Page 15 – Vaish Associates Advocates

Bombay High Court: Orders issued by banks and financial institutions while declaring a wilful defaulter must be reasoned orders

The Bombay High Court (“Bombay High Court”), vide its judgement dated March 4, 2024, in the case of Milind Patel v. Union Bank of India and Others [2024 SCC OnLine Bom 745], has held that banks and financial institutions must provide a reasoned order before declaring the occurrence of a wilful default by an entity or individual.

Facts

Mr. Milind Patel (“Petitioner”) was a joint managing director in the whole-time employment of IL&FS Financial Services Limited (“IFIN”). IFIN and the Petitioner were served with a common show cause notice dated July 5, 2022 (“SCN”) by the Union Bank of India (“Union Bank”), which had sanctioned credit limits to IFIN aggregating to INR 175 Crores. The SCN stated that Union Bank had formed a prima facie view that IFIN and the Petitioner deserved to be declared as wilful defaulters in connection with the facilities sanctioned to IFIN, alleging diversion and siphoning of funds by IFIN, amongst other reasons. There were certain references to specific amounts involved and number of instances of allegedly deviant conduct by IFIN. However, the SCN did not set out details of the Petitioner’s involvement in the reasons, except for identification of the Petitioner as a noticee in his capacity as a “whole time director”. No other whole time director or promoter was a noticee in the SCN.

The Reserve Bank of India (“RBI”), vide its master circular on wilful defaulters dated July 1, 2015 (“Master Circular”), provides that to declare a person as a wilful defaulter, the evidence of wilful default on the part of the borrower and its whole time director should be examined by an identification committee. If the identification committee concludes that wilful default has occurred, a show cause notice must be issued to the borrower and its whole-time director(s) and call for an explanation. After considering the submissions in reply, and providing an opportunity of being heard (should the identification committee feel such an opportunity is necessary), a reasoned order recording the wilful default must be issued. The order passed by the identification committee will be confirmed by the review committee. The Master Circular also states that it is ‘imperative’ for banks and financial institutions to put in place a transparent mechanism for the entire process so that the penal provisions are not misused and the scope of such discretionary powers are kept to the bare minimum.

In the present case, Union Bank did not enclose any of the material or records in the SCN. Therefore, the Petitioner sought a copy of the material available with Union Bank, vide a letter dated July 12, 2022. The Petitioner also made submissions on the scope of his responsibilities in IFIN to state that since March 2014, his role fundamentally changed from overseeing lending business to overseeing equity investments and advisory operations. The Petitioner did not get a response to this request, however, Union Bank issued a hearing notice to the Petitioner, giving him an opportunity of being heard. The Petitioner reiterated his request for the underlying documents, information and other material, in order to effectively deal with the allegations contained in the SCN, however, it was not responded by Union Bank. On August 5, 2022, the Petitioner participated in a personal hearing, and on August 15, 2022, filed his written submissions pursuant to the personal hearing.

On February 28, 2023, Union Bank issued the final order passed by the review committee (“Final Order”) to confirm that the Petitioner has been identified as a wilful defaulter. The Final Order asserted that the identification committee had passed an order at its meeting held on August 5, 2022 and that such order had been conveyed to the Petitioner on September 8, 2022. Therefore, the identification committee did not consider the detailed written submissions made by the Petitioner on August 15, 2022.

Further, vide a letter dated November 2, 2023, the Petitioner protested against non-receipt of the identification committee’s draft order and asserted that the Final Order was in violation of the inherent safeguards contained in the Master Circular, and the basic principles of natural justice had been violated. The Petitioner, therefore, sought rescission of the Final Order, and sought an opportunity of personal hearing before the review committee, after being served with draft order of the identification committee. There was no response from Union Bank to these requests from the Petitioner.

Therefore, aggrieved by the order of the identification committee and the Final Order, the Petitioner filed a writ petition before the Bombay High Court, seeking intervention, inter alia, by way of a declaration that all documents referred to and relied upon in the SCN ought to be provided and seeking the quashing of the Final Order.

Issue

Whether the order passed by the identification committee and the Final Order were in accordance with the Master Circular and sustainable under law.

Arguments

Contentions of the Petitioner:

The Petitioner argued that he was not served with a copy of the draft order prepared by the identification committee and despite several requests, was not provided with underlying documents, information and other material based on which the orders were passed by the identification committee and the review committee.

Contentions of Union Bank:

Union Bank argued that it was not obligated to provide any material to prove its allegations and that the onus was on the Petitioner to prove his innocence.

Observations of the Bombay High Court

Bombay High Court, without going into the merits of whether IFIN, and thereby the Petitioner, are guilty of committing wilful defaults, observed that RBI has mandated that the evidence of wilful default must be examined by the bank. The Bombay High Court noted that in proceedings that can inflict serious civil consequences on any citizen, the noticee should be able to appreciate the case made out against him so that he may deal with the allegations to the best of his ability. The only means of doing so is to provide detailed and proper notice of the reasons for having formed a prima facie view when calling upon the noticee to show cause why such prima facie view must not translate into a final view.

Bombay High Court cited the case of T. Takano v. Securities and Exchange Board of India and Another [(2022) 8 SCC 162] (“Takano judgement”) where the Supreme Court has summarized the relevance of disclosure of information and records underlying the allegations. The Supreme Court observed that disclosure of information serves 3 purposes; first is reliability, as it aids the courts in determining the truth of the contentions of the parties. Second is fair trial, as it allows the parties to effectively participate in the proceedings. Third is transparency and accountability, since the principles of fairness and transparency of adjudicatory proceedings are the cornerstones of the principle of open justice. The Supreme Court has observed that as a default rule, all relevant material must be disclosed.

Bombay High Court observed that the Takano judgement throws light on how the Master Circular must be construed. The avoidance of information asymmetry and the means of ensuring transparency as outlined in Takano judgement would necessarily mean that principles of natural justice, including the need to provide the underlying material, are inherent and implicit in the process stipulated under the Master Circular. Bombay High Court noted that the objective of the proceedings initiated by issuance of a show cause notice is to arrive at the truth as to whether or not an individual in question is to be subjected to penal consequences. Bombay High Court further noted that fair and transparent symmetrical access to information would mean providing access to not only incriminating material but also exculpatory material, since all such information would be relevant for arriving at the truth.

