Highlights: 

Corporate Brief 

• Directions dated 01.10.2024 issued by the Reserve Bank of India regarding Compounding of Contraventions under FEMA, 1999.
• Draft Circular dated 04.10.2024 issued by Reserve Bank of India on Forms of Business and Prudential Regulation for Investments.
• Circular dated 08.10.2024 issued by the Securities and Exchange Board of India regarding specific due diligence of investors and investments of Alternate Investment Funds.
• Guidelines dated 10.10.2024 issued by the Reserve Bank of India regarding Submission of Information to Credit Information Companies by Asset Reconstruction Companies. 

RERA Brief 

• Order dated 22.10.2024 bearing no. 62/2024 issued by Maharashtra RERA (“Maha RERA”) clarifying the conditions for real estate projects to be eligible for RERA registration in the state.
• Order dated 22.10.2024 bearing no. 63/2024 issued by Maha RERA on the inclusion of Real Estate Agent Fee clause in the model agreement for sale.

IPR Brief

• M/S Abbott Gmbh v/s Registrar of Trademarks & Anr. dated 22.10.2024
• Sporta Technologies Pvt. Ltd. and Ors. v/s Hong YI F35 and Ors. dated 16.10.2024
• IPR Divisions at the High Court of Calcutta

NCLT Brief

• Whether NCLT/NCLAT can exercise inherent powers for passing an order of withdrawal of CIRP of a corporate debtor?

Litigation Brief

• Doctrine of lis pendens under Section 52 of the Transfer of Property Act shall commence on the date of filing; Review before the Registry for defect is inconsequential.
• Addressing the Jurisdictional Conundrum: Section 42 vis-à-vis Section 11 of the Arbitration Act. 

Corporate Brief:

 Directions dated 01.10.2024 issued by the Reserve Bank of India regarding Compounding of Contraventions under FEMA, 1999.

• The Central Government had notified the Foreign Exchange (Compounding Proceedings) Rules, 2024 (“Compounding Rules”) relating to the compounding of contraventions under the Foreign Exchange Management Act, 1999 (the “Act”).
• The said Directions dated 01.10.2024 specify certain rules and regulations issued under the Act, the contraventions of which shall be compounded by the compounding authorities of the Reserve Bank of India.
• In terms of the said Directions, a compounding application can be submitted physically or through the PRAVAAH portal of RBI along with the prescribed fee.

The Directions, inter alia, provide for the process of application for compounding of offences; certain cases which are not eligible for compounding the procedure for compounding; issuance of the compounding order; payment of the amount for which the contravention is compounded.

Draft Circular dated 04.10.2024 issued by the Reserve Bank of India on Forms of Business and Prudential Regulation for Investments. 

• The Reserve Bank of India issued a draft circular dated 04.10.2024 amending the directions issued vide Master Direction-Reserve Bank of India (Financial Services provided by Banks) Directions, 2016 which consolidate the regulations on forms of business and prudential regulation for investments by banks under Paragraphs 4 and 5 thereof.
• These regulations aim to ringfence the core business of the banks from other risk-bearing non-core businesses as well as to provide operational freedom to banks for making investments in financial services/non-financial services companies and AIFs.
• The Draft Circular specifies various conditions which must be satisfied in order for the bank/entities held by Non-Operative Financial Holding Company to undertake certain activities or carry out certain forms of business.
• The Draft Circular also specifies the prudential limits in respect of investments made by a bank in any group entity or in other financial/non-financial services companies or other equity investments, including overseas investments.
• Comments on the Draft Circular are invited from banks and other stakeholders by November 20, 2024.
• Additionally, certain provisions of this Draft Circular shall come into effect two years from the date of the final circular, and the banks are required to submit a report to the Department of Regulation within two months from the date of the final circular containing the current status and the proposed course of action to comply with the specified provisions of the Draft Circular.

Circular dated 08.10.2024 issued by the Securities and Exchange Board of India regarding specific due diligence of investors and investments of Alternate Investment Funds (AIF). 

