The SC on August 06, 2021 {AMAZON.COM NV INVESTMENT HOLDINGS LLC vs. FUTURE RETAIL LIMITED & ORS.} held that there being no interdict, either express or by necessary implication, against an Emergency Arbitrator would show that an Emergency Arbitrator’s orders, if provided for under institutional rules, would be covered by the Arbitration and Conciliation Act, 1996.
It was also held by the Bench, comprising of Justice R. F. Nariman and Justice B.R. Gavai that a reading of the provisions would show that an arbitration proceeding can be administered by a permanent arbitral institution. It was held that importantly, Section 2(6) makes it clear that parties are free to authorise any person including an institution to determine issues that arise between the parties. It was also held, under Section 2(8), party autonomy goes to the extent of an agreement which includes being governed by arbitration rules referred to in the present agreements. Likewise, under Section 19(2), parties are free to agree on the procedure to be followed by an arbitral tribunal in conducting its proceedings.
The SC held that the parties to the contract, in the present case, by agreeing to the SIAC Rules and the award of the Emergency Arbitrator, have not bypassed any mandatory provision of the Arbitration Act. It was held that there is nothing in the Arbitration Act that prohibits contracting parties from agreeing to a provision providing for an award being made by an Emergency Arbitrator. On the contrary, it was held that when properly read, various Sections of the Act which speak of party autonomy in choosing to be governed by institutional rules would make it clear that the said rules would apply to govern the rights between the parties, a position which, far from being prohibited by the Arbitration Act, is specifically endorsed by it.
It was held that a reading of the Rules indicates that even before an Arbitral Tribunal is constituted under the Rules, urgent interim reliefs can be granted by what is termed as an “Emergency Arbitrator”. It was held that an Emergency Arbitrator’s “award”, i.e., order, would undoubtedly be an order which furthers these very objectives, i.e., to decongest the court system and to give the parties urgent interim relief in cases which deserve such relief. It was also held that given the fact that party autonomy is respected by the Act and that there is otherwise no interdict against an Emergency Arbitrator being appointed, it is clear that an Emergency Arbitrator’s order, which is exactly like an order of an arbitral tribunal once properly constituted, in that parties have to be heard and reasons are to be given, would fall within the institutional rules to which the parties have agreed, and would consequently be covered by Section 17(1), when read with the other provisions of the Act.
It was held that a party cannot be heard to say, after it participates in an Emergency Award proceeding, having agreed to institutional rules made in that regard, that thereafter it will not be bound by an Emergency Arbitrator’s ruling. It was held that it is incongruous that after agreeing to be governed by institutional rules, can participate in a proceeding before an Emergency Arbitrator and, after losing, turn around and say that the award is a nullity or coram non judice when there is nothing in the Arbitration Act which interdicts an Emergency Arbitrator’s order from being made. It was held that Section 17, as construed in the light of the other provisions of the Act, clearly leads to the position that such emergency award is made under the provisions of Section 17(1) and can be enforced under the provisions of Section 17(2).
The SC held that there is no doubt that Section 17(2) creates a legal fiction. It was held that this fiction is created only for the purpose of enforceability of interim orders made by the arbitral tribunal. It was held that to extend it to appeals being filed under the Code of Civil Procedure would be a big leap not envisaged by the legislature at all in enacting the said fiction; to extend this fiction to encompass appeals from such orders is to go beyond the clear intention of the legislature.
It was also held that as far as Section 17 is concerned, the scheme qua interim orders passed by an arbitral tribunal mirrors the scheme qua interim orders passed by civil courts under Section 9. It was held that this vital difference between the provisions of Section 17 read with Section 9 and as contrasted with Section 36 puts paid to the argument of the respondents.
It was held that the Arbitration Act is a self-contained code on matters pertaining to arbitration, which is exhaustive in nature. It was held that the appeal provision carries a negative import that only such matters as are mentioned in the Section are permissible, and matters not mentioned therein cannot be brought in.
In the present case before the SC, two important questions arise in these appeals – first, as to whether an “award” delivered by an Emergency Arbitrator under the Arbitration Rules of the Singapore International Arbitration Centre [“SIAC Rules”] can be said to be an order under Section 17(1) of the Arbitration and Conciliation Act, 1996 [“Arbitration Act”]; and second, as to whether an order passed under Section 17(2) of the Arbitration Act in enforcement of the award of an Emergency Arbitrator by a learned Single Judge of the High Court is appealable.
The SC answered that the first question by declaring that full party autonomy is given by the Arbitration Act to have a dispute decided in accordance with institutional rules which can include Emergency Arbitrators delivering interim orders, described as “awards”. It was held that such orders are an important step in aid of decongesting the civil courts and affording expeditious interim relief to the parties. It was held that such orders are referable to and are made under Section 17(1) of the Arbitration Act.
Further, the second question posed was thus answered by the SC declaring that no appeal lies under Section 37 of the Arbitration Act against an order of enforcement of an Emergency Arbitrator’s order made under Section 17(2) of the Act. It was held by the SC that as a result, all interim orders of this Court stand vacated. The impugned judgments of the Division Bench, dated 8th February, 2021 and 22nd March, 2021, were set aside by the SC. The appeals were disposed of accordingly.
]]>It was also held by the Bench, comprising of Justice R. F. Nariman and Justice B.R. Gavai that there can be no doubt that given the law laid down by the Court, Section 34 of the Arbitration Act, 1996 cannot be held to include within it a power to modify an award.
The SC further to differentiate the rules of interpretation qua Constitution quoted the famous statement of Chief Justice Marshall in M'Culloch v. State of Maryland, 17 US 316 (1819) that “it is a constitution we are expounding” – and the Constitution is a living document governing the lives of millions of people, which is required to be interpreted in a flexible evolutionary manner to provide for the demands and compulsions of changing times and needs.
The question falling for consideration in present case before the SC was whether the power of a court under Section 34 of the Arbitration and Conciliation Act, 1996 [“Arbitration Act”] to “set aside” an award of an arbitrator would include the power to modify such an award.
The court held that in interpreting a statutory provision, a Judge must put himself in the shoes of Parliament and then ask whether Parliament intended this result. It was held that Parliament very clearly intended that no power of modification of an award exists in Section 34 of the Arbitration Act, 1996. It was held that it is only for Parliament to amend the aforesaid provision in the light of the experience of the courts in the working of the Arbitration Act, 1996, and bring it in line with other legislations the world over.
The SC further observed that injunctions against highway projects have now become impossible to obtain in view of Section 20A of the Specific Relief Act, which has been introduced w.e.f. 01.10.2018.
It was earlier held by the Supreme Court of India in Taherakhatoon v. Salambin Mohammad, (1999) 2 SCC 635 (at para 20), even after it declares the law and set aside the High Court judgment on law, it does not interfere with the judgment on facts, if the justice of the case does not require interference under Article 136 of the Constitution of India.
The SC further held that in present factual matrix, given the fact that in several similar cases, the NHAI has allowed similarly situated persons to receive compensation at a much higher rate than awarded, it declines to exercise its jurisdiction under Article 136 in favour of the appellants on the facts of the present cases. It was also held by the SC that given the fact that most of the awards in these cases were made 7-10 years ago, it would not, at this distance in time, be fair to send back these cases for a de novo start before the very arbitrator or some other arbitrator not consensually appointed, but appointed by the Central Government. The appeals were, therefore, dismissed on facts by the SC with no order as to costs.
