In recent times, several noteworthy judgments have been rendered by the Indian Courts in matters involving the arbitration law. Some decisions of the Hon'ble Supreme Court that discuss and set out the legal position concerning the interpretation and applicability of provisions of the Arbitration and Conciliation Act, 1996 rendered in the first quarter of 2021 have been summarised below:
- Bhaven Construction through Authorised Signatory Premjibhai K. Shah v. Executive Engineer Sardar Sarovar Narmada Nigam Ltd. and Anr.
Citation: 2021 SCC OnLine SC 8
Decided on: 6 January 2021
Discretionary powers under Article 226 of the Constitution of India are not to be invoked to interfere with the arbitral process under the Arbitration and Conciliation Act, 1996 under ordinary circumstances.
The first respondent entered into a contract with the appellant to manufacture and supply bricks (Agreement). As some disputes emerged amongst the parties, the appellant invoked the arbitration clause and sought the appointment of the sole arbitrator. By way of an application under Section 16 of the Arbitration Act, the first respondent objected to the appellant's request for an arbitrator's appointment. The first respondent argued that the dispute was not amenable to the Arbitration Act and that the arbitration was time-barred. Regardless of the objections raised by the first respondent, the sole arbitrator was appointed. The arbitrator rejected the first respondent's application under Section 16 of the Arbitration Act by upholding the arbitral tribunal's jurisdiction to adjudicate the instant dispute.
Aggrieved by the sole arbitrator's order, the first respondent preferred a writ petition before the High Court of Gujarat (High Court) under Article 226 of the Constitution. The Single Judge dismissed the writ petition. Aggrieved by the Single Judge's decision, the first respondent preferred a writ appeal which was allowed by the Division Bench. Subsequently, the appellant challenged the decision of the Division Bench of the High Court in the present proceedings. The appellant contended that the Division Bench of the High Court erred in interfering with the Single Judge's order. The fact that the first respondent also challenged the final award under Section 34 of the Arbitration Act showed that the first respondent was trying to bypass the framework laid in the enactment. Hence, the present case.
At the outset, the Hon'ble Supreme Court stated that the Arbitration Act is a code in itself having definite legal consequences. One such consequence is embodied in the non-obstante clause in Section 5 of the Arbitration Act to reduce excessive judicial interference. The language in Section 5 expressly states that no judicial authority shall intervene in the arbitral process except where the law provides for it.
In the present matter, the Hon'ble Supreme Court held that the appellant had acted following the procedure laid down under the Agreement to appoint the sole arbitrator. The first respondent then challenged the sole arbitrator's jurisdiction in terms of Section 16(2) of the Arbitration Act. Thereafter, the first respondent challenged the arbitrator's order under Section 16(2) of the Arbitration Act through a petition under Article 226 of the Constitution of India. It was observed that in the usual course, the Arbitration Act provides for a mechanism of the challenge under Section 34. The Hon'ble Supreme Court opined that the use of the term "only" under Section 34 served the twin purposes of making the Arbitration Act a complete code and laying down the procedure for challenging arbitral awards.
The Hon'ble Supreme Court noted in Nivedita Sharma v. Cellular Operators Association of India1 that the hierarchy of India's legal framework mandates that a legislative enactment cannot curtail a constitutional right. However, it was also held that when a statutory forum is created by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation. Therefore, the Hon'ble Supreme Court held that it is prudent for a Judge not to exercise discretion to allow judicial interference beyond the procedure established under the Arbitration Act. The powers under Articles 226 and 227 of the Constitution need to be exercised in exceptional rarity, where one party is left remediless under the statute or an evident 'bad faith' shown by one of the other parties.
The Hon'ble Supreme Court placed reliance upon the decision in Deep Industries Ltd. v. Oil and Natural Gas Corporation Ltd.2 to hold that the High Court would be extremely circumspect in interfering with the arbitral process. The writ jurisdiction would be invoked only in exceptional circumstances which leave the aggrieved party without a statutory remedy. The Hon'ble Supreme Court further held that Section 16 of the Arbitration Act sets a mandate that the issue of jurisdiction must be dealt with first by the tribunal in recognition of the Kompetenz-Kompetenz principle. Once the Section 16 application is dismissed, the arbitral tribunal's jurisdiction can be challenged only after the final award is passed under Section 34 of the Arbitration Act. In view of the above reasoning, the Hon'ble Supreme Court opined that the High Court erred in utilising its discretionary power available under Article 226 and 227 of the Constitution.
- N.N. Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd. & Ors.
Citation: 2021 SCC OnLine SC 13
Decided on: 11 January 2021
The non-payment of the stamp duty on a commercial contract will not invalidate the arbitration agreement.
The first respondent, Indo Unique Flame Ltd. (Indo), was awarded a work order dated 18 September 2015 (Work Order I) for the beneficiation/ washing of coal by Karnataka Power Corporation Ltd. (KPCL). In pursuance of Work Order I, Indo furnished bank guarantees (BG I) for INR 29.29 Crores favouring KPCL through the second respondent, i.e., the State Bank of India (SBI). Thereafter, Indo entered into a subcontract (Work Order II) on 28 September 2015 with the appellant N.N. Global Mercantile Pvt. Ltd. (N.N. Global) for the transportation and handling of the coal. In terms of Work Order II, N.N. Global furnished a bank guarantee (BG II) for INR 3.36 Crores on 30 September 2015 favouring SBI. Disputes emerged amongst the parties in Work Order I, which led to the invocation of the BG I by KPCL on 6 December 2017. Accordingly, BG II issued by N.N. Global in favour of SBI came to be invoked by Indo.
