Development with environment-friendly techniques is a very difficult task if not impossible. There is no ethical basis or political will for coercing developing countries into agreeing to limit their emissions. Naturally, such countries need to be incentivized for adopting environment friendly technologies. It is here that the Clean Development Mechanism (hereinafter “CDM”) plays an incentivizing tool to motivate developing nations into reducing their emissions.
CDM is a trading mechanism through which countries can purchase Certified Emission Reductions (hereinafter “CERs”), to meet its treaty obligations. CERs are the currency of the CDM system, where one unit of CER is equivalent to one tonne of carbon dioxide emission. It was created as a trading mechanism that aimed to promote the twin goals of reducing carbon emissions and promoting sustainable development at the same time.
Despite its laudable functioning, CDM has mostly been a topic of constant criticism which is evident as even the supporters of CDM have not failed to acknowledge the drawbacks of CDM.
There have been only short-term emission reductions through CDM as private players have only invested in the cheapest carbon reduction technologies which have little or no long term advantages. In 2012, a report was published revealing the poor condition of the CDM due to lack of demand for carbon credits. This report raised alarm amongst countries to urgently decide upon the future of this flexibility mechanism. Thus, such a short term viewpoint has contributed only towards costeffectiveness undermining the other two primary objectives of the convention, namely sustainable development and environmental integrity.
Perhaps the most controversial issue under CDM is the concept of ‘additionality’ which means that the emission reductions from employing a carbon reduction technology project have to be shown to be in addition to the normal course of things. In other words, a project developer has to show that his project results in additional emission reductions which would be more than the reductions which would have resulted had the carbon reduction project/technology not been there at the first place. Additionality is an important requirement because if nonadditional projects are eligible for carbon finance, then the net amount of greenhouse gas emissions will continue to increase and the environmental integrity of carbon reduction projects will be called into question. However, no generally accepted concept of additionality exists. Some authors like Begg have divided ‘additionality’ into two components, namely environmental and financial additionality. In other words, a country would fulfil the additionality requirement if the environmental technology results in environment saving and financial benefit. On the other hand, Gillenwater has given a definition of ‘additionality’ with respect to baseline. Baseline according to him is a prediction made by taking into account all the factors that would influence the future performance of the project. The problem with baseline is that it is a relative term varying from country to country and sector to sector. Moreover, the actual issue is not whether there should be a baseline or not but who should set the limits of it? It is indeed a difficult task but it would be best if such task is left to the host governments which could establish appropriate baselines by studying the business environments in different sectors.
A peculiar feature of the CDM is the concept of ‘common but differentiated responsibility’. The Kyoto Protocol is designed in such a way that although the common objectives of emission reductions and sustainable development have been conferred upon each signatory nation but binding targets have been imposed only upon the developed nations. The reason behind this is that historically, developed nations have contributed most towards global green house emissions and therefore, it was thought that such a mechanism would be apt as it invariably incorporates the well known principle of ‘polluter pays’. However, in actual application this has resulted in an implied preferential right to use nonenvironmental friendly fossil fuels by the developing countries. Now even if the developed nations compensate for their historical contribution to green house gases emissions, the quantum of these gases in the atmosphere will be same or possibly even worse as the effect of such reduction will be negated by the increasing pollution caused by the developing countries. Thus, a free license to pollute given to developing countries is a serious drawback of CDM.
On the other hand, Ferrey has expressed his concern over the quality of carbon credits issued till date. He opines that primary focus of CDM has been on encouraging carbon as a tradable commodity and it pays little heed to use of renewable sources as an alternative to carbon-based fossil fuels. To illustrate, in 2012, the CDM Executive Board approved some coal-based projects because they were more resource-efficient. This example leads to the observation that the board has now focused its attention to incentivizing energy-efficiency rather than reducing carbon emissions which was the prime objective under the Kyoto protocol. Consequently, this has led many environmental jurists to opine that the trading regime has evolved into a purely financial market, which operates following traditional financial rules and behaviour, and that there is a tendency to forget the underpinning environmental dimension objective of reducing CO2 emissions. Moreover, a number of people argue that by not specifying the limits to which countries may purchase credits, it may result in buying out of environmental responsibilities by the developed and so-called “rich countries”. To rebut such criticism the CDM Executive Board chair has urged that CDM is much more than a market based tool and that it can be used to measure emissions and transparently report the reductions leading to real progress on climate change.
Paris Agreement and SDM: Death or Rebirth of CDM?
Carbon trading has a crucial role to play in the foreseeable future. However, the limitations pointed out by various scholars cannot be ignored. Wara has suggested that limited reforms must be made in the existing CDM structure. Moreover, he opines that by simply eliminating CDM without replacing it with a suitable alternative will leave the newly discovered benefits on the table.
In light of this background, the newly ratified Paris Agreement on Climate Change (hereinafter “Paris Agreement”) comes into picture. Paris agreement is a voluntary system for defining parameters to climatic change. The agreement does not specifically state CDM as the preferred system but there has been a clear implication to learn from CDM experiences. Moreover, some signatories have taken into account the limitations of CDM and have proposed systems like enhanced CDM or CDM+. This successor of CDM has gained the title of Sustainable Development Mechanism (hereinafter “SDM”). SDM aims to overcome the flaws of CDM by providing for a better, more voluntary and more accountable carbon trading mechanism.
SDM VIS-À-VIS CDM
SDM is much wider in scope than CDM. Under the CDM regime, only developed countries were permitted to buy CERs whereas under SDM any signatory, public or private, will be able to participate in the SDM carbon market. However, this does not necessarily mean the end of CDM. CDM can still be used as a tool for monitoring, reporting and verifying (MRV). This speculation has been endorsed by theCDM executive board by opining that CDM is an established mechanism which can measure significant carbon reduction in terms of carbon credits and report the results in a transparent way. Moreover, if one even glances at the shortcomings of CDM, the main issues pertain to the lack of an elaborate framework for the implementation of the CDM mechanism which has given rise to problems when CDM is applied in real world scenario but there has been no major criticism regarding the MRV procedures under the CDM regime. On the other hand, SDM has its own set of problems which are already creating confusions in the international community. The biggest concern is of voluntarily creating targets instead of binding targets in the CDM regime.
This is because there is an apprehension that countries will set undervalued targets which are much lower than what is desirable. Moreover, there are issues which are already creating confusions in the minds of the international community.
