India: Supreme Court Rules That Section 50 Of The Arbitration & Conciliation Act, 1996, Can't Be Bypassed Through Recourse To Section 13(1) Of The Commercial Courts Act

Last Updated: 26 February 2018
Article by Ajay Bhargava, Aseem Chaturvedi and Wamika Trehan

Most Read Contributor in India, August 2018

A Division Bench of the Hon'ble Supreme Court of India (Supreme Court), on 7 February 2018, in the matter of Kandla Export Corporation and Another vs. OCI Corporation and Another, held that Section 13 of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Court Act 2015 (the Commercial Courts Act), cannot be used to appeal against an order allowing enforcement of a foreign award, merely on grounds that the order was passed by the Commercial Division of the High Court. The Supreme Court's bench comprising of Justice R.F Nariman and Justice Navin Sinha held that this is because Section 50 of the Arbitration and Conciliation Act, 1996 ("the Arbitration Act") does not include an order allowing the execution of an arbitration award as an appealable order.

Factual Background

  • On 28 April 2014, an arbitration award was passed pursuant to Arbitration Rule No.125 of the Grain and Feed Trade Association, which directed the Kandla Export Corporation and Anr. (Appellants) to pay a sum of US$ 846,750.00 along with compound interest to OCI Corporation ("Respondent").
  • In an appeal against the aforesaid award, by an order dated 16 April 2015, the Appellate Tribunal directed the Appellants to pay to the Respondents a sum of US$ 815,00.00 along with compound interest.
  • Aggrieved by the aforesaid appellate award, the Appellants filed an appeal before the Queen's Bench, which was rejected on 14 July 2015 on the ground that the award passed by the Appellate Tribunal suffered from no prima facie infirmities. Against the aforesaid judgment dated 14 July 2015, the Appellants filed another appeal before the Queen's Bench Division, Commercial Court, which was rejected on 15 September 2015. The Appellants, undeterred, filed another appeal before the Court of Appeal, Civil Division, wherein in the U.K. Court of Appeal also refused to grant leave on the ground that the award Suffered from no prima facie infirmities.
  • Meanwhile, the Respondents filed an Execution Petition under Section 48 of the Arbitration Act before the District Court, Gandhidham-Kutch.
  • Thereafter, on an application preferred by the Respondents under Section 15(5) of the Commercial Courts Act, the Hon'ble High Court of Gujarat passed an order dated 11 November 2016 allowing the transfer of the aforesaid execution petition to the Commercial Division of the said High Court.
  • The Hon'ble High Court of Gujarat, rejecting the objections filed by the Appellants, vide judgment dated 8 August 2017, allowed the execution petition filed by the Respondents.
  • Aggrieved by the aforesaid judgment dated 8 August 2017, the Appellants filed an appeal under the Commercial Courts Act, which was dismissed by the impugned judgment dated 28 September 2017, on grounds that the Commercial Courts Act did not provide any additional right of appeal, which is not otherwise available to the Appellants under the provisions of the Arbitration Act.

Issue for consideration before the Supreme Court

Whether an appeal, not maintainable under Section 50 of the Arbitration Act is nonetheless maintainable under Section 13(1) of the Commercial Courts Act?

Main arguments raised on behalf of the Appellant

  • Section 13 of the Commercial Courts Act provided for an appeal to any person aggrieved by the decision of a Commercial Division of a High Court, and as Section 50 of the Arbitration Act found no place in the proviso to Section 13(1) of the Commercial Courts Act, it is clear that the wide language of Section 13(1) would confer a right of appeal, notwithstanding anything contained in Section 50 of the Arbitration Act.
  • Moreover, Section 21 of the Commercial Courts Act provides that the provisions of the Commercial Courts Act shall have effect, notwithstanding anything inconsistent contained in any other law for the time being in force.
  • The counsel for the Appellants also referred to Section 5 of the Arbitration Act, which contains a non-obstante clause insofar as Part I of the Arbitration Act is concerned, and submitted that the absence of a similar non-obstante clause, insofar as Part II of the Arbitration Act is concerned, is significant. It was contended that, since this is not a case where there are competing non-obstante clauses, Section 21 of the Commercial Courts Act must be given full play.
  • Section 37 of the Arbitration Act, which is expressly mentioned in the proviso to Section 13(1) of the Commercial Courts Act, specifically speaks of the enumerated appeals in the said provision, together with the expression "and no others", which expression is conspicuous by its absence in Section 50 of the Arbitration Act.
  • It was also argued that the language of Section 13(1) of the Commercial Courts Act is extremely wide – it embraces "decisions", "judgments" and/or "orders" by the Commercial Division of a High Court, and that being so, the impugned judgment of 8 August 2017, allowing the execution petition filed by the Respondents, would certainly be a "decision" and/or "judgment" that would expressly be covered by the wide terms in Section 13(1) of the Commercial Courts Act.
  • Reliance was placed upon Section 13(2) of the Commercial Courts Act to state that, after the coming into force of the Commercial Courts Act, appeals lie only in the manner indicated in the aforesaid Act, and not otherwise than in accordance with the provisions thereof.
  • According to the Appellants' counsel, the scheme of the Commercial Courts Act would show that, in all matters over INR 1 crore, the legislative intent is to provide an appeal, given the stakes involved, which will, under Section 14, be expeditiously disposed of within a period of 6 months from the date of filing of such appeal.