Aggrieved by the invocation of the BG II, N.N. Global filed a suit before the Commercial Court, Nagpur (Commercial Court) against Indo and SBI (Respondents). N.N. Global prayed for a declaration to the effect that Indo was not entitled to encash the BG II since Work Order II was never acted upon. N.N. Global contended that BG II's invocation was not in terms of the Work Order II providing a conditional guarantee linked to the work's performance. Since Indo never allotted any work under Work Order II, N.N Global claimed that no loss was suffered by Indo, which would have justified the BG II's invocation. By way of an interim order, the Commercial Court directed the status quo to be maintained regarding BG II's encashment furnished by N.N. Global in favour of SBI.
In response, Indo filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) seeking reference of the dispute to arbitration. The Commercial Court refused to allow Indo's application holding that the arbitration clause in Work Order II was not broad enough to encompass BG II, which was an independent contract in itself. Indo filed a writ petition before the Bombay High Court (High Court) to set aside the Commercial Court's order. The High Court held that since both parties admitted to the existence of an arbitration agreement between them, the application filed by Indo under Section 8 of the Arbitration Act was maintainable. Aggrieved by the impugned judgment of the High Court, N.N. Global approached the Hon'ble Supreme Court in the present matter. N.N. Global before the Hon'ble Supreme Court argued that the parties could not be referred to arbitration since the Work Order II was unstamped and therefore it did not have any evidentiary value and could not be acted upon. Indo, in its counter, argued that non-payment of stamp duty was a curable defect and, therefore, the application under Section 8 of the Arbitration Act should be allowed.
In the instant matter, the Hon'ble Supreme Court outlined, amongst other things, the moot proposition that whether the non-payment of stamp duty on a commercial contract would invalidate the arbitration agreement contained therein. Commenting upon the validity of an arbitration agreement in an unstamped agreement, the Hon'ble Supreme Court highlighted the arbitration agreement's severable nature from the underlying contract. It was held that when parties entered into a commercial contract containing an arbitration clause, they essentially entered into two separate agreements viz. firstly, the substantive contract and secondly, the agreement to arbitrate. The Hon'ble Supreme Court held that the arbitration agreement's autonomy came out of the twin concepts of severability of an arbitration agreement and the kompetenz-kompetenz principle. The doctrine of separability3 or severability connotes that the invalidity of the underlying substantive contract would have no consequence upon the arbitration agreement's validity except where the arbitration agreement itself is directly impeached. The kompetenz-kompetenz principle4 implied that the arbitral tribunal has the sole competence to rule on its jurisdiction, including any objections and questions upon the arbitration agreement's existence and validity.
On the argument about the Work Order II being unstamped, the Hon'ble Supreme Court looked into the statutory scheme of the Maharashtra Stamp Act, 1958 (Stamp Act). It was held that the Stamp Act was a fiscal measure that was enacted to secure the revenue of the State in certain classes of instruments. The Hon'ble Supreme Court observed that the non-payment of stamp duty under the Stamp Act would make the substantive contract inadmissible as evidence. However, such a defect was curable and would no longer exist if the stamp duty was paid. Given the distinct nature of an arbitration agreement and the substantive contract, and since no stamp duty was prescribed for an arbitration agreement in the Stamp Act, the Hon'ble Supreme Court concluded that there would be no legal impediment to the enforceability of the arbitration agreement in the instant matter. While rendering these findings, the Hon'ble Supreme Court overruled the decision in SMS Tea Estates Pvt. Ltd. v. Chandmari Tea Co. Pvt. Ltd.5 Hence, the present dispute was held to be arbitrable.
- Haryana Space Application Centre (HARSAC) and Anr. v. Pan India Consultants Pvt. Ltd. and Anr.
Citation: 2021 3 SCC 103
Decided on: 20 January 2021
Section 12(5) of the Arbitration and Conciliation Act, 1996, dealing with the ineligibility of appointment of an arbitrator, is a mandatory and non-derogable provision.
In the present matter, the first appellant (HARSAC) had awarded a contract to the respondent (Pan India) and three other vendors for works specified in the allotment letter dated 28 February 2011 related to the modernisation of land records. In pursuance of the allotment letter, Service Level Agreements (SLA) were executed amongst the parties on 29 March 2011. HARSAC contended that Pan India failed to complete the works assigned and was causing delays in the entire project. Even after two extensions being granted, Pan India failed to complete the work. Consequently, HARSAC invoked the Performance Bank Guarantees (PBG) issued by Pan India on 18 March 2014. Pan India challenged this action before the High Court of Delhi (High Court). The High Court directed HARSAC to not encash the PBG before the resolution of the disputes amongst the parties. In compliance with the directions, HARSAC invoked the arbitration clause contained in the SLA and appointed the Principal Secretary to the Government of Haryana as nominee arbitrator. On 14 September 2016, the arbitral tribunal stood constituted, and the proceedings were initiated. On 7 January 2019, HARSAC raised concerns over the fact that the arbitration proceedings were pending for more than one and half years since the date of the first hearing on 7 November 2016. The arbitral tribunal extended the timeline for the arbitral proceedings twice by six months. Since the arbitral proceedings were not completed within the statutory period of one year or the extended timeline of another six months, HARSAC contended that the mandate of the tribunal stood terminated.