For example, under CDM, the developing countries could sell off any quantum of their CERs without accounting for them simply because they had no binding targets but the same is not with SDM. Until now it is abundantly clear that all nations, irrespective of whether such a country is a developed country or a developed country, would have some voluntarily set targets. This has led to the problem of ‘double counting’. Suppose, A is a developing country and B is a developed country where A is selling 20 CERs to B. Now, in CDM A being a developing country would have had no binding targets and the 20 CERs sold would have to be counted towards binding targets of B.
However, let’s assume that under SDM A has voluntarily set its targets to 100 CERs. Now, the question arises, whether sale of 20 CERs be counted towards target of A. If yes, then the same CERs would be counted towards target of B as well as A resulting in double counting.
The discussion has revealed that CDM has been a victim of its own success. In its initial years of application, the CDM was welcomed by all which was witnessed by the increase in the number of projects registered under the CDM regime. However, as the world continued to explore the first global carbon market regime, procedural loopholes and definitional irregularities came to light. For quite some time, CDM has declined due to various limitations and lack of demand for carbon credits.
Amidst these tensions, the Paris Agreement has emerged with the fate of CDM lying in its hands. There is a high probability that SDM will be the successor of CDM. Though, the procedural framework has not been laid down, which is not at all surprising considering the time taken by the counties to lay down rules for CDM under the Kyoto Protocol, the future of carbon trading lies in SDM which will be much wider in scope and hopefully, better than the existing CDM regime.
Nevertheless, the policy makers would need to be cautious while overcoming the drawbacks of CDM as in an attempt to create an ‘ideal carbon market’, they may end up doing more harm than good which would ultimately hinder the agenda of global sustainable development.
Adv. Meenal Garg practices at Punjab and Haryana High Court
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The centre must address Punjab farmers’ concerns
The agitating Punjab farmers have lifted the rail blockade following the intervention of Chief Minister Amarinder Singh, who was able to convince them that their action had resulted in immense financial loss to the state as well as contributed to the hardships faced by common citizens. The imbroglio was broken when the Chief Minister spoke to the kisan leaders who wanted the Centre to have a re-look at the farm laws that were enacted in a tearing hurry during the last Parliament session. In fact, if the Union government steps in and gives the required assurances to the farmers, the increasing unrest can be contained on time.
Amarinder Singh has, in the meantime, urged the Centre to restore all Punjab-bound trains to placate the people and create an atmosphere where some kind of rational dialogue can be initiated. The passage of the Bills by both Houses of Parliament and the subsequent ascent granted by the President, have not gone down well with the farming community, which feels that there should have been wide consultations, prior to such a step being taken. The Centre’s reluctance to review the decision led to the resignation of Harsimrat Kaur Badal from the Cabinet, and also the withdrawal of support by one of the BJP’s oldest allies, the Shiromani Akali Dal.
It is evident that those who advised the government on the laws were themselves not acquainted with the ground level situation in Punjab, Haryana and western Uttar Pradesh, where the process of procurement is in variance with many other states. It is well known that each state has its own peculiarities, and thus care should have been taken while drafting the Bills. This kind of uncalled confrontation could have been avoided, had the farmers been brought on board, instead of ill-informed bureaucrats calling the shots.
Punjab is a very important state in multiple ways. It shares its borders with Pakistan and has borne the brunt of all India-Pakistan conflicts that have taken place there. Thus, it is paramount that an explosive situation should not be allowed to develop there, which would enable our enemy nation to exploit the discord. It is common knowledge that attempts by mischievous elements from across the border are constantly being made to send in narcotics, arms and other contraband through drones. The rise in the consumption of drugs has impacted an entire generation, and one of the reasons for the Akalis losing power in 2017 was because in the perception of the electorate, they did not do enough to contain this malaise.
The insistence of the Central government to stick to its position would therefore be a folly, which would not be in the national interest. There is a strong feeling in the state that politics was being played unnecessarily, and the BJP was wanting to divide the rural and urban areas of the state. This impression should be erased at the earliest. In a policy where the nation comes first, the Centre must find a way to address the problem. The issue has benefitted Captain Amarinder Singh immensely who, with his deft handling of the matter, has grown in political stature. He could easily facilitate a meaningful conversation between the Centre’s emissaries and the farmers. This face-off is uncalled for and must end at the earliest. The Centre would earn tremendous goodwill if it accommodates the issues raised by the farmers.
Democracy: Witnessing institutional meltdown
The United States and India are facing a crisis of morality. America needs Abraham Lincoln today. And if ever India needed Mahatma Gandhi after 1947, it is now.
There are many I know who are yet completely gobsmacked. America has voted for Democrat Joe Biden to be the 46th President of the United States of America. But at the time of writing there is a refractory outgoing President Donald Trump whose irrational, mendacious outraging over civilised democratic processes is leaving the world stunned. The world’s oldest democracy seems to be disintegrating as Trump, like an obdurate high-school bully, refuses to concede defeat. It is a time-honoured US presidential contest convention that the defeated candidate acknowledges the victory of his opponent. But Trump is Trump, who is renowned for making a complete travesty of political protocol and public decency, eviscerating overnight the gold standards of bipartisan, mature, elegant handovers.
American democracy currently is ruptured. The fact that the man in the White House is unashamedly conspiring to delegitimise the valid votes of the American people to somehow create a constitutional crisis is an appalling apotheosis of not just his mental depravity but worse, his immoral disposition. A lily-livered Republican party has coalesced with Trump in this ignoble project. For US politics, it appears like the road to perdition, and raises fundamental questions on institutional debilitation that are threatening the future of elected democracies. India is another candidate that appears inebriated with the hubris of ballot-box success for the ruling Bharatiya Janata Party (BJP), prompting it to assume a dangerous authoritarian complexion. There are stark parallels between the world’s two largest democracies.
President Trump has had no compunctions in crushing institutions of democratic governance, and let’s face it, he has disgraced that consecrated Oval Office like no other (even Richard Nixon’s sleazy Watergate tapes scandal appears relatively as just a ham-handed snooping job that was handled with abecedarian recklessness). One has lost count of the number of senior White House staff, including cabinet ministers, who have been abruptly terminated because perhaps the President had a bad night’s sleep after watching CNN. It was such a pathetic joke that I often wondered whether Trump was actually still thinking he was a reality TV impresario of his The Apprentice show. That the most powerful man in the world even triggered threats of a nuclear annihilation against old foe North Korea on Twitter, was astounding, farcical. It appeared that the world was watching Monty Python in fast forward mode.