• The Securities and Exchange Board of India vide circular dated 08.10.2024, issued guidelines for AIFs to exercise specific due diligence with respect to investors and investments of the AIF to prevent the facilitation of circumvention of (i) SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”); (ii) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”); (iii) Prudential norms specified by the Reserve Bank of India (RBI) for regulated lenders with respect to Income Recognition, Asset Classification, Provisioning and restructuring of stressed assets; and (iv) Rule 6 of Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 for investment from countries sharing a land border with India (read with Press Note 3 dated April 17, 2020, of FDI Policy 2020).
• The Circular aims to prevent the facilitation of regulatory framework circumvention by investors who are otherwise ineligible for Qualified Institutional Buyer (“QIB”) and Qualified Buyer (“QB”) status as per ICDR regulations and the SARFAESI Act, respectively. It also addresses the issue of the evergreening of stressed loans/assets of RBI-regulated lenders/entities through AIFs and the prevention of circumvention of norms with respect to Income Recognition, Asset Classification, Provisioning and Restructuring of stressed loans/assets specified by the RBI for its regulated entities (REs).
• The schemes of AIFs as specified in the Circular, shall carry out the necessary due diligence as per the implementation standards formulated by the Standard Setting Forum for AIFs (SFA), prior to availing benefits designated for QIBs or QBs under the respective regulatory frameworks.
• If any proposed investment is found unsatisfactory in complying with the due diligence exercise specified by SFA, then either the investor shall be excluded from the investment or the investment shall not be made at all.

Guidelines dated 10.10.2024 issued by the Reserve Bank of India regarding the Submission of Information to Credit Information Companies (“CIC”) by Asset Reconstruction Companies (“ARC”). 

• The Reserve Bank of India issued guidelines dated 10.10.2024 to revise circular no. DNBS (PD-SC/RC). CC. No.23/26/03/001/2010-11 dated 25.11.2010 regarding ‘Submission of information to Credit Information Companies’, which had advised ARCs to join at least one CIC. These guidelines have been issued to maintain coherence with the guidelines applicable to banks and Non-Banking Financial Companies (NBFCs) and to keep track of the credit history of the borrower subsequent to the transfer of loans by banks and NBFCs to ARCs.
• As per the said Guidelines dated 10.10.2024, ARCs shall become members of all CICs and submit the data to the CICs as may be required in terms of the Uniform Credit Reporting Format prescribed as per the Circular dated 27.06.2014 on ‘Data Format for Furnishing of Credit Information to Credit Information Companies and other Regulatory Measures’.
• The said Guidelines direct ARCs to have a standard operating procedure (SOP) in place for CIC-related matters which shall adopt various best practices as specified in the guidelines.
• The Guidelines apply to all ARCs, and the provisions contained thereunder shall be complied with by the ARCs by 01.01.2025.

Real Estate Brief

Order bearing no. 62/2024 dated 22.10.2024 issued by Maharashtra RERA (“Maha RERA”) clarifying the conditions for real estate projects to be eligible for RERA registration in the state.

As per the order dated 22.10.2024, Maha RERA has provided clarity on two major issues i.e (i) which real estate projects do not require registration under RERA; and (ii) what constitutes commencement certificate and what denotes completion certificate in case of plotted developments.

While referring to Section 3(2)(a) of the Real Estate (Regulation and Development) Act, 2016 (“RERA Act”) which provides that a real estate project does not require RERA registration if the area of land proposed to be developed does not exceed five hundred square meters or the number of apartments proposed to be developed does not exceed eight inclusive of all phases, the said order dated 22.10.2024 clarified that a real estate project shall not require registration (i) if the area of land proposed to be developed is less or equal to 500 (five hundred) square meters irrespective of the number of units/apartments proposed to be developed even if the apartments/units to be developed in all phases exceed 8 (eight); or (ii) where number of apartments/units proposed to be developed is less than or equal to 8 (eight) apartments/units inclusive of all phases irrespective whether the area of the land proposed to be developed is less than or more than 500 (five) hundred square meters.

Further, while making reference to Section 3(2)(b) of RERA Act which provides that a real estate project does not require RERA registration when the promoter has received completion certificate for a real estate project prior to commencement of RERA Act, the said order dated 22.10.2024 clarified that completion certificate means (i) the certificate issued by the concerned competent authority informing the promoter and/or licensed engineer/structural engineer/supervisor of the plotted real estate project; or a copy of acknowledgement submitted to the concerned competent authority on a self-certification basis by the promoter that the conditions imposed in the final approval accorded to the land sub-division layout in Form D-3 (or in the approval of similar nature) have been complied with; or (ii) the receipt of the intimation of the Tehsildar given as an acknowledgement of having received the intimation of the date of commencement of the nonagricultural use after completion and execution of the all the conditions as may have been imposed by the concerned competent authority along with duly filled Form 4 (Architect Certificate – To be issued on completion of each of the Building/Wing) and signed by the project architect in compliance of Regulation 3 of the Maharashtra Real Estate Regulatory Authority (General) Regulations 2017. It was also clarified that the commencement Certificate is the final approval accorded to the land sub-division layout in Form D-3 of Unified Development Control and Promotion Regulations for Maharashtra State or the approval of similar nature with non- agricultural permission (wherever necessary).

