RELIGARE FINVEST LTD

INTERNSHIP REPORT

NAME: SAHIL SHARMA

INSTITUTION NAME: SYMBIOSIS LAW SCHOOL NOIDA

INTERNSHIP PERIOD 1ST DECEMBER 2015 TO 31ST DECEMBER 2015

1 | P a g e

About Religare Enterprises Limited (REL)

Religare Enterprises Limited (REL) is the holding company for one of India’s leading diversified

financial services groups. REL offers an incorporated suite of money related administrations

through its fundamental backups and working substances, including credits to SMEs, Capital

Markets, Wealth Management, Health protection and Asset Management. REL is recorded on

the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) in India. As a

gathering, Religare takes into account each portion of the business sector from mass retail to

rich, HNIs, UHNIs, moderate size corporates, SMEs to huge corporates and foundations. The

gathering has a vicinity crosswise over around 1,700 areas in India furthermore has a worldwide

foot shaped impression past India through its Capital Markets and Global Asset Management

organizations.

Religare Enterprises Limited (REL) established in 1984, at first Religare was a stock financier

firm called Religare Securities Ltd (RSL) and was admitted to the National Stock Exchange

(NSE) in 1994. In 2000, it secured participation of the Futures and Options section of the NSE

furthermore enlisted with National Securities Depository Limited (NSDL) as a safe participant.1

REL has been promoted by Mr. Malvinder Mohan Singh and Mr. Shivinder Mohan Singh,

erstwhile promoters of Ranbaxy Laboratories Limited. REL is primarily a holding company with

around 11 subsidiary companies through which it offers its range of financial services. REL

through its subsidiaries has presence in over 550 cities and towns through a network of 1,822

business locations. The main operating companies are Religare Securities Limited (broking firm)

and Religare Finvest Limited (nonbanking finance company, providing loans against shares and

asset finance), which together account for around 80% of REL’s total income. REL came out

with its initial public offer in November 2007 and is listed at the Bombay Stock Exchange and

the National Stock Exchange. For the year ended March 31,2012, REL (consolidated) reported a

net loss of Rs. 241 crore as compared with a net loss of Rs. 295 crore for the previous year. For

the nine months ended December 31, 2012, , REL (consolidated) reported a net profit of Rs. 93.8

crore as compared with a net loss of Rs. 289.9 crore for the corresponding period of previous

year.

1 "Company History - Religare Enterprises Ltd. - The Economic Times".

2 | P a g e

Religare Finvest, a gathering organization, was established in 2001 as a private non-saving

money budgetary foundation. In 2002, RSL got enrollment as 'Portfolio Manager' from

Securities and Exchange Board of India (SEBI). RSL enlisted with Central Depository Services

Limited (CDSL) as a safe member in 2003. It additionally turned into a stock intermediary at the

Bombay Stock Exchange (BSE) in 2004. Around the same time, Religare Commodities Ltd., a

products broking organization, began operations as an 'exchanging cum clearing part' at both the

Multi Commodity Exchange (MCX) and the National Commodity and Derivatives Exchange

(NCDEX). An office was built up in London in 2006. In 2006, RSL got enlistment as Merchant

Banker in Category - I from SEBI. Religare reported a joint endeavor with Macquarie Bank Ltd.

in October 2007 to extend its riches administration business. REL opened up to the world about a

first sale of stock (IPO) of its stock in November, 2007, which was oversubscribed 159 times.2

that year, RSL got enrollment of subsidiary portion of the BSE as exchanging cum-clearing part.

In 2007, Religare additionally went into the Capital Markets business. AEGON Religare, an

extra security joint endeavor between AEGON, Religare and Bennett, Coleman and organization,

dispatched its skillet India operations in 2008. Religare Asset Management Company was

framed on the back of Religare's obtaining of Lotus India AMC and got the last administrative

endorsement from SEBI to dispatch common asset business in India. Religare went into the

institutional values business and Religare Global Asset Management shaped, for worldwide

extension.

In 2011, Religare Finvest effectively issued Non-convertible debentures (NCDs) worth Rs. 800

crore. In December 2011, Avigo Capital3 and in January 2012, Jacob Ballas4 put resources into

Religare Finvest Limited (RFL). In 2012 International Finance Corporation (IFC), an arm of

World Bank Group put resources into Religare.5 Religare Health Insurance Company Limited

(RHIC) began operations in the year 2012.6 Union Bank of India and Corporation Bank tie up

with Religare Health Insurance. In 2013 Religare purchased Macquarie's stake in the riches

administration business. Around the same time the name of Religare Mutual Fund was changed

2 "Official NSE India report 2008" (PDF).3 "Religare Finvest Raising Rs 150Cr From Avigo Capital - VCCircle"4 "Jacob Ballas to invest Rs 200 cr in Religare Finvest".5 "IFC to invest $75 m in Religare Enterprises - The Hindu BusinesLine".6 "Religare Health Insurance announces launch of its operations"

3 | P a g e

to Religare Invesco Mutual Fund. In 2014 Religare reported getting a 26% stake in YourNest

Angel Fund through its Global Asset Management arm (RGAM).7

About Religare Finvest Limited (RFL)

Religare Finvest Limited is a Non-Banking Financial Company that provides debt capital to

power the growth of the Small and Medium Enterprises, the backbone of India’s economy

RFL is an auxiliary of Religare Enterprises Limited (REL), is a Small and Medium Enterprise

(SME) financing centered NBFC. With a wide system of branches and ISO confirmation

9001:2008, RFL is focused on giving obligation funding to control the development of the

SME's which constitute as the foundation of India's economy. The organization additionally runs

a retail capital markets financing business which incorporates Loan against Marketable

Securities. RFL comprehends that each money related need is one of a kind and offers tweaked

answers for engage the client to thrive. With a conviction that the client's prosperity is their

prosperity, its vicinity in 25 branches over every single major city assumes a basic part in

supporting the clients business while developing to a book size of over INR 120.9 billion.

