Vacant Tribunals: Crowding Litigants

 Vacant Tribunals: Crowding Litigants

'Justice delayed is justice denied' as an adage is commonly understood and will safely find no or very less opposition in any civic society. First brush with this adage was as a law student, however, it is as relevant as when visited first. Unfortunately, its relativity in Indian context never seems to fade away. Recently, as per the response to a query in Rajya Sabha¹ , as per Ministry of Law and Justice the total number of cases pending before following Courts are:

Supreme Court	62,054 (as on August 31, 2020)
High Courts	51,57,378 (as on September 20, 2020)
District & Subordinate Courts	3,45,71,854 (as on September 20, 2020)

While disposal of pending cases has gathered much steam in recent times, need for additional judges in all the Courts is well known. Delay in the context of justice dispensation is undeniably painful for a litigant and such delay becomes even more agonizing when statutory commissions and tribunals established for such specific (mostly speedy) adjudication of disputes and exercise of delegated legislation is marred by delay or nonfunctioning.

Conceptually, tribunals have been established for being cost-effective, accessible, free from technicalities, expeditious, rapid and efficient being manned by experts. The concept of tribunalization was developed to overcome the crisis of delay and backlogs in the administration of justice. In this regard, Law Commission of India Report No. 272² issued back in 2017 highlights the plight of high pendency.

Failure to function for non-appointment of members/chairpersons due to lethargic approach by selection committees and central/state government despite being in the know of such vacancies well in advance, is no less than tragic for a litigant.

Recently, Supreme Court (SC) in Rojer Mathew v South Indian Bank Ltd & Ors³ pointed out the imperative need for the process of appointments to the tribunals to be seamless in order to fill vacancies arising from retirement or unforeseen causes and large-scale vacancies having the affect of rendering tribunals defunct. SC observed that 'The surest way to deny access to justice is to keep a large number of vacancies' and further held that keeping vacancies unfilled for tardy procedures or other reasons denudes the efficacy of the tribunal as a dispute resolution mechanism. Referring to its view in L. Chandra Kumar⁴ , it reiterated that there should be one wholly independent agency for the administration of all tribunals and highlighted that efficiency of tribunals is getting marred by huge backlogs. Resultantly, it went on to direct Central Government to formulate a new set of rules ensuring non-discriminatory and uniform conditions of service, including assured tenure and undertake the 'judicial impact assessment' of all the tribunals referable to the Finance Act 2017 and submit findings before competent legislative authority.

SC as recent as August 2020, twice extended the term of Mr. V.K. Jain, Member (Judicial) NCDRC due to time being taken in selection and appointment of new Member (Judicial) by the government⁵ . History seems to repeat itself too often and through a familiar script in the context of vacancies in such statutory/quasi-judicial forums. The recent forum falling prey to such lackadaisical approach is Central Electricity Regulatory Commission ('Central Commission'), which is not functioning since August 28, 2020 in terms of the order of SC ⁶

Central Commission's functioning is restricted due to non-appointment of Member (Legal) and being contra to SC's judgment dated April 12, 2018 in the matter of State of Gujarat & Ors v. Utility Users Welfare Association & Ors⁷ , wherein, interpreting provisions of the Electricity Act 2003 (Act), the Court held that there should at least one person possessing requisite legal expertise and qualification in law as member of state commissions for carrying out adjudicatory functions. Through this decision, it also directed that every vacancy arising in such commissions, post the date of judgment should be first filled with the Member (Legal). For Central Commission not being benefitted with the appointment of Member (Legal) upon a vacancy arising (and member finance having been appointed prior), functioning of Central Commission has been stopped by the SC.

Central Commission has an approximate pendency of nearly 1005 petitions/applications pending adjudication of which nearly 177 are reserved for orders, 110 are at the hearing stage and 256 are pending completion of pleadings with 456 petitions / applications pending scrutiny. Section 78 of the Electricity Act provides for constitution of the Selection Committee which is entrusted with responsibility of selecting Members of Appellate Tribunal and the Chairperson and Members of Central Commission. Section 78(5) and 85(2) provides a period of one month (in case of death, resignation or removal) and six months before superannuation or end of tenure for making a reference to the Selection Committee and the Selection Committee in-turn [through Section 78(6) and 86(3) of the Act] has been mandated a period of three months from the date of such reference to finalize the selection. Even the appointments to the Appellate body established under Section 110 of the Electricity Act 2003 has been marred by similar approach for appointments of chairperson and/or members. Despite the time frame being mandated in the Act, appointments have taken their own time, leading to over-burdening of one Bench or the serving Judicial/Technical Member. Bearing in mind the need to expeditious disposal of appeals filed before Appellate Tribunal, Section 111(5) of the Act provides for an endeavor to dispose of such appeals within 180 days from the date of receipt of such appeal. However, the intent for expeditious adjudication is bound to be defeated in absence of timely appointments.

Further, non-functioning of the Central Commission has led to added burden on the already burdened Appellate Tribunal as all urgent matters that were to be adjudicated before Central Commission are now being taken up by the Appellate Tribunal⁸. Pendency of disputes not only includes the contractual disputes between the generators and licences but also include tariff fixation for power generating and transmission companies. Since most of the claims for stakeholders are in the nature of pass through with interest in form of carrying cost (owing to delay in recovering payments not attributable to entity claiming such cost) which is ultimately passed on to the end consumer i.e. public at large.

One of the prominent purpose of tribunalization is speedy justice, however due to self-created conundrum sufferer is the one who has no or minimal say in the process. All concerned stakeholders must recognize the urgency and make necessary amends where required. Lastly, need for justice dispensation has had many words in its favor but it is not misplaced to quote Ciecro who propagated that 'justice is the crowning glory of all virtues'. And for history repeating itself, our first brush with adage 'justice delayed is justice denied' also could not find a more suitable rhetoric.

Footnotes

1. Response to unstarred question no. 1381 in Rajya Sabha by Ministry of Law and Justice

2. "Assessment of Statutory Frameworks in India" issued in 2017

3. (2020) 6 SCC 1

4. L. Chandra Kumar v. Union of India (1997) 3 SCC (L&S) 577

5. Kudrat Sandhu v. Union of India; Order dated August 26, 2020 in Misc Appl No. 919/2020 in WP (C) No. 279/2019

6 .Orders dated 28.08.2020, 25.09.2020 and 26.10.2020 passed in Contempt Petition No 429 of 2020 titled as K K Agarwal v. Sanjiv Nandna Sahai & Anr

7. (2018) 6 SCC 21

8. The Appellate Body has total 4 members (2 'Judicial' and 2 'Technical' members) including chairperson and sittings are conducted in two separate benches.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Maintainability Of A Section 7/Section 9 Ibc Proceedings During The Pendency Of Winding Up Petition

 

Maintainability Of A Section 7/Section 9 Ibc Proceedings During The Pendency Of Winding Up Petition

The Hon'ble Supreme Court of India by its recent judgment passed on 1^st March, 2021 in A. Navinchadra Steel Pvt. Ltd Vs. SREI Equipment Finance Limited & Ors¹ has settled the law in respect of maintainability of a section 7 and/or Section 9 Petition filed under Insolvency and Bankruptcy Code, 2016 ("IBC/Code") after the admission of winding up Petition/during the pendency of the winding up Petition qua the same Corporate debtor.

