Arbitration and Dispute Resolution Submit 2024

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New Normal State of Law Firm Is Introducing

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Difference between Legal Information and Legal Advice

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Work Load are Increasing in your Legal Department

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Advertisements protected as freedom of speech

The Delhi High Court, in a 17 November 2018 interim order (subject to the final outcome of the case) in Horlicks and Anr v Heinz India, held that advertisements are protected under article 19(1) (a) of the Constitution as facets of commercial speech and can only be restricted in accordance with the provisions of article 19(2). The protection given to an advertisement is a necessary concomitant of the right of the public to receive the information. It also clarified that right to privacy cannot be asserted against information that is already in the public domain and that in a democratic country. The free flow of commercial information is indispensable and the public has a right to receive commercial speech.
In view of this order companies need to realign their advertising strategies and take advantage of the order while advertising their products and gaining distinct advantages, as against the competitions.
The court held that “a comparison which is unfavourable to a competitor does not necessarily mean that it is dishonest or unduly detrimental”. It held that the main objective of sections 29(8) and 30(1) of the Trademarks Act and the code made by the Advertising Standards Council of India was “to stimulate competition between suppliers of goods and services to the consumer’s advantage, by allowing competitors to highlight objectively the merits of various comparative products, at the same time, prohibiting practices which may distort competition, be detrimental to competitors and have an adverse effect on consumer choice”. Thus, the intent of the legislature was to allow comparative advertising while at the same time ensuring that consumers are always protected from possibly misleading advertisements.
It held that failure to point out the advantages of one’s product was not necessarily dishonest. The advertiser was not obliged to make a comparison of all the parameters of the products in his advertisement with that of his competitor, so long as it was true and that “it is open to an advertiser to objectively compare one or more material, relevant, verifiable and representative features of the goods and services in question which may include price”.

The court, however, acknowledged that there was a certain degree of disparagement that was implicit in comparative advertising but it was legal and permissible and the competitor was well within its rights as long as it was honest and not misleading. The court also laid down the test for determining “misleading advertisement” and stated:

1. An advertisement said to be misleading must deceive the target customers, or should at least have the potential to deceive; and

2. Due to its deceptive nature, the advertisement should be likely to affect the economic behaviour of the target customers, in such a way as to cause harm to the competitors of the advertiser.

The court held that the same has to be harmonized with competitive interests and that in the present case, the features being compared were not misleading as the said issues have to be seen not from a hyper-sensitive viewpoint, but from the eyes of an average consumer who is used to a certain rhetoric.

The court rejected the defendant’s argument that the information used in the impugned advertisement was protected by the Supreme Court’s verdict on right to privacy and held that the judgement was inapplicable to the facts of the present case observing that a right to privacy cannot be asserted against information that is already in the public domain. The court also specified that the Supreme Court, in the said judgment, did not ban or prohibit comparative advertisements.

The court, relying on various judgments, observed that advertisements are not to be read as if they are some testamentary provision in a will or a clause in some agreement with every word being carefully considered and the words as a whole being compared. In determining the meaning of an advertisement, the court has to take into account the fact that public expects a certain amount of hyperbole in advertising and the test to be applied is whether a reasonable man would take the claim being made as one made seriously.

The judgment has widened the scope of comparative advertising in India and has also tried to bring clarity as to which advertisements will be misleading according to sections 29(8) and 30(1) of the Trademarks Act. The judgment is a much-needed elucidation that will help companies in disseminating greater information about their products or services and by keeping comparative advertisements out of the purview of right to privacy. It has ensured that the customers get as much information as possible while purchasing a specific product.