Religare Finvest Limited (RFL) was originally incorporated in the name of Skylark Securities

Private Limited in 1995. The Company was converted into a public limited company in the name

of Fortis Finvest Limited in 2004. In March 2006, the company changed its name to Religare

Finvest Limited. RFL is a wholly owned subsidiary of Religare Enterprises Limited, which is

promoted by the erstwhile promoters of Ranbaxy Laboratories Limited, Mr. Malvinder Mohan

Singh and Mr. Shivinder Mohan Singh. RFL had a total loan portfolio outstanding of Rs 12,738

crore as on December 31, 2012 (Rs. 12,573 crore as on March 31, 2012), which comprised

Loans against property (51% of portfolio as on December 31, 2012); loan against securities

(16%); corporate loans (15%); commercial asset financing including auto lease (10%); and SME

loans (8%). For the year ended March 31, 2012, RFL reported a net profit of Rs. 138 crore on an

asset base of Rs. 15,155 crore as compared with a net profit of Rs. 115 crore over an asset base

of Rs. 11,042 crore in 2010-11. For the nine months ended December 31, 2012, RFL reported a

net profit of Rs. 152 crore over an asset base of Rs. 15,139 crore. RFL reported a capital

adequacy of 20.05% as on December 31, 2012 (19.65% as on March 31, 2012).

7 "Religare Global buys stake in YourNest - The Hindu"

4 | P a g e

RFL was incorporated as an investment company on January 6, 1995 as “Skylark Securities

Private Limited” under the Companies Act, 1956 (“Act”). Subsequently, on September 23, 2004

it changed its name to “Fortis Finvest Private Limited” and on October 7, 2004 it changed its

name to “Fortis Finvest Limited”. On April 4, 2006 it changed its name to its present name. RFL

is a Non Banking Financial Company (“NBFC”) not accepting public deposits and is registered

with the Reserve Bank of India (“RBI”). RFL is currently engaged in the business of extending

corporate credit, corporate finance advisory, IPO distribution, mutual fund distribution services

and DP services.

RFL is registered with the RBI as a NBFC and is presently engaged in providing corporate credit

such as LAS, personal loans, loan against property and loan for commercial vehicles, PFS and

IPO financing. RFL has obtained post facto permission from the RBI for distribution of mutual

fund products and has applied to the SEBI for registration as a custodian of securities under the

provisions of the Securities and Exchange Board of India (Custodian of Securities) Regulations,

1996, as amended, to provide custodian services to its clients. RFL believes that its pan-India

coverage through the Religare brand will allow it to continue to grow its consumer loan

portfolio. RFL’s ability to appraise credit with a quality in-house team is key to providing

efficient credit decisions, a factor that will further enhance RFL’s ability to penetrate the

consumer credit market. ICRA, one of the leading rating agencies in India, has recently rated

RFL with its rating ‘LA+’ for the long term debt for Rs. 500 crores. RFL has ramped up its

distribution business and its advisor team is 350 as on August 31, 2009 and it has increased

collection of third party assets.

An extract of one of the main objects of the Memorandum of Association of the Company is

reproduced below: “To lend money on any terms that may be thought fit to any persons or

companies or customers having dealings with the Company.”

ABOUT RELIGARE HOUSING DEVELOPMENT FINANCE

CORPORATION LIMITED

Religare Housing Development Finance Corporation Limited operates in the housing finance

sector in India. The company is engaged in lending housing loans to individuals and corporate

customers. It offers loans for purchase, construction, repairs, and renovation of houses and flats.

5 | P a g e

The company was formerly known as Maharishi Housing Development Finance Corporation

Limited and changed its name to Religare Housing Development Finance Corporation Limited in

September 2010. The company was incorporated in 1993 and is headquartered in Noida, India.

Religare Housing Development Finance Corporation Ltd operates as a subsidiary of Religare

Finvest Limited.

Religare Housing Development Finance Corporation Ltd. (RHDFC), a subsidiary of Religare

Finvest Ltd, has a National Housing Bank (NHB) registration and is presently engaged in

providing Home Loans, Home Improvement Loans, Home Extension Loans and Self

Construction Loans. Religare Housing Development Finance Corporation Ltd. (RHDFC) is a

subsidiary of Religare Finvest Limited and is registered with the National Housing Bank (NHB).

It offers a wide array of services ranging from Home Loans, Home Improvement Loans, Home

Extension Loans and Self Construction Loans.

ABOUT ARBITRATION

The Indian law of arbitration is contained in the Arbitration and Conciliation Act 1996 (Act).1

The Act is based on the 1985 UNCITRAL Model Law on International Commercial Arbitration

and the UNCITRAL Arbitration Rules 1976. The Statement of Objects and Reasons of the Act

recognizes that India’s economic reforms will become effective only if the nation’s dispute

resolution provisions are in tune with international regime.

The financial community may find arbitration and ADR beneficial,8 particularly in connection

with securities transactions, guarantees, documentary credits, consumer loans, public sector

lending and M&A. The success of arbitration in the settlement of financial disputes will depend

on an accurate drafting of the arbitration agreement, as well as on the interaction and

interconnectedness of the elements of a given financial transaction.9 Arbitration should be kept

distinct from other non-judicial forms of alternative dispute resolution, for it implies not only the

consent of the parties to settle their dispute out of court, but also a binding and final award. An

arbitration agreement and an arbitral award imply that assets can be attached and competing

8 S. F. Ali and J. K. W. Kwok, The Future of Financial Dispute Resolution in Hong Kong: Promoting a Comprehensive “Multi-Tier Dispute Resolution System” with reference to the “Lehman Brothers Mediation Scheme” (2010) (unpublished paper,from the Selected Works of Shahla F. Ali), http://works.bepress.com/shahla_ali/5. 9

6 | P a g e

litigation precluded, while other ADR mechanisms, for instance mediation or conciliation, may

be neither binding, nor enforceable.

THE STATEMENT OF OBJECTS AND REASONS SET FORTH THE MAIN

OBJECTIVES OF THE ACT AS FOLLOWS:

To comprehensively cover international and commercial arbitration and conciliation as

also domestic arbitration and conciliation.

To make provision for an arbitral procedure this is fair, efficient and capable of meeting

the needs of the specific arbitration.

To provide that the arbitral tribunal gives reasons for its arbitral award.

To ensure that the arbitral tribunal remains within the limits of its jurisdiction.

To minimize the supervisory role of courts in the arbitral process.

