Highlights:

Corporate Brief 

  • Draft Circular dated 05.08.2024 issued by the Reserve Bank of India regarding Regulatory Principles for Management of Model Risks in Credit.
  • Review of Master Direction dated 16.08.2024 issued by the Reserve Bank of India regarding Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017.
  • Circular dated 20.08.2024 issued be the Securities and Exchange Board of India regarding Cybersecurity and Cyber Resilience Framework (CSCRF) for SEBI Regulated Entities (REs).
  • Press Release dated 28.08.2024 issued by the Reserve Bank of India regarding Recognition of Self-Regulatory Organisation(s) in the FinTech Sector (SRO-FT).
  • Scheme dated 29.08.2024 issued by the Reserve Bank of India regarding Trading and Settlement of Sovereign Green Bonds in the International Financial Services Centre in India.              

 RERA Brief 

  • Circular dated 01.08.2024 issued by Tamil Nadu Real Estate Regulatory Authority (“TNRERA”) constituting an e-Seva Desk for special assistance to the Promoters in processing the registration files for uploading the same in the web portal of TNRERA
  • Office Order dated 08.08.2024 issued by Uttar Pradesh Real Estate Regulatory Authority (“UP RERA”) to issue the new standard operating procedures in respect of process for handling complaints and enforcing orders under the Real Estate (Regulation and Development) Act, 2016
  • Notification dated 16.08.2024 issued by Maharashtra Real Estate Regulatory Authority (“MahaRERA”) to amend the Maharashtra Real Estate Regulatory Authority (General) Regulations, 2017. 

Intellectual Property Rights Brief

  • Neela Film Productions Private Limited vs. TaarakMehtaKaOoltahChashmah.com & Ors. (CS (COMM) 690/2024)
  • Lacoste & Anr. Vs. Crocodile International Private Limited & Anr. (Case no.CS(COMM) 1550/2016
  • Phonographic Performance Limited vs. State of Goa (Writ Petition No. 253 OF 2024)

NCLT Brief

  • Whether the time period provided to successful bidder for paying the balance consideration under the IBBI (Liquidation Process) Regulations, 2016 is mandatory or directory?. 

Litigation Brief

  • Pre-Institution mediation mandatory in counter-claim cases: Aditya Birla Fashion and Retail Ltd. v. Saroj Tandon, (2024 SCC OnLine Del 6099) passed by Hon’ble Delhi High Court on September 2, 2024.
  • Proceedings under Negotiable Instruments Act do not constitute continuing cause of action to initiate Arbitration.
  • From Dubai to Delhi: Navigating the Maze of Anti-Suit Injunctions in Arbitration. 

Corporate Brief 

Draft Circular dated 05.08.2024 issued by the Reserve Bank of India regarding Regulatory Principles for Management of Model Risks in Credit.

  • The Reserve Bank of India issued a draft circular dated 05.08.2024 regarding Regulatory Principles for Management of Model Risks in Credit. The draft circular which had invited comments, lays down certain broad regulatory principles that need to be adopted by the Regulated Entities (REs) in this respect.
  • As per the draft circular, a ‘credit risk model’ refers to any quantitative method that applies statistical, economic, financial, or mathematical principles and assumptions to process data into an output to be used for credit decisions. Subject to the broad principles laid down in the draft circular, the models may either be developed internally or outsourced from external third-party service providers.
  • REs are required to put in place a policy regarding model risk management framework which shall be approved by their Board, and they shall also put in place model vetting or validation processes for assessing the robustness of the model prior to their deployment.
  • Further, the models deployed by the REs (developed in-house or otherwise), shall be subjected to supervisory review by the Reserve Bank of India.
  • Chapter 3 (Credit Risk Models) of the Guidance Note on Credit Risk Management issued by the Reserve Bank of India on 12.10.2002, alone is proposed to be repealed. 

Review of Master Direction dated 16.08.2024 issued by the Reserve Bank of India regarding Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017.

