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Journal Articles

Joinder and Consolidation in Institutional Arbitration over the Last 10 years: Evolution or Revolution?

– Kirtan Prasad
Joinder and consolidation have acquired greater practical significance in recent times given the increased complexity of commercial transactions, which now involve multiple suites of documents and multiple parties. Arbitral rules relating to joinder and consolidation have consequentially evolved to keep pace with user feedback in this regard. There has been a palpable shift in the last ten years from a conservative approach to a more permissive and innovative one. This article attempts to trace that evolution with reference to certain Indian and international arbitral rules. It concludes with a few comments on how parties may wish to deal with this evolving trend in their contracts, and cautions that any forthcoming changes and innovations will be need to be rigorously assessed against the touchstone of party consent.

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Procedural Fairness in Securities Enforcement

– Shruti Rajan
Whilst there are a number of metrics, both objective and subjective, to assess the progress of a legal system, how it all stacks up against first principles of jurisprudence is, more often than not, a very dependable indicator of its maturity. The formulation of a reliable and consistent justice delivery system depends not only on nuanced legal interpretation and consistent judicial precedent, but equally on the even-handed application of procedural methodologies.
Such appraisals are particularly relevant for quasi-judicial proceedings today, especially since they are conducted under the aegis of regulatory bodies that don multiple hats and concurrently perform administrative, law-making and quasi-judicial roles. With a focus on the Securities and Exchange Board of India (“SEBI”) and its appellate body, the Securities Appellate Tribunal, this paper analyses how securities enforcement has performed over the years against the touchstone of principles of natural justice and the importance accorded to procedural fairness.
In doing so, we adopt a three-pronged approach – first, examining decisions that expound upon the role of bias and the acceptable degrees of separation of powers; second, evaluating audi alterem partem, how it has been interpreted and the various facets of a fair hearing; and lastly, concluding with an analysis on some home improvements that may be worthwhile to embark on.

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Termination of Contracts During The Moratorium: Looking Beyond The ‘Going Concern’ Status

– Amrit Mahal
The resolution of distressed companies on a going concern basis is a cornerstone of the corporate insolvency resolution process (“CIRP”) introduced under the Insolvency and Bankruptcy Code, 2016 (“IBC”). This is critical to maintain the viability of the company, maximise the value of its assets and improve the likelihood of insolvency resolution. Section 14 of the IBC furthers this intent by instituting a moratorium from the date of commencement of the CIRP, until its conclusion. The moratorium prohibits persons in rem from undertaking certain actions against the corporate debtor, including the recovery of any property held by the corporate debtor and cessation of supply of goods and services critical for its operations.
The moratorium does not per se prohibit third parties from terminating contracts entered with the corporate debtor. However, insolvency tribunals have set aside the termination of lease agreements, supply contracts and other pre-existing arrangements with the corporate debtor, where termination would have the effect of breaching the moratorium or jeopardising the corporate debtor’s going concern status.
This paper examines judicial and legislative developments in the IBC in connection with termination of contracts from critical and comparative perspectives. The paper first examines the ambiguities in the scope of the moratorium provisions; and second, highlights that the IBC’s focus on the maintenance of the corporate debtor as a going concern often discounts hardships faced by contractual counterparties to the corporate debtor. Through a comparative study, the paper considers measures instituted in the United Kingdom and United States to balance the interests of such counterparties, while giving due regard to the overarching goal of insolvency resolution.

