When the State empowers its women

Justice delayed is justice denied. A minor victim of rape sought termination of pregnancy within time but the matter was unnecessarily delayed due to red-tapism and systemic indifference. This delay frustrated the victims’ right to terminate the pregnancy. The State in its capacity as a protector of the rights of its women endeavored to protect the fundamental rights of possible victims by approaching the High Court and seeking its indulgence in securing the rights of women.

A woman’s right to privacy, dignity and bodily integrity including reproductive choice is a fundamental right enshrined Article 21 of the Constitution. The bench comprising of Justice Mehta and Justice Bhati of the Rajasthan High Court have upheld these rights and have prescribed guidelines to be followed in situations where rape victim seeks medical termination of pregnancy.

The High Court condemning the delays has laid down progressive guidelines that limit police intervention, apprise victim about her rights and make disposal of application for termination time bound.

In order to sensitize the victim about her rights and laws the High Court directs that a Medical Office or station house officer of the concerned police station shall forward a report to the Secretary of the District Legal Service Authority who shall immediately along with a woman counselor approach the victim and sensitize her and her guardians about the MTP Act. Such sensitization shall enable the victim to make an informed decision about her actions or inactions about the termination.

If the woman chooses to opt for termination within the stipulated time of 20 weeks of her pregnancy as provided under the MTP Act, the High Court has directed that the concerned court shall dispose of the application within three dates from such filing. Time bound disposal of the application will ensure that the termination remains uncomplicated, inexpensive and the victims’ health is not at risk.

Lastly the High Court directed that the identity of the victim shall be protected by all those involved in helping the victim and also directed the State to frame suitable guidelines.

The judiciary has been the bastion of hope and has continuously been securing women’s position in the society and their fundamental rights and with these guidelines has once again secured the same.

Interim measure under the Arbitration Act in the time of COVID-19

The year 2020 began with the world economies coming to a standstill vis-à- Coronavirus aka. COVID-19.  With lockdown being put in place the country has come to a standstill. The State borders have been shut, commercial transportation is hit, goods neither moving in nor moving out, unless they are on the essential commodities list. Such abrupt halt in transportation and other crucial ancillary services for businesses to thrive are leading to business contracts being unenforceable on account of frustration.

One of the key elements and a standard clause in a contract is a “Force Majeure” clause. Force Majeure means unforeseeable circumstances that prevent someone from fulfilling a contract. As a clause it is usually a provision in a contract that exempts a party from performing his contractual obligations which have become impossible or impracticable due to an event or effect which the parties could not have foreseen or controlled.

Force Majeure is not defined under the Indian Contract Act, 1872, but Sections 32 and 56 of the Indian Contract Act, 1872 (“the Act”) play an important role when such a situation arises. Section 31 of the Act defines a contingent contract. A contingent contract is a contract to do or not to do something, if some event, collateral to such contract does or does not happen. Section 32 of the Act provides that contingent contracts to do or not to do anything of an uncertain future event happen cannot be enforced by law unless and until that event has happened. For any contingent contract to be contingent, the event has to occur before fulfillment of the conditions of the performance of the contract.

The second relevant provision is Section 56 of the Act. Section 56 provides that any act which was to be performed after the contract is made becomes unlawful or impossible to perform, and which the promisor could not prevent, then such an act which becomes impossible or unlawful will become void, this is also called the doctrine of frustration. In simpler words, the section would apply, either if the object of the contract has become impossible to perform or an event has occurred making the performance of the contract to be impossible beyond the Control of promisor.

Keeping the abovementioned situation and the principles in mind, we will analyses the interim order dated 08.04.2020 passed by the Hon’ble High Court Judicature at Bombay in the matter of Standard Retail Pvt. Ltd. vs M/s G.S. Global Corp & Ors. (COMMERCIAL ARBITRATION PETITION (L) NO. 404 OF 2020).