To permit an arbitral tribunal to use mediation, conciliation or other procedures during

the arbitral proceedings to encourage settlement of disputes.

To provide that every final arbitral award is enforced in the same manner as if it were a

decree of the court.

To provide that a settlement agreement reached by the parties as a result of conciliation

proceedings will have the same status and effect as an arbitral award on agreed terms on

the substance of the dispute rendered by an arbitral tribunal.

To provide that, for purposes of enforcement of foreign awards, every arbitral award

made in a country to which one of the two International Conventions relating to foreign

arbitral awards to which India is a party applies, will be treated as a foreign award.”10

10 Arbitration and Conciliation Act, 1996, Statement of Objects and Reasons.

7 | P a g e

The Act is a composite bit of legislation. It accommodates local assertion, global business

discretion; implementation of remote grant and pacification (the last being founded on the

UNCITRAL Conciliation Rules of 1980). The more noteworthy procurements of the Act are to

be found in Part I and Part II thereof. Part I contains the procurements for household and

worldwide business assertion in India. All discretion directed in India would be represented by

Part I, regardless of the nationalities of the gatherings. Part II accommodates authorization of

outside grants. Part I is more complete and contains broad procurements in light of the Model

Law. It gives bury alia to arbitrability of debate, non-intercession by courts, working of the

arbitral tribunal; ward of arbitral tribunal, behavior of the discretion procedures, plan of action

against arbitral honors and authorization. Part II then again, is to a great extent confined to

authorization of outside grants administered by the New York Convention or the Geneva

Convention. Part II is in this way, (by it’s extremely nature) not a complete code.

The changes brought about by the 1996 Act were so drastic that the entire case law built up over

the previous fifty-six years on arbitration was rendered superfluous.11 Unfortunately, there was

no widespread debate and understanding of the changes before such an important legislative

change was enacted.12 The Government of India enacted the 1996 Act by an ordinance, and then

extended its life by another ordinance, before Parliament eventually passed it without reference

to a Parliamentary Committee—a standard practice for important enactments.13 In the absence of

case laws and general understanding of the Act in the context of international commercial

arbitration, several provisions of the 1996 Act were brought before the courts, which interpreted

the provisions in the usual manner.

SPEEDY JUSTICE ARBITRATION

11 (1999) 2 SCC 479 (Sundaram Finance vs. NEPC Ltd.). The Supreme Court held at p 484 thus: ‘The provisions of this Act (the 1996 Act) have, therefore, to be interpreted and construed independently and in fact reference to the 1940 Act may actually lead to misconstruction.’12

S K Dholakia, ‘Analytical Appraisal of the Arbitration and Conciliation (Amendment) Bill, 2003’, ICA’s Arbitration Quarterly, ICA, New Delhi, 2005 vol. XXXIX/No.4 at page 3. S K Dholakia is a Member of ICC International Court of Arbitration and Senior Advocate, Supreme Court of India.

13 S K Dholakia, ‘Analytical Appraisal of the Arbitration and Conciliation (Amendment) Bill, 2003’, ICA’s Arbitration Quarterly, ICA, New Delhi, 2005 vol. XXXIX/No.4 at page 3. S K Dholakia is a Member of ICC International Court of Arbitration and Senior Advocate, Supreme Court of India.

8 | P a g e

In India is rampant with delays that hamper the efficient dispensation of dispute resolution.

Though the 1996 Act confers greater autonomy on arbitrators and insulates them from judicial

interference, it does not fix any time period for completion of proceedings. This is a departure

from the 1940 Act, which fixed the time period for completion of arbitration proceedings. The

time frame for completion of the arbitration proceedings was done away with, on the

presumption that the root cause of delays in arbitration is judicial interference, and that granting

greater autonomy to the arbitrators would solve the problem. However, the reality is quite

different.

JUDICIAL INTERVENTION

The scope of judicial intervention under the 1996 Act has been curtailed to a great extent, courts

through judicial interpretation have widened the scope of judicial review, resulting in the

admission of large number of cases that ought to be dismissed at the first instance. Moreover, the

parties usually approach arbitration with a similar mindset as for litigation, with the result that

awards invariably end up in courts, increasing the timeframe for resolution of the disputes.

Parties also abuse the existing provision that allows ‘automatic stay’ of the execution of the

awards on mere filing of an application for challenge of the awards. So, the objective of

arbitration as a mechanism for speedy resolution of disputes gets obstructed due to obtrusive

delays.

One of the main objectives of the 1996 Act was to give more powers to the arbitrators and reduce

the supervisory role of the court in the arbitral process. In effect, judicial intervention is common

under the 1996 Act. Such intervention takes the form of determination in case of challenge of

awards. Such a propensity to exercise their authority to intervene may be attributable to their

skepticism that arbitration is not effective at resolving disputes or the judges’ vested concern that

their jurisdiction will be adversely eroded.14 The decision of the Supreme Court in the Saw Pipes

case 38 exemplifies this inclination, and threatens to hamper arbitration’s progress toward speed

and efficiency. In this case, the Supreme Court expanded the scope of ‘public policy’ from the

earlier ratio laid down by a three bench judgment in the Renusagar case15 and that one of the

14 Pramod Nair, ‘Quo vadis arbitration in India?’ Business Line, October 19, 2006. Pramod Nair is a Visiting Fellow at the Lauterpatch Research Centre for International Law, University of Cambridge.

15 1969 (2) SCC 554.

9 | P a g e

grounds for challenge of an award under the 1996 Act is violation of ‘public policy’. The

Renusagar case, while respecting the opinion that the definition of ‘public policy’ ought not to be

widened in the greater interest of society, has laid down three conditions for setting aside an

award which are a violation of

The fundamental policy of Indian law;

The interest of India

Justice of morality.

