Standard of Review Under Indian And Singapore Jurisprudence With Special Reference To Anan Group Judgment: A Comparative Analysis

INTRODUCTION

Recently, the Singapore Court of Appeal in the matter of AnAn Group (Singapore) Pte Ltd vs. VTB Bank (Public Joint Stock Company) [2020] SCGA 33 (hereinafter referred to as ‘AnAn’) dealt with an interesting question i.e. ’what happens when a debtor challenges a winding-up petition on the basis of a ‘disputed debt’ or ‘cross-claim’ that is subjected to an arbitration agreement’? The Singapore Court, while upholding its pro-arbitration stance overturned the judgment passed by the High Court, which allowed the creditor to proceed with the winding up petition against the debtor. The Court of Appeal while applying ‘prima facie’ ‘standard of review’ mechanism albeit the ordinarily used ‘triable issue’ mechanism, dismissed the winding up petition filed by the creditor and, further held that, the claims and debts which are disputed fall within the realms of the arbitration agreement and such a situation calls for a dismissal of any other ancillary proceedings i.e. winding up proceeding in the present case.

This article will examine the decision of the Singapore Court of Appeal with special reference to the Indian Jurisprudence on the subject of standard of review in alleged case(s) of subsisting disputes.

SINGAPORE COURT OF APPEAL: DICTUM AND REASONING

The parties i.e. AnAn Group & VTB Bank entered into an agreement under which theAnAn Group would sell and repurchase ‘Global Depository Receipts’ from VTB Bank. The VTB Bank asserted that, there was a default on the part of the AnAn Group and while terminating the agreement initiated winding up proceedings against AnAn Group. The AnAn Group considered the same to be frustration of agreement and denied the liability. The Bank moved ahead with the winding up petition, the High Court while applying ‘triable issuestandard of review’passed a winding up order against the AnAn Group. The AnAn Group on being aggrieved by the order moved before the Court of Appeal, which held that, the High Court wrongly applied the ‘triable issue standard of review’ and while, applying the ‘prima facie standard of review’ overturned the winding up order passed by the High Court. The Court of Appeal dismissed the winding up order and stated that, the dispute with respect to the debt falls within the scope of the arbitration agreement as entered between the parties hence, no ancillary proceedings could take place.

The question that arose before the Court of Appeal was whether issues raised against the winding up petition filed by the creditor i.e. VTB Bank by the Debtor i.e. AnAn Group with respect to a debt, which is subject to arbitration i.e. disputed debtshould be dealt under the realm of ‘triable issue’ or ‘prima facie’ ‘standard review’ mechanism. In the past, various High Courts in Singapore held that, while dealing with such a dispute as raised by a debtor, the court should apply ‘triable issue’ mechanism so that, an untoward encouragement should not get perpetuated in the debtors to raise such disputes as an alibi to avoid winding up petitions.  However, the Court of Appeal held that, prima facie standard review test should be applied which is considered to be at a much lower footing than the triable issue test. The prima facie standard review test does not go into the merits of the case albeit the ‘triable issue’ tests. The Court was of the opinion that, while reviewing, the courts should not go into the merits of the dispute raised by the debtor, which ordinarily should be done by an arbitral tribunal since, the dispute falls within the purview of the arbitration clause. The court further held that, there was a valid arbitration agreement between the parties and as stated above, the dispute fell within the scope of the arbitration agreement. The Court of Appeal relied on an authoritative decision of English Courts in Salford Estates (No.2) Ltd. v. Altomart Ltd. (No.2) [2015] Ch.589 and held that, the standard of review should be lowered down and when faced with a situation of a disputed debt which is subject to an arbitration agreement, the court should only intervene in ‘wholly exceptional circumstances.’ The Court of Appeal also relied on & BDG v. BDH [2016] 5 SLR 97, under BDG approach, the onus will be on the debtor to establish the existence of dispute and the same shall lie within the scope of the arbitration agreement.

