Posts

COVID19 – Restriction on fee hike by private schools

In the wake of spread of COVID-19 pandemic, India is heading towards a new paradigm in conducting business, running offices, organising social distancing and managing supplies to needy and poor. The current lockdown is crippling Indian economy, making the state and industry coffers empty and also keeping the doors of learning institutions closed till further orders.

The educational institutions, especially private schools and colleges are, however, working overtime to adopt technology to bring online learning modules to the homes of their students. Most schools are conducting online classes, providing assignments, clearing doubts and assuring parents that students will not suffer academic loss. Schools are also continuing to pay staff salaries and raise school fee from parents albeit with various relaxations and with no late fee penalties. However, many parents are facing severe financial hardship which is further compounded by fee hikes announced by various schools. Thus, the Union Human Resource Minister, Mr. Ramesh Pokhriyal urged the private schools to reconsider their decision regarding the increase in the school fee during the academic session 20-21 and ease the fees burden by collecting it on a monthly basis during the lockdown period and directed the state education departments to come-up with a solution that works in the best interest of both the schools and the parents.

Followed by the above request, the Central Board of Secondary Education (“CBSE”) issued a notification dated April 17, 2020 regarding payment of fees by parents in private unaided schools during lockdown period (“CBSE Notification”). The CBSE Notification empowered the state education departments to examine the issue of lumpsum payment of school fees and teachers’ salaries and authorised the state education departments of all states and union territories to decide the manner in which the fees can be collected during the lockdown period.

Pursuant to the CBSE Notification, various state education departments have issued circulars/orders notifying private schools the manner in which they are entitled to charge fees from parents. Some of the circulars/orders issued by the state education departments are discussed herein below:

Haryana Education Department: The Directorate of Secondary Education, Government of Haryana issued the notification dated April 23, 2020 regarding collection of school fees during COVID-19 situation. The said notification directs the private schools to charge tuition fees on a per month basis from the students and other charges including building and maintenance funds, admission fees, computer fees and any other such funds and fees should not be charged from the parents.

The schools were further directed not to increase the monthly tuition fee and not to include any hidden charges in the monthly tuition fees. The schools were directed not to charge transportation fee from the parents during the lockdown period and no changes will be made in the school uniforms, text-books, work-books, practice books and practical files. Non-payment of fee should not lead to striking off the name of any student from the school or to deny any student from receiving online education.

Any school found violating the above directions would be liable to penal action under rule 158 of Haryana Education Rules, 2003.

Madhya Pradesh Education Department: The Madhya Pradesh education department has also issued its notification dated April 24, 2020 directing the schools to provide extension of time to parents to pay school fees if they were unable to pay during the last quarter of the academic session 2019-2020 till June 30, 2020 without any late fee charges. The private schools were further directed not to increase the school fees for the academic session 2020-21 and strike off the name of the students from its register due to the inability of parents to pay the school fees. Further, the school will not be allowed to charge additional fee for providing online classes to the students at home.

West Bengal Education Department: The West Bengal education department has also issued the notification dated April 10, 2020 advising the private schools in West Bengal not to increase the annual fee during the current academic year considering the current lockdown situation and to consider the matter of non-payment of school fees by the parents, if any, sympathetically.

Delhi Education Department: The Directorate of Education, Government of the National Capital Territory of Delhi vide its notification dated April 18, 2020 also directed all private unaided schools to only charge tuition fees on a monthly basis from the parents during the lockdown period. No other charges can be levied during the lockdown period as the expenses with respect to co-curricular activities, sport activities, transportation and other development related activities are almost nil due to the prevailing lockdown. The private unaided schools have also been directed to ensure that all students are provided access to the online classes and education materials regardless of the inability of the students to pay the school fees due to financial crisis. Non-compliance of the aforesaid order by the Director of Education will invite penal actions under the Delhi School Education Act and Rules, 1973.