]]>The SC on June 11, 2021 {M/s. Silpi Industries etc. vs. Kerala State Road Transport Corporation & Anr. etc.} held that a reading of Section 43 of the Arbitration and Conciliation Act, 1996 itself makes it clear that the Limitation Act, 1963 shall apply to the arbitrations, as it applies to proceedings in court. It was held that when the settlement with regard to a dispute between the parties is not arrived at under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006, necessarily, the Micro and Small Enterprises Facilitation Council shall take up the dispute for arbitration under Section 18(3) of the 2006 Act or it may refer to institution or centre to provide alternate dispute resolution services, and provisions of Arbitration and Conciliation Act 1996 are made applicable as if there was an agreement between the parties under sub-section (1) of Section 7 of the 1996 Act. It was held that in view of the express provision applying the provisions of the Limitation Act, 1963 to arbitrations as per Section 43 of the Arbitration and Conciliation Act, 1996, the Limitation Act, 1963 is applicable to the arbitration proceedings under Section 18(3) of the Micro, Small and Medium Enterprises Development Act, 2006.
It was also held by the Bench, comprising of Justice Ashok Bhushan and Justice R. Subhash Reddy that Section 18(3) of the 2006 Act also makes it clear that the provisions of 1996 Act are made applicable as if there is an agreement between the parties under sub-section (1) of Section 7 of the 1996 Act. It was held that Section 23 of the 1996 Act deals with the statement of claim and defence and Section 23(2A) gives a right to respondent to submit a counter claim or plead set-off with regard to claims within the scope of the arbitration agreement.
It was held that when Section 18(3) makes it clear that in the event of failure by the Council under Section 18(2) if proceedings are initiated under Section 18(3) of the 1996 Act, the provisions of 1996 Act are not only made applicable but specific mention is made to the effect as if the arbitration was in pursuance to an arbitration agreement referred to in sub-section (1) of Section 7 of the 1996 Act. It was held that when there is a provision for filing counter-claim and set-off which is expressly inserted in Section 23 of the 1996 Act, there is no reason for curtailing the right of the respondent for making counter-claim or set-off in proceedings before the Facilitation Council.
The questions, inter alia, falling for consideration before the SC in present case were whether the provisions of Indian Limitation Act, 1963 is applicable to arbitration proceedings initiated under Section 18(3) of Micro, Small and Medium Enterprises Development Act, 2006 and also whether, counter claim is maintainable in such arbitration proceedings.
It was held that it is to be noted that if the SC does not allow the counter-claim made by the buyer in the proceedings arising out of claims made by the seller, it may lead to parallel proceedings before the various fora. It was observed that on one hand, in view of beneficial legislation, seller may approach the Facilitation Council for claims, in the event of failure of payment by the buyer under provisions of 2006 Act, at the same time, if there is no separate agreement between the parties for any arbitration in a given case, buyer may approach the civil court for making claims against the seller, or else if there is an agreement between the parties for arbitration in the event of dispute between the parties, parties may seek appointment of arbitrator. It was held that in such event, it may result in conflicting findings, by various forums.
The SC held that the Arbitration and Conciliation Act, 1996 is a general law whereas the Micro, Small and Medium Enterprises Development Act, 2006 is a special beneficial legislation which is intended to benefit micro, small and medium enterprises covered by the said Act. The Act of 2006 contemplates a statutory arbitration when conciliation fails. It was held that When such beneficial provisions are there in the special enactment, such benefits cannot be denied on the ground that counter-claim is not maintainable before the Council. It was held that in any case, taking any other view means whenever buyer wish to avoid the jurisdiction of the Council, the buyer can do on the spacious plea of counter-claim, without responding to the claims of the seller. It was also held that when the provisions of Sections 15 to 23 are given overriding effect under Section 24 of the Act and further the 2006 Act is a beneficial legislation, the court is of the view that even the buyer, if any claim is there, can very well subject to the jurisdiction before the Council and make its claim/ counter claim, as otherwise, it will defeat the very objects of the Act which is a beneficial legislation to micro, small and medium enterprises. It was held that otherwise even in cases where there is no agreement for resolution of disputes by way of arbitration, if the seller is a party covered by Micro, Small and Medium Enterprises Development Act, 2006, if such party approaches the Council for resolution of dispute, other party may approach the civil court or any other forum making claims on the same issue. It was held that if two parallel proceedings are allowed, it may result in conflicting findings and if counter-claim is not permitted, buyer can get over the legal obligation of compound interest at 3 times of the bank rate and 75% pre-deposit contemplated under Sections 16 and 19 of the MSMED Act.
The SC concluded that on a harmonious construction of Section 18(3) of the 2006 Act and Section 7(1) and Section 23(2A) of the 1996 Act, it is of the view that counter-claim is maintainable before the statutory authorities under MSMED Act.
Registration
The SC held that the appellant cannot become micro or small enterprise or supplier, to claim the benefits within the meaning of MSMED Act 2006, by submitting a memorandum to obtain registration subsequent to entering into the contract and supply of goods and services. It was held that if any registration is obtained, same will be prospective and applies for supply of goods and services subsequent to registration but cannot operate retrospectively. It was held that any other interpretation of the provision would lead to absurdity and confer unwarranted benefit in favour of a party not intended by legislation.
]]>The Delhi High Court on June 8, 2020 {GLENCORE INTERNATIONAL AG vs HINDUSTAN ZINC LIMITED} held that the arbitration can be at a neutral Forum between the two parties and the assets may or may not be at either of the two places. It was held that this is the Forum where parties to an Arbitration Agreement agree to the arbitration proceedings being held and is the subject matter of arbitration. However, it was held that if an enforcement of the Award is filed, it is maintainable only where the properties/ assets of the JD are located, which may or may not be the chosen place of the parties for subject matter of arbitration.
The Single Judge of HC, Justice JYOTI SINGH, further observed that the right or interest to occupy any flat is a species of property and hence has a stamp of transferability and can be attached by a Warrant of Attachment.
In the present case, the JD had raised a preliminary objection on the territorial jurisdiction of the Delhi High Court, in the petition filed for execution of foreign award.
The HC observed that the various provisions of Order XXI CPC clearly held that the only relevant factor in execution of the Award is the location of the assets or the property of the JD and not the JD itself.
The HC held that reading of the earlier judgments along with the provisions of CPC and the Arbitration & Conciliation Act, 1996, leads to a prima facie conclusion that this Court would have territorial jurisdiction to entertain the petition. It was held that the subject matter of the Award is money and the JD has its assets within the territorial jurisdiction of this Court. It was held that the Award holders have made a categorical averment in the petitions that the JD has an Administrative Office in Delhi, as also some moveable properties lying in those premises. It was held that it is also averred that the JD has Bank Accounts in Delhi. Significantly, it was held that the JD in its application, objecting to the maintainability, has admitted that there is an Administrative/ liaison office, though on a Lease from the Government. It was held that there is no document on record at present to corroborate the stand that the premises are on Lease. Insofar as the averment of Bank
Accounts or other movables are concerned, it was held that there is not even a denial. In any case, it was held that in present times, there is a Centralized Banking Systems and Accounts can be operated from any part of the country.
The Delhi HC held that insofar as the argument of the JD that it has challenged the Awards under Section 34 read with Section 48 of the Act and the appeal is pending before the Rajasthan High Court, suffice would it be to state that pendency of those proceedings cannot come in the way of the Petitioners enforcing the Award before this Court. It was held that Section 42 is in Part I of the Act and since Part I itself had no application to a Foreign Award, Section 42 would have no application. Accordingly, the preliminarily objection was rejected by Delhi HC about maintainability.
]]>The SC on June 02, 2020 {M/S. CENTROTRADE MINERALS AND METALS INC. vs HINDUSTAN COPPER LTD.} held that remanding the matter to the ICC arbitrator to pass a fresh award is clearly outside the jurisdiction of an enforcing court under Section 48 of the 1996 Act.