Bombay High Court further observed that while IFIN may have been declared a wilful defaulter, there is no analysis of evidence at the relevant time demonstrating the role of the Petitioner for holding him to be individually responsible. In these circumstances, it was evident that the Final Order, which was a near-verbatim reproduction of the SCN, was against the constitutional protections available under the rule of law in India and in violation of the ‘imperative’ requirements of transparency stipulated by in the Master Circular.

Decision of the Bombay High Court

Bombay High Court ordered Union Bank to consider recalling the order of the identification committee and the Final Order, with liberty to conduct the proceedings afresh from the stage of the SCN, after providing proper access to the relevant material to the Petitioner. The Petitioner will then be at liberty to submit a fresh reply to the SCN, after which a reasoned draft order may be issued by the identification committee. Bombay High Court also ordered Union Bank to serve the draft order of the identification committee on the Petitioner. Thereafter, a reasoned final order may be passed by the review committee, if it is found that there has been a wilful default attributable to the Petitioner. Bombay High Court ruled that the banks and financial institutions that seek to invoke the Master Circular, must identify the members of the identification committee and the members of the review committee, and share the reasoned orders passed by such committees.

Further, Bombay High Court also directed the agencies who have published the name of the Petitioner identifying him as a wilful defaulter to forthwith remove such identification from publicly accessible information resources.

VA View:

The Master Circular provides that it is ‘imperative’ for banks and financial institutions to put in place a transparent mechanism while declaring occurrence of wilful default to ensure that the penal provisions are not misused and the scope of such discretionary powers are kept to the bare minimum.

In light of the same, Bombay High Court has rightly ruled that banks should be transparent with alleged defaulters, and provide all the relevant facts that would form the basis of determination of a wilful default. The absence of transparency would render the exercise of discretion to be arbitrary. Therefore, in accordance with the rule of law, banks must pass a reasoned order in such cases.

For any query, please write to Mr. Bomi Daruwala at [email protected]

Delhi High Court: Designation of seat of arbitration is similar to an exclusive jurisdiction clause

The Delhi High Court (“Delhi High Court”), in its judgement dated February 26, 2024, in the matter of My Preferred Transformation and Hospitality Private Limited v. Panchdeep Construction Limited [ARB.P. 847/2023], has held that the designation of seat of arbitration is akin to an exclusive jurisdiction clause. The Delhi High Court has emphasized that the clause in an agreement designating the seat of arbitration should take precedence and assume pre-eminence over the exclusive jurisdiction clause.

Facts

My Preferred Transformation and Hospitality Private Limited (“Petitioner”) entered into a management services agreement, dated August 28, 2019, with Panchdeep Construction Limited (“Respondent”) towards operating the Respondent’s hotel in Howrah, West Bengal (“Management Services Agreement”). The Management Services Agreement contained an arbitration clause which referred any disputes between the parties to arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). The clause designated New Delhi as the seat of arbitration whereas the jurisdiction clause conferred exclusive jurisdiction to the courts in Kolkata in all matters arising out of the Management Services Agreement.

The relevant arbitration and jurisdiction clauses of the Management Services Agreement are reproduced below:

“10.1 Arbitration: Any dispute arising out of this Agreement and the obligation thereunder (“Dispute”) shall be finally settled by arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996 or any statutory modification or re-enactment thereof for the time being in force. The Parties agree that the Dispute shall be adjudicated by a mutually appointed single arbitrator. The arbitration proceedings shall be conducted in English language and seat of arbitration shall be New Delhi.

10.2 Jurisdiction: subject to foregoing courts at Kolkata shall have exclusive jurisdiction in all matters arising out of this Agreement.”

In response to the disputes that arose between the Petitioner and the Respondent, the Petitioner invoked arbitration by serving a legal notice, dated July 18, 2022, on the Respondent. The parties were unable to achieve consensus on the appointment of an arbitrator, therefore, Petitioner approached the Delhi High Court by filing an application under Section 11 (Appointment of arbitrators) of the Arbitration Act for the appointment of an arbitrator (“Section 11 Petition”).

Issue

Whether the designation of New Delhi as the seat of arbitration conferred jurisdiction on the Delhi High Court to entertain the Section 11 Petition.

Arguments

Contentions of the Petitioner:

The Petitioner submitted that clause 10.1 of the Management Services Agreement clearly designated New Delhi as the seat of arbitration. The Petitioner also contended that the exclusive jurisdiction clause contained in clause 10.2 of the Management Services Agreement began with the words “subject to foregoing”.

The Petitioner placed reliance on the decision of the division bench of the Bombay High Court (“Bombay High Court”) in the case of Aniket SA Investments LLC v. Janapriya Engineers Syndicate Private Limited [2021(4) Mh.L.J.] (“Aniket SA Case”), wherein the Bombay High Court vested jurisdiction over the seat court as opposed to the court in which the parties had vested exclusive jurisdiction.

Contentions of the Respondent:

The Respondent contended that the jurisdiction to entertain the Section 11 Petition vests in the Calcutta High Court and not the Delhi High Court. The Respondent submitted that while the court having jurisdiction over the seat of arbitration would normally have exclusive jurisdiction over all matters arising from the arbitration proceedings, the jurisdiction for appointment of an arbitrator under Section 11 of the Arbitration Act is not be covered by this principle.

The Respondent relied on the judgements of the Hon’ble Supreme Court (“SC”) in the cases of Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited [(2017) 7 SCC 678] (“Indus Mobile Case”) and BGS SGS Soma JV v. NHPC Limited [(2020) 4 SCC 234] (“BGS Soma Case”), whereunder the SC held that the principle that designation of seat of arbitration is akin to an exclusive jurisdiction clause applied only to petitions for interlocutory relief under Section 9 (Interim measures, etc., by Court) of the Arbitration Act and for challenging arbitral awards under Section 34 (Application for setting aside arbitral awards) of the Arbitration Act.

The Respondent submitted that the proceedings under Section 11 of the Arbitration Act stands on a different footing as they do not deal with the ‘subject matter of arbitration’ but rather merely deal with the appointment of the person tasked with resolving disputes.

The Respondent also relied upon the judgement of the Calcutta High Court in the case of Commercial Division Bowlopedia Restaurants India Limited v. Devyani International Limited [(2021) 1 Cal LT 138] (“Commercial Division Case”) to suggest that, in any event, a forum selection clause would prevail over a seat selection clause in the context of domestic arbitration.

