We are delighted to share this month’s AKP Dispute Resolution Monthly Digest. Please feel free to write to us with your feedback at info@akandpartners.in.
1. Debt Recovery
1.1. Banking and Finance Sector
Supreme Court
1.1.1. Supreme Court expresses dismay at Karnataka High Court’s unwarranted interference in SARFAESI proceedings
1.1.1.1. Facts of the case
LIC Housing Finance Ltd, the petitioner issued two demand notices on August 05, 2021, claiming INR 41 Crore (Indian Rupees Forty One Crore only) and INR 31 Crore (Indian Rupees Thirty One Crore only) from the respondent, Nagesan and Company, under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”). On September 29, 2021, the Karnataka High Court passed interim orders, temporarily restraining LIC Housing Finance from proceeding with recovery action against the defaulting borrower, provided the borrower deposited INR 5 Crore (Indian Rupees Five Crore only) in two instalments. On September 23, 2022, the High Court extended its earlier order despite the borrower’s delayed payment. LIC Housing Finance challenged these interim orders, lacking detailed reasons, at the Supreme Court.
1.1.1.2. Value of Claim
The total value of the claim was INR 72 Crore (Indian Rupees Seventy-Two Crore only).
1.1.1.3. Question of Law
Whether the High Court was justified in blocking LIC Housing Finance from recovering its dues from the borrower under the SARFAESI Act, without giving clear reasons for this order?
1.1.1.4. Judgment Analysis
The Supreme Court, reinforcing the statutory mandate of the SARFAESI Act, 2002, criticised the Karnataka High Court for blocking the recovery proceedings initiated by LIC Housing Finance Limited without providing any judicial reasoning. The Supreme Court, expressing dismay at the 30-month delay in the High Court’s handling of this recovery case, highlighted that such unreasoned interim orders undermine the core purpose of the SARFAESI Act, which is meant to enable timely recovery for lenders. The Supreme Court made it clear that courts should not block recovery actions unless there is clear evidence of procedural error or legal wrongdoing.
1.1.1.5. Key takeaway
This ruling sends a strong message that courts must exercise restraint and respect the legislative framework governing financial recoveries. It reiterates that statutory remedies under SARFAESI should not be bypassed casually and highlights the judiciary’s duty to preserve the sanctity of specialised recovery mechanisms. The decision acts as an important precedent reinforcing the discipline of minimal interference by writ courts in commercial and debt recovery matters.
High Court
1.1.2. Kerala High Court bars enforcement of claims for cash debt exceeding INR 20,000, without a valid explanation under the Income Tax Act, 1961
1.1.2.1. Facts of the case
In the present case, the complainant, Shine Varghese, lent INR 9 Lakh (Indian Rupees Nine Lakh only) to the accused P.C. Hari, who, in return, issued a cheque for repayment, which subsequently dishonoured. The complainant filed a criminal complaint under Section 138 of the Negotiable Instruments Act, 1881 (“NI Act”). During the trial, evidence showed that the amount was initially paid in cash by the complainant, who admitted to not being a taxpayer or reporting the transaction for tax purposes. The trial court convicted the accused, sentencing him to one year’s imprisonment and ordering compensation. The accused then filed a criminal revision before the Kerala High Court, arguing that a cash transaction above INR 20,000 (Indian Rupees Twenty Thousand only) violated Section 269SS of the Income Tax Act, 1961, and was not a “legally enforceable debt” under the NI Act.
1.1.2.2. Value of claim
The total value of the claim was INR 9 Lakh (Indian Rupees Nine Lakh only).
1.1.2.3. Question of law
Whether a debt arising out of cash transactions, without a valid explanation, is a legally enforceable debt under the Negotiable Instruments Act,1881 (“NI Act”)?
1.1.2.4. Judgment Analysis
The Kerala Court gave the judgment in favour of the accused and set aside the conviction order. The court held that a debt arising from cash transactions above INR 20,000 (Rupees Twenty Thousand only) is not a legally enforceable debt in cheque dishonour cases unless a valid explanation is provided. The existence of a legally enforceable debt can be rebutted by the accused to question its legality and source of cash. The complainant admitted that tax was not paid on the amount. The court observed that liability to repay an unaccounted cash amount, not disclosed in the income-tax return, cannot be a legally recoverable liability.