The Singapore Court of Appeal has reasoned its judgment on two premises i.e. coherence in laws and party autonomy. The coherence in laws relate to a situation where, the debt or the dispute falls within the ambit of arbitration which is preceded by the party autonomy premise i.e. when the parties have mutually agreed to arbitrability of any dispute arising therein.  The Court of Appeal gave the reasoning that, if the lower standard of review is not applied then the creditors might deliberately ignore the arbitration agreement and resort to winding up proceedingsstraight away.  The Court of Appeal did not take course of a high standard of review, as the same would invite evaluation of the merits of the case. The Court of Appeal held that jurisdiction to evaluate the merits of the case should be vested with the arbitral tribunal. In the Indian context, a relative concept is available in the form of ’kompetzkompetz’ principle as defined under section 16 of the Arbitration and Conciliation Act, 1996. The principle lays down that arbitral tribunal has jurisdiction to deal with exigencies arising within the contours of the arbitration clause/agreement and has the authority to rule on its own jurisdiction.

STANDARD OF REVIEW MECHANISM: INDIAN JURISPRUDENCE

Taking cue from the Singapore Court of Appeal, as far as Indian courts are concerned, let us first deal with the prospect of intervention under the light of precedents set forth by the Indian Judiciary. The ‘Prima Facie Standard of Review’ as applied by the Singapore Court of Appeal is parimateria with the preposition set forth in the judgment of Mobilox Innovations Private Limited vs. Kirusa Software Private Limited, (2018)1 SCC 353, with respect to ‘existence of dispute’ within the domain of insolvency laws in India. The said standard of review on the other hand is also in lines with the preposition set forth by the Supreme Court of India in Mayavati Trading Pvt. Ltd. vs.Pradyuat Deb Burman, 2019 (8)SCC 714, wherein, the court held that all the preliminary questions are left with the Arbitral Tribunal to be determined[1].

The concept of ‘existence of dispute’ holds a significant position in admission/rejection of insolvency applications in India. However, the Supreme Court of India in Mobilox (supra) has also set a caveat qua propounding a ‘plausible contention test’ and held that, the defense raised in the form of a dispute should not be spurious, a mere bluster, plainly frivolous or vexatious and should not entail an assertion of facts unsupported by evidence.The Indian Courts have had a clear stand on the aspect of invoking the provisions of an alternate statute when there already exists a remedy.  If one has to draw cue from the Supreme Court of Appeal judgment, then Indian Courts have showcased their parity with the ‘lower prima facie standard of review’ to the extent the evaluation of existence of dispute is concerned.

Also, the Supreme Court of India in SBP & Co. vs. Patel Engineering Ltd, (2005) 8 SCC 618, defined the scope of intervention exercised by courts while appointment of an arbitrator. The Supreme Court laid emphasis on existence of a valid arbitration agreement between the parties, determining whether the party, which has made the request, is a party to the arbitration agreement and whether the party making the request has approached the appropriate court. The Supreme Court again in Uttarakhand PurvSainikKalyan Nigam Ltd. v. Northern Coal Field Ltd, (2020) 2 SCC 455, while upholding the minimum intervention of judicial court principle, held that jurisdictional issues are left with the arbitral tribunal to decide upon. The Supreme Court of India has again maintained parity with the ‘prima facie standard of review’as set forth by the Singapore Court of Appeal.

However, the Delhi High Court in HSH Nordbank vs. Goodwill Hospital and Research Centre Limited, 2018 SCC DEL 9889, held that arbitration clause cannot oust the jurisdiction of the company courts to deal with winding up petitions. Moreover, the Supreme Court of India in Booz Allen and Hamilton Inc vs. SBI Home Finance Limited, (2011) 5 SCC 532, held that disputes regarding insolvency and winding up proceedings[2] fall outside the category of arbitrable disputes.