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The Wolf of Dalal Street: Re-Thinking Liability Frameworks for Shadow Banks

– Sayantan Chanda
Shadow Banking via NBFCs has steadily increased in popularity in India over the past decade. Multiple entities offer an array of financial services which provide credit lines for vital projects in infrastructure, housing and other fields. For many start-ups and small businesses across the country, shadow banks are a source of funding. While the growth of the sector is to be appreciated, the potential dangers of this form of capitalism were apparent in 2018 with the collapse of IL&FS. To this end, taking from the lessons learned the hard way from 2018 and the Great Recession of 2007-2009 caused by the meltdown of Wall Street’s shadow banks, certain fundamental concepts of company law must be re-examined. It will be argued that further RBI and SEBI Regulations fail to address the issue of banking failures. Rather, the concept of limited liability, long believed as fundamental to the company form, is unsuitable for the NBFC/shadow banking sector and must be diluted to reintroduce a form of multiple liability. This is essential for dissuading the irresponsible and risky strategies employed by management and directors in shadow banks. Such a dilution may also apply to other company forms in the future. Additionally, civil liability, long believed to be the most appropriate way of holding errant bankers liable for their greed and outrageous risk-taking, has turned out to be a disappointment in the United States. The approach of impugning individual directors and managers in civil law will have to be reformed in order to ensure that it is more effective in penalizing their collective negligence.

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Foreign Investments in Emerging Economies: Do Competition Laws Help or Hinder?

– Raju Parakkal
The recent literature on the determinants of foreign direct investments (FDI) has missed to evaluate the role competition laws play in encouraging, or deterring, FDI inflows. The present study fills that gap by theoretically and systematically examining the effect of national competition laws on 155 emerging economies during the period 1970-2019. The findings provide strong evidence of a substantially positive relationship between competition laws and FDI inflows, even after controlling for other possible determinants of these capital flows. The results are particularly instructive for India’s enactment of its Competition Act, 2002 and its subsequent positive effect on the country’s foreign investment inflows. The findings and conclusions of this cross-country empirical study inform scholars and policymakers in developing and transition countries of the importance of competition laws in encouraging FDI in their economies.

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Blogs

A Radical relook at CIRP: Ensuring Implementation of the Resolution Plan

This article attempts to address the complications faced by the Corporate Debtor when the Corporate Insolvency Resolution Process fails because of the non-implementation of the plan. It argues that a successful resolution applicant should be allowed to withdraw the plan even after acceptance in cases where implementation becomes economically unfeasible or impossible. Then, a re-bidding process must be allowed after approval for the Committee of Creditors. This will ensure that a going concern can be saved and the interests of all stakeolders can be protected.

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Arbitrations under the MSMED Act: Supreme Court clarifies but falls short

In the recent case of in Silpi Industries vs. Kerala State Road Transport Corporation & Anr, the Supreme Court was faced with determining the scope of intersection between arbitrations conducted under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 and its effect on already existing arbitration agreements between the parties. Although the Court reasoned that an arbitration agreement is to be ignored owing to Section 18 of the MSMED Act, its reasoning fails to hold water on various counts, and leaves many questions unanswered. The decision is also in contrast to a conflicting judgment delivered by the Bombay High Court in Porwal Sales vs. Flame Control Industries, which is well reasoned and better addresses these logical loopholes. Therefore, although the Court was awarded the opportunity to clarify a position that was both grey and overburdened Micro and Small Enterprises Facilitation Councils, it failed to address both these issues in the present case.

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Amazon v Future: Judicial Deference to the Controlling Interpretation of ‘Control’

This piece analyses the piecemeal interpretations of ‘control’ by the SEBI and the Supreme Court through the American doctrine of judicial deference – by identifying the need therefor, constructing an appropriate model for deference, and then applying the same to the present dispute. Through this analysis, I demonstrate how the American doctrine can guide the Supreme Court’s assessment of Amazon’s case.

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Valuing AT-1 Bonds: SEBI Calling Spade a Spade

-Ishaan Chopra

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Oppression and Mismanagement under Indian Companies Act, 2013: Debunking the Threshold for Waivers

Oppression & Mismanagement provisions for minority shareholders are commonplace in most common law jurisdiction these days. However, owing to concerns about these provisions leading to an excessive amount of corporate litigation, the Indian Companies Act under Section 244 uniquely mandates a certain number of minority shareholders to support the application. This piece analyses the feasibility of such a requirement specifically in context of the Delhi Gymkhana Case, which represents a company with fragmented shareholding, and compares this requirement to other jurisdictions. A comparative analysis is also done of shareholders’ ability to complain against oppressive acts committed prior to their membership.

