Indian Courts Are Not Bound By Foreign Insolvency Judgments From Non-Reciprocating Countries: Calcutta High Court

The Calcutta High Court single judge bench of Justice Shampa Sarkar held that without a comprehensive cross-border insolvency framework, Indian courts do not recognize or enforce moratorium orders from non-reciprocating countries, such as the U.S., and thus are not obligated to stay ongoing suits due to such foreign proceedings. It was held that the Trial Court could consider the foreign proceedings while deciding on the Section 45 application filed by the Petitioners. However, it was not a binding consideration. Section 45 of the Arbitration and Conciliation Act, 1996, grants the judicial authorities the power to refer parties to arbitration when one of the parties or any person claiming through or under them requests for the same. Brief Facts: Uphealth Holdings (“Uphealth”), a company which provides medical services for mental health issues entered into a Share Purchase Agreement (“SPA”) with Dr Syed Sabahat Azim and other individuals (“Petitioner”). The said SPA had an arbitration clause. Disputes arose between the two, however, Uphealth filed an anti-arbitration suit before the Trial Court, Rajarhat. During the pendency of this suit, the Petitioner filed an application under Section 151 of the CPC (inherent powers of the court) to request for a stay of further proceedings of the suit due to the pendency of a bankruptcy proceeding against it in the United States. The trial judge rejected the Petitioner's application by holding that the moratorium order of the U.S. Bankruptcy Court was not applicable in India. The Trial Court noted that although the moratorium order of the U.S. Bankruptcy Court was similar to Section 14 of the Indian Bankruptcy Code, 2016 (IBC 2016), the IBC 2016 was only applicable within India. Without a Central Government notification in the Official Gazette declaring the U.S.A. as a reciprocating territory, the moratorium order could not be automatically enforceable under Section 44A of the Code of Civil Procedure. Subsequently, the Petitioner also filed an application under Section 45 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) before the Trial Court to refer the parties to arbitration and again requested for a stay to the anti-arbitration suit filed by Uphealth. Meanwhile, aggrieved by the decision of the Trial Court, the Plaintiff filed a revision petition before the Calcutta High Court (“High Court”). Contentions of the Petitioner: The petitioner contended that the suit should be stayed in accordance with the 'Doctrine of Comity of Courts', which requires courts in one jurisdiction to respect and recognize the decisions of competent courts in other jurisdictions. The Petitioner argued that the U.S. Bankruptcy Court's worldwide stay should be acknowledged and that continuing the suit would cause irreparable harm. The Petitioner also emphasized that they were not seeking enforcement of the U.S. court's order as if it were a decree but were instead invoking the inherent power of the Indian court for judicial recognition of the U.S. Bankruptcy proceedings. Contentions of Uphealth: Uphealth contended that the moratorium order from the U.S. Bankruptcy Court was applicable to creditors, and not Uphealth, which had filed an anti-arbitration suit and had not initiated insolvency proceedings in an Indian court. It emphasized that the applicability of the 'Doctrine of Comity of Nations and Comity of Courts' was a sovereign function, requiring government legislation. The suit proceeded under Section 9 of the CPC, and apart from Sections 13, 14, and 44A, the Doctrine of Comity had not been legislatively recognized. Further, arbitration laws were acknowledged under The New York Convention and Geneva Convention, included in Chapter II of Part II of the Arbitration Act. However, there were no treaties, conventions, or legislation recognizing the moratorium proceedings of the U.S. Bankruptcy Court as binding in India. A final decree from a court could be executed in India if there was reciprocity, as notified by the central government under Section 44A. Observations by the High Court: The High Court held that Indian courts are not obligated to stay the suit due to ongoing foreign proceedings. It clarified that the proceedings in question were not insolvency proceedings, and the foreign judgments, relied on by the Petitioner, were based on insolvency cases. The High Court further noted that Section 9 of the CPC grants jurisdiction to all civil suits unless explicitly barred. Although Section 14 of the IBC was mentioned, it was relevant only to creditor claims against corporate debtors. The High Court recognized the importance of cross-border insolvency recognition but highlighted that India lacks a comprehensive framework for such cases under the IBC. The High Court concluded that only orders from reciprocating countries like the UK are executable in India...

Indian Courts Are Not Bound By Foreign Insolvency Judgments From Non-Reciprocating Countries: Calcutta High Court

Rajesh Kumar

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