Observations of the Delhi High Court

The Delhi High Court observed that a plain reading of clauses 10.1 and 10.2 of the Management Services Agreement made it clear that New Delhi had been designated as the seat of arbitration. Further, the exclusive jurisdiction clause vesting exclusive jurisdiction in the courts at Kolkata commenced with the words “subject to foregoing”. Therefore, there was no real conflict between the arbitration seat clause and the exclusive jurisdiction clause. The text of the Management Services Agreement itself made the exclusive jurisdiction clause subservient to the arbitration seat clause.

In Delhi High Court’s view, the settled position of law with regard to exclusive jurisdiction of the seat court in matters arising out of an arbitration agreement applies equally to the appointment of an arbitrator under Section 11 of the Arbitration Act and proceedings under Sections 9 or 34 of the Arbitration Act.

The Delhi High Court observed that in the Indus Mobile Case, the SC had held that unlike in a civil proceeding under the Code of Civil Procedure, 1908, the parties to an arbitration agreement have liberty to choose a neutral venue to be designated as the seat of arbitration. The SC also opined that in arbitration law, the moment the seat is determined, it would vest the seat courts with exclusive jurisdiction for purposes of regulating arbitral proceedings arising out of an agreement between the parties.

The Delhi High Court further observed that the contention of the Respondent, that the legal principle of exclusive jurisdiction being granted to the seat court was confined only to proceedings under Sections 9 and 34 of the Arbitration Act, was a wrong interpretation of the BGS Soma Case. Besides, the SC in the BGS Soma Case opined that “pride of place is given to the juridical seat of the arbitral proceedings.” The Delhi High Court also observed that the facts of the Commercial Division Case, whereunder the Calcutta High Court had opined that in the context of domestic arbitration, a forum selection clause would prevail over a seat selection clause, did not apply to the facts of the instant case.

In Delhi High Court’s view, to exempt proceedings under Section 11 of the Arbitration Act from the exclusive jurisdiction of the seat court, would be inconsistent with the concept of party autonomy and the availability of a neutral venue as the seat of arbitration. The Delhi High Court observed that to the extent that our jurisprudence recognizes that the parties can repose their faith in a seat, which would otherwise not have jurisdiction over the subject matter of the proceedings, it is imperative that the appointment of the arbitral tribunal must also be made by such a neutral court. Any other interpretation would denude the significance of the neutral venue, allowing parties to approach any court falling under the definition of “court”, as defined in Section 2(1)(e) (Definitions) of the Arbitration Act, for the fundamental task of appointing the arbitrator.

The Delhi High Court further observed that in the Aniket SA Case, the exclusive jurisdiction clause was expressly “subject to” provisions of the arbitration clause, which designated Mumbai as the seat of arbitration and accordingly, the division bench of the Bombay High Court held that Mumbai had jurisdiction over the subject matter of the proceedings.

Decision of the Delhi High Court

In light of the above-mentioned observations, the Delhi High Court held that it had jurisdiction to entertain Section 11 Petition and referred the dispute between the Petitioner and the Respondent to arbitration to be held under the aegis of the Delhi International Arbitration Centre.

VA View:

In this judgement, the Delhi High Court has rightly held that the exclusive jurisdiction of the seat court in matters arising from the arbitration agreement applies both to the appointment of an arbitrator under Section 11 of the Arbitration Act and to proceedings under Sections 9 and 34 of the Arbitration Act.

The Delhi High Court has rightly observed that as soon as the seat of arbitration has been designated, it is akin to an exclusive jurisdiction clause. This judgement has re-emphasized the well settled principle of law that an arbitration clause, pursuant to which a place has been determined as the ‘seat’, would vest the courts of such place with exclusive jurisdiction for the purpose of regulating the arbitral proceedings.

For any query, please write to Mr. Bomi Daruwala at [email protected]

Bharatiya Sakshya Adhinyam, 2023 (BSA) Vs. Indian Evidence Act of 1872 (IEA)

The Bharatiya Sakshya Adhinyam, 2023 (BSA) replaces the Indian Evidence Act of 1872 (IEA) and it was approved by both the Lok Sabha and Rajya Sabha on December 20 and December 21, 2023, respectively, before receiving presidential assent on December 25, 2023.

The key objectives of BSA are to modernize, simplify, and streamline how evidence is presented and interpreted inside the courts. Such modern provisions will make judicial system more technology-enabled, fair, and efficient. Compared to the Indian Evidence Act, BSA is simplified, clearer, and visibly addresses challenges like cybercrime and vulnerable groups.The Bharatiya Sakshya Adhiniyam is simplified, streamlined, and modernized version of evidence rules, which came into existence by replacing the centuries old Indian Evidence Act of 1872. Though the BSA retains many of the provisions of IEA, but in the revised and modernized form. Besides, BSA also inserted certain new points for the ease of judicial trial and make the system more transparent.

Modification in 23 Sections, 5 repealed sections, and 1 newly added section gave birth to the NEWLY BSA,2023.

For understanding, the following terms/words may be considered to me:

Bharatiya = India/Indian

Sakshya = Evidence

Adhinyam = Act

Sanhita = Code

The following provisions from IEA have been deleted from BSA:

Section 3 (j): India
Section 82: Presumption as to document admissible in England without proof of seal or signature
Section 88: Presumption as to telegraphic messages
Section 113: Proof of cession of territory
Section 166: Power of jury or assessors to put questions

The Changes made and inserted in the new act are:

Territorial Application of the BSA: Section 1 of the Indian Evidence Act (IEA) specified the application of the act to the entire territory of India. However, Section 1 of the Bharatiya Suraksha Adhiniyam (BSA) lacks this provision. This omission is likely intended to facilitate the admissibility of digital evidence originating from locations outside India.
Document- Section 2(d), BSA (Sec 3(e)IEA)- “ “document” means any matter expressed or described or otherwise recorded upon any substance by means of letters, figures or marks or any other means or by more than one of those means, intended to be used, or which may be used, for the purpose of recording that matter and includes electronic and digital records.”

The new definition included-

Inclusion of Electronic and Digital Records: The newer definition explicitly includes electronic and digital records within the scope of what constitutes a document. This means that any information expressed, described, or recorded electronically, such as through computers, smartphones, or other digital devices, falls under the definition of a document.

Expansion of Means of Recording: The newer definition expands on how information can be recorded beyond just letters, figures, or marks. It encompasses any means of recording, which could include audio recordings, video recordings, or any other method of capturing information.

Clarification of Intended Use: Both definitions mention the intended use of the document for recording information. However, the newer definition clarifies that the intended use may include electronic and digital formats, ensuring that these formats are not excluded from the definition due to their non-physical nature.

