August 10, 2021
The Limited Liability Partnership (Amendment) Bill, 2021 was introduced in Rajya Sabha on July 30, 2021. The Bill seeks to amend the Limited Liability Partnership Act, 2008. The Act provides for regulation of limited liability partnerships (LLP). LLP is an alternative corporate body form to traditional partnership firms. Under LLP, a partner’s liabilities are limited to their investment in the business. The Bill converts certain offences into civil defaults and changes the nature of punishment for these offences. It also defines small LLP, provides for appointment of certain adjudicating officers, and establishment of special courts. Key features of the Bill include:
Certain offences decriminalised: The Act specifies the manner of operations of LLPs, and provides that violating these requirements will be punishable with a fine (ranging between two thousand rupees and five lakh rupees). These requirements include: (i) changes in partners of the LLP, (ii) change of registered office, (iii) filing of statement of account and solvency, and annual return, and (iv) arrangement between an LLP and its creditors or partners, and reconstruction or amalgamation of an LLP. The Bill decriminalises these provisions and imposes a monetary penalty.
Change of name of LLP: The Act states that the central government may direct an LLP to change its name on certain grounds (such as the name being undesirable or identical to a trademark pending registration). Failing to comply with such direction is punishable with a fine ranging from Rs 10,000 to five lakh rupees. The Bill removes some of these grounds, and empowers the central government to allot a new name to such an LLP instead of levying a fine.
Punishment for fraud: Under the Act, if an LLP or its partners carry out an activity to defraud their creditors, or for any other fraudulent purpose, every person party to it knowingly is punishable with imprisonment of up to two years and a fine between Rs 50,000 and five lakh rupees. The Bill increases the maximum term of imprisonment from two years to five years.
Non-compliance of orders of Tribunal: Under the Act, non-compliance with an order of the National Company Law Tribunal (NCLT) is punishable with imprisonment up to six months and fine up to Rs 50,000. The Bill removes this offence.
Compounding of offences: Under the Act, the central government may compound any offence under the Act which is punishable only with a fine. The amount imposed may be up to the maximum fine prescribed for the offence. The Bill amends this to provide that a regional director (or any officer above his rank), appointed by the central government, may compound such offences. The amount imposed must be within the minimum and maximum fine for the offence. If an offence by an LLP or its partners was compounded, then a similar offence cannot be compounded within a three-year period.
Adjudicating Officers: Under the Bill, the central government may appoint adjudicating officers for awarding penalties under the Act. These will be central government officers not below the rank of Registrar. Appeals against orders of the Adjudicating Officers will lie with the Regional Director.
Special courts: The Bill allows the central government to establish special courts for ensuring speedy trial of offences under the Act. The special court will consist of: (i) a Sessions Judge or an Additional Sessions Judge, for offences punishable with imprisonment of three years or more; and (ii) a Metropolitan Magistrate or a Judicial Magistrate, for other offences. They will be appointed with the concurrence of the Chief Justice of the High Court. Appeals against orders of these special courts will lie with High Courts.
Appeals to Appellate Tribunal: Under the Act, appeals against orders of the NCLT lie with the National Company Law Appellate Tribunal (NCLAT). The Bill adds that appeals cannot be made against an orders that have been passed with the consent of the parties. Appeals must be filed within 60 days (extendable by another 60 days) of the order.
Small LLP: The Bill provides for formation of a small LLP where: (i) the contribution from partners is up to Rs 25 lakh (may be increased up to five crore rupees), (ii) turnover for the preceding financial year is up to Rs 40 lakh (may be increased up to Rs 50 crore). The central government may also notify certain LLPs as start-up LLPs (as recognised through notifications). Standards of accounting: Under the Bill, the central government may prescribe the standards of accounting and auditing for classes of LLPs, in consultation with the National Financial Reporting Authority.
August 20, 2021: Proposing to abolish certain key Tribunals and Authorities and to provide for a mechanism to file Appeal directly to the Commercial Court or the High Court, the Tribunal Reforms Bill was introduced in the Lok Sabha by the Finance Minister, Nirmala Sitharaman, on August 2, 2021. It was passed by the Lok Sabha on August 3, 2021 and by the Rajya Sabha on August 9,2021.
This Bill replaces the Tribunals Reforms (Rationalisation and Conditions of Service) Ordinance, 2021.
The highlight of this Bill is to amend various Central Acts in order to abolish certain Tribunals, namely, Film Certification Appellate Tribunal, Airports Appellate Tribunal, Authority for Advance Rulings, Intellectual Property Appellate Board and the Plant Varieties Protection Appellate Tribunal.
The Appellate Tribunals, under the Cinematograph Act, 1952, Copyright Act, 1957, Customs Act, 1962, Patents Act, 1970, Airports Authority of India Act, 1994, Trade Marks Act, 1999, Geographical Indications of Goods (Registration and Protection) Act, 1999, and Control of National Highways (Land and Traffic) Act, 2002, have been replaced by the Commercial Court or the High Court.
In the Transitional provision, the Bill has clarified that any person appointed as the Chairperson or Chairman or President or Presiding Officer or Vice-Chairperson or Vice-Chairman or Vice-President or Member of the Tribunal, Appellate Tribunal, or, other Authorities specified in the Second Schedule and holding office as such immediately before the notified date, will cease to hold such office on and from the notified date.
Such office holders will be entitled to claim compensation not exceeding three months’ pay and allowances for the premature termination of term of his/her office or of any contract of service.
The Bill has also laid out uniform terms and conditions of service for Chairperson and Members of various tribunals, including the Search-cum-Selection Committee .This Committee, introduced by the Bill, will be giving recommendations to the Central Government regarding the appointment of the Chairperson and the Member of a Tribunal. For State administrative Tribunals, there will be separate Search-cum-Selection Committees.
The Central Government on the recommendation of the Committee, can also remove from office, any Chairperson or a Member. The Bill further adds that the Chairperson of a Tribunal shall hold office for a term of four years or till he attains the age of seventy years, whichever is earlier; and the Member of a Tribunal shall hold office for a term of four years or till he attains the age of sixty-seven years, whichever is earlier.
Provisions have also been made for re-appointment. As far as salary and allowances are concerned, the Central Government has been vested with the power to make rules to provide for the salary of the Chairperson and Member of a Tribunal.
The Central government has also been empowered to make rules to provide for the qualifications, appointment, resignation, removal and other conditions of service of tribunal members.
Regarding the issue of pending cases, the Bill postulates that any appeal, application or proceeding pending before the Tribunal, Appellate Tribunal or other Authorities, other than those pending before the Authority for Advance Rulings under the Income-Tax Act, 1961, before the notified date, will stand transferred to the Court before which it would have been filed had this Act been in force on the date of filing of such appeal or application or initiation of the proceeding, and the Court may proceed to deal with such cases from the stage at which it stood before such transfer, or from any earlier stage, or de novo, as the Court may deem fit.
This Bill comes at a time when the Apex Court had struck down certain provisions of the Tribunal Reforms (Rationalisation and Conditions of Service) Ordinance, 2021 regarding conditions of service and tenure of Tribunal Members and Chairperson, in the judgment of Madras Bar Association v. Union of India & Another.
Now, challenging the constitutional validity of the Tribunals Reforms Act 2021, proposed by the Bill, Member of Parliament, Jairam Ramesh, has moved the Supreme Court.
Recently, the Top Court has also granted 10 days time to the Centre for making appointments to various Tribunals. The Apex Court questioned the fact that even though recommendations were given by the Selection Committee still the appointments were not made, and also expressed its critical views on the passage of the Tribunals Reforms Bill, 2021.
August 10, 2021 : With a view to maintain the Federal structure of the country, the Constitution (One Hundred and Twenty-seventh Amendment) Bill, 2021, was introduced in the Lok Sabha by Social Justice and Empowerment Minister Virendra Kumar on August 9, 2021.
The Bill clarifies that the State Government and Union Territories are empowered to prepare and maintain their own State List/ Union territory List of socially and educationally backward classes (SEBCs). It proposes to amend Articles 342A, 366 (26c) and 338B (9) of the Constitution of India.
With reference to the Constitution (One Hundred and Second Amendment) Act, 2018, the Bill has clarified that the said amendments to the Constitution mandate for a single Central List of SEBCs specifying the SEBCs for each State, thereby taking away the powers of the State to prepare and maintain a separate State List of SEBCs.
Earlier, the Constitution (One Hundred and Second Amendment) Act, 2018 had inserted three new articles, that is, 342A, 366(26C) and 338B in the Constitution. Article 338B constituted the National Commission for Backward Classes, Article 342A dealt with the Central List of the socially and educationally backward classes (commonly known as the Other Backward Classes) and Article 366 (26C) defined the socially and educationally backward classes.
This Bill comes after a decision rendered recently by the Supreme Court with a 3:2 majority in Dr. Jaishri Laxmanrao Patil & Ors v. The Chief Minister & Ors, popularly known as the Maratha Reservation case. The Constitution Bench comprised of Justices Ashok Bhushan, L.Nageswara Rao, S. Abdul Nazeer, Hemant Gupta and S.Ravindra Bhat.
Justice S.Ravindra Bhat opined that by the introduction of Articles 366 (26C) and 342A through the 102nd Amendment, the President alone, to the exclusion of all other authorities, is empowered to identify SEBCs and include them in a list to be published under Article 342A (1), which shall be deemed to include SEBCs in relation to each State and Union Territory for the purposes of the Constitution.
It was also noted that the states can, through their existing mechanisms or even statutory commissions, only make suggestions to the President or the Commission under Article 338B, for inclusion, exclusion or modification of castes or communities, in the list to be published under Article 342A (1).
The Bill has indeed circumvented this May, 2021 Supreme Court Judgment as it seeks to reinstate the power of the State Government and Union Territories to prepare and maintain their own List of SEBCs.
New Delhi, August 7, 2021: In a path-breaking move, the Central government has proposed to dilute the impact of the 2012 retrospective tax amendments by introducing the Taxation Laws (Amendment) Bill, 2021 in the Lok Sabha on August 5.