The laundry list of Trump’s peccadillos and wilful infringement of democratic conduct was surprisingly casually dismissed as the unpredictable character of a radical anti-establishment maverick. It was a mistake. Over a period of time, Trump’s intrinsic racism, Islamophobia, anti-multilateralism, sexual transgressions, authoritarianism, bigotry, narcissism, and even his impeachment, were normalised. Even a decade ago, any other political personality would not have just been besmirched by the ugly scandals, they would have been buried. But after every sordid stench of turpitude, Trump in fact became more emboldened. The free press was targeted as fake news, and Trump labelled his critics as anti-American who wished to subvert American sovereignty. A similar political idiom is heard in India.
Let’s face it, all political parties, including regional satraps leading provincial formations in India, have collectively contributed to the huge public cynicism of our democratic and constitutional institutions. No one has a clean sheet here. The moment the Bihar Assembly elections concluded (it was a closely contested battle with many seats changing hands with meagre differences in vote count), the Opposition promptly blamed the state government and the Election Commission. Instantly, there were several takers for that allegation. The fact that 48% of US voters (an impressive 72 million) and the entire Republican party believes that Trump actually won the elections and are supporting his legal obstructionist rampage reveals a deeper moral crisis; loss of faith in independent institutions. In the long-run these are injurious developments for democracy, and usually hasten towards autocratic, opaque systems that are paradoxically paraded as more translucent. It is also observed that leaders deliberately create a polarised infrastructure (institutions, social media, mainstream media, policing, etc). Their followers have a pathological fealty to their rabble-rousing ways which aggravates matters. Even the judiciary is included in this disruptive enterprise; why else would Trump confidently announce that he expects a favourable verdict from the Supreme Court on his fabricated allegations of voter fraud?
The Indian judiciary too faces a litmus test, as it has come under the public spotlight following the much-publicised January 2018 press conference when four former Supreme Court judges warned of a serious threat to the integrity of India’s highest authority for fair justice. Thereafter, it has been snowballing from one controversial judgement (or the absence of one) to another, that has caused deep concern to the common man. The recent hurried listing of a celebrity television anchor’s bail plea, when thousands of cases of ordinary people and Left-wing activists are pending for months and years, is symptomatic of the general perception that in India the rich and the famous are first among equals. If you are pro-establishment, even better.
Trump appears convinced that a Supreme Court packed with conservative judges (including his opportunistic appointment of Amy Coney Barrett) will have a charitable disposition towards him. That is a frightening prospect. The regulatory (CBI, ED, NIA, RBI, DD, CBFC, EC, etc) and media capture in India has led to it being branded with President Recip Erdogan’s Turkey and Vladimir Putin’s oligarchic Russia. India is widely perceived to have become an intolerant, illiberal democracy where free speech is being asphyxiated to death. India’s institutions are fragile, and falling by the wayside like nine pins.
Like America, India faces a crisis of morality. America needs Abraham Lincoln today. And if ever India needed Mahatma Gandhi after 1947, it is now.
Sanjay Jha is a former national spokesperson of the Congress. He is currently suspended. The views expressed are personal.
American democracy currently is ruptured. The fact that the man in the White House is unashamedly conspiring to delegitimise the valid votes of the American people to somehow create a constitutional crisis is an appalling apotheosis of not just his mental depravity but worse, his immoral disposition. For US politics, it appears like the road to perdition, and raises fundamental questions on institutional debilitation that are threatening the future of elected democracies.
NCLT has no jurisdiction to examine legality of action taken under MPID Act: Bombay HC
In a fresh and significant development, the Bombay High Court in a latest, landmark and laudable judgment titled The State of Maharashtra Through the Deputy Collector & Competent Authority (NSEL) V/s Anil Kohil in Writ Petition No. 3396 of 2019 With Civil Application No. 29 of 2020 delivered recently on 9 November 2020 has pronounced in most certain terms that the National Company Law Tribunal has no jurisdiction to examine the legality or validity of action taken under Maharashtra Protection of Interest of Depositors (In Financial Establishments) Act, 1999 (MPID Act) and it is only the designated Court constituted under Section 6 of the said Act that will have exclusive jurisdiction to deal with the same. The Division Bench of Justice SC Gupte and Justice Madhav Tamdar quashed and set aside the order dated January 28, 2019 passed by the Member (Judicial), National Company Law Tribunal, Mumbai Bench directing the de-freezing of bank account in the name of Dunar Foods Ltd, which was freezed in relation to the National Spot Exchange Limited (NSEL) payment default crisis. This certainly has to be complied with now.
To start with, it is first and foremost enunciated in para 1 that, “In the present case a very interesting question arises as to whether action taken under the provisions of the Maharashtra Protection of Interest of Depositors (In Financial Establishments) Act, 1999 (hereinafter referred to as “MPID Act”) against a “Financial Establishment”, as contemplated under the MPID Act, can be challenged not before the Designated Court under the MPID Act but before the National Company Law Tribunal (hereinafter referred to as “NCLT”) by resorting to the remedy provided under the Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as “I.B. Code”). On the application of a “Financial Creditor” as contemplated under I.B. Code, an Interim Resolution Professional (hereinafter referred as “IRP”) is appointed by NCLT by exercising power under section 7 of the I.B. Code against the Corporate Debtor as contemplated under I.B. Code, which is also the Financial Establishment under the MPID Act and de-freezing of the corporate Debtor’s account attached in MPID proceedings is ordered. This order is the subject matter of challenge in this petition.”
While setting the background, it is then put forth in para 4 that, “The State of Maharashtra through the Deputy Collector and Competent Authority (NSEL), by the present Writ Petition filed under Article 226 and 227 of the Constitution of India , has approached this Court challenging the legality and validity of the order dated 28/01/2019 passed by the Member (Judicial), National Company Law Tribunal, Mumbai Bench in M.A.No.1372/2018 in CP(IB)-1138(MB)/2017. By the said order, National Company Law Tribunal (NCLT) directed de-freezing of bank account No.1952320006245 in HDFC Bank, Karnal, Haryana, (hereinafter referred to as “said account”) in the name of Dunar Foods Ltd.”
While dealing with factual aspects, it is then laid down in para 5 that, “Some of the factual aspects set out in the petition are as follows :
(i) An FIR being C.R.No.216/2013 was registered against Financial Technologies (India) Ltd. (hereinafter referred to as “FTIL”) now known as “63 Moons Technologies Ltd.”, the National Spot Exchange Ltd. (hereinafter referred as “NSEL”), the Directors and key management persons of FTIL and NSEL, 25 borrowers/trading members of NSEL, some brokers of NSEL, and others, under sections 120B, 409, 465, 467, 468, 471, 474, 477(A) of the Indian Penal Code, by the M.R.A. Marg police station on 30/09/2013. In the said FIR, the first informant had alleged that NSEL had caused wrongful loss of about Rs.2.2 crores to himself, and wrongful loss of approximately Rs.5600 crores to more than 13000 investors. On the same day, i.e. on 30/09/2013, the investigation into the said case was transferred to Economic Offence Wing, Mumbai (hereinafter referred to as “EOW”), who registered EOW C.R. No.89 of 2013. The EOW applied the provisions of the MPID Act to the said C.R. in October 2013.
