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Legal Approach for recovery of mounting NPA’s of Finance Companies having operations in United Arab Emirates.

This Document discusses the ways and means of recovery of loans of Finance companies working in United Arab Emirates, from intentional defaulters who have knowingly moved to India to evade there responsibility of paying back. There have been numerous instances where borrowers obtained huge credit facilities and then moved to their native place contributing to creation of huge NPA’s and write-offs.

Prepared by- Arvind Kumar ( Legal Advisor)

NPA is a classification used by financial institutions that refer to loans that are in jeopardy of default. Once the borrower has failed to make interest or principal payments for 90 days the loan is considered to be a non-performing asset. Non-performing assets are problematic for financial institutions since they depend on interest payments for income. Troublesome pressure from the economy can lead to a sharp increase in non-performing loans and often results in massive write-downs. Also known as "non-performing loan".

If swelling volume of NPA comes up then it becomes a big cause of concern for the finance industry. When we look into the reasons behind the increasing volume of NPA’s then it comes out to be numerous ranging from dismal situation of Law and Order to economic slowdown(steep fall in demand). Some economists cite that “The Indian and global economy is passing through difficult times and the incidence of non-performing assets (NPAs) will be high in such circumstances.” Also it is true when the economy of a country does not do well; it is not surprising that the banks and NBFC’s have to deal with high levels of NPA.

Every finance Company is of the view of enlarging there business and sales and to further such a view credit is sometimes advanced to wrong borrowers who later on becomes intentional defaulters. Here comes the Legal Department into picture. Legal department holds out the threat of action against defaulters by giving a push to the wheel of Law. Also it is high time to put pressure on the Government to come out with new recovery policy to increase the pace of recovery and management of NPA’s.

In this document I am concerned with the enforcement of foreign decree and foreign arbitral awards in India which are passed abroad and are to be executed in India. There have been instances of some Indians taking huge credit from UAE’s financial lenders and then evading there responsibility to pay installments by moving back to India. This document seeks solution to such situation created by intentional defaulters. To proceed against such intentional Defaulters we have two weapons in our armory which are as follows- 1.	To get the foreign decree which is passed against the defaulters, (decree passed by foreign courts) enforced and executed in India by Indian Courts, 2.	To seek enforcement and execution of the Foreign Arbitral award passed against defaulters.

It is appropriate to first analyze the approach of Civil Procedure Code which seeks enforcement of foreign decree-

Under Indian Law, execution of decrees, whether foreign or domestic, is governed by the provisions of the Code of Civil Procedure, 1908 (CPC) (as amended from time to time).

Under the Indian law there are two ways of getting a foreign judgment enforced. Firstly by filing an Execution Petition under Section 44A of the CPC (in case the conditions specified therein are fulfilled). Secondly by filing a suit upon the foreign judgment/decree.

Under S. 44A of the CPC, a decree of any of the Superior Courts of any reciprocating territory are executable as a decree passed by the domestic Court. Therefore in case the decree does not pertain to a reciprocating territory or a superior Court of a reciprocating territory, as notified by the Central Government in the Official Gazette, the decree is not directly executable in India. In case the decree pertains to a country which is not a reciprocating territory then a fresh suit will have to  be filed in India on the basis of such a decree or judgement, which may be construed as a cause of action for the said suit. In the fresh suit, the said decree will be treated as another piece of evidence against the defendant.

S. 44A. discusses as under- Execution of decrees passed by Courts in reciprocating territory- (1) Where a certified copy of decree of any of the superior Courts of [***} any reciprocating territory has been filed in a District Court, the decree may be executed in India as if it had been passed by the District Court. (2) Together with the certified copy of the decree shall be filed a certificate from such superior Court stating the extent, if any, to which the decree has been satisfied or adjusted and such certificate shall, for the purposes of proceedings under this section, be conclusive proof of the extent of such satisfaction or adjustment. (3) The provisions of section 47 shall as from the filing of the certified copy of the decree apply to the proceedings of a District Court executing a decree under this section, and the District Court shall refuse execution of any such decree, if it is shown to the satisfaction of the Court that decree falls within any of the exceptions specified in clauses (a) to (f) of section 13. [Explanation I- “Reciprocating territory’ means any country or territory outside India which the Central Government may, by notification in the official Gazette, declare to be a reciprocating territory for the purposes of this section; and “superior courts’, with reference to any such territory, means such Courts as may be specified in the said notification. Explanation 2-‘Decree’ with reference to a superior court means any decree or judgment of such Court under which a sum of money is payable, not being a sum payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty, but shall in no case include an arbitration award, even if such an award is enforceable as a decree or judgment].

However in both cases  the decree has to pass  the test of S. 13  CPC which specifies certain exceptions under which the foreign judgement becomes inconclusive and  is therefore not executable or enforceable in India.

Under S. 13 of the Code of Civil Procedure, 1908 a foreign judgment becomes inconclusive and consequently unenforceable in the following circumstances:

(a)	where it has not been pronounced by a Court of competent jurisdiction; (b) 	where it has not been given on the merits of the case; (c) 	where it appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognise the law of India in cases in which such law is applicable; (d)	where the proceedings in which judgment was obtained are opposed to natural justice; (e)	where it has been obtained by fraud; (f)	where it sustains a claim founded on a breach of any law in force in India.