Pan India filed an application under Section 29A(4) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) before the Additional District Judge, Chandigarh (District Judge), wherein it was stated that the arbitral award was ready to be pronounced and the entire fee had been paid to the tribunal. HARSAC opposed the application and submitted that the application under Section 29A(4) must be dismissed for the lack of sufficient cause for granting an extension. The District Judge granted an extension of three months to the tribunal to conclude the proceedings. HARSAC then filed a revision petition before the High Court for setting aside the order passed by the District Judge whereby an extension of time had been granted for passing the arbitral award. In light of the pandemic, the High Court granted an extension of four months to enable the parties to conclude their argument within three months and a period of one month reserved for the tribunal to pass the arbitral award. Aggrieved by the said order of the High Court, HARSAC preferred a special leave petition before the Hon'ble Supreme Court.
The Hon'ble Supreme Court at the outset was of the view that the appointment of the Principal Secretary, Government of Haryana as the nominee arbitrator of appellant, which was a nodal agency of the Government of Haryana, would be invalid under Section 12(5) of the Arbitration Act read with the Seventh Schedule. It was observed that Section 12(5) of the Arbitration Act provided that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties falls within any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator. The Hon'ble Supreme Court held that Section 12(5) read with the Seventh Schedule was a mandatory and non-derogable provision of the Arbitration Act.
In the facts of the present case, it was held that the Principal Secretary to the Government would be ineligible to be appointed as an arbitrator since he would have a controlling influence on the HARSAC being a nodal agency of the State. The Counsel for both parties during the course of hearing consented to the substitution of the existing tribunal by appointing a sole arbitrator to complete the arbitral proceedings. The Hon'ble Supreme Court then appointed a substitute arbitrator, who would conduct the proceedings in continuation from the stage arrived at and pass the arbitral award within six months from the date of receipt of the order.
- Chintels India Ltd. v. Bhayana Builders Pvt. Ltd.
Citation: 2021 SCC OnLine SC 80
Decided on: 11 February 2021
An appeal under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 would be maintainable against an order refusing to condone the delay in filing an application under Section 34 to set aside an award.
In the instant matter, the Ld. Single Judge of the High Court of Delhi (High Court) dismissed an application for the condonation of delay filed under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act). While dismissing the application for condonation of delay, the High Court held that sub-section 3 of Section 34 using the words "but not thereafter" restricts the power to condone delay beyond a period of 30 (thirty) days. To arrive at this conclusion, the High Court relied upon the decision in Union of India v. Popular Construction Co.6 Therefore, the High Court held that the instant case was time-barred and refused to condone the delay while setting aside the application under Section 34 of the Arbitration Act. The High Court then held that the order refusing to condone delay was not appealable under Section 37 of the Arbitration Act. Therefore, the aggrieved party in the instant matter had no remedy but to approach the Hon'ble Supreme Court of India under Article 136 of the Constitution of India. Accordingly, the High Court granted a certificate under Article 133 read with 134A of the Constitution of India to the appellant (Chintels).
The moot question that was outlined was for consideration was whether the Ld. Single Judge's order refusing to condone the appellant's delay in filing an application under Section 34 of the Arbitration Act would be an appealable order under Section 37(1)(c) of the Arbitration Act.
The Hon'ble Supreme Court observed that a reading of Section 34(1) would make it clear that an application made to set aside an award has to be in accordance with both sub-sections (2) and (3). This would mean that such application would not only have to be within the limitation period prescribed by sub-section (3) but would then have to set out grounds mentioned under sub-sections (2) and/ or (2A) for setting aside such award. What followed from this is that the application itself must be within time, and if not within a period of three months, must be accompanied with an application for condonation of delay within a further condonable period of 30 (thirty) days.7
Commenting upon Section 37(1)(c) of the Arbitration Act, it was held that the expression "setting aside or refusing to set aside an arbitral award" does not stand by itself; it has to be read with the expression that follows - "under Section 34". The use of the words Section 34 in Section 37(1)(c) indicates that an appeal is not limited to Section 34(2) but encompasses all grounds under Section 34. Therefore, a literal reading of the provision shows that a refusal to set aside the arbitral award as the delay has not been condoned under sub-section (3) of Section 34 would undoubtedly fall within Section 37(1)(c). Consequently, the Hon'ble Supreme Court answered the moot question by stating that an appeal under Section 37(1)(c) of the Arbitration Act would be maintainable against an order refusing to condone the delay in filing an application under Section 34 of the Arbitration Act to set aside an award. The appeal was accordingly allowed.
- Unitech Ltd. and Ors. v. Telangana State Industrial Infrastructure Corporation (TSIIC) and Ors.
Citation: 2021 SCC OnLine SC 99
Decided on: 17 February 2021
Presence of an arbitration agreement in a dispute involving the State would not absolutely oust the writ jurisdiction under Article 226 of the Constitution of India.
The Andhra Pradesh Industrial Infrastructure Corporation Ltd. (APIIC) invited bids to develop, design and construct an integrated township project (Project). APIIC accepted the bid of UNITECH Limited (Unitech). Accordingly, Unitech was required to pay a total of INR 165 crores (comprising of INR 20 crores as earnest money, INR 140 crores as Project's land cost and INR 5 crores towards the Project's development expenses).
In terms of the bid, the APIIC was supposed to allot Unitech the land upon which the Project would have been constructed (Project Land). A litigation concerning the Project Land was pending. The parties agreed in the Letter of Award (LoA) that the Project Land's allotment would be contingent upon the pending litigation's outcome. After multiple rounds of litigation, the matter concerning the Project Land was finally settled by the Hon'ble Supreme Court, holding that the Government of Andhra Pradesh did not have title to the Project Land.