It was held by the Bench, comprising of Justice R.F. Nariman, Justice S. Ravindra Bhat and Justice V. RAMASUBRAMANIAN, that the learned arbitrator had given a large number of opportunities to file documents and legal submissions. It was held that it is clear that the learned arbitrator was extremely fair to the respondent. It was observed that having noticed that the respondent wanted to stall the arbitral proceedings by approaching the Courts in Rajasthan and having succeeded partially, at least till February 2001, the conduct of the respondent leaves much to be called for. It was held that despite being informed time and again to appear before the Tribunal and submit their response and evidence in support thereof, it is only after the arbitrator indicated that he was going to pass an award that the respondent’s attorneys woke up and started asking for time to present their response. It was further held that this too was granted by the learned arbitrator, by not only granting extension of time, but by extending this time even further. It was held that finally, when the legal submissions of 75 pages were sent even beyond the time that was granted, the learned Arbitrator took this into account and then passed his award. The SC held that this being the case, on facts it can find no fault whatsoever with the conduct of the arbitral proceedings.
The issue before the SC was whether the award rendered in the appellate arbitration being a “foreign award” is liable to be enforced under the provisions of Section 48 of the Arbitration and Conciliation Act, 1996 at the instance of Centrotrade? The argument of breach of natural justice was raised by the respondent/ HCL before the SC - opposing enforcement of foreign award.
The SC held that an arbitrator’s refusal to adjourn the proceedings at the behest of one party cannot be said to be perverse, keeping in mind the object of speedy resolution of disputes of the Arbitration Act. In earlier judgment, in present case, the SC had already answered that a settlement of disputes or differences through a two-tier arbitration procedure as provided for in Clause 14 of the contract between the parties is permissible under the laws of India.
As a result, Centrotrade’s appeal was allowed by the SC, setting aside the Calcutta High Court (DB) judgment whereby the HC ruled that the present award is not liable to be enforced in India. Resultantly, it was directed by the SC that the foreign award, dated 29.09.2001, shall now be enforced.
]]>The Delhi High Court on May 29, 2020 {M/S HALLIBURTON OFFSHORE SERVICES INC. vs VEDANTA LIMITED & ANR.} held that it is the settled position in law that a Force Majeure clause is to be interpreted narrowly and not broadly. It was held that parties ought to be compelled to adhere to contractual terms and conditions and excusing non-performance would be only in exceptional situations.
The Single Judge of HC, Justice Prathiba M. Singh, further held the question as to whether COVID-19 would justify non-performance or breach of a contract has to be examined on the facts and circumstances of each case. It was held that every breach or non-performance cannot be justified or excused merely on the invocation of COVID-19 as a Force Majeure condition. It was held that the Court would have to assess the conduct of the parties prior to the outbreak, the deadlines that were imposed in the contract, the steps that were to be taken, the various compliances that were required to be made and only then assess as to whether, genuinely, a party was prevented or is able to justify its non-performance due to the epidemic/pandemic. It was further held by the High Court:
"57. The law relating to Force Majeure has been recently settled by the Supreme Court in the case of Energy Watchdog v. Central Electricity Regulatory Commission, (2017) 14 SCC 80. The principles laid down by the Supreme Court in paragraphs 34-42 are as under:
a) Force Majeure would operate as part of a contract as a contingency under section 32 of the Indian Contract Act 1872 (`ICA’). b) Independent of the contract sometimes, the doctrine of frustration could be invoked by a party as per Section 56, ICA. c) The impossibility of performance under Section 56, ICA would include impracticability or uselessness keeping in mind the object of the contract. d) If an untoward event or change of circumstance totally upsets the very foundation upon which the parties entered their agreement it can be said that the promisor finds it impossible to do the act which he had promised to do. e) Express terms of a contract cannot be ignored on a vague plea of equity. f) Risks associated with a contract would have to be borne by the parties. g) Performance is not discharged simply if it becomes onerous between the parties. h) Alteration of circumstances does not lead to frustration of a contract. i) Courts cannot generally absolve performance of a contract either because it has become onerous or due to an unforeseen turn of events. Doctrine of frustration has to be applied narrowly. j) A mere rise in cost or expense does not lead to frustration.k) If there is an alternative mode of performance, the Force Majeure clause will not apply. l) The terms of the contract, its matrix or context, the knowledge, expectation, assumptions and the nature of the supervening events have to be considered. m) If the Contract inherently has risk associated with it, the doctrine of frustration is not to be likely invoked. n) Unless there was a break in identity between the contract as envisioned originally and its performance in the altered circumstances, doctrine of frustration would not apply."
In the present case, Section 9 petition under Arbitration Act was filed by the petitioner (Contractor) seeking injunction against invocation of bank guarantees by the respondent Company. Initially, the interim order was passed in favour of the petitioner. As per the pleadings, the main dispute forming subject matter of Arbitration between the parties is that the Company claims 250 million USD towards Liquidated damages and losses whereas the Contractor claims 91 million USD under various heads.
The HC held that there is nothing on record to show as to what steps the Contractor took toward mitigation, which was necessary as per the Force Majeure clause.
It was held that the past non-performance of the Contractor cannot be condoned due to the COVID-19 lockdown in March 2020 in India. It was further held that the Contractor was in breach since September 2019. It was held that opportunities were given to the Contractor to cure the same repeatedly. It was held that despite the same, the Contractor could not complete the Project. It was held that the outbreak of a pandemic cannot be used as an excuse for non-performance of a contract for which the deadlines were much before the outbreak itself.
Thus, it was held by the HC that the Force Majeure clause does not afford any succour or shelter to the Contractor, at this stage, to seek restraint against encashment of the Bank Guarantees.
In Ansal Engineering Projects Ltd. v. Tehri Hydro Development Corporation Ltd., (1996) 5 SCC 450, the Supreme Court categorically observed that the adjudication of the quantum of loss and damages is not a precondition for invoking Bank Guarantees which are meant to secure the loss or damage caused due to breach. It was observed that on the basis of the terms of the Bank Guarantee the amount would be payable on a mere demand by the beneficiary.
The HC in present case held that at the time when the ad-interim order was passed by the ld. Single Judge the pleadings between the parties were not complete. It was held that in fact, most of the relevant correspondence was not filed by the Contractor and has now come on record by way of the reply and the rejoinder and further submissions filed by the parties. Thus, it was held that the submission on behalf of the Contractor that the ad-interim order ought to be continued is not tenable. It was held that the said order being ad-interim in nature, was prior to pleadings between the parties and does not deserve to be continued in favour of the Contractor.
Thus, it was concluded by the HC insofar as the invocation of three sets of Bank Guarantees are concerned, no case is made out for passing of any interim order staying the invocation or encashment thereof. The petition was accordingly disposed of by the HC.
]]>The SC on May 22, 2020 {PATEL ENGINEERING LTD. vs NORTH EASTERN ELECTRIC POWER CORPORATION LTD.} held that consistency is the cornerstone of the administration of justice and courts have evolved and formulated a principle that if the basic judgment is not assailed and the challenge is only to the order passed in review, the Supreme Court is obliged not to entertain such special leave petitions.
It was held by the SC Bench, comprising of Justice R. Banumathi, Justice Indu Malhotra & Justice Aniruddha Bose, that the Amendment Act, 2015 would apply to Section 34 petitions that are made after 23.10.2015 (the day on which the Amendment Act came into force). It was held that in the present case, admittedly, after the arbitral awards dated 29.03.2016, the applications under Section 34 of the Act were filed before the Judicial Commissioner, Shillong, therefore, the provisions of the Amendment Act would apply.
It was also held that insofar as domestic awards are concerned, the additional ground of patent illegality was now available under sub-section (2A) to Section 34. It was held, however, re-appreciation of evidence was not permitted under the ground of “patent illegality” appearing on the face of the award.
The present case arises out of a domestic award between two Indian entities. It was held that the ground of patent illegality is a ground available under the statute for setting aside a domestic award, if the decision of the arbitrator is found to be perverse, or, so irrational that no reasonable person would have arrived at the same; or, the construction of the contract is such that no fair or reasonable person would take; or, that the view of the arbitrator is not even a possible view.