The List of the Reciprocating Territories as per the Provisions of Section 44 A of the Code of Civil Procedure, 1908, is as under : ________________________________________ 1.	United Kingdom 2.	Aden 3.	Fiji 4.	Republic of Singapore 5.	Federation of Malaya 6.	Trinidad and Tobago 7.	New Zealand, the Cook Islands (including Niue) and the Trust Territories of Western Samoa 8.	Hong Kong 9.	Papua and New Guinea 10.	Bangladesh 11.	United Arab Emirates

Though this is the list of the countries with whom India has relations and agreements for mutually enforcing court orders, however, since the decrees of the foreign courts are generally recognised as decrees of those courts, most of the times, those judgments and orders are fully respected in Indian Courts, and hence also generally adhered to. This is similar to what happens to Indian Judgments in other countries.

CONCLUSION with regard to approach of CPC-

It will be seen from the above that even if a judgment or a decree is passed by a foreign Court against an Indian defendant, the judgment or decree may not be enforceable against him due to the operation of S. 13 of CPC. It can be seen that, the plaintiff has to come to the Indian courts to either get the foreign judgment executed under S. 44A or file a fresh suit upon the judgment for its enforcement. Therefore by getting a decree in the foreign Court, the plaintiff is only avoids the inconvenience of leading evidence in the Indian Courts but runs a much bigger risk under S. 13. Therefore it may advisable for a foreign plaintiff to institute claims in India itself in case the defendant is in India. Since internet transactions would involve more of documentary evidence and that comparatively leading of evidence may not be that inconvenient, it may be advisable to avoid the risk under S. 13 and file claims in India itself.

________________________________________ Approach under Part II of Arbitration and Conciliation Act, 1996 -

Relationship between Contract and Borrower is maintained through an instrument of Contract and in common parlance every contract bears an Arbitral clause constituting arbitration agreement. With international trade and commerce growing rapidly across continents and borders, arbitration is frequently resorted to. Arbitration has become the need of the hour as lengthy litigation are full of procedural hustle and often prove as a barrier in making a business effective and efficient. The Arbitration and Conciliation Act, 1996 is the law that governs arbitrations in India. It is derived out of United Nations Commission on International Trade Law (UNICATRAL) model law on International Commercial Arbitration. India is also a signatory to the New York Convention (1960) and the Geneva Convention (1924).

There have been many cases in the recent past where foreign clients have found it difficult to enforce awards which they have judicially won outside India. This makes it essential for foreign clients and investors to understand the intricacies involved in this process. An understanding of recent developments and interpretation given to the Arbitration and Conciliation Act proves that judicial decisions play a crucial role than the black letter of the Act.

Part II of the deals with Foreign seated arbitration and now due to recent development made through the decision in Bharat Aluminium Co. v Kaiser Aluminium Technical Services 2012 SC the procedural hustle of Section 34 has been removed. This overrules previous controversial decisions from the Indian Supreme Court in the cases of Bhatia International v Bulk Trading S.A of 2002 and Venture Global Engineering v Satyam Computer Services Limited of 2008 and clearly lays down that part I of the Act does not apply to International Commercial Arbitration conducted out side India. Now there is no need to expressly exclude in the contract, the jurisdiction of India to challenge the award if the arbitration is ICA and is conducted out side India. It was further held that the law of the seat of the arbitration will govern the conduct of the arbitration.

Execution of Foreign Arbitral Award-

A person who intends to enforce a foreign arbitral award have to apply to the court and produce the original award or certified/authenticated copy of the same, agreement for arbitration and evidence as may be necessary to prove the award is a foreign award. The only requirement of the court at that stage is to see if the award is enforceable under Section 49 of the Act and the award shall be deemed to be a decree of that court and that court shall proceed further to execute the foreign award as a decree of that court. Execution is further proceeded in accordance with the provisions of Order XXI Code of Civil Procedure.

One interesting feature of enforcement of a foreign award is that there is no statutory appeal provided against any decision of the court rejecting objections to the award. An appeal shall lie only if the court holds the award to be non-enforceable. Hence, a decision upholding the award cannot be appealed against. However a discretionary appeal would lie to the Supreme Court of India under Article 136 of the Constitution of India. Such appeals are entertained only if the Court feels that they raise a question of fundamental importance or public interest. This is a positive approach adopted as it allows fewer opportunities to a judgment debtor to delay the enforcement of an award, much to the relief of many foreign clients.

Conclusion-

In this document we have seen two approaches to seek the judicial enforcement foreign decisions in India. Both the approaches appear useful for the finance companies of abroad to reduce their NPA’s. It seems that no intentional defaulter would go scot free from the trap of Indian judicial system. The supportive glimpse of these laws are quite impressive albeit, when it comes to actual application, lot of things are required to be done as our judicial system at lower level is not frequently dealing with such kind of cases. Now when international trade and commerce is growing rapidly across continents and borders, we have to become familiar with respect to part II of the Arbitration and Conciliation Act, 1996. This is the need of the hour as lengthy litigation would inevitably prove as a barrier in maintaining business efficiency in this time of Globalization, Modernization and Privatization.