Consequently, Unitech filed a writ petition8 under Article 226 of the Constitution of India seeking a refund of INR 165 crores together with interest from the successor of APIIC, i.e., Telangana State Industrial Infrastructure Corporation (TSIIC). The Single Judge of the High Court of Telangana allowed Unitech's writ petition. The State of Telangana and TSIIC preferred a writ appeal against the decision of the Single Judge. The Division Bench of the High Court of Telangana in the writ appeal decided that Unitech was entitled to INR 165 crores with interest from the date it claimed the money from the respondents in October 2015 instead of the dates of payment of instalments beginning from September 2007. Unitech and the two respondents eventually knocked the Hon'ble Supreme Court's doors in the instant matter and filed their respective appeals under Article 136 of the Constitution.
- On the maintainability of the writ petition under Article 226.
The Hon'ble Supreme Court observed that recourse to the jurisdiction under Article 226 of the Constitution of India is not excluded altogether in a contractual matter. The Hon'ble Supreme Court referred to its judgment in ABL International Ltd. v. Export Credit Guarantee Corporation of India.9 In ABL International, reliance was placed upon the long line of precedents10 that held that writs under Article 226 are maintainable for asserting contractual rights against the State, or its instrumentalities, as defined under Article 12 of the Constitution.
The Hon'ble Supreme Court then referred to the decisions in State of U.P. v. Sudhir Kumar11 and Popatrao Vynkatrao Patil v. State of Maharashtra,12 where the exposition in ABL International was adopted. The Hon'ble Supreme Court pointed out that the ABL International's decision leaves a cautionary note that where the plenary powers under Article 226 are sought to be invoked, they must be used with circumspection when the contract has provided other remedies. Nevertheless, as a statement of principle, the jurisdiction under Article 226 is not excluded merely because a matter is contractual in nature.
- On whether the presence of an arbitration clause within a contract between a state instrumentality and a private party would bar the remedies under the writ jurisdiction of Article 226?
The Hon'ble Supreme Court held that the presence of an arbitration clause within a contract between a state instrumentality and a private entity could not act as an absolute bar to availing remedies under Article 226 of the Constitution. It was observed that where a state instrumentality violates its constitutional mandate under Article 14 to act fairly and reasonably, relief under the plenary powers of Article 226 of the Constitution would be available.13 The writ jurisdiction under Article 226 was held to be a valuable constitutional safeguard against an arbitrary exercise of state power or misuse of authority. Thus, the Hon'ble Supreme Court held that "the presence of an arbitration clause does not oust the jurisdiction under Article 226 in all cases, though it still needs to be decided on a case-to-case basis whether recourse to a public law remedy can justifiably be invoked." To determine whether the invocation of writ jurisdiction is justified or not, the court must undoubtedly eschew the disputed set of facts that would demand a further perusal of evidence in a trial.
In view of the observations made by the Hon'ble Supreme Court, the appeals stood disposed of whereby Unitech was held to be entitled to a refund of INR 165 crores together with interest commencing from the respective dates of payment, computed in accordance with the provisions of the Development Agreement except for compounding.
- Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies Pvt. Ltd.
Citation: 2021 SCC OnLine SC 157
Decided on: 2 March 2021
Limitation period for filing a petition under Section 34 of the Arbitration and Conciliation Act, 1996 commences from the date of receipt of the signed copy of the arbitral award by the parties.
In the present matter, disputes between Dakshin Haryana Bijli Vitran Nigam Ltd. (Appellant) and Navigant Technologies Pvt. Ltd. (Respondent) were referred to an arbitral tribunal upon the termination of a Service Level Agreement (SLA) dated 2 May 2012. The arbitral tribunal by a majority award allowed the claims of the Respondent, while the third arbitrator dissenting with the majority passed a minority award. On 27 April 2018, the parties were intimated of the majority award and informed that the minority award would be rendered separately. They were provided with a draft copy of the majority award to identify any computational, clerical or typographical errors that would be taken up on 12 May 2018.
On 12 May 2018, the parties were provided with a copy of the dissenting award passed by the third arbitrator. The matter was then listed on 19 May 2018 with instructions to the parties to identify any computational, clerical and typographical errors in the minority opinion in the interim. Since no such errors were brought to the notice of the arbitral tribunal, the parties were provided with signed copies of the final award on 19 May 2018, and the proceedings stood terminated.
Aggrieved by the award, the Appellant filed its objections under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) before the Civil Court, Hisar (Civil Court) on 10 September 2018, submitting that objections were preferred within the three months plus the 30 (thirty) day additional period prescribed under Section 34 (3) of the Arbitration Act, calculated from 12 May 2018, the date of receipt of the award. The said petition came to be dismissed by the Civil Court for being filed beyond the prescribed limitation period, holding that the majority award had been made available to the parties on 27 April 2018. Aggrieved by the dismissal, the Appellant preferred an appeal under Section 37 of the Act, which was also dismissed by the High Court of Punjab and Haryana (High Court) vide order dated 11 December 2019. The Appellant assailed the order of the High Court before the Hon'ble Supreme Court by way of a special leave petition. Hence, the present matter.
The Hon'ble Supreme Court held that the Arbitration Act recognised only one award, which may be unanimous or split in a majority award and dissenting opinion. The Hon'ble Supreme Court observed that only the majority award is capable of being enforced as an arbitral award. On the contrary, the view of the dissenting arbitrator is merely an opinion, however the aggrieved party is at liberty to draw support from the dissenting opinion.