The Appellant in this matter contested the maintainability of a section 7 IBC Petition filed before a National Company Law Tribunal ("NCLT") post admission of the winding up Petition qua the same Company on the basis that irreversible/irretrievable steps have already been taken in the winding Petition post its admission and appointment of provisional liquidator by the Hon'ble Bombay High Court. That as per the section 446 of the Companies Act, 1956² no suit or other legal proceedings can be commenced or continued once there is admission of a winding up Petition. It was also argued that it is inaccurate to imply that a winding proceeding shall inevitably result in corporate death as there are provisions under the Companies Act, 1956 regarding compromise and arrangement³ as a result of which the winding up court could stay the winding up and order restructuring. Lastly, it was contended that the only route available was to seek transfer of the Company Petition in winding up from Bombay High Court to the NCLT instead of filing a section 7 Petition.    

In favour of the maintainability of the section 7 IBC Petition, it was argued that section 7 IBC proceeding is an independent proceedings which can be initiated anytime even after the winding up order. That Code has an overriding effect in view of section 238 under IBC and the non-obstante clause contained therein. As a result, in case of any conflict of the Code with the Companies Act⁴, the Code shall prevail being a special statue. It was also contended that no irreversible steps had been taken in the instant winding up Petition as the provisional liquidator continues to be in control of the assets of the Company and the private sale of an asset of a company by a secured creditor who opted to stay outside the process of winding up cannot be considered as irreversible/irretrievable step taken in the winding up process.   

The Hon'ble Supreme Court and the both the contesting parties in this case heavily relied upon the findings given by the Hon'ble Supreme Court in its earlier decision in Action Ispat & Power Pvt. Ltd Vs. Shyam Mettalics & Energy Ltd.⁵ ("Action Ispat") where the Apex Court using its discretionary power upheld the transfer of the winding up Petition from the Delhi High Court to the NCLT, post admission of winding up Petition even after liquidator had taken control assets of the Company. In doing so, the Hon'ble Supreme Court considered the beneficial result of IBC for a Company in the red and held that so long as the actual sales of the immovable/movable properties have not taken place, nothing irreversible is done to warrant a Company Court from staying its hands on a transfer application. It is only when winding up proceeding have reached a stage where it is it is irreversible/impossible to set the clock back that the Company Court shall proceed with the winding up proceedings.                 

After considering the relevant facts of the case, findings given in the Action Ispat matter and jurisprudence on the subject matter in detail, the Hon'ble Supreme Court upheld the maintainability of the section 7 IBC proceeding and observed that mere fact that a winding up petition is admitted or pending shall not trump any subsequent attempt for revival of the Company through a section 7 and/or Section 9 Petition filed under IBC. That section 7 and/or Section 9 Petition filed under IBC is an independent proceeding which is to be tried on its own merits and only where a company in winding up is near its corporate death that no transfer of winding up proceeding would take place to the NCLT to be tried as a proceeding under IBC.

Conclusion

The findings arrived by the Hon'ble Supreme Court in this case is aligned with the objective of IBC delineated in Swiss Ribbons (P) Ltd. v. Union of India (2019) 4 SCC 17 briefly being that IBC being a special statue dealing and providing for the revival of a Companies which are in the red and also welcoming the larger public interest and the economy of a country.

Footnotes

1 2021 SCC OnLine SC 149

2 Equivalent to Section 279 of the Companies Act, 2013

3 Section 391 to 393 of the Companies Act, 1956

4 See section 446 of the Companies Act, 1956/Section 279 of the Companies Act, 2013

5 2020 SCC OnLine SC 1025

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Supreme Court Ends Extension Of Limitation Period

 

Supreme Court Ends Extension Of Limitation Period

In order to alleviate difficulties faced by litigants and lawyers owing to the COVID-19 pandemic and consequent lockdown, the Supreme Court of India had passed an order on 23rd March 2020 in Suo Moto Writ Petition (Civil) No. 3 of 2020, extending periods of limitation prescribed under general and special laws with effect from 15th March 2020 for filing petitions, applications, suits, appeals and other proceedings till further orders. The said order of the Supreme Court was extended from time to time.

On 8th March 2021, upon reviewing the situation, the Supreme Court was of the opinion that although the pandemic had not ended, there was considerable improvement in the circumstances and that the order dated 23rd March 2020 had served its purpose. Accordingly, the Supreme Court disposed off the Suo Moto Writ Petition vide its order dated 8th March 2021 with the following directions:

1. In computing the period of limitation for any suit, appeal, application or proceeding, the period from 15.03.2020 till 14.03.2021 shall stand excluded. Consequently, the balance period of limitation remaining as on 15.03.2020, if any, shall become available with effect from 15.03.2021;
2. In cases where the limitation would have expired during the period between 15.03.2020 till 14.03.2021, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 15.03.2021. In the event the actual balance period of limitation remaining, with effect from 15.03.2021, is greater than 90 days, that longer period shall apply;
3. The period from 15.03.2020 till 14.03.2021 shall also stand excluded in computing the periods prescribed under Sections 23 (4) and 29A of the Arbitration and Conciliation Act, 1996, Section 12A of the Commercial Courts Act, 2015 and provisos (b) and (c) of Section 138 of the Negotiable Instruments Act, 1881 and any other laws, which prescribe period(s) of limitation for instituting proceedings, outer limits (within which the court or tribunal can condone delay) and termination of proceedings;
4. The Government of India shall amend the guidelines for containment zones, to state. "Regulated movement will be allowed for medical emergencies, provision of essential goods and services, and other necessary functions, such as, time bound applications, including for legal purposes, and educational and job-related requirements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Party Autonomy In Arbitration: Supreme Court Upholds Change Of Venue Permissible By Mutual Agreement

 

Party Autonomy In Arbitration: Supreme Court Upholds Change Of Venue Permissible By Mutual Agreement

In a recent judgment¹, the Supreme Court of India ("Supreme Court") opined that parties to an arbitration by mutual agreement can change the venue/ place of arbitration and that the new venue/ place of arbitration becomes the 'seat' of arbitration. Thus, when a place of arbitration is mutually chosen by parties, the courts at the agreed place, have exclusive jurisdiction to regulate the arbitration proceedings.

Facts

A purchase order was entered into between Gujarat Fluorochemicals Ltd. ("GFL") and Jayesh Electricals Ltd. ("JE"/ "Respondent") for the manufacture and supply of power transformers at wind farms. The arbitration clause in the purchase order provided for Jaipur to be the venue of arbitration with the Court in the State of Rajasthan having jurisdiction over the disputes arising out of the purchase order.

Thereafter, the entire business of GFL was sold to Inox Renewables ("Inox"/ "Appellant") on a slump sale basis. A Business Transfer Agreement ("BTA") was executed between Inox and GFL to which the Respondent was not a party. Under the BTA, Vadodara was designated as the seat of arbitration with the courts at Vadodara having exclusive jurisdiction over disputes under the BTA.