In the Saw Pipes case, the scope of public policy was widened to include challenge of award

when such an award is patently illegal. Some arbitrators have viewed the judgment in the Saw

Pipes case with concern. The main attack on the judgment is that it sets the clock back to the

same position that existed before the 1996 Act, and it increases the scope of judicial intervention

in challenging arbitral awards.16 It was also criticized on the grounds that giving a wider meaning

to the term ‘public policy’ was wrong, when the trend in international arbitrations is to reduce

the scope and extent of ‘public policy’.17 Jurists and experts have opined that unless the courts

themselves decide not to interfere, the Arbitration and Conciliation Act, 1996, would meet the

same fate as the 1940 Act.18 The Parliament, when enacting the 1996 Act and following the

UNICITRAL Model Law, did not introduce ‘patent illegality’ as a ground for setting aside an

award. The Supreme Court cannot introduce the same through the concept of ‘public policy of

India.’ After the Saw Pipes case, some judicial decisions have tried to reign the effect of Saw

Pipes.19 One instance of this is the Supreme Court decision in the case of McDermott

16 Ashok H Desai, ‘Challenges to an award – use and abuse’, ICA’s Arbitration Quarterly, ICA, 2006, vol. XLI/No.2, p 4. Ashok H Desai is a Senior Advocate of the Supreme Court of India.

17 Pravin H Parekh, ‘Public Policy as a ground for setting aside the award’, ICA’s Arbitration Quarterly, ICA, 2005, vol. XL/No.2, p 19.

18 Inaugural address by Justice Santosh N Hedge, Judge, Supreme Court of India, on Indian Council of Arbitration’s National Conference on ‘Arbitrating Commercial and Construction Contracts’ held at Hotel Inter Continental, New Delhi, December 6, 200319 Sumeet Kachwaha, ‘Enforcement of Arbitration Awards in India’, Asian International Arbitration Journal, 2008, vol. 4, number 1, p 68.

10 | P a g e

International Inc.vs. Burn Standard Co. Ltd,20 where the court somewhat read down Saw Pipes.

In respect of the Saw Pipes case, the Supreme Court held:

“We are not unmindful that the decision of this Court in ONGC case had visited considerable

adverse comments but the correctness or otherwise of the said decision is not in question

before us. It is only for a larger Bench to consider the correctness or otherwise of the said

decision. The said decision is binding on us. The said decision has been followed in a large

number of cases.”

LITIGATION VS ARBITRATION

The preference of arbitration over litigation is not automatic. Rather, it relies on different factors

such as the experience of the person who decides a financial controversy and the legal

framework governing the merits of the dispute. In this context, professionals working in the

financial services industry are called to evaluate the reliability of arbitration agreements versus

court selection clauses, the effectiveness of which will depend from the interplay of the

geographic and transactional context. One has to always bear in mind that in some countries

court judgments and jurisdiction clauses will not benefit from enforcement treaties. To the

contrary, the New York Convention mandates enforcement of arbitration agreements and awards

throughout the world. Arbitration, of course, has some extent of uncertainty, for instance, the

consolidation of related claims.

After careful revision of these factors, an arbitration clause can sometimes prove more reliable

and efficient than a court selection agreement, for several reasons. First of all, when borrower’s

assets are located in a jurisdiction where are lacking agreements to enforce foreign judgments, to

enforce an arbitral award pursuant to the New York Convention may be more effective Second,

when loans are subject to possible exchange controls, an arbitration clause reduces the likelihood

of an Act of State defence to loan enforcement. Third, an arbitrator may be more reasonable than

a jury in considering punitive damages claim (if any), or a lender liability action against a

banker. Lastly, arbitration may be used occasionally to resolve documentary credit disputes more

efficiently than in judicial proceedings.

20 2006(11)SCC 181 at p 208.

11 | P a g e

Cost-Effectiveness Arbitration is generally considered cheaper over traditional litigation, and is

one of the reasons for parties to resort to it. However, the ground realities show that arbitration in

India, particularly ad hoc arbitration, is becoming quite expensive vis-à-vis traditional litigation.

A cost analysis on arbitration vis-à-vis litigation will throw light on the higher cost of arbitration

over litigation. This is a crucial factor which weighs against developing a cost-effective quality

arbitration practice in India. The following paragraphs analyze the cost of arbitration and

litigation.

Although arbitration is considered to be a cheaper mechanism for the settlement of disputes,

there is a growing concern in India that arbitration has become a costly affair due to the high fee

of the arbitrators and liberal adjournments.21 This is particularly true for ad hoc arbitrations.

Arbitration is more cost-effective than litigation only if the number of arbitration proceedings is

limited.

The prevalent procedure before the arbitrators is as follows - at the first hearing, the claimant is

directed to file his claim statement and documents in support thereof; at the second hearing, the

opposing parties are directed to file their reply and documents; at the third hearing, the claimant

files his rejoinder. At each of these stages, there are usually at least two or three adjournments.

Sometimes, applications for interim directions are also filed by either party, which increases the

number of arbitration sittings for deciding such interim applications.

The first occasion for considering any question of jurisdiction does not normally arise until the

arbitral tribunal has issued at least six adjournments.22 If the respondent is the State or a public

sector undertaking, the number of adjournments is higher as it takes more time for these parties

in internally finalizing pleadings and documents that are to be filed before the arbitral tribunal.

Parties pay a fee to the arbitrators for each hearing and thus spend a substantial amount of

money.23 This is in addition to the other costs involved.

21 Samar Bhoite, ‘Mediation, a process less practiced in India in Business Disputes Resolution’ published in the website www.manupatra.com.

22 Law Commission of India, 176th Report on Arbitration and Conciliation (Amendment) Bill, 2001 at p 68.

23 Pramod Nair, ‘Quo vadis arbitration in India?’ Business Line, October 19, 2006. Pramod Nair is a Visiting Fellow at the Lauterpatch Research Centre for International Law, University of Cambridge.

12 | P a g e

In contrast, law suits, if admitted, are certainly cheaper, even though they take substantial

amounts of time to resolve. This is because lawyers’ fees are the only major expenditure in

litigation, and lawyers usually charge the same, if not more, as per litigation hearing.

ENFORCEMENT OF AWARDS

One of the factors for determining arbitration as an effective legal institution is the efficiency and

efficacy of its award enforcement regime. Under Section 36 of the 1996 Act, an arbitral award is

enforceable as a decree of the court, and could be executed like a decree in a suit under the

provisions of the Civil Procedure Code, 1908.24 An award resulting from an international

commercial arbitration is enforced according to the international treaties and conventions, which

stipulate the recognition and enforcement of arbitral awards.25

The rate of enforcement of arbitral awards is high. Under the 1996 Act, the Supreme Court of

India declined to enforce or recognize awards in only two out of twenty-four cases relating to

enforcement of arbitral awards (Section 36 of the 1996 Act) that came before it. Both cases

involved Indian parties and Indian law.