The Hon'ble Supreme Court recognised the prerequisite under Section 31 (2) of the Arbitration Act for an award to be signed by members of the arbitral tribunal. An award made in writing becomes final only upon it being authenticated by way of signatures of members of the arbitral tribunal who made it. It was observed that the use of the word "shall" made this condition a mandatory prerequisite, which could not be dispensed with. The Hon'ble Supreme Court also stated that a conjoint reading of Section 31 (1) and sub-section (4) suggested that the Arbitration Act envisaged only a single date upon which the arbitral award is passed. That is, the date on which the signed arbitral award is made available to the parties under Section 31 (5), requiring the arbitral tribunal to provide a signed copy of the award to the parties.
Thus, the Hon'ble Supreme Court held that the date for computation of limitation is the date of delivery of a signed copy of the award. It was further clarified that a dissenting opinion must also be delivered on the same date as the majority award since the arbitral tribunal becomes functus officio thereafter. Accordingly, the Hon'ble Supreme Court held the Section 34 petition filed by the Appellant to be within the period of limitation prescribed under the Arbitration Act.
- Amway India Enterprises Pvt. Ltd. v. Ravindranath Rao Sindhia and Anr.
Citation: 2021 SCC OnLine SC 171
Decided on: 4 March 2021
A sole proprietorship will fall under the scope of international commercial arbitration under Section 2(1)(f)(i) of the Arbitration and Conciliation Act, 1996 if the proprietor is a habitual foreign resident.
The respondents in the present case were involved in the distribution and marketing of the appellant's products from 1998. Disputes emerged amongst the parties concerning the operations of the appellant. The respondents attempted to amicably resolve the disputes through mutual discussions from April to December 2019. On failing to have the disputes resolved, the respondents invoked the arbitration clause contained in the terms and conditions of the Amway Direct Seller Application Form (Application Form) on 28 July 2020. Eventually, the respondents approached the High Court of Delhi (High Court) for the appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 (Arbitration Act). The appellant opposed the petition filed under Section 11(6) before the High Court, contending that the same was not maintainable given that the present matter constituted international commercial arbitration under Section 2(1)(f)(i) of the Arbitration Act. The appellant contended that the respondents were habitual residents of the United States of America. The High Court turned down the appellant's objection holding that central management and control of the respondents' distributorship was in India. Consequently, the High Court appointed an arbitrator under Section 11(6) of the Arbitration Act. Aggrieved by the decision, the appellant challenged the decision of appointment of a sole arbitrator before the Hon'ble Supreme Court of India.
The Hon'ble Supreme Court held that the argument that there is no international flavour to the transaction between the parties had no legs to stand on. An analysis of Section 2(1)(f) of the Arbitration Act would show that in any transaction if at least one of the parties is a foreign national, or habitually resident in, any country other than India; or by a body corporate which is incorporated in any country other than India; or by the government of a foreign country, the arbitration becomes an international commercial arbitration notwithstanding the fact that the individual, body corporate, or government of a foreign country referred to in Section 2(1)(f) carry on business in India through a business office in India. This being the case, it was clear that the Delhi High Court had no jurisdiction to appoint an arbitrator in this case's facts. Hence, the appeal was allowed.
- Pravin Electricals Pvt. Ltd. v. Galaxy Infra and Engineering Pvt. Ltd.
Citation: 2021 SCC OnLine SC 190
Decided on: 8 March 2021
The Hon'ble Supreme Court opines that the Parliament may need to re-look at Section 11(7) and Section 37 of the Arbitration and Conciliation Act, 1996 to bring orders under Section 8 and 11 at par qua appealability.
South Bihar Power Distribution Company Ltd. (SBPDCL) invited bids for the appointment of implementing agencies for some works regarding the augmentation of power distribution capacities of twenty towns in Bihar. Pravin Electricals Pvt. Ltd. (PEPL) submitted its bid and was awarded the work.
Galaxy Infra and Engineering (Galaxy) submitted that it had made substantial efforts to facilitate PEPL in getting the work awarded, for which Galaxy was entitled to a commission. Galaxy contends that a draft agreement was sent to PEPL, which was returned the same day with comments for changes. After ironing out all differences, Galaxy claimed that a Consultancy Agreement (Agreement) was entered into by the parties. Galaxy raised invoices on a company, namely Process Construction and Technical Services Pvt. Ltd. (PCTPL), allegedly acting on behalf of PEPL. Galaxy then sent the final invoice to PEPL, followed by a demand-cum-legal notice seeking payments due under the Agreement. PEPL denied the existence of any such Agreement and called upon Galaxy to provide a copy of the Agreement which was supplied by Galaxy on 14 May 2018.
Having received no payments, Galaxy invoked the arbitration clause under the Agreement and nominated its arbitrator. PEPL did not recognise the alleged Agreement and objected to the nomination of an arbitrator for resolution of disputes. Galaxy then filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) for an arbitrator's appointment. The High Court of Delhi (High Court) held that the documents on record clearly indicated that there existed an arbitration agreement amongst the parties and referred the parties to the sole arbitrator. Aggrieved by the order of the High Court, PEPL approached the Hon'ble Supreme Court of India under a special leave petition.