(ii) NSEL is a company registered under the Companies Act, 1956 having its registered office at Chennai, Tamil Nadu. The NSEL provided an electronic platform for spot trading in commodities, and used to operate from 16 States across the country. The NSEL was promoted by FTIL, now known as “63 Moons Technologies Pvt. Ltd.”, which holds 99.99% of the share capital of NSEL. The balance 0.01% of the share capital of the NSEL is held by the National Agricultural Co-operative Marketing Federation of India Ltd. (hereinafter referred as “NAFED”).
(iii) In the petition, a reference has been made to notification dated 05/06/2007 and further notification dated 06/02/2012 issued by the Department of Consumer Affairs, Ministry of Consumer Affairs, Government of India (hereinafter referred as “DCA”) by which exemption was granted to NSEL from the operation of the Forward Contracts (Regulation) Act, 1952 (hereinafter referred as “FCRA”) for all forward contracts of one day duration for sale and purchase of commodities traded on its platform subject to certain conditions.
(iv) In the Writ Petition, the manner in which NSEL was working has been set out in detail.
(v) As per the FIR, during the initial contracts, member companies squared off the contracts on the dates of maturity. However, later on, these companies did not honour their commitments and caused wrongful loss of about Rs.5600 crores to about 13000 investors. The members of the NSEL fraudulently obtained huge funds from the NSEL against non-existent stocks of commodities. There was a semblance of trading, which was actually being done in non-existent goods, by issuing forged warehouse receipts. Further, the warehouses, which were an integral part of the NSEL as the commodities were required to be deposited in the exchange designated and certified warehouses as part of the pay-in obligations, lacked capacity and some of them had no stocks.
(vi) The NSEL vide their circular dated 14/8/2013 announced a settlement schedule. According to this schedule, NSEL had to make payouts of Rs.5,574.31 crores to its members. The settlement calendar announced by NSEL was spread over 30 weeks for pay-out on pro-rata basis to 148 members. The NSEL subsequently defaulted in all the payouts since the announcement of the settlement plan.
(vii) The investigation revealed that the mode of transaction that the NSEL was allowed by the Government of India was not followed by the NSEL, and that the NSEL had promised attractive returns to persons who had traded on the NSEL platform. The NSEL had assured them that if they entered into a contract on T+2, they would get an attractive return of 14% to 16% on the completion of the contract on T+25.”
While elaborating further, it is then set out in para 6 that, “As set out hereinabove, the FIR was registered on 30/09/2013, and after investigation, the EOW filed charge-sheet on 06/01/2014 in EOW. C.R. No.89/2013 in MPID Court, Mumbai. EOW thereafter filed supplementary charge-sheets from time to time including on 04/06/2014, 04/08/2014 and 27/12/2018. It is set out in the petition that as provisions of MPID Act were made applicable, the Government of Maharashtra vide notification dated 28/08/2014 issued under section 4 of the MPID Act attached several properties of several companies including Lotus Refineries Pvt. Ltd., White Walter Foods Pvt. Ltd., Shree Radhey Trading Co., Vimladevi Agrotech Ltd., Mohan India Pvt. Ltd., Tavishi Enterprises Ltd., Brinda Commodity Pvt. Ltd., Ark Import Pvt. Ltd., P..D.Agroprocessors Pvt. Ltd., Aastha Minmet India Pvt and Juggernaut Projects Ltd., White Water Foods Pvt. Ltd., Swastik Overseas, MSR Foods, Loil Continental, Loil Health Foods Ltd., Loil Overseas Foods Ltd., Spin Cot Textiles Pvt. Ltd., NCS Sugars Ltd., Metkore Alloys and Industries Ltd., Yathuri Associates, Namdhari Food Internation Pvt. Ltd., Amdhari Rice and General Mills and of Dunar Foods Ltd. It appears that during investigation, as and when the Investigating Agency got knowledge about properties of various companies/persons to which the provisions of MPID Act in relation to said FIR could be applied, necessary notifications under section 4 were issued by Government of Maharashtra attaching immovable and movable properties. By the notification dated 19/10/2018 various properties belonging to various parties were attached including of M/s.E.D. Agro Procedures Pvt. Ltd. and Dunar Foods Pvt. Ltd. including the said account. In this petition, we are concerned with defreezing of the said account which is subject matter of the impugned order dated 28/01/2019.”
Going forward, it is then put forth in para 7 that, “When the said investigation by EOW was going on and when the authorities were taking action under MPID Act, simultaneously on 27/06/2017, the State Bank of India, a Financial Creditor of M/s. Dunar Foods Ltd., invoked the jurisdiction under section 7 of the I.B. Code for the defaulted financial debt of Rs.758,73,62,546/- outstanding against the Corporate Debtor M/s.Dunar Foods Ltd. In the said proceedings, by the order dated 22/12/2017, the said petition was admitted by the NCLT and Mr. Anil Kohli was appointed as IRP and directed to comply with provisions of sections 13 and 15 onwards of the I.B. Code. It was further directed that as the petition was held fit for “admission”, hence as a consequence Moratorium as prescribed under section 14 of the I.B.Code would commence. It was further directed that on enforcement of Moratorium, certain prohibitions were applicable, such as institution of any Suit before a Court of Law, transferring of any Asset of the Debtor, encumbering any rights over the assets of the Debtor. However, it was also clarified that the supply of essential goods of services to the Corporate Debtor shall not be terminated during Moratorium period. It shall be effective till completion of the Insolvency Resolution Process or until the approval of the Resolution Plan as prescribed under section 31 of the I.B. Code. Accordingly, the said petition stood admitted. The Corporate Insolvency Resolution Process commenced from the date of the order.”
In hindsight, it is then mentioned in para 8 that, “It is significant to note that on 20/02/2018, M.A.No.237/2018 was filed by Dunar Foods Ltd. through IRP under section 9 of MPID Act before the Designated Court under MPID Act, seeking direction to defreeze the bank accounts of Dunar Foods Ltd. attached pursuant to the notifications issued by the Home Department of Government of Maharashtra under the MPID Act from time to time and seeking further direction to the Competent Authority designated under MPID Act to forthwith handover all assets of Dunar Foods Ltd. to the Applicant. By the order dated 28th December, 2018, passed by the learned Special Judge (MPID Act) City Civil and Sessions Court for Greater Bombay passed below Exhibit-1 in Miscellaneous Application No.237 of 2018, the said application was rejected, however, it was clarified that IRP was at liberty to raise objections before the Court under section 7 of the MPID Act.”