The SC concluded that it is now not open to re-open the matter by filing a review petition on the same grounds, which have been rightly dismissed by the High Court. It was held that the Petitioner has failed to make out any error on the face of the judgment dated 26.02.2019. It was held that the High Court by the impugned order dated 10.10.2019 rightly dismissed the review petitions and the SC does not find any ground warranting interference with the impugned order. In the result, all the special leave petitions were dismissed by the SC.
]]>The SC on May 11, 2020 {SOUTH EAST ASIA MARINE ENGINEERING AND CONSTRUCTIONS LTD. v. OIL INDIA LIMITED} held that it is a settled position that a Court can set aside the award only on the grounds as provided in the Arbitration Act. It was held that it is also settled law that where two views are possible, the Court cannot interfere in the plausible view taken by the arbitrator supported by reasoning.
The SC Bench, comprising of Justice N.V. Ramana, Justice Mohan M. Shantanagoudar & Justice Ajay Rastogi held that under Indian contract law, the consequences of a force majeure event are provided for under Section 56 of the Contract Act, which states that on the occurrence of an event which renders the performance impossible, the contract becomes void thereafter.
In the present case, the question falling for consideration before the SC was whether the interpretation provided to the contract in the award of the Tribunal was reasonable and fair, so that the same passes the muster under Section 34 of the Arbitration Act?
The factual delineation of the case before the SC was as follows: during the subsistence of the contract, the prices of HighSpeed Diesel (“HSD”), one of the essential materials for carrying out the drilling operations, increased. Appellant raised a claim that increase in the price of HSD, an essential component for carrying out the contract triggered the “change in law” clause under the contract (i.e., Clause 23) and the Respondent became liable to reimburse them for the same. When the Respondent kept on rejecting the claim, the Appellant eventually invoked the arbitration clause vide letter dated 01.03.1999. The dispute was referred to an Arbitral Tribunal comprising of three arbitrators. The claim was allowed by Arbitral Tribunal; upheld under Sec 34 petition by District Judge; but set aside by HC in Sec 37 petition. That judgment of the HC, setting aside the award, was subject matter before the SC in this case.
The SC held that when the parties have not provided for what would take place when an event which renders the performance of the contract impossible, then Section 56 of the Contract Act applies. It was held that when the act contracted for becomes impossible, then under Section 56, the parties are exempted from further performance and the contract becomes void.
It was held that having regards to the settled law, the SC does not subscribe to either the reasons provided by the Arbitral Tribunal or the High Court. It was held that although, the Arbitral Tribunal correctly held that a contract needs to be interpreted taking into consideration all the clauses of the contract, it failed to apply the same standard while interpreting Clause 23 of the Contract.
The SC held that the interpretation of Clause 23 of the Contract by the Arbitral Tribunal, to provide a wide interpretation cannot be accepted, as the thumb rule of interpretation is that the document forming a written contract should be read as a whole and so far as possible as mutually explanatory. It was held that in the case at hand, this basic rule was ignored by the Tribunal while interpreting the clause.
The SC concluded that it can be said that the contract was based on a fixed rate. It was held that the party, before entering the tender process, entered the contract after mitigating the risk of such an increase. Further held that if the purpose of the tender was to limit the risks of price variations, then the interpretation placed by the Arbitral Tribunal cannot be said to be possible one, as it would completely defeat the explicit wordings and purpose of the contract. It was held that there is no gainsaying that there will be price fluctuations which a prudent contractor would have taken into margin, while bidding in the tender. It was held that such price fluctuations cannot be brought under Clause 23 unless specific language points to the inclusion.
For the aforesaid reasons, the SC did not interfere with the impugned judgment and order of the High Court setting aside the award, however, assigned different reasons than by the HC for sustaining the impugned judgment. The appeal was accordingly dismissed by the SC.
]]>The SC on April 29, 2020 {QUIPPO CONSTRUCTION EQUIPMENT LIMITED v. JANARDAN NIRMAN PVT. LIMITED} held that it was possible for the respondent to raise submissions that arbitration pertaining to each of the agreements be considered and dealt with separately. It was held that it was also possible for him to contend that in respect of the agreement where the venue was agreed to be at Kolkata, the arbitration proceedings be conducted accordingly. It was held by the Court that considering the facts that the respondent failed to participate in the proceedings before the Arbitrator and did not raise any submission that the Arbitrator did not have jurisdiction or that he was exceeding the scope of his authority, the respondent must be deemed to have waived all such objections.
The SC Bench, comprising of Justice U U Lalit & Justice Sanjiv Khanna, observed that in the present case the arbitration in question is a domestic and an institutional arbitration where CIAA was empowered to and did nominate the Arbitrator. It was held that it is not as if there were completely different mechanisms for appointment of Arbitrator in each of the agreements. It was held that the only distinction is that according to one of the agreements the venue was to be at Kolkata. It was held by the Court that the specification of “place of arbitration” may have special significance in an International Commercial Arbitration, where the “place of arbitration” may determine which curial law would apply. However, in the present case, the applicable substantive as well as curial law would be the same.
POINT UNDER CONSIDERATION
In the present case, it was held by the District Court at Alipore, in the petition u/s 34 of the Arbitration and Conciliation Act, 1996 (for short “the Act”) filed by the respondent herein: after careful scrutiny of the case record as well as the observation of the Hon’ble Apex Court. It finds that the arbitration award was passed at New Delhi and accordingly the Court of New Delhi has the jurisdiction to entertain the application u/s 34 of the Arbitration and Conciliation Act. This Court has no jurisdiction. So, the present case is bad for want of jurisdiction. The petition u/s 34 was accordingly dismissed by the District Court at Alipore - which order was set aside by the Calcutta High Court in petition u/s 37 of the Act. That order of the HC was subject matter of present case before the SC.
It was held by the SC that in the circumstances, it is clear that: (i) Though each of the four agreements provided for arbitration, the award rendered by the Arbitrator was a common award; and (ii) In one of the agreements the venue was stated to be Kolkata and yet the proceedings were conducted at Delhi; However, at no stage, the aforesaid objections were raised by the respondent before the Arbitrator and the respondent let the arbitral proceedings conclude and culminate in an ex-parte award. Therefore, the question that arose before the SC was whether the respondent could be said to have waived the right to raise any of the aforesaid objections. It was held by the SC that in the said circumstances the respondent has waived the right to raise any of the said objections, including, regarding Venue of arbitration can only be at Kolkata.
The SC held that the respondent is now precluded from raising any submission or objection as to the venue of arbitration, the conclusion drawn by the Court at Alipore while dismissing the petition u/s 34 of the Act was quite correct and did not call for any interference. It was held that the High Court was in error in setting aside said Order. The Court allowed the appeal, setting aside the Judgment and Order under appeal and restored the Order dated 13.08.2018 passed by the Court at Alipore u/s 34 of the Act.
]]>The SC on April 22, 2020 {NATIONAL AGRICULTURAL COOPERATIVE MARKETING FEDERATION OF INDIA v. ALIMENTA S.A.} held that in the present case, the award is ex facie illegal, and in contravention of fundamental law, no export without permission of the Government was permissible and without the consent of the Government quota could not have been forwarded to next season. It was held that the export without permission would have violated the law, thus, enforcement of such award would be violative of the public policy of India. It was held that on the happening of contingency agreed to by the parties in Clause 14 of the FOSFA Agreement the contract was rendered unenforceable under section 32 of the Contract Act. It was held that as such the NAFED could not have been held liable to pay damages under foreign award.