Owing to the voluminous tax litigation and investment arbitration that had taken place due to the retrospective amendments of the Finance Act, 2012, the Government unexpectedly took a bold step in attempting to re-write India’s story as an investment destination.
The Bill seeks to prevent the taxation of indirect transfers of money/assets that took place before May 28, 2012, with a provision of refunding the tax but without interest.
The executive’s action is likely to help settle disputes with Cairn Energy Plc, Vodafone Group Plc and many other companies over retrospective tax demands by the government.
It proposes to eclipse Explanation 5 to Section 9(1)(i) of the Income Tax Act, 1961 and Section 119 of Finance Act, 2012 on fulfillment of certain peculiar conditions such as withdrawal or furnishing of undertaking for withdrawal of pending litigation and furnishing of an undertaking that no claim for cost, damages, interest, etc., shall be filed.
As far as delegated legislation is concerned, Section 9 of the Income Tax Act, 1961 relating to deemed accrual or arise of income in India, is amended empowering the Central Board of Direct Taxes (CBDT) to make rules to provide for the form and manner in which an undertaking shall be submitted.
Further, Section 119 of the Finance Act, 2012 relating to validation of demands under Income Tax Act has also been amended empowering the CBDT to make rules to provide for the form and manner in which an undertaking shall be submitted.
The Bill also clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India.
However, the Bill provided relaxation on deemed accrual of income comprising of an asset or capital asset, which is held by a non-resident by way of investment, directly or indirectly, in a Foreign Institutional Investor (FII) for an assessment year commencing on or after April 01, 2012 but before April 01, 2015.
The Bill also exempts capital assets held by a non-resident by way of investment, directly or indirectly, in Category-I or Category-II foreign portfolio investor under the SEBI Regulations, 2014 from the embargo of Section 9(1) of Income tax Act.
The Finance Act, 2012, amended various provisions of the Income Tax Act, 1961 with retrospective effect. The amendments were introduced by then Finance Minister Pranab Mukherjee.
July 29, 2021
The Union Cabinet on July 28 cleared amendments to the Deposit Insurance Credit Guarantee Corporation or DICGC Act.
As per the fresh amendments to the act, depositors in stressed banks that have faced regulatory action must receive insurance on their bank deposits — to the tune of Rs 5 lakh — within 90 days. The new rule will be applicable to all commercial banks and branches of foreign banks operating in India.
The 90-day period will be divided into two periods of 45 days. “The stressed bank is expected to collate all information regarding the number of claimants and claim amount and inform DICGC about it within the first 45 days. Within the next 45 days, DICGC is mandated to process the claim and make payment to each eligible depositor,” Finance Minister Nirmala Sitharaman said during a cabinet briefing on July 28.
This rule will be applicable to stressed banks that have been placed under a moratorium by the Reserve Bank of India, Sitharaman said.
“Under DICGC Bill 2021, 98.3 per cent of all deposits will get covered and in terms of deposit value, 50.9 per cent deposit value will be covered. Global deposit value is only 80 per cent of all deposit accounts. It only covers 20-30 per cent of the deposit value,” she said.
The finance minister also stressed on the fact that the deposit insurance coverage apply to banks that will be put under moratorium in future as well as those that are already under moratorium.
“We are not going retrospective. But banks that are presently under moratorium will come under this. And this will be the future process,” she said.
The DICGC is a subsidiary of the Reserve Bank of India (RBI) and provides insurance cover on bank deposits. The act covers all public, private, cooperative and foreign banks in India, barring some specific deposits.
July 23, 2021
The Central government on July 22, 2021 introduced the Inland Vessels Bill, 2021, in the Lok Sabha during the Monsoon Session of Parliament.
According to the government, the Bill aims to promote economical and safe transportation and trade through inland waters, and bring uniformity in the application of the law relating to inland waterways and navigation within the country.
Introducing the Inland Vessels Bill, 2021, newly appointed Ports, Shipping and Waterways Minister Sarbananda Sonowal said the bill seeks to provide safety of navigation, protection of life and cargo and prevention of pollution that may be caused.
The Bill provides for a central database for recording the details of the vessels and their crew on an electronic portal.
One of the key features of the Bill is unified law for the country, instead of separate rules framed by the States. The certificate of registration granted under the proposed law will be deemed to be valid in all States and Union territories, and there will be no need to seek separate permissions from States.
Currently, 4,000 kms of inland waterways are operational in the country, according to government data.
July 16, 2021
The Ministry of Civil Aviation (MoCA) on July 15 released the updated draft Drone Rules, 2021 for public consultation.
The new Rules will soon replace the Unmanned Aircraft System (UAS) Rules, 2021 that were released on March 12, 2021.
The last date for receipt of public comment is August 5, the MoCA said in a statement.
The Ministry, in the statement, said the new simplified drone rules will abolish the need for a large number of approvals. The number of forms to be filled to seek authorisation before operating a drone has been reduced from 25 to six, it said.
According to the draft Drone Rules 2021, operating drones without a unique identification number will not be allowed, unless exempted. Drone operators will have to generate a unique identification number of a drone by providing requisite details on the Digital Sky Platform.
The Digital Sky Platform is an initiative by MoCA to provide a secure and scalable platform that supports drone technology frameworks, such as NPNT (no permission, no take-off), designed to enable flight permission digitally and managing unmanned aircraft operations and traffic efficiently.
The Digital Sky Platform will also be developed as a business-friendly single-window online system with minimal human interference and most permissions will be self-generated.
The draft Drone Rules, 2021 also have safety features such real-time tracking beacon, and geo-fencing, which are expected to be notified in future and a six-month lead time will be provided for compliance.
The draft Drone Rules, 2021 also state that an interactive airspace map with green, yellow, and red zones will be displayed on the digital sky platform. While yellow zone has been reduced from 45 km to 12 km from nearby airport perimeter, no flight permission is required up to 400 feet in green zones and up to 200 feet in the area between 8 and 12 km from the airport perimeter.
No pilot licence will be required for micro drones used for non-commercial use, nano drones and for research and development (R&D) organizations operating such drones.
Unlike the previous rules, which required drone operators to have a principal place of business within India, and the chairman and at least two-thirds of its directors were required to be citizens of India, in the new proposed rules there are no such restrictions for foreign-owned companies registered in India.
However, import of drones and drone components will be regulated by the Directorate General of Foreign Trade.
Drones will also not need security clearance before registration or licence issuance.
“There will be no restriction on drone operations by foreign-owned companies registered in India; import of drones and drone components will be regulated by DGFT; security clearance will not be required before any registration or licence issuance; and that there will be no requirement of certificate of airworthiness, unique identification number, prior permission and remote pilot licence for R&D entities,” the new Rules further state.
The MoCA will also facilitate development of drone corridors for cargo deliveries and a drone promotion council will be set up to facilitate a business-friendly regulatory regime, the ministry said in the statement.
July 1, 2021
The Law Ministry has notified an Ordinance that prohibits employees engaged in essential defence services from taking part in any agitation or strike.
The Essential Defence Services Ordinance 2021 comes in the backdrop of major federations affiliated with the 76,000 employees of the Ordnance Factory Board (OFB) making an announcement that they would go on indefinite strike from July 26 in protest against the government’s decision to corporatise the OFB.
The notification stated that President Ram Nath Kovind “is satisfied that circumstance exists for the Ordinance as Parliament is not in session”.
“Any person, who commences a strike which is illegal under this Ordinance or goes or remains on, or otherwise takes part in, any such strike, shall be punishable with imprisonment for a term which may extend to one year or with fine which may extend to ₹10,000 or both,” the Law Ministry notification said.
The notification added that anyone instigating or inciting others to take part in a strike declared illegal under the Ordinance shall also be punishable with imprisonment for a term that may extend up to two years, apart from having to pay fines.
The gazette notification said employees involved in the production of defence equipment, services and operation, or maintenance of any industrial establishment connected with the military, as well as those employed in repair and maintenance of defence products, will come under the purview of the Ordinance.
Following the Cabinet decision, Defence Minister Rajnath Singh said there would be no change in the service conditions of employees of the OFB, and the decision was aimed at boosting India’s defence manufacturing sector.
On June 16, the Union Cabinet approved a long-pending proposal to restructure the nearly 200-year-old Ordnance Factory Board — operating 41 ammunition and military equipment production facilities — into seven state-owned corporations to improve its accountability, efficiency and competitiveness.
June 3, 2021
The Central government on June 2, 2021 gave acceptance to the Model Tenancy Act, a move that is likely to overhaul the legal framework concerning rental housing across the country.
Hardeep Singh Puri, the Minister of Housing and Urban Affairs, said the Act will promote rental housing in the country, adding that “1.1 crore vacant houses available on rent will compliment PM’s vision of ‘Housing for All’ by 2022”.
The government had first released the draft of the MTA in 2019. The Act aims to bridge the trust deficit between tenants and landlords by clearly delineating their obligations.
Besides, The Act is expected to give a fillip to private participation in rental housing as a business model for addressing the huge housing shortage, the Ministry of Housing said.
Here are the key features of the Model Tenancy Act:
May 27, 2021
The Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 were notified on February 25, 2021. The Rules have been notified under the Information Technology Act, 2000. The Act provides for the regulation of electronic transactions and cybercrime. The 2021 Rules replace the Information Technology (Intermediaries Guidelines) Rules, 2011.
The Rules came into effect on May 26.
The rules apply to various categories of online content providers such as social media platforms, OTT streaming services and online news providers.
Some of the key points relate to the setting up of grievance redressal systems and having local personnel to ensure compliance with rules. One requirement for large social media providers is that under certain conditions, they will have to trace the originator of a message.
The Rules require due diligence by intermediaries, who are “entities that store or transmit data on behalf of other persons”. According to the Rules, intermediaries include internet or telecom service providers, online marketplaces, and social media platforms.
There is also Code of Ethics for digital media publishers.
The Rules require the intermediaries and digital media publishers to provide for a grievance redressal mechanism. The intermediaries are required to designate a grievance officer to address complaints against violation of the Rules. Complaints must be acknowledged within 24 hours and disposed of within 15 days.
The Rules also say that in case of emergencies, the authorised officers may examine digital media content and the Secretary, MIB may pass an interim direction for blocking of such content.
