have come to surround individuals accused of white-collar crimes, are a major challenge. Unsubstantiated and ludicrous amounts of money are often projected as having been cheated or laundered.” – Abhir Datt

Due to the pandemic, protecting the company’s reputation and bottom line are going to be the major focus areas during the next few years for all lawyers working as in-house counsels. – Rahul Singh

‘Given the level of automation today, repetitive routine tasks are going to go. Analytical skills, strategy, problem-solving are coming to the forefront. Ability to interact with technology is critical and definitely changing legal services and how law students will deliver these services.’

“The IT infrastructure available with District Courts must be upgraded to enable effective and smooth functioning of the hybrid system via VC hearing.” – Satyam Thareja

‘The Indian Arbitration framework is moving towards a new institutional arbitration-friendly regime. However, with respect to Investment Arbitration, we are still a long way from becoming an encumbrance-free jurisdiction.’ – Anubhab Sarkar

‘None of us chose litigation to sit behind computers and argue. But we need to be aware of the realities. Covid still does not have a cure, nor is the vaccine readily available.’ – Shivani Luthra Lohiya

‘In the past decade there have been many changes in the laws, but these have unfortunately not been properly absorbed in smaller metropolitan regions where lawyers are still likely to face courts that are not exactly aware of these changes.’ – Vibhanshu Srivastava

“Legal systems have been built to fit national boundaries. On the cyberspace, transitional is the ‘new normal’. Coping with this legal pluralism in the absence of appropriate cross-border frameworks is a challenge for developed and developing countries alike.” – Dr Subhajit Basu, FRSA

Bombay High Court invites applications to recruit technical staff on contract

Odisha: Job Opportunities in Kandhamal District Court; 10+2 Pass, Diploma Candidates Eligible

Over 3550 posts of Office Assistant, Sweeper and others available at Madras High Court; 8th pass can apply

India’s Cryptocurrency Saga – Hit or Miss? – By Rishika & Urfee Roomi

Sarfaesi Act, 2002, Insertion of Section 17 (4A) by way of Amendment Act of 2016 & its implication on Rights of Tenant under Tenancy Law – By Avijit Roy

The Arbitrability of Fraud – By Parthiv K. Goswami

Opinion on the interpretation and determination of procedural requirement provided under Section 25B (4) of the Delhi Rent Control Act 1958, if leave to defend is refused. – By Harshit Thareja

Supreme Court Recent Judgment

RAJNEESH KHAJURIA V. WOCKHARDT LTD.

HSBC BANK OMAS S.A.O.G. V. ROCKLINE CONSTRUCTION COMPANY AND ORS.

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