Introduction
In the dynamic and rapidly evolving global marketplace, particularly in fast-growing economies like India, there are ever-growing commercial transactions amongst entities within India as also in international transactions amongst entities within India and outside of India.
These commercial transactions are often in back-to-back arrangements or interlinked with other commercial transactions with other entities and any disruption in one transaction can affect other transactions as well; delay in recovery of money will also affect liquidity and credit cycle having cascading effects on business.
While there is an increasing number of business transactions amongst Indian entities inter se and also internationally, it is a known fact that proceedings for recovery of money is normally a lengthy one in India and often for even the indisputable amount, recovery process takes time of years. In the fast-paced world of commerce, with many inter-connected commercial transactions, such delays can lead to losses equal to or greater than the original dues. While this may be because of heavy backlog of cases before Indian Courts in many cases, we, in instant article seek to point out that there may better choices of remedies and that delays are also often a result of suboptimal strategy for recovery of money.
We seek to briefly highlight the possible remedies for expeditious recovery of money.
NCLT Proceedings
Who can avail the remedy?- An Indian or a foreign supplier of goods or services to an Indian incorporated Company, who has a claim of more than INR 1,00,00,000.
Section 91 of the Insolvency and Bankruptcy Code (IBC) 2016 deals with the initiation of Corporate Insolvency Resolution Process (CIRP) by Operational Creditors2(supplier of goods or services). IBC does not distinguish between a foreign operational creditor and a domestic operational creditor and the remedies under IBC are available to both Indian as well as foreign supplier of goods or services. When they have not received payment of a legitimate claim exceeding an amount of 10 Million Indian Rupees from a company incorporated under the laws of India(Corporate Debtor3), for goods or services supplied, they can send a demand notice demanding payment of the debt. Once the notice is sent, the debtor company must, within 10 days, repay the unpaid debt or point out the existence of dispute. This dispute cannot be created pursuant to such notice but an existing real dispute reflected in some tangible form or proceedings must be pointed out to avoid repayment.
Operational creditor can file an application before the National Company Law Tribunal (NCLT) under Section 9 of the IBC after a period of 10 days. Subject to compliance with other procedural requirements under the IBC, NCLT will admit the application within 14 days (in practice this period is higher and generally of 3 to 6 months), inviting drastic consequences including initiation of Corporate Insolvency Resolution Process, loss of rights of management of the company by its existing board of directors, appointment of Resolution Professional to manage the company and further process under the IBC.
While the proceedings under IBC are not actually for recovery of dues, the outcome of filing of a petition under IBC will be that debtor company will normally not withhold the amount on frivolous disputes and pay the same to avoid initiation of CIRP. In case, the amount is disputed on substantive grounds, not much of a benefit will ensue through approaching NCLT under section 9 of IBC.
Application for Summary Judgement
Who can avail the remedy? An Indian or a foreign supplier of goods or services to any an Indian incorporated Company, Partnership Firm, Limited Liability Partnership, any other entity or individual when transaction gives rise to a 'Commercial Dispute'4 as defined u/s.2(c) of Commercial Division and Commercial Appellate Division of High Courts Act, 2015.
An application for summary judgment under Order XIII-A5 is a crucial legal tool under the Commercial Courts Act, 2015 read with the Code of Civil Procedure, 1908. It enables parties to seek a swift resolution of disputes where the facts are clear, and there is no genuine dispute regarding the legal principles applicable. The party seeking summary judgment must demonstrate through facts and evidence that they have a strong case and there is no triable issue and are entitled to judgment without a full trial. The court, in considering such an application, examines whether there is a triable issue and if the case can be disposed of summarily. The purpose of this provision is to expedite the resolution of disputes, especially in commercial matters where time is of the essence. The same is also practised by the courts in reality and has been enunciated in various judgments too. It is important to note that for to party seeking summary judgment ensure that their application is well-drafted, supported by strong evidence, and complies with the procedural requirements to increase the likelihood of success.
Foreign Judgment and Decree
Who can avail the remedy? A foreign supplier who can file a suit and obtain a judgment and decree in foreign court of law from reciprocating territory.
For foreign entities or suppliers, it may be a possibility to seek a decree for the recovery of dues in their own country, if they can establish jurisdiction of a foreign court considering the principles of private international law, contract law and various connecting factors when and if they feel that such judgment and decree could be expeditiously obtained. However, it is important to note that a decree obtained from a Foreign Court will only have legal force of the judgment and decree of the Indian Court when such Foreign Court is a reciprocating territory as mentioned in Section 44A6of the Code of Civil Procedure, 1908. Otherwise, such a decree will only be accepted as a piece of evidence and civil suit will be required to be filed in Indian Court again where foreign judgment and decree will be considered as one of the pieces of evidence.
Arbitration
The remedy of proceedings under IBC and the remedy of obtaining the summary judgment in a commercial dispute are available only in matters where there are no detailed factual inquiries are necessitated which are better left for trial.
Indian Arbitration and Conciliation Act, 1996 provides for resolution of disputes requiring full-fledged trial with statutory time limit of 1 year, which can be extended for further 6 months with consent of both the parties and in appropriate cases for further period with the order of court u/s.29A7 of Arbitration Act.
Foreign suppliers/ entities could also make a choice of foreign seated arbitration and even foreign substantive law. A foreign award obtained in pursuance of International Commercial Arbitration is legally binding and can be enforced in India against an Indian entity.
It is suggested to have properly drafted relationship agreement with detailed arbitration clause crisply providing for choice of law, choice of seat, number of arbitrators and various other issues.
Conclusion
While the traditional Civil Suit process for recovery can be long and arduous, there are more expeditious remedies now available to both domestic and international entities as explained above in light of enhanced regulatory landscape to support businesses' launch and operation by the Government of India which also has improved Ease of Doing Business Ranking for India from 142nd in 2014 to 63rd rank in 20198.
Footnotes
1. Section 9 of the Insolvency and Bankruptcy Code, 2016
2. Section 5(20) of the Insolvency and Bankruptcy Code, 2016 states: "Operational creditor means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred."
3. Section 3(8) of the Insolvency and Bankruptcy Code, 2016 defines a "corporate debtor" as a corporate person who owes a debt to any person.
4. Section 2(c)of the Commercial Division and Commercial Appellate Division of High Courts Act, 2015
5. Order XIII-A of the Code of Civil Procedure, 1908
6. Section 44A of the Code of Civil Procedure, 1908
7. Section 29A of the Arbitration and Conciliation Act, 1996
8. Doing Business 2020, World Bank
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