In a recent case, the Calcutta High Court held that in the absence of a cross-border insolvency framework, Indian courts do not recognize or enforce foreign insolvency judgements from non-reciprocating countries, such as the U.S., and thus are not obligated to stay ongoing suits due to such foreign proceedings.
Uphealth Holdings (“Uphealth”), the assessee is a company that 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. Uphealth filed an anti-arbitration suit before the Trial Court, Rajarhat while a dispute arose between both.
During the pendency of the 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 applied 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.
The petitioner contended that the suit should be stayed under 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.
It was contended that the moratorium order from the U.S. Bankruptcy Court applied 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.
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.
It was 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 single bench of Justice Shampa Sarkar concluded that only orders from reciprocating countries like the UK are executable in India under Section 44-A of the CPC. Further, it was held that the application filed under Section 45 of the Arbitration Act was at the stage of hearing and an injunction was not issued by the Trial Court yet.
While dismissing the appeal, the High Court held that a moratorium order by the U.S. Bankruptcy Court could be a factor to be considered by the Trial court while adjudicating on the application.
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