Others: The Maharashtra and Uttar Pradesh education departments have also issued orders directing private schools not to hike school fees during the current pandemic. The Karnataka state education department has also issued a notification dated April 24, 2020 imposing restriction on increasing school fees.

Considering the unprecedented situation where most schools were unprepared for this eventuality but quickly geared up to provide continuous learning engagement through online education to their students and the continuing expenditure towards staff salaries, infrastructure, service providers on the one hand and the economic hardships faced by parents on the other hand, the need of the hour is balancing of interests by the government of both the educational institutions and the parents. This is to ensure continuity of education to students as well as survival of educational institutions across India.

For Covid 19 related legal updates, please refer to https://lexcounsel.in/newletters/newsletters-2020/ and Mondaq at https://resources.mondaq.com/mir/articles.aspx and for Covid 19 related articles, please refer to https://lexcounsel.in/articles-2020/

Insolvency and Bankruptcy Laws – Extension of timelines

In view of the pandemic COVID-19 and the changing business environment due to COVID-19, the Insolvency and Bankruptcy Board of India (“IBBI”) has issued certain notifications to address various concerns of stakeholders in connection to Insolvency and Bankruptcy Code, 2016 (“Code”) and other regulations framed therewith.
The gist of some of the latest notifications issued by the IBBI are set out below:
1. The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”), provides that the corporate insolvency resolution process is a time bound process and it is required to be concluded by the insolvency professional in a prescribed period of 330 days including litigation period. The IBBI has amended the CIRP Regulations by inserting a new special provision which states that the period of lockdown imposed by the Central Government due to outbreak of pandemic COVID-19 will not be counted for the purposes of the time-line for any activity that could not be completed due to such lockdown in relation to a corporate insolvency resolution process.
2. The Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (“Liquidation Regulations”), the liquidation process is mandatorily required to be completed by the liquidator in a prescribed period of 365 days. Due to spread of COVID-19 and declaration of lockdown by the Central Government, the IBBI has amended the Liquidation Regulations by inserting new regulation which states that the period of lockdown imposed by the Central Government due to outbreak of pandemic COVID-19 will not be counted for the purposes of the time-line for any task that could not be completed due to such lockdown in relation to any liquidation process.
3. In addition to above, IBBI has also issued notification amending the Model Bye-Laws and Governing Board of Insolvency Professional Agencies (Amendment) Regulations, 2020 whereby it has given certain relaxations on time lines and its rules for authorisation of assignment by Insolvency Professional Agencies to their professional members.
The above relaxations in timelines are evidence that the regulators are mindful of the difficulties and delay in compliances owing to COVID-19. The Government of India and the regulators are constantly making efforts to ensure that corporates and professionals have fair liberties to comply with the timelines and regulations.
Disclaimer
This news flash has been written for the general interest of our clients and professional colleagues and is subject to change. This news flash is not to be construed as any form of solicitation. It is not intended to be exhaustive or a substitute for legal advice. We cannot assume legal liability for any errors or omissions. Specific advice must be sought before taking any action pursuant to this news flash.

 

For further clarification and details on the above, you may write to Mr. Vaishakh Kapadia (Partner) at vkapadia@almtlegal.com, Mr. Ankit Parekh (Senior Associate) at aparekh@almtlegal.com and Mr. Vinit Shah (Associate) at vshah@almtlegal.com.

Effect On Real Estate Projects: COVID-19

Authors, Maureen Z. Ralte, Associate Partner and Gajanand Kinodiwal, Associate

Introduction:
The Real Estate industry is one of the major sectors that contribute to the overall Gross Domestic Product (GDP) of our country. According to the KPMG report titled ‘Indian Real Estate and Construction: Consolidating for growth’ presented by the National Real Estate Development Council (NAREDCO) and Asia Pacific Real Estate Association (APREA), read with CIRIL’s Half Yearly Round Off 2019 report, the Indian real estate sector is expected to contribute 13 percent to the country’s GDP by 20251.