Inclusion of “Otherwise Recorded”: The newer definition includes the phrase “otherwise recorded,” which further emphasizes the broad scope of what constitutes a document. This phrase acknowledges that there are various ways information can be recorded beyond traditional methods and ensures that such unconventional methods are also covered under the definition.

Evidence- Section 2(e), BSA (Sec 3(f)IEA)– “evidence” means and includes— (i) all statements including statements given electronically which the Court permits or requires to be made before it by witnesses in relation to matters of fact under inquiry and such statements are called oral evidence; (ii) all documents including electronic or digital records produced for the inspection of the Court and such documents are called documentary evidence;”

The newer definition of “evidence” expands the scope to include statements given electronically as oral evidence, alongside traditional oral testimony. It also explicitly incorporates electronic and digital records within the category of documentary evidence, reflecting the contemporary reality of information storage and communication. This update enhances clarity and adaptability to technological advances, ensuring that legal frameworks effectively address modern forms of evidence. In contrast, the older definition primarily focuses on oral testimony and documents without specific mention of electronic records, potentially limiting its applicability in today’s digital age.

Section 4, BSA(Sec 6, IEA)the inclusion of the phrase “or a relevant fact”. This addition broadens the scope of the connected facts that are considered relevant. In the earlier section, only facts connected to a fact in the issue are mentioned, whereas the newer section includes facts connected to both a fact in the issue and any relevant fact. This adjustment allows for a more comprehensive consideration of connected facts in legal proceedings, ensuring that all relevant information is taken into account, regardless of whether it directly pertains to the specific issue being addressed.
Section 6, Bsa(Sec8, IEA): The difference is the omission of “previous or subsequent conduct” in the new version. Additionally, the phrase “Admiration of Poison” in the old section is absent in the new one. Both versions emphasize the relevancy of motive, preparation, and conduct in legal proceedings, but the new section is structured with numbered subsections for clarity, while the old one is not.
Section 22, BSA (Sec24,28-89, IEA): The new Section 22 of the Bhartiya Sakshya Adhiniyam (BSA) consolidates and refines the provisions related to confessions in criminal proceedings from the old Sections 24, 28, and 29 of the Indian Evidence Act. Sections 24, 28, and 29 of IEA were separate provisions dealing with different aspects of confessions whereas Section 22 (BSA) combines these provisions into a single section, making the law more streamlined.

The Inclusion of “Coercion“: Where Old Sections: Only “inducement, threat, or promise” were mentioned as factors affecting the relevance of a confession and New Section 22 (BSA): It explicitly includes “coercion” as a factor, broadening the scope and providing more comprehensive coverage.
Clarification on Timing: where Section 28, IEA: Mentioned the relevance of a confession made after the removal of the impression caused by inducement, threat, or promise and new Section 22, BSA: It provides a clearer timeline, specifying that a confession becomes relevant once the impression of inducement, threat, or promise has been fully removed.
Expanded Scenarios for Relevance: Section 29: It listed scenarios where a confession remains relevant despite being made under certain conditions. Section 22 (BSA): It expands on these scenarios, including confessions made under a promise of secrecy, after deception, when drunk, or in response to questions not required to be answered. It also mentions that the lack of warning about the admissibility of the confession doesn’t make it irrelevant.

Section 22, BSA offers a more comprehensive, structured, and inclusive approach to the admissibility of confessions in criminal proceedings compared to the older, fragmented provisions in the Indian Evidence Act.

Section 24, BSA (Sec30. IEA): The wording in the BSA,2023 section appears to be slightly more streamlined and clearer compared to the Indian Evidence Act. However, the core content and meaning remain essentially the same in both sections.

Only insertion of “Explanation II—A trial of more persons than one held in the absence of the accused who has absconded or who fails to comply with a proclamation issued under section 82 of the Bharatiya Nagarik Suraksha Sanhita, 2023 shall be deemed to be a joint trial for the purpose of this section.”

The new Section 32 of the BSA,2023 restructures and refines the provisions found in Section 26 of the Indian Evidence Act, 1872. BSA,2023 categorizes the cases into numbered subsections (1 to 8), offering a clearer and more organized framework. Notably, BSA,2023 adds specificity to some categories, like defining the types of business-related documents in subsection (2) and detailing certain relationships in subsections (5) and (6). However, BSA,2023 omits the provision related to documents specified in clause (a) of section 11 of the Indian Evidence Act. Despite these changes, the core intent and content of the provisions remain largely consistent between the two versions.
Section 31, BSA(Sec37, IEA): The new section focuses on Indian Central and State Acts and acknowledges digital formats, reflecting India’s modern legal sovereignty and adapting to technological advancements. In contrast, the old section includes UK Acts and lacks digital acknowledgment, indicating its colonial-era origins. The new section removes colonial references, aligning with India’s independent status. Overall, the changes show a move towards a localized, digitally inclusive, and post-colonial legal framework.
Section 32 BSA(Sec 38) Inclusion of Digital and Electronic Formats:

Section 32: Explicitly states that statements about foreign law can be contained in books published in both physical and electronic or digital forms. This indicates a modern approach, recognizing the evolving nature of legal publications and the increasing reliance on digital resources whereas, Section 38: Although it mentions law contained in books, it does not explicitly recognize electronic or digital forms. This implies that the section predates the common use of digital media, focusing primarily on physically printed materials. Both sections specify that the books must be printed or published under the authority of the government of the country whose law is being discussed, ensuring the authenticity of the source.

BSA section ensures that the law stays relevant with technological advancements and the increasing accessibility of legal documents in digital formats.

Section 35(Sec 41, IEA): The sections deal with the relevance and the conclusive proof provided by final judgments, orders, or decrees from competent courts exercising probate, matrimonial, admiralty, or insolvency jurisdiction and the new change is largely confined to document formatting and slight variances in phraseology.
Section 39,BSA (Sec45, IEA): Both sections address the relevance of expert opinions in court cases regarding specific types of specialized knowledge, including foreign laws, sciences, arts, and the identification of handwriting or fingerprints.

BSA included:

Digital and Electronic Evidence: It mentions the role of the Examiner of Electronic Evidence under the Information Technology Act, of 2000.
Legal Structure and Detail: Provides a more detailed structure, including a subsection specifically dedicated to electronic evidence, which highlights the legal framework’s adaptation to contemporary technological challenges.
Inclusion of digital forensics

The primary distinction between BSA sec 39 and IEA sec 45 lies in the explicit recognition and incorporation of digital and electronic evidence in the BSA, reflecting a modernization in legal proceedings that accommodates advances in technology. Both sections underline the importance of expert testimony in judicial processes but the BSA demonstrates a broader scope by integrating contemporary issues like digital evidence.