New companies ordinance imposes stiffer penalties

The promulgation of Companies (Amendment) Ordinance, 2018, to promote ease of doing business and corporate compliance received presidential consent on 2 November.
The main features of the ordinance are re-categorization and starting a technology driven in-house adjudication mechanism for certain compoundable offences that are subject to penalties, as well as reducing the burden of the National Company Law Tribunal (NCLT) by 60% and increasing the role of regional directors in tackling issues of “shell” companies.
According to the ordinance new entities will face stiffer penalties in case of defaults and old corporates have to realign their strategies in line with the amendments. The key highlights of ordinance are:
Amendment in section 2 (41): The amendment empowers central government (instead of NCLT) to approve any period of financial year for a company or a subsidiary or an associate of a company incorporated abroad, which is required for consolidation of its accounts outside India.

Insertion of section 10A: It mandates that every company after the commencement of the new ordinance shall not start any business or exercise borrowing powers unless a director files a declaration within 180 days that every subscriber to the memorandum has paid the value of the shares, and the verification of the registered office as required in section 12 (2) has been filed.

A penalty of up to ₹50,000 (US$715) on the company and ₹1,000 per day on every officer responsible for the default has been set. In case of non-compliance within 180 days, the Registrar of Companies (ROC) has been empowered to remove the name of the company from the register of companies.

Insertion of section 12 (9): The ROC is entitled to initiate action for the removal of the company from the register of companies if after physical verification of the registered office they believe there is a default in compliance of section 12 (1).

Amendment in section 14: The second proviso has been substituted and power of approving conversion of public company in to a private company has been given to the central government instead of NCLT.

Penalty, not fine in section 53 (3): The mandatory punishment of officer in default has been discarded. A penalty of up to the amount raised via issue of shares at discount or ₹500,000, whichever may be less, has been provided for, and the company is mandated to refund the money with a 12% interest rate.

Amendment in section 64(1): In case of contravention, now the company and the officer in default have been made liable to punishment with a fine of up to ₹500,000.

Faster registration of charges under section 77: The extension of period to register the creation of charge after the amendment has been reduced to 60 days upon payment of fees, which may further be extended by 60 days upon payment of ad valorem fees.

Amendment in section 86: A proviso inserted making furnishing of false information under chapter VI liable for action for fraud under section 447.

Stiffer penalties for repeated defaults: The penalties and fine on the company, promoter, director, officer in default, key managerial personnel (KMP), individual has been increased in various sections such as: 92(5), 102(5), 105(3), 117(2), 121(3), 137(3), 140(3), 157(2), 165(6), 191 (5), 197(15). 203(5), 238(3), and 447; and in case of continuing default, a fine per day has been prescribed.

Increased penalty, 102(4): The minimum penalty in case of the default by every promoter, director, manager or other KMP has been enhanced to the higher of ₹50,000 or up to five times the benefit.

Substitution of section 159: Punishment with imprisonment for up to six months has been done away with in case of contravention of section 152, 155 and 156 by any individual or a director of the company.

Insertion of section 164(i): Sub-clause has been inserted making non-compliance of section 165(1), a ground for disqualification of appointment as a director.

Enhancing pecuniary jurisdiction: The regional director is empowered to compound offences having a fine up to ₹2.5 million and sub-section (6) inserted makes all offences under the act punishable with imprisonment or imprisonment with fine.

Insertion of section 454A: Provides for double the penalty in case of repeat of the same default within three years.

The ordinance brings more accountability regarding filings related to creation, modification and satisfaction of charges to promote corporate governance, non-maintenance of registered office and holding of directorships beyond permissible limits.

Amended act reduces court’s discretionary powers

The Specific Relief (Amendment) Act, 2018 (act), which received presidential consent on 1 August 2018, attempts to facilitate rapid economic and infrastructural growth. It removes the discretionary powers of the courts to stay applications for specific performance of contracts. By making enforcement a mandatory rule the act allows companies to enter into contracts with a legislative and judicial assurance that they will be specifically performed. This nullifies previous advantages enjoyed by defaulting parties of evading their obligations, and gives the enforcing party maximum advantage.
The act amends the Specific Relief Act, 1963 (SPA), as described above and, in a major development, inserts a new schedule of infrastructure projects. This provides that courts may not grant injunctions to prevent the application for, and grant of orders for specific performance in disputes over contracts for such projects.
The highlights of the act are:

Compulsory specific performance. The act amends sections 10 and 11 of SPA, so that, save for specific exceptions, it is mandatory for courts to grant orders for specific performance of contracts. Courts no longer have discretionary power to refuse to issue such orders.