March 25, 2021
The Lok Sabha on March 24, 2021 passed the Juvenile Justice (Care and Protection of Children) Amendment Bill, 2021 that has widened the ambit of ‘serious offences’ that a juvenile can be charged with.
According to the Juvenile Justice (Care and Protection of Children) Act, 2015, which this new bill amends, juvenile offences can be categorised as petty, serious and heinous.
With this bill, the government has brought offences that can garner a maximum punishment of more than seven years and a minimum punishment that is not prescribed or is of less than seven years under the ambit of ‘serious offences’.
It also makes offences with punishments ranging from three to seven years as cognisable from non-cognisable. This means that a juvenile accused of such offences can be arrested without a warrant.
The new bill also empowers district magistrates (DMs) and additional DMs to issue adoption orders, in a bid to strengthen the child care system and adoption processes.
It also changes the criteria for appointments to child welfare committees (CWC) and makes it mandatory for the personnel to either have a background in or be a practicing professional in health, education or children’s welfare.
The bill was passed unanimously in the Lok Sabha.
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.
‘A major issue for startups, especially during fund raising, is their compliance with extant RBI foreign exchange regulations, pricing guidelines, and the Companies Act 2013.’- Aakash Parihar
Aakash Parihar is Partner at Triumvir Law, a firm specializing in M&A, PE/VC, startup advisory, international commercial arbitration, and corporate disputes. He is an alumnus of the National Law School of India University, Bangalore.
How did you come across law as a career? Tell us about what made you decide law as an option.
Growing up in a small town in Madhya Pradesh, wedid not have many options.There you either study to become a doctor or an engineer. As the sheep follows the herd, I too jumped into 11th grade with PCM (Physics, Chemistry and Mathematics).However, shortly after, I came across the Common Law Admission Test (CLAT) and the prospect of law as a career. Being a law aspirant without any background of legal field, I hardly knew anything about the legal profession leave alone the niche areas of corporate lawor dispute resolution. Thereafter, I interacted with students from various law schools in India to understand law as a career and I opted to sit for CLAT. Fortunately, my hard work paid off and I made it to the hallowed National Law School of India University, Bangalore (NSLIU). Joining NLSIU and moving to Bangalorewas an overwhelming experience. However, after a few months, I settled in and became accustomed to the rigorous academic curriculum. Needless to mention that it was an absolute pleasure to study with and from someof the brightest minds in legal academia. NLSIU, Bangalore broadened my perspective about law and provided me with a new set of lenses to comprehend the world around me. Through this newly acquired perspective and a great amount of hard work (which is of course irreplaceable), I was able to procure a job in my fourth year at law school and thus began my journey.
As a lawyer carving a niche for himself, tell us about your professional journey so far. What are the challenges that new lawyers face while starting out in the legal field?
I started my professional journey as an Associate at Samvad Partners, Bangalore, where I primarily worked in the corporate team. Prior to Samvad Partners, through my internship, I had developed an interest towards corporate law,especially the PE/VC and M&A practice area. In the initial years as an associate at Samvad Partners and later at AZB & Partners, Mumbai, I had the opportunity to work on various aspects of corporate law, i.e., from PE/VC and M&A with respect to listed as well as unlisted companies. My work experience at these firms equipped and provided me the know-how to deal with cutting edge transactional lawyering. At this point, it is important to mention that I always had aspirations to join and develop a boutique firm. While I was working at AZB, sometime around March 2019, I got a call from Anubhab, Founder of Triumvir Law, who told me about the great work Triumvir Law was doing in the start-up and emerging companies’ ecosystem in Bangalore. The ambition of the firm aligned with mine,so I took a leap of faith to move to Bangalore to join Triumvir Law.
Anyone who is a first-generation lawyer in the legal industry will agree with my statement that it is never easy to build a firm, that too so early in your career. However, that is precisely the notion that Triumvir Law wanted to disrupt. To provide quality corporate and dispute resolution advisory to clients across India and abroad at an affordable price point.
Once you start your professional journey, you need to apply everything that you learnt in law schoolwith a practical perspective. Therefore, in my opinion, in addition to learning the practical aspects of law, a young lawyer needs to be accustomed with various practices of law before choosing one specific field to practice.
India has been doing reallywell in the field of M&A and PE/VC. Since you specialize in M&A and PE/VC dealmaking, what according to you has been working well for the country in this sphere? What does the future look like?
India is a developing economy, andM&A and PE/VC transactions form the backbone of the same. Since liberalization, there has been an influx of foreign investment in India, and we have seen an exponential rise in PC/VA and M&A deals. Indian investment market growth especially M&A and PE/VC aspects can be attributed to the advent of startup culture in India. The increase in M&A and PE/VC deals require corporate lawyersto handle the legal aspects of these deals.
As a corporate lawyer working in M&A and PE/VC space, my work ranges from drafting term-sheets to the transaction documents (SPA, SSA, SHA, BTA, etc.). TheM&A and PE/VC deal space experienced a slump during the first few months of the pandemic, but since June 2021, there has been a significant growth in M&A and PE/VC deal space in India. The growth and consistence of the M&A and PE/VC deal space in India can be attributed to several factors such as foreign investment, uncapped demands in the Indian market and exceptional performance of Indian startups.
During the pandemic many businesses were shut down but surprisingly many new businesses started, which adapted to the challenges imposed by the pandemic. Since we are in the recovery mode, I think the M&A and PE/VC deal space will reach bigger heights in the comingyears. We as a firm look forward to being part of this recovery mode by being part of the more M&A and PE/VC deals in future.
You also advice start-ups. What are the legal issues or challenges that the start-ups usually face specifically in India? Do these issues/challenges have long-term consequences?
We do a considerable amount of work with startupswhich range from day-to-day legal advisory to transaction documentation during a funding round. In India, we have noticed that a sizeable amount of clientele approach counsels only when there is a default or breach, more often than not in a state of panic. The same principle applies to startups in India, they normally approach us at a stage when they are about to receive investment or are undergoing due diligence. At that point of time, we need to understand their legal issues as well as manage the demands of the investor’s legal team. The majornon-compliances by startups usually involve not maintaining proper agreements, delaying regulatory filings and secretarial compliances, and not focusing on proper corporate governance.
Another major issue for startups, especially during fund raising, is their compliance with extant RBI foreign exchange regulations, pricing guidelines, and the Companies Act 2013. Keeping up with these requirements can be time-consuming for even seasoned lawyers, and we can only imagine how difficult it would be for startups. Startups spend their initial years focusing on fund-raising, marketing, minimum viable products, and scaling their businesses. Legal advice does not usually factor in as a necessity. Our firm aims to help startups even before they get off the ground, and through their initial years of growth. We wanted to be the ones bringing in that change in the legal sector, and we hope to help many more such startups in the future.
In your opinion, are there any specific India-related problems that corporate/ commercial firms face as far as the company laws are concerned? Is there scope for improvement on this front?
The Indian legal system which corporate/commercial firms deal with is a living breathing organism, evolving each year. Due to this evolving nature, we lawyers are always on our toes.From a minor amendment to the Companies Act to the overhaul of the foreign exchange regime by the Reserve Bank of India, each of these changes affect the compliance and regulatory regime of corporates. For instance, when India changed the investment route for countries sharing land border with India,whereby any country sharing land border with India including Hong Kong cannot invest in India without approval of the RBI in consultation with the central government,it impacted a lot of ongoing transactions and we as lawyers had to be the first ones to inform our clients about such a change in the country’s foreign investment policy. In my opinion, there is huge scope of improvement in legal regime in India, I think a stable regulatory and tax regime is the need for the hour so far as the Indian system is concerned. The biggest example of such a market with stable regulatory and tax regime is Singapore, and we must work towards emulating the same.
Your boutique law firm has offices in three different cities — Delhi NCR, Mumbai and Bangalore. Have the Covid-induced restrictions such as WFH affected your firm’s operations? How has your firm adapted to the professional challenges imposed by the pandemic-related lifestyle changes?
We have offices in New Delhi NCR and Mumbai, and our main office is in Bangalore. Before the pandemic, our work schedule involved a fair bit of travelling across these cities. But post the lockdowns we shifted to a hybrid model, and unless absolutely necessary, we usually work from home.
In relation to the professional challenges during the pandemic, I think it was a difficult time for most young professionals. We do acknowledge the fact that our firm survived the pandemic. Our work as lawyers/ law firms also involves client outreach and getting new clients, which was difficult during the lockdowns. We expanded our client outreach through digital means and by conducting webinars, including one with King’s College London on International Treaty Arbitration. Further, we also focused on client outreach and knowledge management during the pandemic to educate and create legal awareness among our clients.
‘It’s a myth that good legal advice comes at prohibitive costs. A lot of heartburn can be avoided if documents are entered into with proper legal advice and with due negotiations.’ – Archana Balasubramanian
Archana Balasubramanian is the founding partner of Agama Law Associates, a Mumbai-based corporate law firm which she started in 2014. She specialises in general corporate commercial transaction and advisory as well as deep sectoral expertise across manufacturing, logistics, media, pharmaceuticals, financial services, shipping, real estate, technology, engineering, infrastructure and health.
August 13, 2021:
Lawyers see companies ill-prepared for conflict, often, in India. When large corporates take a remedial instead of mitigative approach to legal issues – an approach utterly incoherent to both their size and the compliance ecosystem in their sector – it is there where the concept of costs on legal becomes problematic. Pre-dispute management strategy is much more rationalized on the business’ pocket than the costs of going in the red on conflict and compliances.
Corporates often focus on business and let go of backend maintenance of paperwork, raising issues as and when they arise and resolving conflicts / client queries in a manner that will promote dispute avoidance.
Corporate risk and compliance management is yet another elephant in India, which in addition to commercial disputes can be a drain on a company’s resources. It can be clubbed under four major heads – labour, industrial, financial and corporate laws. There are around 20 Central Acts and then specific state-laws by which corporates are governed under these four categories.
Risk and compliance management is also significantly dependent on the sector, size, scale and nature of the business and the activities being carried out.