The Hon'ble Supreme Court observed that it was unsafe in the instant matter to conclude one way or the other that an arbitration agreement existed amongst the parties in the present matter. The Hon'ble Supreme Court reiterated the position in Vidya Drolia v. Durga Trading Corporation14 to hold that a deeper consideration of whether an arbitration agreement existed or not must be left to the arbitral tribunal to decide based on the documentary evidence produced and a detailed cross-examination of witnesses. Therefore, the judgment of the High Court was partially set aside to the extent where the High Court had found that an arbitration agreement existed between the parties. In the instant case, the sole arbitrator's appointment was upheld who would determine as a first issue the existence of the arbitration agreement and proceed onto merits only if an agreement existed.
The Hon'ble Supreme Court observed that Section 8 of the Arbitration Act, which dealt with the power of the courts to refer parties to arbitration, was amended in 2015 to add that such reference shall not be made unless the court made prima facie finding that a valid arbitration agreement existed amongst the parties. Consequently, Section 37 was amended to allow appeals from an order wherein the courts refused to refer parties to arbitration under Section 8. However, Section 37 was never amended to allow appeals from orders refusing to appoint an arbitrator under Section 11 of the Arbitration Act regardless of the Law Commission of India recommending such change.
The Hon'ble Supreme Court felt that in view of the Vidya Drolia case and the afore-mentioned amendments, it was necessary to amend Section 37 of the Arbitration Act to allow appeals against orders refusing to appoint an arbitrator under Section 11. Therefore, the Hon'ble Supreme Court held that the Parliament may need to re-look at Section 11(7) and Section 37 of the Arbitration Act to resolve this anomaly and bring orders under Section 8 and 11 at par qua appealability.
- Bharat Sanchar Nigam Ltd. (BSNL) and Anr. v. Nortel Networks India Pvt. Ltd.
Citation: 2021 SCC OnLine SC 207
Decided on: 10 March 2021
The period of limitation qua filing an application under Section 11 of the Arbitration and Conciliation Act, 1996 is governed by Article 137 of the Limitation Act, 1963.
In the instant matter, the respondent Nortel Networks India Pvt. Ltd. (Nortel) was awarded a purchase order (Purchase Order) for works related to mobile networks by the appellant, Bharat Sanchar Nigam Limited (BSNL). Post completion of work by Nortel, BSNL deducted an amount of INR 99,70,93,031 towards liquidated damages and other levies. Nortel raised a claim for payment of the amount deducted, which BSNL rejected. After over five years, Nortel invoked the arbitration clause in a letter dated 29 April 2020 and sought an arbitrator's appointment. BSNL rejected the invocation of arbitration, holding the same to be time-barred, under Section 43 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) since Nortel's claims were rejected on 04 August 2014.
Aggrieved by BSNL's response, Nortel filed an application under Section 11 of the Arbitration Act before the High Court of Kerala (High Court). The High Court referred the parties to arbitration through an order dated 13 October 2020. BSNL preferred a review petition against the said order, which came to be dismissed by the High Court on 14 January 2021. Aggrieved by the decision of the High Court, BSNL approached the Hon'ble Supreme Court in the present matter.
At the outset, the Hon'ble Supreme Court outlined two issues for consideration. Firstly, what is the period of limitation for filing an application under Section 11 of the Arbitration Act? Secondly, whether the court can refuse to make reference under Section 11 when a party's claims are time-barred.
The Hon'ble Supreme Court referred to multiple decision15 which held that in the absence of a specific provision prescribing the limitation period, the residual provision under Article 137 of the Limitation Act, 1963 (Limitation Act) would apply. Thus, the limitation for filing an application under Section 11 was held to be three years from the date of refusal to make the appointment of an arbitrator or on expiry of 30 (thirty) days from the issuance of the notice invoking arbitration as contemplated under Section 21 of the Arbitration Act, whichever is earlier. However, the Hon'ble Supreme Court left a cautionary note that the period of limitation for filing a petition seeking an arbitrator's appointment could not be confused or conflated with the period of limitation applicable to claims made in the underlying contract. The period of limitation applicable to the respective claims sought to be referred to arbitration would be guided solely by the Articles of the Limitation Act, applicable in this regard, as recognised in earlier judgments16.
Commenting on the second issue, the Hon'ble Supreme Court held that it was only in very limited category of cases, where there was not even a vestige of doubt that the claim is ex-facie time barred or the dispute is non-arbitrable that the court may decline a reference. However, even if there is the slightest doubt, the rule is to refer the disputes to arbitration.
In the present case, the Hon'ble Supreme Court noted that the notice invoking arbitration was issued five and a half years after the rejection of the claims. Consequently, the notice invoking arbitration was held to be ex facie time-barred, and the disputes between the parties were not referred to arbitration in the facts of this case.
- Secunderabad Cantonment Board v. B. Ramachandraiah and Sons
Citation: 2021 SCC OnLine SC 219
Decided on: 15 March 2021
Mere correspondence between the parties would not extend the period of limitation for filing an application under Section 11 seeking the appointment of an arbitrator.Brief Facts
The present matter involves appeals that arise out of applications under Section 11 of the Arbitration and Conciliation Act, 1996 (Arbitration Act). The appellant Secunderabad Cantonment Board (Appellant) had floated a Notice Inviting Tender (NIT) for a contract to repair roads. Pursuant to the NIT, three agreements were entered into between the Appellant and the respondent, B. Rakachandraiah and Sons (Respondent). It is not a dispute that the final contract certificates were issued on 18 February 2003, and the final payment was received by the Respondent on 26 March 2003. After six months from the date of final payment, the Respondent demanded reimbursement based on variation in prices. After a silence of two years, the Respondent issued a letter for the appointment of an arbitrator on 7 January 2005. Thereafter, the Respondent kept writing letters at long intervals between 2007 and 2009. Finally, on 6 November 2013, the Respondent filed applications under Section 11 of the Arbitration Act for the appointment of an arbitrator by the High Court of Telangana (High Court). The High Court held that the Section 11 applications were within time and allowed them. Aggrieved by this decision of the High Court, the Appellant preferred the instant appeal.
