Indian Arbitration Quarterly Roundup (July 2021 – September 2021) - Arbitration & Dispute Resolution

In recent times, several noteworthy judgments have been rendered by the Indian courts in matters relating to the law of arbitration in India. Some decisions rendered in the third quarter of 2021 that discuss the legal position concerning the interpretation and applicability of provisions of the Arbitration and Conciliation Act, 1996 been summarised below:

1. The Project Director, NHAI v. M. Hakeem and Anr.

Hon'ble Supreme Court
Citation: 2021 SCC OnLine SC 473
Decision dated: 20 July 2021

Courts are not empowered to modify an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996.

Brief Facts: Under the National Highways Act of 1956 (National Highways Act), the competent authority (Authority) determines the amount of compensation for the land acquired for constructing highways. If the parties are not satisfied with the compensation, they are allowed to file an application to refer the matter to an arbitrator who is appointed by the Central Government. In this case, abysmally low amounts were granted by the Authority which were then upheld by the arbitrator. Consequently, petitions under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) were filed before the District and Sessions Judge resulting in an enhancement of the compensation. In an appeal, the Division Bench of the Madras High Court (High Court) upheld the enhanced compensation. The High Court held that insofar as the arbitral awards made under the National Highways Act were concerned, Section 34 of the Arbitration Act must be so read as to permit modification of award for enhancement of compensation. Aggrieved by the decision, the National Highway Authority of India (NHAI) approached the Hon'ble Supreme Court. The moot proposition in the instant matter was whether the power of a court under Section 34 of the Arbitration Act to "set aside" an award would also include the power to modify it.

Held: The Hon'ble Supreme Court examined the scope of operation of Section 34 of the Arbitration Act. At the outset, it was clarified that Section 34 of the Arbitration Act was not be construed as an appellate provision. In fact, Section 34 was far from being an appellate provision and allowed setting aside of arbitral awards only on very limited grounds contained in sub-sections (2) and (3). The Hon'ble Supreme Court observed that Section 34 of the Arbitration Act was modelled on the UNCITRAL Model Law on International Commercial Arbitration, 1985 (Model Law) under which no power to modify an award was granted to a court hearing a challenge to an award.

The Apex Court then referred to a catena of cases¹ to reiterate that a court under Section 34 of the Arbitration Act cannot correct the errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. Thus, the statutory scheme under Section 34 of the Arbitration Act was in keeping with the Model Law and the legislative policy of minimal judicial interference in arbitral awards. Based on the decisions referred and the statutory scheme under Section 34 of the Arbitration Act, it was held that there can be no doubt that Section 34 cannot be held to include within it a power to modify the award.

2. PSA Sical Terminals Pvt. Ltd. v. Board of Trustees of V.O. Chidambranar Port Tuticorin and Ors.

Hon'ble Supreme Court of India
Citation: 2021 SCC OnLine SC 508
Decision dated: 28 July 2021

An arbitral award rendered in ignorance of vital evidence or based on no evidence is perverse and bound to be set aside on account of patent illegality.

An arbitrator is bound to arbitrate within the four walls of contract. An arbitral award rewriting the contractual terms is bound to be set aside for lack of jurisdiction of the arbitrator.

Brief Facts: In 1997, PSA Sical Terminals Pvt. Ltd. (Appellant) emerged as the successful bidder for a global tender issued by the first respondent (First Respondent). The parties entered into a license agreement (License Agreement) for the development, operations, and maintenance of seventh berth at V.O. Chidambranar Port at Tuticorin. The Appellant in October 1999 proposed the tariff inclusive of royalty as an element of cost which was approved by the Tariff Authority of Major Ports (Authority). In 2003, the Ministry of Shipping vide a notification (Notification) clarified that the royalty payment shall not be factored into costs for fixation of tariffs by the Authority and the same shall be stipulated in subsequent bid documents. In 2005, the Authority notified revised guidelines wherein the royalty was removed as an element of cost in fixing tariffs. However, in cases where the bidding process was finalised prior to the date of Notification, the tariff computation would continue to take royalty into account to prevent losses to the operator. This condition was subject to a maximum of the amount quoted by the next lowest bidder.