Main arguments raised on behalf of the Respondents

  • The Explanation to Section 47 of the Arbitration Act, when read with Section 11 of the Commercial Courts Act, makes it clear that the non-obstante clause contained in Section 21 of the Commercial Courts Act has to give way to Section 11, and that since Section 50 of the Arbitration Act impliedly bars appeals against an application allowing execution of a foreign award, Section 13 would be out of harm's way, insofar as the Respondents are concerned.
  • Strong reliance was placed on the judgment of the Supreme Court in the case of Fuerst Day Lawson Limited v. Jindal Exports Limited, [(2011) 8 SCC 333], while submitting that the Arbitration Act is a self-contained code on all matters pertaining to arbitration, which would exclude the applicability of the general law contained in Section 13 of the Commercial Courts Act.
  • The object of both the Acts is to speedily determine matters pertaining to arbitration and/or commercial disputes and, the providing of an extra appeal by the Commercial Courts Act, which is impliedly excluded by the Arbitration Act, would militate against the object of both Acts.
  • The learned counsel for the Respondents further argued that in cases of enforcement of foreign awards of an amount below Rs.1 crore, admittedly, no appeal would lie. However, merely because the amount contained in the foreign award in question was above Rs.1 crore, it does not stand to reason that an extra appeal would be provided. It was submitted that this could not be the intention of the Commercial Courts Act.

Judgment

The Supreme Court, while dismissing the Appeal, has held as follows:

  • Section 13(1) of the Commercial Courts Act provides for appeals from judgments, orders, and decrees of the Commercial Division of the High Court. To this main provision, an exception is carved out by the proviso, which provides that an appeal shall lie from such orders passed by the Commercial Division of the High Court that are specifically enumerated under Order XLIII of the Code of Civil Procedure Code, 1908 ("CPC"), and Section 37 of the Arbitration Act. Thus, orders that are not specifically enumerated under Order XLIII of the CPC would, therefore, not be appealable, and appeals that are mentioned in Section 37 of the Arbitration Act alone are appeals that can be made to the Commercial Appellate Division of a High Court.
  • Heavily relying upon the aforesaid judgment in Fuerst Day Lawson (supra), the Supreme Court observed that it is clear that Section 50 of the Arbitration Act is a provision contained in a self-contained code on matters pertaining to arbitration, and which is exhaustive in nature. It carries the negative import mentioned in paragraph 89 of Fuerst Day Lawson (supra), that appeals which are not mentioned therein, are not permissible. It was held that this being the case, it is clear that Section 13(1) of the Commercial Courts Act, being a general provision vis-à-vis arbitration relating to appeals arising out of commercial disputes, would not apply to cases covered by Section 50 of the Arbitration Act.
  • The Supreme Court also took note of the question as to why Section 37 of the Arbitration Act was expressly included in the proviso to Section 13(1) of the Commercial Courts Act, which is equally a special provision of appeal contained in a self-contained code, which in any case would be outside Section 13(1) of the Commercial Courts Act. TO that extent, it was observed that one answer is that this was done ex abundanti cautela. Another answer may be that as Section 37 was amended by the Arbitration Amendment Act, 2015, which came into force on the same day as the Commercial Courts Act, Parliament thought, in its wisdom, that it was necessary to emphasise that the amended Section 37 would have precedence over the general provision contained in Section 13(1) of the Commercial Courts Act.
  • Section 50 properly read would mean that, if an appeal lies under the said provision, then alone would Section 13(1) of the Commercial Courts Act be attracted as laying down the forum that will hear and decide such an appeal.
  • Addressing the Appellant's contention regarding Section 11 and 21 of the Commercial Courts Act, the court held that the said sections will only apply if Section 13(1) were to apply in the first place, which, as has been found, cannot be held to apply for the reasons given hereinabove.
  • The = Supreme Court concluded by observing that the object of the two enactments is speedy disposal of commercial disputes. Thus when Section 50 does away with an appeal so as to speedily enforce foreign awards, if one was providing an additional appeal under Section 13(1) of the Commercial Courts Act, one would be turning the Arbitration Act and the Commercial Courts Act on their heads. Any construction of Section 13 of the Commercial Courts Act, which would lead to further delay, instead of an expeditious enforcement of a foreign award must, therefore, be eschewed.
  • Finally, applying the doctrine of harmonious construction of both statutes, the Supreme Court held that it is clear that they are best harmonized by giving effect to the special statute i.e. the Arbitration Act, vis-à-vis the more general statute, namely the Commercial Courts Act, being left to operate in spheres other than arbitration.

Comment

The judgment delivered by the Supreme Court puts to rest the uncertainties that had arisen on the aforesaid issue, It has been clarified that Section 50 of the Arbitration Act provides for a right to appeal, and Section 13 of the Commercial Courts Act does not create an additional substantive right to appeal. The forum of appeal, as per Section 50, however, is left, "to the Court authorized by law to hear appeals from such orders". This is where Section 13(1) of the Commercial Courts Act kicks in and provides the forum for such appeal. Only, in the present case, as no appeal lies under Section 50 of the Arbitration Act, no forum can be provided for under Section 13(1) of the Commercial Courts Act.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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