The Hon'ble Supreme Court referred to two of its own decisions17 to hold that the cause of action arises on the date when the final bill is handed over or becomes due. Mere correspondence by the contractor by way of writing letters and reminders would not extend the time of limitation. The Hon'ble Supreme Court placing reliance on Vidya Drolia v. Durga Trading Corporation18 clarified that since limitation was not a jurisdictional issue but rather an issue on admissibility, it was empowered to decide the present dispute and the same need not be referred to the arbitral tribunal.
On the present case's facts, the Hon'ble Supreme Court noted that the demand for arbitration in the present case was made by the letter dated 7 November 2006. This demand was reiterated in another letter dated 13 January 2007 wherein it was also informed that the appointment of arbitrator had to made within 30 (thirty) days. At the very latest, therefore, the Hon'ble Supreme Court held that the limitation began to run on and from 12 February 2007. On this count, the applications under Section 11 of the Arbitration Act were held to be hopelessly time-barred. Hence, the Hon'ble Supreme Court concluded that no arbitrator could have been appointed by the High Court. Accordingly, the appeals were allowed.
- Government of Maharashtra v. Borse Brothers Engineers & Contractors Pvt. Ltd.
Citation: 2021 SCC OnLine SC 233
Decided on: 19 March 2021
The period of limitation for appeals under Section 37 of the Arbitration and Conciliation Act, 1996 governed by Section 13(1) of the Commercial Courts Act, 2015 shall be 60 (sixty) days. A delay beyond such period would be condoned only by way of an exception and not by way of a rule.
Three similar appeals arrived at the Hon'ble Supreme Court wherein the substantial question of law that arose was whether the judgment in N.V. International v. State of Assam19 laid the law correctly. In Civil Appeal arising out of SLP (C) No. 665 of 2021, the High Court of Bombay, vide its judgment dated 17 December 2020, dismissed the appeal filed by the Government of Maharashtra. The High Court of Bombay refused to condone the delay in filing the appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) beyond 120 (one hundred and twenty) days. In all appeals tagged before the Hon'ble Supreme Court, the issue concerns the period of limitation to file an appeal under Section 37 of the Arbitration Act, challenging a decision under rendered Section 34 of the Arbitration Act.
The Hon'ble Supreme Court clarified that the Commercial Courts Act, 2015 (Commercial Courts Act), by virtue of its provisions setting forth a specified value for application, would apply upon appeals under Section 37 of the Arbitration Act only when the specified value was more than three lakh rupees. In such cases where an appeal under Section 37 of the Arbitration Act was guided by Section 13 of the Commercial Courts Act, the limitation period would be 60 (sixty) days.
On the other hand, where the Commercial Courts Act did not cover the appeal under Section 37 of the Arbitration Act due to the specified value being less than three lakhs, the provisions under Article 116 and 117 of the Limitation Act, 1963 (Limitation Act) would apply. Under the Limitation Act, under Article 116 if an appeal was made to the High Court from an order of a subordinate court, the period of limitation was set at 90 (ninety) days from the date of passing of the order by the subordinate court. Similarly, under Article 117 of the Limitation Act, if an appeal was made from an order of the High Court to the same court or a court other than the High Court, the period of limitation would be of 30 (thirty) days.
On the aspect of condoning the delay, the Hon'ble Supreme Court held that in all of the afore-mentioned appeals, a short delay could be condoned by way of exception and not by way of rule. A court may only grant such a short period as it would deem fit given that the party acted in a bona fide manner and bearing in mind that the opposite party may have acquired equity and justice that may now be lost by the first party's inaction and negligence.
- Indus Biotech Pvt. Ltd. v. Kotak India Venture (Offshore) Fund
Citation: 2021 SCC OnLine SC 268
Decided on: 26 March 2021
On admission of a Section 7 application under the Insolvency and Bankruptcy Code, 2016 any application under Section 8 of the Arbitration and Conciliation Act, 1996 made thereafter to refer parties to arbitration will not be maintainable.
The instant matter involves an arbitration petition filed by Indus Biotech Pvt. Ltd. (Indus) under Section 11(3) read with Sections 11(4)a and 11(12)(a) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) seeking the appointment of an arbitrator to adjudicate upon the disputes that have arisen between the petitioner and the respondents. The petition seeking constitution of the arbitral tribunal emanate from the Share Subscription Agreement (SSA) and Shareholder's Agreements (S.A.), and other supplemental agreements. Through the said agreements, the respondents subscribed to equity shares and Optionally Convertible Redeemable Preference Shares (OCRPS) in the company, i.e., Indus. In the process of business, a decision was taken by the petitioner to make a Qualified Initial Public Offering (QIPO). According to the petitioner company, the dispute in question concerns the appropriate formula to be adopted to arrive at the actual percentage of the paid-up share capital, which would be converted into equity shares and the refund, if any, thereafter. The respondents contend that on redemption of the OCRPS, a sum of INR 367,08,56,503 became due and payable. It is contended that the debt has not been paid by the petitioner giving rise to a cause of action for the respondents to invoke jurisdiction of the National Company Law Tribunal (NCLT). Accordingly, the second respondent filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) for initiation of the Corporate Insolvency Resolution Process (CIRP). In the proceedings before the NCLT, the petitioner filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) seeking a direction to refer the parties to arbitration for the reasons indicated therein. The NCLT allowed the application filed by the petitioner under Section 8 of the Arbitration Act. Consequently, the petition filed by the second respondent was dismissed. The second respondent claiming to be aggrieved by the said order passed by the NCLT approached the Hon'ble Court in the connected SLP.