An example that may be quoted is Deutsche Bank AG v. Sebastian Holdings Inc.26 where the

English Court of Appeal stressed the necessity of construing jurisdiction clauses broadly, as

parties to multiple agreements do not expect their disputes to be settled by different tribunals.

The interpretation of multiple (related) agreements should be made so as to determine the

parties’ intention, hence being relevant whether such agreements were, or were not, part of an

overall transaction. This judgment did not apply the ‘commercial centre’ approach that instead

would be a valid alternative when the agreements have been concluded over a short period of

time.

24 Section 36 of the Arbitration and Conciliation Act, 1996 – Enforcement - Where the time for making an application to set aside the award under Section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the court.25

Sunil Malhotra, ‘Enforcement of Arbitral Awards’, ICA’s Arbitration Quarterly, ICA, 2006, vol. XL/No.4 at p 20.

26 2010] EWCA Civ 998 (U.K.).

13 | P a g e

In another case, Deutsche Bank AG v. Tongkah Harbour Public Co Ltd.27 the issue was whether

in a series of agreements providing for optional arbitration and for litigation, Deutsche Bank, as a

party to the agreements, could choose to litigate under one agreement and arbitrate under the

other. The argument of Deutsche Bank that different divisions involved in the transactions

allowed for different dispute settlement options was unsuccessful, since the Court looked at

Deutsche Bank as a sole contracting entity.

ABOUT THE LEGAL POLICY OF THE COMPANY

Legal actions may be initiated under civil, criminal and other laws as applicable to the respective

product and facts of each case. Broadly, the legal collections team may initiate following actions

amongst others as may be deemed appropriate under the facts and circumstances of each case,

against the delinquent borrowers.

a) Dunning Notice - when account is in early stages of Delinquency

b) Demand notice -- when account is in mid stages of Delinquency

c) Hard Notice Loan Recall Notice – when account is in later stages of Delinquency

d) SARFAESI Act, 2002 : Attachment and Sale of Property under the Act

e) Proceedings under The Arbitration and Conciliation Act, 1996

- Attachment of assets – interim protections under the section 9 and section 17 of

The Arbitration and Conciliation Act, 1996.

f) Mortgage Suit : Order 34 of Code of Civil Procedure, 1908

g) Proceedings under Section 138 of Negotiable Instruments Act, 1881

h) Winding-up of Company

i) Garnishee Orders

27 2011] EWHC 2251 (QB) (U.K.).

14 | P a g e

LEGAL PROCEEDINGS

a) Dunning Notice : (0-30 Days Past Due) - Dunning 1

The first stage of legal process will involve issuance of a demand letter to defaulting borrowers

called “Dunning - 1”.This Legal process will commence when the account reaches 0-30 DPD

(B1). Dunning - 1 will be sent by extracting a base from Monthly MIS and/or on

recommendation by Collections Unit.

b) Demand Notice : (30-60 Days Past Due)- Dunning 2

The second demand notice “Dunning – 2” will be send by extracting a base from Monthly MIS

and/or on recommendation from Collections Unit. This Legal process will commence when the

account reaches 30-60 DPD. “Dunning 2” will be issued to the borrower stating that the loan

shall be automatically recalled and legal proceedings shall be initiated in the event of a failure to

pay the dues within 7 days from the date of notice. This notice shall be sent through the external

counsel.

c) Loan Recall Notice

This notice is intended for recovery of total amount outstanding from delinquent borrowers. Post

receipt of the feedback from the location, a list shall be made of the borrowers in respect of

whom the feedback is to initiate arbitration proceedings. The list shall be sent to the external

counsel for sending Loan Recall Notice. The external counsel (based on the list) shall send the

Loan Recall Notice to the borrowers. According to the Loan Recall Notice a period of three to

seven days shall be given to repay the outstanding amount, failing which, the loan shall be

recalled. The Demand notice shall be sent through post/courier/hand delivery/pasting on the

property.

Recall of LRN: In case of regularisation of account (moving to bucket zero) post issuance of

Loan Recall Notice, the LRN shall be withdrawn by sending a letter to borrower mentioning the

re-instatement of terms and conditions of the original agreement.

Reference Letter

15 | P a g e

In case the borrower does not pay the outstanding overdue amount within the time given in the

loan recall notice, reference letter shall be sent by RFL/RHDFCL appointing / referring the

dispute to the Arbitrator. Post issuance of the Reference Letter, the Arbitrator, so appointed by

the RFL/RHDFCL shall proceed with the arbitration.

Arbitrators Notice

Once the dispute is referred to the arbitrator, a notice shall be issued by the arbitrator to the

borrower fixing the date of hearing after 20-25 days (usually) from the date of sending the said

notice. The agreements shall be handed over to the external counsels for filing the same before

the Arbitrator. An acknowledgement shall be taken at the time of handing over the agreements.

Thereafter, the Arbitration proceedings commence and shall be conducted as per the provisions

of the Arbitration and Conciliation Act, 1996. The Award passed by the Arbitrator can be filed in

the respective courts based on the pecuniary jurisdiction of the court for seeking directions from

the court to the borrower to furnish guarantee to the award amount.

Proceeding under Section 9 of The Arbitration and Conciliation Act, 1996

For securing the amount in dispute in the arbitration, the Court may order detention, preservation

or inspection of any property or thing which is the subject-matter of the dispute in arbitration.

Section 9 applications shall be filed after the expiry of the notice period contemplated under the

Loan Recall Notice. The list of borrowers who fall in the aforesaid category shall be prepared

and shared with the business for the feedback. Post taking the affirmation and the feedback the

said list shall be sent to the external counsel for preparing application under Section 9 of the

Arbitration and Conciliation Act, 1996.

The application under Section 9 can be filed in an earlier bucket based on the requirement of the

business and based on the collection feedback.

Note – Since the courts have started taking a view that Section 9 application is maintainable only

if the same is filed before the reference letter appointing arbitrator is sent, we have started

initiation of Arbitration proceedings only after obtaining the Section 9 order.