Exceptions. Amended section 14 of SPA now allows only four exceptions to the mandatory issuance of a specific performance order. These are where a) a party has already obtained an order for substituted performance of a contract (see below); (b) the performance of a contract involves continuous obligations which the court cannot supervise; (c) there is a contract that is so dependent on the personal qualifications of the parties that the court cannot order specific performance of its material terms, and (d) where there is a contract that is, by its nature, determinable.

Experts. Inserted section 14A, of the SPA gives a court the power to engage experts where it decides it needs assistance.

Limited liability partnerships (LLP). Sections 15(fa) and 19(ca) are additions to SPA and allow a new LLP formed by the amalgamation of two existing LLP, to apply for, and be subject to orders for specific performance in contract disputes.

Section 16(a) and (c). These substituted sections disallow specific performance of a contract where a party has already obtained an order under section 20 for substituted performance of a contract.

Ready and willing. The act amends the SPA to abolish the mandatory requirement to aver that the party is ready and willing to perform the contract; parties are now only required to prove this evidentially.

Substituted performance of contracts. Amended section 20 of SPA gives relief to a party alleging breach of contract by allowing it either to sue for specific performance of contract or to opt for substituted performance of the contract by a third party, or through its own agency, recovering the expenses and other costs actually incurred, spent or suffered by him, from the party committing such breach. An application for the latter right must follow stipulated procedures and is subject to certain limitations. These are set out in section 20. A party may claim compensation whether it applies for specific or substituted performance.

Injunctions. Added section 20A of SPA states that a court should not grant an Injunction where an Infrastructure project contract is involved, and where such grant would impede or delay its progress or completion. To ensure that the legislative intent is carried out, a new section 41(ha) has been inserted in the SPA, enacting that an injunction shall not be granted in cases subject to section 20A. Section 14 of the act also inserts the new schedule of infrastructure projects into the SPA. Under section 20A of the SPA the government may, if it considers it necessary or expedient to do so, by notification in the Official Gazette, amend the schedule relating to any category of projects.

Special courts. Inserted section 20B of the SPA establishes special courts to try cases involving infrastructure project contracts; under section 20C, cases must be concluded within twelve months from the date of summons with a possible extension of six months.

A key factor is whether the amendments to the SPA will operate retrospectively. For this to be the case the legislature must enact a saving or transition clause.

The act clearly brings positive changes to ease doing business and aims to bring certainty to conditions relief for specific performance of contracts. The parties will not be allowed to evade their commitments and will have to carry out their contractual obligations. A defaulting party may face the consequences including substituted performance.


Corporates in course of business enter into contracts, but often, when matters do not go as planned, they have to contend with a raft of new challenges resulting into a dispute. Aside traditional litigation, arbitration has been increasingly adopted as an effective means of resolving international & commercial disputes which if used in an appropriate manner lay out a fair playing field and if possible an advantage specially in respect of Jurisdiction, Governing & Procedural Laws, Time frame, Cost effectiveness etc. to help the business achieve its objectives. The Civil Courts for various reasons have not been able to fulfill these objectives, leaving the Corporates to evolve a strategy to look towards Alternative Disputes Resolution (ADR) Mechanisms.

The initial attempt made under the Arbitration Act, 1940 allowed the Courts to interfere at every stage of the arbitration proceeding; till the passing of the award although, The Arbitration and Conciliation Act, 1996 replaced it, and aimed at providing faster and efficient resolution of disputes, but could not achieve the purpose.