Disputes arose between Inox and JE and the High Court of Gujarat appointed a sole arbitrator. The sole arbitrator passed an award in favour of JE. A section 34 petition was filed by Inox in a commercial court in Ahmedabad ("Commercial Court") which was opposed by JE on the ground that as per the arbitration clause in the BTA, only the courts at Vadodara have jurisdiction to hear the challenge to the arbitration award. The Commercial Court at Ahmedabad, relying upon the BTA, accepted the case of JE and held that the courts at Vadodara alone would have exclusive jurisdiction.

Inox challenged the order of the Commercial Court² before the High Court at Ahmedabad ("High Court"). The High Court referred to the arbitration clause in the purchase order and held that even assuming that Ahmedabad would have jurisdiction, if one were to go by the arbitration clause in the purchase order, exclusive jurisdiction is vested in the courts at Rajasthan and hence the appropriate court would be the court at Jaipur. In spite of this observation, the High Court dismissed the challenge filed by Inox and upheld the Commercial Court's order. 

Arguments

Counsel for Inox argued that the BTA was irrelevant as it was not between Inox and JE. Relying upon the judgment BSG SGS Soma JV v. NHPC Limited³ ("BSG SGS Soma"), it was argued that the impugned judgment failed to consider that the arbitrator had recorded in the award that the venue/ place of arbitration was shifted by mutual consent to Ahmedabad, as a result of which the seat became Ahmedabad and hence the courts at Ahmedabad had exclusive jurisdiction.

Counsel for JE argued that even if the place of arbitration is shifted by mutual agreement, it requires a written agreement⁴. It was further argued that the purchase order explicitly states that the courts at Rajasthan would have jurisdiction and therefore the arbitration clause stating that the arbitration is to be held at Jaipur is independent. Further, counsel for JE argued that the shift of venue has reference to only Section 20(3) of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") as Ahmedabad was a convenient place for arbitration, with the seat continuing as Jaipur.

Supreme Court's Judgment

The Supreme Court observed that the sole arbitrator had recorded in his award that the parties have "mutually agreed, irrespective of a specific clause as to the [venue, that the place] of the arbitration would be at Ahmedabad and not at Jaipur." the parties have "shifted the venue/place of arbitration to Ahmedabad". The Supreme Court held that it is not necessary that the parties should have shifted the venue only by written agreement.

The Supreme Court relied upon BSG SGS Soma (which relies upon the judgment of Indus Mobile Distribution (P) Ltd.⁵) where it was held that whenever there is the designation of a place of arbitration in an arbitration clause as being the 'venue' of the arbitration proceedings, the expression 'arbitration proceedings' would make it clear that the 'venue' is really the 'seat' of the arbitral proceedings, as the aforesaid expression does not include just one or more individual or particular hearing, but the arbitration proceedings as a whole, including the making of an award at that place.

Relying upon BSG SGS Soma, the Supreme Court held that the moment the seat is chosen as Ahmedabad, it is akin to an exclusive jurisdiction clause, thereby vesting the courts at Ahmedabad with the exclusive jurisdiction to deal with the arbitration. The Supreme Court further held that the aspect of concurrent jurisdiction as dealt with it the BALCO judgment⁶ does not arise in the present matter, as parties mutually agreed to substitute the venue at Jaipur, with Ahmedabad as the place/ seat of arbitration under Section 20(1) of the Arbitration Act. .

The Supreme Court observed that the reliance by JE's counsel on the judgment in Videocon⁷ is misplaced, as in that matter the arbitration clause explicitly provided that any amendment or modification to the contract will have to be written and signed by all parties. However, in the present matter, no such clause akin to the one in the Videocon matter was present.

The Supreme Court further held that the arbitration clause in the purchase order must be read as a whole and therefore it cannot be accepted that the jurisdiction of courts in Rajasthan is independent of the venue being at Jaipur. It was noted that in the purchase order, courts in Rajasthan had been vested with jurisdiction only because the seat of arbitration was Jaipur. Once the seat was changed by mutual agreement/consent, courts at Rajasthan were no longer vested with exclusive jurisdiction.

In conclusion, the Supreme Court vide this judgment has upheld the findings in BSG SGS Soma and has given priority to party autonomy and mutual consent, thereby doing away with the strict necessity of a written agreement.

Footnotes

1. Inox Renewables v. Jayesh Electricals Limited [Civil Appeal No. 1556 of 2021 decided on April 13, 2021]

2. Special Civil Application No. 9536 of 2021

3. (2020) 4 SCC 234

4. (2011) 6 SCC 161, (2017) 7 SCC 678

5. (2017) 7 SCC 678

6. Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (2012) 9 SCC 552

7. (2011) 6 SCC 161

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Shifting Of Seat Of Arbitration

Shifting Of Seat Of Arbitration

In recent times, the arbitration law in India has evolved many folds. It has been settled by the Supreme Court that 'seat of arbitration' determines the jurisdiction of the court in an arbitration matter. However, what happens when the venue/ seat of arbitration is changed. The present article deals with a recent judgment passed by the Supreme Court in Inox Renewables Ltd. vs. Jayesh Electricals Ltd.¹ clarifying this aspect.

The above judgment finally settles a vital question of law regarding the shifting of seat of arbitration and the change in jurisdiction of court arising due to such shifting of seat of arbitration. The appeal before Supreme Court was preferred from the judgment passed by the High Court of Gujarat, holding that the courts at Jaipur, Rajasthan would have the exclusive jurisdiction to entertain application for setting aside the arbitral award under Section 34 of the Act.

Brief Facts of the Case:

In the present case, a purchase order dated 28.01.2012 ("purchase order") was entered into between M/s Gujarat Fluorochemicals Ltd. ('GFL') and Jayesh Electricals Ltd. ('Respondent') for the manufacture and supply of power transformers at wind farms. The arbitration clause contained in the said purchase order provided that the arbitration shall be conducted by three arbitrators in accordance with the Act and the venue of the arbitration shall be Jaipur, Rajasthan.

Thereafter, the entire business of GFL was sold to Inox Renewables Ltd. ('Appellant') by way of a slump sale.² The transfer of entire business was done by way of an Agreement dated 30.03.2012 ("Agreement") executed between Appellant and GFL, and the Respondent was not a party to the said Agreement. In the said Agreement, the seat of arbitration was designated as Vadodara and the exclusive jurisdiction qua disputes arising out of the agreement was also vested with courts at Vadodara. Thereafter, on an application filed by Respondent and on joint request of Appellant and Respondent, the Gujarat High Court on 05.09.2014 appointed a sole arbitrator to resolve the disputes arose between the parties in relation to the purchase order. The Sole Arbitrator thereafter, passed an award dated 28.07.2018 awarding a sum of Rs. 38,97,150/- along with interest of Rs. 31,32,650/- as well as Rs. 2,81,000/- towards quantified costs. The sole arbitrator also recorded that the venue/ place of arbitration was shifted to Ahmedabad from Jaipur by mutual consent of both the parties.

