India – Litigation & Arbitration Snapshots.

30 January, 2018

 

Securities Appellate Tribunal Can Award Interest from the Date on which the Cause of Action Arose till the Date of Commencement of Proceedings, as well as Future Interest

 

In Dushyant N. Dala and Anr. v. SEBI,11 the SC was faced with an issue on whether interest can be recovered on orders of penalty issued under Section 28A (introduced with effect from July 18, 2013) of the Securities and Exchange Board of India Act 1992 (‘SEBI Act’) and/or orders of disgorgement of unlawful gains, when the said amounts have remained unpaid. 

 

In this case, the Appellants were found to have manipulated the demand for shares in the retail individual investor category, and were ordered by the SEBI, on July 21, 2009, to pay . 6 crores (approx. US$ 938,400) within 45 days and simple interest at the rate of 12%. The SEBI order further provided that failure to pay this amount would result in the Appellants being barred from the securities market.

 

Since the Appellant failed to pay the above amount, a demand notice was issued on September 9, 2013 under the newly-inserted Section 28A of the SEBI Act which was opposed by the Appellant. It was held that Section 28A of the SEBI Act would allow imposition of interest prospectively only, and could not be invoked in these facts.

 

The SC, by way of its order dated October 4, 2017, held that in other cases, the Interest Act, 1978 enables Tribunals such as the Securities Appellate Tribunal to award future interest. However, in this case, the SEBI member was fully cognizant of his power to grant future interest and yet the words ‘along with further interest till actual payment in made’ are conspicuous by their absence. Therefore, SC held that if there is a default in payment of . 6 crores (approx. US$ 938,400) within the stipulated time, no future interest would be payable as a much more severe penalty, viz of being debarred from the capital market for seven years, had been imposed.

 

Effect of Moratorium on Arbitration Proceedings under Section 34

 

In Power Grid Corporation of India Ltd. v. Jyoti Structures Ltd.,12 the Delhi HC passed a judgment on December 11, 2017 on whether arbitration proceedings under Section 34 of the Arbitration and Conciliation Act (‘Arbitration Act’) need to be stayed, if a moratorium order was passed by the NCLT under Section 14(1)(a) of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) during the pendency of the arbitration proceedings.

 

Observing that the object of IBC was to provide relief to the corporate debtor through a ‘standstill’ period during which its assets are protected from dissipation or diminishment, the Court held that Section 14 would not apply to proceedings which are for the benefit of the corporate debtor; and that stay of proceedings against an award in favour of the corporate debtor would rather prevent the debtor’s effort to recover its money and, hence, such proceedings would not fall within the embargo prescribed by Section 14(1)(a) of the IBC.

 

The Court held that, inter alia, (i) use of the word ‘proceedings’ under Section 14(1)(c) of the IBC does not mean ‘all proceedings’; (ii) the moratorium under Section 14(1)(a) of the IBC is intended to prohibit debt recovery actions against the assets of corporate debtor; (iii) continuation of proceedings under Section 34 of the Arbitration Act which do not result in endangering, diminishing, dissipating or adversely impacting the assets of corporate debtor are not prohibited under Section 14(1)(a) of the IBC; (iv) the term ‘proceeding’ would be restricted to the nature

of action that follows it i.e. debt recovery action against assets of the corporate debtor; and (v) the Arbitration Act makes a distinction between proceedings under Section 34 (i.e. objections to the award) and Section 36 (i.e. enforceability and execution of the award) which would be covered by the moratorium order.

 

Committee for arbitration reform

 

The Government of India had constituted a high-level committee to review the institutionalization of arbitration mechanism and suggest reforms thereto under the chairmanship of Justice B.N. Srikrishna, on December 29, 2016 (‘Committee’). Members of the Committee include Mr. Justice R.V. Raveendran, Retired Judge, SC, Justice S. Ravindra Bhat, Judge, Delhi HC, Mr. K.K. Venugopal, Senior Advocate, SC, Mr. P.S. Narasimha, Additional Solicitor General of India and Mr. Araghya Sengupta, Director, Vidhi Centre for Legal Policy.

 

The Committee submitted its report on August 3, 2017 to the Government. The recommendations included:

 

i. Setting up an Autonomous Body – Arbitration Promotion Council of India (APCI) for grading arbitral institutions in India;

 

ii. Creation of a specialist Arbitration Bench to deal with commercial disputes; 

 

iii. Further amendment to the Arbitration and Conciliation Act, 1996 including amendments specifically aimed at promoting institutional arbitration in India; and

 

iv. Creation of the post of an ‘International Law Adviser’ (ILA) who shall advise the Government and coordinate dispute resolution strategy for the Government in disputes arising out of its international law obligations, including bilateral investment treaties.

 

Recent reports have also suggested that Government may enact a new legislation, being the Indian Arbitration Council Act, to establish the Indian Arbitration Council.

 

11 (2017) 9 SCC 660.

12 O.M.P (Comm.) 397/2016.