Order bearing no. 63/2024 dated 22.10.2024 issued by Maha RERA on the inclusion of new clause 15A in the model agreement for sale

Vide the order dated 22.10.2024, Maha RERA has directed to incorporate a new clause 15A in the model agreement for sale which specifies that if a registered real estate agent facilitates a transaction between the promoter and the allottee, then any agreed fees, charges for services, or commissions (including taxes) must be paid by the promoter, allottee, or both, as per their agreed payment terms.

Intellectual Property Rights Brief

M/S Abbott Gmbh v/s Registrar of Trademarks & Anr. dated 22.10.2024

High Court of Bombay (MANU/DE/7366/2024)

The trademark “MEBUFEN” held to be structurally and phonetically dissimilar to the trademark “BRUFEN” by the High Court of Bombay.

The Appellant had filed a trademark opposition basis its trademark “BRUFEN” against the Respondent no. 2 for the trademark “MEBUFEN”.  The Registrar of Trade Marks passed an order (‘impugned order’) and dismissed the opposition and allowed the trademark to proceed with registration stating that the trademarks are overall dissimilar.

As a result, an appeal was filed under Section 91 of the Trade Marks Act, 1999 challenging the impugned order. The Appellant contented that mere addition of “ME” will not provide the mark with distinctiveness and the similarity between the two marks is likely to cause confusion among the public. The respondent no. 2 contended that both the marks are structurally, phonetically, and visually dissimilar; that the only common element between the two is the suffix “FEN” and that there are multiple “FEN” formative trademarks; that the common suffix “FEN” used in both marks, is derived from the chemical element “IBUPROFEN” which is used in both medicines; and lastly that the packaging of the competing marks are different.

The High Court of Bombay dismissed the appeal on the following grounds:

1. There is no structural or phonetic similarity between the rival marks in the present case and both the marks are dissimilar.
2. The rival marks have different prefixes “BRU” and “MEBU”.
3. The common suffix “FEN” is derived from the chemical element “IBUPROFEN” which is used in both medicines and the applicant cannot have exclusive right over it.

Sporta Technologies Pvt. Ltd. and Ors. v/s Hong YI F35 and Ors. dated 16.10.2024

High Court of Delhi (MANU/DE/7350/2024)

A suit for permanent injunction filed against a mirror domain name under trademark and copyright infringement.

The suit was filed to seek a permanent injunction to restrain the Defendants from infringing the Plaintiff’s trademark and copyright of the, passing off the goods and services as that of the Plaintiff’s. The Plaintiff is the owner of the sports fantasy platform “DREAM 11” and also the registrant of the domain name <www.dream11.com> since the year 2008 with an active website. The Plaintiff also owns a copyright with respect to the said website.

The Defendant no. 1 operated the impugned website “www.dream11com.in”. The Plaintiff alleged it has replicated its website and is also using its registered Trade Mark “DREAM11” and other logos as well. A comparison is as follows:

After considering the contentions of the Plaintiff that the Defendant was misleading the public through a mirror website, that it was diverting users to a site offering illegal betting and gambling services and was tarnishing the Plaintiff’s goodwill and reputation, the High Court of Delhi ordered:

a) A decree of permanent injunction restraining the Defendant No. 1, its representatives and/or others acting for and on its behalf from using the marks ‘Dream 11′ along with the logos and the tagline or any deceptively similar variant thereof, as a trademark, trade name, domain name, as part of their email addresses or in any other manner which amounts to infringement and or passing off of the Plaintiffs’ Dream 11 trademarks listed in the plaint;

b) A decree of permanent injunction restraining the Defendant No. 1, its representatives and/ or others acting for and on its behalf form using a layout/ user-interface on the website ‘www.dream11com.in’, which amounts to infringement of the Plaintiffs’ copyright vested in the layout/ user-interface of its website ‘www.dream11.com’.

c) The Defendant no.2/GoDaddy.com LLC to transfer the domain name ‘www.dream11com.in’ to the Plaintiff subject to payment of any registration charges, if required.

d) The Plaintiff is entitled to recover actual costs from the defendant no.1.