The Appellant challenging the award dated 28.07.2018, filed an application under Section 34 of the Act before the Commercial Court, Ahmedabad. The Respondent, however, challenged the jurisdiction of the Commercial Court Ahmedabad and contended that courts at Vadodara would have jurisdiction in the matter. Such objection was accepted by the Court vide its judgment dated 25.04.2019. Aggrieved by the above judgment dated 25.04.2019, the Appellant preferred a special civil application before the Gujarat High Court. The High Court however, held that in view of the purchase order, the courts at Jaipur, Rajasthan would have jurisdiction and not the courts at Vadodara or Ahmedabad. The Appellant thereafter challenged the judgment of Gujarat High Court before the Supreme Court of India.

Case before Supreme Court:

The Appellant contended that since the place/ venue of the arbitration was shifted to Ahmedabad by mutual consent, therefore the seat of arbitration became Ahmedabad and hence, jurisdiction had also been vested with the courts at Ahmedabad. The Appellant relied on the judgment of BSG SGS SOMA JV vs. NHPC Limited³ to support its case. On the other hand, the Respondent, while relying on the judgments of Videocon Industries Ltd. vs. Union of India⁴ and Indus Mobile Distributor Pvt. Ltd. vs. Datawind Innovations Pvt. Ltd.⁵, argued that even if the venue is shifted to Ahmedabad by mutual agreement, the seat cannot be changed without a written agreement between the parties.

The Respondent also argued that vesting of exclusive jurisdiction with the courts at Rajasthan was independent of the arbitration clause. Respondent further argued that the mutual agreement for shifting of venue of arbitration was in reference of Section 20(3) of the Act only, which provided that unless otherwise agree between the parties, the Arbitral Tribunal may choose a convenient place to hold meetings and conduct hearings. Therefore, even if the venue of arbitration was shifted to Ahmedabad, the seat of arbitration always remained at Jaipur.

Supreme Court's Findings:

The Supreme Court while allowing the appeal of the Appellant, held that the shifting of 'venue' from Jaipur to Ahmedabad is in effect a shifting of the venue/ place of arbitration with reference to Section 20(1) of the Act, and not with reference to Section 20(3) of the Act. Section 20(1) of the Act provides that the parties are free to agree on place of the arbitration. The Court held that since the sole arbitrator has recorded that by mutual agreement, Jaipur as a 'venue' was replaced by Ahmedabad, therefore, the courts at Rajasthan are no longer vested with the jurisdiction to entertain any of the applications under any provision of the Act. The exclusive jurisdiction was vested with the courts at Ahmedabad, as the seat of the arbitration was changed to Ahmedabad. The Supreme Court in view of the above, referred the matter back to courts at Ahmedabad to hear the application under Section 34 afresh.

Conclusion:

The above judgment settled a vital issue regarding change in seat of arbitration by the parties and the effect of such change on the jurisdiction of the courts. It has been observed that many times parties tend to shift the venue of arbitration by mutual agreement at the stage of arbitration, but later on tend to resist the jurisdiction of courts which are not convenient for the resisting party. The above judgment also upheld the fundamental premise of arbitration i.e. party autonomy, which has been enshrined in the UNCITRAL model law also. The above judgment paved the way forward for the parties to mutually decide or shift the seat of arbitration even after the initiation of the arbitration proceedings.

Footnotes

1. MANU/SC/0285/2021; Civil Appeal No. 1556/2021 decided on 13.04.2021

2. Section 2(42C) of Income Tax Act, 1961 - "slump sale" means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales.

3. (2020) 4 SCC 234

4. (2011) 6 SCC 161

5. (2017) 7 SCC 678

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances

Striking Of Defense In Commercial Suits

 Striking Of Defense In Commercial Suits

The foremost objective upon receipt of summons of a suit for a Defendant(s), is to prepare a defense and represent oneself, whether it be an individual or company. Every party is statutorily bound to appear before the Court and present their case within stipulated time.

The present article deals with the amendments made by the Commercial Court Act, 2015 in the Code of Civil Procedure, 1908 and the effect on striking of defense in Commercial Suits.

The Code of Civil Procedure, 1908 stipulates time period for filing written statement in ordinary suits and The Commercial Courts Act, 2015 came into force on October 23, 2015 along with certain amendments to the Code of Civil Procedure, 1908 with regard to filling of written statement in any suit of a commercial dispute of a specified value, which are as follows:

Filing of Written Statement- Ordinary Suits v. Commercial Suits

ORDINARY SUITS	COMMERCIAL SUITS
In the Order V Rule 1 Sub-rule (1) of the Code of Civil Procedure, 1908, the second proviso applicable to ordinary suits  states that when a defendant has failed to file his written statement within the stipulated period of 30 days, the Court shall give him extension to file his written statement by recording his reason for the delay in writing. However, such extension should not be later than 90 days from the date of service of summons.	In the Order V Rule 1 Sub-rule (1) of the Code of Civil Procedure, 1908, the proviso applicable to commercial disputes of a specified value states that when a defendant has failed to file his written statement within the stipulated period of 30 days, the Court shall give him extension to file his written statement by recording his reason for the delay in writing and on payment of costs as the Court deems fit. However, such extension should not be more than 120 days from the date of service of summons and on expiry of 120 days, the defendant shall forfeit his right to file the written statement and the written statement should not be taken on record by the Court.
Similarly, in the Order VIII Rule 1 of the Code of Civil Procedure, 1908, the proviso applicable to ordinary suits states that when a defendant has failed to file his written statement within the stipulated period of 30 days, the Court shall give him extension to file his written statement by recording his reason for the delay in writing. However, such extension should not be later than 90 days from the date of service of summons.	Similarly, in the Order VIII Rule 1 of the Code of Civil Procedure, 1908, a new proviso was substituted applicable to commercial disputes of a specified value stating that the defendant must file written statement of his defense within 30 days from the date of service of summons upon him. In event of failure to do so, the Court has the discretion to extend the time for filing of the Written Statement, by recording the reasons for the delay. However, such extension should not be more than 120 days from the date of service of summons and on expiry of 120 days, the defendant shall forfeit his right to file the written statement and the written statement should not be taken on record by the Court.
In the Order VIII Rule 10 of Code of Civil Procedure, 1908 applicable to ordinary suits states that on the failure of the defendant to file his written statement within the permitted time, the Court shall pronounce judgment against the defendant, or make such an order in relation to the suit as it thinks fit which shall be of the nature of a decree.	The above was re-emphasized in the Order VIII Rule 10 of Code of Civil Procedure, 1908, applicable to commercial disputes of specified value stating that the Courts do not have the power to grant further extension beyond the statutory time provided under Order VIII Rule I of Code of Civil Procedure, 1908.