The woes of a large number of promoters from the ecommerce ecosystem are to do with streamlining systems to navigate legal. India has certain heavily regulated sectors and, like I mentioned earlier, an intricate web of corporate risk and compliance legislation that can result in prohibitive costs in the remedial phase. To tackle the web in the preventive or mitigative phase, start-ups end up lacking the arsenal due to sheer intimidation from legal. Promoters face sectoral risks in sectors which are heavily regulated, risks of heavy penalties and fines under company law or foreign exchange laws, if fund raise is not done in a compliant manner.
It is a myth that good legal advice comes at prohibitive costs. Promoters are quick to sign on the dotted line and approach lawyers with a tick the box approach. A lot of heartburn can be avoided if documents are entered into with proper legal advice and with due negotiations.
Investment contracts, large celebrity endorsement contracts and CXO contracts are some key areas where legal advice should be obtained. Online contracts is also emerging as an important area of concern.
When we talk of scope, arbitration is pretty much a default mechanism at this stage for adjudicating commercial disputes in India, especially given the fixation of timelines for closure of arbitration proceedings in India. The autonomy it allows the parties in dispute to pick a neutral and flexible forum for resolution is substantial. Lower courts being what they are in India, arbitration emerges as the only viable mode of dispute resolution in the Indian commercial context.
The arbitrability of disputes has evolved significantly in the last 10 years. The courts are essentially pro-arbitration when it comes to judging the arbitrability of subject matter and sending matters to arbitration quickly.
The Supreme Court’s ruling in the Vidya Drolia case has significantly clarified the position in respect of tenancy disputes, frauds and consumer disputes. It reflects upon the progressive approach of the court and aims to enable an efficient, autonomous and effective arbitration environment in India.
Law firms stand for ensuring that the law works for business and not against it. Whatever the scope of our mandate, the bottom line is to ensure a risk-free, conflict-free, compliant and prepared enterprise for our client, in a manner that does not intimidate the client or bog them down, regardless of the intricacy of the legal and regulatory web it takes to navigate to get to that end result. Lawyers need to dissect the business of law from the work.
This really involves meticulous, detail-oriented, sheer hard work on the facts, figures, dates and all other countless coordinates of each mandate, repetitively and even to a, so-called, “dull” routine rhythm – with consistent single-mindedness and unflinching resolve.
As a firm, multiply that effort into volumes, most of it against-the-clock given the compliance heavy ecosystem often riddled with uncertainties in a number of jurisdictions. So the same meticulous streamlining of mandate deliverables has to be extrapolated by the management of the firm to the junior most staff.
Further, the process of streamlining itself has to be more dynamic than ever now given the pace at which the new economy, tech-ecosystem, business climate as well as business development processes turn a new leaf.
Finally, but above all, we need to find a way to feel happy, positive and energized together as a team while chasing all of the aforesaid dreams. The competitive timelines and volumes at which a law firm works, this too is a real challenge. But we are happy to face it and evolve as we grow.
We always as a firm operated on the work from anywhere principle. We believed in it and inculcated this through document management processes to the last trainee. This helped us shut shop one day and continue from wherever we are operating.
The team has been regularly meeting online (at least once a day). We have been able to channel the time spent in travelling to and attending meetings in developing our internal knowledge banks further, streamline our processes, and work on integrating various tech to make the practice more cost-effective for our clients.
By Payal Chawla
December 9, 2022
There have been some significant judgements on the arbitrability of fraud recently i.e. - Rashid Raza v Sadaf Akhtar, Avitel Post Studioz Limited v. HSBC Pi Holdings (Mauritius) Limited and Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties (“Triad Judgements”). While these stopped short of explicitly overruling A. Ayyasamy v A. Paramasivam, I argue that in fact Ayyasamy is implicitly overruled, and is no longer good law, in the wake of the observations in the Triad Judgments.
In my view, fraud ought to have been arbitrable, and the controversy around it has been wholly unnecessary. But, in order to understand how we got here, it is imperative to traverse the confounding history of arbitrability of fraud in England and in India.
A brief history of arbitrability of fraud in England
The journey begins with Russel v Russel, an English judgment delivered as early as 1880, and widely regarded as the authoritative word on arbitrability of fraud, in both India and England. The Chancery Division in Russel held that courts could decline reference to arbitration where there were serious allegations of fraud, and where the party against whom fraud was alleged, desired a public inquiry in order to clear allegations against their character. Interestingly, Russel was largely perceived as a pro-arbitration decision. Despite the fact that s. 14 of the (UK) Arbitration Act of 1934, which followed Russel, specifically empowered courts to refer disputes involving questions of fraud to courts for determination, judicial precedent initially remained pro-arbitration. This tussle between the statutory provisions and judicial pronouncements continued until 1979.
It was the decisive ruling in Paczy v Haendler & Natermann GmbH (No.1) that settled the debate and held that, even in cases of international commercial arbitrations involving allegations of fraud, the court had no discretion to set aside an arbitration agreement. This principle was later given statutory recognition in the (UK) Arbitration Act of 1996 in England. However, the statutory recognition remained limited to international commercial arbitration. As regards domestic arbitrations, the courts in the UK had more discretion. While s.86(2)(b) of the (UK) Arbitration Act, 1996 continued on the statute book, due to European Community law considerations which required equitable treatment of all nationalities, the statutory disparity in relation to the arbitrability of fraud in domestic and international commercial arbitrations were not enforced. In effect, it was mandatory for the courts in England to refer parties alleging fraud to arbitration, thereby bringing parity between international commercial arbitrations and domestic arbitration.
Position in India & early rulings
There is and has never been any statutory bar on the arbitrability of fraud in India. The entire doctrine of non-arbitrability of fraud has been built through case law. One of the first cases that dealt with the arbitrability of fraud was Abdul Kadir Shamsuddin Bubere v Madhav Prabhakar Oak. In 1962, a three-judge bench of the Supreme Court in Abdul Kadir, relying on Russel, held that when serious allegations of fraud were made against a party, and such party was desirous of his name being tried in open court, the court would have sufficient cause not to make a reference to arbitration.
Although this decision was “only an authority for the proposition that a party against whom an allegation of fraud is made in a public forum, (he) has a right to defend himself in that public forum”, it unfortunately became the authoritative precedent on arbitrability of fraud and the basis to deny reference to arbitration. Interestingly, in Abdul Kadir, the court referred the parties to arbitration,holding “that there are no such serious allegations of fraud in this case” and therefore the court’s observations were in obiter.
Paradoxically, while England treated Russel as a pro-arbitration judgement, in India it was largely seen as an authority against the arbitrability of fraud. It is also important to note that the decision in Abdul Kadir was in the context of s.34 of the (Indian) Arbitration Act, 1940(1940 Act), where the scope of judicial intervention was significantly more than the limited interference permissible under s.8 of the 1996 Act, as it originally stood and after it was amended.
In September, 2001, the 176th Law Commission Reportrecommended that, in cases of domestic arbitrations, courts should alone deal with cases where questions of “fraud arise or if serious issues of fact or law arise”. The Justice Saraf Committee, however, had taken a different view. On 22.08.1996, the Arbitration and Conciliation Act, 1996 come into force replacing The Arbitration Act, 1940. Section 8 of the 1996 Act replaced section 34 of the 1940 Act, taking away discretion from the courts, and making reference to arbitration mandatory.
Section 8 is Peremptory
While interpreting s.8 of the 1996 Act, the Supreme Court, held that s.8 (of the 1996 Act) was “peremptory” and it was “obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement”. With the inclusion of s.8 and the decisive ruling of Anand Gajapathi Raju the controversy regarding arbitrability of fraud ought to have been laid to rest and fraud made expressly arbitrable.
Curiously, however, the reverse happened. A year later, the Madras High Court, in H.G. Oomor Sait v O. Aslam Sait, held that a civil court could refuse to stay a suit, even in regard to an arbitration agreement, on the basis of certain grounds available under the 1940 Act, as if the same continued to be available under the 1996 Act. This decision was incorrect because the discretion power of the courts under s.34 of the 1940 Act, had been curtailed by s.8 of 1996 Act. Further, the decision in Oomor Sait was clearly per incuriam as it failed to follow Anand Gajapathi Raju, despite referring to it.
In 2003, the Supreme Court fortified the view of Anand Gajapati Raju. The court held - “If in an agreement [.] there is a clause for arbitration, it is mandatory for the civil court to refer the dispute to an arbitrator”.
The setback - N. Radhakrishnan
This view suffered a serious setback in 2007, with the decision of the Supreme Court in N. Radhakrishnan v Maestro Engineers, which held that fraud was non-arbitrable. The court curiously relied on Oomor Sait, and held that issues involving “detailed evidence” could only be looked into by a civil court. The Supreme Court, agreeing with the Madras High Court, took the view that “allegations of fraud and serious malpractices” could only be enquired into by the court and not an arbitrator.
The decision of N. Radhakrishnan was incorrect for several reasons. First, the ratio decidendi of N. Radhakrishnan was based on the aspect of “allegations of fraud and serious malpractices”, which according to the Supreme Court, was the basis of the underlying High Court’s decision in N. Radhakrishan. A perusal of the Madras High Court’s judgment in N. Radhakrishnan v Maestro Engineers will, however, reveal that the said decision did not deal with the question whether fraud was beyond the scope of arbitration. The High Court had merely dealt with the question of whether an application under s.8 of the Arbitration Act could be rejected when the evidence required to be examined was “detailed”. When the question as to whether issues of fraud could be referred to arbitration or not, had not arisen before the High Court, the Supreme Court ought not to have gone into that aspect at all. Therefore, the discourse and ruling on fraud in N. Radhakrishnan was without any basis and was unnecessary. Secondly, the court relied on a judgment of the High Court in Oomor Sait which had observed that the civil court could refuse reference to arbitration, if disputes involved “substantial questions of law” or “complicated question of fact” or “serious allegation of fraud” or “minute details of evidence” , the court could reject arbitration and such cases are “best left to the civil court” and that “the Arbitrator will not be competent to go into the said issues”, because” the nature of the enquiry before an arbitrator is summary and Rules of procedure and evidence are not binding”. Such a proposition, even at the time when the decision of Oomar Sait was delivered was wholly incorrect. Thirdly, by 2006, the Supreme Court had the benefit of the 176th Law Commission Report, as well as the Justice Saraf Committee Report. Fourthly, the decision of N. Radhakrishnan on the scope of s.8 was per incuriam. The court in N. Radhakrishnan, referred to Hindustan Petroleum, but failed to distinguish it. Further, the court did not even mention Anand Gajapathi Raju. There is no doubt that N. Radhakrishnan was a serious setback to Indian arbitration. Sadly, the Supreme Court did not even notice the controversy before the High Court.