Section 52,BSA(Sec57, IEA): The sections ensure courts operate with efficiency by recognizing commonly accepted facts without proof, but they differ in their historical context and the specificity with which they approach modern legal frameworks. Section 52 appears more tailored to current legal contexts, while Section 57 provides a broader historical scope that includes colonial influences and the evolution of legal recognitions over time. This reflects the dynamic nature of legal texts as they adapt to changing governance and societal structures.
Section 55, BSA(Sec 60, IEA): Both sections describe the requisites for oral evidence in judicial proceedings, emphasizing the importance of direct testimony from witnesses regarding their personal experiences of sensory perceptions or opinions. The modification is on subtle legal distinctions or contextual applications rather than on the fundamental legal requirements detailed in these sections.
Section57,BSA( Section 62. IEA):

Inclusion of Digital and Electronic Records: includes detailed explanations about how electronic or digital records are treated as primary evidence. It covers scenarios like electronic files stored in multiple locations or formats and video recordings stored and transmitted simultaneously, reflecting modern digital realities.
Depth of Explanations and Examples: offers more extensive explanations and includes additional scenarios relevant to modern technology, like electronic records and video recordings.

Section 58,BSA(Section 63, IEA): Both sections define and elaborate on the concept of secondary evidence in the context of legal proceedings. Secondary evidence is essentially any evidence that is not the original document or artifact but can still provide credible information about the original. In the New act includes additional categories such as oral admissions, written admissions, and evidence from persons skilled in examining complex documents (like financial records), which are not explicitly mentioned in sec63, IEA.

This expansion reflects a broader approach to what can be considered secondary evidence under the BSA, potentially accommodating more diverse types of evidence in legal processes. It provides a more detailed enumeration of what qualifies as secondary evidence, including conditions under which certain types of evidence are admissible.

Section 59, BSA (sec 64, IEA): Section 59 states that documents shall be proved by primary evidence except in the cases hereinafter mentioned. It also mandates the use of primary evidence for proving documents but phrases it slightly differently by emphasizing the method of proof (“Proof of documents by primary evidence”).

The section seems to be more directive (“shall be proved”), indicating a mandatory action.

Section 60,BSA (Sec 60,IEA): BSA sec 60 refers to sec 64 for the notice, while IEA sec 65 refers to sec 66.

The mention of “India” in IEA section 65 suggests it is tailored specifically to the Indian legal context, whereas BSA section 60 does not specify a geographical context, possibly making it more generic or applicable in a different jurisdiction.

Section 63, BSA( Sec 65B, IEA) : Section 63 provides an elaborate description of scenarios, including the case where multiple computers or devices over a period or network might be involved. It details how these should be treated as a single source for evidence if they were used interchangeably or in a sequence that is consistent with regular business practices. It goes into greater detail regarding the treatment of data processed through various modalities, whether directly, through intermediaries or across different systems or networks.
Sec 73, BSA(Sec 73A, IEA):

Section 73 specifically addresses the verification of digital signatures. This involves the production of a Digital Signature Certificate and the application of the public key listed therein to verify the authenticity of the digital signature whereas, 73A deals with traditional signatures, writings, or seals. It outlines a method for comparing these items with others that have been admitted or proved to verify their authenticity.
Section 73 involves a technical process that requires specific digital tools and certificates, reflecting its adaptation to digital communication and authentication technologies and section 73A uses a more traditional approach by comparing the questioned signature, writing, or seal directly with known samples that have been accepted by the court. This section also allows for real-time demonstration by directing a person to create new writing or signatures in court for comparison purposes.
Sec 73 is tailored towards the realm of digital transactions and electronic documents, which is increasingly relevant in modern legal contexts due to the rise of digital communications and sec 73A applies to physical documents and is versatile in its application, including to impressions with necessary modifications, thus covering a broader range of evidence types than BSA 73.
Sec 73 potentially involves interactions with digital authorities such as Controllers or Certifying Authorities, highlighting the collaborative nature between the judiciary and digital certification bodies and sec 73A, while more straightforward, invokes the court’s authority to create ad hoc evidence by directing the creation of writings or signatures in the courtroom, making it highly practical and interactive.

These differences underline the distinct approaches required by courts when dealing with digital versus traditional forms of evidence, reflecting the adaptations needed to accommodate technological advancements in legal proceedings.

Sec74, BSA( Sec 74-75, IEA):

Sec 74, BSA categorizes documents into public and private categories.

The approach taken by BSA to consolidate the classification may streamline legal processes by providing all relevant information in one place, whereas IEA’s division across two sections could help in emphasizing the legal distinctions and implications of each category. This classification impacts everything from evidence admissibility to public access and document handling procedures in legal settings.

Colonial and antiquated terminology, including references to entities such as the ‘Parliament of the United Kingdom’, ‘Provincial Act’, ‘London Gazette’, ‘Commonwealth’, ‘Privy Council’, ‘Queen’s Printer’, and ‘Her Majesty’, as well as colonial proclamations and orders (as outlined in Section 77 of the BSA, which corresponds to Section 78 of the IEA, and Section 79 of the BSA, corresponding to Section 80 of the IEA), have been eliminated.
Section 88, BSA( Sec86, IEA):

Geographic Scope: sec 88, BSA applies to judicial records of any country beyond India. It does not specify any particular jurisdiction or geographic limitation whereas sec 86, IEA applies to judicial records of any country not forming part of India or Her Majesty’s Dominions. This includes a broader range of countries but excludes territories under Indian or British sovereignty.
Definition of Representative: BSA sec 88 specifies that an officer designated as a Political Agent for a territory or place outside India is deemed to be a representative of the Central Government of that country. This provision facilitates the identification of a representative for certification purposes and sec 86, IEA also recognizes Political Agents for territories or places not forming part of India or Her Majesty’s Dominions as representatives of the Central Government. However, it does not define another legislative act, as in sec 88, BSA.
Cross-references and Explanations: BSA sec 88 includes an explanation for the term “proper custody” within the section itself and IEA sec 86 refers to other sections of the General Clauses Act, of 1897, for definitions, and does not include an explicit explanation within the section itself.