It was further held by the SC Bench, comprising of Justice Arun Mishra, Justice M. R. Shah & Justice B. R. Gavai, it is apparent from Clause 14 of the Agreement that during the contract shipment period in the event of the prohibition of export by an executive or legislative act by any of the Government of origin, such restriction shall be deemed by both the parties to apply to the contract. Thus, it was held that if the shipment becomes impossible by reasons mentioned in the clause, the agreement shall be cancelled.
It was observed that Section 32 of the Contract Act applies in case the agreement itself provides for contingencies upon happening of which contract cannot be carried out and provide the consequences. To this case, it was held that provisions of Section 32 of the Contract Act is attracted and not section 56. It was held that in case an act becomes impossible at a future date, and that exigency is not provided in the agreement on the happening of which exigency, impossible or unlawful, the promisor had no control which he could not have prevented, the contract becomes void as provided in section 56. However, it was held that section 56 also provides liability for a cause where the promisor has agreed to do something which he knew or with reasonable diligence might have known and which the promisee did not know to be impossible or unlawful. It was held that such a promisor must make compensation to such promise and is liable to pay damages. It was held that the latter part of section 56 is applicable when promisee did not know the act to be impossible or unlawful and that it was not known to the promisor; the action was impossible or unlawful or with reasonable diligence might have known.
In the present case, it was held that because of the clear stipulation in Clause 14 of the Agreement, it is apparent that the parties have agreed for a contingent contract. It was held that they knew very well that the Government’s executive, or legislative actions might come in the way as provided in Clause 14 of the Agreement. It was thus held, in this case, section 32 of the Contract Act is attracted and not the provisions of section 56. It was held that it was an agreement to do an act impossible in itself without permission, and that is declared to be void by section 32. It was observed that the contract was capable of being performed in case the Government gave the requisite authorization. It was held that it is not an event that was not in contemplation at the time of entering into the agreement. Government permission was necessary. It was observed that Section 56 is not attracted as the promisor and promise both knew the reason in advance as in agreement such a contingency was provided itself in case of Government’s executive order comes in the way, for cancellation of the contract. Thus, it was held that the contract became void on the happening of the contingency, as provided in section 32 of the Contract Act.
In the present case, the High Court observed that it was a case of self-induced frustration. The SC observed that High Court ignored and overlooked that it was not a case of frustration under section 56 of the Contract Act, but there was a stipulation in Clause 14 of the Agreement, the effect of which was ignored and overlooked, and the said term was based upon the law as applicable in India and was based on export restrictions, it was within the realm of public policy. It was held that the NAFED was a canalising agency and could not have supplied without prior permission of Government, nor could it have lawfully carried forward last year's supply to next year that too limited quota and to supply Government permission was necessary to make it. It was held that enforcement of such an award in violation of export policy and the Government order would be against the public policy as envisaged in section 7 of the Act of 1961.
It was held that in view of Clause 14 of FOSFA Agreement and as per the law applicable in India, no export could have taken place without the permission of the Government, and the NAFED was unable to supply, as it did not have any permission in the season to effect the supply, it required the permission of the Government. It was held that the matter is such which pertains to the fundamental policy of India and parties were aware of it, and contracted that in such an exigency as provided in clause 14, the Agreement shall be cancelled for the supply which could not be made. It was held that it became void under section 32 of the Contract Act on happening of contingency. Thus, it was not open because of the clear terms of the Arbitration Agreement to saddle the liability upon the NAFED to pay damages as the contract became void. There was no permission to export commodity of the previous year in the next season, and then the Government declined permission to NAFED to supply. Thus, it was concluded that it would be against the fundamental public policy of India to enforce such an award, any supply made then would contravene the public policy of India relating to export for which permission of the Government of India was necessary.
The question was also raised before the SC concerning the Board of Appeal, enhancing the rate of interest from 10.5 % to 11.25 %. It was held that it was not open to the Board of Appeal to increase the interest in the absence of appeal.
It was held that the award could not be said to be enforceable, given the provisions contained in Section 7(1)(b)(ii) of the Foreign Awards Act. As per the test laid down in Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp. (1) SCC 644, its enforcement would be against the fundamental policy of Indian Law and the basic concept of justice. Thus, it was held that award is unenforceable, and the High Court erred in law in holding otherwise in a perfunctory manner.
The issue involved in the present appeal is the enforceability of the foreign award. The questions falling for consideration in present case before the SC were (i) whether NAFED was unable to comply with the contractual obligation to export groundnut due to the Government's refusal?; (ii) whether NAFED could have been held liable in breach of contract to pay damages particularly in view of Clause 14 of the Agreement?; and (iii) whether enforcement of the award is against the public policy of India? All the said questions were answered in favour of NAFED by the SC, while allowing the appeal.
The appellant was not able to comply with the contractual obligation in the present case due to ban imposed by the government on the export of groundnut in the relevant year.
Consequently, the appeal filed by the NAFED was allowed, and the impugned judgment and order passed by the High Court was set aside. Award was held to be unenforceable in India by the SC.
]]>The Delhi High Court on April 20, 2020 {M/s HALLIBURTON OFFSHORE SERVICES INC. v. VEDANTA LIMITED & ANR} held that the countrywide lockdown, which came into place on 24th March, 2020 was prima facie in the nature of force majeure. It was held that such a lockdown is unprecedented, and was incapable of having been predicted either by the respondent or by the petitioner.
It was held that the listing of the lockdown, presently in place, consequent to the unfortunate COVID-2019 pandemic, which has ravaged the country and, indeed, the world, has resulted, the inability – and, indeed, impermissibility – of workmen being able to travel or, indeed, of any personnel being able to move from one place to another, during the period of lockdown.
The HC held that it is prima facie of the view that the extreme submission, advanced by Dr. Singhvi, that judicial interference with invocation, or encashment, of bank guarantees, where they are unconditional, is permissible only in cases of egregious fraud, is not acceptable even on the anvil of the decisions on which Dr Singhvi himself relies.
It was held that in the recent decision of Supreme Court in Standard Chartered Bank Ltd (2019 SCC Online SC 1638) it was laid down that irretrievable injustice, and special equities, as distinct circumstances, the existence of either of which would justify an order of injunction.
It was held that viewed any which way, there appears to be no gainsaying the proposition that, where “special equities” exist, the court is empowered, in a given set of facts and circumstances, to injunct invocation, or encashment, of a bank guarantee. It was held that where such special circumstances do exist, no occasion arises, to revert to the general principle regarding the contractually binding nature of a bank guarantee, or the legal obligation of the bank to honour the bank guarantee, these special circumstances having, in all cases, being treated as exceptions to this general principle.
It was held that we are placed, today, in uncomfortably peculiar circumstances. A pandemic, of the nature which affects the world today, has not visited us during the lifetime of any of us and, hopefully, would not visit us hereinafter either. It was observed that the devastation, human, economic, social and political, that has resulted as a consequence thereof, is unprecedented.
It was observed that Prima facie, there is substance in the submission, of Mr. Sethi, that, even if petroleum were to be treated as an essential commodity, and the activity of production thereof were exempted from the rigour of the lockdown, the petitioner is not engaged, stricto sensu, in the production of petroleum, but is, rather, engaged in drilling of the wells, which activity is substantially, if not entirely, impeded as the result of the imposition of the lockdown.
It was held that Prima facie, special equities do exist, as would justify grant of the prayer, of the petitioner, to injunct the respondent from invoking the bank guarantees of the petitioner, forming subject matter of these proceedings, till the expiry of a period of one week from 3rd May, 2020, till which date the lockdown has been imposed.
It was directed by the High Court in operative part that there shall be an ad interim stay on invocation and encashment of the eight Bank guarantees, till the next date of hearing by respondent no. 1.