IPR Divisions at the High Court of Calcutta

The High Court of Calcutta notified its ‘Intellectual Property Rights Division Rules of the High Court, Calcutta, 2023’ through which it became the third High Court in the country to have an IP Department and created two divisions namely – the Intellectual Property Rights Division (IPRD) and the Intellectual Property Rights Appellate Division (IPRAD) in the Calcutta High Court.

IPR Divisions at the High Court of Calcutta

The High Court of Calcutta notified its ‘Intellectual Property Rights Division Rules of the High Court, Calcutta, 2023’ through which it became the third High Court in the country to have an IP Department and created two divisions namely – the Intellectual Property Rights Division (IPRD) and the Intellectual Property Rights Appellate Division (IPRAD) in the Calcutta High Court.

 

NCLT Brief:

Whether NCLT/NCLAT can exercise inherent powers for passing an order of withdrawal of CIRP of a corporate debtor?

Case Referred: GLAS Trust Company LLC Vs. BYJU Raveendran and Ors., Civil Appeal No. 9986/2024

Issue involved:

Recently, an issue that came up before consideration in a landmark case was whether NCLT and NCLAT can exercise its inherent powers under Rule 11 of NCLT Rules, 2016 and Rule 11 NCLAT Rules, 2016 respectively, allowing withdrawal of the Corporate Insolvency Resolution Process (“CIRP”) in presence of a prescribed procedure for the withdrawal of CIRP.

Proceedings before NCLT:

On 23.09.2023, Board of Control for Cricket in India (“BCCI”) filed an application against the Think and Learn Private Limited (“Corporate Debtor”) under Section 9 of the Insolvency and Bankruptcy Code (“IBC”) in respect of operational debt of amounting to Rs 158 crore approx. which was payable by the Corporate Debtor under the Team Sponsor Agreement. Vide Order dated 16.07.2024, the Hon’ble NCLT, Bengaluru Bench, allowed the application and the CIRP proceedings of the Corporate Debtor were initiated.

Separately, GLAS Trust Company LLC (“GLAS Trust”) also filed an application Section 7 IBC against the Corporate Debtor on 22.01.2024. Vide Order dated 16.07.2024, the Hon’ble NCLT disposed of the said application in view of the order passed on the same day admitting Section 9 application which was filed by BCCI. Further, NCLT granted liberty to GLAS Trust to file claims before the IRP appointed pursuant to the Section 9 IBC Order and also to seek revival of its Section 7 IBC petition depending upon the subsequent developments at the appellate level, if any.

Proceedings before NCLAT:

Being aggrieved by the order dated 16.07.2024 passed by the Hon’ble NCLT, both GLAS Trust and Mr. Byju Raveendran and his brother, Mr. Riju Raveendran, the suspended management of the Corporate Debtor filed separate appeals before the Hon’ble NCLAT. The ex-management of the Corporate Debtor challenged the admission of the Section 9 IBC petition by the NCLT and  GLAS Trust challenged the order of disposal of the Section 7 IBC petition. GLAS Trust also moved an application before the NCLAT seeking impleadment in the appeal which was filed by the ex-management of the Corporate Debtor, seeking to be heard before any relief was granted.

During the pendency of the said appeals filed by the ex-management of the Corporate Debtor and GLAS Trust Company LLC, Mr. Riju Raveendran, in his personal capacity made a settlement offer to BCCI and proposed to clear the debt of Rs. 158 crores in three tranches on 30.07.2024, 02.08.2024 and 09.08.2024. In respect thereof, BCCI agreed to take steps for the withdrawal of CIRP upon receipt of full payment of operational debt. GLAS Trust had also moved an application before the Hon’ble NCLAT objecting to the approval of the settlement and questioned the source of the funds for the settlement. An undertaking was filed by Mr. Riju Raveendran affirming money being offered for the settlement between BCCI and the Corporate Debtor. In view of the same, on 01.08.2024, NCLT passed an interim order staying the constitution of Committee of Creditors (COC).