Disputes arose amongst the parties pertaining to the tariff fixation under the License Agreement. The Appellant contended that substantial changes were made in law which affected the commercial viability of the project. Article 14 of the License Agreement allowed Appellant to seek necessary amendments on account of substantial change in law. Accordingly, the Appellant sought the amendment of the License Agreement under Article 14 of the License Agreement to incorporate a revenue sharing method and incidental charges within the tariff system. In the interim timeline, a series of litigation ensued amongst the parties. Eventually in 2012, the Appellant invoked the arbitration clause under the License Agreement. Appellant filed its statement of claim in the arbitral proceedings. The Authority filed its counter statement. The arbitral tribunal vide an award dated 14 February 2014 held in favour of the Appellant and directed the conversion of the relevant provisions of the License Agreement from royalty model to revenue sharing model. The award came to be challenged by the First Respondent. After rounds of litigation, the matter reached the Hon'ble Supreme Court where the Appellant challenged the decision of the Madras High Court to allow the First Respondent's appeal against the arbitral award.

Held: The Hon'ble Supreme Court reiterated that a court under Section 34 of the Arbitration and Conciliation Act (Arbitration Act) is not empowered to act as an appellate court to review the matter and reappreciate the evidence.² The interference with arbitral awards was only warranted when any of the limited grounds under Section 34 applied to the matter. An arbitral award that is perverse in its findings can be set aside on grounds of patent illegality. The test for perversity includes any of the following conditions³:

A finding based on no evidence;
The arbitral tribunal takes in account something irrelevant to arrive at its decision; or
The arbitral tribunal ignores vital evidence in arriving at its decision.

The Apex Court held that the arbitrator's findings were based on no evidence and were also in ignorance of vital evidence. The arbitral tribunal had operated on the premise that there existed for a law/ policy providing for royalty to be accounted as cost for tariff fixation. In fact, the Hon'ble Supreme Court noted that there was no such policy in existence when the bid was being finalized. Hence, the Appellant could not have pleaded a change in law.

The Apex Court opined that the arbitral tribunal had with its decision, thrust upon the parties a new term which they never agreed to originally. Therefore, the award amounted to creation of a new contract for the disputing parties. The Hon'ble Supreme Court held that an arbitrator was bound to act within the four walls of the contractual terms. If an arbitrator acted beyond the terms of the contract, he would be acting without jurisdiction. Accordingly, the Apex Court held that the impugned award fell within the realm of patent illegality and had been rightly set aside by the Madras High Court. Accordingly, the appeals were dismissed.

3. Amazon.com NV Investment Holding LLC v. Future Retail Ltd. and Ors.

Hon'ble Supreme Court
Citation: 2021 SCC OnLine SC 145
Decision dated: 06 August 2021

Emergency arbitral awards are orders under Section 17(1) of the Arbitration and Conciliation Act, 1996.

No appeal would lie under the Arbitration and Conciliation Act, 1996 against an order made under Section 17(2) for enforcement of an emergency arbitrator's award.

Brief Facts: The present matter concerns proceedings which were initiated by the appellant (Amazon) before the High Court of Delhi (High Court) under Section 17(2) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) to enforce the award/ order rendered under an emergency arbitration conducted as per the Rules of the Singapore International Arbitration Centre Rules (SIAC). The Order was passed against the Respondents (Biyani Group).

In this matter, Amazon had agreed to invest INR 14.31 billion in a Biyani Group company. The basic understanding was that Amazon's investment in retail assets of the Biyani Group company could not be transferred without Amazon's consent. Further, Biyani Group was expressly prohibited from dealing with Mukesh Dhirubhai Ambani Group (Reliance Group). Disputes arose amongst the parties as Biyani Group entered into a transaction (Disputed Transaction) with Reliance Group which envisaged amalgamation and disposal of the Biyani Group company in which Amazon had invested INR 14.31 billion. Aggrieved by the Disputed Transaction, Amazon initiated arbitration proceedings and filed an application for emergency interim relief under the SIAC Rules. The emergency arbitrator upon hearing both parties rendered an award injuncting the Biyani Group and the Reliance Group from continuing with the Disputed Transaction.