In order to make India a Hub for International Arbitration and to facilitate quick enforcement of contracts, easy recovery of monetary claims, reduce the pendency of cases in Courts in October 2015 the 1996 Act was amended which elevated the hopes of the Legal Fraternity to put in place a robust legal strategy which may provide a faster and effective dispute resolution Mechanism .
Some of the major changes brought by the amendment towards the aforesaid are :
• (Section 9). Commencement of arbitral proceedings within 90 days or time given by the Court and limiting the scope of Court’s interference thereafter.
• Section 11. Fixing 60 days for disposal of application for appointment if arbitrator& fixing the Arbitrators Fee
• Section 12. Declaration by the arbitration about independence and impartiality. Insertion of 5th &7th Schedule listing grounds raising doubt to independence and impartiality and ineligibility
• Section 14. Substitution of arbitrator by another one
• Section 17.Making orders passed by the Tribunal enforceable as those of Courts
• . Section 23. Providing for filling counter claim or plead a set-off falling within the scope of arbitration agreement .
• Section 24. Requiring tribunal to hold hearing on day to day basis & impose exemplary cost
• Section 29A &29B. Mandating the passing of the award in 12 months with a maximum extension of 6 months and terminating the mandate beyond that extendable only by Courts & providing for substituting one or all the arbitrator(s) and for reduction of arbitrator’s fee. Fast track procedure for deciding disputes without any oral hearings and passing of award in 6 Months
• Section 28 The tribunal to take into account the terms of contract and trade usages applicable to the transaction
• Section 31 Awarding future interest @ 2% higher than the current rate of interest if not decided by Arbitrator.
• Section 34 Limiting the scope of public policy to challenge the Award. Provision for service of advance notice and disposal within 1 year thereof.
• Section 36. Stay of awards only if granted by the Court
The Arbitration And Conciliation (Amendment) BILL 2018 aims to further improvise the ADR Mechanism by inter-alia providing for.
a. directly approaching the arbitrators from designated arbitral institutions by the Supreme Court or the High Court.
b. creation of ACI (Arbitration Council of India).
c. Providing clarification on the applicability of Amendment Act 2015 (Section 87) .

The provisions of the Act have been amended to ensure that there exists an economically viable , efficient, speedy, dispute resolution mechanism & therefore now every corporate needs to evolve a strategy to how to use the Mechanism to their best advantage depending upon which side of the dispute they may stand which puts a major thrust and importance in drafting and incorporating an appropriate customized arbitration clause in the agreement(s),in line with overall Corporate Strategy.
For customizing an appropriate Corporate Arbitration Strategy Inter-alia the following may be focused:
1. Seat Of Arbitration, Enforcement & Procedural Law: The seat also usually determines the procedural law to be followed unless agreed otherwise. However, preferably the seat should be in a country which is signatory to New York Convention.
2. Governing or Substantial Law: The Governing or the substantial law should be agreed or it might result in a dispute itself if left unspecified and can be of great advantage or disadvantage.
3. Number of Arbitrators: Depending upon the valuation of the matter multi level Clauses for referring disputes upto a certain value to sole arbitrator and beyond that to a larger number of arbitrators can be incorporated.
4. Language of arbitration: this poses a major concern in countries not following English as a formal language ,therefore dual/multi languages can also be agreed upon.
5. Institutional or Ad Hoc Arbitration: Pro’s and Con’s of both be carefully evaluated depending on the anticipated dispute as what may appear to be effective (Cost & Time) may actually be not so.
6. Scope of Arbitration Agreement: Depending upon the potential dispute the scope should be enlarged or minimized.
7. Mandatory Rules & Waiver of Non Mandatory Rules: Since Mandatory Rules cannot be changed they should be specifically incorporated along with waiver of all the Non-Mandatory Rules.
8. Appellate Arbitration: The Hon’ble Supreme Court upheld the legality of Two Tier Arbitration Procedure or second instance Arbitration, this can be used as an effective mechanism
Majority of the Corporate due to these amendments are once again ready to explore and adopt the ADR mechanism having realised that by thinking strategically and tactically drafting a customized arbitration clause they can not only reduce the ultimate business risks but can also increases odds of success and reduce unnecessary costs and risks like the risk-allocation process .