Further, vide judgement dated 02.08.2024, the Hon’ble NCLAT in exercise of its powers under NCLAT Rules, approved the settlement and set aside the Order dated 16.07.2024 passed by the Hon’ble NCLT admitting Section 9 IBC Order.

Proceedings Before Hon’ble Supreme Court:

Being aggrieved by the Order dated 02.08.2024 passed by NCLAT, GLAS Trust (Appellant) filed an appeal before the Hon’ble Supreme Court, wherein issue that was involved was whether the NCLAT erred in invoking its inherent powers under Rule 11 of NCLAT Rules in presence of a prescribed procedure for withdrawal of CIRP and settlement of claims between the parties.

FINDINGS:

1. Stages of withdrawal as envisaged under IBC and accompanying Regulations:

The Hon’ble Court identified four distinct stages for withdrawing CIRP proceedings. Firstly, before CIRP admission, the proceedings are limited to the applicant creditor and corporate debtor, retaining an in personam nature. At this stage, the NCLT may permit withdrawal under Rule 8 of the NCLT Rules at the applicant’s request, as no other creditors’ rights are involved. Secondly, after admission but before the Committee of Creditors (CoC) is formed in which Regulation 30A(3) of the IBBI (Insolvency Resolution Process for Corporate Persons)  Regulations, 2016 (“CIRP Regulations”) permits the IRP to file a withdrawal application on behalf of the applicant. Thirdly, after CoC formation but before issuing an Expression of Interest (EOI), withdrawal of CIRP requires the approval of at least 90% of CoC members as mandated by Section 12A of the IBC. Lastly, after the issuance of EOI, withdrawal can be sought under Section 12A, however, the applicant must additionally justify the delay in seeking the withdrawal at the advanced stage of the process.

2. Nature of proceedings post-CIRP Admission:

The Hon’ble Apex Court clarified that once a CIRP of a Corporate Debtor is initiated, its nature shifts from being in personam to in rem, thereby, affecting the rights and interests of all creditors and stakeholders. Significant procedural steps, such as transferring the corporate debtor’s management to IRP/RP, imposing a moratorium under Section 14 of the IBC, and collating  claims from all creditor gets triggered pursuant to admission by NCLT. This transformation broadens the scope of the proceedings, ensuring CIRP now involves all creditors, including all those who were not part of the initial application which was filed by the applicant creditor. Hence, CIRP proceedings binds all stakeholders, making them integral to the resolution of the corporate debtor.

3. Detailed framework under Rule 11 of NCLT/NCLAT Rules, Section 12A IBC Regulation 30A of CIRP Regulations:

The Court clarified that inherent powers under Rule 11of NCLT Rules, 2016 and Rule 11 of NCLAT Rules, 2016 cannot be used to bypass clear statutory provisions.  When an exhaustive framework exists, such as for withdrawing CIRP, Courts must strictly adhere to it. When a procedure has been prescribed for a particular purpose exhaustively, no power shall be exercised otherwise than in the manner prescribed by the said provisions. In such cases, the court must be circumspect in invoking its ‘inherent powers’ to deviate from the prescribed procedure. If such deviation is made, the court must justify why this was necessary to “prevent the abuse of the process of the Court”. Any deviation must be carefully justified to prevent misuse of the judicial process. Critiquing the NCLAT’s approach in the present case, the Hon’ble Apex Court held that invoking Rule 11 to approve the settlement was erroneous. The proper procedure under Section 12A IBC and Regulation 30A of CIRP Regulations require withdrawal requests to be routed through the IRP and application seeking withdrawal can be presented only by IRP before the NCLT.

The Hon’ble Court was of the view that recourse to Rule 11 of NCLAT Rules was not warranted in the instant case as ‘inherent powers’ cannot be used to subvert legal provisions which exhaustively provide for a procedure. The correct course of action by NCLAT would have been to stay constitution of COC and direct the parties to follow the course of action under Section 12 A read with Regulation 30A of CIRP Regulations. Thus, the Order dated 02.08.2024 passed by NCLAT was set aside.

CONCLUSION

The Hon’ble Supreme Court allowed the appeal and reversed  decision of NCLAT whereby the CIRP of the Corporate Debtor was withdrawn in view of settlement between Mr. Riju Raveendran and BCCI. It was held that NCLAT had misapplied its inherent powers under Rule 11 of NCLAT Rules and thus, contravened the statutory framework under the IBC.