Section 112, BSA( Sec 116, IEA):

BSA section 112 deals with the burden of proof regarding the existence or cessation of certain relationships, such as partners, landlord and tenant, or principal and agent. It places the burden of proof on the person who denies the existence of these relationships after they are acting as such and IEA section 116 focuses specifically on estoppel within landlord-tenant relationships and the license of a person in possession of immovable property. It prohibits tenants or those claiming through them from denying the landlord’s title during the tenancy. Similarly, it prevents individuals who enter property with the permission of the person in possession from denying that person’s title to possession at the time of granting the license.
Nature of Estoppel: BSA sec 112 establishes a general principle of burden of proof regarding the existence or cessation of certain relationships. It doesn’t explicitly use the term “estoppel,” but it implies that once a relationship is established by evidence of acting as such, the burden shifts to the party denying it and IEA sec 116 explicitly refers to estoppel and outlines specific situations where tenants or licensees are estopped from denying the landlord’s or possessor’s title, respectively, during the continuance of the tenancy or license.
Applicability: BSA section 112 applies to a broader range of relationships beyond just landlord-tenant scenarios, including partnerships and agency relationships and IEA section 116 is narrowly focused on the landlord-tenant relationship and the licensee’s relationship with the person in possession of immovable property.
Legal Framework: BSA sec 112 is part of the Indian Evidence Act, which is a comprehensive statute governing the admissibility and relevancy of evidence in Indian courts and IEA sec 116 is also part of the Indian Evidence Act and addresses specific aspects of landlord-tenant relationships within its framework.
Terminology considered insensitive or outdated, like ‘lunatic’, has been updated to more respectful terms such as ‘person of unsound mind’ (per Section 124 of the BSA, corresponding to Section 118 of the IEA).

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Article By

Vijay Pal Dalmia, Advocate

Supreme Court of India & Delhi High Court

Email id: [email protected]

Mobile No.: +91 9810081079

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And

Vaishnavi Bhargava

Amity Law School, NOIDA, LL.B. 3^rd year

Bombay High Court: NCLT has jurisdiction to direct Directorate of Enforcement to release attached properties of a corporate debtor

On March 1, 2024, the High Court of Bombay (“Bombay High Court”) pronounced a judgment in the matter of Mr. Shiv Charan and Others v. Adjudicating Authority under the Prevention of Money Laundering Act, 2002 and Another [Writ Petition (L) No. 9943 of 2023] and Directorate of Enforcement, Government of India v. Mr. Shiv Charan and Others [Writ Petition (L) No. 29111 of 2023]. The Bombay High Court has held that the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016 (“IBC”) is well within its jurisdiction in directing the Directorate of Enforcement (“ED”) to release the attached properties of a corporate debtor.

Facts

DSK Southern Projects Private Limited (“Corporate Debtor”) had been undergoing corporate insolvency resolution process (“CIRP”) under IBC since December 9, 2021. A resolution plan submitted by Mr. Shiv Charan, Ms. Pushpalata Bai and Ms. Bharti Agarwal (“Resolution Applicants”) was approved by the National Company Law Tribunal, Mumbai (“NCLT”) by its order dated February 17, 2023 under Section 31 (Approval of resolution plan) of IBC (“Approval Order”).

Prior to the commencement of CIRP of the Corporate Debtor, on October 20, 2017, various first information reports were filed against the Corporate Debtor and its erstwhile promoters, inter alia, alleging offences of cheating and criminal breach of trust. Considering that the alleged offences were prima facie “scheduled offences” under the Prevention of Money Laundering Act, 2002 (“PMLA”), the ED filed an enforcement case information report being ECIR/01/MZBO-II/2018 dated March 8, 2018 (“ECIR”). As per the ECIR, the estimated “proceeds of crime” was to the tune of INR 8,522.27 Crores. Pursuant thereto, an original complaint was filed by the ED, inter alia, leading to attachment proceedings against the assets of the Corporate Debtor. More particularly, four bank accounts of the Corporate Debtor with an aggregate balance of INR 3,55,298/- and 14 flats constructed by the Corporate Debtor valued at INR 32,47,55,298/- were attached (“Attached Properties”).

Initially, a provisional attachment was levied on February 14, 2019 under Section 5 (Attachment of property involved in money-laundering) of PMLA, which was subsequently continued by a confirmatory order dated August 5, 2019 passed by the Adjudicating Authority. The attachment continued even after the commencement of CIRP of the Corporate Debtor and further after the approval of resolution plan. Such continuation of attachment even after the approval of resolution plan led to filing of Writ Petition (L) No. 9943 of 2023 by the Resolution Applicants. The writ petition sought quashing of the ECIR, orders attaching the Attached Properties and the original complaint, in so far as they related to the Corporate Debtor and its assets, especially in light of the Approval Order. Simultaneously, the ED filed Writ Petition (L) No. 29111 of 2023, thereby challenging the authority of NCLT to pass orders invoking Section 32A (Liability for prior offences, etc.) of IBC in a manner which, as per the ED, negates and defeats the purpose and provisions of PMLA. Notably, the ED had not sought quashing of the Approval Order, but had sought quashing of a subsequent order dated April 28, 2023 whereby NCLT had once again directed the ED to release the Attached Properties.

Issues

Whether Adjudicating Authority has the jurisdiction to direct the ED to release the properties attached under PMLA by invoking Section 32A of IBC.
Whether Adjudicating Authority had exceeded its jurisdiction under Section 60(5 (Adjudicating Authority for corporate persons) of IBC by traversing beyond the domain of IBC and entering upon the domain of PMLA.

Arguments

Contentions of the ED:

The ED submitted that Resolution Applicants had other efficacious remedies available to them apart from invoking the writ jurisdiction of Bombay High Court and they ought not to have filed a writ petition. On the other hand, the ED did not have any other alternative remedy and therefore the writ petition filed by the ED is maintainable. The ED further contended that the Resolution Applicants had filed the application seeking release of Attached Properties, prior to the Approval Order, which was allowed by the NCLT on April 28, 2023. Further, it was contended that the Resolution Applicants have been misusing the writ jurisdiction of Bombay High Court as an execution court.

The ED submitted that Section 32A of IBC cannot be interpreted in a manner that defeats the special objectives behind enactment of PMLA and curtails the power of the ED to keep the properties attached under PMLA. Further, NCLT has no jurisdiction under Section 60(5) of IBC to transcend beyond the interpretation of the provisions of IBC and must refrain from venturing into other legislations.