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The Third Party Security Conundrum Under IBC: Whether ‘Financial’ or Just ‘Secured’? [Part II]

Creation and priority of security interest is a key factor for any lender while agreeing to advance a debt to a borrower. There are judicial precedents in India which seem to negate or diminish the priority of security interest created when the security provider is not a borrower (or is a ‘third party security provider’) in the insolvency of the security provider. In this two-part article the author first elaborates upon the ongoing debate around the priority of claims of a lender benefiting from third party security in the insolvency resolution process of a third party security provider and discusses the judicial precedents and legislative amendments in relation to this; and second assesses the importance of and reasons for recognizing the priority of security interest created by third party security providers in favour of lenders.

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Predation Without Domination: Understanding the SC’s Approach to Standards and Burdens under the Competition Act

What are the factors that the CCI must consider when starting an investigation under Section 26 against claims of predatory pricing? In the 2019 decision in Uber v. Meru, the Supreme Court held that the mere fact that Uber suffered a loss on every ride prima facie suggests that they were engaging in predatory pricing, and that they were abusing a dominant position in the market. This, however, completely fails to take into account the requirements of Section 4 and Section 26 of the Act. The establishment of dominance is a precondition to a charge of abuse under Section 4, but the Supreme Court has done away with it. Given the CCI’s limited resources, it is crucial that the prima facie standard under Section 26 is interpreted strictly, and that it is grounded in an understanding of economic theory and the statutory provisions.

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The Third Party Security Conundrum Under IBC: Whether ‘Financial’ or Just ‘Secured’? [Part I]

Creation and priority of security interest is a key factor for any lender while agreeing to advance a debt to a borrower. There are judicial precedents in India which seem to negate or diminish the priority of security interest created when the security provider is not a borrower (or is a ‘third party security provider’) in the insolvency of the security provider. In this two-part article the author first elaborates upon the ongoing debate around the priority of claims of a lender benefiting from third party security in the insolvency resolution process of a third party security provider and discusses the judicial precedents and legislative amendments in relation to this; and second assesses the importance of and reasons for recognizing the priority of security interest created by third party security providers in favour of lenders.

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Of blank interest clauses and coerced waivers in construction contracts | Indian Supreme Court

Here is a case comment on an unreported (yet) judgment of the Indian Supreme Court. The case illustrates the treatment of (common) instances in construction contracts where: the clause regarding award of interest is consciously (or unconsciously) left blank; and a contractor has by correspondence waived its claims for interest, during the pendency of the contract. The Supreme Court held that an arbitral tribunal was entitled to award interest, in the facts and circumstances.

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Ipso Facto Clauses and the IBC

The insolvency laws of several jurisdictions have had to grapple with striking a balance between respecting contractual commitments and the need to facilitate a successful resolution for the debtor company. This tension is reflected most strongly in the debate around the enforceability of ipso facto clauses in contracts, clauses that allow a party to terminate a contract on account of the counterparty entering the insolvency process. The treatment of ipso facto clauses under the Insolvency and Bankruptcy Code, 2016 (“IBC”) has recently come to the forefront in light of the Supreme Court’s March 2021 decision in Gujarat Urja Vikas Nigam Limited v. Mr. Amit Gupta & Ors. This article discusses ipso facto clauses under the IBC in the context of the Supreme Court’s decision and the factors to be considered when determining the extent to which ipso facto clauses should (or should not) be enforced.

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Editorial Board

Editor in-Chief

Vasu Aggarwal

Deputy Editor in-Chief

Mallika Sen

Editors

Aditi Vishwas Sheth

Anshita Agrawal

Divyansh Mishra

Meghana Senthil Kumar

Rhea Prasad

Administrative Editor

Harsh Srivastava

Technical Editor 

Shantanu Mishra

Observers

Dhawal

Krishanu Paul

Pratyush Singh

Sankari B