The Corporate & Commercial Law Society Blog, HNLU

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  • The Insolvency Blind Spot: Why India Needs a Tailored Resolution Framework for Cooperative Banks

    The Insolvency Blind Spot: Why India Needs a Tailored Resolution Framework for Cooperative Banks

    SOMESH RAI, FIFTH- YEAR STUDENT AT DBRANLU, SONEPAT

    INTRODUCTION

    The Insolvency and Bankruptcy Code (‘IBC’) was brought in the year 2016. The IBC brought in speed, certainty, and transparency, and for a while, it seemed that India had finally bridged the gaps in its insolvency regime. However, the events of 2020 exposed a critical blind spot in this seemingly comprehensive framework. Even as the IBC extended its ambit to corporate entities, partnerships, and individuals, cooperative banks, an important financial institution and integral part of India’s credit system, remained outside its scope. The fall of the Punjab & Maharashtra Cooperative Bank revealed the blind spot of IBC and its inadequacy to deal with the insolvency of cooperative banks, leaving depositors highly vulnerable and regulators constrained. The problem is not only historical but a persistent threat, underscored by more recent incidents of co-operative banks like the New India Co-operative Bank in early 2025. The core blind spot remains in the failure of a framework to handle the failure of co-operative bank is still dangerously absent.

    COOPERATIVE BANKS IN INDIA

    Cooperative Banks are community-driven financial institutions that work on a democratic principle different from commercial banks. Commercial banks, which are typically incorporated under the Companies Act, 2013, are ideally profit-driven enterprises. They are financial institutions that are owned by shareholders, managed by professionals, and driven by a primary objective, which is maximizing the profit for their investors. At their core, commercial and cooperative banks are built on different philosophies.

    The fundamental difference lies in who holds the power. While commercial banks are owned by shareholders, cooperative banks are owned and managed by their members, who control the institution through a democratic process based on the “one person, one vote” principle. This democratic governance, where members elect their own board of directors, is the cornerstone of the cooperative model.

    THE TWO CAPTAIN SHIP

    Imagine a single ship with two captains steering it, each with their own set of maps and responsibilities. This is, how a cooperative bank is regulated. The two captains here are the Reserve Bank of India (‘RBI’) and the Registrar of Cooperative Societies (‘RCS’). The RBI is responsible for the bank’s “banking and financial” functions. This includes issuing licenses to a new cooperative bank under Section 22 of the Banking Regulation Act 1949, setting prudential norms like the capital to risk-weighted asset ratio and non-performing asset classification, and regulating its core banking operations under the Banking Regulation Act, 1949. RCS is a state-level authority (or central, for multi-state societies) that governs the bank’s “cooperative” character. The RCS is in charge of incorporation, registration, management, board elections, and, most critically, the audit and liquidation under Section 86 of the Multi State Cooperative Societies Act, 2002, (or winding up) of the society under the respective State Cooperative Societies Act. Cooperative Banks are formed either under acts of the state legislature, depending on their coverage in a state, or under the Multi-State Cooperative Societies Act of 2002, an act of the Parliament of India, if they provide their services in multiple states. The Multi-State Cooperative Societies Act governs the cooperative character of banks. In contrast, the Banking Regulation Act, 1949, grants the Reserve Bank of India certain powers related to the financial functioning of banks.

    This bizarre split originates from the Constitution of India itself. Under the Union List, the Central Government has exclusive power to legislate on “Banking” as per Entry 45, List I. In contrast, under the State List, the state governments have power over “Co-operative societies” as per Entry 32, List II. This constitutional division is the legal bedrock of the dual control problem.

    This split establishes a no-man’s land when it comes to regulatory oversight, giving a chance for malpractices to occur. The Punjab & Maharashtra Cooperative Bank crisis is the textbook example of this two-captain system failing catastrophically. This meant that the RBI, the country’s financial watchdog, could see the major red flags in PMC’s lending practices through its false balance sheets and fake entries showing NPA’s as standard assets But even when it spotted these problems, its hands were tied. Under the Banking Regulation Act of 1949, it simply didn’t have the direct power to punish the managers responsible for the fraud.  

    On the other hand, there was the Registrar of Cooperative Societies. This was the authority in charge of the bank’s management and board, but they often lacked the specialized financial expertise to really understand the complex risks involved in modern banking. This created a perfect catastrophe. PMC’s board, which answered mainly to the registrar, was able to manipulate records and hide its massive, fraudulent exposure to Housing Development & Infrastructure Limited for years, knowing that no single authority had complete and effective oversight. It was a classic case of shared responsibility becoming no one’s responsibility, where each regulator could just assume the other was watching, allowing the fraud to grow unchecked until the bank imploded.

    THE INSOLVENCY BLINDSPOT

    When any big company in India goes down, we immediately hear three letters: IBC. The Insolvency and Bankruptcy Code, 2016, is our country’s modern and powerful tool for addressing corporate failure. So, when a cooperative bank fails, the most logical question is, why can’t we just use the IBC?

    The answer is buried in the legal provisions of the IBC itself, and it is the primary reason cooperative bank depositors are left vulnerable. IBC’s main tool is the Corporate Insolvency Resolution Process initiated against a “corporate debtor“.

    This is where the legal trail begins-

    1. Who is a “Corporate Debtor”? The IBC defines it under section 3(8) as a as a “corporate person” who owes a debt to someone.
    2. Who is a “Corporate Person”? Under Section 3(7) of the IBC, it is defined as a “corporate person” as a company, a Limited Liability Partnership (LLP), or any other body with limited liability explicitly excluding any financial service provider.
    3. What is a “Financial Service Provider”? The IBC then defines a “financial service provider” in Section 3(17) as any entity engaged in the business of providing “financial services” under a license from a financial sector regulator. The definition of “financial services” in Section 3(16) is broad and includes activities like “accepting of deposits”.

    A cooperative bank, by its very nature, accepts deposits from the public and is partially regulated by the RBI. This makes it a “financial service provider” under the IBC’s definition. Because financial service providers are excluded from the definition of a “corporate person,” hence a cooperative bank is not considered a “corporate debtor.” Therefore, the entire machinery of the IBC, designed for swift and efficient resolution, cannot be applied to it, which creates a legal loophole, a blind spot of the Insolvency and Bankruptcy Code 2016.

    It was a deliberate attempt by The Bankruptcy Law Reforms Committee, which drafted the IBC, to keep the financial institutions out of the standard Corporate Insolvency Resolution Process(‘CIRP’) for particular reasons, such as

    1. Systemic Risk: A bank is deeply interconnected with the rest of the financial system. Its failure can trigger a domino effect, causing a “contagion” that could destabilize other healthy institutions and the economy as a whole.
    2. Nature of Creditors: The creditors of a bank are thousands, sometimes millions, of ordinary depositors whose life savings are at stake unlike commercial creditors. A standard insolvency process is not designed to handle this kind of widespread public impact.
    3. Need for a Specialized Framework: Due to these unique risks, lawmakers believed that financial firms required their own specialized framework for resolution. Section 227 of the IBC empowers the union government to create special rules for the insolvency of financial service providers.

    The problem is that while the government did use this power to notify a special framework for certain large Non-Banking Financial Companies, cooperative banks were left out. They were excluded from the primary IBC process but were never included in a viable, alternative one. They were left stranded in a legal grey zone, subject only to the old, slow, and inefficient winding-up processes under the control of State Registrars. This deliberate, yet incomplete, legislative action is the ultimate reason why the failure of a cooperative bank becomes a prolonged nightmare for its depositors.

    FIXING THE BLIND SPOT: IS THERE A WAY FORWARD?

    The 2020 amendment to the Banking Regulation Act was a good first step, but it didn’t go far enough. While it tightened the rules to help prevent future failures, it left the fundamental insolvency gap wide open. The real nightmare for depositors isn’t just a bank failing but the broken, slow-motion, and completely uncertain resolution process that follows. Recognizing this, the RBI constituted an Expert Committee on Urban Co-operative Banks, chaired by former Deputy Governor N. S. Vishwanathan. Its key recommendations included A Four-Tiered Regulatory Framework The idea was to classify Urban Cooperative Banks into four different tiers based on the size of their deposits. It recommended the creation of a national-level apex body for Urban Cooperative Banks, now established as the National Urban Co-operative Finance and Development Corporation (‘NUCFDC’) to provide capital, liquidity support, technological infrastructure, and fund management services.

    Nevertheless, even these vital reforms do not fix the insolvency blind spot. They are a preventative medicine, and not a surgical process. They aim to keep the patient healthy but offer no new procedure if the patient suffers a catastrophic failure.

    The ultimate solution must be legislative. The government needs to either amend the Insolvency and Bankruptcy Code to bring cooperative banks under a special, tailored version of the CIRP or create an entirely new, parallel resolution regime for them. The “two captain ship” must now be decommissioned and a new law must establish a single, empowered resolution authority. The RBI can be the sole authority with all financial oversight, supervision and resolution power vested in it limiting RCS to its cooperative governance. This new framework must be time-bound unlike the traditional slow liquidation process to both preserve the bank and protect depositors. A tier-based framework should be brought in where smaller banks in tier 1 should have a simplified process for swift amalgamation or mandatory payout of insured deposits within 15-20 days. And for larger banks a bridge bank can be established to ensure uninterrupted service to depositors during the liquidation process. Further in cases where a cooperative bank is showing signs of financial distress (but is not yet collapsed), the RBI could trigger a “Supervised resolution period.” During this time, the banks management will be statutorily required to prepare a pre-packaged merger or sale plan with a healthy institution like the pre-packed resolution process given for MSMEs under IBC. If the bank’s health deteriorates past a certain point, this pre-approved plan can be activated instantly which will prevent the post collapse chaos. Until these legal loophole in the IBC are closed, the money of millions of Indians will remain exposed to the very paradox that brought PMC Bank to its knees, the paradox of a bank that is not entirely a bank when it matters most.

  • The CCI’s Nod for Resolution Plans: The 2025 Amendment Strikes the Right Note

    The CCI’s Nod for Resolution Plans: The 2025 Amendment Strikes the Right Note

    BY VAISHNAV M, THIRD- YEAR STUDENT AT NUALS, KERALA

    INTRODUCTION

    The Insolvency and Bankruptcy Code, 2016 (‘IBC’) ensconces a mechanism known as the Corporate Insolvency Resolution Process (‘CIRP’) that attempts to revive the Corporate Debtor (‘CD’) through restructuring and strategic resolution of debts. With the CD managed by a Resolution Professional (‘RP’), the Resolution Applicants (‘RA’) can propose restructuring plans to resolve debts and sustain the CD as a going concern.

    Where the plan involves acquisition, merger or amalgamation (collectively, ‘Combination’), it is important that the restructuring does not distort the competition in the market. This is where merger control and the Competition Commission of India (‘CCI’) step in. The Supreme Court in Independent Sugar Corporation Ltd. v. Girish Sriram & Ors (‘ISC’)dealt with the procedure to seek the CCI’s approval for combination during the insolvency process.

    The piece is not a general comment on the decision; instead, it aims to examine a particular point in the judgement that has not received the critical attention it deserves. That is, the particular stage at which the CCI-nod for the combination is to be obtained. This question is especially pertinent in the context of the recently introduced IBC (Amendment) Bill, 2025 (‘2025 Amendment’), which proposes to relax the timeline for the CCI’s approval for resolution plans.

    THE ISC CASE AND THE STATUS QUO

    In the ISC case, one of the RAs challenged the CIRP, citing many procedural laxities. One of the grounds was failure to seek approval of the CCI before placing the resolution plan before the Committee of Creditors (‘CoC’) for voting. According to Section 31(4) of the IBC, an RA has one year from the approval of the Adjudicating Authority (‘AA’) to obtain necessary clearances under other laws. But the proviso clarifies that the approval of the CCI for the combination is to be obtained before the approval of the CoC.