  • The Reserve Bank of India vide a Review of Master Direction – Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017, amended the Master Direction – Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017.
  • These amendments have been introduced in view of certain practices adopted by the platform which were found to be violative of the said Master Directions. The Reserve Bank of India has thus elaborated and clarified certain provisions with some modifications for the implementation of the Master Directions.
  • Among other amendments, the Reserve Bank of India has clarified the Non-Banking Finance Companies – Peer to Peer Lending Platforms shall not assume any credit risk, either directly or indirectly, arising out of transactions carried out on its platform. 

Circular dated 20.08.2024 issued be the Securities and Exchange Board of India regarding Cybersecurity and Cyber Resilience Framework (CSCRF) for SEBI Regulated Entities (REs).

  • The Securities and Exchange Board of India issued a circular dated 20.08.2024 regarding the Cybersecurity and Cyber Resilience Framework (CSCRF) for SEBI Regulated Entities (SEBI REs), to strengthen the cybersecurity measures in the Indian securities market, and to ensure adequate cyber resiliency against cybersecurity incidents/ attacks.
  • The CSCRF aims to provide standards and guidelines for strengthening cyber resilience and maintaining robust cybersecurity of SEBI REs.
  • The key objective of this circular is to address evolving cyber threats, to align with the industry standards, to encourage efficient audits, and to ensure compliance by SEBI REs. The CSCRF also sets out standard formats for reporting by REs. The framework provides a structured methodology to implement various solutions for cybersecurity and cyber resiliency.

Press Release dated 28.08.2024 issued by the Reserve Bank of India regarding Recognition of Self-Regulatory Organisation(s) in the FinTech Sector (SRO-FT).

  • The Framework for Self-Regulatory Organisations in the Fintech Sector (SRO-FT) was issued by the Reserve Bank of India on 30.05.2024, and accordingly invited applications for recognition of organisations as SRO-FTs.
  • Vide the Press Release dated 28.08.2024, the Reserve Bank of India has decided to recognise the FinTech Association for Consumer Empowerment (FACE) as an SRO-FT.
  • The Press Release also states that two other applications were received, out of which one has been returned with a provision for resubmission after meeting certain requirements; and the other is under examination. 

Scheme dated 29.08.2024 issued by the Reserve Bank of India regarding Trading and Settlement of Sovereign Green Bonds in the International Financial Services Centre in India. 

  • The Reserve Bank of India issued the Scheme for Trading and Settlement of Sovereign Green Bonds (SGrBs) in the International Financial Services Centre (IFSC) in India (Scheme) on 29.08.2024.
  • The Scheme applies to investment in Sovereign Green Bonds issued by the Government of India by eligible investors in IFSC in India.
  • While the Scheme has defined the investors who are eligible to participate in the Scheme, it also states that the Sovereign Green Bonds issued by the Government of India shall be eligible for investment under the Scheme subject to certain conditions.
  • The Scheme also covers provisions in respect of participation in primary markets and secondary markets; coupon payment and redemption; guidelines for Know Your Customer (KYC)/ Anti-Money Laundering (AML); data management; and reporting requirements.

Real Estate Brief

Circular dated 01.08.2024 issued by Tamil Nadu Real Estate Regulatory Authority (“TNRERA”) constituting an e-Seva Desk for special assistance to the Promoters in processing the registration files for uploading the same in the web portal of TNRERA.

  • As per circular dated 01.08.2024, TNRERA has constituted an e-Seva Desk for special assistance to the Promoters in processing the registration files for uploading the same in the web portal of TNRERA. TNRERA has prescribed different fee slabs for this task of special assistance. The said fee shall be paid either through online or through Point of Sale (POS) available in the TNRERA Office. This arrangement is for uploading the registration applications and not for scanning of documents. Hence, the promoters have been requested to give soft copy along with their applications.

