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Navigating the Regulatory Landscape: Harmonizing provisions of SEBI (LODR) and Section 42A of Arbitration and Conciliation Act, 1996 - MMJC
Introduction:
Para B, Part A, of Scheule III of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘LODR Regulations’) listed companies are required to disclose to the stock exchanges about the ‘Pendency of any litigation (s) or dispute (s) or the outcome thereof which may have an impact on the listed entity”. Further listed company is required to provide give minimum information about such pending litigations or disputes or outcome thereof which may have impact on listed entity. In this regard question arises is whether is it necessary to give minimum information as is prescribed by SEBI Circular “Disclosure of material events / information by listed entities under regulation 30 and 30A of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015” dt: July 13, 2023 [‘July 2023 Circular’] even when the minimum information to be provided is confidential in nature?
Informal guidance given to GAIL India Ltd :
GAIL India limited, through its letter dated 10th August 2023, sought informal guidance from SEBI inter-alia on question, “Whether details of arbitral proceedings of pending arbitration matters or arbitral awards can be disclosed to SEBI as it may contravene Section 42A of Arbitration and Conciliation Act, 1996?”
SEBI in its guidance stated that, “Disclosure of details of arbitral proceedings or arbitral awards can be made to the extent it is permissible under the Arbitration and Conciliation Act, 1996 which would inter-alia include disclosure of fact of initiation of arbitration proceedings, amount of claim involved in such proceedings, fact of passing of arbitral award and its effect on the listed entity, fact of termination of the arbitration proceedings, court orders in relation to the arbitration proceedings etc.”
SEBI in its guidance has stated that disclosure of details of arbitration to stock exchange shall be in compliance with provision of Arbitration and Conciliation Act, 1996 [‘ACA’].
July 2023 Circular provides for some minimum information that is required to be given to stock exchange with regard to pending disputes. The minimum information required to be given is as follows:
| At the time of becoming party | Brief details of litigation viz. name of the opposing party, court/tribunal/agency where litigation is filed, brief details of dispute / litigation Expected financial implications, if any, due to compensation, penalty etc. Quantum of claims, if any |
| Regularly till the litigation continues | The details of any change in the status and / or any development in relation to such proceedings In case of litigation against the key managerial personnel or its promoters or ultimate person in control, regularly provide details of change in the status and / or any development in relation to such proceedings, In the event of settlement of the proceedings, details of such settlement including – terms of settlement, compensation / penalty paid (if any) and impact of such settlement on the financial position of the listed entity. |
This leads us to a question as to whether minimum information relating to arbitration shall not be disclosed to the stock exchange if it is confidential in nature? In this regard, we would understand the provisions of disclosure as per LODR Regulations and ACA to understand as to what all information relating to arbitration proceedings can be disclosed to stock exchanges.
Does LODR Regulation mandate disclosure of confidential information?
As per regulation 4(1)(h)[i], 4(1)(e)[ii] and 4(1)(d)[iii] listed companies are required to disclose information taking into consideration interests of all stakeholders and information that is accurate, explicit, adequate, and timely. LODR Regulations also provides for non-disclosure of information to stock exchanges if its confidential or it is being expressly stated that the information shall not be disclosed.
As per regulation 30(13), “In case of any event or information is required to be disclosed by the listed entity in terms of provisions of this regulation, pursuant to the receipt of a communication from any regulatory, statutory, enforcement or judicial authority, the listed entity shall disclose such communication, along with the event or information, unless disclosure of such communication is prohibited by such authority”. Schedule III Part A, Para A, point 17 read with FAQ no. 4[iv] of SEBI FAQ provide for disclosure on forensic audit. As per Point 17(b), “Final Forensic Audit report (other than for forensic audit initiated by regulatory / enforcement agencies) on receipt by the listed entity alongwith comments of the management, if any”. Further as per FAQ no. 4 SEBI has stated that in the disclosure of final forensic audit report any personally identifiable information including names of individuals and commercially sensitive information, if any may be expunged.
So, it is seen that even if LODR Regulation prescribe disclosure of accurate, explicit, and timely information it does not mandate disclosure of information that is expressly prohibited, commercially sensitive or any personally identifiable information. Disclosure of minimum information as per July 2023 Circular is allowed to the extent it is not expressly prohibited.