The 246th Law Commission Report
The 246th Law Commission in its report recognised that the issue of arbitrability of fraud was a vexed issue and had in the past been dealt with by various courts, with “conflicting decisions of the Apex Court”. The Law Commission doubted the correctness of N. Radhakrishnan. At paras 50 and 51 the Law Commission discussed the non-arbitrability of fraud and the distinction drawn by various courts between mere allegation of fraud and serious issue of fraud. At para 52, the Law Commission decisively stated that it “was important to set this entire controversy to rest and make issues of fraud expressly arbitrable and to this end” proposed amendments to s.16. The Law Commission recommended the inclusion of a specific section i.e. s.16(7) to make fraud, including “serious question of law, complicated questions of fact or allegations of fraud, corruption etc.” arbitrable. The Law Commission also stated that this amendment was proposed in view of the N. Radhakrishnan judgment.
The 2015 Amendments
The 1996 Act stood amended with effect from 23.10.2015. Regrettably, despite the Law Commission’s recommendation, s.16(7) did not form part of the 2015 amendments.
The court in Avitel surmised : “Parliament may have felt, as was mentioned by Lord Reid in British Railways Board and Herrington, 1972 A.C. 877 [House of Lords], that it was unable to make up its mind and instead, leave it to the courts to continue, case by case, deciding upon what should constitute the fraud exception. Parliament may also have thought that section 16(7), proposed by the Law Commission, is clumsily worded as it speaks of “a serious question of law, complicated questions of fact, or allegations of fraud, corruption, etc.””
Why s.16(7) did not form part of the 2015 amendments, remains an enduring mystery, but s.8 was amended and made more restrictive; the scope of judicial intervention was limited to a finding that “prima facie no valid arbitration agreement exists”. Therefore, even though s.16(7) was not specifically included in the amendment, this did not in any way signal that fraud was not arbitrable, or that serious issues of fraud were not arbitrable, because in fact the language of s.8 became stricter.
Swiss Timing and its importance
Before proceeding further, it is important to discuss in detail the judgement of Swiss Timing v. Organising Committee. This judgement, to my mind, is the single most important judgment on arbitrability of fraud. To our misfortune, the judgment was delivered in the context of s.11 of ACA and in State of West Bengal v. Associated Contractors, the judgment was deemed not to have precedential value. While, Swiss Timing was subsequently referred to, including in Ayyasamy, its principles were largely ignored on account of it not having precedential value. It would take Justice Nariman to resurrect the principles enunciated in this decision - but more about that later.
Swiss Timing is perhaps the lone judgement that deals with the distinction of void and voidable agreements, and in this context, applies the law, quite correctly, with regard to arbitrability of fraud.
“Often, the terms “void” and “voidable” are confused and used loosely and interchangeably with each other.”. In reality, however, the Contract Act, 1872 (“Contract Act”), makes a clear distinction between agreements that are void ab initio and contracts that are voidable at the instance of a party.
An agreement that is void never translates into a contract. Examples of void agreements would be agreements entered into with minors, or where both the parties are under a mistake as to a matter of fact essential to the agreement, or “where the consideration or object of the contract is forbidden by law or is of such a nature that, if permitted, it would defeat the provisions of any law or where the object of the contract (sic) is to indulge in any immoral activity or would be opposed to public policy. Glaring examples of this would be where a contract is entered into between the parties for running a prostitution racket, smuggling drugs, human trafficking and any other activities falling in that category” or wagering contracts.
On the other hand, a contract is voidable in certain instances under the Contract Act. In terms of ss.19 and 19A thereof, when consent to an agreement is caused by “coercion”, “fraud”, “misrepresentation” or “undue influence”, the contract is voidable at the option of the party whose consent was so caused. “Fraud” is defined in s. 17 of the Contract Act. While fraud vitiates free consent and makes a contract voidable, such a contract is not ab initio void. A party, whose consent was obtained via fraud, can choose to pursue with the contract.
The Contract Act clears the distinction between the two expressions. While S. 2(g) states “An agreement not enforceable by law is said to be void”, S.2(i) states -“An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract”. A voidable contract may become void, at the option of one party, but is not in the first instance void. Section 2(j) states, “A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable”.
The proposition laid down by Swiss Timing was that a court must “refer the parties to arbitration, if the action brought in the subject of an arbitration agreement, unless it finds that prima facie no valid arbitration agreement exits”. In other words, a court can only decline a reference to arbitration, if the underlying arbitration agreement is ab initio void.
When a court is presented with a case involving a void agreement “it would be justified in declining reference to arbitration.”. “However, it would not be possible to shut out arbitration even in cases where defence taken is that the contract is voidable” (emphasis supplied)
The Ayyasamy decision
In October 2016, the Supreme Court delivered an important judgment in A. Ayyasamy v A. Paramasivam(“Ayyasamy”). Unfortunately, while the court referred to Swiss Timing, it failed to rely on the principles enunciated by it, particularly with regard to the distinction between void and voidable agreements. This would also have been in line with the recommendations of the 246th Law Commission Report. The Supreme Court in Ayyasami dealt with fraud in extenso, it touched upon the definition of fraud fleetingly, mentioning only some ingredients of fraud in the context of the Contract Act. While defining fraud, the court relied on the Black’s Law Dictionary and omitted to consider the comprehensive definition of fraud in s.17 of the Contract Act. Consequently, the entire aspect of void and voidable contracts was side-stepped, except for a passing observation by the court stating that where the arbitration clause is null and void, it “would include voidability on the ground of fraud.” Such a proposition, with respect, is incorrect as it conflates the issue of void and voidable contracts.
Further, Ayyasamy stated that the same “cannot be deemed to have overruled the proposition of law laid down in N. Radhakrishnan”. In fact, Swiss Timing never professed to overrule N. Radhakrishnan, and merely stated that N. Radhakrishnan was per incuriam (which it was) and in this regard observed - “The judgment in Hindustan Petroleum Corpn. Ltd., though referred to, has not been distinguished but at the same time is not followed also (sic). The judgment in P. Anand GajapathiRaju was not even brought to the notice of this Court. Therefore, the same has neither been followed nor considered. Secondly, the provisions contained in Section 16 of the Arbitration Act, 1996 were also not brought to the notice by this Court”. Interestingly, the court in Ayyasamy itself relies on Hindustan Petroleum Corpn. Ltd. and P. Anand Gajapathi Raju which make Section 8 peremptory. In fact, the court in Ayyasamy recognised that the Supreme Court in Sundaram Finance Ltd. v. T. Thankam, had reiterated “the same position in regard to the mandate of Section 8”.
The Supreme Court then held that in cases of “very serious allegations of fraud which make a virtual case of criminal offence or where allegations of fraud are so complicated”, reference to arbitration, by a court, may be denied. The court also observed that “where there are serious allegations of forgery/fabrication of documents in support of the plea of fraud or where the fraud is alleged against the arbitration provision itself or is of such nature that permeates the entire contract, including the agreement to arbitrate, meaning thereby in those cases where the fraud goes to the validity of the contract itself the entire contract which contains the arbitration clause or the validity of the arbitration clause itself.”.
While Ayyasamy made a departure from N. Radhakrishnan and diluted its deleterious effects, the court held disputes where fraud is merely alleged, or it involves fraud simpliciter, would be arbitrable. Unfortunately, however, the court also held that issues relating to serious or complicated fraud were not arbitrable. Making a distinction between fraud simpliciter and complicated fraud, the court observed - “It is only where there is a serious issue of fraud involving criminal wrongdoing that the exception to arbitrability carved out in N. Radhakrishnan may come into existence.”.
Though N. Radhakrishnan was considerably watered down, it was not overruled by Ayyasamy. It was an important opportunity lost. Ayyasamy added to the uncertainty: is serious fraud not arbitrable at all or only when there is “serious fraud with criminal wrongdoing”?And what happens if there is fraud simpliciter with criminal wrongdoing?
The aftermath of Ayyasamy
With N. Radhakrishnan, the floodgates of litigation were opened and the defence of fraud was “utilised by parties seeking a convenient ruse to avoid arbitration”. The uncertainty, unfortunately, continued even with Ayyasamy. Inclusion of elements of very serious allegations of fraud that make a virtual case of criminal offence and complicated fraud, the court left the door open for the astute lawyer to conflate the subjectivity of those words. Thus, the mere filing of a s.8 application could derail or at the very least delay the arbitration process. When the concurring judgment of Chandrachud J., in Ayyasamy relied upon approval on Fiona Trust and Holding Corpn. v Privalov that arbitration was permissible even in cases involving bribery, there was no reason why all disputes relating to fraud, simpliciter or complicated, ought not to have been a fortiori arbitrable.
In Ayyasamy, Sikri and Chandrachud JJ. gave separate but concurring judgments. It is, however, respectfully stated that the judgement is confusing as it contains too many propositions which can appear to be self-contradictory. It is difficult to cull out a clear ratio from this judgement and the High Courts, and even arbitrators, had no clear guiding principle.
The triad judgments
Rashid Raza is the first of the three judgements. It is an important judgement in so far as it provides the necessary clarity to Ayyasamy, and in this regard states that “the law laid down in A. Ayyasamy’s case is in paragraph 25 and not in paragraph 26”.
The court also set out a “Two working test” formula for making a distinction between serious allegations of forgery/fabrication on the one hand and “simple allegations” on the other - i.e. “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 implications in the public domain”.