Amazon filed an application under Section 17(2) of the Arbitration Act for enforcement of the emergency arbitral award before the learned Single Judge of the High Court. The learned Single Judge passed a detailed judgment holding that an emergency arbitrator's award is an order under Section 17(1) of the Arbitration Act. After a series of litigation, the matter reached the Hon'ble Supreme Court. The moot propositions culled out in the instant matter were as follows:

Firstly, whether an "award" delivered by an emergency arbitrator under the SIAC Rules could be said to be an order under Section 17(1) of the Arbitration Act?
Secondly, whether an order passed under Section 17(2) of the Arbitration Act for enforcement of the award of an emergency arbitrator by Single Judge of the High Court was appealable?

Held: At the outset, the Hon'ble Supreme Court referred to provisions of the Arbitration Act⁴ to observe that an arbitral proceeding could be administered by a permanent arbitral institution. The Hon'ble Supreme Court then referred to a number of judgments⁵ which highlighted the importance of party autonomy as being one of the pillars of arbitration in the Arbitration Act. It was concluded that by agreeing to the SIAC Rules the parties in the instant matter had not bypassed any mandatory provision of the Arbitration Act.

The Apex Court then clarified that arbitration under the Arbitration Act meant any arbitration whether or not administered by a permanent arbitral institution. This, when read with Sections 2(6) and 2(8) of the Arbitration Act made it clear that an emergency arbitrator would also be included within the ambit of an "arbitral tribunal" as defined under Section 2(1)(d) of the Arbitration Act. The Hon'ble Supreme Court opined that an emergency arbitral order is an order which furthers the very object to decongest the court system. Given the fact that emergency arbitral order is exactly like an order of any other arbitral tribunal, the Hon'ble Supreme Court concluded that the same would be covered by Section 17(1) and be enforceable in India.

The Hon'ble Supreme Court held that there could be no doubt that the legal fiction created under Section 17(2) of the Arbitration Act for enforcement of interim orders was created only for the limited purpose of enforcement as a decree of the court. To extend this fiction to encompass appeals from such orders was to go beyond the clear intention of the legislature. Thus, the Hon'ble Supreme Court concluded that there lies no appeal against an order of enforcement made under Section 17(2) of the Arbitration Act.

4. Gemini Bay Transcription Pvt. Ltd. v. Integrated Sales Service Ltd. and Anr.

Hon'ble Supreme Court
Citation: 2021 SCC OnLine SC 572
Decision dated: 10 August 2021

Foreign arbitral awards can bind non-signatories to an arbitration agreement and can be enforced against them.

On 18 September 2000, Integrated Sale Services Ltd. (Integrated), a Hong Kong company and DMC Management Consultants Ltd. (DMC) entered into a Representation Agreement (RA). As per the RA, Integrated was to assist DMC with the sale of its goods and services to prospective customers, against a specified amount of commission in consideration. The RA was amended over time and signed by one Mr. Arun Dev Upadhyaya (Appellant) for DMC and one Mr. Terry Peteete for Integrated. The RA contained an arbitration clause providing for laws of State of Delaware, USA to govern the terms of the RA.

Disputes arose amongst the parties as a result of which a notice of arbitration was sent by Integrated to the Appellant in June 2009. A statement of claim was also filed before the arbitrator naming the Appellant, DMC, DMC Global, Gemini Bay Consulting (GBC), and Gemini Bay Transcription Private Ltd. (GBT) as respondents in the arbitration. It was alleged that the Appellant and his family controlled the activities of DMC, DMC Global, GBC, and GBT to divert funds away from Integrated to deprive it of its commission. Integrated stated that it brought two high value customers for DMC for which it was supposed to receive a commission of 20% (twenty percent) of the gross revenue generated. However, DMC terminated its contracts with the customers only to have new contracts executed subsequently with GBC. This according to Integrated was a strategic move to circumvent the liability to pay commission. Thus, Integrated claimed that the Appellant used GBC as an alter ego of DMC to unlawfully divert profits. Accordingly, Integrated claimed damages on multiple counts.