    Hitherto, the position was that this proviso is directory and not mandatory in nature, as laid down by the decision of the National Company Law Tribunal (‘NCLAT’) in Arcellor Mittal v Abhijit Guhakartha & Ors. The Supreme Court (‘SC’), in the ISC case, reversed the position by holding that the proviso is to be read literally, and treating it otherwise would render it obsolete. However, the proviso does not specify who seeks approval and at what stage before the CoC nod. In the scheme of CIRP, the stages preceding the CoC approval are:

    • Stage 1: Invitation for expression of interest from prospective RAs
    • Stage 2: Request for resolution plans from prospective RAs
    • Stage 3: Examination and confirmation of the plans by the RP
    • Stage 4: Voting by the CoC on the plans

    The SC in ISC clarified that the RA need not wait till submission of the plan to the RP before sending a notice to the CCI for approval. In effect, the approval of the CCI can be sought at any time, even in Stage 1 during the invitation for expression of interest at any point before Stage 4. The next section shall discuss the workability of the same.

    DETERMINING THE TRIGGER POINT FOR CCI NOTICE

    When to send the notice?

    According to Section 6 of the Competition Act, 2002, (‘the Competition Act’) an enterprise must send a notice of combination to the CCI when it executes any agreement or document for acquisition, or when the Board of Directors (‘Board’) of the enterprises involved approves the proposal for a merger or amalgamation.

    As held in ISC, an RA can send a notice to the CCI much before it submits its resolution plan to the RP. But is the requirement of an agreement or a decision for acquisition or the Board’s approval for merger met at Stages 1 and 2?

    An ‘agreement’ to acquire is a broad and liberal construct, and includes an arrangement of understanding or even an action in concert. Such an arrangement or understanding can be reflected in a formal or written form, and it need not have been formulated with the intent legal enforceability. In the case of the CIRP, the RP is tasked with managing the CD, including entering into contracts on behalf of the CD, courtesy Section 23 read with Section 20 of IBC. Resultantly, an agreement or understanding for the purpose of acquisition has to be between the RA proposing the combination on one side and the RP on the other side.

    But such an understanding or arrangement is absent at Stage 1. An agreement requires a meeting of minds of at least two parties, which is lacking when the RA is yet to share their proposal with the RP. Similarly, Stage 2 only marks a point where the RAs have prepared the plan. That does not signify an agreement as it is yet to be examined and understood by the RP.  

    At Stage 3, the RP examines the resolution plans proposed by the RAs and confirms whether they comply with the minimum essentials mandated by the law. This confirmation implies an agreement or an understanding, making Stage 3 and onwards the appropriate trigger for notice.

    Now, in the case of a merger or amalgamation, the notice is triggered only after the proposal is approved by the Board of both parties.[i]  In the case of a CD, the interim RP (‘IRP’) or the RP steps into the shoes of the management. Resultantly, the approval would have to be sought from the RP himself. Therefore, a notice for merger or amalgamation cannot be sent to the CCI before the plan is submitted to the RP and confirmed by them, which is Stage 3. So, the same conclusion follows – it is at Stage 3 that the notice is triggered.

    Who should send the notice?

    In the case of acquisition, the acquirer sends the notice.[ii] Generally, the successful RA submitting the plan acquires the target CD company, as was seen in the case of ISC. Therefore, it is the RA who is required to send the notice to the CCI. For merger or amalgamation, notice must be sent jointly by the RA and the RP.[iii]

    Suppose there are RAs intending to propose an acquisition in Stages 1 and 2, then all those RAs must send the notice to the CCI with the requisite fees,[iv] even before the plan is seen and examined by the RP. So, even RAs whose plan might not be voted in later would have to bear the cost at an early stage. Quite similarly, in the case of merger or amalgamation, the RP and the respective RA have to send the notice and pay the fees, jointly or severally.[v]Whether the RA or the RP handling the stressed CD would want to take the liability to pay the fees amid relative uncertainty is doubtful.

    WELCOMING THE 2025 AMENDMENT

    The 2025 Amendment has been appreciated for many desirable introductions, from the new ‘creditor-initiated insolvency resolution process’ to ‘group insolvency’. Clause 19(d) amends the proviso to Section 31(4), allowing the RA to obtain the CCI approval before submission to AA. So, the approval process can be deferred till the CoC votes on the plan and the Successful Resolution Applicant is identified. The minor change resolves the above-discussed problem of redundancy, while leaving room for seeking approval at an earlier stage.

    There are certain concerns regarding the amendment as well, but these can be addressed duly. One of the concerns is regarding compliance with the CIRP timeline of 330 days under Section 12 of the Code. However, 330 days is a general rule. The Court has already held, previously as well as in ISC, that the breach of the time-limit can be condoned in exceptional circumstances where any blame for such a delay cannot be attributed to any of the parties.

    In case the plan approved by the CoC is rejected by the CCI, it must be modified to address those objections. However, the successful RA cannot make any change at its own behest. So, once changes are made, the CoC must approve it again. Essentially, such a rejection need not be fatal to the CIRP, though it may elongate the process. In any case, Clause 19(b) of the 2025 Amendments allows the AA to return back the plan to the CoC for correcting any defects. What it reflects is that alterations made post first CoC approval is not doctrinally unacceptable. When CCI recommends changes, the CoC is well-equipped to accommodate it then and there. 

    Therefore, the proposed amendment to the procedure for CCI approval of the resolution plan is a pragmatic improvement as it spares the RA and the RP from the additional paperwork and costs that are characteristic of the existing position.

    CONCLUDING REMARKS

    The current position as settled in the ISC case does not gel well with reality. Even though it seems to make available a broad period for sending the notice, starting from Stage 1, it is generally not possible to send a notice until Stage 3 when the trigger for the notice under the Competition Act is activated. In rare cases with only one RA and mutual certainty as to the terms of the combination, this proposition in ISC might be of some use. Such cases are rare in the typically uncertain flow of business in the CIRP.

    The proposed change in the 2025 Amendment reflects the reality. The RAs and the RP can even wait till the CoC approval to send the notice. This improves ease of doing business and provides more leeway for the stakeholders to ensure compliance.

    [i] Competition Commission of India (Combinations) Regulations, 2024, Reg. 5(7).

    [ii] Id., Reg. 9(1).

    [iii] Id., Reg. 9(3).

    [iv] Id., Regs. 10, 11.

    [v] Id., Regs. 10(2), 9(3).

  • Decoding Residuary Jurisdiction: Why NCLT cannot release PMLA Attachments

    Decoding Residuary Jurisdiction: Why NCLT cannot release PMLA Attachments

    RITURAJ KUMAR , FIFTH – YEAR STUDENT AT RMLNLU, LUCKNOW

    INTRODUCTION

    The interplay of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) and the Prevention of Money Laundering Act, 2002 (‘PMLA’) has been an issue of deliberation since the introduction of the IBC. The conflict is quite natural as both statutes have a non-obstante clause suggesting each has an overriding effect. This leads to a situation where both statutes claim primacy in case of conflict. Further, they both have divergent objects. The IBC aims to maximise the asset during the Corporate Insolvency Resolution Process (‘Resolution Process’), whereas the PMLA provides for confiscating assets arising from or engaged in money laundering. This becomes a significant barrier during the resolution process.

    The discussion around the primacy of the statute and whether a moratorium imposed under Section 14 of the IBC would extend to the attachment made by the Enforcement Directorate (‘ED’) under Section 5 of the PMLA has been a concern for almost a decade.  This blog does not delve into the above issue and restricts its scope to why the National Company Law Tribunal(‘NCLT’) cannot release attachments of a corporate debtor confirmed by the Adjudicating Authority under the PMLA. The National Company Law Appellate Tribunal (‘NCLAT’) in Anil Goel for Dunar Foods v. ED recently affirmed this position that the NCLT cannot release such attachments. However, the legal position on this issue remains unsettled as the Bombay High Court in Shivcharan v. Adjudicating Authority and Anr (‘Shivcharan’) had previously authorised the NCLT to release such attachments while exercising its residuary jurisdiction. Currently, the Shivcharan judgement is pending before the Supreme Court of India for final determination of this issue. In this light, this blog examines the residuary jurisdiction provided under the IBC and argues how Shivcharan judgement disregards the established legal principle and procedure in an attempt to achieve the objects of the IBC.

    RESIDUARY JURISDICTION OF THE NCLT

    Residuary jurisdiction has been vested in the NCLT under Section 60(5)(c) of the IBC. However, it is limited to deciding matters related to the resolution or liquidation of the Corporate Debtor, and it does not provide an inherent jurisdiction. This aligns with the Embassy Property Developments Pvt. Ltd. V. State of Karnataka and Ors case, where the Supreme Court of India asserted that the NCLT cannot replace the legitimate jurisdiction of other courts or tribunals when the issue does not arise solely from or relate to the insolvency of the corporate debtor. By extension, this would equally apply to a special statute like the PMLA where the attachment was confirmed by the Adjudicating Authority under Section 8(3) of the PMLA.

    The attachment under the PMLA relates to the ‘proceeds of crime’ derived from the criminal activities associated with the scheduled offences. These crimes threaten the integrity of the financial system and affects the public at large. These offences are prosecuted by the state and are in the realm of public law. The PMLA was introduced to fulfil India’s international commitment to combat money laundering, aligning with the Vienna Convention (1988) and the United Nations Convention against Transnational Organised Crime (2000).  Such matter, being in the realm of public law, cannot be brought within the phrase “arising out of or in relation to the insolvency resolution” as enshrined under the aforementioned section.

    This position has been recently reaffirmed in Kalyani Transco v. M/s Bhushan Power and Steel Ltd. , where the division bench of the Supreme Court held that the NCLT or NCLAT does not have any authority to adjudicate upon a public law like PMLA. The NCLT, deriving its jurisdiction from the provisions of the IBC and constituted under the Companies Act 2013, is a coram non judice to direct the ED to release the attachment. 

    NCLT AUTHORITY DURING THE RESOLUTION PROCESS 

    During the resolution process, the primary duty of a Resolution Professional is to run the Corporate Debtor as a going concern.Recently, in the case of Mr Shailendra Singh, Resolution Professional of Foxdom Technologies Pvt Ltd V. Directorate of Enforcement & Anr, the Resolution Professional invoked the residuary jurisdiction to defreeze the account of the Corporate Debtor, which was frozen by the Adjudicating Authority under PMLA. The NCLT held that they do not have the power to issue directions to the ED in this regard. It reiterated the stance adopted by the NCLAT in Kiran Shah v. Enforcement Directorate Kolkata that the jurisdiction to deal with matters related to attachment and freezing of accounts under PMLA vests exclusively with the authorities designated under the PMLA. If aggrieved by any action, the Resolution Professional can seek appropriate remedies under the PMLA itself. The statute provides adequate mechanisms for resolving concerns and claims. This clear demarcation of jurisdiction ensures that the PMLA remains independent of IBC and serves its legislative object.

    NCLT AUTHORITY AFTER APPROVAL OF THE RESOLUTION PLAN 

    While the forum for releasing attachments during the resolution process is relatively clear, the situation becomes complicated after approval of the resolution plan under Section 32A of the IBC  It states that the Corporate Debtor cannot be held liable for the prior offence committed by the erstwhile promoter, and protects the property from being attached.

    In Shivcharan judgement, the Bombay High Court reinforced this interpretation that after approval of the resolution plan, the Adjudicating Authority under the PMLA must release the attachments. It also stated that this is the only means of ensuring that the right, as stipulated in Section 32A of the IBC, will start to flow. This position is supported by the Supreme Court’s decision in Manish Kumar v. Union of India which upheld the constitutionality of Section 32A. Article 141 of the Constitution of India ensures consistency in the interpretation of law and set a judicial precedent where all lower courts follow the ruling made by the Supreme Court of India. Consequently, the PMLA Court is bound to comply and give effect to the Section 32A by releasing the attachment.