Proceeding under Section 17 of The Arbitration and Conciliation Act, 1996:

16 | P a g e

Under Section 17 of The Arbitration and Conciliation Act, 1996, Arbitral Tribunal has been

vested with powers to order a party to take any interim measure of protection on the subject-

matter of dispute and it may also require a party to provide an appropriate security in connection

with a measure ordered by it.

In case of requirement, application shall be made for order for attachment of Bank Account,

symbolic possession of property and restraint on sale of property etc.

Post receipt of application under Section 17, the Arbitrator shall send a notice to the borrower. In

case the borrower does not furnish the guarantee after expiry of the notice period, then RFL can

seek directions from the respective Arbitrator to appoint receiver and attach the immovable

assets of the borrower to secure its interest

d) Mortgage Suit : Order 34 Of Code Of Civil Procedure, 1908

Mortgage Suit under Order 34 of the Civil Procedure Code.

LAP, and Home Loan products where the total dues meets the filing criteria.

In specific cases, Civil Suit can be initiated across all the relationship wherein the

recovery dues are meeting the filing criteria

Stages

Loan Recall Notice to customer

Order 34 Suit for Recovery with application U/Or. 40 R.1 as an interim relief for

appointment of receiver to take the custody of property.

The court appointed receiver prepares inventory and files his report along with inventory

in the court after taking assets in the custody.

Order 34 if the code does not relate to the execution of decrees, but provides preliminary

and final decrees.

17 | P a g e

Post obtaining the decree executions petition shall be filed

Cases for Mortgage Suit initiation would be suggested by frontend, strategy would review and

mark the approvals and base for these accounts would be generated basis the specific approvals.

e) Notice Under Sec.138 Of Negotiable Instruments Act

This notice is intended for recovery of amount outstanding from delinquent borrower wherein

repayment cheques are dishonoured. Notice under Section 138 NI Act can be sent, on bounces of

ECS instruction/ Mandates by borrower as per section 25 (for Companies –Section27) of

Payment and Settlement System Act, 2007.

Filing of legal case under Section 138 NI Act

For all accounts where no payment has come within 18 days of sending notice, Section 138 case

filing can be initiated. Case shall be filed from Chequedrawee branch location only.For all cases

where the Section138 notice is sent legal unit would check for any payment credited from

borrower within 18 days from the date of notice .In case no payment is received within stipulated

period Section. 138 filing can be initiated.

Once the cheques are received back post the representation (original cheques with the return

memo), the same shall be sent to the external counsel for issuing a notice under Section 138 of

the Negotiable Instruments Act.

An acknowledgement shall be taken from the external counsel for the acknowledging the receipt

of the original cheques with return memo. A period of 15 days shall be given to the borrower to

repay the overdue installment as per the statutory requirement.

In the event the payment is not received post serving the notice then after the expiry of the 18

days (three days are given for service of notice) the external counsel shall be given instruction to

file a complaint under Section 138 the Negotiable Instruments Act.

18 | P a g e

Stages of Section 138 NI Act Case

Stages Ideal Timelines

Filing of case and Pre Summoning Evidence 0-1 months

Summons 0-2 months

Bailable Warrants 2-5 months

Non- bailable Warrants 5-12 months

Conviction / 82-83 (Proclaimed Offender) 12-18 months

Section 138 cases are filed in early buckets basis the request made by the collection unit. Death

cases are to be excluded. Case where borrowers are skip are to be excluded but can be filed basis

the requests from the collections unit.

Service of Summons

Service through Court

Dasti (By Hand)

Service of Warrants

Service through Court – Police goes to arrest the borrower

Dasti (By Hand) – to be executed through Police only

Withdrawal of cases under Section 138 N.I. Act, 1881

Post clearing of all the dues by the borrower, the case filed under Section 138 N.I. Act shall be

withdrawn. Since the case can be withdrawn only on the date of hearing, once all the dues are

paid, communication to the lawyer on withdrawal of case shall be done by the concerned legal

officer. The case shall be marked as withdrawn only post confirmation from lawyer on case

withdrawn on the next hearing date

19 | P a g e

f) Winding-Up Proceedings

Winding-up proceedings are initiated only in respect of the delinquent customers who are

companies registered under The Companies Act, 1956.

The proceedings are initiated on the recommendations and approval of the business and the Risk.

On receiving the instruction to initiate the said proceedings external counsel is given direction to

issue the statutory notice under the Companies Act.

Once the notice period expires the winding up proceedings are initiated and filed in the court of

law (company court). Initiation of winding up is compulsory in the following categories.

20 | P a g e

LATEST DEVELOPMENT IN LAW OF ARBITRATION VIS-A-VIS

INTRODUCTION OF THE NEW ORDINANCE

APPLICABILITY

The Ordinance is expressed to come into power with quick impact. Notwithstanding, it is not

particularly expressed in the matter of whether the procurements would apply to pending

mediations and/or Judicial procedures managing the issues that are the subject to the

amendments. Pending illumination, this is likely to offer ascent to some vulnerability. On the

other hand, following the Ordinance has not been particularly made imminent, it is prone to be

deciphered as applying to interventions started as per existing discretion assentions (despite the

fact that there is a few premise to contend something else).

The alterations attest the line of refinement between absolutely local assertion including Indian

parties ("Domestic Arbitration"), mediations having a worldwide component yet situated in India

("International Arbitration"), and discretions situated outside of India ("Foreign Arbitration").

The procurements of the Arbitration and Conciliation Act 1996 ("Act") (other than Part II of the

Act managing requirement) are regularly not relevant to Foreign Arbitrations, aside from where

particularly gave.

The Ordinance clears up that intervention would be a Domestic Arbitration regardless of the fact

that one of the gatherings to the mediation has its focal business and administration outside India.

This alteration attests the decision of the Supreme Court in TDM Infrastructure and affords

primacy to the place of incorporation of a company.

REFERENCE TO ARBITRATION

The Ordinance now permits “any person claiming through or under” a party to the arbitration to

seek reference of a dispute the subject of an arbitration agreement to arbitration. This clarifies a

string of slightly inconsistent rulings of the Indian courts and provides that even non-signatories

to an arbitration agreement may be able to seek reference to arbitration under appropriate

circumstances.