The ED further contended that even prior to commencement of CIRP of Corporate Debtor, a provisional attachment on the assets of the Corporate Debtor was levied on February 14, 2019 under Section 5 of PMLA, which subsequently continued by a confirmatory order dated August 5, 2019 passed by the Adjudicating Authority under Section 8 of PMLA. Hence, it was in public knowledge that the Attached Properties were subject matter of attachment by the ED. As such, any person aggrieved by the aforesaid attachment had a statutory right to prefer appeal under Section 26(1) (Appeal to Appellate Tribunal) of PMLA and hence, efficacious remedy was already available under PMLA.

Contentions of the Resolution Applicants:

Resolution Applicants contended that Section 32A of IBC, being a non-obstante provision, would override the provisions of PMLA in the event of any inconsistency or conflict. It was further submitted that since the commencement of CIRP, the protection of moratorium will be triggered by virtue of Section 14 (Moratorium) of IBC. Thereafter, upon approval of resolution plan by Adjudicating Authority, jurisdiction of Section 32A of IBC would commence, as per which, no attachment can lie or continue against the property of the Corporate Debtor in relation to an offence committed prior to the commencement of CIRP of the Corporate Debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority under Section 31 of IBC.

It was further contended that by virtue of Section 32A of IBC, there must be automatic vacation of attachment (if any) on the assets of the Corporate Debtor immediately after approval of resolution plan by NCLT, instead of the Resolution Applicants being compelled to knock on the doors of any forum to seek any positive grant of approval.

Resolution Applicants further contended that under the scheme of PMLA, any attachment can only be in the nature of interim measure that would enable the final measure of confiscation as provided under Section 8(5) of PMLA. However, by virtue of Section 32A of IBC, since the ultimate end of confiscation is protected, it is only natural and equitable that the interim measure of attachment must come to an end pursuant to approval of resolution plan.

Observations of the Bombay High Court

Bombay High Court examined the interpretation of Section 32A of IBC and observed that it is a non-obstante provision which comes into play only once a resolution plan is approved and such plan approval leads to a complete change in the character of ownership and control of the corporate debtor. Section 32A(1) of IBC provides that the liability of corporate debtor in respect of an offense committed prior to commencement of CIRP shall stand ceased, however not in a blanket or absolute manner, but subject change in management and control of the corporate debtor. It was further observed that even when the necessary ingredients of Section 32A(1) of IBC are met, it enables an automatic discharge qua the corporate debtor only and not qua any other person who was in management or control or was in any manner, in charge of, or responsible to, the corporate debtor for conduct of its business, or was associated with the corporate debtor in any manner, and directly or indirectly involved in the commission of the offense being prosecuted. Such others who are charged for the offense would continue to remain liable to prosecution. Further, Section 32A(2) of IBC also grants protection to the property of the corporate debtor from any attachment or restraint in the proceedings connected to the offense committed prior to commencement of CIRP. It provides that upon approval of resolution plan and a change in control and management, the property of the corporate debtor would get immunity from further prosecution of proceedings, which includes attachment, seizure, retention or confiscation of such property.

It was further observed that in the present case, NCLT had approved the resolution plan submitted by the Resolution Applicants in respect of the Corporate Debtor. Further, none of the Resolution Applicants were in charge of the Corporate Debtor or responsible for commission of alleged offence prior to the commencement of CIRP. Further, it was also not the case of the ED that Resolution Applicants were third parties who had aided or abetted the commission of alleged offences. In fact, the ED disputes the power of NCLT to rule upon the interpretation of Section 32A of IBC.

Further, Bombay High Court analyzed Section 31 of IBC and observed that proviso to Section 31(1) of IBC provides that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation. Therefore, keeping in mind the aforesaid provision, NCLT is entitled to direct the ED to raise its attachment on the Attached Properties by virtue of Section 32A of IBC once resolution plan is approved. Hence, Bombay High Court dismissed the contention of the ED raising questions on the power of NCLT to direct the ED to raise its attachment on the Attached Properties after resolution plan approval.

In so far as jurisdiction of NCLT under Section 60(5) of IBC is concerned, Bombay High Court observed that it is a non-obstante provision and confers NCLT with wide jurisdiction and power to dispose of any question of law in relation to the resolution proceeding pertaining to a corporate debtor under the provisions of IBC. Therefore, in the present case, NCLT was entitled in terms of Section 60(5) of IBC to decide the issue pertaining to release of Attached Properties as envisaged under Section 32A of IBC. Further, Bombay High Court observed that both Sections 32A and 60(5) of IBC are non- obstante provisions which operate notwithstanding anything contained in any other law, including PMLA. Further, it is not as if NCLT had transcended its boundaries and ventured into interpreting any provision of PMLA. On the contrary, NCLT has passed necessary orders to ensure compliance of Section 32A of IBC.

It was further observed that the jurisdiction of Section 32A of IBC commences when the protection of moratorium under Section 14 of IBC during CIRP ends, considering that the jurisdiction of Section 32A of IBC would not get attracted until resolution plan approval by NCLT. Bombay High Court observed that quasi-judicial authorities such as Adjudicating Authority under PMLA must take judicial notice of approval of resolution plan and therefore raise attachment in due compliance of Section 32A of IBC.

Bombay High Court further observed that Parliament while legislating Section 32A of IBC was fully aware of the provisions of PMLA and the legislative intent behind such enactment was that post approval of resolution plan of a corporate debtor by Adjudicating Authority under IBC, PMLA authority must raise attachment on the properties of the corporate debtor. Section 32A of IBC was introduced with effect from December 28, 2019 and the legislative intent was clear to give primacy to the provisions of IBC.

Decision of the Bombay High Court

In light of the above-mentioned observations, it was held that in the present case NCLT has the
jurisdiction to direct the ED to release the Attached Properties. Further, NCLT is well within its jurisdiction to pass such an order under Section 60(5) of IBC to ensure compliance of Section 32A of IBC. It was held that upon approval of resolution plan by NCLT, the Attached Properties became free from attachment under PMLA by virtue of Section 32A of IBC. Further, the jurisdiction or effect of Section 32A of IBC commences only upon approval of resolution plan under the provisions of IBC.

Therefore, the Bombay High Court directed the ED to release the attachment in view of the approval of resolution plan. The Bombay High Court ruled that the attachment of Attached Properties by the ED came to an end in law on February 17, 2023, that is, the date of approval of resolution plan, by virtue of operation of Section 32A of IBC.

Accordingly, Bombay High Court was pleased to dispose of both the writ petitions.