Of course, what cannot be ignored is then stated in para 9 that, “In the meanwhile, on 12/11/2018, M.A.No.1372 of 2018 in C.P.No.1138/I & BC/NCLT/MB/MAH/2017 was filed by IRP for Dunar Foods Ltd. under section 60(5), 14(1a) and 74(2) of I.B. Code before the NCLT, seeking direction to de-freeze the said account of the corporate debtor attached pursuant to the notifications issued by the Home Department, Government of Maharashtra under MPID Act from time to time and consequential directions to the Respondent, being the Competent Authority designated under MPID Act, to forthwith handover all assets of Dunar Foods Ltd. to the Applicant. It is further prayed that action be directed to be initiated under section 74(2) of the Code against the concerned officers of the corporate debtor for deliberate and willful violation of section 14 of the Code. A detailed reply dated 15/01/2019 was filed by the Deputy Collector and Competent Authority (NSEL) to M.A.No.1372/2018. By the impugned order dated 28/01/2019, passed by the learned Member (Judicial) NCLT, Mumbai Bench, M.A.No.1372/2018 was partly allowed by directing defreezing of the said account. The said order is challenged by the State of Maharashtra through Deputy Collector and Competent Authority, (NSEL) in the present writ petition.”
To put it succinctly, it is then pointed out in para 28 that, “The Respondents have also relied on the judgment of the Designated Court under the MPID Act at Bombay City Civil and Sessions Court, Mumbai in Roofit Industries Limited Vs. The State of Maharashtra in MPID Special Case No. 34 of 2004. A perusal of said order dated 18.08.2017 passed by the Special Judge, MPID Act clearly shows that provisions of I.B. Code were pointed out to the Court and after giving hearing to Competent Authority, depositors, objectors and others, Competent Authority and EOW were directed to hand over certain properties to the Applicant in the said case who claims to be an Interim Resolution Professional appointed by the NCLT for Roofit Industries Ltd. The operative portion of said order dated 18.08.2017 is reproduced herein below:-
1. Application is allowed.
2. Competent Authority and EOW is directed to hand over to applicant/intervener the custody and charge of the immovable properties mentioned at Sr. No. 8,10, 12,16,17,18,19, 20 and 23 of the notification dtd. 06.05.2016 alongwith all documents, record etc., within two weeks from today. They are further directed to handover to applicant office equipment, computers, furnitures and fixture in premises at Sr.5 and 24 of the notification.
3. The Competent Authority and EOW are directed to hand over amount of Rs.40 Lakhs alongwith accrued interest, if any to the applicant, within two weeks from today.
4. The Competent Authority is directed to the represent all depositors/investors before the applicant/intervener and to file the claims on their behalf. CA shall do all acts necessary for safeguarding and protecting the interest of depositors in Roofit Industries.
Date: 18.08.2017 A. S. Kaloti
Special Judge, M.P.I.D. Act & Addl. Sessions Judge,
City Civil & Sessions
Judge At Bombay.
Thus, even the said order, on which reliance is placed by the Respondents, shows that the IRP in that case approached the Designated Court under the MPID Act and after hearing all the parties, an order was passed and certain directions in the interest of depositors as contemplated under the MPID Act were also issued.”
For the sake of clarity, it is then clarified in para 29 that, “The learned counsel for the Petitioner has also relied on the judgment of NCLAT in the case of JSW Steel Ltd.(supra) wherein it has been held that the action of Directorate of Enforcement did not meet the criteria under Section 32-A (1) (b) of I.B. Code. However, in the present case, the Designated Court under MPID Act will examine the said aspect and therefore, the said judgment is not applicable to the present case.”
In the ultimate analysis, the Bench then holds in para 30 that, “Thus, in view of the above discussion, we hold that the NCLT has no jurisdiction to examine legality or validity of action taken under MPID Act and it is only the Designated Court constituted under Section 6 of the MPID Act that will have exclusive jurisdiction to deal with the same. Therefore, the impugned order passed by the NCLT is without jurisdiction and therefore, amenable to a challenge in our writ jurisdiction.”
Quite significantly, it is then held in para 31 that, “Thus, it is clear that the only remedy for Respondent-IRP is to approach the Designated Court under Section 7 of the MPID Act. Therefore, the impugned order passed by NCLT by which the said account was directed to be de-freezed, is without jurisdiction. The learned AGP has rightly relied on the judgments in Whirlpool Corporation (supra), Harbanslal Sahnia (supra), Committee of Management(supra) and Godrej Sara Lee Ltd. (supra) wherein it is consistently held that the power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provision of the Constitution. This power can be exercised by the High Court not only for issuing writs in the nature of Habeas Corpus, Mandamus, Prohibition, quo warranto and certiorari for the enforcement of any of the Fundamental Rights contained in Part III of the Constitution but also for “any other purpose”. Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions, one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by this Court not to operate as a bar in at least three contingencies, namely, where the writ petition has been filed for the enforcement of any fundamental right or where there has been a violation of the principle of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged.”
Now coming to the concluding paras. Para 32 states that, “In view of above discussion, we quash and set aside the order dated 28/01/2019 passed by the NCLT in M.A.No.1372/2018 in C.P.No.1138/I & BC/NCLT/MB/MAH/2017 by which the said account was directed to be de-freezed. The Respondents can approach the Designated Court under section 7 of the M.P.I.D. Act seeking appropriate reliefs. We have not dealt with the merits of the case and the contentions in that behalf are expressly kept open. Rule is made absolute in above terms with no order as to costs.” Finally, it is then held in the last para 33 that, “In view of disposal of the Writ Petition, Civil Application No.29 of 2020 does not survive and is disposed of as such.”
Quite rightly, the two Judge Bench of the Bombay High Court comprising of Justice SC Gupte and Justice Madhav Tamdar have substantiated this notable judgment with logical and learned reasons rightly while also noting that the only remedy for the IRP now is to approach the designated court under Section 7 of the MPID Act and set aside the NCLT’s order. It has rightly held that NCLT has no jurisdiction to examine the legality or validity of action taken under MPID Act. It has to be now complied with. There can certainly be no ever denying or disputing it!
Chances rise of a Saudi-Israeli accord
After the United Arab Emirates, Bahrain and Sudan have established diplomatic ties with the Jewish state of Israel, will it now be the turn of the Kingdom of Saudi Arabia to do so? The signs are auspicious.