    However, the Shivcharan judgement erred in empowering the NCLT to release the attached property made under the PMLA under the residuary jurisdiction. The Bombay HC read something not expressly provided in the law and authorised NCLT to adjudicate upon the issue falling into the purview of another court. Though this judgment seeks to achieve the object of the IBC, it overlooks the relevant precedents and established principles. Notably, it stands in aberration with the Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, where the Supreme Court issued a note of caution to NCLT while exercising the residuary jurisdiction. The Apex Court noted that the NCLT has jurisdiction to adjudicate disputes that arise solely from or relate to the insolvency of the corporate debtor. It has to ensure that they do not usurp the legitimate jurisdiction of other courts or tribunals when the issue extends beyond the insolvency of the corporate debtor.

    Additionally, this approach is also in conflict with the principle of harmonious construction, which is applied to reconcile conflicting provisions within a statute or two different statutes. A harmonious construction cannot extend to the limit which renders one provision completely redundant. The Shivcharan judgement makes the provisions of the PMLA nugatory by bypassing the PMLA courts, and authorises the NCLT to release the attachment.

    Moreover, allowing the NCLT to discharge the attachment practically implies that the NCLT is sitting in an appeal against the Adjudicating Authority of the PMLA, where the latter confirmed the attachment made by the ED.  This goes against the settled principle that the forum to hear the appeal is to be tested in reference to the forum which passed the original order. Since the attachments are confirmed under Section 8(3) of the PMLA by its Adjudicating Authority, it must be discharged either by the same forum or by the appellate forum under Section 26 of the PMLA constituted thereunder. In short, the Adjudicating Authority under the IBC i.e. NCLT cannot assume the role of Adjudicating Authority under the PMLA.

    A WAY AHEAD

    As the appeal of the Shivcharan judgement and related cases are pending before the Supreme Court, a clear jurisdictional boundary must be established by a conclusive ruling. The authority to discharge attached property must rest with the PMLA Court unless a legislative amendment says otherwise. The PMLA Court is a competent forum authorised by the law to deal with attachment and permitting the NCLT to adjudicate on such matters only causes jurisdictional conflict and confusion among the litigators, forcing them to move from one court to another.

    However, while adopting this approach, Section 32A of IBC must be given effect. This provision represents the last expression of the intent of the legislature, as it was introduced through an amendment in 2020. After approval of the resolution plan, the PMLA court must be mandated to release the attachment. This ensures that the protection under the said provision can take effect, and the Successful Resolution Applicant is not made liable for the prior offence. For Section 32A to operate effectively, the perquisite prescribed therein must be satisfied, namely that the new management is not related to the prior management and is not involved in the alleged offence. In practice, the PMLA Court often encounters difficulties in determining compliance with these requirements while considering the release of attachments. To address this issue, the NCLT may issue a No Objection Certificate (‘NOC’) while approving a resolution plan, specifying that the statutory conditions of Section 32A are met. Such an NOC will affirm that a promoter is not regainingcontrol or laundering assets through the resolution process. It will prevent jurisdictional conflict and will not cause unnecessary hardships to litigating parties. In effect, this will ensure that resolution applicants are not discouraged, and revival of a corporate debtor is not obstructed.     

    This conflict between the IBC and the PMLA reflect the difficulty of reconciling two statutes having divergent objects and non-obstante clause. To maintain the independence of both statutes, a consistent position has to be adopted defining a clear jurisdictional boundary ensuring the revival of a corporate debtor is not discouraged. A conclusive ruling by the Supreme Court in this regard or an appropriate legislative amendment is essential to resolve this conflict and bring much-needed clarity to relevant stakeholders.

  • Term Sheets and their Status in India: Key Lessons from the Oyo-Zostel Dispute

    Term Sheets and their Status in India: Key Lessons from the Oyo-Zostel Dispute

    ADITYA GANDHI AND SIDDHARTH SHARMA, FOURTH- YEAR STUDENT AT NLUO, ORISSA

    INTRODUCTION

    Term Sheets are preliminary agreements executed at the first stage of complex commercial transactions between companies and prospective investors. These agreements outline the deal structure and cover the material terms and conditions of an investment. They largely serve as non-binding agreements to direct negotiations between the investors and the target. While the core commercial terms in a term sheet are intended to be non-binding, virtually all term sheets contain certain clauses like exclusivity and confidentiality, that are binding and legally enforceable. This creates an uncertainty as to whether a “non-binding” term sheet could crystallize into a set of binding rights and obligations.

    In this context, the recent Delhi High Court (‘Delhi HC’) judgement in Oravel Stays Private Limited v. Zostel Hospitality Private Limited has highlighted the question regarding the legal enforceability of term sheets. The Delhi HC quashed the arbitral award that held the term sheet signed between Oyo and Zostel to be binding in Zostel’s favour. The dispute, spanning nearly a decade, seems to have concluded with Zostel withdrawing their special leave petition before the Supreme Court in July 2025.

    In light of this judgement, the article aims to map out the impact that the Delhi HC judgement will have on the status of term sheets. The authors explore the key difference in the rationale of the aforementioned judgement and the arbitral award.

    FACTUAL BACKGROUND

    This dispute stemmed from a proposed acquisition that fell through. Oyo and Zostel had executed a term sheet in 2015, where Oyo offered to purchase certain assets from Zostel. In line with the conventional approach, the term sheet’s preamble mentioned that it was non-binding and subject to definitive agreements. The proposed acquisition did not materialise after differences emerged between the parties before definitive agreements could be signed. Zostel claimed it had completed its obligations under the term sheet and sought for the specific performance of reciprocal obligations. Oyo contended that without any definitive agreements, it had no obligations towards Zostel as the term sheet was non-binding.

    THE ARBITRAL AWARD IN FAVOUR OF TERM SHEET ENFORCEABILITY

    The Arbitral Tribunal held that the term sheet had become binding due to the conduct of the parties. It observed that Zostel’s performance of its obligations under the term sheet gave them a legitimate expectation from Oyo to fulfil reciprocal obligations. The Tribunal further observed that Oyo’s communications to Zostel indicated that the parties were acting upon the term sheet. The Tribunal further held that the transaction envisaged in the term sheet was not consummated due to Zostel’s performance of their obligations; and there was no consensus ad idem between the parties. However, the Tribunal stopped short of granting the relief of specific performance to Zostel. Instead, it held that Zostel was entitled to bring a claim for specific performance of the term sheet in the absence of any definitive agreements.

    The Tribunal’s award marked a significant deviation from the standard legal position on the enforceability of term sheets. This approach by the Tribunal considered the actual intent and performance of the parties over mere contractual terminology. To put things into perspective, Oyo had acquired control over the business assets of Zostel after singing the term sheet. Further, the Tribunal observed that Zostel had satisfied all the conditions laid out in the ‘closing’ clause of the Term Sheet; and that the closing of the transaction (Oyo acquiring Zostel) was the only outcome after compliance with the stipulated conditions. Following this reasoning, the Tribunal held that the Term Sheet had become a binding document due to the actions of the parties.

    THE DELHI HC RULING

    The Delhi HC set aside the arbitral award rendered in favour of Zostel for being inconsistent with the public policy of India. The Court observed that the conclusions drawn in the award were at odds with the express language of the term sheet, wherein it stated that it is non-binding except for five specifically delineated clauses. It noted that had it been the intention of the parties that all the provisions of the term sheet be made binding, there would have been no occasion to incorporate an express stipulation to the contrary.

    The Court placed reliance on the Karnataka High Court judgement in Azeem Infinite Dwelling v. Patel Engineering Ltd. (‘Azeem Infinite’), which held that term sheets cannot be considered as binding agreements if they require the execution of definite agreements. It underscored that the term sheet was a preliminary document, the binding nature of which was subject to the execution of definitive agreements pertaining to its subject matter. It further observed that the arbitral tribunal did not hold that any implied term must be read into the term sheet to render it binding; rather, it anchored its finding of the binding nature of the term sheet on the conduct of the parties.

    The court’s view supported the strict interpretation of contractual terms, holding that the intention of the parties must be ascertained from the words used and not from the subsequent conduct of the parties. The Court also remarked that the award itself acknowledged the absence of definitive agreements, which was attributed to unresolved issues with a minority investor. There was no consensus ad idem between the parties, since the definitive agreements as envisaged under the term sheet were never executed.

    The Delhi HC also emphasised on the nature of a term sheet as a determinable contract; i.e. a contract whose outcome can be decided unilaterally by the ‘sweet will’ of one party without assigning any reasons for the same. This observation of term sheets being determinable contracts further weakens the case for their enforceability, emphasising that they are usually non-binding unless explicitly mentioned otherwise.

    INTERPRETATION UNDER CONTRACT LAW

    For any agreement to constitute a binding contract, the intention of the parties to create legally binding relations becomes the primary consideration. Indian courts have inferred the intention of parties not just through express written terms of the agreement, but also through their conduct. The Supreme Court (‘SC’) in Transmission Corpn. of Andhra Pradesh Ltd. v. GMR Vemagiri Power Generation Ltd. held that the conduct of parties, along with the surrounding facts, is relevant in determining if a binding agreement exists in the absence of express written terms. In this dispute, the Tribunal went a step further by holding the term sheet to be binding due to the conduct of parties, despite the preamble clearly stating otherwise.

    Though the Delhi HC found the Tribunal’s reliance on conduct to be precarious, it stopped short of going into the merits of the Award. The SC’s judgement in Bank of India v. K Mohandas, where it observed that contracts must be interpreted from their text, and not subsequent conduct of parties, offers support to the Delhi HC’s concerns. There is a clear conflict with regards to whether subsequent conduct should be considered to decide whether an agreement is binding. The precedent in Azeem Infinite supports the premise that term sheets requiring execution of definitive agreements are not binding. That said , there isn’t any definitive precedent on this issue. As a result, there still remains a sufficient legal basis for term sheets to be held binding in future decisions.

    Ultimately, the conflict between strict textual interpretation against reliance on subsequent conduct of the parties to infer a binding contract creates uncertainty for parties. The inconsistent precedents on this issue leave a significant ambiguity as to if, and when a term sheet becomes binding.

    WAY FORWARD

    Term sheets show the intention of parties to negotiate and subsequently reach an agreement. They do not represent consensus ad idem between the parties. The Delhi HC’s judgement is likely to become the binding precedent on this issue. However, the Award, backed by previous jurisprudence and no settled position, shows that there still is a possibility of courts holding term sheets to be binding in the future. This dispute has emphasised on the importance of term sheets to be well drafted and watertight to safeguard the interests of the parties.

    The buyers must  ensure that they are not held liable for breach of contract if a transaction falls through despite the term sheet being signed. Adding a final confirmation of closing from the buyer to the Closing clause can prevent the buyer from any liability. This adds an extra safeguard, ensuring that the buyer is not held implicitly responsible for breach of contract, especially when a term sheet is not even a binding agreement. A well-drafted termination clause can permit the buyer to terminate if the due diligence findings are unsatisfactory. At the same time, it can also allow the seller to withdraw if they believe the deal won’t conclude. The sellers need to avoid a situation where if a transaction falls through, their performance of obligations under the term sheet should not be rendered meaningless. To prevent this, sellers can seek indemnification in case the transaction does not materialize. This would protect them from the losses incurred from carrying out their obligations under the term sheet.