However, since the onset of the Novel Coronavirus or ‘COVID-19’, there has been a cascading effect on the economy including the real estate sector.2

Read more here

India Battling to Survive Covid-19

A slipping economic growth in India was compounded with a rude jolt by the WHO declared pandemic which is threatening to wipe out many global economies. Covid-19’s sudden spike in March is wreaking havoc and in order to contain the fast spreading outbreak, India has decided to enter into a self-imposed near total lockdown of 21 days starting March 25, 2020. This has severely impacted the economy, as correctly forecasted by the Prime Minister, who chose the safety and health of Indians over anything else.  The Union Finance Minister has announced several measures to tackle the situation on ground.

Fitch Lowers Growth Rate – Fitch Ratings recently released its Global Economic Outlook – March 2020 wherein it was estimated that India’s GDP growth shall remain broadly steady at 5.1% in the fiscal year 2020-2021 following growth of 5.0% in 2019-2020. The number of confirmed COVID-19 cases in India was low at the time of preparing the report, especially given the size of its population, but was picking up and the report assumes the number of people affected will keep rising in the coming weeks but that the outbreak will remain contained. The difficulties facing the Indian economy have been exacerbated by another bank failure (Yes Bank). Fragilities in the financial system will further undermine sentiment and domestic spending. The overall financial system remains burdened with weak balance sheets, which will limit any upside to credit and growth despite policymakers’ efforts in recent months to ease stresses.

Moody’s Severe Growth Impact – Moody’s Investors Service sharply cut India’s growth forecast for calendar 2020 to 2.5% from 5.3% estimated barely 10 days ago after the government ordered a nationwide lockdown to curb the spread of the coronavirus. The ratings company estimates a 5% growth for calendar 2019. According to the Global Macro Outlook 2020-21 released recently, the 21-day lockdown announced by Prime Minister Narendra Modi would result in a sharp loss in incomes and further weigh on domestic demand and the pace of recovery. Moody’s expects a sharp rebound in India’s growth in calendar 2021 to 5.8%. “A general lack of social safety nets, weak ability to provide adequate support to businesses and households, and inherent weaknesses in many major emerging market countries will amplify the effects of the coronavirus-induced shock,” Moody’s said. Moody’s said the lockdown will ‘dampen economic growth’ in India, already facing credit availability issues. “In India, credit flow to the economy already remains severely hampered because of severe liquidity constraints in the bank and non-bank financial sectors,” it said.

Personal Data Protection Bill – The Joint Parliamentary Committee’s (JPC) report on the Personal Data Protection Bill, 2019, will now be submitted in the second week of the Monsoon Session of Parliament. The chairperson of the committee had requested for an extension in the Lok Sabha recently, which was approved. At its constitution in December 2019, the report had to be submitted by the last week of the Budget Session 2020. The JPC had to meet to discuss the submissions that had been made to the committee, but all of that has been postponed because of the COVID-19 pandemic. Earlier, the JPC had invited comments from stakeholders on the provisions of the Bill, as reported by Asia Law Portal and pursuant to the same, the JPC received a number of submissions from various entities within the three week timeline. Most of these submissions have common causes of concern namely removing provisions relating to non-personal data, easing of restrictions on cross-border data transfer etc.

Government’s Economic Relief Package – The government announced a Rs 1.7 lakh crore relief package aimed at providing a safety net for those hit the hardest by the Covid-19 lockdown, along with insurance cover for frontline medical personnel. About 800 million people will get free cereals and cooking gas apart from cash through direct transfers for three months. The 21-day lockdown began on March 25. The Pradhan Mantri Garib Kalyan Yojana includes higher wages under the Mahatma Gandhi National Rural Employment Act (MGNREGA), Rs 1,000 ex-gratia payment to nearly 30 million poor senior citizens, widows and disabled as well as insurance coverage of as much as Rs 50 lakh each for about 2 million healthcare workers battling the disease. States have been asked to use the Building and Construction Workers Welfare Fund to provide relief to construction workers and the first installment of Rs 2,000 under the Pradhan Mantri Kisan Yojana will be frontloaded to reach 87 million farmers in April. The government said it will pay the entire provident fund contribution of those who earn less than Rs 15,000 per month in companies having less than 100 workers as they are at risk of losing their jobs. That amounts to 24% of basic pay, 12% from the employee and 12% from the employer. This will be paid by the government for 3 months. In addition, the Employees’ Provident Fund Regulations will be amended to include the coronavirus pandemic as grounds for allowing a non-refundable advance of 75% of the corpus or three months of wages, whichever is lower, from their accounts.