There was a time that the kingdom functioned as one of the two key centres of radical Islamism, the other being Iran, in the Middle East. Its religious establishment invested billions of dollars into like-minded organizations around the world to wipe out the pluralist version of Islam and replace it with some singular, fanatical, one religion. In the 9/11 episode, 15 of the 19 hijackers were from Saudi Arabia. Later, several thousand Saudis joined the Islamic State. The Saudi government allegedly funded some notorious Islamic State fighters. The kingdom had little respect for the rights of its own citizens, women and minorities in particular.
The Saudi scenario is no longer so. Saudi Crown Prince Mohammad bin Salman, the country’s de facto ruler, wants to project modernist, democratic ideas. MBS has, of late, encouraged the kingdom’s religious education system to replace its “extremist narratives of Islam” with “moderate ones”. Following him, the Imam and Khateeb of Masjid Al Haram in Mecca and chief of the General Presidency for the Affairs of the two Holy Mosques, Abdulrahman as Sudais now stresses that the Prophet Muhammad had friendly relations with the Jewish people. In the past, the same Sudais would describe the Jewish people as the “killers of prophets,” “the scum of the earth,” “monkeys and pigs,” and so on.
In 1947, Saudi Arabia voted against Israel in the United Nations Partition Plan for Palestine. It sent its troops to fight against Israel in the 1948 and 1973 wars. In contrast, in recent years, there have been extensive behind-the-scenes diplomatic and intelligence cooperation between Riyadh and Jerusalem. Saudi and Israeli officers have met in the joint war room coordinated by Jordan and the United States.
Also, the dominant mood across the public spectrum in Saudi Arabia is in favour of economic development and regional peace. It favours normalization of relations with Israel. With the advent of the communication revolution and social media, more and more people in Saudi Arabia are now coming to know about the real secular, benevolent nature of Israel. They seem to be convinced that Saudi Arabia’s normalization of ties with the Jewish state would pave the way for stronger political, economic, and military cooperation among the nations in the Middle East and foster multi-faceted development in the entire region.
Sources say that but for the tacit consent of the Saudi Kingdom, the United Arab Emirates, Bahrain and Sudan would not have established ties with Israel. Riyadh has warm relations with all these nations. When the UAE signed the US-brokered Abraham Accord with Israel, Saudi Arabia and Bahrain approved it by opening their airspaces to flights from the Jewish state.
Earlier, when the Saudis decided to sever their ties with Iran (after Iranian demonstrators set on fire the Saudi embassy in Tehran in protest over the execution of a Shia cleric), the United Arab Emirates, Bahrain and Sudan followed suit .
Saudi Arabia and the UAE share extensive political and cultural ties with each other. They collaborated closely during the 2017-18 Qatar diplomatic crisis and backed anti-Muslim Brotherhood regimes in Libya, Tunisia and Egypt.
Saudi troops helped Bahrain quash mass anti-government protests in 2011. Pertinently, Bahrain had been waiting for a conducive regional atmosphere to have diplomatic ties with Israel. Bahrain has been home to many Jewish people. It was the first and, so far, the only Arab state to appoint a Jewish person as its ambassador to the United States.
There has been a sea change in Saudi-Sudan ties since the 2015 Yemeni civil war. Sudan expelled Iranian diplomats from the country and sent troops to fight alongside Saudi troops in Yemen against the Houthis. Sudan is no longer under an authoritarian regime led by Omar Bashir who had come to power in a military coup in 1989.
Most importantly, Saudi Arabia and Israel perceive common threats in Iran, Turkey, Hezbollah and the Islamist extremist insurgents. In September 2019, Iran attacked Saudi oil-producing facilities and paralysed a considerable part of its oil industry. The reformers in the kingdom may be calculating that diplomatic relationship with Israel, arguably the most powerful military power in the region, could be the best answer to meet this threat.
Why school, college reopening should not be a priority right now
The fear of losing an academic year should not trump the fear of losing young students to coronavirus. We need to listen to scientific and medical practitioners and let the academic community adapt to the situation with alternative ways of teaching and learning.
Schools and colleges were shut down across the globe during the first quarter of the year in the wake of the coronavirus pandemic. Later on, some countries like Norway, Sweden, Denmark, France, Japan and South Korea reopened junior sections of schools as they believed that small children were less vulnerable to the virus. But some of them quickly backtracked as they got to know that the incidence of coronavirus cases were prevalent amongst children of all age groups, with higher rates amid senior children. Time and again, leading scientists of the world have been cautioning against the re-opening of schools and colleges as they fear inconceivable post-Covid complications even in younger age groups.
It is an irrefutable fact that school closures have clear negative impacts on the cognitive and non-cognitive development of the children. But the present circumstances have forced different countries and even counties across the country to follow different policies to contain the spread of the virus. It, therefore, does not warrant to make inter-country comparisons and draw inferences on the lines of any individual country or group of countries because of the varying conditions of the pandemic, standards of infrastructural facilities and number of children in classes.
The number of coronavirus cases has been surging at an alarming rate across the world. India has reached the second position in terms of the number of coronavirus cases touching the 90,04,365-mark and the third in terms of deaths crossing 132,165. Both the central and the state governments have taken all possible measures but the pandemic is showing no signs of slowing down. Like others, we are also finding it difficult to have a uniform policy for reopening schools and colleges across the country. While some states like Andhra Pradesh, Karnataka, Haryana, Uttar Pradesh, Uttarakhand and Assam have reopened educational institutions, there are others like Delhi, West Bengal, Odisha and Maharashtra which have not yet decided to reopen. There is a third category as well like Tamil Nadu and Goa that have taken a U-turn. It appears that some more states are likely to take a U-turn in the wake of the rising number of cases. The decision to reopen schools in the states of Haryana and Andhra Pradesh has patently backfired. A couple of days ago, around 900 school teachers and 600 students were found to be Covid-positive in the state of Andhra Pradesh. Haryana has already backtracked in certain pockets and is likely to go in for full closure after hundreds of students and dozens of their teachers tested positive for Covid-19.
Fearing the onslaught of the coronavirus, the University Grants Commission (UGC) has brought out comprehensive guidelines for the reopening of colleges and universities. These guidelines have emphasized upon developing a customised plan and reopening institutions in a phased manner as per the prevailing social and physical conditions. There might be very few institutions with the right kind of capacity and technology to adhere to these guidelines while others will have to mobilise their resources to ensure their implementation.