In the present case, the petition was preferred under Section 9 of the Arbitration and Conciliation Act, 1996, seeking interim protection, by way of a restraint, against Respondent No. 1, injuncting the said respondent from invoking or encashing eight bank guarantees, five of which are due to expire on 30th June, 2020, and the remaining three on 24th November, 2020, issued by the ICICI Bank (Respondent No 2 herein), in favour of Respondent No. 1, under instructions of the petitioner. The interim relief was granted by the HC, as aforesaid, till the next date of hearing.
]]>Justice R F NARIMAN, Justice S. RAVINDRA BHAT & Justice V. RAMASUBRAMANIAN
The SC {HINDUSTAN CONSTRUCTION COMPANY LTD v. NHPC LTD & ANR. } holds given the finding in this case that New Delhi was the chosen seat of the parties, even if an application was first made to the Faridabad Court, that application would be made to a court without jurisdiction. It was held that once the seat of arbitration is designated, such clause then becomes an exclusive jurisdiction clause as a result of which only the courts where the seat is located would then have jurisdiction to the exclusion of all other courts.
The SC relied upon judgment in Civil Appeal No. 9307 of 2019 entitled BGS SGS Soma JV vs. NHPC Ltd. dated 10.12.2019, in which reference was made to Section 42 of the Act and a finding recorded thus:
“61. Equally incorrect is the finding in Antrix Corporation Ltd. (supra) that Section 42 of the Arbitration Act, 1996 would be rendered ineffective and useless. Section 42 is meant to avoid conflicts in jurisdiction of Courts by placing the supervisory jurisdiction over all arbitral proceedings in connection with the arbitration in one Court exclusively. This is why the section begins with a non-obstante clause, and then goes on to state “…where with respect to an arbitration agreement any application under this Part has been made in a Court…” It is obvious that the application made under this part to a Court must be a Court which has jurisdiction to decide such application. The subsequent holdings of this Court, that where a seat is designated in an agreement, the Courts of the seat alone have jurisdiction, would require that all applications under Part I be made only in the Court where the seat is located, and that Court alone then has jurisdiction over the arbitral proceedings and all subsequent applications arising out of the arbitral agreement. So read, Section 42 is not rendered ineffective or useless. Also, where it is found on the facts of a particular case that either no “seat” is designated by agreement, or the so-called “seat” is only a convenient “venue”, then there may be several Courts where a part of the cause of action arises that may have jurisdiction. Again, an application under Section 9 of the Arbitration Act, 1996 may be preferred before a court in which part of the cause of action arises in a case where parties have not agreed on the “seat” of arbitration, and before such “seat” may have been determined, on the facts of a particular case, by the Arbitral Tribunal under Section 20(2) of the Arbitration Act, 1996. In both these situations, the earliest application having been made to a Court in which a part of the cause of action arises would then be the exclusive Court under Section 42, which would have control over the arbitral proceedings. For all these reasons, the law stated by the Bombay and Delhi High Courts in this regard is incorrect and is overruled."
In the present case, by an order dated 14.11.2019 passed by the learned Additional District Judge-cum-Presiding Judge, Special Commercial Court at Gurugram in Arbitration Case No. 252 of 2018, the learned Judge on construing the arbitration clause in the agreement between the parties arrived at the finding that the seat of arbitration was at New Delhi. Yet, by virtue of Bharat Aluminium Company and Ors. vs. Kaiser Aluminium Technical Services, Inc. and Ors. (2012) 9 SCC 552 since both Delhi as well as the Faridabad Courts would have jurisdiction as the contract was executed between the parties at Faridabad, and part of the cause of action arose there, and since the Faridabad Court was invoked first on the facts of this case, Section 42 of the Arbitration Act would kick in as a result of which the Faridabad Court would have jurisdiction to decide all other applications. The said order was set aside by the SC and the matter was transferred to Delhi High Court as the seat of arbitration was Delhi.
]]>Justice R Banumathi, Justice A S Bopanna & Justice Hrishikesh Roy
The SC {MANKASTU IMPEX PRIVATE LIMITED v. AIRVISUAL LIMITED} holds that the words in Clause 17.1 “without regard to its conflicts of laws provisions and courts at New Delhi shall have the jurisdiction” do not take away or dilute the intention of the parties in Clause 17.2 that the arbitration be administered in Hong Kong. It was held that the words in Clause 17.1 do not suggest that the seat of arbitration is in New Delhi. It was held that since Part-I is not applicable to “International Commercial Arbitrations”, in order to enable the parties to avail the interim relief, Clause 17.3 appears to have been added. It was also held that the words “without regard to its conflicts of laws provisions and courts at New Delhi shall have the jurisdiction” in Clause 17.1 is to be read in conjunction with Clause 17.3. It was held that since the arbitration is seated at Hong Kong, the petition filed by the petitioner under Section 11(6) of the Act is not maintainable and the petition is liable to be dismissed.
Accordingly, Arbitration Petition No.32 of 2018 filed by the petitioner seeking appointment of an arbitrator under Section 11(6) of the Act was dismissed. It was held that it is however open to the petitioner to approach Hong Kong International Arbitration Centre for appointment of the arbitrator, if they so desire.
The SC further held:
"25. Clause 17.1 of the MoU stipulates that the MoU is governed by the laws of India and the courts at New Delhi shall have jurisdiction. The interpretation to Clause 17.1 shows that the substantive law governing the substantive contract are the laws of India. The words in Clause 17.1 “without regard to its conflicts of laws provisions and courts at New Delhi shall have the jurisdiction” has to be read along with Clause 17.3 of the agreement. As per Clause 17.3, the parties have agreed that the party may seek provisional, injunctive or equitable remedies from a court having jurisdiction before, during or after the pendency of any arbitral proceedings. In para (161) in BALCO (2012) 9 SCC 552, this Court held that “…..on a logical and schematic construction of Arbitration Act, 1996, the Indian Courts do not have the power to grant interim measures when the seat of arbitration is outside India….”. If the arbitration agreement is found to have seat of arbitration outside India, then the Indian Courts cannot exercise supervisory jurisdiction over the award or pass interim orders. It would have therefore been necessary for the parties to incorporate Clause 17.3 that parties have agreed that a party may seek interim relief for which Delhi Courts would have jurisdiction. In this regard, we may usefully refer to the insertion of proviso to Section 2(2) of the Arbitration Act, 1996 by Amendment Act, 2015. By the Amendment Act, 2015 (w.e.f. 23.10.2015), a proviso has been added to Section 2(2) of the Act as per which, certain provisions of Part-I of the Act i.e. Sections 9 – interim relief, 27 – court’s assistance for evidence, 37(1)(a) – appeal against the orders and Section 37(3) have been made applicable to “International Commercial Arbitrations” even if the place of arbitration is outside India. Proviso to Section 2(2) of the Act reads as under:-
“2. Definitions.- …….. (2) This Part shall apply where the place of arbitration is in India: Provided that subject to an agreement to the contrary, the provisions of sections 9, 27 and clause (a) of sub-section (1) and subsection (3) of section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognised under the provisions of Part II of this Act.”
It is pertinent to note that Section 11 is not included in the proviso and accordingly, Section 11 has no application to “International Commercial Arbitrations” seated outside India."
In the present case, the petition had been filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 read with Arbitration and Conciliation (Amendment) Act, 2015 read with the Appointment of Arbitrator by the Chief Justice of India Scheme, 1996 seeking appointment of a sole arbitrator under Clause 17.2 of the Memorandum of Understanding dated 12.09.2016 between petitioner-Company incorporated in India and respondent incorporated under the laws of Hong Kong - which petition came to be dismissed by the SC in view of aforesaid.