Petitioner sought directions restraining the Respondent–Bank from negotiating/ encashing the Letters of Credit in a petition filed under section 9 of the Arbitration and Conciliation Act. The Petitioner set out a case that in the tumultuous time of COVID-19 pandemic and the lockdown declared by the Central/State Governments, the Petitioners’ contracts with Respondent were terminated as unenforceable on account of frustration, impossibility and impracticability. The Respondent submitted that it had complied with its obligations and performed its part of the contracts and the goods have been already shipped from South

Korea. The fact that the Petitioner would not be able to perform its obligations so far as its own purchasers are concerned and/or it would suffer damages, is not a factor which can be considered and held against the Respondent.

After hearing both the sides, the Court declined to award any interim relief to the Petitioner. The court observed

  1. that the Letters of Credit are an independent transaction with the Bank and the Bank is not concerned with underlying disputes between buyer and the seller;
  2. that the Government notifications and advisories suggest that the distribution of steel has been declared as an essential service and there are no restrictions on its movement and all ports and port related activities including the movement of vehicles and manpower, operations of Container Freight Station and warehouses and offices of Custom Houses Agents have also been declared as essential services;
  3. lastly and most importantly, that the lockdown would be for a limited period and the lockdown cannot come to the rescue of the Petitioners so as to resile from its contractual obligations with the Respondent No. 1 of making payments.

The Hon’ble Court has efficiently analyzed the facts in hand, have then distinguished it from the land mark judgments on Force Majeure, Energy Watchdog Verus CERC (2017) 14 SCC 80 and Satyabrata Ghose Versus Mugneeram Bangure & Co. (1954) SCR 310, and have clearly held that the Petitioner could not abandon its obligation under the Contract blaming the Covid-19 lockdown, as the subject matter fell within the essential goods list thus not hampering its movement. Further the court did not fritter its effort in realizing that the Petitioner could go back to business as soon as the lockdown, which is for a limited period, is lifted.

Based on aforementioned it can be clearly made out that interim measures in the time of Covid-19 or in any other pandemic would be based on Government notifications and advisories for that period and whether or not the same would frustrate the completion of the contract.

INDIA – REGULATIONS SPECIFYING DISTRIBUTION OF LEFTOVER NOT SERVED PORTIONS OF SAFE FOOD

Food and Safety Standards Authority of India, the autonomous body that regulates food safety and regulations in India, published the Food Safety and Standards (Recovery and Distribution of Surplus Food) Regulations, 2019 (“the Regulation). The Regulation streamlines and specifies the responsibilities of food donors, food banks and food distribution organizations that are engaged in distributing surplus food to any person free of cost. The parties have to comply with these regulations by 01.07.2020.

The Regulation defines surplus food as any leftover unused portions of safe food that have not been served to the customers. A food distribution organization has been defined as any person or any organization that collects surplus food from food donor(s) and distributes directly to any person free of cost without any profit.

Along with defining the roles, responsibilities of the food donor/food business operator, food distribution organization and labeling requirements amongst other requirements has also been elaborated. The food donor/food business operator shall be obligated not to distribute unsafe food and to handover the surplus food at a reasonable time so that the food doesn’t expire or go bad before it is distributed to any person. Further the food donor has to pack the food appropriately so as to avoid any contamination and store the same in hygienic conditions to ensure safety.

The food distribution organization has to ensure that the surplus food that is being procured by them is being procured from a reliable source having valid registration and license. The food distribution organization also requires having a proper storage, reheating and transporting facility in place.

Apart from the obvious responsibilities of the parties the Regulation also importantly provides requirements of labeling donated food. Requirements for labeling of donated food depend on whether the food is in its original package or has been prepared as meal. Donated pre-packed and prepared food name of the item or food, manufacturer information, source of food, list of ingredients, and date of expiry.

Lastly the Regulation provides for a monitoring committee constituted by the Commissioner of Food Safety of each state which shall monitor and make recommendations for improvement and will further hold training programmes in health and hygiene.

The adoption of these Regulations will streamline the structure to be followed by food banks and food donors which will benefit the consumer. This will further ensure that the parties involved, especially the food donor, maintains the quality of surplus food and the end user consumes nutritious and healthy food.