It is not possible for a diverse country like ours to replicate the South Korea model or, for that matter, even the China model, which basically means testing of children on a regular basis and, in the event of spotting a single case, ensuring complete lockdown of the entire district and testing every single individual within a short span of time. It is, therefore, safer to consider it a free year rather than pushing the country into an endless socio-economic crisis. Let the entire lot of school children fall behind for a year. In the long span of life, this one year would be inconsequential. It is much better to lose one year than to make children suffer from ailments like cirrhosis and pulmonary fibrosis, and make them live on oxygen support for the rest of their lives.
The hard work of several brilliant scientists, who have been burning the candle at both ends, has brought some solace for billions of people living under constant threat of serious health consequences. Hopes are rising that some safe vaccines will now be available. The good news is that, among others, there are three vaccines which are likely to pass scientific protocols anytime soon. Of them, the Pfizer vaccine is claimed to have an extraordinarily high degree of efficacy (95%) across all age groups but it would require incredible refrigerating capacity at minus 70 degrees Celsius. The other one is the Moderna vaccine with 94.5% degree of efficacy. It is reported that it can be easily stored under refrigeration conditions at 17 degrees Celsius up to thirty days and at room temperature for up to 24 hours. There are some more vaccines which are fairly at advanced stages. It looks like the Pfizer, Moderna and Oxford vaccines might make it happen but they will take a sufficiently long time to provide succour to the common man.
In such a situation, when the positivity rate of the coronavirus continues to rise, hospitals are completely overwhelmed, pollution levels are soaring, a dark winter is ahead and vaccine delivery is still an issue, it may be too risky to reopen schools and colleges. The only rational argument for opening schools might be that children sitting at home would lose a year otherwise or regress from whatever they learnt the previous year. But it is not prudent to attach so much significance to annual progression in these trying times. Surely, it is difficult to have a broad-stock opinion on a subject like this which requires a nuanced opinion but then it has risks of losing out to other complex issues. All said and done, the fact remains that the country is facing a serious health crisis and therefore the decision should be driven purely by the sole consideration of the well-being of the child, which is the purpose of education. It requires a fundamental shift in the thought process, which should be guided by the dictates of scientists and medical practitioners known for their integrity and courage. At the same time, the academic community should also rise to the occasion to come up with alternative measures to address the issue of loss of learning.
The idea of the right kind of remote learning is not scalable in India because of the sheer size of the student population, lack of trained teachers, inaccessibility to proper electronic devices and connectivity. It may be appreciated that with small children it is not only the delivery that matters, but there are other vital factors linked with the basic realities of teaching and learning. One can definitely rush it through smart electronic devices, but it will be for how many and at what cost? If remote learning is going to be in the range of only 10% to 12% of classroom learning, then it is better to make it a free year for small children, especially at the elementary level.
The second option may be to revamp the existing curriculum in a manner that it takes good care of all enabling concepts which would be essentially required for the acquisition of competencies and skills in the upcoming academic calendar. Once this crisis is over and after proper vaccination, the engagement of children with the revised curriculum can easily refresh previous concepts. This exercise could be accomplished within two to three months’ time, during which children can easily overcome the learning loss. The remaining period of seven to eight months could then be singularly devoted to the teaching and learning of course contents of the next class. One should not mind even if it cuts into some portion of conventional vacations. This approach can be applied across all stages of education.
The mentality that losing a year is going to be a catastrophe needs to be allayed in view of the severity of the coronavirus pandemic. The real catastrophe will be if we lose 10% to 15% of educators in this battle and fail to protect 15% to 20% of our children from getting into long-term health issues. Losing a year will eventually protect us from even more severe calamities. Reopening of institutions may be considered only when the risk of the propagation of coronavirus is diminished and we reach the minimum threshold level of comfort certified by scientists and medical professionals. The focus, therefore, must be to strategise how to revamp the curricular provisions and accelerate the pace of teaching and learning in post-Covid times.
The writer is former Chairman, UGC. The views expressed are personal.
Arbitration Ordinance 2020: One step forward, several steps back
The Ordinance has reversed the effect of the 2015 amendments to the Act which had done away with the automatic stay on enforcement of arbitral awards upon a challenge being made under Section 34 of the Act. Most certainly, a regressive step, the Ordinance has inserted a further proviso to Section 36(3) of the Act, by which an award shall be ‘unconditionally’ stayed pending disposal of the challenge under Section 34.
The Arbitration and Conciliation (Amendment) Ordinance, 2020, (“Ordinance”) promulgated recently is best described as bitter-sweet. On one hand, it has substituted section 43J of the Arbitration and Conciliation Act, 1996 (“Act”) by noting that the “qualifications, experience and norms for accreditation of arbitrators shall be such as may be specified by regulations.” Consequently, the Eighth Schedule of the Act has been omitted. While stipulations in the Schedule, as regards minimum qualifications and eligibility requirements for arbitrators, were perhaps necessary, this Schedule was subject to rigorous academic debate inter-alia for taking-away party autonomy in relation to appointment of foreign arbitrators in India-seated arbitrations. Notably, section 43J and the Eight Schedule had been introduced only in 2019 with a view to make India a hub of domestic and international arbitration and for the faster resolution of commercial disputes. The stipulations perhaps didn’t help.
On the other hand, the Ordinance has reversed the effect of the 2015 amendments to the Act which had done away with the automatic stay on enforcement of arbitral awards upon a challenge being made under section 34 of the Act. Most certainly, a regressive step, the Ordinance has inserted a further proviso to section 36(3) of the Act, by which an award shall be “unconditionally” stayed pending disposal of the challenge under section 34, “where the Court is satisfied that a prima facie case is made out, (a) that the arbitration agreement or contract which is the basis of the award, or (b) the making of the award, was induced or effected by fraud or corruption.” To avoid the flurry of litigation, that had followed the 2015 amendment, the Ordinance clarifies that the proviso shall be retrospective in nature and shall be applicable to “all court cases arising out of or in relation to arbitral proceedings, irrespective of whether the arbitral or court proceedings were commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015.”
The insertion of this proviso raises many legal questions foremost being that could not the relief which the proviso seeks to provide be achieved without the Ordinance?
Let us begin by examining fraud which is defined under section 17 of the Indian Contract Act, 1872 (“Contract Act”) and section 447 of the Companies Act, 2013. Both these sections provide an inclusive definition which encompasses acts of deception, concealment of facts, and inducement with the intent of wrongful gain or causing wrongful loss. Additionally, per section 19 of the Contract Act, any party whose consent to an agreement was caused by such fraud may, at such party’s option, deem such agreement to be void and thus, such party would not be obligated to perform its obligations under the said agreement. Similar protection is also afforded under section 18 of the Specific Relief Act which provides for exceptions to performance in cases of fraud, mistake of fact or misrepresentation.