The Hon'ble Supreme Court referred to the recent decision in the Vidya Drolia and Others v. Durga Trading Corporation20 to determine whether the subject matter in the present case was arbitrable or not. In view of the exhaustive analysis made in Vidya Drolia, the Hon'ble Supreme Court held that a dispute would be non-arbitrable when a proceeding is in rem, and the IBC proceeding is to be considered in rem only after it is admitted. It was noted that in the present case, however, the application under Section 7 of the IBC was not admitted. Hence, the moot question was whether an application filed under Section 7 of the IBC before it is admitted could be referred to arbitration given the plea to refer parties to arbitration made under Section 8 of the Arbitration Act.
The Hon'ble Supreme Court observed that the position of law that the IBC shall override all other laws as provided under Section 238 of the IBC was well-established. In that view, even if the corporate debtor preferred an application under Section 8 of the Arbitration Act, the NCLT must advert to contentions put forth on the application filed under Section 7 of IBC, examine the material placed before it by the financial creditor and determine whether there is default or not. If the irresistible conclusion by the NCLT is that there is default and the debt is payable, reference to arbitration shall not be made despite the existence of an arbitration agreement amongst the parties.
Hence, the Hon'ble Supreme Court, while summing up the procedure, clarified that in any proceeding which is pending before the NCLT under Section 7 of IBC, if such petition is admitted upon the NCLT recording the satisfaction with regard to the default and the debt being due from the corporate debtor, any application under Section 8 of the Arbitration Act made thereafter will not be maintainable.
Therefore, in the facts of the present case, the Hon'ble Supreme Court concluded that the conclusion reached by the NCLT is justified, and Indus' application for the constitution of the arbitral tribunal was allowed.
1 Nivedita Sharma v. Cellular Operators Association of India, (2011) 14 SCC 337.
2 Deep Industries Ltd. v. Oil and Natural Gas Corporation Ltd., 2019 SCC OnLine SC 1602.
3 Heyman v. Darwins Ltd., 1942 AC 356; Bremer Vulkan Schiffbau und Maschinefabrik v. South India Shipping Corporation, 1981 AC 909; Harbour Assurance v. Kansa General International Insurance, 1992 1 Llyod's L.Rep. 81; Lesotho Highlands Development Authority v. Impregilo Spa and Ors., 2005 UKHL 43; Gosset v. Caparelli Cass. Civ. Lere (Dalloz, 1963), 545; Fili Shipping Co. Ltd. and Ors. v. Premium Nafta Products Ltd. and Ors., 2007 UKHL 40.
4 Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd., 2020 2 SCC 455.
5 SMS Tea Estates Pvt. Ltd. v. Chandmari Tea Co. Pvt. Ltd., (2011) 14 SCC 66.
6 Union of India v. Popular Construction Co., (2001) 8 SCC 470
7 State of Himachal Pradesh v. Himachal Techno Engineers and Anr., (2010) 12 SCC 210.
8 Writ Petition (Civil) No. 29722 of 2017.
9 ABL International Ltd. v. Export Credit Guarantee Corporation of India, (2004) 3 SCC 553.
10 K.N. Guruswamy v. State of Mysore, AIR 1954 SC 592; Gujarat State Financial Corporation. v. Lotus Hotels (P) Ltd., (1983) 3 SCC 379; Gunwant Kaur v. Municipal Committee, Bhatinda, (1969) 3 SCC 769.
11 State of UP v. Sudhir Kumar, 2020 SCCOnLine SC 847.
12 Popatrao Vynkatrao Patil v. State of Maharashtra, Civil Appeal 1600 of 2000 (Supreme Court of India).
13 ABL International Ltd. v. Export Credit Guarantee Corporation of India, (2004) 3 SCC 553.
14 Vidya Drolia v. Durga Trading Corporation, 2021 2 SCC 1.
15 Consolidated Engineering v. Principal Secretary, Irrigation, 2008 7 SCC 169; Leaf Biotech v. Municipal Corporation Nashik, 2010 6 Mah LJ 316; Deepdharshan Builders Pvt. Ltd. v. Saroj, 2019 1 AIR Bom R 249; Prasar Bharti v. Maa Communication, 2010 115 DRJ 438 DB; Golden Chariot v. Mukesh Panika, 2018 SCC OnLine Del 10050; Geo Miller & Co. Pvt. Ltd. v. Chairman, Rajasthan Vidyut Utpadan Nigam Ltd., 2020 14 SCC 643.
16 C. Budhraja v. Chairman, Orissa Mining Corporation Ltd., 2008 2 SCC 444.
17 Geo Miller & Co. Pvt. Ltd. v. Rajasthan Vidyut Nigam Ltd., 2020 14 SCC 643; Inder Singh Rekhi v. DDA, 1988 2 SCC 338.
18 Vidya Drolia v. Durga Trading Corporation, 2021 2 SCC 1.
19 N.V. International v. State of Assam, (2020) 2 SCC 109.
20 Vidya Drolia and Others Vs. Durga Trading Corporation, 2021 2 SCC 1.
The authors wish to acknowledge the research assistance rendered by Harshvardhan Korada, a student of the Amity Law School, Delhi..
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.