1.1.2.5. Key Takeaway
For businesses, the ruling serves as a clear warning that ignoring tax and financial regulations can invalidate claims for debt recovery, expose the company to legal challenges, and undermine financial credibility. It also emphasises the judiciary’s support for India’s broader “Digital India” initiative aimed at curbing unaccounted cash transactions and promoting digital payments, which is vital for maintaining corporate governance and regulatory compliance.
1.2. Micro, Small and Medium Enterprises
Supreme Court
1.2.1. Supreme Court rules time-barred claims can be recovered via conciliation but not through arbitration under the MSMED Act 2006
1.2.1.1. Facts of the case
The appellants, M/s Sonali Power Equipment, a Micro, Small, and Medium Enterprises (“MSME”) supplier, had outstanding claims for the supply of transformers to the respondents, Maharashtra State Electricity Board. To recover the unpaid dues, they approached the Micro, Small, and Medium Enterprise Conciliation Council for settlement, ruling in favour of the appellants, allowing their claims and granting interest on the delayed payments. The Maharashtra State Electricity Board challenged this award under Section 34 of the Arbitration and Conciliation Act, 1996, before the Commercial Court, which set aside the award, ruling that the claims were barred by limitation (i.e., the claims were too old and therefore not legally recoverable). The case eventually reached the Supreme Court.
1.2.1.2. Question of law
Whether claims considered “time-barred” (outside the limitation period) could be referred for conciliation or arbitration under Section 18 of the Micro Small and Medium Enterprises Development Act, 2006 (“MSMED Act”) and whether the Limitation Act applies to such proceedings?
1.2.1.3. Judgement Analysis
The Supreme Court partially ruled in favour of Sonali Power, by holding that the Limitation Act, 1963, does not apply to conciliation proceedings under section 18(2) of the MSMED Act, allowing them to recover even the time-barred debts/claims through conciliation settlement. The court reasoned that conciliation under Section 18(2) of the MSMED Act is a voluntary, non-adjudicatory process intended for amicable settlement. Since the law of limitation only applies to the adjudicatory process, conciliation does not fall under its scope. However, the court also clarified that such time-barred debts cannot be enforced through arbitration under Section 18(3) of the MSMED Act, as arbitration is a coercive and adjudicatory process. The Court distinguished conciliation as a non-coercive nature of settlement in contrast to arbitration.
1.2.1.4. Key takeaway
This distinction supports faster, flexible resolution of outstanding payments while maintaining legal discipline in formal proceedings. Businesses should view this as a push to embrace early conciliation to recover dues efficiently, while also ensuring compliance with legal timelines when moving to arbitration.
2. Alternate Dispute Resolution
2.1. Oil and Natural Gas
Supreme Court
2.1.1. “May Be Sought” Not binding: Supreme Court clarifies when arbitration clauses are enforceable
2.1.1.1. Facts of the case
In the case of BGM and M RPL JMCT (JV) v. Eastern Coalfields Limited, [SLP (C) Diary No. 21451/2024] involved a request to refer the parties to arbitration under Section 11 of the Arbitration and Conciliation Act,1996, based on Clause 13 of their contract, which provided that arbitration may be sought in case of disputes.
2.1.1.2. Question of law
Whether the use of the phrase “may be sought” constitutes a valid and binding Arbitration Agreement.
2.1.1.3. Judgment Analysis
The Supreme Court observed that although the existence of an Arbitration Agreement is a threshold inquiry at the stage of appointment of an arbitrator, courts must ensure that the mandatory elements under Section 7 of the Arbitration and Conciliation Act, 1996, are satisfied. In this case, the court ruled that the expression ‘may be sought’ is merely enabling, not obligatory and does not create an enforceable mandate for arbitration.