Litigation Brief:

Doctrine of lis pendens under Section 52 of the Transfer of Property Act shall commence on the date of filing; Review before the Registry for defect is inconsequential.

Siddamsetty Infra Projects (P) Ltd. v. Katta Sujatha Reddy, reported in 2024 SCC OnLine SC 3214.

Agreement to sell the suit property was executed in favour of the Petitioner in March, 1997. Prior to execution, the Petitioner had paid part-sale consideration towards advance and earnest money, and the same had been recorded in the Agreement to sell. However, the sale deed could not be executed as the Respondent-Sellers did not fulfil their part of the obligations. Consequently, the Petitioner filed a suit for specific performance before the Trial Court, which was dismissed. The High Court allowed the appeal subject to certain terms, but the same was set aside by the Supreme Court vide judgment and order dated 25.08.2022 (“Impugned Order”).

When the instant Review Petition filed under Article 137 came up for consideration before the Supreme Court, the Respondents submitted that the suit property had been alienated to a third party after the date of Impugned Order and before the instant review petition was registered i.e. after the expiry of three (3) months from date of Impugned Order. It was argued by the Respondents that the doctrine of lis pendens does not apply when the petition was in registry in a defective state.

Key Issue:

Whether the doctrine of lis pendens becomes applicable to third parties at the stage of institution or at the stage when notice is issued by the Court.

Ratio:

The Supreme Court observed that although the instant review petition was registered on 13.12.2022, the same had been filed on 23.09.2022 i.e. within the prescribed period of limitation.

The Supreme Court expounded upon the interpretation of Section 52 of the Transfer of Property Act, 1882, specifically the explanation clause which defines “pendency”.

It observed that the Transfer of Property (Amendment) Supplementary Act, 1929, had substituted the word “pendency” in place of “active prosecution” and the explanation appended thereto defined “pendency” to commence from “date of institution” until disposal.

Held:

The Supreme Court held that the doctrine of lis pendens commences at the stage of institution and not at the stage when notice is issued by the Court.

The Supreme Court did not accept the argument of the Respondents that the doctrine of lis pendens does not apply because the petition for review was lying in the registry in a defective state.

It held that Section 52 of the Transfer of Property Act would apply to the third-party purchaser once the sale was executed after the review petition was instituted before this Court. The Impugned Order was recalled, and the judgment of the High Court was accordingly restored.

Addressing the Jurisdictional Conundrum: Section 42 vis-à-vis Section 11 of the Arbitration Act

IN THE MATTER OF: MS CP Rama Rao Sole Proprietor vs. National Highways Authority of India

(Pronounced by the Hon’ble High Court of Delhi on 22.10.2024 in W.P.(C) 11484/2023)

The Hon’ble Delhi High Court recently has addressed the issue regarding the interpretation of Section 42 of the Arbitration and Conciliation Act, 1996 (‘Act’) in relation to Section 11 and Section 34. The case involved M/S CP RAMA RAO (‘Sole Proprietor’) challenging an Order passed by the District Judge adjudicating that the Section 34 petition filed by the Sole Proprietor is not maintainable before the Commercial Court. This judgement provides valuable guidance towards resolving the jurisdictional conundrum with regards to Section 34 and explains the corrective interpretation of Section 42 of the Act.

FACTS IN BRIEF

The District Judge on 22.08.2023 passed the Impugned Order and held that the Section 34 petition of the Sole Proprietor for setting aside the arbitral award decreed in favour of National Highways Authority of India (‘NHAI’) is not maintainable before the Commercial Court by virtue of Section 42 of the Act. The District Judge based his opinion on the interpretation of Section 42 of the Act and observed that the Section 34 petition should be instituted before the High Court due to the Sole Proprietor’s earlier Section 11(6) petition which was also presented before the High Court.

The District Judge took the view on the reasoning that a Section 11 petition is tantamounts to a prior application made in a court and thus the High Court alone will have the jurisdiction to entertain a petition to set aside the award. Section 42 of the Act provides that once an application relating to an arbitration agreement is made in a particular Court, that Court alone shall have the jurisdiction to adjudicate over any subsequent applications arising out of such agreement.

The Commercial Court thus declined to entertain the Sole Proprietor’s Section 34 petition and returned the Petition as being filed without any jurisdiction.