Office Order dated 08.08.2024 issued by Uttar Pradesh Real Estate Regulatory Authority (“UP RERA”) to issue the new standard operating procedures in respect of process for handling complaints and enforcing orders under the Real Estate (Regulation and Development) Act, 2016. 

  • As per this office order dated 08.08.2024, UP RERA issued the new standard operating procedures (SOP) to further change the previously issued standard operating procedures issued vide office order dated 31.10.2022 in respect of the process for handling complaints and implementation of orders under the Real Estate (Regulation and Development) Act, 2016 (RERA Act) and related rules in Uttar Pradesh.
  • UP RERA issued the SOP to outline several key changes and updates regarding the delegation of rights in relation to hearing of complaints received under Section 31 of the RERA Act, general instructions related to hearing and disposal of complaints as per the provisions of RERA Act and Rules, correction of any error in UP RERA’s order/direction and implementation of the order/direction passed by UP RERA.
  • For further details regarding the said office order dated 08.08.2024, the following link can be referred:

https://www.up-rera.in/pdf/SOP-08-08-2024.pdf 

Notification dated 16.08.2024 issued by Maharashtra Real Estate Regulatory Authority (“MahaRERA”) to amend the Maharashtra Real Estate Regulatory Authority (General) Regulations, 2017.

Intellectual Property Rights Brief

Neela Film Productions Private Limited vs. TaarakMehtaKaOoltahChashmah.com & Ors. (CS (COMM) 690/2024)

The IP owners of “Taarak Mehta Ka Ooltah Chashmah” attained an ex parte ad-interim injunction against various parties including John Doe, at the High Court of Delhi.

The Plaintiff, who owns the intellectual property for the show “Taarak Mehta Ka Ooltah Chashmah,” filed a suit for injunction against the Defendants (including John Doe parties), alleging infringement of its registered copyright and trademarks including ‘Taarak Mehta Ka Ooltah Chashmah’, ‘Ooltah Chashmah’, ‘Taarak Mehta’, ‘Jethaalal’ and ‘Gokuldhaam’.

There were several allegations against various Defendants including a registered domain name i.e. www.taarakmehtakaooltahchashmah.com and uploaded content related to the show on the website, sale of old unauthorized merchandise featuring the show’s characters/their dialogues, published videos/images containing AI generated images on YouTube that infringed the Plaintiff’s copyright and trademarks, respectively.

The Court in view of the circumstances, issued an ex parte ad-interim injunction against the Defendants, including the John Doe parties, restraining them from engaging in activities that infringe upon the Plaintiff’s copyrighted material and registered trademarks. The Defendants were further prohibited from hosting, streaming, broadcasting, re-transmitting, exhibiting, or making available any content, goods, or services that infringe on the Plaintiff’s intellectual property. The Court also ordered to remove the YouTube videos which were infringing upon the Plaintiff’s rights.

Lacoste & Anr. Vs. Crocodile International Private Limited & Anr. (Case no.CS(COMM) 1550/2016

The High Court of Delhi granted permanent injunction against Crocodile International Private Limited restraining it from using the logo in India.

The Plaintiff alleged that the Defendant was infringing upon its trademark and copyright for  by using a crocodile logo i.e.  in India. The Defendants, on the countered the Plaintiff’s contention by placing reliance on the 1983 co-existence agreement and a 1985 letter to the Defendant, addressed by the Plaintiff to co-exist, which allowed the Defendant to use its mark in a few countries, including India. The Defendant also relied on Section 12 of the Trade Marks Act, 1999 for being an honest and concurrent user.

In view of the documentary evidence produced and the arguments presented, the Court observed and held that:

  • the Plaintiff is the rightful owner of the copyright in the logo since 1927.
  • the Defendant has rights in the composite marks but does not have prior rights in the bare logo  in India.
  • The Agreement did not extend the use of the logo to India without the word “CROCODILE,” thus limiting the scope of concurrent use claimed by the Defendant.
  • The logo (Defendant) is deceptively similar to the logo (Plaintiff), creating a substantial likelihood of consumer confusion. The court granted permanent injunction against the Defendant, restraining it from using the logo in India. 