21 | P a g e

The Ordinance also requires the courts to refer parties to arbitration if, prima facie, an arbitration

agreement is found to exist. This amendment will prevent an extended inquiry by the courts on

the validity of the arbitration agreement (as was frequently done), and leave these issues to be

determined by the arbitral tribunal.

APPOINTMENT OF ARBITRATORS

Previously, due to a string of Supreme Court decisions including the decision in Patel

Engineering, appointment of an arbitrator by the Indian courts was considered a judicial

function. This was interpreted to mean that courts enjoyed broad powers to inquire into the

validity of arbitration agreements prior to appointing arbitrators. The Ordinance clarifies that the

power to appoint arbitrators is not a judicial function.

The Ordinance also clarifies that the power to appoint arbitrators can be delegated by the

Supreme Court or the High Court to any person or institution. This is an important statutory

recognition of the role of institutions in arbitral proceedings.

The Ordinance requires the courts to aim to dispose of an application for appointment of

arbitrators within 60 days from the date of service of notice to the other party.

The Ordinance also clarifies the grounds available to challenge appointment of arbitrators on

grounds that the appointment raises justifiable doubts as to his/her impartiality or independence.

The amended Act contains two schedules that list various grounds for challenge – which appear

to be heavily influenced by the IBA Guidelines on Conflict of Interest in International

Arbitration.

The amended Act also makes it impermissible for parties to agree in advance to appoint an

arbitrator who has previously been an employee of either party. Provisions such as these, which

were a standard feature of a number of State contracts will now no longer be valid.

COURT ASSISTANCE TO ARBITRATION

The Ordinance now clarifies that the courts’ power to grant interim relief in aid of arbitration is

available prior to initiating arbitration, provided the parties actually initiate arbitration within 90

days from the date of obtaining interim relief from the court. This is in contrast to recent

22 | P a g e

decisions in other countries where courts have recognised the courts’ power to grant interim

relief even if arbitration is not in contemplation.

The Ordinance also clarifies that the courts’ power to order interim relief is only available if the

arbitral tribunal is not in a position to grant efficacious interim protection.

Significantly, the Ordinance makes interim orders granted by arbitral tribunals enforceable in

Indian courts. This amendment will give more teeth to arbitral tribunals’ orders and minimise the

need to approach courts to obtain an enforceable order.

COURT ASSISTANCE TO FOREIGN ARBITRATION

Following the Supreme Court ruling in Bharat Aluminum, foreign parties were concerned that by

choosing to arbitrate outside of India they were unable to seek interim protection from Indian

courts. The Ordinance now specifically recognises that parties to a Foreign Arbitration can seek

the assistance of Indian courts for interim protection and for obtaining evidence, unless they

specifically exclude the jurisdiction of the Indian courts to provide such assistance.

The Ordinance however suggests that Indian Courts will only provide assistance if the seat of

arbitration is in a country which India recognises in its official Gazette as being a reciprocating

territory for the purposes of the Act.

CONDUCT OF ARBITRATIONS

A controversial provision in the Ordinance is the requirement for arbitrations to be completed

within 12 months. Parties are free to agree to extend this period by up to 6 months. Any further

extension can only be sought by making a court application. In such proceedings the court has

the power to replace recalcitrant arbitrators, impose penalties by reducing arbitrators’ fees and

impose exemplary costs on parties. The Ordinance requires the courts to endeavour to decide

such applications within 60 days. Mandatory stipulations of this nature, which do not account for

differences in the complexity of arbitrations are likely to attract criticism. Further, the

requirement to approach the courts to seek an extension in each case is likely to increase court

interference.

23 | P a g e

Significantly, a new provision allows parties to choose fast-track arbitration. In such proceedings

the arbitrator is required to render an award within 6 months from his/her appointment. The

default rule is for a decision to be rendered based on written pleadings with an oral hearing being

permitted only if both parties so request or if the arbitrator finds it necessary.

INTEREST AND COSTS

The Ordinance makes certain amendments to the arbitrators’ power to order interest. It prescribes

a default rule of awarding interest post-award at market rate (as periodically determined by the

Reserve Bank of India) plus 2%.

The Ordinance also contains detailed provisions relating to ordering of costs. It stipulates that the

court/arbitral tribunal can only order “reasonable” costs for legal fees, witness attendance,

institution fees etc. The Ordinance also provides that the default rule is for an unsuccessful party

to bear costs. The court/tribunal is free to deviate from this default rule for reasons to be recorded

in writing and after considering the circumstances detailed in the Act.

SETTING ASIDE AND ENFORCEMENT

The scheme of the Ordinance confirms the principle laid down in Bharat Aluminum, which

clarified that Indian courts do not have the power to set-aside awards rendered in Foreign

Arbitrations.

The Ordinance also narrows the scope of the public policy ground for setting aside arbitral

awards and challenging enforcement to circumstances where: the making of an award is vitiated

by fraud or corruption; the award violates the fundamental policy of India and; the award is

opposed to basic notions of justice or morality. The Ordinance further clarifies that the court

cannot review an award on merits while considering whether the award is opposed to the

fundamental policy of India.

The Ordinance specifically provides that ‘patent illegality’ as a ground for setting aside awards

will only be available for Domestic Arbitrations. Even here, the Ordinance provides that an

24 | P a g e

award may not be set aside merely on grounds that the tribunal erroneously applied the law or by

re-appreciating evidence.

In a further bid to avoid frivolous challenges, the Ordinance provides that an application to set

aside an award would not automatically stay enforcement. The Ordinance further provides that

where payment of money is the subject of an award, stay on enforcement shall be granted only

upon furnishing the sums in dispute as deposit or by furnishing sufficient security.

25 | P a g e

LEGAL TERMINOLOGIES

A

1. Adveloram: In proportion to the value

2. Award: An award (or arbitral award) is a determination on the merits by an arbitration

tribunal in an arbitration, and is analogous to a judgment in a court of law.

3. Arbitration:The process by which the parties to a dispute submit their differences to the

judgment of an impartial person or group appointed by mutual consent or statutory

provision.