]]>Supreme Court of India
Justice R F Nariman, Justice Aniruddha Bose & Justice V. Ramasubramanian
The SC { VIJAY KARIA & ORS. v. PRYSMIAN CAVI E SISTEMI SRL & ORS.} holds that unlike Section 37 of the Arbitration Act, which is contained in Part I of the said Act, and which provides an appeal against either setting aside or refusing to set aside a ‘domestic’ arbitration award, the legislative policy so far as recognition and enforcement of foreign awards is that an appeal is provided against a judgment refusing to recognise and enforce a foreign award but not the other way around (i.e. an order recognising and enforcing an award). This is because the policy of the legislature is that there ought to be only one bite at the cherry in a case where objections are made to the foreign award on the extremely narrow grounds contained in Section 48 of the Act and which have been rejected. This is in consonance with the fact that India is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (hereinafter referred to as “New York Convention”) and intends - through this legislation - to ensure that a person who belongs to a Convention country, and who, in most cases, has gone through a challenge procedure to the said award in the country of its origin, must then be able to get such award recognised and enforced in India as soon as possible. This is so that such person may enjoy the fruits of an award which has been challenged and which challenge has been turned down in the country of its origin, subject to grounds to resist enforcement being made out under Section 48 of the Arbitration Act.
It was held that the Supreme Court’s jurisdiction under Article 136 should not be used to circumvent the legislative policy so contained. It was held that given the restricted parameters of Article 136, it is important to note that in cases - where no appeal is granted against a judgment which recognises and enforces a foreign award - this Court should be very slow in interfering with such judgments, and should entertain an appeal only with a view to settle the law if some new or unique point is raised which has not been answered by the Supreme Court before, so that the Supreme Court judgment may then be used to guide the course of future litigation in this regard. Also, it would only be in a very exceptional case of a blatant disregard of Section 48 of the Arbitration Act that the Supreme Court would interfere with a judgment which recognises and enforces a foreign award however inelegantly drafted the judgment may be.
It was held that if a foreign award fails to determine a material issue which goes to the root of the matter or fails to decide a claim or counter-claim in its entirety, the award may shock the conscience of the Court and may be set aside, on the ground of violation of the public policy of India, in that it would then offend a most basic notion of justice in this country. It must always be remembered that poor reasoning, by which a material issue or claim is rejected, can never fall in this class of cases. Also, issues that the tribunal considered essential and has addressed must be given their due weight – it often happens that the tribunal considers a particular issue as essential and answers it, which by implication would mean that the other issue or issues raised have been implicitly rejected. For example, two parties may both allege that the other is in breach. A finding that one party is in breach, without expressly stating that the other party is not in breach, would amount to a decision on both a claim and a counterclaim, as to which party is in breach. Similarly, after hearing the parties, a certain sum may be awarded as damages and an issue as to interest may not be answered at all. This again may, on the facts of a given case, amount to an implied rejection of the claim for interest. The important point to be considered is that the foreign award must be read as a whole, fairly, and without nit-picking. It was held that if read as a whole, the said award has addressed the basic issues raised by the parties and has, in substance, decided the claims and counter-claims of the parties, enforcement must follow.
Further, held that when the grounds for resisting enforcement of a foreign award under Section 48 are seen, they may be classified into three groups – grounds which affect the jurisdiction of the arbitration proceedings; grounds which affect party interest alone; and grounds which go to the public policy of India, as explained by Explanation 1 to Section 48(2). Where a ground to resist enforcement is made out, by which the very jurisdiction of the tribunal is questioned - such as the arbitration agreement itself not being valid under the law to which the parties have subjected it, or where the subject matter of difference is not capable of settlement by arbitration under the law of India, it is obvious that there can be no discretion in these matters. It was held that enforcement of a foreign award made without jurisdiction cannot possibly be weighed in the scales for a discretion to be exercised to enforce such award if the scales are tilted in its favour.
In the present matter, the appeals were filed against the judgment of a Single Judge of the Bombay High Court dated 07.01.2019, by which four final awards made by a sole arbitrator in London under the London Court of International Arbitration Rules (2014) were held to be enforceable against the Appellants in India. The appeals stand dismissed with cost of Rs. 50 Lakhs by the SC.
]]>Chief Justice S A Bobde, Justice B R Gavai and Justice Surya Kant
The SC {M/S DHARMARATNAKARA RAI BAHADUR ARCOT NARAINSWAMY MUDALIAR CHATTRAM & OTHER CHARITIES & ORS. v. M/S BHASKAR RAJU & BROTHERS & ORS. } has in unequivocal terms held, that when a lease deed or any other instrument is relied upon as containing the arbitration agreement, the Court is required to consider at the outset, whether the document is properly stamped or not. It has been held, that even when an objection in that behalf is not raised, it is the duty of the Court to consider the issue. It has further been held, that if the Court comes to the conclusion, that the instrument is not properly stamped, it should be impounded and dealt with, in the manner specified in Section 38 of the Stamp Act, 1899.
It was held by the SC that the Court cannot act upon unstamped document or the arbitration clause therein. However, if the deficit duty and penalty is paid in the manner set out in Section 35 or Section 40 of the Stamp Act, 1899, the document can be acted upon or admitted in evidence.
It was held that in present case, the lease deed containing the arbitration clause which is required to be duly stamped, was not sufficiently stamped and though the Registrar (Judicial) had directed the respondent Nos. 1 and 2 to pay deficit stamp duty and penalty of Rs.1,01,56,388/ (Rupees One crore One lakh fifty six thousand Three hundred and Eighty eight only), the respondents failed to do so, the High Court has erred in relying on the said lease dated 12.3.1997 and referring the parties for arbitration. Accordingly, the petition/application filed by the respondents under Section 11 of the Arbitration Act was rejected by the SC while setting aside the order of the HC.
]]>Justice Indu Malhotra & Justice Ajay Rastogi
The issue which has fallen for consideration before the SC is whether the High Court was justified in rejecting the application filed under Section 11 for reference to arbitration, on the ground that it was barred by limitation.
It was held by the SC {Uttarakhand Purv Sainik Kalyan Nigam Limited v. Northern Coal Field Limited } that the legislative intent underlying the 1996 Act is party autonomy and minimal judicial intervention in the arbitral process. Under this regime, once the arbitrator is appointed, or the tribunal is constituted, all issues and objections are to be decided by the arbitral tribunal.
In view of the provisions of Section 16, and the legislative policy to restrict judicial intervention at the prereference stage, the issue of limitation would require to be decided by the arbitrator.
In view of that the SC set aside the impugned judgment and order dated 11.01.2018 passed by the High Court, and directed that the issue of limitation be decided by the arbitral tribunal.
]]>Justice M R Shah and Justice Arun Mishra
The SC {M/s Avinash Hitech City 2 Society & Ors. v. Boddu Manikya Malini & Anr. Etc.} sets aside the concurrent judgments of courts below and referred the matter for arbitration by allowing the application under Sec 8 of the Act of the appellant. In present case, the respondents filed a petition under Section 23 of the Andhra Pradesh Societies Registration Act, 2001 before the Principal District Judge, Ranga Reddy District making an allegation that their purported share in the rentals were not being paid to them and prayed for a direction to appellant no. 1 Society to produce the entire accounts for the rental amounts received by it from the tenants along with audit reports and minute books from 2011 to 2015.
It was held by the SC that Clause 19 of the agreement shall be applicable in the event of any dispute and difference arising among the parties out of, in connection with or relating to the agreement. It was held that, the developers, owners, societies and the original owners and even subsequent societies formed are parties to the agreement and the Addendum. It is also held that the dispute is with respect to sharing of the rent of the leased space. And it can be said that the respondents are also claiming the share relying upon the Development Agreements; Supplementary Development Agreements and the Addendum. Therefore, the dispute can be said to in connection with or relating to the Agreements also - which contain arbitration clause.
It was held by the SC that Clause 19 of the Addendum to the Supplementary Development Agreement shall be squarely applicable and therefore the disputes between the respondents and the appellants for which the respondents initiated proceedings under the Societies Registration Act, are required to be referred to the Arbitration and/or to the Arbitral Tribunal. Accordingly, the appeal was allowed and the matter stands referred to arbitration.