The Finance Minister had earlier announced a slew of measures for extension of statutory and regulatory compliances in view of the coronavirus pandemic spreading its wings and impacting the economy.

India’s Finance Budget and slipping economic growth

The Union Finance Budget was announced without much in it for foreign investors. The economy remains a point of discussion with global financial institutions as recovery does not appear in the horizon. While India has not been directly hit by Coronavirus, it is feeling the effect in different sectors and somewhere in the overall economy as well.

Fitch Differs from Budget – Fitch Ratings recently said India is expected to clock a GDP growth of 5.6 per cent in the next financial year, lower than the projection made by the government’s Economic Survey, as Budget 2020 has not “materially altered” its view on the country’s growth outlook. “The fiscal slippage announced in the government’s new FY21 budget is modest relative to its previous targets, and is consistent with our expectations when we affirmed India’s ‘BBB-‘ rating with a stable outlook last December, given slowing growth momentum,” said Thomas Rookmaaker, Director and Primary Sovereign Analyst for India, Fitch Ratings. “The new budget targets imply some further postponement of fiscal consolidation, in line with the government’s ambivalent approach to consolidation of the past few years when deficit outturns have typically exceeded budget targets,” Fitch said projecting general government debt to remain close to 70 per cent of GDP through FY22. India’s high public debt relative to peers is a rating weakness, it said. “The budget does not materially alter our view on India’s economic growth outlook, which we forecast to pick up to 5.6 per cent in FY21 from 4.6 per cent in FY20,” it said

Moody’s Lowers growth forecast – Amidst indications of the deadly coronavirus hitting global growth, international rating agency Moody’s Investors Service recently lowered the estimate for India’s economic growth rate for 2020 by 120 basis points. In its February update titled ‘Global Macro Outlook 2020-21’, the agency said that India’s economic recovery will likely be shallow. It said that India’s economy has decelerated rapidly over the last two years. Real GDP grew at a meagre 4.5 per cent in the third quarter (October-December) of 2019-20. Improvements in the latest high-frequency indicators such as Purchasing Managers’ Index (PMI) data suggest that the economy may have stabilised. While the economy may well begin to recover in the current quarter, we expect any recovery to be slower than we had previously expected, Moody’s said. “Accordingly, we have revised our growth forecasts to 5.4 per cent for 2020 and 5.8 per cent for 2021, down from our previous projections of 6.6 per cent and 6.7 per cent, respectively,” it said.

Union Finance Budget Announced – In the Union Finance Budget, announced by the Union Finance Minister, Ms. Nirmala Sitharaman, the following proposals were made with respect to foreign investment:

  • In order to incentivise the investment by the Sovereign Wealth Fund of foreign governments in the priority sectors, it was proposed to grant 100% tax exemption to their interest, dividend and capital gains income in respect of investment made in infrastructure and other notified sectors before March 31, 2024 and with a minimum lock-in period of 3 years.
  • It was proposed to extend the period up to June 30, 2023 for lower rate of withholding of 5% under section 194LD of the Income Tax Act, 1961 (‘IT Act’) for interest payment to Foreign Portfolio Investors (FPIs) and Qualified Foreign Investors (QFIs) in respect of bonds issued by Indian companies and government securities.
  • Non-availability of credit of Dividend Distribution Tax (DDT) to most of the foreign investors in their home country results in reduction of rate of return on equity capital for them. It was proposed to remove the DDT and adopt the classical system of dividend taxation under which the companies would not be required to pay DDT. The dividend shall be taxed only in the hands of the recipients at their applicable rate.
  • In order to make available foreign funds at a lower cost, it was proposed to extend the period of concessional withholding rate of 5% under section 194LC of the IT Act for interest payment to non-residents in respect of moneys borrowed and bonds issued up to June 30, 2023.