Phonographic Performance Limited vs. State of Goa (Writ Petition No. 253 OF 2024)

The High Court of Bombay quashed and set aside the circular by the State of Goa for the exceptions of copyright infringement.

The Petitioner challenged a circular issued by the Respondent, dated 30.01.2024. The circular was issued by the Respondent further to the public notice by the DPIIT dated 24.07.2023. The DPIIT notice stated that the copyright societies were directed to refrain from collecting royalties for playing music in marriage functions in contravention of Section 52(1)(za) of the Copyright Act, 1957 (“Act”). The Respondent’s circular issued a clarification to the public notice stating that “…it is clarified that no hotel or any copyright society shall insist upon any permissions/NOCs for performance of musical works or other musical recordings for religious ceremonies/festivals including wedding/marriage events and other social festivities associated with marriage. All concerned have to act in terms of the Public Notice of Government of Inia dated 24.07.2023…”.

The Petitioner argued that the government, being an executive body, did not have the power to interpret the law by way of a circular and neither can it broaden the scope of Section 52(1)(za) of the Act to permit unauthorised use of sound recordings in weddings and related events.

The court held that the circular is in the teeth of the provisions of the Act and therefore, the petition must succeed. It was observed that the circular is not an informational document aimed at keeping the public informed of their rights and it warrants interference in the exercise of writ jurisdiction of this Court under Article 226 of the Constitution of India. It further held that the circular dated 30.01.2024 issued by the Respondent be quashed and set aside.

NCLT Brief

Whether the time period provided to successful bidder for paying the balance consideration under the IBBI (Liquidation Process) Regulations, 2016 is mandatory or directory?

In terms of Rule 12, Schedule-I of Regulation 33 of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (“Liquidation Regulations”) , a successful bidder is required to pay the balance sale consideration within 90 days from the date of demand, i.e., when the auction purchaser receives the communication from the Liquidator. Recently, the issue as to whether the aforesaid timeline specified under the Liquidation Regulations is mandatory or is subject to extension, came up for consideration before the Hon’ble Apex Court.

BRIEF FACTS:

Sri Lakshmi Hotels Private Limited (“Corporate Debtor”) is a family held concern which has four shareholders. In the year 2006, the Corporate Debtor took a loan from a financial creditor. After dispute arose between the parties, the financial creditor initiated the arbitration proceedings, and an award was issued in the favour of financial creditor by the Arbitral Tribunal for a sum of Rs. 2,21,08,244/-. Due to non-payment by the Corporate Debtor, the financial creditor filed Section 7 application under the Insolvency and Bankruptcy Code (“IBC”) and thereby, the Corporate Insolvency Resolution Process (“CIRP”) proceedings of the Corporate Debtor were initiated by the Hon’ble NCLT on 28.02.2019. Subsequently, an Order of liquidation was passed by the Hon’ble NCLT on 17.07.2019, as no resolution plan for reviving the Corporate Debtor was proposed.

The Liquidator engaged the registered valuers to give estimated valuation of the subject property of the Corporate Debtor and scheduled an auction on 25.11.2019 with reserve price at Rs. 39,41,28,500/-, however, no bid was received in the first auction. Further, a second auction was scheduled by the Liquidator wherein the reserve price was reduced to Rs. 29,55,96,375/-. One M/s KMC Speciality Hospitals (India) Limited was the sole bidder in the second auction process and on depositing the earnest amount, it emerged as successful bidder. The auction purchaser received the communication  from the Liquidator for the demand of balance consideration on 26.12.2019. However, the auction purchaser failed to pay the balance consideration before the expiry of the 90th day, i.e., 25.03.2020. On 22.04.2020, the auction purchaser moved an application before the Hon’ble NCLT for extension for making payment of the balance sale consideration on account of COVID-19. .