VA View:

Since the enactment of IBC, there have been multiple occasions and various conflicting judgments dealing with the question of primacy between the provisions of IBC and PMLA, in the event of inconsistency. However, the present judgment pronounced by the Bombay High Court is landmark and noteworthy in the sense that it explains and establishes the correct position of law in a clear and comprehensive manner.

Apart from giving a clear ruling which will go a long way in ensuring that similar questions are not put before the courts in future, this judgment explains in a lucid manner, the legislative intent behind enactment of Section 32A of IBC, which will stand defeated if a corporate debtor is not allowed to be taken over by a resolution applicant on a clean slate basis.

Therefore, this judicial pronouncement is a welcome step that will set the right precedent for quasi-judicial authorities such as the ED to automatically release attachment on the attached properties of a corporate debtor upon approval of resolution plan by virtue of operation of law, more specifically, Section 32A of IBC.

For any query, please write to Mr. Bomi Daruwala at [email protected]

SEBI Introduces a Standard Reporting Format for Private Placement Memorandum Audit Report for AIFs

Securities and Exchange Board of India (“SEBI”), vide its circular dated April 18, 2024, has addressed the standardization of Private Placement Memorandums (“PPMs”) audit reports for Alternative Investment Funds (“AIFs”).

Regulation 28 of the SEBI (AIF) Regulations, 2012 and Clause 2.4 of Master Circular for AIFs, mandates AIFs to carry out an annual audit of compliance with the terms of the PPM. Further, Clause 2.4.2 of the Master Circular for AIFs requires AIFs to submit annual PPM audit reports to the trustee or board of directors or designated partners of the AIFs, board of directors or designated partners of the manager, and SEBI, within a period of 6 months from the end of the financial year.

With an aim to ensure uniform compliance standards and to facilitate compliance reporting for AIFs, SEBI has introduced a standard reporting format for PPM audit reports. This format is applicable to various categories of AIFs and has been prepared in consultation with the pilot SFA for AIFs.

The AIF associations are required to assist all the AIFs in understanding the reporting requirements and in clarifying or resolving any issues that may arise in connection with reporting to ensure accurate and timely reporting. Additionally, the AIFs should submit PPM audit reports to SEBI online on the SEBI Intermediary Portal (SI Portal) as per the aforesaid format. The reporting requirement shall be applicable for PPM audit reports that are to be filed for the financial year ending March 31, 2024, onwards.

To read the circular click here

For any clarification, please write to:

Mr. Yatin Narang
Partner
[email protected]

Taxbuzz | Royalty paid on inter-company sales not at Arm’s Length

Payment of royalty on the sales made to the associated enterprise has always been disputed by the Indian Transfer Pricing department as not satisfying the arm’s length test. In a recent ruling[1], the Hon’ble Delhi Bench of Tribunal was pleased to delete the transfer pricing adjustment made in respect of payment of royalty on invoices raised by CRM Services India Private Limited (‘TP India’ or ‘the Company’) on its AE, Teleperformance USA (‘TP USA’).

The dispute raised in the various years cantered around the royalty paid by the company pursuant to Licensing Agreement dated 02.01.2002 read with Foreign Collaboration Agreement with TP USA of even date, whereby the Company paid royalties on the ‘accumulated gross revenue’ from sale of voice-based call center services by TP India to third parties, including in respect of invoices raised on TP USA for the services to the clients of TP USA. In the unique business of TP India being a voice-based call center service provider, the services were rendered to third party customers of TP USA, as calls were made by third party customers who were attended to by the company in India.

DRP concluded that TP India is obliged to make payment of royalty to TP USA only on the sales made to third parties as royalty paid to TP USA qua revenues received from TP USA does not mean sale of services to third parties and therefore, did not form part of “accumulated gross revenues”.

Thereafter, the Company entered into the addendum to the Licensing Agreement on 22.08.2014 which clarified that ‘third parties’, for the purpose of payment royalty to TP USA in terms of the Licensing Agreement, shall mean entity or entities to which TP India has rendered services either directly or indirectly or through an affiliate.

Nevertheless, it was submitted that Section 62 of the Indian Contract Act, 1872 provides for alteration in the original contract upon consent of the parties to the contract, meaning thereby, that as such, alteration in a contract is not prohibited under the law.

The ITAT rejecting the contention of the TPO that the addendum to the Licensing Agreement executed by the company on 22.08.2014 clarifying the terms of the Licensing Agreement so as to enable payment of royalty on invoices raised on TP USA as also on the invoices raised on third parties, was a post facto exercise for avoiding tax liability and therefore, is to be disregarded. Thus, the ITAT while approving payment of royalty by CRM on its entire sales, i.e. on direct sales made to third parties as well as on sales made to TP USA for services rendered to its customers, held as under:

Payment of royalty in terms of licensing agreement dated 02.01.2002 was accepted upto at arm’s length price before AY 2007-08. Consistency in the conduct of parties to the transaction is relevant to interpreted or construed the transaction, agreement and addendum.
There is no requirement under the provisions of the Act to have an underlying agreement, much less a registered or notarized agreement for undertaking an international transaction with the group companies. The mutual conduct of parties over time is often determinative of actual intentions.
When clauses of Collaboration Agreement dated 02.01.2002 between TP USA and the Company are read along with the licensing agreement dated 2^nd January, 2002, the only conclusion that can be drawn is that there was consensus ad idem between parties that royalty is to be paid with respect to the entire sales revenue of the assessee in regard to overseas clients of TP USA, including sales to third party customers for TP USA for which Revenue is received from TP USA. The addendum was entered upon to just bring more clarity to this understanding and it cannot be said that this post facto addendum was made with intention to undo the findings of DRP.

Comments –

Clause (v) of section 92F of the Act defines the term “transaction” to include an arrangement, understanding or action in concert, whether or not such arrangement, understanding or action is formal or in writing. Rule 10B(2) of the Rules, providing for comparability of a transaction with uncontrolled price, suggests that the contractual terms of the inter-company agreement are the one which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions. Thus, the Tribunal has rightly looked in the real intention of the parties and their conduct over period of time, to determine the arm’s length price of the transaction.

The appeal was successfully argued by Shri Ajay Vohra, Sr. Advocate, along with Vaish team – Neeraj K. Jain and Abhishek Agarwal.

For any details and clarifications, please feel free to write to:

Mr. Neeraj Jain at [email protected] and Mr. Abhishek Agarwal at [email protected]

[1] CRM Services India Private Ltd. v. DCIT: ITA No. 1518 & 1519/Del/2022