    Apart from the party-led solutions, the courts must also foster a consistent approach when deciding the enforceability of term sheets and other preliminary agreements. The courts should apply a two-tier test to harmonise the conflict between strict textual and contextual interpretations. First, the courts must consider the explicit language in the agreement. If the language designates the agreement as non-binding, a strong presumption against enforceability must be taken. Second, for this presumption to be rebutted, the party seeking enforceability must demonstrate that the parties’ subsequent conduct is overwhelmingly significant. Such conduct must show a clear intention to supersede, and mutually waive the non-binding clause and create a final, binding deal.

    Conclusion

    The Delhi High Court’s judgement affirms that term sheets, unless categorically stated to be binding, serve as instruments of intent that do not create binding legal obligations. Although conduct like transfer of assets and data sharing may indicate commercial intention of the parties, it does not result in creation of enforceable rights. For commercial intention to attain legal finality, terms of the contract must be express and not implied. This underscores the importance of clear and precise drafting of preliminary agreements where language disclaiming enforceability should be explicit and reiterated throughout. The Delhi HC’s verdict is a key reference point for contractual interpretation of not just term sheets, but all preliminary agreements in commercial disputes. This case also serves valuable lessons to buyers and sellers in drafting term sheets while entering into corporate transactions.

  • Misplaced Reliance on CPC in Arbitration: From the lens of Ravi Ranjan Developers vs Aditya Kumar Chatterjee

    Misplaced Reliance on CPC in Arbitration: From the lens of Ravi Ranjan Developers vs Aditya Kumar Chatterjee

    BY SHOUBHIT DAFTAUR AND AROHI MALPANI, THIRD – YEAR STUDENT AT MNLU, MUMBAI

    INTRODUCTION

    The interplay between domestic arbitration and the Code of Civil Procedure, 1908 (‘CPC’) has long been fraught with tension. While certain CPC principles, such as the doctrine of res judicata under Section 11, have constructively contributed to arbitral practice by ensuring finality in dispute resolution, the indiscriminate imposition of procedural rules designed for civil litigation into arbitration has often been erroneous and misplaced. Arbitration, by its very design, prioritises party autonomy, procedural flexibility, and efficiency, and these objectives are frequently compromised when courts rely too heavily on civil procedure doctrines.

    The Supreme Court’s decision in Ravi Ranjan Developers Pvt. Ltd. v. Aditya Kumar Chatterjee (‘Ravi Ranjan’) exemplifies this difficulty. In the case, despite the arbitration agreement specifying Kolkata as the seat, the Respondent approached the Muzaffarpur District Court post-termination and later filed a petition under Section 11 before the Calcutta High Court. Ravi Ranjan Developers challenged the Court’s jurisdiction, citing a lack of cause of action, while the Respondent argued jurisdiction based on the arbitration clause. However, the Supreme Court problematically held that an arbitration agreement cannot confer jurisdiction on a court that inherently lacks it, applying a principle rooted in the CPC that negates autonomy and efficiency.

    This reasoning represents a significant departure from India’s recent pro-arbitration jurisprudence. Importing CPC-based jurisdictional tests into arbitration alters the centrality of party autonomy and threatens to dilute the efficiency and autonomy that arbitration seeks to achieve. Against this backdrop, this blog critiques the misplaced reliance that courts often place on CPC in arbitration and advocates for a clearer demarcation between the two frameworks, so as to preserve the foundations on which the arbitral process rests.

    THE RAVI RANJAN DEVELOPERS JUDGEMENT: A DEPARTURE FROM EFFICIENCY AND AUTONOMY

    The division bench in Ravi Ranjan Developers held that an arbitration agreement cannot confer jurisdiction upon a court that inherently lacks it. The crux of the controversy lies in the fact that this interpretation departs from the Supreme Court’s precedents as well as party autonomy and procedural efficiency, the pillars of arbitration. Party autonomy permits parties to designate either the seat or the venue of arbitration. In the BALCO case, the Supreme Court held that the term subject-matter of the arbitration under Section 2(1)(e) of the Act refers to the juridical seat, not the location of the cause of action or subject-matter of the suit. Once a seat is chosen under Section 20, the courts at that seat alone have supervisory jurisdiction. The Court has further ruled that parties may select a neutral seat of arbitration, and that a narrow construction of Section 20 would render this autonomy nugatory.    

    Building on this principle, BGS SOMA JV v. NHPC (Ltd..) clarified that when a venue is expressly designated and the arbitration proceedings are anchored to it, with no contrary indications,      it must be treated as the juridical seat. Applying this, the reference to Kolkata satisfies all conditions, making it the legal seat and conferring exclusive jurisdiction on its courts. Despite this clarity, the court erred in concluding that an agreement cannot confer jurisdiction on a place that otherwise lacks it, overlooking that such autonomy is not only consistent in the judicial precedents, but also it forms a statutory right.

    Fair, speedy, and inexpensive resolution is the essence of arbitration, but in Ravi Ranjan Developers, the Supreme Court undermined this principle by disregarding the parties’ express choice of Kolkata as the juridical seat. By reverting to a cause-of-action-based analysis under the CPC, the Court imposed delay, expense, and uncertainty, eroding the efficiency and autonomy that arbitration is meant to safeguard. This reasoning marks a troubling departure from India’s pro-arbitration jurisprudence, threatening to dilute party autonomy, compromise finality, and undo the progress made in fostering arbitration as an alternative to litigation

    MISPLACED RELIANCE ON THE CODE OF CIVIL PROCEDURE

    The Statement of Objects and Reasons of the Arbitration and Conciliation Bill, 1995, makes it clear that the Act was intended to comprehensively govern arbitration, reduce court interference, and simplify the enforcement of arbitral awards. This intention is further firmly set out in Section 5 of the Act. The meaning of this provision is straightforward- laws like the CPC, are not meant to apply to arbitration proceedings unless the Act itself refers to them. The Act is a complete and self-sustained code, and any procedure to be followed must arise from the Act itself rather than external sources.

    Indian courts have on several occasions supported this understanding. One such instance was the Court’s ruling in Essar House Pvt. Ltd. v. Arcellor Mittal Nippon Steel India Ltd. (‘     Essar’     ). The Supreme Court held that while courts must keep in mind the basic principles of CPC, they are not bound to apply every procedural requirement strictly when deciding an application for interim relief under Section 9 of the Act. The Court, therefore, clarified that procedural technicalities under the CPC should not prevent courts from doing justice, upholding the separation between CPC rules and dispute resolution via arbitration.

    However, Sanghi Industries Ltd. v. Ravin Cables Ltd. appears to narrow the scope of the court’s powers under Section 9 by requiring that the conditions under Order XXXVIII Rule 5 of CPC be met before interim relief can be granted. This decision seems to go against the broader and more flexible interpretation adopted in Essar, and arguably compromises the independent and self-contained nature of the Act by drawing it back to the procedural framework of CPC.

    A similar borrowing can be seen in the debate around impleadment. The power to implead parties stems from Order I Rule 10 of the CPC. While this principle is well established in civil and commercial disputes, its extension into arbitration through reliance on the Group of Companies doctrine in Cox and Kings II in the absence of a clear statutory provision raises concerns. Particularly criticised for weakening the consensual foundation of arbitration by substituting implied consent for the express consent mandated under Section 7 of the Act, this inclusion has nonetheless found some support. What is clear, however, is that a procedural device rooted in the CPC has been read into a framework intended to be autonomous and self-contained. It is against this background of contested application and creeping CPC influence that the reasoning in Ravi Ranjan Developers must be understood.

    Parties cannot be compelled to enter arbitration, and by the same logic, cannot be made to follow procedural laws they did not agree to. In Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., the C     ourt held that parties must give their consent before being referred to arbitration under Section 89 of CPC. A clear example of non-application of CPC principles in practice can be found in Emkay Global Financial Services Ltd. v. Girdhar Sondhi, where the Supreme Court reaffirmed that, unlike CPC, arbitration treats the concept of seat as central. It held that the seat chosen by the parties acts as a neutral location for the arbitration, and even if no part of the cause of action arises there, the seat alone confers exclusive jurisdiction on the courts of that place to oversee the arbitral process. This position affirms that once the seat is determined, for instance, Mumbai, the Mumbai courts alone have the authority to regulate the proceedings arising from that agreement, regardless of any connection to the cause of action. Thus, this clarity leaves no room for importing jurisdictional doctrines from the CPC and places the control of arbitration squarely in the hands of the parties. 

    As established, the Court in Ravi Ranjan Developers runs counter to the legislative scheme of the Act, eroding the core tenets that distinguish arbitration from traditional litigation. If India is to affirm its commitment to an arbitration-friendly regime, it must resist the temptation to fall back on outdated procedural frameworks. Upholding party autonomy and ensuring the non-applicability of CPC-based tests is not merely desirable; it is essential.

    CONCLUSION AND WAY FORWARD: THE PATH TO A TRULY PRO-ARBITRATION INDIA

    Party autonomy and procedural efficiency in international arbitration are not loose ideals but have been firmly established in the UNCITRAL Model Law and widely followed in both common law and civil law countries. Leading arbitral institutions such as the International Chamber of Commerce and London Court of International Arbitration structure their procedural frameworks around these principles, enabling parties to shape proceedings on their terms while ensuring the expeditious resolution of disputes. This reflects a trend across many arbitration-friendly countries that value clarity in commercial disputes, which is diluted by antithetical reliance on CPC principles. If India wants to be seen as a reliable arbitration hub, these principles cannot be selectively applied. 

    The Supreme Court’s reasoning in Ravi Ranjan brings forth the perils of conflating arbitration with civil procedure. The CPC has been designed to regulate adversarial litigation in courts and is inherently different to arbitration. Importing CPC principles in arbitration dilutes the very principles that make arbitration a preferred method for dispute resolution. When courts superimpose civil procedural frameworks upon arbitral proceedings, they risk collapsing arbitration back into the litigation model it was intended to replace. India has made serious efforts to promote itself as a pro-arbitration jurisdiction. Landmark rulings like BALCO and BGS SOMA JV v. NHPC Ltd. have moved the law closer to international norms. However, when judgments like Ravi Ranjan Developers are passed, it slows down progress and creates confusion.

    The takeaway is clear- for India to maintain credibility as a pro-arbitration regime, the judiciary must resist the tendency to borrow from the CPC, and instead reaffirm arbitration as a distinct legal framework governed by its own statute and international principles. Only by safeguarding this separation can India strengthen its arbitration ecosystem and align itself with global best practices. By reviving a cause-of-action test rooted in the CPC, the Supreme Court in Ravi Ranjan Developers didn’t just misread party autonomy, it set Indian arbitration back by reinforcing judicial overreach over consensual dispute resolution. Unless courts resist the temptation to read CPC into arbitration, India risks reducing arbitration to nothing more than litigation in disguise.

  • Decoding NCLT’s Philips India Ruling: Evolving Judicial Reasoning & Broader Implications

    Decoding NCLT’s Philips India Ruling: Evolving Judicial Reasoning & Broader Implications

    Vaibhav Mishra and Sparsh Tiwari, Fourth- year student at Hidayatullah National Law University, Raipur

    INTRODUCTION

      Capital reduction is a salient aspect of corporate finance that is dealt with under section 66 (‘the section’) of the Companies Act of 2013 (‘2013 Act’). It entails a reduction in the issued share capital of the company. Accounting and Corporate Regulatory Authority of Singapore explains the commercial rationale for undertaking the capital reduction as including a plethora of reasons such as simplifying capital structure, and ownership structure, increasing dividend-paying capacity, etc.

      Indian  corporate jurisprudence has evolved through numerous judgments that have elucidated the scope of this section. The established position was that the company’s rationale for the invocation of the section cannot be questioned, affirming its wide application. Last year, in September 2024, a petition was filed by Phillips India Limited before National Company Law Tribunal (‘NCLT’) Kolkata (‘the tribunal’) under the section seeking permission for the reduction of capital. The company provided two reasons for the application i.e. providing liquidity to the minority & reducing administrative costs. However, the tribunal, in its order dismissing the petition, held that such a transaction fell outside the scope of capital reduction.