Almost a year later, Justice Nariman authored the Avitel judgement. This is a significant judgement. The Court, albeit sitting in a combination of two judges, observed that they were “inclined to adopt” the “reasoning” of the single judge in Swiss Timing as it had “strong persuasive value”. The court recognized that even while, Swiss Timing, cannot be deemed to have precedential value, all the same N. Radhakrishna had been “found to be wanting” and had been “tackled on the judicial side”.
Although the court in Avitel does not return a finding specifically with regard to “void” and “voidable” in the context of fraud, the court does mention both ss.17 and 19, and in fact quotes the sections in their entirety. More interestingly, the court relying on Fazal D. Allana v. Mangaldas M. Pakvasa highlights a very important distinction between contracts that are obtained by fraud or cheating, and contracts whose performance is vitiated by fraud or cheating. The former category would be hit by s. 17 of the Contract Act and the latter by the tort of deceit. According to the court – “Both kinds of fraud are subsumed within the expression “fraud” when it comes to the arbitrability of an agreement which contains an arbitration clause.
On the same date as Avitel, Justice Nariman, sitting in a combination of three judges also authored and delivered the judgement in Deccan Papers Mills. The court affirmed the judgment in Avitel, and thereby the principles enunciated therein. The court reiterated the “law on invocation of (the) “fraud exception” as laid down in Avitel. The court also reiterated that “N. Radhakrishnanas a precedent, has no legs to stand on”, thereby casting the final (and much-needed) death knell to N. Radhakrishnan.
Though the court in Deccan Paper dwells into the aspect of void and voidable contracts, it does so on a completely different aspect i.e. s. 31 and 39 of the Specific Relief Act, 1963.
Analysis of the Triad judgments
Paragraph 25 of Ayyasamy speaks of at least seven propositions to ascertain when fraud may be arbitrable, while Rashid Raza points only to two. It then begs the question - is the remainder of para 25, which is not in line with the two-test formula, overruled?
There are other difficulties with the two-test formula. The two-test formula as a general proposition of arbitrability is sound. In other words, if the two-test formula simpliciter read: 1) if a contract is void, particularly the arbitration encapsulated there, 2) deals with aspects of rights in rem, such a dispute would not be arbitrable – then the two-test formula would be a good working test.
There is also no quarrel with the second test i.e. that if fraud inter se between parties touches has implications in the public domain (in other words impacts rights in rem), such a dispute would not be arbitrable.
It is the first test in the context of fraud that is problematic – primarily because an allegation of fraud would not render an agreement void ab initio. It would merely make the contract in question voidable.
It is my respectful submission that fraud cannot render an arbitration agreement (or the main agreement) void at the prima facie stage and therefore by sequitur at the stage of ss. 8 or 11 of the ACA. At the cost of repetition, an allegation of fraud (including serious fraud) would merely render a contract voidable.
Further, the court in Avitel upholds both Swiss Timing and Ayyasamy. The judgments of Swiss Timing & Ayyasamy are mutually destructive and cannot be reconciled.
While the Triad judgements have moved the needle forward and narrowed the scope of the court’s interference in relation to arbitrability of fraud, they have not gone the distance and expressly overruled Ayyasamy and made fraud expressly arbitrable. This, in my view, ought to have been done for the following reasons.
Difference between void and voidable
The court’s decision in Swiss Timing is sound and well-reasoned. When a consent is alleged to be vitiated by fraud (or misrepresentation/coercion), the contract in question is voidable at the instance of the party making the allegation. Such a party then has the option of either insisting on performance and seeking restitution, or terminating the contract. Even in case of the latter, where a party opts to avoid the contract, the contract would not ipso jure become void. The onus to traverse the journey from voidability to void, would require the party alleging the fraud (misrepresentation/coercion), in most circumstances to lead evidence, and for the court to adjudicate thereon after the appreciation of evidence. This is not within the scope of a prima facie enquiry permissible under ss. 8 or 11. Cases “where the Court can come to a conclusion that the contract is void withoutreceiving any evidence”, would be few and isolated”, and the court in such instances would be “justified in declining reference to arbitration”.
It is also settled law and one that has recently been reiterated that “Prima Facie examination is not (a) full review but a primary first review to weed out manifestly and ex facie non-existent and invalid arbitration agreements and non-arbitrable disputes”. . It has also been held that “Sections 8 and 11 of the Arbitration Act are complementary provisions” and that “Section 11 does not prescribe any standard of judicial review by the court for determining whether an arbitration agreement is in existence. Section 8 states that judicial review at the stage of reference is prima facie and not final”.
However, cases where “the Court can readily conclude that the contract is void upon a meaningful reading of the contract document itself”, would be within the scope of judicial enquiry at the stage of ss. 8 and 11. More recently, in the matter of M/s N.N. Global Mercantile (P) Ltd. v Indo Unique Flame Ltd., a three-judge bench has categorically held – “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.” The court in N.N. Global recognises that Avitel has cited Swiss Timing with approval.
Complicated fraud and fraud simpliciter
The distinction between complicated fraud and fraud simpliciter is an artificial one, and which has no basis in statutory law. It has no basis under the Contract Act or criminal law. In fact, any notion of complicated/simpliciter fraud is perilous for litigants – a finding at the prima facie stage by a court of fraud being complicated, serious and/ or simple could prejudicially affect the merits of a case. While the court in Rashid Raza has prescribed a two-pronged test for determining the difference between complicated fraud and fraud simpliciter, closer introspection will reveal that the test prescribed by the court has nothing to do with fraud complicated or simpliciter.
Co-existence of criminal proceedings and arbitration/ appreciation of Voluminous evidence
There is no reason why a criminal proceeding and arbitral proceedings could not co-exist. Further, an arbitral set up is more conducive to evidence appreciation. The court in N.N. Global has observed that the criminal “aspect of fraud, forgery or fabrication” can only be adjudicated only by a court of law “as it is in the realm of public law and could result in conviction. Undoubtedly criminal prosecution of fraud has to be dealt with in a court of law. However, civil aspects of fraud can be dealt with by arbitration”
In fact, “there is no inherent risk of prejudice to any of the parties in permitting arbitration to proceed simultaneously to the criminal proceedings”. Chandrachud J. in Ayyasamy, observes - “The existence of dual procedure; one under the criminal law and the other under the contractual law is a well-accepted legal phenomenon in the Indian jurisprudence”. Chandrachud J. also agrees and holds that “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”. When criminal and civil proceedings can co-exist, there is no reason why arbitral proceedings cannot simultaneously co-exist with criminal proceedings. Most arbitrators in important and complex arbitrations are retired judges of the Supreme Court or the High Courts or people well trained in conducting arbitrations.
In N.N. Global, in the context of “voluminous and extensive evidence”, the court observed – “The ground that allegations of fraud are not arbitrable is a wholly archaic view, which has become obsolete and deserves to be discarded”, since 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.”
Vitiation must permeate to the arbitration agreement
The inclusion of the words “arbitration agreement” in s.8 are deliberate and based on the doctrine of separability already embodied in s.16. Chandrachud J. in Ayyasamy observes - “The arbitration agreement between the parties stands distinct from the contract in which it is contained, as a matter of law and consequence. Even the invalidity of the main agreement does not ipso jure result in the invalidity of the arbitration agreement”. From a perusal of s.8, it is evidently clear that reference to arbitration under s. 8 can only be shut out by a court, if the arbitration agreement is not valid, or in other words is void.
Relying on Buckeye Check Cashing, Inc v Cardegna, Chandrachud J. further states just because there is a challenge to a contract by a party, “but not specifically (to) its arbitration provisions, those provisions are enforceable apart from the remainder of the contract”. Chandrachud J rightly observes “Section 16 empowers the arbitral tribunal to rule upon its own jurisdiction, including ruling on any objection with respect to the existence or validity of an arbitration agreement”.
This principle is now fortified by the first part of the two-pronged test of Rashid Raza i.e that the “ plea permeate the entire contract and above all, the agreement of arbitration, rendering it void”, and by the observations of a three-judge bench in N.N. Global.
In effect, therefore, unless the arbitration agreement is rendered void, the court must refer parties to arbitration. In essence, the very basis to arbitrate is lost, and there is no arbitration agreement, as separable from the main agreement that survives.
To conclude, the two-pronged test laid out in Rashid Raza is in fact the omnibus test for the court in any challenge to arbitrability under s. 8 or s.11. If the subject matter of the dispute touches a right in rem, the same would not be arbitrable. Or if the arbitration agreement, dehors the main contract it is embodied in, is void, which the court can discern on a prima facie enquiry, the dispute would not be arbitrable, since the basis to arbitrate no longer obtains. In essence, the above test has contained the enquiry of a court in ss 8 and 11 to arbitrability, and not to the suitability of the subject of the dispute.
“Fraud” finds no place in this test, since an allegation of fraud under s17 read with s. 19 of the Contract Act only makes a contract voidable, and not ab initio void. A court cannot envisage an enquiry into voidable contracts, since “mini trials” are not permissible under ss 8 and 11. Whether it was intended or not, in view of the two test formula, the distinction between serious fraud and fraud simpliciter also no longer obtains.
Further, in view of the two test formula read in conjunction with the observations of Swiss Timing which were upheld in Avitel, and reiterated in N.N. Global the ratio of Ayyasamy is no longer good law. However, to remove the ambiguity that still surrounds arbitrability of fraud, it is time for the Supreme Court to decisively rule,and make fraud expressly arbitrable.
Payal Chawla is a practising advocate and founder of JUSCONTRACTUS, a New Delhi-based all-women law firm specialising in arbitration and commercial laws.
Taking a look at the historic pre-independence custody battle for a minor Jiddu Krishnamutry, who later became a world-renowned guru, from his adoptive mother Annie Besant.
By Jayant Mohan, Advocate
December 1, 2022
Jiddu Krishnamurti,world-renowned modern-day guru from India, was known for his unconventional views on life and spirituality. Rebellious and free thinking,Krishnamurti was born in 1876 in Madras,India. As a guru he preached freedom from the conditioning imposed by society on the individual and emphasised on finding one’s own path through the practice of awareness and raising the consciousness.
Krishnamurti had numerous followers across the world, many of them highly placed persons in their respective fields like scientists,mathematicians and inventors.