The Supreme Court of India in SCG Contracts India Pvt. Ltd. Vs. K.S. Chamankar Infrastructure Pvt. Ltd. and Ors.¹ has upheld the abovementioned provisions under Code of Civil Procedure, 1908 applicable to commercial dispute stating that, the abovementioned provisions would show that ordinarily a written statement is to be filed within a period of 30 days. However, a grace period of further 90 days is granted to the defendant which the Court employ by recording the reasons in writing and payment of costs as it deems fit. The Apex Court reiterated that Court has no further power to extend the time beyond period of 120 days. Further, on expiration of period of 120 days from the date of service of summons, the defendant shall forfeit his right to file the written statement and the Court shall not allow the written statement of the defendant to be taken on record.

CONCLUSION

In a Commercial Suit, where the defendant has failed to file his written statement within the period of 30 days from the date of service of summons, the Court has the discretion to allow further period to make such submissions which may not exceed 90 days. If the Defendant has failed to file his written statement beyond the stipulated period of 120 days from the date of service of summons, the Defendant shall forfeit the right to file his written statement and the Court shall not allow the written statement of the Defendant to be taken on record.

Footnote

[1] AIR 2019 SC 2691

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Supreme Court Reiterates Courts At The Seat Of Arbitration To Have Exclusive Jurisdiction Over Arbitral Proceedings

 

Supreme Court Reiterates Courts At The Seat Of Arbitration To Have Exclusive Jurisdiction Over Arbitral Proceedings

In a recent decision dated 13 April 2021 in M/s Inox Renewables Ltd v Jayesh Electricals Ltd (Civil Appeal No. 1556 of 2021), a two-judge bench of the Supreme Court of India held that it is open for parties to an arbitration agreement to change the seat of arbitration by mutual agreement. Such an agreement, even if not in writing, would be considered valid if it is recorded in the award and not challenged by either party.

Referring to BSG SGS SOMA JV v NHPC Limited (2020) 4 SCC 234 (BGS SGS), the Court reiterated that the selection of a seat by the parties is akin to an exclusive jurisdiction clause conferring jurisdiction on the courts at such seat over all matters connected with the arbitration.

Background of the Dispute

On 28 January 2012, Jayesh Electricals Limited (Jayesh Electricals) executed a purchase order (PO) with one Gujarat Fluorochemicals Limited (GFL). The PO contained an arbitration clause which stipulated Jaipur as the "venue" of arbitration and clarified that any party aggrieved by the arbitral award may seek recourse before the "courts in the State of Rajasthan".

Pursuant to a business transfer agreement dated 30 March 2012, Inox Renewables Ltd (Inox Renewables) took over the entire business of GFL including the rights and obligations under the PO. Jayesh Electricals was not a party to this agreement. This business transfer agreement designated Vadodara as the seat of the arbitration.

Subsequently, disputes arose between the parties. On 5 September 2014, Jayesh Electricals approached the Gujarat High Court at Ahmedabad for appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 (the Act). On a joint request made by the parties for the appointment of a sole arbitrator, the Gujarat High Court made the appointment on 28 July 2018.

On 28 July 2018, the arbitrator appointed in the matter passed an award directing Inox Renewables to make certain payments to Jayesh Electricals. As to the place or seat of arbitration, the award recorded the following:

"12.3 There is no controversy as to the constitution of the Tribunal between the parties and the parties have agreed to get their dispute resolved by a sole arbitrator. As per arbitration agreement, the venue of the arbitration was to be Jaipur. However, the parties have mutually agreed, irrespective of a specific clause as to the [venue, that the place] of the arbitration would be at Ahmedabad and not at Jaipur. The proceedings, thus, have been conducted at Ahmedabad on constitution of the Tribunal by the learned Nominee Judge of the Hon'ble High Court of Gujarat."

Aggrieved by the portion of award directing it to make payments to Jayesh Electricals, Inox Renewables filed proceedings challenging the Award under Section 34 of the Act before the relevant Commercial Court at Ahmedabad (Commercial Court). Neither party appears to have challenged the arbitrator's observations regarding the place of arbitration.

By an order dated 25 April 2019, the Commercial Court dismissed Inox Renewables' petition mainly on the ground that courts in Vadodara and not Ahmedabad would have jurisdiction over the matter. In reaching this conclusion, the Commercial Court, it seems, relied on the business transfer agreement between GFL and Inox Renewables.

Inox Renewables challenged the aforesaid order vide a Special Civil Application filed before the Gujarat High Court under Article 227 of the Constitution of India. The Gujarat High Court, however, refused to set aside the order of the Commercial Court and instead dismissed the Application by an order dated 9 October 2019.

Inox Renewables carried the aforesaid decision of the Gujarat High Court in appeal before the Supreme Court.

Decision of the Supreme Court

The Supreme Court set aside the order of the Gujarat High Court mainly for the following reasons:

1. The Supreme Court, after referring to the arbitrator's observations in the award with respect to the place of arbitration, found that the parties had by mutual agreement shifted the place or seat of the arbitration from Jaipur to Ahmedabad. The Supreme Court's finding was based solely on the contents of the arbitral award.
2. The Supreme Court rejected the Respondent's (Jayesh Electricals) submission that the seat of arbitration could have been changed only by a written agreement. The Supreme Court noted that there was no such requirement under the parties' contract. That this fact was recorded in the arbitral award was sufficient for the Court to uphold the change of the seat, more so, since neither party had challenged the arbitrator's ruling as to the seat of arbitration.
3. Relying on its previous decision in BGS SGS, the Court held that the moment the parties chose Ahmedabad as the place or seat of arbitration, it was akin to an exclusive jurisdiction clause, thereby vesting the courts at Ahmedabad with exclusive jurisdiction to deal with the arbitration.
4. The Court observed that the shifting of the venue from Jaipur to Ahmedabad was really a shifting of the venue/place with reference to section 20(1) of the Act and not section 20(3) thereof.
5. As to the jurisdiction clause in the PO conferring jurisdiction on the courts in the state of Rajasthan, the Supreme Court observed that the Rajasthan courts were vested with jurisdiction only because parties had originally chosen Jaipur as the seat of arbitration. The Court clarified that once the seat stood changed to Ahmedabad, the courts at Rajasthan would cease to have any jurisdiction.

Comment

This decision of the Supreme Court once again highlights the need to be cautious when deciding the venue, place and seat of arbitration. The importance of the parties' choice in this regard cannot be gainsaid. As clarified by the Supreme Court repeatedly, choosing a seat of arbitration is akin to an exclusive jurisdiction clause. Where parties do not use the word "seat" but designate a "venue" or "place" of arbitration in the arbitration agreement/ clause, such venue / place will be considered to be the seat in the absence of any contrary indication in the agreement/ clause.

The linkage between the seat, place or venue of the arbitration with the jurisdiction of courts continues to confound users of arbitration. While part of the problem is poor drafting of arbitration clauses, the lack of an express provision in the Act cannot be overlooked.