4. Appeal: an appeal is a process for requesting a formal change to an official decision

5. Amicus curiae: Amicus Curiae is someone, not a party to a case, who volunteers to offer

information to assist a court in deciding a matter before it.

6. ADJ: Additional district judge

7. ASJ: Additional session judge

8. ACJ: Additional chief justice

B

9. Bailiff: A bailiff is a legal officer to whom some degree of authority, care or jurisdiction

is committed. Bailiffs are of various kinds and their offices and duties vary greatly.

C

26 | P a g e

10. Court fee: The fees charged by the court for the proceedings

11. Contempt of court: Contempt of court is a court order which, in the context of a court

trial or hearing, declares a person or organization to have disobeyed or been disrespectful

of the court's authority.

12. Cause of action: a cause of action is a set of facts sufficient to justify a right to sue to

obtain money, property, or the enforcement of a right against another party.

13. Conviction: a final judgment of guilty in a criminal case and the punishment that is

imposed.

14. Caveat: caveat means "warning" (or more literally, "let him beware", "let her beware" or

"let it beware.

15. Certified copy: A certified copy is a copy (often a photocopy) of a primary document,

that has on it an endorsement or certificate that it is a true copy of the primary document.

It does not certify that the primary document is genuine, only that it is a true copy of the

primary document.

16. Cognizance: Apprehension by the understanding; perception; observation.

17. CJ: Civil judge

D

18. Defendant: is any party who is required to answer the complaint of a plaintiff or pursuer

in a civil lawsuit before a court, or any party who has been formally charged or accused

of violating a criminal statute .

27 | P a g e

19. Deponent: A person who makes a deposition

20. DJ: District judge

21. D.M:District magistrate

22. Decree: An authoritative order having the force of law.

E

23. Equitable mortgage: mortgage which is created by mortgagor by delivery of the original

title documents of the immovable property without delivering the physical possession &

with an intention to create security in favor of a lender.

24. Ex-parte: An ex parte decision is one decided by a judge without requiring all of the

parties to the controversy to be present.

F

25. FC-Foreclosure sheet

I

26. Intra vires: within the legal power or authority or a person or official or body etc.

27. Intestate: The act of dying without a legal will.

28 | P a g e

J

28. Judgment: AJudgment is the evaluation of evidence in the making of a decision by the

court.

29. Judgment debtor: A party against which an unsatisfied court decision is awarded; a

person who is obligated to satisfy a court decision.

L

30. LRN- Loan recall notice

M

31. Mortgage: mortgage is transfer of certain interests in an immovable property for the

purpose of securing the payment of money which is or is going to be advanced by way of

loan.

32. Mortgage deed: A mortgage deed in simple terminology is an instrument which is

created for the purpose of securing money which is advanced or to be advanced by way

of loan or an existing or future debt for transferring the right over a specified property in

favor of another.

33. MOE: A mortgage deed, sometimes called a deed of trust, is a document that gives a

lender legal right and interest in a property. There are certain requirements that must be

met when a mortgage document is executed. A borrower is pledging his home as security

for a loan, and the mortgage deed represents the lender's ownership rights in the property.

34. Mutatis Mutandi: Mutatis mutandis is a Latin phrase meaning "by changing those things

which need to be changed" or more simply "the necessary changes having been made".

29 | P a g e

35. Mutation: Mutation means the recording in the revenue record of transfer of title of the

property from one person to other(s).

36. Mediation: Mediation, as used in law, is a form of alternative dispute resolution (ADR),

is a way of resolving disputes between two or more parties. A third party, the mediator,

assists the parties to negotiate their own settlement (facilitative mediation).

37. M.M: Metropolitan magistrate

O

38. Official receiver: An official receiver is that person who is appointed by the court to take

the custody or possession of the property mortgaged or hypothecated with the secured

creditor.

P

39. Probate: Probate is the legal process of administering the estate of a deceased person by

resolving all claims and distributing the deceased person's property under the valid will.

40. PDD- Post disbursal document.

41. Plaintiff: A plaintiff also known as a claimant or complainant is the term used in some

jurisdictions for the party who initiates a lawsuit (also known as an action) before a court.

42. Public officer:a person who has been legally elected or appointed to office and who

exercises governmental functions.

43. PTM- permission to mortgage.

30 | P a g e

R

44. Registered mortgage: when mortgage is created by execution of a mortgage deed which

must be registered with the sub-registrar in whose jurisdiction the property is situated.

45. Res – judicata: It is the matter which is already judged.

46. Review: When the decree passed is looked upon again by the same court of law, by

which it was first passed.

47. Revision: When the decree passed is sent for appeal to a higher authority for revision.

48. RS-Repayment scheme.

49. Respondent: The Defendant in a proceeding commenced by a petition.

50. Securitization: Securitization is basically a financial practice which the investors

undertake of pooling various types of contractual debt such as residential mortgages,

commercial mortgages, auto loans or credit card debt. The principal and the interest is

received by the investor on a regular basis. The securities which are backed by mortgage

receivables and are called mortgage-backed securities, while those backed by other types

of receivables are asset-backed securities.

S

51. Sub-Judice: Sub-Judice means that a particular case or matter is currently under trial or

being considered by a judge or court.

52. Sine die: Without a day specified for a future meeting; indefinitely.

31 | P a g e

53. SOA-Statement of a/c

54. Status quo: status quo means the absence of change; conservation of the same situation.

55. Showcause notice: A show cause notice is sent when the Courtorder that it requires a

party to appear before the court and explain why a certain course of action should not be

taken against it and if the party cannot convince the court or fails to appear, that course of

action is taken. Also called order to show cause.

56. Secured creditor: A secured creditor is a creditor which has the benefit of a security

interest over some or all of the assets of the debtor.

T

57. Title deeds: a legal document proving a person's right to property.

58. Tribunal: Tribunal in the general sense is any person or institution with the authority to

judge, adjudicate on, or determine claims or disputes.

U

59. Ultra vires: beyond the legal power or authority of a person or official or body etc; "an

ultra vires contract".

V

60. Void ab initio: having no legal force.

W

32 | P a g e

61. Writ: A writ is the written order issued by a judge usually before the proclamation of

judgment or ruling, directing a person or entity to perform certain act or abstain from

doing certain acts till such pendency of the writ..

33 | P a g e