Proceedings before NCLT: Vide Order dated 05.05.2020, the Hon’ble NCLT allowed the application filed by the auction purchaser and thereby  extended the time period to deposit the balance consideration which was deferred till the lockdown was lifted by the state / central government. The said amount was paid by the auction purchaser on  24.08.2020 and a Sale Deed was executed by the Liquidator in favour of the auction purchaser on 28.08.2020. Mr. V.S. Palanivel, who is the shareholder and Managing Director of the Corporate Debtor filed applications before NCLT challenging the execution of the Sale Deed dated 28.08.2020 and for stalling the auction process. Vide Order dated 17.11.2021, NCLT dismissed both the applications filed by Mr. V.S. Palanivel.

Proceedings before NCLAT: Being aggrieved by the aforesaid order of NCLT, Mr. V.S. Palanivel (“Appellant”), filed an appeal before the Hon’ble NCLAT. Vide Order dated 16.09.2022, the Hon’ble NCLAT dismissed the appeal filed by the Appellant and upheld the decision of the NCLT.

Proceedings before Hon’ble Supreme Court: After being aggrieved by the Order of NCLAT, the Appellant filed a civil appeal before the Hon’ble Supreme Court wherein issue that was involved was whether the NCLT was justified in granting extension of time to deposit the balance sale consideration, due to the COVID-19 lockdown.

Finding of the Hon’ble Supreme Court-

The Hon’ble Court noted that the liberal interpretation would have to be adopted in the contextual background of COVID-19 pandemic and the auction purchaser would be entitled to the Order dated 23.03.2020 passed by the Hon’ble Supreme Court in Suo Moto writ petition whereby the period of limitation was extended w.e.f. 15.03.2020. Further, the auction purchaser would also be entitled to the benefit of Regulation 47A of Liquidation Regulations which states that COVID-19 outbreak shall not be counted for the purpose of computation of time-line in relation to liquidation process.

It was held that the timeline of 90 days provided for payment of balance consideration under Regulation 33 of the Liquidation Regulations is absolute , however, the same can be extended under the special circumstances, like COVID-19 pandemic. The Hon’ble Court observed that the the period of 90 days for depositing the balance sale consideration had expired just after the crucial date, i.e., 23rd March, 2020. Hence, the NCLT was justified in granting extension of time for payment of balance consideration as COVID-19 lockdown was a valid reason for extension of time to deposit the balance sale consideration. Hence, the appeals filed by the Appellant were dismissed by the Hon’ble Court.

Conclusion:

To sum up, it can be said that the timeline specified under Rule 12 of Part-1 of Schedule-I of Liquidation Regulations for the submission of the balance consideration is mandatory as it specifies a consequence  regarding failure of the highest bidder to pay the remaining sale consideration within the prescribed 90-day timeframe which may lead to cancellation of the sale by the Liquidator. However, the said timeline can be extended by the Adjudicating Authority only under the extraordinary circumstances like COVID-19 pandemic.

Case Referred: V.S. Palanivel vs P. Shriram Cs Liquidator (Civil Appeal Nos. 9059-9061 of 2022)

 Litigation Brief

Pre-Institution mediation mandatory in counter-claim cases: Aditya Birla Fashion and Retail Ltd. v. Saroj Tandon, (2024 SCC OnLine Del 6099) passed by Hon’ble Delhi High Court on September 2, 2024

Facts in Brief

The petitioner entered into a lease agreement with the respondent on March 15, 2013, for commercial premises. Due to the exigencies arising from the COVID-19 pandemic, the petitioner terminated the lease and sought a refund of the security deposit. Upon the respondent’s failure to return the deposit, the petitioner initiated a commercial suit under the Commercial Courts Act, 2015, after an unsuccessful attempt at pre-institution mediation as mandated by Section 12-A of the said Act. The respondent subsequently filed a counterclaim for unpaid rentals on February 21, 2022, without undertaking the requisite pre-institution mediation. The petitioner’s application for rejection of the counter claim under Order VII Rule 11 of the Civil Procedure Code (CPC) was dismissed by the Trial Court, precipitating the present petition under Article 227 of the Constitution of India.