While the implications of a choice of seat in international arbitrations is well known amongst arbitration practitioners, the extension of this purely international concept to domestic arbitrations in India, by the Supreme Court, has created problems. The law in India in this regard is entirely judge made. An express provision in the Act may clarify matters. We hope our lawmakers will step up and take note.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

Unstamped Arbitration Agreements And The Doctrine Of Separability

Unstamped Arbitration Agreements And The Doctrine Of Separability

Unstamped Arbitration Agreements: The Existing Law

In the past, the Supreme Court has examined what would transpire in the event an arbitration agreement was not duly stamped. The Supreme Court, in the case of M/S Sms Tea Estates P.Ltd v. M/S Chandmari Tea Co. P.Ltd¹ (“SMS Tea Estate Decision”), when examining an application under Section 11 of the Arbitration and Conciliation Act, 1996 (“Act”) held that, a court before admitting any contract into evidence or acting upon the contract, needs to examine whether the contract has been duly stamped. If the contract is found to be not duly stamped, as a result of Section 35 of the Indian Stamp Act, 1899 (hereinafter referred to as the “Stamp Act”), the court cannot act upon the contract that has been submitted by a Party as evidence. It was held that the court can only treat the contract as duly stamped only when the deficit stamp duty and penalty is paid, either before the court or before the Collector as per the procedure laid down under Section 35 or 40 of the Stamp Act, and the defect with reference to deficit stamp is cured. As a result of the SMS Tea Estate Decision, the arbitration clause could not be acted upon, as the contract in its entirety must be examined for the purpose of stamp duty.

Admittedly, this position of law was developed keeping in mind the provisions of the Act prior to the amendments made to the Act. On October 23, 2015, based on the 246th Law Commission Report, the Arbitration and Conciliation (Amendment) Act, 2015 (“Amendment Act”) came into force. The Amendment Act brought about numerous changes, amongst them was the insertion of Section 11(6A). With the insertion of Section 11 (6A), the powers to determine of a court while hearing a Section 11 application were restrained and were to be confined to the existence of an arbitration agreement. The Supreme Court in M/s Duro Felguera v. Gangavaram Port Ltd² after a reading of Section 11 (6A), made it clear that the intention of the legislature was to minimize the Court's intervention when appointing the arbitrator and hence as a result of Section 11 (6A), it was decided that the Courts should only look into one aspect which is the existence of an arbitration agreement.

After the enactment of the Amendment Act, the Supreme Court in the case of Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engineering Ltd³ (“Garware Decision”) examined the question whether an arbitration clause in a document which requires compulsorily to be stamped under the relevant Stamp Act, but is not duly stamped, would be enforceable after the insertion of clause (6A) in Section 11. The Supreme Court held that a court when entertaining a Section 11 application finds the contract to be unstamped, they are bound by the provisions of the Stamp Act to first impound the contract to see that stamp duty and penalty (if any) is paid, before the contract, as a whole, can be acted upon. The Supreme Court concluded that it would not be possible to separate the arbitration clause contained in such a contract when adjudicating an application under Section 11 of the Act because, to determine if an arbitration agreement exists, the same would depend on whether the contract “exists”, and a contract cannot exist as a matter of law until the contract has been duly stamped. The Garware decision was subsequently affirmed in another decision by the Supreme Court in Vidya Drolia & Ors. v. Durga Trading Corporation⁴.

Revisiting the Doctrine of Separability

The doctrine of separability for arbitration agreements has been developed over time. The doctrine of separability was expounded in the judgment of Heyman v. Darwins Ltd⁵ by the House of Lords wherein it was held that “an arbitration agreement is collateral to the substantial stipulations of the contract. It is merely procedural and ancillary, it is a mode of settling disputes, though the agreement to do so is itself subject to the discretion of the court.” This doctrine of separability has also been enshrined in the United Nations Commission on International Trade Law – Model Law on International Commercial Arbitration, 1985 (“Model Law”) under Article 16⁶.

Section 16 of the Act is based on Article 16 of the Model Law, under which the doctrine of kompetenz – kompetenz has been captured. The Supreme Court has held that under Section 16 of the Act, an arbitral tribunal may “rule on its own jurisdiction, “including any objections” with respect to the existence or validity of the arbitration agreement. Once the existence of the arbitration agreement is not disputed, all issues, including jurisdictional objections are to be decided by the arbitrator.”⁷

This doctrine of separability of an arbitration agreement has in fact been well summarized by the Apex Court in the SMS Tea Estate Decision wherein it was observed that, “When a contract contains an arbitration agreement, it is a collateral term relating to the resolution of disputes, unrelated to the performance of the contract. It is as if two contracts — one in regard to the substantive terms of the main contract and the other relating to resolution of disputes — had been rolled into one, for purposes of convenience.”⁸

Changing the Law

Despite there being Supreme Court decisions that have examined the issue of unstamped arbitration agreements, the existing decisions create an exception to the doctrine of separability. The Supreme Court earlier this year M/s. N.N. Global Mercantile Pvt. Ltd. v M/s. Indo Unique Flame Ltd. & Ors⁹ (“Global Mercantile Decision”) held that the findings in the Garware Decision were erroneous and did not lay down the correct position in law.

The Supreme Court in the Global Mercantile Decision was examining the issue whether the non-payment of stamp duty on the substantive commercial contract would render the arbitration clause invalid, non-existent, or unenforceable in law, till the stamp duty is paid on the substantive commercial contract.

While recognizing the doctrine of separability, the Supreme Court, held that an arbitration agreement contained in the substantive commercial contract is independent and distinct from the underlying commercial contract. The arbitration agreement being a separate and distinct agreement from the underlying commercial contract, is an agreement which provides the mode of dispute resolution and would survive independent from the substantive contract. As a result, the Supreme Court held that the arbitration agreement would not be rendered invalid, unenforceable, or non-existent, even if the substantive contract is not admissible in evidence or cannot be acted upon on account of non-payment of stamp duty.

Further, in the Global Mercantile Decision, the Supreme Court was also examining the provisions of the Maharashtra Stamp Act, 1958 (“Maharashtra Stamp Act”). Under Section 34 of the Maharashtra Stamp Act, an unstamped instrument would not be admissible in evidence or be acted upon till the requisite stamp duty is paid. The Supreme Court observed that the non-payment or deficiency of stamp duty on the instrument would not invalidate the main contract and such non-payment or deficiency of stamp duty would amount to a deficiency which could only be cured on the payment of the requisite stamp duty. As a result, there would be no legal impediment to the enforceability of the arbitration agreement pending payment of stamp duty on the substantive contract. However, the Supreme Court did add that the adjudication of the rights and obligations under the substantive commercial contract would not proceed before complying with the mandatory provisions of the Stamp Act.

By relying upon the doctrine of separability the Supreme Court held that, once the arbitration agreement is found to have an independent existence, it can be acted upon, irrespective of the alleged invalidity of the commercial contract. Due to the difference in law being created as a result of the Global Mercantile Decision, the Supreme Court has now referred the issue to a Constitution Bench of five judges to settle the issue once and for all.

Footnotes

1 (2011) 14 SCC 66

2 2019 (2) ArbLR 413 (Bom)

3 2019 (6) SCALE 250

4 (2021) 2 SCC 1

5 [1942] AC 356.