Draft data protection bill: Key points for companies

Following an increase in personal data theft and other digital crimes, a draft Personal Data Protection Bill, 2018, was submitted to the Ministry of Electronics and Information Technology by a committee of experts chaired by retired justice BN Srikrishna on 27 July.
The proposed data protection framework was prompted by the case of Justice KS Puttaswamy (Retd) & Anr v Union of India & Ors (2017), in which the Supreme Court held that the right to privacy is a fundamental right, subject to certain reasonable restrictions, thus striking a balance between protecting the interests of individuals and the legitimate use of data by the state and the private sector. Corporate entities automating workflows and enhancing internal and external collaboration need to implement, evaluate and accordingly update certain processes in order to comply with the proposed data protection law.
Applicability: The draft bill applies to the processing of personal data by the state, Indian corporate entities and Indian citizens located within India, and by entities outside India if it is with respect to any business activity that involves offering goods or services to individuals located in India.
Types of data covered: Section 3 categorizes data into (a) anonymized data, (b) personal data, (c) sensitive personal data, (d) critical personal data, (e) financial data, (f) genetic data and (g) health data.
Rights of data subjects: Chapter VI sets out the rights of the natural person to whom the data relates (“data principal”) in relation to the data processor (“data fiduciary”). The “right to be forgotten”, in section 27, restricts the disclosure of personal data after the purpose is served, or consent withdrawn.
Data protection authority: Chapter X provides for the establishment of an independent authority to oversee enforcement of the personal data protection law.
Transparency and accountability: Chapter VII mandates that data fiduciaries adhere to security safeguards, notify the authority of data breach, assess data protection impact, keep records and conduct data audits, appoint a data protection officer and put in place a mechanism for grievance redressal.
Transfer of data outside India: Chapter VIII lays down restrictions and conditions for cross-border transfer of personal data. It empowers government to classify sensitive personal data as critical and mandate its processing. Corporate entities that have critical personal data must store it in India barring some exceptions.
Among the challenges presented by the bill are problematic exemptions in chapter IX, which nullify almost all of the necessary provisions and rights guaranteed in chapters II to VIII. Chapter IX provides that data principal rights are suspended when processing is necessary for the functioning of the state.
Section 40(1), in chapter VIII, requires corporate and other entities processing personal data to ensure storage on a server or in a data centre located in India. Small businesses and startups will find it hard to afford this and it will also stop them from going global. Also, the date of coming into force of section 40 has not been provided. Section 40(3) bizarrely provides that the central government can decide not to follow the rule in section 40(1) for reasons of “necessity or strategic interests” of the state.
Miscellaneous provisions in chapter XV of the bill give unrestricted power to the government in relation to security and Aadhaar. Section 98(1) allows government to issue “such directions as it may think necessary in the interest of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States or public order”, giving it arbitrary powers.
There is no separate provision for surveillance by law enforcement authorities. Sections 42 and 43 provide for processing of personal data in the interests of state security and “of prevention, detection, investigation and prosecution of any offence or any other contravention of law” but these sections do not specify any consequences for non-compliance. The Indian Telegraph Act, 1885, and the Information Technology Act, 2000, already contain such provisions so the bill does not represent a comprehensive surveillance reform.
The bill does not provide any measures for accountability and oversight over the intelligence agencies such as the Intelligence Bureau.
With today’s increased competition and strong emphasis on data protection, Indian companies need to be aware of the provisions of the proposed Protection of Personal Data Bill and accordingly frame a corporate data protection policy as the draft bill provides a healthy balance between privacy and innovation.
Deepak Sabharwal is the managing partner of Deepak Sabharwal & Associates.