ISSUES BEFORE THE COURT

The following issues arose before the Delhi High Court:

1. Whether the High Court could exercise its supervisory jurisdiction under Article 227 to set aside the District Judge’s Order?

2. Whether a Section 11 application filed before the High Court triggers Section 42 mandating that all subsequent applications, including a Section 34 petition, must also be filed before the same High Court? 

ANALYSIS

1. Section 37(1)(c) of the Act, categorically provides that an appeal shall lie from an order setting aside or refusing to set aside an arbitral award under Section 34. As such, based on a bare reading of the Act, the order passed by the District Judge shall be treated as one falling within the ambit of Section 37(1)(c).

2. The Hon’ble Delhi High Court relied on the finding of the Apex Court in BGS SGS Soma JV v. NHPC Limited (2020) 4 SCC 234) wherein it has been observed that Section 13(1) of the Commercial Courts Act, 2015 does not confers an independent right of Appeal and thus Section 37 of the Act is to read to determine the maintainability of appeals. Under Section 34, a refusal to set aside an award must be based on the grounds and applied to the award in question. Only such orders can be placed under Section 37(1)(c). A decision with regards to a question of return of Section 34 petition by a Commercial Court due to lack of jurisdiction is outside the ambit of Section 37(1)(c).

3. The Impugned Order passed by the District Judge regarding maintainability of Section 34 petition does not tantamount to a refusal to set aside an award on the grounds as specified under Section 34(2) of the Act. As a result, it would be justified for the petitioner to invoke the High Court’s power of superintendence under Article 227 of the Constitution of India, 1950 (‘Constitution’) due to absence of remedy under Section 37 of the Act read with Section 13 of the Commercial Courts Act, 2015.

4. The Hon’ble Delhi High Court then referred to decision of Black Diamond Trackparts Pvt. Ltd. & Ors. v. Black Diamond Motors Pvt. Ltd (2021 SCC OnLine Del 3946) wherein it was held that a petition under Article 227 of the Constitution filed before a High Court with respect to orders of Commercial Courts is maintainable. The constitutional jurisdiction of a High Court to issue writs and the power of superintendence cannot be taken away. A High Court can exercise this power in a conscious way where failure to exercise it would result in grave injustice.

5. The Court thereafter referred to the judgement of State of West Bengal. v. Associated Contractors ((2015) 1 SCC 32), wherein it was observed that power to appoint arbitrators is conferred on the Chief Justice or his delegate. The power under Section 11(6) of the Act is not conferred on a High Court instead it is conferred on the Chief Justice of the High Court. This power is not conferred on the Chief Justice as persona designata. Therefore, Section 42 would not apply to applications made under Section 11 before the Chief Justice or his delegate because it does not come within the definition of “court” as defined under Section 2(1)(e) of the Act. They are not to be considered as a “court” for the purpose of Section 42 of the Act. As such, the import of Section 11 of the Act does not initiate the sequence of filings mandated by Section 42 of the Act. 

6. The Court held that the District Judge has taken an erroneous view of Section 11 petition being a petition made before a court and thus Section 42 shall apply. Petition for constitution of an arbitral tribunal is not equivalent to an application before a court. A previous Section 11 application does not restrict the filing of a Section 34 petition in a different court. 

7. Finally, the Court allowed the Writ petition and set aside the impugned order of the District Judge and directed that the Section 34 petition should be heard afresh. 

CONCLUSION

The decision gives a viable solution to the conundrum of sequence of filings mandated by Section 42 and clarifies the position that Section 11 application falls outside the purview of Section 42 and a petition to set aside an arbitral award can be filed in a Commercial Court even when a prior application under Section 11 is filed before the High Court. Moreover, the decision reiterates the power of a High Court to provide relief to parties in matters relating to Arbitration when no remedy under the Act exists. A High Court can provide relief to a party when a Commercial Court commits an error of law. It stresses that a sound interpretation of Section 42 would ease the process of Arbitration and prevent wastage of time for the enforcement or setting aside of arbitral awards. The judgment also reinforces the Delhi High Court’s constitutional duty to exercise its supervisory jurisdiction under Article 227 of the Constitution, ensuring that lower courts adhere to the procedural and substantive framework of Arbitration laws. By doing so, the Court clarified procedural ambiguities under the Act and reiterated the importance of facilitating efficient dispute resolution in line with legislative intent.

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