Calcutta High Court Rules Indian Courts Not Bound To Stay Suits Over Non-Reciprocating Country Moratorium Orders

Calcutta High Court Rules Indian Courts Not Bound To Stay Suits Over Non-Reciprocating Country Moratorium Orders

Justice Shampa Sarkar of the Calcutta High Court has ruled that in the absence of a comprehensive cross-border Insolvency Framework, Indian Courts do not recognise or enforce moratorium orders from non-reciprocating countries like the U.S. Consequently, they are not obliged to stay in ongoing suits due to such foreign proceedings.

The court emphasised that while deciding on the Section 45 application filed by the petitioners, the trial court could take into account the foreign proceedings, but such consideration was not binding. Section 45 of the Arbitration and Conciliation Act, 1996, empowers judicial authorities to refer parties to arbitration upon the request of one of the parties or any person claiming through or under them.

Uphealth Holdings, a company specialising in medical services for mental health issues, entered into a Share Purchase Agreement (SPA) with Dr. Syed Sabahat Azim and other individuals (the Petitioner), which included an arbitration clause. Disputes arose between the parties, leading Uphealth to file an anti-arbitration suit before the Trial Court in Rajarhat.

During the pendency of this suit, the petitioner filed an application under Section 151 of the CPC (inherent powers of the court) seeking a stay on further proceedings, citing ongoing bankruptcy proceedings against them in the United States. The Trial Court, however, rejected this application, ruling that the moratorium order issued by the U.S. Bankruptcy Court did not apply in India.

The Trial Court noted similarities between the U.S. moratorium order and Section 14 of the Indian Bankruptcy Code, 2016 (IBC 2016), but clarified that the IBC 2016 only holds sway within India's borders. Without a Central Government notification in the Official Gazette declaring the U.S. as a reciprocating territory, the moratorium order couldn't be automatically enforceable under Section 44A of the Code of Civil Procedure.

Subsequently, the petitioner filed another application under Section 45 of the Arbitration and Conciliation Act, 1996 (Arbitration Act), asking the trial court to refer the parties to arbitration and requesting a stay on Uphealth's anti-arbitration suit.

In response to the trial court's decision, the petitioner filed a revision petition before the Calcutta High Court, challenging the ruling.

The petitioner argued for a stay of the suit under the 'Doctrine of Comity of Courts', which mandates that courts in one jurisdiction respect and recognise decisions of competent courts in other jurisdictions. They asserted that the U.S. Bankruptcy Court's worldwide stay should be acknowledged, stressing that proceeding with the suit would cause irreparable harm. The petitioner clarified they were not seeking enforcement of the U.S. court's order as a decree but sought judicial recognition of the U.S. bankruptcy proceedings under the inherent power of the Indian court.

In response, Uphealth countered that the U.S. Bankruptcy Court's moratorium order applied to creditors and not to Uphealth, which had initiated an anti-arbitration suit and not insolvency proceedings in an Indian court. They emphasised that the recognition of the 'Doctrine of the Comity of Nations and the Comity of Courts' was a sovereign function requiring legislative action by the government. They pointed out that while Sections 13, 14, and 44A of the CPC were recognised, the Doctrine of Comity had not been legislatively acknowledged in this context.

Regarding arbitration laws, Uphealth emphasised the provisions under the New York Convention and Geneva Convention, included in Chapter II of Part II of the Arbitration Act. However, they highlighted the absence of treaties, conventions, or legislation recognising the moratorium proceedings of the U.S. Bankruptcy Court as binding in India. They clarified that a foreign court's final decree could be executed in India only if reciprocity was established through notification by the central government under Section 44A of the CPC.

The High Court ruled that Indian courts are not obliged to stay the suit due to ongoing foreign proceedings, clarifying that the foreign judgements cited by the petitioner were related to insolvency cases, not the current proceedings. Emphasising Section 9 of the CPC, which grants jurisdiction over all civil suits unless explicitly barred, the High Court noted that Section 14 of the IBC specifically pertains to creditor claims against corporate debtors and does not apply broadly to other disputes.

While acknowledging the importance of recognising cross-border insolvency, the High Court highlighted India's lack of a comprehensive framework for such cases under the IBC. It reiterated that only orders from reciprocating countries, like the UK under Section 44-A of the CPC, are enforceable in India.

Regarding the application under Section 45 of the Arbitration Act, which was pending hearing without an injunction issued by the Trial Court, the High Court stated that the U.S. Bankruptcy Court's moratorium order could be a consideration for the Trial Court but was not binding. Consequently, the revision petition was dismissed.