He lived till the age of 90 and passed away in 1986 in Ojai, California where he was living the last years of his life, leaving behind a rich legacy of spiritual traditions and a huge number of followers.
Unconventional as the path of Jiddu Krishnamurti was, so was his childhood and education resulting in a most sensational and controversial Court Case in Madras in the year 1912 regarding the custody of Krishnamurti who was then a minor.
The case was titled Mrs Annie Besant vs G Narayaniahand the decision rendered by the Division bench of the High Court of Judicature at Madras on 29th October,1913.
The controversial case consistently made headlines in newspapers because of the parties being famous personalities and the clash of ideas involved in the case.
Background of the Case
The drama of the case was in the backdrop of the Theosophical Society which was established by Col Olcott ,Madam Blavatsky and C W Leadbeater in the USA in 1875. Theosophical Society preached metaphysical ideas and thoughts heavily derived from ancient Hindu and Buddhist religion and philosophy.
In India,Annie Besant, an English woman, was one of the leaders of the theosophical movement and was the president of the Theosophical Society of India.
To add colour to the drama, Annie Besant despite being English was one of the founders of the Home Rule Movement along with Bal Gangadhar Tilak, agitating freedom from British Rule for India .
She was invited to give various lectures on theosophy across the world and was a very well-known public figure.
GS Arundale, a graduate of the Cambridge University and founder of the Central Hindu University at Benaras, being an ardent theosophist was also involved in the case in support of Annie Besant .
Sir C.P. Ramaswamy Aiyar,the stalwart lawyer from Madras, represented the father and won the custody case.During the case he started to admire Annie Besant and joined the Home Rule League with her for the self-determination of Indians.
The stalwarts and leaders of the country became involved in the fascinating human story of an ordinary father unable to provide expensive English education to his sons (whose mother had passed away in their infancy).The father had given the custody of the minor boys to Annie Besant in the hope of a better life for his sons. Later, on coming to know that the boys were facing indecent acts by close associate of Annie Besant,C W Leadbeater, the father, had filed the suit for custody of his sons from Annie Besant .
The custody case was very controversial and the press not only in India but across the world reported extensively on the case.
Headline in Australian newspaper The Truth(1914)
David Vs Goliath Story with a Twist
This court case had a slight twist from the Biblical story of Goliath- a giant warrior battling a much smaller shepherd boy, David. David shoots him with a stone and a sling right between the eyes. Goliath topples over, and David kills him.
Annie Besant was the President of the Theosophical Society having world renown and fame. The Plaintiff father was of limited means and working as a correspondence clerk in the office of the Society.
The approach of the British Judges in dealing with such complicated issues of personal law and conduct of seemingly infallible individuals of such high stature made it a heady mix of religion, philosophy, law,in the background of British colonial life.
The brief facts of the case would show the conflict situation between the parties as follows.
Brief Facts of the Case:
G Narayaniah filed a suit for custody of his two sons aged 14 and 11 under the Guardianship and Wards Act,1890(as applicable to British India)from Annie Besant before the District Court.The Suit was subsequently transferred to the High Court of Judicature at Madras under Letters Patent jurisdiction being original jurisdiction meaning that the suit was tried before the High Court .
Plaintiff G Narayaniah, a retired government servant, was employed as a senior correspondence clerk with the Theosophical Society at its Headquarters in Adyar, Chennai. He shifted his residence along with his two minor sons Krishnamurty and Nityanand in the premises of the Society and was given accommodation rent free as part of his employment benefit.
J Krishnamurty (left),CW Leadbeater(Middle) and Annie Besant(right)
C W Leadbeater had first noticed the elder boy Krishnamurty as having exceptional qualities and divine powers and informed Annie Besant about the boy. Annie Besant agreed to adopt the boy Krishnamurty and his brother Nityanand. Besant believed that Krishnamurty was a gifted human being and Leadbeater and Besant would nurture the young prodigy who will be the future ‘Jesus Christ’ or ‘Lord Maitreya’.
Thereafter as per the arrangement between Besant and the father,Leadbeater was to be the spiritual guide and preceptor for the boys and in the interest of their better future Besant adopted the boys. The boys were to receive an English education at Oxford and also follow the spiritual practices and tenets of Theosophy .
Thereafter Annie Besant left India with the boys for England.
On 7th February,1912 the plaintiff was dismissed from his office of Secretary in the Society because he was enquiring about the incident of indecent behaviour by Leadbeater with the boys.As per the Plaintiff the minor boys were being subjected to indecent acts by Leadbeater. Therefore, in view of the inability of Besant to stop Leadbeater from committing indecent acts with the minor boys, the Plaintiff claimed the custody of the boys.
In October 1912 the defendant Annie Besant returned to India without the boys and thereafter the suit was filed by the Plaintiff for custody of his minor sons.
The Suit was filed before the District Judge under the Guardianships and Wards Act,1890 but was transferred to the High Court of Judicature at Madras in its Letters Patent Jurisdiction.
The Single Judge of the Madras High Court allowed the Suit and directed handing over the custody of the minor sons to the father.
An Appeal was filed before the Division bench of the Madras High Court which upheld the order passed by the Single Judge by means of the Judgment and Order dated 29th October,1913
Issue Before The Court
The Legal Issue before the Court was:
‘Whether the father having delegated his rights of custody of the two minor boys to defendant could have subsequently revoked the custody of the rights over the sons’
The Division bench as well as Single Judge of the Madras High Court held that delegation of rights is revocable though there may be circumstances which lead the court to hold that delegation ought not be revoked.
The Court considered various pronouncements of the English Courts as well as various High Courts of India regarding the rights of the father for the control of the children and accepted and applied the succinct statement of Law provided in the Halsbury’s laws of England vol 17 pg 107;
“After surrender by him(the father) of the custody has actually taken place,he can recover the custody unless his doing so would be injurious to the interests of the child.”
Therefore,‘interest of the child’ was the primary consideration for the custody issue to be decided and various other issues.
To decide upon what course of action would be in the best interest of the child, the Court considered various facts and issues. A very interesting issue was whether deification of the child would cause harm to the growth of the child which was dealt with in the following manner:
a) Deification of the Child
The 10th Issue before the Single Judge regarding welfare of the child was
“Has the defendant stated that the elder boy is going to be Lord Christ or Lord Maitreya?”
The finding of the Learned Judge was in the affirmative.
The defendant denied in her evidence that she had ever said that she believed that the elder boy was to be Lord Christ or Lord Maitreya but she having said that believed that the body would be the vehicle for his re-incarnation.
Krishnamurty was made the head of an Order called ‘Star of the East’ and underwent two ceremonies for initiation. Respectable people prostrated before the elder son.
The Court recorded a finding that far from stimulating the moral and intellectual capabilities of the boy, the deification might have the opposite effect on the him.
The Court also noted the fact that Leadbeater professes to have certain peculiar powers in this respect and that through his influence the defendant was induced to take interest in the boys. Therefore, he desired to take the children under his own control and out of that of the plaintiff whom he regarded as an obstacle in his path.
This led to the issue of misconduct and indecent acts committed by Leadbeater with the minor boys.
b) Allegations of Misconduct and Indecent Acts against Mr CW Leadbeater
While dealing with the sensitive issue,the court also noted that Annie Besant and C W Leadbeater were closely associated in theosophical work and were in strong sympathy with one another.
Annie Besant’s regardfor and trust in Leadbeater was unqualified except with regard to certain opinions which she condemned as mischievous.
The Judge noted the evidence that Leadbeater held opinions and continued to hold such opinion which could be described as certainly immoral and as such unfit to be the tutor of the boys.
Leadbeater claimed power to detect impure thoughts which would render him a highly dangerous associate for children.
There were two charges made against Leadbeater by the plaintiff, one was made in para 5 regarding unnatural act and gross indecency .
Although Leadbeater was not a party to the case,Annie Besant defended Leadbeater with extreme zeal and ability.The Court held that the charge regarding unnatural act and gross indecency was not proved.
The second charge made in the plaint by the father regarding conduct of Leadbeater was held to have been proven. As per Leadbeater, he was teaching the boys how to bathe like an English gentleman in the bathroom. This act was witnessed by the servant Lakshman and Mrs Van Hook the housekeeper both of whom confirmed that Leadbeater was not wearing any clothes and the boys were alone with him in the bathroom.
The Court held thatthe conduct of the Leadbeater was not criminal and unnatural acts and indecency were not proved.
The Court relied upon the testimony of Laxman who was summoned as court witness and confirmed the fact that Leadbeater was doing certain improper things in a compromising position with the boy in the bathroom and Mrs Van Hook also deposed that it was most improper for Leadbeater who was above 60 years of age to be giving bath to young boys in the bathroom.
In the judgment of the Court his behaviour in connection with the boys was extremely unseemly and indecorous. Hence, the misconduct against Leadbeater was found to be proved .
Once having concluded that Leadbeater had acted in an improper manner with the boys and Annie Besant failed to stop him from conducting himself improperly with the boys, the issue of whether the custody should be restored to the father came up and the Court had to do a delicate end difficult balancing act.
A Delicate and Difficult Balancing Act
The Court was to balance the factors namely relative advantages for the boys in remaining in England continuing with the education at Oxford under the guardianship and custody of Annie Besant on one hand; On the other side whether the minor boys were to be restored to the care and custody of their father
Factors in Favour of Giving Custody to the Father:
The Court recorded the following findings:
Nothing in the father’s character which disqualified him from being given the custody of the boys. He was a respectable Hindoo gentleman and a retire Government servant.He was deemed fit to be appointed as the Asst Corresponding Secretary of Esoteric Section of Society.Plaintiff was in sympathy with the entire tenets and beliefs of the Society of which the defendant was the President.
Factors in favour of continuing the Education in England:
- The boys were getting the best physical training
- The best available tutors at Oxford were teaching the boys
-Regarding the elder boy, the defendant stated that she wanted him to lead the life of an undergraduate with certain restrictions
-Regarding the younger child, it was considered desirable that he should take a degree for the purpose of competing in the Indian Civil Service examination.
However, the question that arose was how far a life of celibacy and the incident of initiation would be compatible with a successful career in the Indian Civil Services.