      Though a development in last year, the vacuum of judicial discretion under Section 66 still remains in the Indian regime. This article attempts to critically analyse NCLT’s order vis-à-vis precedents. The article also analyses relevant foreign authorities to clarify the scope of the section. Furthermore, it also delves into the possibility of effecting the takeover outside these traditional arrangements.

      NCLT’S ORDER VIS-À-VIS PRECEDENTS

        In this matter, Koninklijke Philips N. V., which held 96.13% of shares in Philips India Limited, wanted to effect capital reduction by purchasing shares of minority shareholders. For this, a two-fold reason was provided by the company, viz., firstly, providing liquidity to the shareholders who could not liquidate their holdings following the company’s delisting in 2004, and secondly, reducing the administrative costs associated with minority shareholders. However, the tribunal dismissed the petition, with the interpretation of the statutory scheme of the section playing a key role in its decision.

        Before delving into judicial reasoning, it is crucial to examine the existing precedents on this section’s interpretation. In a similar factual scenario, the Bombay High Court in Capital of Wartsila India Limited v. Janak Mathuradas, confirmed the petitioner company’s capital reduction that was undertaken to provide liquidity to minority shareholders who had no way to liquidate their holdings after the company was delisted in 2007. Similarly, the single judge bench of Delhi NCLT in Devinder Parkash Kalra & Ors. v. Syngenta India Limited allowed capital reduction as a means of providing liquidity to the minority shareholders. It is pertinent to note that NCLT confirmed the application of capital reduction even though it called for revaluation by an independent valuer. Also, in Economy Hotels India Services Private Limited v. Registrar of Companies, Justice Venugopal termed the process of capital reduction under the section as a “domestic affair”, affirming its expansive scope. These precedents reflect the traditional line of reasoning where the courts did not interfere in the application of the section except to secure certain equitable objectives, such as securing the minority’s interest.

        ASSESSING THE NCLT’S ORDER IN LIGHT OF THE STATUTORY SCHEME OF THE SECTION

          In this matter, the tribunal characterised the nature of the transaction as a buy-back and not a capital reduction. The rationale for this decision was twofold: first, the present transaction did not fall under any of the three instances outlined under the section, and second, the inapplicability of the section in light of section 66(8). As evident, the order was a departure from the established line of judicial reasoning associated with capital reduction.

          Firstly, on the rationale that the present transaction did not fall under instances provided under the section, it is pertinent to note that the tribunal failed to give any consideration to the words “in any manner” as used in the section. These words are of wide import and must be given their natural meaning. Moreover, a reference may be made to the corresponding provision of the Companies Act, 1956 (‘the Act’) for guidance. Section 100 of the now-repealed Act further clarified the generality of the provision by incorporating the words “in any manner; and in particular and without prejudice to the generality of the foregoing power”. Therefore, the incorporation of the words “in any manner”, though not the same as section 100, supports an expansive interpretation not limited to the instances mentioned under the section.

          Furthermore, an expansive interpretation could reasonably allow the present transaction to fall within the purview of section 66(b)(ii), which states that a company can “pay off any paid-up share capital which is in excess of wants of the company”.The reasoning is that one of the motivations behind the company’s decision to undertake this transaction was to reduce the administrative costs of managing around 25,000 shareholders who collectively held a minuscule 3.16% of the total share capital. This objective of reducing administrative costs can reasonably be interpreted as falling within the scope of being in “excess of wants” under section 66(b). Further support for this interpretation is provided by Ramaiya’s commentary[i], where he suggests that “a company may be in need of money so paid-up through capital in business but still may not be in want of the money through share capital”. Thus, an expansive interpretation brings this transaction within the ambit of the section.

          Secondly, section 66(8) states that “nothing in this section shall apply to buy-back of its securities under Section 68”. To clarify the scope of this provision, the tribunal referred to section 100 of the Act, highlighting that it lacked a provision like section 66(8). The tribunal interpreted this discrepancy to mean that section 66(8) restricted the buy-back of securities under the section. However, this reasoning is beset by the fact that the Act lacked any provision for buy-back of securities. It was only in 1999 that such a provision, viz. section 77A, was included. The 2013 Act creates a separate section i.e. section 68, to deal with buy-back transactions. Hence, it is contended that 66(8) is clarificatory in nature, implying that capital reduction and buy-back of shares are governed under separate sections, and does not serve to restrict the scope of capital reduction. Thus, the author opines that the tribunal has erred in its order, creating an uncertain position in a relatively established position on the applicability of the section. 

          JUDICIAL DISCRETION IN CAPITAL REDUCTION TRANSACTIONS: AN ANALYSIS

          Judgements from the UK offer critical cues on understanding capital reduction. For instance, inBritish American Trustee and Finance Corporation v. Couper, judicial discretion over the capital reduction process was affirmed by the court. The courts also laid the relevant principles like fairness and equitable process for minority shareholders, creditors, etc., to guide this ‘judicial discretion’. In Re Ranters Group PLC[ii], the court interpreted the section 135(1) of the Company Act, 1985. Interestingly, section 135, though no longer in effect, uses similar wording, like the section in the context of capital reduction i.e. “reduced in any way”. Harman J. here held that the court needs to ensure broadly three things, viz, equitable treatment of shareholders, protection of creditor’s interest and ensuring that shareholders are aware of the proposal. The NCLT’s order exceeds this ‘judicial discretion’. In the instant case, there was nothing in the order to prove inequitable treatment or violation of the creditor’s interest. Therefore, the deviation in NCLT’s order could affect the business autonomy of the company and could potentially create various challenges for the corporate sector in executing transactions.

          Thus, the situation calls for legislators to reassess the structure & statutory scheme of the section of the 2013 Act. NCLT’s order, if treated as precedent, implies that the whole process under the section becomes dependent on the tribunal’s discretion. As is evident, the section starts with ‘subject to confirmation by tribunal’. It is contended that the role of the judiciary is limited to protecting the interests of shareholders, creditors and ensuring equity in transactions.

          EXPLORING THE ALTERNATIVES TO THE TRADITIONAL WAY OF CAPITAL REDUCTION

          In this matter, Phillips was unable to effect capital reduction even after obtaining the consent of 99% of shareholders. This highlights the need for an alternative structure that allows companies to undertake capital reductions outside the bounds of the traditional arrangement. In this context, valuable insights could be drawn from section 84 of the Companies Act of Ireland, 2014, which outlines two methods of capital reduction: the Summary Approval Procedure ( SAP) and the Court-bound method. The SAP allows a company to carry out a capital reduction through a two-fold process, firstly, by passing a special resolution of the shareholders and lastly, declaration of solvency from the directors. This process avoids the need of court approval, bringing in the efficiency and flexibility that our system currently lacks.

          Another example of a highly relaxed framework can be found in section 256B of the Corporations Act, 2001 in Australia, where companies wishing to effect capital reduction may do so, provided they lodge a notice with the Australian Securities and Investments Commission (‘ASIC’) prior the meeting notice is sent to the shareholders. The shareholders hold the final authority to decide on the capital reduction, and their decision does not require any confirmation. Thus, capital reduction remains entirely within the domain of the shareholders.

          In the Indian context, section 236 of the 2013 Act, mirroring section 395 of the Act, could potentially serve as an alternate mechanism for the acquisition of minority shares. This provision allows any person or group of persons holding ninety percent or more of the issued equity capital of a company to acquire the remaining minority shareholdings. However, there are few precedents on its application, and the provision lacks clarity due to its clumsy drafting. For example, while section 236(1) & (2) allows the majority with more than 90% shareholding to buy minority shares, 236(3) dealing with minority shareholders does not obligate them to sell their shareholding. Thus, 236 offers an incomplete remedy from the perspective of the company. It is contended that this provision should be interpreted in light of its objective, well-stated in its JJ Irani Committee report. The evident intention of the committee in introducing section 395 of the Act was to create a legal framework for allowing the acquisition of minority shareholding. However, as noted above, the provision in its current form does not put an obligation on the minority shareholders while providing a ‘buy-out’ mechanism to the majority, illustrating a conservative approach of legislators.

          Therefore, it is suggested that necessary amendments be made to section 236(3) to impose a mandate on minority shareholders to divest their shareholding, while also ensuring an equitable valuation for them. Such amendments would facilitate the full realisation of the remedy provided under this provision, serving as an alternative to the section of the 2013 Act.

          CONCLUDING REMARKS

          While the NCLT’s deviation from the established precedent on capital reduction may be flawed in its reasoning, it has nonetheless sparked a debate about the necessity of exploring alternatives to traditional capital reduction methods.  The need for such alternatives is further underscored by the economic and time-related costs associated with seeking tribunal confirmation. The focus should be on identifying alternative methods that safeguard minority shareholders from exploitation, while also enabling companies to undertake capital reduction quickly and efficiently.

          [i] Ramaiya, Guide to the Companies Act, 2013, vol. 1 (25th ed. LexisNexis 2021)

          [ii] [1988] BCLC 685.

        1. COMI Confusion: Can India Align With The Global Insolvency Order?

          COMI Confusion: Can India Align With The Global Insolvency Order?

          Prakhar Dubey, First- Year LL.M student, NALSAR University, Hyderabad

          INTRODUCTION

          In the contemporary global economy, where firms often operate across various countries, the growing complexity of international financial systems has made cross-border insolvency processes more complicated than ever. International trade and business have proliferated, with companies frequently possessing assets, conducting operations, or having debtors dispersed across multiple nations. In a highly interconnected environment, a company’s financial hardship in one jurisdiction may have transnational repercussions, impacting stakeholders worldwide. Consequently, addressing insolvency with equity, efficacy, and certainty is essential.

          A fundamental challenge in cross-border insolvency is establishing jurisdiction—namely, which court will manage the insolvency and which laws will regulate the resolution process. The issue is exacerbated when several nations implement disparate legal norms or frameworks for cross-border recognition and collaboration. Two fundamental concepts, forum shopping and Centre of Main Interests (‘COMI’), profoundly influence this discourse.

          Forum shopping occurs when debtors take advantage of jurisdictional differences to file in nations with more lenient rules or advantageous outcomes, such as debtor-friendly restructuring regulations or diminished creditor rights. Although this may be strategically advantageous for the debtor, it frequently generates legal ambiguity and compromises the interests of creditors in alternative jurisdictions. To mitigate such exploitation, the United Nation Commission on International Trade Law Model Law on Cross-Border Insolvency (‘UNCITRAL Model Law’) has formalised the COMI test, a principle designed to guarantee openness and predictability in cross-border procedures. It offers an impartial method to determine the most suitable forum based on the locus of a debtor’s business operations.

          Although recognising the need for cross-border bankruptcy reform, India has not yet officially adopted the Model Law. Instead, it relies on antiquated processes such as the Gibbs Principle, which asserts that a contract covered by the law of a specific country can only be terminated under that legislation, along with ad hoc judicial discretion. These constraints have led to ambiguity, uneven treatment of creditors, and prolonged cross-border remedies.

          This blog critically assesses India’s present strategy, highlights the gap in the legislative and institutional framework, and offers analytical insights into the ramifications of forum shopping and COMI. This analysis utilises the Jet Airways case to examine comparable worldwide best practices and concludes with specific measures aimed at improving India’s cross-border insolvency framework.

          INDIA’S STANCE ON ADOPTING THE UNCITRAL MODEL LAW

          The existing cross-border insolvency structure in India, as delineated in Sections 234 and 235 of the Insolvency and Bankruptcy Code ( ‘IBC’ ), 2016, is predominantly inactive. Despite the longstanding recommendations for alignment with international standards from the Eradi Committee (2000) and the N.L. Mitra Committee (2001), India has not yet enacted the UNCITRAL Model Law.