Issues

  • Whether a counterclaim in a commercial suit is subject to the mandatory pre-institution mediation requirement under Section 12A of the Commercial Courts Act, 2015.
  • Whether non-compliance with Section 12A vis-a-vis a counterclaim can result in its rejection under Order VII Rule 11 of the CPC.
  • Whether a party’s non-participation in the initial mediation for the primary suit prevents the necessity of the mediation process for their counterclaim.

Ratio

The Hon’ble High Court held inter alia that a counterclaim, by virtue of Order VIII Rule 6A of the CPC, is to be treated as an independent suit for all intents and purposes. Consequently, the procedural prerequisites applicable to the original suit, including pre-institution mediation, extend to counterclaims in commercial disputes. The Court elucidated that Section 12A of the Commercial Courts Act, 2015, does not differentiate between primary suits and counterclaims with respect to the mandatory requirement of pre-institution mediation. The provision’s scope encompasses all commercial disputes, save those seeking urgent interim relief.

Relying on the ratio laid down by the Supreme Court in Patil Automation Pvt. Ltd., the Court affirmed that non-compliance with the mediation requirement, even in the case of a counterclaim, would render it liable to rejection under Order VII Rule 11 of the CPC. The Court unequivocally rejected the contention that a party’s failure to participate in the initial mediation process for the primary suit exempts them from initiating mediation for their counterclaim. The Court opined that each claim, whether original or counter, must be evaluated independently for compliance with statutory prerequisites.

Judgement

The Delhi High Court held that pre-institution mediation under Section 12A of the Commercial Courts Act, 2015, is mandatory for all suits involving commercial disputes, including counterclaims that do not seek urgent relief. Non-compliance with this requirement renders the counter-claim defective and subject to rejection under Order VII Rule 11 of the CPC. However, the Court, in the instant case, salvaged the counterclaim from rejection, applying the prospective cut-off date of August 20, 2022, as established by the Supreme Court in Patil Automation Pvt. Ltd.

Proceedings under Negotiable Instruments Act do not constitute continuing cause of action to initiate Arbitration.

CASE ANALYSIS: Elfit Arabia & Anr v. Concept Hotel BARONS Limited & Ors, 2024 INSC 536.

Decided by Hon’ble Supreme Court of India on 09.07.2024.

Factual matrix:

  1. The Elfit Arabia, an entity incorporated in the United Arab Emirates, was approached by Concept Hotel BARONS limited to finance a telecommunication project undertaken by Telesuprecon Nigeria Limited (TNL).
  2. On 1 June, 2004, the Petitioners entered into a Memorandum of Understanding (MoU) with the Respondents to finance a telecommunication project undertaken by TNL. The MoU included terms of repayment, with the Respondents agreeing to provide cheques and a lien on property for security.
  3. Funds were disbursed by the Petitioners, but issues arose when cheques issued by the Respondents were dishonoured. In August 2006, a supplementary MoU was executed, further outlining repayment terms.
  4. On 7 May, 2011, cheques totalling Rs. 7.30 crores were presented for payment and dishonoured. A legal notice was issued in June, 2011 demanding payment, and later proceedings under Section 138 of the Negotiable Instruments Act were initiated, in which Respondent was acquitted on 23.07.2018 and appeal was pending before the High Court of Bombay.
  5. Eleven years later, in July 2022, the Petitioners invoked arbitration under clause 19 of the MoU. The Respondents failed to respond, and a second notice was sent in October 2022. With no response, the Petitioners filed the petition under Section 11 of the Arbitration and Conciliation Act for the appointment of an arbitrator.