Intention/background of the section 42A of ACA.
Section 42A of ACA reads as follows, “Notwithstanding anything contained by any other law for the time being in force, the arbitrator, the arbitral institution and the parties to the arbitration agreement shall maintain confidentially of all arbitral proceedings except award where its disclosure is necessary for the purpose of implementation and enforcement of award”.
Section 42A requires arbitrator and the parties to arbitration proceedings, to maintain confidentiality with respect to arbitration proceedings. Section 42A does not enumerate information or events during arbitration proceedings that are required to be kept confidential. The term ‘arbitration proceedings’ is not defined under ACA. The expression ‘Proceedings’ with reference to a case, would imply taking of steps in connection with further progress of the case where the case is listed for hearing and the case is taken up by the Court and an order is made in the case, it would be proceedings in the case. It is not possible to confine the word ‘proceedings’ to the recording of evidence only[v]. So, arbitration proceedings relating to a case would mean events right from commencement of arbitration proceedings till the final settlement award is passed. As per Section 42 of ACA all this information will have to be kept confidential.
Section 42A was inserted in ACA with effect from August 30, 2019. Insertion of Section 42A was on the recommendation of The High-Level Committee [‘HLC’] constituted in the leadership of Justice B. N. Srikrishna Retired Judge, Supreme Court of India. HLC studied the confidentiality related provisions of arbitration laws of other countries and recommended insertion of new section to ACA[vi]. HLC while recommending the maintenance of confidentiality, also recommended insertion of some exceptions to the provisions. The exceptions included performance of legal duty, protection or enforcement of legal right and enforcement or challenge of award. The exceptions are not incorporated under the provisions of section 42 of ACA. Therefore, if we look at the intention of section 42A, we observe that, the section originally intended to maintain confidentiality but not at the cost of obstructing the performance of legal duties. So even if section 42A talks about maintaining confidentiality it does not expressly enumerate what all information can be considered confidential? For this reason, it is necessary to understand what all information can be considered confidential in connection with arbitration proceedings?
Obligation of confidentiality
Obligation relating to confidentiality in arbitration proceedings were discussed in few of foreign case laws. In the matter of John Forster Emmott vs Michael Wilson & Partners Ltd [2008] EWCA Civ 184[vii] Lord Justice Lawrence Collins held that, “79. Three legal concepts or categories have been in play in these cases. The first is privacy, in the sense that because arbitration is private that privacy would be violated by the publication or dissemination of documents deployed in the arbitration. The second is confidentiality in the sense where it is used to refer to inherent confidentiality in the information in documents, such as trade secrets or other confidential information generated or deployed in an arbitration. The third is confidentiality in the sense of an implied agreement that documents disclosed or generated in arbitration can only be used for the purposes of the arbitration. Further Lord Justice Lawrence Collins held that, “The conduct of arbitrations is private. That is implicit in the agreement to arbitrate. That does not mean that the arbitration is private for all purposes.” In Ali Shipping Corporation v Shipyard Trogir at 326, Potter LJ said that “the obligation of confidentiality … arises as an essential corollary of the privacy of arbitration proceedings.”
Lord Justice Lawrence Collins further held that, “It is plain that there are limits to the obligation of confidentiality. In my judgment the content of the obligation may depend on the context in which it arises and on the nature of the information or documents at issue. The limits of that obligation are still in the process of development on a case-by-case basis. On the authorities as they now stand, the principal cases in which disclosure will be permissible are these: the first is where there is consent, express or implied; second, where there is an order, or leave of the court (but that does not mean that the court has a general discretion to lift the obligation of confidentiality); third, where it is reasonably necessary for the protection of the legitimate interests of an arbitrating party; fourth, where the interests of justice require disclosure, and also (perhaps) where the public interest requires disclosure. Further the existence and details of an arbitration claim may need to be disclosed to insurers, or to shareholders, or to regulatory authorities.”