FDI Increased in Insurance Intermediaries – The Department for Promotion of Industy and Internal Trade (DPIIT) has issued Press Note 1 of 2020 wherein the existing Foreign Direct Investment (FDI) Policy of 2017 relating to insurance sector was amended. The amendment increases the FDI cap under the automatic route for insurance intermediaries including insurance brokers, re-insurance brokers, insurance consultants, corporate agents, third party administrator, surveyors and loss assessors etc. to 100% from erstwhile cap of 49%.

FPIs from Mauritius can continue – Foreign portfolio investors (FPI) from Mauritius will continue to be eligible for FPI registration with increased monitoring as per Financial Action Task Force (FATF) norms, market regulator Securities and Exchange Board of India (SEBI) recently said. FATF is an inter-governmental policy-making body setting anti-money laundering standards. The market regulator said there has been uneasiness among market participants regarding whether the inclusion of Mauritius in the ‘grey list’ would have an effect on the registration of FPIs from Mauritius.  ‘Grey List’ is meant to list each such jurisdiction that has committed to resolve identified strategic deficiencies within agreed timeframes and is subject to increased monitoring.

Time to Protect Indian Businesses from Insolvency

The medium to long term financial effects of Coronavirus are yet to unfold, but the magnitude is already anticipated to be huge. Many countries across the world are announcing financial packages for businesses. India is also on the track to take a decision on relief packages.

With widespread lockdowns, the coming months are expected to witness a series of defaults by many viable businesses, and in this situation, we need to protect viable Indian businesses from landing up in our bankruptcy tribunals, for no fault of their promoters.

Broadly speaking – today an Indian company can be pushed into insolvency proceedings if it defaults in the discharge of its liability worth over INR 1,00,000/- (USD 1,322) towards a financial creditor or an operational creditor. With a few statutory exceptions and very limited way-outs, the promoters today face a real threat of losing their businesses forever if a creditor decides to opt for a legal action upon default in a single payment above the said threshold.

The bankruptcy and insolvency landscape in India has significantly changed from the regime prevailing prior to the introduction of the Insolvency and Bankruptcy Code (“the IBC”) in 2016. The most prominent feature of the IBC is “corporate insolvency resolution process” or CIRP, during which period the creditors assume control of the company and bids to acquire its business are publicly invited by an insolvency resolution professional. The board of directors of the company is suspended during the CIRP period, and in most cases, the promoters are legally prohibited from repurchasing their companies. This mechanism of CIRP was absent under the previous regime, governed by the (Indian) Companies Act, 2013. During that time, in certain cases the High Courts granted a few weeks’ of time to the promoters to settle with the creditor(s), failing which notification of winding up was published and the official liquidator took charge to liquidate the assets of the company.

The IBC stipulates a more mechanical approach, leaving little discretion with the learned judges of the National Company Law Tribunal (“NCLT”), which is the adjudicating authority under the IBC. The practitioners of the earlier company courts would agree that during the earlier regime it was expected from a creditor to show, in addition to a default of a similar threshold, that the corporate debtor is also unviable as a business. The courts went through the past balance sheets, read auditor’s reports while quoting them in judgments, and frequently observed in courtrooms that businesses give employment, and viable businesses cannot be liquidated just because of a default.

Since the advent of the IBC, the focus changed, and for a reason – the “CIRP”. Who will buy an unviable business during a CIRP? No one. What will then a CIRP achieve? Nothing.