6 Article 16 of the Model Law states that the arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms a part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

7 (2020) 2 SCC 455

8 2011) 14 SCC 66

9 (2021)1 MLJ 708

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

AUTHOR(S)

Contractual Disputes Amenable To Writ Jurisdiction Despite The Existence Of Arbitration Agreement: Supreme Court Of India

 

Contractual Disputes Amenable To Writ Jurisdiction Despite The Existence Of Arbitration Agreement: Supreme Court Of India

The Supreme Court in its recent judgement of 'Uttar Pradesh Power Transmission Corporation Ltd. v. CG Power and Industrial Solutions Ltd. & Anr.'¹ held that the courts can entertain writ petitions in contractual disputes, despite existence of arbitration clauses. The Supreme Court enunciated the said point of law in the factual matrix detailed below.

Background

Uttar Pradesh Power Transmission Corporation Ltd. ("Petitioner") approached the Supreme Court by way of a special leave petition against judgement of the High Court of judicature at Allahabad (Lucknow Bench), allowing the writ petition filed by CG Power and Industrial Solutions Ltd. ("Respondent") and setting aside letters dated 2 September 2016 and 29 December 2018 issued by the Petitioner ("Letters").

By way of the Letters, the Respondent was directed to remit labour cess amounting to INR 2,60,68,814/- (Rupees Two Crore Sixty Lakh Sixty-Eight Thousand Eight Hundred Fourteen), computed on the contract value under provisions of the Building and Other Construction Workers' Welfare Cess Act, 1996 ("Cess Act"), read with provisions of the Building and Other Construction Workers Welfare Cess Rules, 1998, ("Cess Rules") and the Building and Other Construction Workers (Regulation of Employment and Condition of Service) Act, 1996 ("BOCW Act")

The High Court vide its order found that the framework agreement between the parties was split, covered by four separate contracts, namely:

1. design, engineering, manufacture, testing at works and supply of all required equipment and materials with accessories and auxiliaries; ("First Contract")
2. erection, testing and commissioning at site including unloading, handling etc.;
3. civil works including materials for commissioning and handing over of the substations;
4. operations and maintenance for three years

The primary dispute arose upon an audit report conducted by the audit officer under the senior accountant general, wherein a lapse on part of the Petitioner was highlighted in not deducting labour cess from the bills of the Respondent under the First Contract.

The Respondent rightly denied applicability of labour cess upon the First Contract, being a purely a supply contract, rendering it beyond the ambit of Cess Act or the BOCW Act. Despite such objection, the Petitioner instructed the bank which issued bank guarantees for the Respondent to partially discharge such bank guarantees, except to the extent of covering cess on the First Contract. The Letters issued by the Petitioner were on the basis of the above understanding, seeking recovery of labour cess.

The High Court by an interim order restrained the Petitioner from encashing the bank guarantees. By the impugned order, the High Court set aside the Letters and accepted the submissions of the Respondent on the inapplicability of provisions of the Cess Act and BOCW Act to the First Contract.

The High Court observed that if cess were leviable under the Cess Act, it would be necessary for the concerned authorities to undertake the exercise of assessment and levy of cess under the Cess Act, before the same could be realized from the Respondent. In absence of such assessment or order of levy the said recovery pursuant to an audit objection was in essence, unlawful.

Discussion and Findings

The Supreme Court undertook an examination into the provisions of the Cess Act and the BOCW Act to arrive at the same conclusions as that of the High Court, that the First Contract being a supply contract was beyond the purview of labour cess under the above statutes.

The Supreme Court noted the fact that even though the contract between the parties contained an arbitration clause, the Petitioner had not opposed the maintainability of the writ petition on this ground. The counter affidavit filed by the Petitioner before the High Court also failed to make any reference to the arbitration agreement between the parties.

The Supreme Court held that the High Court is not prevented from entertaining a writ petition despite existence of an arbitration agreement. The judgement went on to record that it is a well settled proposition of law that the availability of an alternate remedy does not prohibit the High Court from entertaining a writ petition, particularly in the following contingencies:

1. Where the writ petition seeks enforcement of a fundamental right
2. Where there is failure of principles of natural justice
3. Where the impugned orders are wholly without jurisdiction
4. Where the vires of an act is under challenge

The Supreme Court placed reliance on a number of precedents² on the issue of law with special emphasis on its judgement in Harbanslal Sahnia & Ors. v. Indian Oil Corporation Ltd.³, wherein the impugned order of Indian Oil Corporation terminating the dealership of the appellant therein was set aside, while entertaining a challenge to a judgement passed in exercise of writ jurisdiction by the high court, despite existence of an arbitration clause.

As per its findings on facts of the case at hand, the Supreme Court found that the act of the Petitioner was in fact in excess of its power, especially in the absence of an assessment or levy of cess under the Cess Act by the authorities. Thus, the Petitioner could not have taken recourse to the methods adopted by it.

The Supreme Court recorded that relief under Article 226 of the Constitution can be granted in contractual disputes. However, given the discretionary nature of writ jurisdiction, it should not be exercised in matters involving adjudication of disputed questions of fact which may require detailed analysis of evidence.

Footnotes

1 2021 SCC OnLine SC 383

2 Whirlpool Corporation v. Registrar of Trade Marks, Mumbai & Ors. [AIR 1999 SC 22];

Pimpri Chinchwad Municipal Corporation & Ors. v. Gayatri Construction Company & Ors. [(2008) 8 SCC 172]

3 (2003) 2 SCC 107

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Discovery Of Documents And Interrogatories: An Analysis

 

India: Discovery Of Documents And Interrogatories: An Analysis

One of the tenets of natural justice is to run a fair trial and to provide absolute justice as equal opportunities must be given to both the parties to access the documents related to the case. It is outrightly true that one of the vital elements of the rule of law is its procedures enshrined under the Code of Civil Procedure, 1908, focaser proper adjudication of the civil suits. One of the most crucial provisions to ensure the same is Order XI, wherein the parties get a chance to exchange information regarding the witnesses and evidence presented before the court during the trial.

It is important to mention here that every civil suit consists of two types of facts. First is, facto probanda which constitutes a party's , and second is facto probantia, wherein the facts will be considered as evidence if proven. This article will further deal with facto probanda. A procedure under which the opposite party requests for certain undiscovered documents is known as Discovery of Documents and if any particulars regarding the case are asked by the way of questions, then it is termed as Discovery by Interrogatories. The same is further delineated below:

DISCLOSURE AND DISCOVERY OF DOCUMENTS

The procedure through which the adversary party is compelled to disclose the vital documents which are under the possession or power of such party is termed as 'Discovery of Documents'. Discovery of Documents is defined under Order XI Rule 12-14 of the Code of Civil Procedure,1908, and Order XI Rule 1 of the Commercial Court Act, 2015.

Any party to a suit under oath may apply for an order from the court for the discovery of documents that are related to the matter in question of the suit from the adversary party. However, the documents or information which reveal evidence of the party, document, or information shall not be ordered to be produced. The ratio behind such exception is that the party shall not come to court after knowing how his opponent is going to prove his case.