Key Issue

The main issue in the case was whether the Petitioners’ claims were barred by limitation, as they invoked arbitration clause eleven years after the cause of action arose, far exceeding the three-year limitation period under the Limitation Act, 1963.

Observations

  1. The Apex Court noted that while the issue of limitation typically falls under the domain of the arbitral tribunal, courts have the power to intervene at the referral stage if the claims are ex-facie time-barred or non-arbitrable, however, a court exercising jurisdiction under Section 11(6) of the Arbitration and Conciliation Act, may reject ex-facie non-arbitrable or dead claims. The Court further noted that the courts are responsible for “cutting off deadwood” to prevent protracted arbitration processes that are bound to fail.
  2. The Supreme Court held that the initiation of arbitration and criminal proceedings under Section 138 of the Negotiable Instruments Act 1881 are separate and independent proceedings that arise from two separate causes of action. Therefore, the institution of the proceedings under Section 138 does not imply a continuing cause of action for the purpose of initiating arbitration.
  3. The Supreme Court found that the notices invoking arbitration in July 2022 and October 2022 were issued eleven years after the cause of action arose in 2011, exceeding the three-year limitation period. The initiation of arbitration proceedings was hopelessly barred by limitation.
  4. The facts of the present case undoubtedly fall within the narrow compass of interference that courts exercise at the stage of appointment of Arbitrator. However, the Supreme Court dismissed the arbitration petition, stating that referring the dispute to arbitration would compel the parties to arbitrate a “deadwood” claim that is clearly time-barred.

From Dubai to Delhi: Navigating the Maze of Anti-Suit Injunctions in Arbitration 

IN THE MATTER OF: Honasa Consumer Limited vs. RSM General Trading LLC

(Pronounced by the Hon’ble High Court of Delhi on 20.08.2024 in O.M.P (I) (COMM.) 214 of 2024.

The Hon’ble Delhi High Court recently tackled the issue as to whether a party can file a suit in a foreign court despite the existence of an arbitration agreement between the parties. The case involved Honasa Consumer (‘Honasa’) seeking an anti-suit injunction to prevent RSM General Trading LLC (‘RSM’) from pursuing litigation in Dubai, in violation of their arbitration clause. This judgment is extremely crucial in defining the scope of the court’s powers to grant anti-suit injunctions in the context of international arbitrations and emphasizes the need to respect contractual agreements that provide for an arbitration mechanism. 

FACTS IN BRIEF

On 30.07.2020, Honasa entered into an Authorized Distributorship Agreement (‘ADA’) with RSM, whereby RSM was appointed as a distributor for certain products in the Middle East and Africa. The contract also included a Dispute Resolution Clause which categorically specified that any disputes between the parties would be resolved through the procedure stipulated thereunder, viz. arbitration under the Arbitration and Conciliation Act, 1996 (‘Act’). The ADA between Honasa and RSM also contained an exclusive jurisdiction clause, which designated the courts in New Delhi as having exclusive jurisdiction over any legal matters arising out of the agreement. The exclusive jurisdiction clause further reinforced the parties’ intention to resolve disputes within the framework of Indian law, either through arbitration or the Indian courts.

In October 2022, a dispute arose between the parties, Honasa invoked Clause 16.3 of the ADA, thereby terminating the agreement w.e.f. 17.01.2023 following which Honsa full and final reconciliation of disputes inter-se the parties. Be that as it may, despite having an arbitration and exclusive jurisdiction clause in the ADA, RSM filed a Suit on 25.11.2022 in Dubai claiming damages for an amount of AED 45,000,000 and included a subsidiary company (incorporated in Dubai) of Honasa as a defendant before the Dubai Court. Honasa raised objections to the Dubai Suit’s maintainability, arguing that the ADA specified arbitration in New Delhi, which was essentially being governed by Indian law, and granted exclusive jurisdiction to New Delhi courts. It also contended that including its subsidiary as a defendant was a deliberate attempt to improperly invoke Dubai’s jurisdiction, despite the subsidiary’s lack of involvement in the dispute.