The “business viability/un-viability” test was perhaps therefore never propagated in the IBC. Resultantly, a default above the threshold is enough, by itself, to trigger a CIRP, with all its consequences under the IBC. What the IBC also doesn’t consider is – the reason for such default.

Time has come for us to realise that unviable businesses anyway fail the CIRP. The reports published by the Insolvency and Bankruptcy Board of India evidence that four out of every five CIRPs are not able to find a resolution anyway. Eventually, such unviable companies are thrown into liquidation. No one wins.

We should, therefore, think of a course correction, and to save numerous Indian businesses that would otherwise land up in CIRPs because defaults are now imminent – and more painful – without any fault of the promoters. We need to acknowledge, with evidence now, that each default does not indicate a fault of the promoters, and survival of the businesses of all sizes is vital for the survival of the economy. The IBC and NCLTs also have a much larger economic and functional role, beyond facilitating the buying and selling of the businesses and assets or enforcing settlements by promoters under fear of CIRPs.

We, therefore, feel that the “reason for the default” should, in some way at-least, form part of the judicial consideration while admitting cases under the IBC. Viability of the business should form another vital consideration, even if the focus is on CIRP. The thresholds also should be raised much above INR 1,00,000/-, which we note is a work in progress anyway.

Let’s save our businesses. It takes years to create each viable business. The above-suggested actions may not be exhaustive. Our hon’ble judges also have always found innovative solutions, such as reverse CIRP, when the situation demands. It is now time for the law also to consider that exceptions (habitual defaulters) are not the rule.

Force Majeure and Coronavirus: Frequently Asked Questions

Part 1: Force Majeure and Suspension/Termination of Contracts

Coronavirus (COVID-19) is turning out to be a twin fold pandemic – that started with affecting public health and soon spread throughout the economy. Sudden global shutdown and travel restrictions have brought the economy to a screeching halt before most of us could even comprehend the real impact. Many businesses are still at a loss and are only doing guesswork regarding the magnitude of potential losses and recalibration needed for the businesses to survive this time, and remain viable.

Resultantly, certain harsh realities stare at us, and certain brutal questions are to be answered. With specific reference to Indian laws, we have attempted to answer some of these questions which businesses are asking concerning the possibility to suspend, extend or cancel their contractual obligations and their ability to reduce workforce and other recurring costs and liabilities.

You are reading Part 1 of our series on “Force Majeure and Covid-19: Frequently Asked Questions”. In the next part, to be published on March 20, 2020, we would discuss the possibility of reduction in workforce and wage bills.

Question:   What is a force majeure clause and how does it help the contracting parties?
Answer:      Force majeure is commonly defined as an unforeseen irresistible force, such as an act of God or war. Performance of a contract by a party facing a force majeure situation may be impossible. Recognising this, most contracts include a force majeure clause, which permits a party, when facing a force majeure situation, to temporarily suspend its performance under the contract.

A suspension under a contract, in accordance with its force majeure clause, entitles the party suspending it to be exempted from performing its obligations under the contract. Accordingly, during the period of suspension, such party is not held liable for breach of its contractual obligations. The contract springs back to life and operation once the force majeure situation subsides. The contracts usually also provide for the termination, if the force majeure situation continues beyond a specific number of days.

 

Question:Is the outbreak of COVID-19 a force majeure situation?
Answer:      Force majeure clauses are a contractual feature. Indian laws do not define “force majeure”, from the perspective of contract laws.

The answer, therefore, lies in answer to the question – what are the identified force majeure situations in your particular contract? Most contracts illustrate various situations as “force majeure events”. Some contracts use words like “epidemic”, “Government order” (of shutdown) and “any other situation making the conduct of business impossible” as examples of force majeure situations. COVID-19 would easily qualify as a force majeure event in such cases.

On the other hand, some contracts give a more restrictive definition of force majeure, limiting it to physical damage to the business premises or change in law or policy.

As force majeure clauses permit contractual non-performance, they are likely to be given a narrow interpretation by the courts, when scrutinized.