Lord Justice Lawrence Collins while highlighting difference in ‘privacy vs confidentiality’ stated that disclosure of information relating to arbitration proceedings should not result in breach of very purpose of bringing matter to arbitration. Lord Justice Lawrence Collins also stated that hence what to keep confidentiality in the going arbitration proceedings shall be decided on case-to-case basis. Further Lord Justice Lawrence Collins also provided certain scenarios (viz. disclosure with consent of parties to arbitration and disclosure of information other than trade secrets or other similar data, if any) in which disclosures of information pertaining to arbitration proceedings can be given. Now let us have a look at legal frameworks in foreign jurisdictions for disclosure of information relating to arbitration proceedings.
In few of foreign jurisdiction rules have been framed for the purpose of foreign arbitration. These rules provide for disclosure of information relating to arbitration in exceptional cases. Article 30(1) of London Court of International Arbitration provides for disclosure of information relating to arbitration when there is a legal duty[viii]. Further as per Article 75 (a) of World Intellectual Property Organisation arbitration rules disclosure of existence of arbitration and legal disclosures required with respect to arbitration proceedings can be disclosed to the extent it is legally required[ix]. In a recent case it was held that multiple disclosures had already been made of considerable information relating to the arbitration in question, including the interim and final awards as well as names of identified parties. As such, the Singapore Court of Appeal held that the confidentiality of arbitration had already been lost, and there was therefore insufficient basis to override strong interest in open justice in curial proceeding”. So, it can be inferred that disclosure of information relating to arbitration proceedings can be given provided it is a legal duty to do so and to the extent it is legally permissible.
Conclusion: Disclosure of information relating to pending disputes under arbitration shall be given to stock exchange as per LODR Regulation, as it is a legal duty to be performed by listed entity who is party to arbitration. Information relating to parties to arbitration, brief details of arbitration without disclosing the trade secrets or other private information, any material development in arbitration process (viz, passing of interim order or levying of penalty by Arbitrator if any, cancellation of arbitration and pursuing matter in court), date of passing of arbitration award, financial implications arising out of same and the fact that whether this award would be challenged, if applicable can be given so long as it does not violate the purpose of hearing the matter through arbitration process. Further certain information viz. relating to quantum of claims and counter claims made in dispute can be disclosed with the consent of parties to arbitration if disclosure of same would not result in inherent breach of confidentiality.
[i] The listed entity shall make the specified disclosures and follow its obligations in letter and spirit taking into consideration the interest of all stakeholders.
[ii] The listed entity shall ensure that disseminations made under provisions of these regulations and circulars made thereunder, are adequate, accurate, explicit, timely and presented in a simple language.
[iii] The listed entity shall provide adequate and timely information to recognised stock exchange(s) and investors.
[iv] https://www.sebi.gov.in/sebiweb/other/OtherAction.do?doFaq=yes
[v] Jai Ram vs State, AIR 1937 All 1937, 139 [S.326, CrPC 1973 (2 of 1974]
[vi] https://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf
[vii] https://www.trans-lex.org/301850/_/john-forster-emmott-v-michael-wilson-partners%C2%A0limited-%5B2008%5D-ewca-civ-184/
[viii] https://www.lcia.org/Dispute_Resolution_Services/lcia-arbitration-rules-2020.aspx#Article%2030
30.1 The parties undertake as a general principle to keep confidential all awards in the arbitration, together with all materials in the arbitration created for the purpose of the arbitration and all other documents produced by another party in the proceedings not otherwise in the public domain, save and to the extent that disclosure may be required of a party by legal duty, to protect or pursue a legal right, or to enforce or challenge an award in legal proceedings before a state court or other legal authority. The parties shall seek the same undertaking of confidentiality from all those that it involves in the arbitration, including but not limited to any authorised representative, witness of fact, expert or service provider
[ix] https://www.wipo.int/export/sites/www/amc/en/docs/arbitration_rules_and_fees_2021.pdf Except to the extent necessary in connection with a court challenge to the arbitration or an action for enforcement of an award, no information concerning the existence of an arbitration may be unilaterally disclosed by a party to any third party unless it is required to do so by law or by a competent regulatory body, and then only: (i) by disclosing no more than what is legally required; and.
This article is written in Taxmann. The link to the same is as follows: –
Mr. Vallabh M Joshi – Senior Manager – vallabhjoshi@mmjc.in