On 16.05.2024, the Dubai Court ruled in favour of RSM, applying Dubai law, and found Honasa in breach of the ADA, thereby awarding damages to RSM. Thereafter, Honasa appealed the judgment in Suit before the Dubai Court of Appeal, which is pending adjudication and simultaneously, RSM also moved the Executing Court at Dubai.

In response to the legal proceedings initiated by RSM, Honasa filed a Petition under Section 9 of the Act before the Hon’ble Delhi High Court seeking an anti-suit injunction, while arguing that the initiation of proceedings in Dubai was in breach of the Arbitration and the Exclusive Jurisdiction Clause under the ADA and the matter should be referred to arbitration as per the agreed terms.

ISSUES BEFORE THE COURT

The following issues arose before the Delhi High Court:

  1. Whether filing a suit in Dubai amounted to a violation of the arbitration clause.
  2. Whether Honasa was entitled to an anti-suit injunction in light of the arbitration agreement.

ANALYSIS

  1. The Hon’ble Delhi High Court reaffirmed its authority to issue anti-suit injunctions by applying the principles from the judgment of Modi Entertainment Network v. WSG Cricket Pvt Ltd. (AIR 2003 SC 1177), where foreign proceedings are vexatious or oppressive, and there exists a contractual obligation to arbitrate.
  1. The Court held that the arbitration clause between Honasa and RSM was valid and enforceable, and the initiation of proceedings in Dubai constituted a breach of the arbitration agreement. The also Court noted that allowing parallel proceedings would undermine the veracity and validity of the arbitration proceedings and raises the risk of having conflicting judgments, contrary to the parties’ agreement.
  1. Additionally, the Court read into Section 9 of the Act which permits granting anti-suit and anti-enforcement injunctions to enforce arbitration agreements, even in cases involving foreign decrees. The Court rejected RSM’s argument based on the principle of comity, holding that Indian courts must protect the legal rights of citizens when foreign courts act beyond their jurisdiction.
  1. The Court issued the following key directives in its judgment:
  2. Abuse of Process: RSM’s initiation of the proceedings in Dubai was labelled as a gross abuse of legal process, designed to circumvent arbitration proceedings.
  3. Lack of Jurisdiction: The Dubai Court lacked jurisdiction, as the ADA was governed by Indian law, with arbitration to be held in New Delhi.
  4. Comity of Courts: The Court ruled that comity does not apply when a foreign court overreaches its jurisdiction, and Indian courts cannot stand idle in such cases.
  5. Withdrawal of Dubai Proceedings: RSM was ordered to withdraw the Dubai execution proceedings within three weeks and submit proof to the Hon’ble Delhi High Court.
  6. Deposit of Dubai Damages: RSM was directed to deposit the damages awarded by the Dubai Court with the Delhi High Court, to be released to Honasa if RSM executes the decree. If RSM withdraws the proceedings, the deposit would be returned.
  7. Arbitration Proceedings: RSM was also directed to respond to the arbitration notice, with liberty for either party to file under Section 11 for tribunal appointment if no agreement on the arbitrator is reached.

CONCLUSION

The judgment reinforces the principle that parties should be held to their contractual commitments and that courts will intervene to prevent foreign litigation that undermines the arbitration process. The judgment underscores the supremacy of arbitration clauses in international contracts, highlighting the courts’ duty to uphold contractual obligations and protect the integrity of arbitration. It stresses that foreign proceedings initiated in violation of an arbitration agreement can be restrained to prevent legal process abuse. Through anti-enforcement injunctions, courts safeguard against attempts to bypass arbitration, ensuring disputes are resolved as agreed. The decision reaffirms the power of Indian courts to intervene where foreign litigation undermines the parties’ contractual commitments, reinforcing the principle that arbitration remains the preferred mode of dispute resolution in cross-border agreements.

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