Accordingly, to answer, the outbreak of COVID-19 does not automatically become a force majeure situation, and its classification as such largely depends on the language of your specific contract(s).

Question:   If COVID-19 qualifies as a force majeure situation in my contract, am I exempt from its performance?
Answer:Your chances of performance exemption are good, but not automatic. Even if COVID-19 can comfortably be classified as a force majeure situation in your contract, you must remember that:

Your performance is not suspended automatically: You would most likely need to issue a written notice to the other party, as specified in your force majeure clause, invoking the clause and notifying suspension of your obligations. Some contracts also require a party giving a force majeure notice to give a plan to mitigate the loss caused to the other party. Therefore, read your contract and follow what it prescribes.

Force majeure should affect your performance: The performance is also not suspended just because a force majeure situation has arisen unless it significantly affects your performance capabilities. A party invoking a force majeure clause should, therefore, be prepared to demonstrate as to how the occurrence of a force majeure situation has made performance by such party “impossible”. The common legal understanding is that a mere occurrence of a force majeure situation, without a real impact on contractual performance capabilities of such party, would not entitle it to suspend its performance under the contract. As lawyers, we see that some of the parties would face this challenge if their counterparties decide to legally oppose the suspension.

Question:If COVID-19 cannot be a force majeure situation in my contract or if my contract does not have a force majeure clause, what recourse do I have?
Answer:  It is still not ending of the road for you. Indian Contract Act, 1872 enshrines the doctrine of frustration of contracts, which means that a contract would become void if its performance is rendered impossible or unlawful after the contract has been made. Void contracts are unenforceable, the result of which, in layman terms, is that such contracts cannot render a party liable for their non-performance.

Similar to force majeure, the frustration of a contract would also need a party claiming so to demonstrate as to how the occurrence of a situation (COVID-19, being the case in point) has made performance by such party “impossible” or “unlawful”.

Please however note that, unlike force majeure, the frustration of a contract renders it void with immediate effect, and the law does not provide for a suspension of such a contract. Of course, if one party claims “frustration of the contract”, and then both the parties are willing to suspend the contract, they can contractually agree to a suspension. In economic difficult times, new contracts are also hard to come by, so the suspension is a real business possibility following frustration. The suspension, however, cannot be enforced in absence of a contractual stipulation (e.g. force majeure) or with the consent of the contracting parties.

Question:   While invoking force majeure clause, can we propose reduced/alternative performance?
Answer:Indian contract law requires that a party shall do everything within its control to mitigate the loss to the other party. Therefore, a party can propose reduced/alternative performance during a force majeure period. Such reduced/alternative performance may however not be enforced upon the other party unless your force majeure clause so provides. If the other party does not agree to such reduced/alternative performance (consider cases where insufficient raw material supply would make the running of the plant itself commercially untenable), one can revert to full suspension of performance.

Each case should, however, be assessed carefully, before reduced/alternative performance is proposed. Force majeure, when available, is a contractually enforceable suspension right. A unilateral amendment is ordinarily never enforceable. In cases where the contractual relationships are complex, a party needs to assess whether a proposal for reduced/alternative performance would give an opportunity to the other party to deny the applicability of force majeure clause itself.

Conclusion:

Force majeure and frustration of contracts are contractually and legally viable tools that provide a real possibility to the businesses to deal with the current situation. Case to case assessment is however needed before implementation of these options.

Enforcement of Foreign Judgments in India

Enforcement of Foreign Judgments in India – Inclusion of UAE as a Reciprocating Territory

The Ministry of Law and Justice, Government of India vide its Notification dated January 17, 2020 (“Notification”) declared United Arab Emirates (“UAE”) a “reciprocating territory” for the purposes of enforcing foreign civil decrees in India. The declaration has been made by the Indian government in exercise of powers under Explanation 1 appended to Section 44A, Code of Civil Procedure, 1908 (“CPC”). Pursuant to the Notification, decrees passed by the courts in UAE are now executable in India as if they were passed in India.