Even a perception of bias in an Arbitrator would not be fair to the parties: Supreme Court of India

“That apart when one is required to judge the case of another, justice should not only be done, but it should also seem   to   be   done   is   the   bottom   line”, explained the Supreme Court of India in the matter of Vinod Bhaiyalal Jain & Ors. Versus Wadhwani Parmeshwari Cold Storage Pvt. Ltd.. The Supreme Court in the mentioned matter has dealt with and cleared the air over objection to an arbitrator on the perception of bias.

The arbitration stems from a receipt for storage of goods issued by the Wadhwani Parmeshwari Cold Storage Pvt. Ltd. (“Respondent”) to Vinod Bhaiyalal Jain (“Appellant”). The receipt contained an arbitration clause, referring all disputes to one Mr. ST Mandani (“Arbitrator”).

Before the Arbitral Tribunal the Appellant disputed the arbitration clause and also objected to the appointment of the Arbitrator since he was the counsel for the respondent No. 1 and its partners in some other cases. Despite these objections the Arbitral Tribunal proceeded with the arbitration and passed an award dated 08.08.2006 (“award”) against the Appellants.

The Appellants challenged the award before the Principal District Judge, Nagpur under Section 34 of the Arbitration and Conciliation Act, 1996 (“Act”), raising objection to the award, more particularly with regard to   the   conduct   of   the   learned   Arbitrator. The Principal District Judge appreciating the   same was of the opinion that the learned Arbitrator had in fact acted as a counsel for Sri Suresh, a partner of Respondent No. 1, which fact was not disclosed in terms of Section 12 of the Act and also on taking note of Section 13 of the Act, found the objection justified and set aside the award.

The Respondent appealed to the High Court of Bombay under Section 37(1)(b) of the Act. The High Court of Bombay held   that   merely   because   the   learned Arbitrator had appeared as a lawyer in one mesne profits case for Respondent No. 1, it would not make a reasonable man believe that the Arbitrator was biased and there was a possibility that the Arbitrator would rule in favour of the Respondent No. 1. The High Court accordingly set aside the order passed in the proceedings under Sec. 34 of the Act, 1996 and restored the award   passed   by   the   learned   Arbitrator.

The Appellant thereafter appealed before the Supreme Court of India noticed   that issues arising herein for consideration at the threshold is with regard to   the existence or otherwise of the Arbitration clause governing the parties and more particularly with regard to the conduct of the Arbitrator.

The Supreme Court rejected the contention as regards the existence of an Arbitration clause because the Appellant being unsatisfied with the learned Arbitrator had filed a petition under Section 11 of the Act for appointment of the Arbitrator hence the existence of Arbitration clause is undisputed.

It further observed that the learned Arbitrator, on multiple occasions, had been informed about the fact that he had been a counsel for the Respondent in one another case and in that circumstance it is also not a case where the learned Arbitrator had proceeded in the matter by oversight or without having knowledge of such conflict of interest. When the claim was lodged before the learned Arbitrator both the events of, he being appointed as an Arbitrator and also as a counsel in another case had existed, which was well within the   knowledge   of   the learned Arbitrator   and   in   that circumstance, it was the appropriate stage when he ought to have disclosed the same and refrained from entertaining the claim.

The Supreme Court rightly noted, “…in the above background, what is to be seen is that there has been a reasonable basis for   the   appellants   to   make   a   claim   that   in   the   present circumstance the learned Arbitrator would not be fair to them   even   if   not   biased.     It   could   no   doubt   be   only   a perception of the appellants herein.   Be it so, no room should be given for even such a feeling more particularly when in the matter of arbitration the very basis is that the parties get the opportunity of nominating a judge of their choice in whom they have trust and faith unlike in a normal course of litigation where they do not have such choice” and accordingly set aside the award and restored the order passed by the Principal District Judge.

Independence and impartiality of Arbitrators are the hallmarks of arbitration and through this judgment the Supreme Court has made it clear that there is no room for even perception of bias in an Arbitrator.

Initiation of Corporate Insolvency Resolution Process by a Foreign Creditor against an Indian Corporate Guarantor

Every financial institutions want someone to stand guarantee to the loan they are about to provide. One of such common ways is that a subsidiary company stands as a guarantor for the parent company against the loan obtained by the latter. The question now arises is whether a Foreign Creditor can initiate Corporate Insolvency Resolution Process against Indian Corporate Guarantor?