EXAMINING THE EXTENT OF ABUSE OF THE PRIME FACIE STANDARD OF REVIEW:

While, the Singapore Court of Appeal relies on the ‘prima facie standard of review’, it becomes pertinent to examine the extent of abuse that it might muster. The Court of Appeal has dealt with the extent of abuse in Para 93 of the judgment. The Court of Appeal has cited Hollmet AG & another v. Merdian Success Metal Supplies Ltd. [1997] HKLRD 828, and stated that, ‘the prima facie standard may lend itself to abuse if a stay is automatically granted once a party puts up its hands and says you, the court, have no jurisdiction because of my contract’. The Court of Appeal while examining the aforementioned factor held that, the debtor has categorically raised the dispute in a bonafide manner and, there is another contributing factor as well i.e. the dispute falling within the ambit of arbitration agreementhence, the abuse of automatic stay could not be manifested in an unprecedented manner. The Indian Jurisprudence has also dealt with the concept of ‘automatic stay’ in the arbitral proceedings, the same was dealt under the purview of an application moved for setting aside the award (see section 34 of the Arbitration & Conciliation Act, 1996). However, the aforementioned concept vis a visIndian jurisprudence is highlighted herein to explain the contemporaneous situation which was explained in the judgment in Hindustan Construction Company Limited and Ors. vs. Union of India, MANU/SC/1638/2019. The Supreme Court of India struck off section 87 of the Arbitration & Conciliation Act, 1996 while holding the same to be superfluous. The Supreme Court of India while taking cue from the Amendment Act, 2015 and preposition laid down in BCCI vs. Kochi Cricket Pvt. Ltd, MANU/SC/0256/2018: (2018) 6 SCC 287, struck down the concept of ‘automatic stay’ to enable the enforcement of an award more feasible.

The second extent of abuse, which was examined by the Singapore Court of Appeal, is the standard of ‘wholly exceptional circumstances’ as held in Salford State (supra).The Court of Appeal held that such a standard would provide an untoward advantage to the debtors over creditors as the said standard does not define the catalogue of circumstances to be considered and hence, providing extra arsenal to the debtors. The circumstances would be subjected to interpretations by courts, which would provide leeway to the debtors in avoiding winding up petition despite having admitted the existence of liability on an earlier occasion. In the Indian jurisprudence, there is no such standard as such, however, categorical admittance of liability by the debtor may not entail a successful resolution under the insolvency regime albeit, the debtor comes out successful while raising the existence of dispute under section 8(2) of the Insolvency and Bankruptcy Code, 2016. Having said that, the judgment of Salford State (supra), coming from a common law country might have persuasive precedence on the Indian Jurisprudence, subject to scrutiny under relevant Indian statutes. Further, the Court of Appeal made it clear that, the ‘abuse of process’ would not come to rescue the creditors so to enable them an argument to challenge the sanctity of the dispute raised by the debtor. The Court of Appeal while dealing with the extent of abuse of the said standard of review has kept the doors of interpretation opened.

PARTING THOUGHTS:

The Singapore Court of Appeal has dismissed the winding up petition holding that a stay on the same would have further belittled positive avenues of creditors. However, it could be argued that staying the application would have provided an opportunity to the creditor company to approach the court again, if the debtor during the pendency of arbitration fails to prove the existence of debt under the ‘triable issue test’.In the Indian jurisprudence, the appointment of arbitrator itself takes a considerable amount of time even though, after the Amendment Act, 2019, the Arbitral Institutions have to be bestowed with the duty of appointment of arbitrator leaving behind the old norm of involving courts in the appointment process. Also, with the Amendment Act, 2015, the time period of 12 months to complete the arbitration can be extended to further 6 months, essentially making the total time period to 18 months, which defeats the purpose of effective dispute resolution. (refer section 29A of Arbitration and Conciliation Act, 1996).