          More than 60 nations have implemented the UNCITRAL Model Law to enhance coordination and collaboration across courts internationally. India’s hesitance arises from apprehensions of sovereignty, reciprocity, and the administrative difficulty of consistently ascertaining the COMI. Adoption would include not only legislative reform but also institutional preparedness training for judges, fortifying the National Company Law Tribunal (‘NCLT’) and National Company Law Appellate Tribunal (‘NCLAT’), and establishing bilateral frameworks.

          KEY PROVISIONS OF THE UNCITRAL MODEL LAW AND IMPLICATIONS FOR INDIA

          The four fundamental principles of the UNCITRAL Model Law, Access, Recognition, Relief, and Cooperation, are designed to facilitate the efficient and fair resolution of cross-border bankruptcy matters. They facilitate direct interaction between foreign representatives and domestic courts, expedite the recognition of foreign procedures, protect debtor assets, and enhance cooperation among jurisdictions to prevent delays and asset dissipation.

          The effectiveness of these principles is evident in global bankruptcy processes, as demonstrated by the rising number of nations implementing the UNCITRAL Model Law and the more efficient settlement of complex international cases. Nonetheless, its implementation has not achieved universal acceptance, with certain countries, such as India, opting for different approaches, which may pose issues in cross-border insolvency processes.

          In the case of In re Stanford International Bank Ltd., the English Court of Appeal faced challenges in establishing the COMI due to inconsistencies between the company’s formal registration in Antigua and Barbuda and the true location of its business operations. This case underscores the imperative for a well-defined COMI standard that evaluates significant commercial operations rather than merely the jurisdiction of incorporation. The Court of Appeal finally determined that the Antiguans’ liquidation represented a foreign primary procedure, underscoring that the presumption of registered office for COMI may only be refuted by objective and verifiable elements to other parties, including creditors. This case highlights the complexity that emerges when a company’s official legal domicile diverges from its practical reality, resulting in difficulties in implementing cross-border insolvency principles.

          Moreover, India’s exclusion of a reciprocity clause hindered the global implementation of Indian rulings and vice versa. In the absence of a defined statutory mandate, ad hoc judicial collaboration often demonstrates inconsistency and unpredictability, hence compromising the global enforceability of Indian insolvency resolutions. This reflects the challenges encountered by other jurisdictions historically, as demonstrated in the European Court of Justice’s ruling in Re Eurofood IFSC Ltd. This pivotal judgment elucidated that the presumption of the registered office for the COMI can only be contested by circumstances that are both objective and verifiable by third parties, including the company’s creditors. These cases highlight the pressing necessity for a comprehensive and globally harmonised legal framework for insolvency in India, with explicitly delineated criteria to prevent extended and expensive jurisdictional conflicts.

          FORUM SHOPPING AND INSOLVENCY LAW: A DELICATE BALANCE

          Forum shopping may serve as a mechanism for procedural efficiency while simultaneously functioning as a strategy for exploitation. Although it may assist debtors in obtaining more favourable restructuring terms, it also poses a danger of compromising creditor rights and creating legal ambiguity.

          In India, reliance on the Gibbs Principle, which posits that a contract can only be discharged by the governing law, has hindered flexibility. This was seen in the Arvind Mills case, where the disparate treatment of international creditors was scrutinised, and in the Dabhol Power issue, where political and legal stagnation hindered effective settlement.

          While a certain level of jurisdictional discretion enables corporations to seek optimal restructuring, India must reconcile debtor flexibility with creditor safeguarding. An ethical framework grounded in transparency and good faith is crucial to avert forum shopping from serving as a mechanism for evasion.

          COMI IN INDIA: NEED FOR LEGAL CLARITY

          India’s judicial involvement in COMI was prominently highlighted in the Jet Airways insolvency case, which entailed concurrent processes in India and the Netherlands. The NCLT initially rejected the acknowledgement of the Dutch proceedings owing to the absence of an explicit provision in the IBC. The NCLAT characterised the Dutch process as a “foreign non-main” proceeding and confirmed India as the COMI. In a recent judgment dated November 12th, 2024, the Supreme Court ultimately ordered the liquidation of Jet Airways, establishing a precedent for the interpretation of COMI. This decision solidifies India’s position as the primary jurisdiction for insolvency proceedings involving Indian companies, even when concurrent foreign proceedings exist. It underscores the Indian judiciary’s assertive stance in determining the COMI and signals a stronger emphasis on domestic insolvency resolution, potentially influencing how future cross-border insolvency cases are handled in India.

          This case illustrates the judiciary’s readiness to adapt and the urgent requirement for legislative clarity. In the absence of a defined COMI framework, results are mostly contingent upon court discretion, leading to potential inconsistency and forum manipulation. Moreover, it demonstrates that India’s fragmented strategy for cross-border cooperation lacks the necessary robustness in an era of global corporate insolvencies.

          To address these difficulties, India must execute a set of coordinated and systemic reforms:

          Implement the “Nerve Centre” Test (U.S. Model)

          India should shift from a rigid procedure to a substantive assessment of the site of significant corporate decision-making. This showcases the genuine locus of control and decision-making, thereby more accurately representing the commercial landscape of contemporary organisations.

          Apply the “Present Tense” Test (Singapore Model)

          The COMI should be evaluated based on the circumstances at the time of insolvency filing, rather than historical or retrospective factors. This would deter opportunistic actions by debtors attempting to exploit more lenient jurisdictions.

          Presumption Based on Registered Office

          Utilising the registered office as a basis for ascertaining COMI provides predictability; nonetheless, it must be regarded as a rebuttable presumption. Judicial bodies ought to maintain the discretion to consider factors outside registration when evidence suggests an alternative operational reality.

          Institutional Strengthening

          India’s insolvency tribunals must be endowed with the necessary instruments and experience to manage cross-border issues. This encompasses specialist benches within NCLT/NCLAT, training initiatives for judges and resolution experts, and frameworks for judicial collaboration. The adoption of the UNCITRAL Model Law must incorporate a reciprocity clause to enable mutual enforcement of judgments. India should pursue bilateral and multilateral insolvency cooperation agreements to augment worldwide credibility and enforcement.

          By rectifying these legal and procedural deficiencies, India may establish a resilient insolvency framework that is internationally aligned and capable of producing equitable results in a progressively interconnected financial landscape.

          CONCLUSION

          The existing cross-border bankruptcy structure in India is inadequate to tackle the intricacies of global corporate distress. As multinational businesses and assets expand, legal clarity and institutional capacity become imperative. The absence of formal acceptance of the UNCITRAL Model Law, dependence on antiquated principles such as the Gibbs Rule, and lack of a clearly defined COMI norm have resulted in fragmented and uneven conclusions, as shown by the Jet Airways case. To promote equity, transparency, and predictability, India must undertake systemic changes, including the introduction of comprehensive COMI assessments, a reciprocity provision, and institutional enhancement. Adhering to international best practices will bolster creditor trust and guarantee that India’s bankruptcy framework stays resilient in a globalised economic landscape.

        2. Fixing What’s Final? The Gayatri Balasamy Dilemma

          Fixing What’s Final? The Gayatri Balasamy Dilemma

          BY Arnav Kaushik and Saloni Kaushik, THIRD and FIFTH- YEAR studentS AT Dr. Ram Manohar Lohiya National Law University, Lucknow And MahArashtra NaTIONAL LAW UNIVERSITY, NagPUR

          INTRODUCTION

          On 30 April 2025, in Gayatri Balasamy v. ISG Novasoft Technologies Ltd. (‘Gayatri Balasamy’), a Constitution Bench of the Hon’ble Supreme Court by a 4:1 majority, held that courts possess a limited power to modify arbitral awards. This power was interpreted as falling within courts’ express powers under Section 34 of the Arbitration and Conciliation Act, 1996 (‘1996 Act’). The judgment departs from Project Director, National Highway v. M. Hakeem (‘M. Hakeem’), where such powers were expressly denied. The Court identified three limited circumstances permitting modification: (1) severance of invalid portions of award, (2) alteration of post-award interest, and (3) correction of inadvertent errors or manifest errors. Justice Vishwanathan dissented, arguing that modification cannot be read into Section 34, except to rectify inadvertent errors. While the majority sought to resolve a legal impasse, it arguably introduced new interpretative ambiguities.

          PARTY AUTONOMY AND JUDICIAL NON-INTERVENTION

          To discern the implications of this ruling, one must consider the foundational principles of arbitration law—party autonomy and minimal judicial intervention. The 1996 Act, modelled on the UNCITRAL Model Law (‘Model Law’), enshrines these core principles. Party autonomy, the grundnorm of arbitration, allows parties procedural freedom, as contemplated in Article 19(1) of the Model Law and Section 19(2) of the 1996 Act.  Complementing party autonomy, the Model Law’s non-interventionist approach is adopted by the 1996 Act, emphasizing minimal judicial interference and finality of awards. The Statement of Objects and Reasons of the 1996 Act clearly reveals the legislative intent to limit courts’ intervention, with sub-point (v) of Point 4 expressly aiming to minimize courts’ supervisory role. Section 5’s non obstante clause confines the scope of judicial intervention to matters governed by Part I of the 1996 Act, while Section 35 ensures finality of awards, highlighting the legislative intent of minimal judicial interference.

          NO POWER TO MODIFY ARBITRAL AWARD?

          There is no express provision in the 1996 Act, which recognizes the power to modify or vary arbitral award. The majority in Gayatri Balasamy invoked the maxim omne majus continet in se minus, arguing that the bigger power to set aside an arbitral award inherently subsumes the lesser power to modify. In contrast the minority, relying on Shamnsaheb M. Multtani v. State of Karnataka, argued that this maxim, rooted in criminal law, applies only when two offences are ‘cognate’— sharing common essential elements. Since modification and setting aside differ fundamentally in their legal consequence, the former results in alteration whereas the latter leads to annulment, therefore, the power to modify cannot be subsumed within power to set aside. Nonetheless, the application of this maxim violates the cardinal rule of statutory interpretation. According to this rule, where the language is unambiguous, it must be given plain and ordinary meaning. Notably, the majority held that Section 34 does not restrict the range of ‘reliefs’ the court can grant.  However, in our opinion, the plain text of Section 34 limits the recourse to ‘only’ setting aside an award. This deliberate restriction, supported by expressio unius est exclusio alterius, and upheld in M. Hakeem signifies the legislative intent to exclude other remedies such as modification.  Unlike foreign jurisdictions such as the U.K., U.S.A, and Singapore, and Section 15 of the erstwhile 1940 Act, the 1996 Act does not expressly provide for modification powers. Despite Vishwanathan Committee’s recommendation, the legislature has not evinced any intent to incorporate an express provision, as is evident from the Draft (Amendment) Bill 2024. Therefore, imputing a power of modification would amount to the courts engaging in a merit-based review of the arbitral award, a course of action unauthorized by law.

          MODIFICATION V. SEVERANCE

          As discussed in the preceding section of this blog, the powers to modify and to set aside an award are fundamentally distinct in their legal consequences. This raises the question: can the powers to partially set aside an award, that is to sever certain portions, be equated with the powers to modify? The minority view relies on the definition of “sever as to separate” to justify the power to set aside an arbitral award partly. Section 34(2)(a)(iv) contemplates severance, allowing partial setting aside of an award where the invalid portion is separable, in variability and quantum, to preserve the valid portion. Severance is possible where claims are structurally independent. As held in J.G Engineers Pvt. Ltd. v. Union of India , distinct claims—separate in subject-matter, facts, and obligations can be severed without altering award’s substance. A decision on a particular claim is an independent award in itself, capable of surviving despite invalidity of another claim, as endorsed in NHAI v. Trichy. While power to partial setting aside is recognised, this does not equate to a power to modify. Essentially, severance entails elimination of invalid portions without examining the merits, whereas modification entails a pro-active alteration which may or may not require a merit-based review. Furthermore, the majority view remained silent on a pertinent question: whether modification can fill the gap where severance fails due to structural dependence of claims, as with composite awards? With respect to invalid portions, Section 34 contemplates the initiation of fresh proceedings which re-affirms that severance is not an alternative to setting aside of an award but an ‘exception’ within it.