Before delving into the question it is imperative to speak about the position of a Corporate Guarantor under the Insolvency & Bankruptcy Code, 2016 (“I&B Code”). The NCLAT vide its judgment in Dr. Vishnu Kumar Agarwal vs M/s Piramal Enterprises Ltd. cleared two legal positions. Firstly, it cleared, that a Financial Creditor can initiate Corporate Insolvency Resolution Process against the Corporate Guarantor, under I&B Code, even before proceeding against the corporate debtor. Secondly, the bench also noted that counter-indemnity obligation in respect of a guarantee comes within the meaning of ‘financial debt’, as per clause (h) of Section 5 (8) of the I&B Code. The NCLAT thus cleared the air on the position of Corporate Guarantor under I&B Code.

For a better understanding of the topic a recent judgment of the NCLT, Chennai Bench being M/s Stanbic Bank Ghana Ltd. vs M/s Rajkumar Impex Pvt. Ltd. (CP/670/IB/2017) is discussed herein below.

Background

The Financial Creditor (M/s Stanbic Bank Ghana Ltd.) entered into Loan Agreements with M/s Rajkumar Impex Ghana Ltd. which was the principle borrower and the wholly owned subsidiary of the Respondent Company. Pursuant to the Loan Agreements the Financial Creditor entered into a deed of guarantee with the Respondent Company. The guarantee was an “on demand” guarantee which was inviolable on demand. The deed also contained an indemnity issued by the Respondent to the Financial Creditor. Upon default from the borrower proceedings were initiated against the Respondent in the courts in England, in terms of the deed, and the court of England passed an order after analyzing the merits despite which the Respondent failed to make payment to the Financial Creditor hence the Creditor initiated the Corporate Insolvency Resolution Process.

Submissions of the Respondent

The Respondent submitted that the petition was not maintainable since (a) the Creditor was not an Indian Company registered under the Companies Act, 2013; (b) a constituted attorney on behalf of the Creditor cannot institute an application under I&B Code, the rules only entitle an authorized representative to verify the pleadings; (c) Principle borrower is an independent company and not a subsidiary of the Respondent Company; (d) having failed to recover money from the principle borrower the Creditor cannot enforce the claim against the Guarantor; (e) the order made by the courts in England is not conclusive and has not been given on merit; (f) lastly the Foreign Exchange Management (Guarantee) Regulations, 2000 (FEMA Regulations) permission to be obtained from Reserve Bank of India before singing of the guarantee.

Submission of the Financial Creditor

The Creditor countered the arguments by stating that (a) dispute with the principle borrower is irrelevant, because the guarantee was “on demand” and it is a settled law that the liability of the Guarantor is co-extensive  with that of the principle borrower; (b) the I&B Code does not prohibit a foreign creditor from filing a petition; (c)the order passed by the court of England, despite being ex-partee was on merits; (d) an authorized representative includes an authorized agent, the Board of Directors authorized the POA to file the petition (relying on Macquirie Bank Ltd. vs Shilpi Cables Technologies Ltd.); (e) dispute is irrelevant for the purpose of  determining an application under Section 7 of I&B Code (relying on M/s Innoventive Industries Ltd. vs. ICICI Bank and another) (f) finally, FEMA Regulations apply only if the principle borrower in an Indian.

Decision by NCLT, Chennai Bench

Relying upon the findings of the order passed by the courts of England the NCLT concluded that the Financial Creditor has made out a prima facie case under I&B Code. The findings of the court of England that were relied upon are that the Respondent in terms of the deed is liable as principle obligator and indemnifier and also that there is no compelling reason for trial and after analyzing evidence the court of England passed its order. The NCLT concluded that it has not power to enforce the foreign decree but it has the power to taking cognizance of the decree and accordingly initiated the Corporate Insolvency Resolution Process.

Conclusion

Having considered the above, the NCLT has rightly admitted the petition and imitated Corporate Insolvency Resolution Process and with that the NCLT has also clarified that a Foreign Creditor can file a petition for Corporate Insolvency Resolution Process under I&B Code against an Indian Corporate Guarantor.

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