Ordinance marks overhaul of Commercial Courts Act

Companies with business interests in India need to analyse and evaluate their approach to dealing with mercantile disputes in the wake of amendments by way of an ordinance dated 3 May in the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, now to be known as the Commercial Courts Act, 2015. The ordinance continues the government’s efforts to adopt swift and efficient means of resolution for trade disputes in view of the increase in foreign investment and the consequent rise in commercial disputes, by establishing commercial courts below the level of district judge in all jurisdictions, except where the high courts have ordinary original civil jurisdiction, i.e. in the cities of Chennai, Delhi, Kolkata, Mumbai and the state of Himachal Pradesh.
Highlights of the ordinance are:
New name: The new name removed confusion about the courts and clarified that there are separate courts with different procedures established solely for commercial disputes.
Specified value: The “specified value” of commercial disputes to be adjudicated under the act, as defined in section 2(1)(i), was reduced from `10 million (US$147,000) and above to `300,000 and above. This is expected to reduce the time taken to resolve such disputes (now 1,445 days) and improve India’s ranking in the World Bank’s ease of doing business index.
Commercial courts hierarchy and appeal mechanism: The ordinance (i) amends section 3 of the act and introduces commercial courts at the district judge level where the high court has ordinary original civil jurisdiction; (ii) inserts section 3A, introducing commercial appellate courts; (iii) splits commercial courts where the high court does not have ordinary original civil jurisdiction into (a) courts at the level of a district judge and (b) commercial courts below the level of a district judge.
Appointment of judges: Earlier, the state government could appoint commercial court judges only with the concurrence of chief justice of the high court while it now has now the power to appoint such judges without concurrence of the chief justice.
Pre-institution mediation: The ordinance inserts section 12A in the act, which provides that where a suit does not contemplate urgent interim relief, the plaintiff has to attempt to reach a settlement through mediation prior to instituting a suit.
A government-authorized authority must complete the process of mediation within three months from the date of application by the plaintiff. The pre-institution mediate period will not be computed for the purpose of limitation under Limitation Act, 1963.
If a settlement is reached, it must be put into writing and signed by the parties to the dispute and the mediator. The settlement will have same status as an arbitral award under section 30(4) of the Arbitration and Conciliation Act, 1996.
Insertion of section 21A and omission of sections 9 and 12(1)(e): Section 21A enables the government to make rules and notifications regarding the procedure under section 12A(1). The ordinance omits sections 9 and 12(1)(e), on the transfer of a suit if a commercial dispute is of the specified value.
Section 13 amendment: The term “commercial division of a high court” has been replaced. Section 13 now states that any person aggrieved by the judgment of a commercial court below the level of a district judge may appeal to the commercial appellate court within 60 days.
Now that the ordinance is in force, some key factors must be considered: (1) the burden on the high courts will increase significantly as the reduction in specified value will have the unintended effect of leading to low-value claims being brought before high courts; (2) the separation of jurisdiction has been blurred as the reduction of specified value has led to overlapping of jurisdiction of commercial divisions and courts; (3) the procedure for appointing judges is a challenge to the independence of the judiciary, making this part of the ordinance particularly open to being challenged; and (4) pre-institution mediation will be effective only if efficient mediators devise a strategy to use the mechanism to its best advantage and its intention is met.
In order to save interest and litigation costs, companies will have to evolve a mature legal strategy of making and accepting reasonable claims at the pre-institution mediation stage. Courts may eventually saddle the losing party with heavy costs stating that despite the opportunity it failed to settle the case and prolonged it. The ordinance brings in changes to improve the commercial disputes resolution process and whether it serves this purpose will be seen over a period of time and will depend on how various stakeholders implement it.

Deepak Sabharwal is the managing partner of Deepak Sabharwal & Associates.