Friday, April 4, 2014

The Criminalization of Commercial Disputes

News reports indicate that the Supreme Court of India has ordered the chairman of Samsung Electronics to appear before a Ghaziabad court in relation to charges filed by a party in a contractual dispute. This is pursuant to an earlier judgment of the Supreme Court rendered on February 1, 2012 that delves into the various substantive issues involved in the dispute, including the jurisdiction of the Indian courts, preliminary issues of corporate criminal liability as well as the powers of the higher judiciary in quashing criminal complaints.

The 2012 judgment of the Supreme Court details the facts of the case. It essentially relates to a commercial dispute between a Samsung company based in Dubai and an Indian supplier JCE Consultancy. JCE initiated criminal proceedings (on charges of dishonest misappropriation, criminal breach of trust, cheating, etc.) due to the failure of Samsung Dubai to perform certain payment obligations under a contractual commitment entered into through another intermediary company Sky Impex Limited. JCE initiated civil proceedings before a Dubai court and filed a criminal complaint in India (on the ground that the contract that gave rise to the payment obligations was governed by Indian law and also that part of the performance of the contract occurred in India). On appeal by Samsung and several of its officers (including its chairman) who were the subject of the complaint, the Supreme Court had refused to accept their pleas and did not quash the summons against them.

While the dispute is yet to be heard on its merits, it represents a peculiar phenomenon, which is the use of the public enforcement machinery (through criminal proceedings) to achieve a resolvable outcome in what is essentially a civil dispute. This is not a case involving the breach of any statutory provisions of a public nature by Samsung or its officials that may lead to criminal penalties. The disputes are essentially private in nature between two contracting parties.

In allowing criminal proceedings to continue and in continuing with the summons against officials of the parent company of the Samsung group, there is a signaling concern. The international sentiment relating to doing business in (or with) India has been abysmally low for the last couple of years, with investors and trading parties eagerly awaiting the outcome of the elections before determining their long-term strategy regarding investing in or trading with Indian companies. Instances such as these add to the complexities of doing business with Indian companies, and do little to assuage concerns that investors and business counterparties have harbored more recently.

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