          BUILT-IN FIXES: SECTION 33 & 34(4) OF 1996 ACT

          Despite express provisions under Section 33, the Supreme Court held that courts may also rectify errors in arbitral awards by invoking inherent powers under Section 151 of the Code of Civil Procedure (‘CPC’). However, it is our considered view that inherent powers cannot override express statutory provisions, even under the pretext of serving justice. This is because it is presumed that procedure specifically laid down by the legislature, including under Section 34 of 1996 Act, is guided by the notions of justice.

          Both the opinions invoked Section 152 of the CPC, which allows correction of accidental slips in judgments to avoid undue hardship. The minority held that this may apply only where (a) errors were not raised under Section 33; or (b) despite being raised, were not rectified by the arbitral tribunal. The majority, however, broadened this to include “manifest errors” by combining Section 152, the power to recall, and the doctrine of implied powers. Yet, term “manifest errors”lack clear scope: does it refer only to inadvertent errors under Section 33(1)(a), or also to curable procedural defects? We draw a distinction here: inadvertent errors are unintentional and apparent, while curable defects involve procedural irregularities affecting the award’s integrity, such as lack of reasoning, or inadequate award interest. Addressing such defects require discretion, and rightly falls squarely within tribunal’s authority under Section 33. Interestingly, the majority itself conceded that remand, unlike modification, enables tribunal to take corrective measures such as recording additional evidence. This position was further reinforced by the majority’s holding that where any doubt arises as to the propriety of a correction, the appropriate course is to remand the award to the tribunal under Section 34(4). This aligns with judicial pronouncements in I-Pay Clearing Services (P) Ltd. v. ICICI Bank Ltd. and Dyna Technologies Private Ltd. v. Crompton Greaves Ltd., which clarified that courts ought to provide the tribunal an opportunity to rectify curable defects.  Moreover, Sections 33(2) and (3) explicitly empower the tribunal to evaluate whether correction requests are justified, reaffirming its authority over its procedural irregularities. In our view, curable procedural defects, such as post-award interest, should mandatorily be remanded to the tribunal, while courts may independently rectify inadvertent, clerical errors, under Section 152, CPC.

          JUDICIAL OVERREACH AND ARTICLE 142

          The minority view, while referring to the Supreme Court Bar Association v. Union of India and Shilpa Sailesh v. Sreenivasan (‘Shilpa Sailesh’), emphasized that Article 142 should not be invoked to construct a new legal framework in the absence of express provisions, such as modification powers under Section 34 of 1996 Act. In the case of Union Carbide Corporation v. Union of India, the Supreme Court had enunciated that Article 142, while rooted in equity, must conform to statutory prohibitions, especially those grounded on some fundamental principles of general or specific public policy. Citing interpretation of “specific public policy” in the case of Shilpa Sailesh, the minority held that the powers under Article 142 cannot override non-derogable principles central to a statute— in this context party autonomy and minimal judicial interference. 

           While we agree with the minority, the majority opinion warrants a closer scrutiny. While stating that Article 142 powers should not be invoked to modify awards on merit, the majority simultaneously observed that it may be invoked to end litigation, thereby blurring the scope of intervention. The equitable principles under Article 142, such as patent illegality, notions of morality and justice, and principles of natural justice, are already embedded as grounds for setting aside arbitral awards. Interestingly, the Vishwanathan Committee had recommended insertion of an express proviso allowing courts to make consequential orders varying the award only in exceptional circumstances to meet the ends of justice. However, this recommendation  didn’t materialise, thereby indicating that the legislature intended the mechanism of setting aside an award to serve the purpose of ensuring complete justice.

          CONCLUSION

          The Supreme Court’s ruling in Gayatri Balasamy marks a significant shift in Indian arbitration law by permitting courts limited power to modify arbitral awards. Citing legal maxims like omne majus continet in se minus, and inherent powers, the majority blurred the distinction between setting aside and modifying awards, risking judicial overreach and merit-based review.  The issue of modifying arbitral awards is inherently complex and must be approached with restraint. While courts may justifiably correct inadvertent, clerical errors, given that such corrections do not amount to review on merits, any broader exercise of this power must be checked. The vague and undefined use of the term ‘manifest errors’ creates a troubling lacuna, allowing scope for subjective judicial interpretation. The Apex Court must clarify the contours of what constitutes a ‘manifest error’, otherwise the courts risk exceeding the boundaries of minimal intervention. In the pursuit of doing complete justice, the courts must not undermine the legislative intent of excluding modification as a remedy, particularly when such a change can only be brought through a legislative policy decision. To resolve the present ambiguity, the legislature should reconsider the Vishwanathan Committee’s recommendation and expressly delineate the limited circumstances under which courts may vary an award.  Despite being well-intentioned, the judgment introduces new complexities, necessitating legislative intervention to preserve the delicate balance between finality of awards and fairness of outcomes

        3. Bridging Global Standards: India’s Approach To Enforcing Emergency Arbitrator Orders

          Bridging Global Standards: India’s Approach To Enforcing Emergency Arbitrator Orders

          Ishita kashyap and Vinayak RajaK, Fourth and Fifth Year students, NATIONAL LAW UNIVERSITY DELHI, NEW Delhi

          INTRODUCTION

          Emergency arbitration (‘EA’) is an evolving concept in the world of arbitration. It seeks to provide a speedy mechanism for disposal of interim relief applications made by the parties in arbitration before the tribunal is formed. It has been recognised by many international institutional rules such as Singapore International Arbitration Centre (‘SIAC’) and International Commercial Arbitration. There was an ambiguity on the legal question of enforceability of the ‘award’ given by such a method of arbitration. The Supreme Court of India, in the judgment of Amazon v Future, resolved this ambiguity and held the enforceability of such emergency arbitral ‘award’ under Section 17(1) of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’) valid in the cases of Indian-seated arbitration. This article provides the backdrop of the judgment and the recent Draft amendment of 2024 of the Arbitration and Conciliation Act,1996 (‘draft amendments’), and further analyses its legal implications on the arbitration landscape of India.

          JUDICIAL PRONOUNCEMENTS

          The legal standing of emergency orders in India was uncertain before the landmark judgment in the Amazon-Future case. The Delhi High Court, in Raffles Design v Educomp, determined that an emergency arbitrator’s order is unenforceable under Section 17 of the Act in foreign-seated arbitration, hence necessitating recourse under Section 9 of the Act for such arbitrations. Therefore, this case did not weaken emergency arbitration awards but rather focused only on foreign-seated arbitrations.

          Subsequently, the Delhi High Court in Ashwani Minda v. U-Shin denied the relief to the parties under Section 9, reasoning that the parties had excluded Part I of the Act, and the emergency arbitrator had already rejected the request, thereby the Doctrine of Election coming into play to bar the parties from switching forums. The Bombay High Court in Plus Holdings v. Xeitgeist granted interim relief to the parties under Section 9 despite an EA being appointed under SIAC rules because it explicitly allowed for court intervention.
          While neither case turned solely on Section 9(3), the two judgments showed the divergent judicial attitudes for court intervention when emergency arbitration has already been invoked. This judicial ambiguity around emergency arbitration enforcement in India was ultimately clarified in the Amazon-Future decision.

          AMAZON V. FUTURE RETAIL

          The Amazon–Future dispute originated when Amazon NV Investment Holdings LLC initiated arbitration proceedings against Future Retail Ltd. before the SIAC. In the course of these proceedings, Future moved to transfer its retail assets to a third party, which Amazon claimed was violative of pre-existing contractual arrangements. Amazon obtained interim relief from the emergency arbitrator, prohibiting Future from proceeding with this transaction. It sought to enforce this award in India under Section 17(2) of the 1996 Act.

          On 6th August 2021, the Supreme Court held that the Arbitration Act does not preclude parties from adopting procedural rules that allow an emergency arbitrator to grant interim relief. Since SIAC rules permit this mechanism, the EA award should be held valid and enforceable. The Court emphasised that party autonomy, which is the bedrock principle of arbitration, allows for such institutional rules, and as long as parties have agreed to them, the emergency arbitration must be respected.

          LEGAL ANALYSIS OF THE RULING

          The court answered the legal question of whether an award given by emergency arbitration can be considered as an order under section 17(1) of the Arbitration Act to be enforceable. The court read sections 2(1)(a), (c) and (d) along with sections 2(6) and 2(8) and recognised the party’s authority to determine issues that arise between the parties in any way they prefer. This autonomy was extended under section 2(8) to the selection of institutional rules which would govern the process of arbitration. Similarly, section 19(2) allowed for agreement on procedure to be followed by an arbitral tribunal in future proceedings.

          This reading emphasized the importance of party autonomy in dealing with substantive as well as procedural arrangements of arbitration. Further, section 21 proves that the arbitral proceedings are commenced on a date on which the request for that dispute to be referred to arbitration is received by the respondent. While this provision is expressed as limited by the parties’ consent to any other date, it provides a deemed date for commencement of proceedings before the actual arbitral tribunal is formed.

          The court used the ratio in Bharat Aluminium Co vs Kaiser Aluminium Technical Services and M/S. Centrotrade Minerals and Metals  to reaffirm the significance of party autonomy being the brooding and guiding principle  in arbitration. In this light, when section 2(1)(d) is read, it is to be read in subjection to the phrase “unless context otherwise requires”. The context in cases is provided by institutional rules agreed upon by the parties, which in this case were given by SIAC, which does provide for emergency arbitration.

          THE DRAFT ARBITRATION AND CONCILIATION (AMENDMENT) BILL, 2024

          This draft amendment fills the legal gap which was created by Amazon v. Future. While it judicially recognized orders of emergency arbitrators seated in India, there was no express statutory basis for the same. By bringing “emergency arbitrator” in the definitional clause and creating Section 9A, Parliament would recognize the appointment and functioning of emergency arbitrators in domestic arbitration, bringing the existing implied power under institutional rules now under the statute’s backing.

          The draft explicitly provides that orders of emergency arbitrators are enforceable as if they are tribunal orders under Section 17(2). This fades away the ambiguity about whether courts would treat EA orders as interim measures or final awards, which was an interpretive tension post-Amazon. Now, parties can rely on EA relief being directly enforceable without seeking parallel court injunctions.

          Section 9A(4) and the new Section 17(1)(da) ensure that once the full tribunal is constituted, it can confirm, modify, or vacate the EA’s order. This balances the urgent nature of EA relief with party rights to a full hearing. It mirrors Singapore and Hong Kong’s approach and ensures that provisional relief does not unjustly prejudice parties, once more facts emerge.

          However, a major limitation that persists is that the draft does not address foreign-seated emergency arbitration. There is no mechanism to enforce EA orders made abroad, since Part II, which governs foreign awards, does not extend to interim relief. Part II applies only to final awards under the New York Convention, and therefore, the cross-border parties would still need to apply for interim measures before Indian courts under Section 9 if they need urgent relief within India’s territory. This leaves India behind Singapore and Hong Kong, which allow some cross-border EA enforcement.

          IMPLICATIONS FOR ARBITRATION LAW IN INDIA

          This is a boon for foreign investors and multinational parties who prefer arbitration but need urgent interim relief early on. While high compliance rates with EA awards have been reported globally, having enforceability on record is critical for those situations where compliance fails. It also advances a pro-arbitration policy that the Law Commission and experts have long advocated. The Supreme Court in Amazon v Future used EA orders as a tool “in aid of decongesting the civil courts and affording expeditious interim relief to the parties”.