2.1.1.4. Key takeaway
The Supreme Court reaffirmed that a vague or optional clause cannot be construed as a binding arbitration agreement under the law. For corporates and businesses, this underscores the importance of using firm, unambiguous language when drafting arbitration clauses. This judgment highlights the legal risk of casual or unclear dispute resolution drafting, and emphasises that robust contract language is essential for predictable, efficient dispute management
3. White Collar Crime
3.1. Pharmaceutical
Supreme Court
3.1.1. Supreme Court to decide: Whether discharge in predicate offence automatically invalidates PMLA, 2002 proceedings?
3.1.1.1 Facts of the case
In the present case, the Special Court under the Narcotic Drugs and Psychotropic Substances Act, 1985 (“NDPS Act”), had earlier discharged the petitioner, from predicate offences under the NDPS Act, finding no evidence to link him to any criminal activity regarding the manufacturing, possession, or sale of codeine-based cough syrup (CBCS), which is strictly regulated under Indian law. Despite this discharge, the Enforcement Directorate (ED) continued proceedings, issuing summons under Section 50 of the Prevention of Money Laundering Act, 2002 (“PMLA”), conducting searches, and claiming that properties associated with the petitioner represented ‘proceeds of crime.’ The petitioner challenged the PMLA proceedings before the High Court of Jammu & Kashmir and Ladakh. The High Court held that discharge in the predicate offence does not automatically invalidate PMLA proceedings, emphasising that money laundering under Section 3 of PMLA is a standalone offence distinct from the proceedings of the predicate offence that generated the proceeds of crime. The same is now challenged before the Supreme Court.
3.1.1.2. Question of law
Whether discharge in a predicate offence would automatically nullify the ongoing proceedings under the PMLA.
3.1.1.3. Judgment Analysis
Although the case is still pending at the Supreme Court, this point of law had been previously dealt with by the Supreme Court in Vijay Madanlal Choudhary and Others v. Union of India and Others, SLP (Criminal) No. 4634 OF 2014, which ruled that the existence of a predicate offence is the foundation for invoking PMLA proceedings, as money laundering charges depend on illegal gains derived from the proceeds of crime. If the accused is discharged, acquitted, or the criminal case is quashed by the competent court, then no offence of money laundering lies against such a person. The fundamental issue to be considered in these offences is that money laundering offences are committed by individuals who are highly influential with significant financial, social, and political standing, to derail the investigation of the predicate offence.
3.1.1.4. Key takeaway
Judicial recalibration by the Supreme Court in the present case is crucial on this aspect of law, to clarify legal ambiguities, close procedural loopholes, and strengthen the PMLA framework.
4. Writ Petition
Supreme Court
4.1. Environment and Infrastructure
4.1.1. Supreme Court questions environmental oversight in key infrastructure projects in the Hasdeo Forest Dispute
4.1.1.1. Facts of the case
The ongoing dispute involves petitioners, including environmental activists and local tribal residents. The respondents include the Union of India, the State of Chhattisgarh and the private mining companies that were granted coal mining leases in the Hasdeo Aranya Forest region. These leases were allegedly reallocated post the Supreme Court’s Coalgate judgment. This stems from the concerning coal mining in the Hasdeo Aranya Forest challenges and the legality of mining leases granted in areas previously classified as “no-go” and ‘inviolate’ by the Ministry of Environment, Forest and Climate Change. Petitioners argued that such allocations are not only environmentally unsustainable but also legally impermissible, considering earlier rulings that had invalidated similar coal block allocations.
4.1.1.2. Question of law
Three primary legal issues were raised:
Whether the reallocation of coal blocks in ‘no-go’ forest zones is permissible post the Coalgate judgement.
Whether adequate compensatory afforestation measures are being taken.
Whether any statutory or regulatory oversight mechanisms are in place to monitor replantation and environmental compliance.
4.1.1.3. Judgment Analysis
The Supreme Court demanded clarity on compensatory afforestation efforts, specifically questioning whether trees are being replanted in the same areas where deforestation occurred or relocated elsewhere. The court’s scrutiny suggests a potential shift towards stricter judicial enforcement of environmental conditions tied to mining leases. It also emphasises the relevance of expert environmental reports, such as those from the Wildlife Institute of India, in judicial review processes involving natural resource governance.
4.1.1.4. Key takeaway
As judicial oversight intensifies, infrastructure companies must ensure their processes, contracts, and compliance measures can withstand court review, especially when faced with public interest litigation (PIL) matters that may delay timelines or require clearer reporting. The outcome may redefine how statutory environmental obligations are interpreted and enforced in the context of natural resource extraction.
Disclaimer
The note is prepared for knowledge dissemination and does not constitute legal, financial or commercial advice. AK & Partners or its associates are not responsible for any action taken based on its contents.