The purpose of discovery of documents is to: (i) to elicit admissions, (ii) to obviate the necessity to produce lengthy evidence, and (iii) to expedite disposal.¹

Discovery of documents can only happen when both parties are getting affected by the same cause of action. No discovery of documents can take place if the exclusive right of only one party is getting affected. It is well settled in law that if documents produced by one party is related to the case of both the parties, then the party producing them cannot claim exemption from inspection². Discovery of documents must be related to the pleadings and documents asked to produce must come under the category of relevant documents. Documents must be in possession and the power of the person against whom discovery and production are being sought.

It is important to note here that while the discovery of documents is being asked, the court must be satisfied with two conditions. Firstly, the discovery order is necessary for the fair disposal of the suit, and secondly that, such discovery of documents is saving costs. No defendant can be compelled to produce any documents or to give inspection of the same to facilitate cross-examination, or for enabling the plaintiff to understand the genuineness of purport of the documents relied upon by the defendants for proving his case³. There also exist certain objections on which Discovery of Documents cannot be asked by any party such as (i) disclosing other party's evidence; (ii) doctrine of legal professional privilege; (iii) injurious to public interest.

Simply, it can be explained that a document may be inadmissible in evidence, yet it may contain information that may directly or indirectly enable the party seeking discovery either to advance his case or damage his adversary's case or which may lead to a trial of inquiry which may have either of these two consequences⁴. Thus, before making an order under the provisions of Discovery of Documents, the following principles are to be considered by the courts⁵:-

(i) The documents sought to be discovered and produced must be relevant to the matter in controversy viz. matters in question.

(ii) The documents must be in the possession and power of the person against whom discovery and production are sought.

(iii) Discovery and production of the documents which are sought for are necessary at that stage of the suit.

(iv) The discovery and production are necessary for fairly disposing-off the suit or for saving costs.

(v) The discovery and production may be general or limited to certain classes of documents as the court in its discretion deems fit and the production will only be ordered if the court considers it just.

DISCOVERY BY INTERROGATORIES

In the civil suit, after filing of the written statement by the defendant and summons being sent to both the parties for the first hearing, the process leads to the settlement of issues. But there are certain questions that come into existence, after the settlement of issues due to some information received by one party which might not be known to the other party. In such circumstances, the concept of Interrogatories plays a crucial role. Interrogatories may be defined as formal written questions that require an answer by the direction of the court. The process of Interrogatories is to be encouraged as it is a way of obtaining admissions of parties and is used profusely whenever it could shorten the litigation and serve the interest of justice⁶.

Discovery by Interrogatories is defined under Order XI Rule 1 to 11, 21, and 22 of the Code of Civil Procedure, 1908, and is defined under Order XI Rule 2 under the Commercial Court Act, 2015.

The party to whom interrogatories are administered must answer them in writing and on oath. The party to whom interrogatories are administered, discovers or discloses by his affidavit, in answer to the interrogatories, the nature of its case. This is called Discovery by Interrogatories. Interrogatories shall be confined to the facts, it shall not be conclusions of law, construction of words or documents, or inference from facts⁷.

The set of questions shall be the 'question of fact' rather than the 'question of law'. The willing party to deliver interrogatories shall apply for leave to the court and shall submit the proposed interrogatories to the court. As per Order XI Rule 2, the court shall decide the matter within 7 days of filing the application by the party. Further, the Civil Procedure Code, 1908, has given the prescribed format in which the interrogatories must be filed which is provided in form number 1 and 2 of Appendix C and the affidavit should be in form number 3 of Appendix C. The affidavit to answer the interrogatories shall be filed within ten days after the service of interrogatories.

The objective of interrogatories is to: (i) determine the nature of the case when it is not clear from the suit filed; (ii) to make own case stronger by securing admission from the other party; (iii) to destroy the case of the opponent⁸; (iv) maintain his case and destroy the case of the adversary; and (v) to seek admission of a party on the matter in dispute so that the issues can be accordingly framed, minimizing the contentious issues or disputes left for the adjudication of the court, with the ultimate object of facilitating early and expeditious disposal of the suit⁹.

Interrogatories asked must have some bearing on the issues involved in the case and those which do not relate to any matters in question in the suit shall be deemed irrelevant. Interrogatories are the way of admission of any fact and can be allowed to any party which is part of the suit which can be Corporation, or Body of Persons as stated in Order XI Rule 5.

Objections to the interrogatories can be raised by the parties on the ground wherein one party feels that the questions asked are scandalous, irrelevant, prolix, oppressive, unnecessary, not exhibited bona fide, and are on the ground of privilege. Questions of interrogatories in the form of fishing or roving are also not allowed. It is an important part to consider that interrogatories in respect of foreign law are also not permissible.

Interrogatories aid in narrowing down the point in issue by saving the parties from extra expenses by enabling them to obtain all information related to material facts of the case. The special power provided to the parties must be handled with due precaution by the court to counter scandalous, mala fide, or immaterial interrogatories.

DIFFERENCE BETWEEN INTERROGATORIES AND CROSS-EXAMINATION

(i) Interrogatories can never be asked to check the credibility of the person. However, the same can happen during the cross-examination.

(ii) Interrogatories can only take place with the parties involved in the case. However, cross-examination can take place with both parties as well as the witness involved in the case.

(iii) In interrogatories, one party can only ask questions related to any matter/issues involved in the case whereas, in cross-examination, you can ask anything as relevant to the parties involved in the case.

(iv) Interrogatories has a narrower scope whereas cross-examination has a broader scope.

CONCLUSION

The provisions of Order XI of the Code are intended to curtail evidence thereby expediting trial of the suit, saving court's time and costs of litigation to the parties¹⁰. The said order gives the right to obtain information to acquire an admission from the opponent which is material and relevant to the issue raised on the pleadings and gives a right to interrogate. The provision related to interrogatories also narrows the point in issue and saves the party from time-consuming process of obtaining information from his opponent. Such a right under Order XI shall not be used to abuse the interest of the opponent party. The parties shall also take due care of the fact that they need to follow the procedures provided within the time frame, so that the case may be disposed-off quickly and effectively.

Footnotes

1. Rajnarain v. Indira Gandhi, AIR 1972 All 41

2. Bagyalakshmi Ammal and Ors Vs Srinivasa Reddiar (MANU/TN/0146/1960)

3. Bagyalakshmi Ammal and Ors Vs Srinivasa Reddiar (MANU/TN/0146/1960)

4. M.L. Sethi v. RP Kapur, (IR 1972 SC 2379)

5. DSIIDC vs Shiv Kumar (MANU/DE/3646/2013)

6. Smt. Sharda Dhir v. Sh. Ashok Kumar Makhija and Ors. (MANU/ DE/1021/2002)

7. P. Balan v. Central Bank of India, Calicut (AIR 2000 Ker 24)

8. Plymouth Mutual Co-op. Society v. Traders Publishing Association [(1906) 1 LJ 415]

9. Govind Narayan & Ors Vs Nagenra Nagda & Ors (MANU/RH/0832/2017)

10. Transport Corporation of India Ltd Vs Reserve Bank of India and Ors [243 (2017) DLT 168]

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.