          The court’s approach may prompt parties to reconsider forum choices. Because only Indian-seated EAs benefit from this enforceability (by virtue of Part I applying), parties to international contracts may increasingly prefer India as the seat when quick interim relief is desired. However, the court’s reasoning is strictly limited to Indian-seated arbitrations. Notably, the Court held that an EA award with a foreign seat is not a “decree” or final award and therefore not enforceable in India under the New York Convention or Section 17(2). Thus, the Amazon v. Future case is raising the question of the enforcement of EA orders with a foreign seat in India—a sector that could potentially require legislative intervention if it is found to be problematic.

          CONCLUSION

          The Amazon v. Future Retail Supreme Court ruling is a crucial step towards harmonising India’s emergency arbitration regime with the values enshrined in United Nations Commission On International Trade Law Model Law (‘Model Law’), while at the same time uncovering subtle tensions. Model Law Articles 7, 9, and 17H converge with each other in consolidating party autonomy, coexistence of interim measures issued by courts and arbitration agreements, and enforcement of interim relief granted by arbitral tribunals. The Court’s judgment is consistent with this principle by treating orders issued under EA as binding interim measures enforceable under Section 17(2) of the Arbitration and Conciliation Act, thereby solidifying India’s pro-arbitration policy. A subtle divergence remains, as unlike the Model Law and SIAC Rules, which equate EA orders to awards, the Supreme Court treats them as provisional and enforceable, subject to modification by the arbitral tribunal.

          This interpretation works reasonably well with Model Law Article 17H, but it causes complications under the New York Convention, which generally authorizes cross-border enforcement of awards. In limiting enforceability to EAs seated in India, the ruling excludes foreign-seated EA orders from the Convention’s ambit, thus exposing a residual lacuna to be refined legislatively in the future.

        4. In Dissent Lies the Truth: A Critical Look at the Court’s Power to Modify an Arbitral Award

          In Dissent Lies the Truth: A Critical Look at the Court’s Power to Modify an Arbitral Award

          BY ANMOL TYAGI, THIRD-YEAR STUDENT AT RGNUL, PATIALA.

          INTRODUCTION

          With a 4:1 majority decision in Gayatri Balasamy vs. M/S ISG Novasoft Technologies Ltd. (2025), (‘Balasamy’) the Supreme Court fundamentally altered India’s arbitration landscape by recognizing courts’ power to modify arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 (‘the Act’) to modify an arbitral award. This watershed judgment resolves a decade-long jurisprudential conflict sparked by the Court’s 2021 M. Hakeem ruling, which categorically denied modification powers. By permitting limited judicial corrections from computational errors to compensation adjustments, the majority attempts to balance arbitration’s finality with the practical need for efficient justice. However, Justice K.V. Viswanathan’s dissent warns that this “judicial innovation” risks reviving the very interventionist culture the 1996 Act sought to eradicate. This article, firstly, delves into the controversy and analyses the ratio in its pragmatic context; secondly, it analyses its implications and advocates for how what should have been a unanimous verdict is penned down as a dissenting opinion; and lastly, it tries to explore a way forward.

          THE MAJORITY ON THE POWER TO MODIFY

          The Apex Court, through judicial precedents, proffered minimal judicial intervention in arbitral awards, not extending to correction of errors of fact, reconsideration of costs, or engagement in the review of the arbitral awards.

          For modification of awards, the court held that a modification does not necessarily entail the examination of the merits of the case, thereby allowing limited power of modification within the confines of Section 34 without a merit-based evaluation under certain circumstances including; where severing invalid from the valid, correcting clerical, computational and typographical error, certain post award interest and under Article 142 of the Constitution of India, where it is required and necessary to end litigation.  Progressively, such a decision was held to prevent the hardship of re-filing an arbitration and a manifestation of the objects of the Act.

          To that end, the majority in Balasamy invoked the maxim omne majus continet in se minus (“the greater includes the lesser”) to justify modification as incidental to the power to set aside awards. This reasoning hinges on Section 34(2)(a)(iv), which permits partial annulment if an award exceeds the scope of submission. By framing severability as statutory intent, the Court positioned modification as a natural extension of existing powers rather than a novel judicial innovation.

          For severability of awards, the court held that the greater power to set aside an award under Section 34 also includes the lesser power to sever the invalid portion of an award from the valid portion under Section 34(2)(a)(iv) of the Act, whenever they are legally and practically separable. The court differentiated the power conferred under section 34(4) from the limited power to modify on the ground of flexibility. The court upheld the idea of remittal under Section 34(4) as a remedial mechanism enabling the arbitral tribunal to correct curable defects in the award upon court adjournment. On the other hand, modification involves the court directly changing the award, which is limited and requires certainty.

          ANALYSIS OF THE MAJORITY OPINION

          While the court may have tried to weave the principle of equity and justice without offending the judicial fabric of Section 34 and the legislative intent of the Act, certain shortcomings are still exposed. Justice K.V. Vishwanathan’s dissent helps explore these shortcomings.

          i) Theoretical tensions: Party Autonomy vs. Judicial Paternalism

          Justice K.V. Vishwanathan’s dissent concurs with the idea that the power to modify subsumes the power to set aside under section 34 of the Act is fallacious, since the power to set aside an arbitral award does not inherently include the power to modify it because the two functions serve distinct purposes within the arbitration framework. Similar was the rationale of the court in M. Hakeem. Setting aside an award under Section 34 of the Arbitration and Conciliation Act, 1996, is a corrective measure that allows courts to annul an award if it violates fundamental legal principles, such as public policy or procedural fairness. In contrast, modification implies an active intervention where the court alters the substance of the award, which contradicts the principle of minimal judicial interference in arbitration, as in the Mcdermott International Case.

          The proposition of limited modification of an award in the interest of expeditious dispute resolution may seem attractive at first instance, especially for commercial arbitrations involving public law, where the courts may modify the award to enhance compensation for the land acquisition. However, it points to vital concerns regarding its applicability by the courts in general and arguably, the power of remand under section 34(4), though different from the modification powers, acts as a safety valve and serves a similar purpose as it arrays wide powers upon the arbitral tribunal to modify an arbitral award for an effective enforceability.

          Theoretically, arbitration is a voluntary act of dispute resolution through a third party, different from courts and its legal procedures.  While the judgment provides for modification powers to remove the ‘invalid’ from the ‘valid’ and enforce complete justice under Article 142 of the Constitution, it not only raises concerns as to its applicability and limitation in determining what constitutes ‘invalid’ or complete justice, but also strikes at the core of arbitration. It does so by contradicting the fundamental characteristic and statutory intent of arbitration, i.e., the finality of the award through minimal judicial intervention, as was held in Re: Interplay Between Arbitration Agreements Under the Arbitration and Conciliation Act, 1996, and the Indian Stamp Act, 1899.

          Justice K.V. Viswanathan’s dissent highlights a critical tension: the 1996 Act deliberately omitted modification powers present in its predecessor, the 1940 Arbitration Act. The legislature’s conscious choice to limit courts to setting aside or remitting awards reflects a policy decision to prioritize finality over granular corrections. Noting that the Parliament intentionally omitted the ‘powers to modify’ from the repealed Arbitration Act, 1940, the majority’s interpretation risks judicial overreach by reading into the Act what the Parliament excluded, a point underscored by the dissent’s warning that using Article 142 to modify awards subverts legislative authority.

          To that end, arbitration’s legitimacy stems from its contractual nature. By allowing courts to “improve” awards, Balasamy subtly shifts arbitration from a party-driven process to one subject to judicial paternalism. This contravenes the kompetenz-kompetenz principle, which reserves jurisdictional decisions for tribunals. Notably, the UNCITRAL Model Law emphasizes tribunal autonomy in rectifying awards (Article 33), a responsibility now partially appropriated by Indian courts

          ii. Impact on Arbitral decision making

          The threat of post-hoc judicial adjustments may incentivize arbitrators to over-explain conclusions or avoid innovative remedies. For instance, tribunals awarding compensation in land acquisition cases might default to conservative valuations to pre-empt judicial reduction. Conversely, the power to correct clerical errors (e.g., miscalculated interest rates) could save parties from unnecessary remands.

          iii. Enforcement Challenges

          While the Court envisions modification as a time-saving measure, practical realities suggest otherwise. District courts lacking commercial arbitration expertise may struggle to apply the “severability” test, leading to inconsistent rulings and appeals. The Madras High Court’s conflicting orders in Balasamy (first increasing compensation, then slashing it) illustrate how modification powers can prolong litigation.

          Arguably, with the possibility of modification, the judgment practically creates uncertainty and opens Pandora’s box, thereby exposing every arbitration being challenged under some pretext or other. The effect of the judgment might extend to various PSUs, companies, and individuals opting out of arbitration, fearing the non-finality of the award.

          The majority’s reliance on Article 142 to justify modifications creates a constitutional paradox.

          While the provision gives the Supreme Court the power to do “complete justice,” applying it to an arbitral mechanism of private dispute settlement blurs the line between public law exceptionalism and the enforcement of private contracts, which arguably would render Article 142 a “universal fix” for disenchanted arbitral awards.

          For land acquisition cases and corporate disputes both, this poses a paradox: courts acquire efficiency tools at the risk of sacrificing arbitration’s fundamental promise of expert-driven finality. As Justice Viswanathan warns, the distinction between “severance” and appellate review remains precariously thin. With ₹1.3 trillion in ongoing arbitrations at stake, Balasamy’s real test lies in whether lower courts use this power with the “great caution” prescribed inadvertently to revive India’s reputation for boundless arbitration litigation

          COMPARITIVE INTERNATIONAL PERSPECTIVES

          Leading arbitration hubs strictly reserve judicial modification. Singapore’s International Arbitration Act only allows setting aside on grounds of procedure and not on a substantive basis. The UK Arbitration Act 1996 can correct only clerical errors or clarifications (Section 57), whereas Hong Kong’s 2024 rules authorize tribunals-not courts-to correct awards. India’s new “limited modification” system varies by allowing courts to modify compensation values and interest rates, which amounts to re-introducing appellate-style review.

          The UNCITRAL Model Law that influenced the Act limits courts to setting aside awards (Article 34). More than 30 Model Law jurisdictions, such as Germany and Canada, allow modifications by way of tailormade legislative provisions. The Balasamy judgment establishes a hybrid model where there is judicial modification without an express statutory authority, raising concerns in enforcement under the New York Convention. As Gary Born observes, effective jurisdictions identify procedural predictability as a core value threatened by unfettered judicial discretion.

          THE WAY FORWARD: ENSURING EQUILIBRIUM

          The decision permitting limited alteration of the arbitral award represents a paradigm shift in the jurisprudence. The decision demonstrates a genuine effort to balance efficiency with fairness. However, its success depends on responsible judicial application. In the absence of strict adherence to the “limited circumstances” paradigm, India stands the risk of undermining arbitration’s essential strengths: speed, finality, and autonomy. As Justice Viswanathan warned, the distinction between correction and appellate review remains hair-thin. What is relevant here is how the courts apply the new interpretation to amend arbitral awards. Objectively, the courts have to be careful not to exercise the powers of amendment in exceptional situations to that extent, refraining from any impact on the finality of the arbitral award as well as the faith of the citizenry and other institutions within it.

          To avoid abuse, parliament has to enact modification grounds by amending Section 34, in line with Section 57 of the UK Arbitration Act, specifically allowing for corrections confined to reasons specified, promoting clarity and accountability. The Supreme Court would need to direct guidelines to the lower courts for arbitral award modification only when the errors are patent and indisputable, refrain from re-assessing evidence or re-iterating legal principles, and give preference to remission to tribunals under Section 34(4) where possible.