]]>Justice Mohan M. Shantanagoudar, Justice N V Ramana and Justice Ajay Rastogi
The SC {M/s Geo Miller & Co. Pvt. Ltd. v. Chairman, Rajasthan Vidyut Utpadan Nigam Ltd. } holds that it is settled law that the date of commencement of arbitration proceedings for the purpose of deciding which Act applies, upon a conjoint reading of Sections 21 and Section 85(2)(a) of the 1996 Act, shall be regarded as the date on which notice was served to the other party requesting appointment of an arbitrator.
It is further held that it is well settled that by virtue of Article 137 of the First Schedule to the Limitation Act, 1963 the limitation period for reference of a dispute to arbitration or for seeking appointment of an arbitrator before a Court under the 1940 Act (See State of Orissa and Another v. Damodar Das, (1996) 2 SCC 216) as well as the 1996 Act (See Grasim Industries Limited v. State of Kerala, (2018) 14 SCC 265) is three years from the date on which the cause of action or the claim which is sought to be arbitrated first arises.
It is held, however, the limitation period for invocation of arbitration would be three years from the date of the cause of action under Article 137 of the Limitation Act, 1963.
It is further held when the final bill handed over to the respondent became due. Mere correspondence of the appellant by way of writing letters/reminders to the respondent subsequent to this date would not extend the time of limitation. Hence the maximum period during which this Court could have allowed the appellant’s application for appointment of an arbitrator is 3 years from the date on which cause of action arose.
It is held in a commercial dispute, while mere failure to pay may not give rise to a cause of action, once the applicant has asserted their claim and the respondent fails to respond to such claim, such failure will be treated as a denial of the applicant’s claim giving rise to a dispute, and therefore the cause of action for reference to arbitration. It is held it does not lie to the applicant to plead that waited for an unreasonably long period to refer the dispute to arbitration merely on account of the respondent’s failure to settle their claim and because they were writing representations and reminders to the respondent in the meanwhile. Consequently, the appeal stands dismissed by SC.
]]>Justice Ajay Rastogi, Justice N.V. Ramana and Justice Mohan M. Shantanagoudar
The SC { NATIONAL HIGHWAYS AUTHORITY OF INDIA v. SAYEDABAD TEA COMPANY LTD. AND ORS. } was considering the question whether the application under Section 11 of the Arbitration and Conciliation Act, 1996 is maintainable in view of Section 3G(5) of the National Highways Act, 1956 which provides for appointment of an Arbitrator by the Central Government.
Answering, the said question it was held by the SC that in view of the power being vested exclusively with the Central Government to appoint an Arbitrator under Section 3G(5) of the Act 1956, being a special enactment, the application filed under Section 11(6) of the Act 1996 for appointment of an Arbitrator was not maintainable and provisions of the Act, 1996 could not be invoked for the purpose. Accordingly, the order of the High Court appointing an arbitrator u/s 11 was set aside by the SC.
]]>Justice Ajay Rastogi and Justice Mohan M. Shantanagoudar
The SC { JAYESH H. PANDYA & ANR. v. SUBHTEX INDIA LTD. & ORS. } holds that the time fixed by agreement of the parties for the arbitration and/or schedule of time limit in such arbitration proceedings, as it is recognised by law, there is no reason not to accept the same. In the present case, the parties have agreed for time limit of four months for conclusion of arbitration proceedings. After expiry of four months, the appellant (respondent before the arbitrator) moved the HC seeking termination of mandate of the arbitrator u/s 14 of the Act. The HC dismissed the same on the ground that the appellant had by participation in proceedings before the arbitrator waived the time limit.
The SC holds that where the parties themselves agreed to bind themselves by the time limit - that is to be adhered to in arbitration proceedings. It was held that Section 14 read with Section 15 of the Act, 1996 also recognise this mechanism and after the expiry of four months period from the date of first preliminary meeting held on 4th May, 2007, the Arbitrator in the present case indeed became de jure unable to perform his functions and the mandate to act as an Arbitrator in the arbitral proceedings between the parties as prayed for stood terminated. Therefore, the HC erred while dismissing the petition of the appellant for termination of mandate of the arbitrator. Accordingly, the mandate of the arbitrator was terminated by the SC.
It was held by the SC that the essential element of waiver is that there must be a voluntary and intentional relinquishment of a right. The voluntary choice is the essence of waiver. There should exist an opportunity for choice between the relinquishment and an enforcement of the right in question. It cannot be held that there has been a waiver of valuable rights where the circumstances show that what was done was involuntary. That apart, the doctrine of “waiver” or “deemed waiver” or “estoppel” is always based on facts and circumstances of each case, conduct of the parties in each case and as per the agreement entered into between the parties. And as such, it was held by the SC that there is no waiver in the present case by the appellant, and the HC had committed error while holding so.
]]>Justice R. Subhash Reddy and Justice Abhay Manohar Sapre
The SC { National Aluminium Company Limited v. Subhash Infra Engineers Pvt. Ltd. & Anr. } holds that any objection with respect to existence or validity of the arbitration agreement, can be raised only by way of an application under Section 16 of the Act and Civil Court cannot have jurisdiction to go into such question.
In the present case, the civil suit was filed by the respondent no. 1 for challenging the jurisdiction of the arbitrator. It was held by the SC that if the first respondent wants to raise an objection with regard to existence or validity of the arbitration agreement, it is open for the first respondent to move an application before the arbitrator, but with such plea, he cannot maintain a suit for declaration and injunction. It was held, though, the Trial Court rightly rejected the interim injunction sought for by the first respondent, the same is erroneously reversed by the learned Additional District Judge and such order is confirmed by the High Court, by the impugned order. Accordingly, the impugned order was set aside by the SC. However, the liberty was given by the SC to the respondent no. 1 to challenge the jurisdiction of an arbitrator, by moving an application under Sec 16 of the Act, in arbitration proceedings.
]]>Justice Indu Malhotra and Justice Abhay Manohar Sapre
The SC was seized of two issues, that is, existence of a valid arbitration agreement between the three parties, and the second issue was non-party to the arbitration agreement whether can be impleaded in the arbitration proceedings.
The SC {Mahanagar Telephone Nigam Limited v. Canara Bank and Others} holds that the arbitration agreement between the parties, as recorded in a judicial order, is final and conclusive of the agreement entered into between the parties. It was further held that MTNL after giving its consent to refer the disputes to arbitration before the Delhi High Court, is now estopped from contending that there was no written agreement to refer the parties to arbitration. It was further held that there can be an arbitration agreement in the form of exchange of statement of claims and defence, in which existence of the agreement is asserted by one party and not denied by the other. It was held that MTNL has not denied the existence of arbitration agreement while submitting reply to the statement of claim, and even the MTNL has submitted a counter claim against Canara Bank before the arbitrator, therefore, the MTNL cannot now raise an objection regarding absence of arbitration clause. The objection was accordingly rejected by SC.
It was further held that the present case is one of employed or tacit consent by respondent no. 2 (alleged non-party to the arbitration agreement), which is evident from the conduct of the parties, as respondent no. 2 has throughout participated in the proceedings, before the committee on disputes, before the High Court, before the Sole arbitrator, and was represented by its separate Counsel before the SC in the present appeal. The SC further invokes the group of companies doctrine to join respondent no. 2 the wholly owned subsidiary of respondent no. 1 in the pending arbitration proceedings before the Sole Arbitrator. As per the said doctrine, the non-signatory may be bound by an arbitration agreement where the parent, or holding company, or a member of the group of companies, is a signatory to the arbitration agreement. Therefore, in the present case, the SC holds that there is a valid arbitration agreement, and all three parties were referred to arbitration before the Sole Arbitrator.
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