Whether these factors would aid or burden the member of Indian Civil Service is a question which was posed by the court but not answered.
Operative Portion of the Order:Taking an overall view of the matter and balancing the factors of the welfare of the child in the light of legal principles, the Division Bench did not disturb the direction of the Single Judge that the father was substituted as the guardian of the boys and a direction as issued to the Defendant to hand over the custody of the boys to the father to make the decree effective.
The Judges hearing the Appeal showed remarkable judicial statesmanship and sensitivity to the complex factors regarding the welfare of the minor boys in the backdrop of the bitter dispute between the father and the adoptive mother .
The High Court confirmed the direction given by the Trial Court to hand over custody to the father.
Appeal to the Privy Council
Annie Besant challenged the decision of the Division bench of the Madras High Court before the Privy Council against the Decision passed by the Judgment of the High Court of Judicature at Madras.
The Decision of the Privy Council the Final Court of Appeal in British India was delivered on 25th May,1914 in the case titled Annie Besant Vs G Narayaniah and Ors.
In a very short judgment the Privy Council held that the suit as filed by the plaintiff was not maintainable because it was impossible to hold that the minors who had left India with a view of being educated in England and going to the University of Oxford were ordinarily residents of district Chingleput, Madras. Therefore, the Suit could not have been filed before the District Judge at Madras.
The Board noted that the prayers made in the Suit were a direction to the defendant to take possession of the persons of the minors in England,bring them to India and hand them over to their father.
Considering the nature of relief sought, the defendant in order to comply with the decision would, if the minors refused, open her to the writ of Habeas Corpus.
As per the Privy Council the boys’ wishes must have been ascertained by the Madras High Court as to whether they want to continue their education in England or go back to India to be in custody of the father.
The minor boys Krishnamurty and Nityanand filed Intervention before the Privy Council and were represented through a Counsel who informed the Board of the boys’ wishes.
In view of the statement made on behalf of the minors, the Privy Council held that the direction to the defendant to take the boys back to India cannot be lawfully carried out without the consent or without an order from the Court exercising jurisdiction of the Crown over the minors in the country.
The Appeal was allowed and Annie Besant won the custody battle decisively from the Privy Council in London.
Thereafter,Krishnamurty completed his education and continued to work under Besant for Theosophical Society .
On 3rd August,1929 at Ommen Star Camp, Holland all the leading theosophists of the world gathered.At the public event J Krishnamurthy was to be proclaimed as Maitreya or the Coming of Jesus Christ i.e. the World Teacher project under the Organisation Star of the East of which J Krishnamurthy was the head.
To the shock of Annie Besant and about 3,000 followers J Krishnamurty dissolved the Organisation Star of the East and gave the following speech
“I maintain that truth is a pathless land and you cannot approach it by any path.
Whatsoever by any religion any sect.
This is my point of view and I adhere to that absolutely and unconditionally.
Truth being limitless,unconditional, unapproachable by any path whatsoever cannot be organised nor any organisation should be formed to lead or coerce people along any particular path.”
In this David Vs Goliath Fight where unlike David, the father-Plaintiff could not defeat Annie Besant the-Goliath but Krishnamurty the son decisively finished the battle and dissolved the very organisation he was to head concluding all issues and arguments decisively against the Theosophical Society and Annie Besant .
Jayant Mohan is an Advocate-on-Record in the Supreme Court. Practising since 2005, he has varied experience before the Apex Court in matters related to Constitutional and Criminal law, more particularly PILs related to the Environment, Mining Laws and Criminal Cases.He represents the State of Jharkhand before the Supreme Court.
By Chirag Singla and Akash Kumar
November 16, 2022
The Indian Judicial system is overburdened with numerous cases which have cascading effects on the entire country. Mechanisms like arbitration, mediation, conciliation, and negotiation can be used to attain the goal of expeditious and party-centric dispute resolution. To attain the goals, the legislature has time and again tried to find ways to incorporate Mediation with the existing recourse available to the parties in case of dispute settlement. One such example is the Commercial Courts Amendment Act, 2018. Here, the legislature has made pre-litigation mediation a mandatory step that needs to be exhausted before instituting a suit under the Commercial Courts Act. Pre-litigation mediation can be construed as an amicable process whereby the parties come together to settle their dispute with the aid of an impartial mediator before the institution of a suit.
It is in this spirit that to facilitate the parties in expeditious resolution of disputes, a two-judge bench of the Supreme Court in the case of Patil Automation Pvt. Ltd. Vs. RakhejaEngineers Pvt. Ltd upheld that the statutory pre-litigation mediation under section 12A of the Commercial Courts Act, 2015 is mandatory and any suit instituted violating the mandate of section 12A must be rejected.
DECODING THE JUDGMENT
In the case of Patil Automation Pvt. Ltd. Vs. Rakheja Engineers Pvt. Ltd. (supra) the respondent had filed a Suit for recovery before the Additional District Judge, Faridabad. The appellant filed an application contending that the suit was filed without adhering to Section 12A of the commercial Courts act. In reply, the respondent contested the matter contending that the suit was not barred for non-compliance with Section 12A of the Act. The seminal question which arose for consideration before the Court was whether the statutory pre-litigation contemplated under Section 12A of the Commercial Courts Act, 2015 as amended by the Amendment Act of 2018 is mandatory. The Hon’ble Supreme Court dealt with it in a two-fold manner.
The Object of the Law and the Legislative Intent behind Section 12A :
The Court examined the object and legislative intent behind Section 12A and read it with rule 3 which is made for the mediation process. The Court held that language of Section 12A and strict timelines as provided in the rule pointed out that the legislature intends to make mandatory in nature. The Court further emphasized the point that the language used in Section 12A is imperative in nature. Even by going through the sublime object of the Act, the Court fully reinforced its opinion that the pre-litigation mediation is intended to produce results, which has a direct bearing on the fulfillment of the noble goals of the Lawgiver. Moreover, the settlement under section 12A of the Commercial Courts Act is accorded the status of an award under the Arbitration & Conciliation Act, it unerringly points to the object of the legislature to make pre-litigation mediation compulsory.
Whether the Provision of Section 12A is Mandatory in Nature :
To determine whether section 12A is mandatory, the Court relied on the case of Sharif-ud-Din Vs. Abdul Ghani Lone. In this case, it has been held that, if the object of the law is defeated by non-compliance with the provision, then it would be regarded as mandatory. In the present case if the pre-litigation mediation is not complied with then the whole object of the Amendment Act would be frustrated. Therefore, the Court declared that the provision of Section 12A of the Commercial Courts Act is mandatory in nature.
The Hon’ble Supreme Court, while dealing with the question of the mandatory nature of Section 12A, referred to the analogy drawn in the case of Bihari Chowdhary and Anr. vs. State of Bihar and Ors and stated that since the pre-requisite for filing a suit against the government or public servant is mandatory by the grace of section 80 CPC therefore the pre-requisite for filing a suit under Commercial Courts Act must also be mandatory and 12A must be complied with before institution of a suit.
The author herein believes that the Hon’ble Supreme Court has erred in drawing the analogy from Section 80 of the Civil Procedure Code, which lays down the provision with respect to the mandatory notice given before the institution of a suit. The Court failed to realize that the interpretation given to Section 80 is with respect to the suit filed against the government and public officials. Whereas section 12A of the Commercial Courts Act deals will commercial disputes which can also be between two private parties. The rationale behind the mandatory nature of the notice under section 80 of the Code of Civil Procedure is not apt for interpreting Section 12A of the Commercial Courts Act. The object behind the notice under section 80 is to provide an opportunity for the government or public officer to thoroughly investigate the legal proposition and settle the claim put forth by the plaintiff. The time of two months given under section 80, is to enable the government to assess the matter objectively and seek proper legal advice. The legislative intent behind this provision is to save the expenditure of the public exchequer and give apt time to the government to try and settle the claims and not to indulge in litigation thereby saving on public money and time. In the case of section 12A of the Commercial Courts Act, the same analogy cannot be ascribed because the intent of mandatory nature of Section 80 is in furtherance of public money and time whereas, the intent of mandatory nature of Section 12A is with respect to expedite the resolution of the dispute and to ease the burden of the Courts.
Furthermore, the Hon’ble Supreme Court used the golden rule of interpretation, which is interpretation in conformity with the plain language to interpret the provision of Section 12A of the Commercial Courts Act.
Moreover, the Hon’ble Supreme Court also settled the legal position with respect to the manner in which Section 12A would operate. The Court held that amendment of Section 12A will be applied prospectively, however, this judgment would be effective from 20.08.2022 so that the stakeholders become completely aware. The Court also explained how certain situations would be dealt with. These situations are as follows:
1. In case the plaint is rejected for non-compliance and no steps have been taken within limitation period, the matter cannot be reopened on basis of the prospective effect of this judgement.
2. If upon rejection of plaint, a fresh suit has been filed the benefit of prospective effect of this judgement would not be available to the plaintiff
3. In case the jurisdictional High Court has already made Section 12A mandatory and a suit is filed without adhering to Section 12A, then this judgement would not be applicable
While determining a similar question of law, the Delhi High Court, in the case of Bolt technology Vs. Ujoy Technology Pvt. Ltd placed reliance on the judgment of Patil Automation Pvt. Ltd. Vs. Rakheja Engineers Pvt. Ltd. (supra) on the point of object of the Act and how Section 12A would operate. The High Court concluded that an application under Order VII Rule 11 ought to be dismissed for non-compliance with the provision of section 12A of the Commercial Court Act unless the relief sought is urgent in nature.
The intention of the legislature is clear from the moment section 12A was introduced. However, owing to the different interpretations of High Courts, this amendment never got its teeth. By this judgment, the Hon’ble Supreme Court has given impetus to this section by making it mandatory. The Court has also held how the section would apply prospectively and explained certain situations. This new strategy aims to handle a problem at its early stage by preventing a conflict from progressing to the point where a lawsuit ever needs to be launched.
Chirag Singla is an Associate and Akash Kumar is an intern at Seraphic Advisors, Advocates & Solicitors, New Delhi.
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