CPC lays down the procedure for enforcement of foreign judgments and decrees in India. A foreign judgment is a judgment of a foreign court and a foreign court means a court situated outside India and not established or continued by the authority of the Central Government. A foreign judgment needs to be conclusive for it to be enforceable in India. The test of conclusiveness of a foreign judgment is provided under Section 13 of CPC, which postulates that a foreign judgment shall be conclusive unless:

  1. It has not been pronounced by a court of competent jurisdiction;
  2. It has not been given on the merits of the case;
  3. It appears, on the face of the proceedings, to be founded on an incorrect view of international law or a refusal to recognize the law of India in cases in which such law is applicable;
  4. The proceedings in which the judgment was obtained are opposed to natural justice;
  5. It has been obtained by fraud;

f)    It sustains a claim founded on a breach of any law in force in India.

Broadly, a foreign judgment in India can be enforced in the following ways:

  1. Decrees passed by courts in reciprocating territories: Reciprocating territories enjoy the privilege of direct enforcement of a decree within the territory of India by filing execution proceedings of the decree before an Indian court. A reciprocating territory is any country or territory outside India which the Central Government may, by notification in the official gazette, declare to be a reciprocating territory and the superior courts with reference to any such territory, are the courts as may be specified in the notification notified by the Government. In accordance with the CPC, if a certified copy of the decree of any of the superior courts of any reciprocating territory is filed in a district court, the decree may be executed in India as if it has been passed by the district court. Such foreign judgment to be executable in India must be conclusive (i.e., should not be falling under any of the above stated six categories) and needs to comply with the laws of limitation of India. Also, the decree with reference to a superior court would be any decree or judgment of such court under which a sum of money is payable, not being a sum payable in respect of taxes or in respect of a fine or other penalties, but shall in no case include an arbitral award, even if such an award is enforceable as a decree or judgment.

Some of the countries that have been declared to be “reciprocating territories” are United Kingdom, Singapore, Bangladesh, Malaysia, Trinidad & Tobago, New Zealand, Hong Kong, Papua New Guinea, Fiji, etc.

  1. Judgments passed by non-reciprocating territories: Such judgments can be enforced only by first preferring a lawsuit in an Indian court for a judgment based on the foreign judgment and second, filing for execution proceedings after obtaining the Indian decree. Section 14 of the CPC provides for presumption, albeit a rebuttable one, in favour of the foreign judgment being one passed by a court of competent jurisdiction. For the purposes of Indian courts, such foreign judgment is of evidentiary value only.

Considering that the decrees from reciprocating territories are directly enforceable in India, the inclusion of UAE as a “reciprocating territory” will be beneficial for a UAE decree-holder to enforce the decreed time and cost-efficiently in India. The courts in UAE which will be considered as the superior courts of UAE for the purposes of section 44A of CPC are the Federal Supreme Court; Federal, the First Instance and Appeals Courts in the Emirates of Abu Dhabi, Sharjah, Ajman, Umm Al Quwain and Fujairah; and local courts in Abu Dhabi Judicial Department, Dubai, Ras Al Khaimah Judicial Department, Abu Dhabi Global Markets and Dubai International Financial Center.

It further implies that Indian expatriates in UAE would no longer be able to seek safe haven in their home country if they have a decree against them in a civil case in the UAE. It would also be interesting to see how this development will impact the proceedings under the Insolvency and Bankruptcy Code, 2016 were so far the National Company Law Tribunal (“NCLT”, in the matter of M/s Stanbic Bank Ghana Limited v. M/s Rajkumar Impex Private Limited CP/670/IB/2017), has held that NCLT has no jurisdiction to enforce foreign decree, however, there is no bar in it taking cognizance of the foreign decree. The Notification, however, will have no impact upon enforcement of arbitral awards passed by arbitral tribunals seated in UAE as the scope of Notification is strictly limited to decrees covered under section 44A of CPC.