In such case, if a dispute were to arise between the parties, and if such agreement were to include an arbitration clause, the parties would, likely, proceed to have the same resolved through arbitration. During the arbitral proceedings the party raising the issue of fraud simpliciter or corruption in inducement of the contract or the arbitration agreement could plead the same before the tribunal, which can adjudicate on the same.
At the same time, one shouldn’t lose sight that the Supreme Court in A. Ayyasamy v. A Paramasivam & Ors. held that a reference to arbitration may be refused by the Court if (i) the Court finds serious allegations of fraud which virtually make a case of a criminal offence, (ii) where the allegations of fraud are so complicated that it becomes essential that such complex issues can be decided only by civil court on appreciation of voluminous evidence, (iii) where serious allegations of forgery/fabrication of documents in support of the plea of fraud.
If, however, the tribunal determines the arbitration agreement or contract was not induced or effected by fraud or corruption, then the tribunal would adjudicate the dispute and eventually pass an award. In such instance, it is still open to the aggrieved party to challenge the award under section 34(2)(a)(ii) of the Act, and also under section 34(2)(b)(ii) as it would be open to such party to contend that the award is in conflict with the public policy of India. Thus, again, to this extent, the existing provisions covered such situations.
But where the plea of fraud or corruption has been refused by the arbitral tribunal after evaluating the material produced before it, then will not the Court hearing challenge to the award be reappreciating the evidence contrary to the law as enumerated by the Supreme Court in the celebrated decision of Associate Builders v. DDA which has stipulated that the Court cannot sit in appeal over the award by reassessing or reappreciating evidence? This principle now forms the bedrock of multiple subsequent decisions of the Supreme Court such as Ssangyong Engg & Construction Co. Ltd. v. NHAI and Parsa Kente Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan Nigam Ltd. In fact, post the 2015 amendment to the Act, section 34 has been amended to preclude a review on merits or reappreciation of evidence. It, therefore, begs the question- how is the Court to establish, even prima facie, that there was any fraud? Will this not, therefore create an anomalous situation for Courts who cannot look beyond the arbitral record or review the case on the merits of the dispute, including on the ground of an erroneous application of the law?
Even prior to the Ordinance, in every situation it would be open to a party to seek a stay, subject to such conditions as the Court may deem fit, under section 36(3) of the Act, subject to satisfying the Court that a prima facie case is made out. Therefore, would not the extent provisions, prior to the Ordinance, have adequately protected the party seeking a stay on an award’s enforcement? Interestingly enough, the Court whilst determining whether to grant such stay would of course need to take a prima facie decision.
The above analysis now takes us to the point reiterated by the Supreme Court that fraud itself is not always possible to establish by positive and tangible proof, as by its very nature it is secretive, and in most cases circumstantial evidence is the only way to establish the existence of fraud. In the Alva Aluminium Limited, Bangkok v. Gabriel India Limited, judgment the Supreme Court has held that a heavy duty lies upon a party who wishes to rescind a contract on the ground of fraud, and not just does the fraud need to be specifically pleaded, but the fraud shall also have to be established on the entire bundle of facts. In the context of arbitrations, the Supreme Court recently held in Avitel Post Studioz Limited v. HSBC PI Holdings (Mauritius) Limited, that serious allegations of fraud only arise if the following two test are satisfied: “The first test is satisfied only when it can be said that the arbitration clause or agreement itself cannot be said to exist in a clear case in which the court finds that the party against whom breach is alleged cannot be said to have entered into the agreement relating to arbitration at all. The second test can be said to have been met in cases in which allegations are made against the State or its instrumentalities of arbitrary, fraudulent, or malafide conduct, thus necessitating the hearing of the case by a writ court in which questions are raised which are not predominantly questions arising from the contract itself or breach thereof, but questions arising in the public law domain.”
More recently, in Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties & Ors., the Supreme Court clarified the question of arbitrability of disputes involving allegations of fraud and reiterated its previous view that if the dispute between parties fell within section 17 of the Contract Act, or involved fraud in the performance of the contract amounting to deceit, such would be a civil wrong and would be arbitrable. Furthermore, simply because a particular transaction may have certain criminal elements, it would not ipso-facto mean that the subject-matter thereof is non-arbitrable.
Regrettably, the Ordinance does not provide any checks and balances against unscrupulous litigants from repeatedly raising the plea of fraud or corruption with a view to escape their obligations. Of course, the burden of proof would always be on the party alleging fraud or corruption, and in the case of multi-member tribunals this burden would be more onerous. However where the tribunal consists of a sole arbitrator, false pleas of corruption are likely to be taken thereby tarnishing the very basis that arbitration rests upon- a voluntary, binding, speedy and cost effective dispute redressal mechanism. One way to ensure that such a situation is avoided is to devise a system of deterrence- primarily through a regimen of imposing heavy costs against those who take mischievous pleas. Section 31A of the Act empowers the arbitrators in this regard.
As detailed above, sufficient provisions existed for an award debtor to approach the Court under the pre-Ordinance regime for seeking stay of the arbitral award if it could be demonstrated that there existed a case of fraud or corruption. The Ordinance and the re-introduction of a provision of automatic stay, has once again taken the law of arbitration back to the pre-2015 Amendment scenario, where upon an automatic stay being granted, the award holder would continue to have to await the disposal of the challenge to the award before being able to enjoy the fruits of the award. Also, will not the stay of an award “unconditionally” create its own challenges especially in situations where the Court while disposing off a section 34 challenge holds that no fraud, as alleged, is made out?
As observed, “the dispute resolution process has a huge impact on the Indian economy and global perception on “doing business” in India.” The current government is keen to push our nation to achieve the goal of becoming a hub for international commercial arbitration. To achieve this, we need to move towards an approach of minimal judicial interference with arbitral awards and speedy resolution of challenges in Court to such awards. Of course this requires a strong pool of arbitrators and it would also be wise to move towards institutional arbitrations as opposed to the largely ad-hoc arbitrations which we currently follow. Hopefully, the soon to be established Arbitration Council of India will work towards accomplishing all of the above. Till then, legislation, in the form of the present Ordinance, need to be avoided as the cure cannot be worse than the problem itself.
Even prior to the Ordinance, in every situation it would be open to a party to seek a stay, subject to such conditions as the court may deem fit, under Section 36(3) of the Act, subject to satisfying the court that a prima facie case is made out. Therefore, would not the extent provisions, prior to the Ordinance, have adequately protected the party seeking a stay on an award’s enforcement? Interestingly enough, the court whilst determining whether to grant such stay would of course need to take a prima facie decision.
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