It could also be argued that since, the Court of Appeal has dismissed the winding up petition the debtor company might not be in a position to sustain the exigencies therein, and might end up in a deplorable state. It could also be argued that the debtor company might become insolvent by the time the arbitration proceedings meet its fate hence, bestowing extra expenditure burden on the creditor even though, the arbitral award might come in creditors favor. It also puts on an additional risk on the creditors as far as their recovery chances are concerned. In the Indian context, even though, the legislature under the light of COVID-19 pandemic has suspended the initiation of insolvency proceedings (which leads to liquidation if a resolution plan is not submitted within prescribed time period), it seems very unlikely, that the debtor companies which were in deplorable state earlier could turn the table around in a short span of one year. The Indian courts have been steadily working towards envisaging an arbitration friendly state in order to provide an environment of ease of doing business and promoting foreign investment; however, the virtues of enforcement and timely redressal of disputes seek more diligence.

In our view, the judgment passed by the Singapore Court of Appeal needs re-consideration, as the precedent relied upon i.e. Salford State (supra) did not account the exigencies that we are witnessing today under the light of COVID-19 pandemic. The court would have examined few more issues and standards before arriving at the decision of dismissal of the winding up petition. Now, it would be interesting to see, how Indian courts would deal with such a scenario considering the fact that realms of insolvency and winding up regime has undergone some unprecedented changes lately.

(The views expressed herein are based on the personal understanding of the authors and same shall under no circumstances be construed as a legal advice)

REFERENCES:

> https://www.supremecourt.gov.sg/docs/default-source/module-document/judgement/-2020-sgca-33-pdf.pdf

>http://arbitrationblog.kluwerarbitration.com/2020/05/24/arbitration-clauses-insolvency-proceedings-and-a-lack-of-consistency-across-the-common-law/?doing_wp_cron=1590561734.0353848934173583984375

>https://www.mondaq.com/india/arbitration-dispute-resolution/808144/fate-of-arbitrations-in-the-ibc-age-clearing-the-interpretive-thicket-around-the-moratorium39-provisions-of-the-insolvency-bankruptcy-code

> https://www.lexology.com/library/detail.aspx?g=e49b496d-13a8-495f-8a75-289704cdf72a

>https://hsfnotes.com/arbitration/2020/04/21/singapore-court-of-appeal-introduces-a-lower-standard-of-review-for-debtors-defending-a-disputed-debt-that-is-subject-to-an-arbitration-agreement/

> https://www.rpc.co.uk/perspectives/commercial-disputes/arbitrable-disputes-in-the-context-of-winding-up-proceedings/

>https://www.allenandgledhill.com/sg/publication/articles/15211/court-of-appeal-resolves-longstanding-controversy-on-standard-of-review-for-winding-up-applications-premised-on-disputed-debt-subject-to-arbitration

> https://www.mondaq.com/pdf/933030.pdf

>https://www.tclindia.in/an-arbitration-clause-cannot-oust-the-jurisdiction-of-a-company-court-to-adjudicate-the-winding-up-petition-as-a-dispute-regarding-insolvency-is-a-non-arbitrable-dispute/

>  https://taxguru.in/company-law/arbitration-clause-oust-jurisdiction-high-court-admit-winding-petition.html

> http://www.nishithdesai.com/information/news-storage/news-details/newsid/4885/html/1.html

>http://arbitrationblog.kluwerarbitration.com/2020/02/15/indian-supreme-court-strikes-down-automatic-stay-provisions-for-good/?doing_wp_cron=1591019446.9350171089172363281250

[1]Mayavati Trading Pvt. Ltd. vs .Pradyuat Deb Burman, 2019 (8)SCC 714, overturned the judgment in United Insurance Co. Ltd. vs. Antique Art Exports Pvt. Ltd, (2019) 5 SCC 362, upholding the omission of section 11 (6A), by way of Amendment Act, 2019 which is yet to be notified.

[2]The proceedings pertaining to voluntary winding up and winding up on the grounds of inability to pay debts which now fall within the purview of Insolvency and Bankruptcy Code, 2016, the winding up of companies on the grounds apart from the aforesaid ground are now dealt under section 271 of the Companies Act, 2013 read with Companies (Winding Up) Rules,2020 which got notified on January, 24, 2020.

Kumar Sumit and Chirag Gupta

(Authors are practicing as advocates in New Delhi)

(The views expressed in this Article are based on personal understanding and interpretation of the Authors.)

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