In March 2010, the arbitrator passed his final award wherein it was held that the timing and coordination of efforts between the DMC and GBC could not simply be a coincidence. Thus, the Arbitrator granted, amongst other things, an award of $ 6,948,100 (United States Dollars six million nine hundred forty-eight thousand and one hundred) to be jointly paid up by DMC, DMC Global, the Appellant, GBC, and GBT. To enforce the arbitral award, Integrated approached the High Court of Bombay (High Court). The matter went through a series of litigation and reached the Hon'ble Supreme Court. The Appellant before the Apex Court challenged the decision of the Division Bench of the High Court which held that the enforcement of impugned award could not be resisted under Section 48 of the Arbitration and Conciliation Act, 1996 (Arbitration Act).

Findings of the Hon'ble Supreme Court

I. Ingredients of a foreign award under Section 44 of the Arbitration Act.

The Hon'ble Supreme Court held that a reading of Section 44 of the Arbitration Act, 1996 would show that there are six ingredients to a foreign award. Firstly, it must be an arbitral award rendered on differences between persons arising out of legal relationships. Secondly, these differences may be in contract or outside of contract, for example, in tort. Thirdly, the legal relationship of parties ought to be considered "commercial" under the law in India. Fourthly, the award must be made on or after the 11th day of October, 1960. Fifthly, the award must be a New York Convention award. Lastly, it must be made in one of such territories which the Central Government by notification declares to be territories to which the New York Convention applies. The Hon'ble Supreme Court held that all requirements posed under Section 44(1) were procedural in nature, the object of which was to satisfy that an award was indeed a foreign award.

II. On non-signatory affected by the doctrine of alter ego

The Apex Court observed that GBT's arguments that a non-signatory affected by the doctrine of alter ego could only be roped in on evidence being adduced before the enforcing court was disingenuous to say the least. Section 47(1)(c) being procedural in nature did not go to the extent of requiring substantive evidence to "prove" that a non-signatory to an arbitration agreement can be bound by a foreign award. In fact, Section 47(1)(c) only spoke of evidence as may be necessary to prove that an award is a foreign award.

III. On pro-enforcement bias under Section 48 of the Arbitration Act

The Hon'ble Supreme Court held that foreign awards rendered under the New Convention were to be enforced as speedily as possible. The same logic applied to Section 48 of the Arbitration Act. Unless a party was able to show that its case comes clearly within Section 48(1) or 48(2), the foreign award must be enforced. Also, the Apex Court relied on the decision in Ssangyong Engg. & Construction Co. Ltd. v. NHAI.⁶ to clarify that the grounds contained in Sections 48(1)(a) to (e) must not be construed expansively, but narrowly. The Apex Court held that the Appellants were, in the guise of applying under Section 48(1)(a), trying to undertake a review on the merits.

IV. Conclusion

The Hon'ble Supreme Court held that there could be no doubt whatsoever that as a result of machinations of the Appellant and the other companies as found by the arbitral tribunal, Integrated was deprived of commission legitimately due to it under the RA. This being so, there could be no doubt that an actual loss had occasioned on Integrated. In any case, the Apex Court held that the damages awarded by the arbitrator in the facts of the instant matter could not even remotely be said to shock the conscience of the Apex Court to clutch the basic notion of justice ground under Section 48(2) Explanation (1)(iii). Accordingly, the appeals were dismissed.

5. Arcelor Mittal Nippon Steel (India) Ltd. v. Essar Bulk Terminal Ltd.

Hon'ble Supreme Court
Citation: 2021 SCC OnLine SC 797
Decision dated: 7 September 2021

Brief Facts: In the instant matter, the appellant and the respondent entered into an agreement for cargo handling at Hazira Port (Cargo Handling Agreement). The said Cargo Handling Agreement provided that all disputes would be settled under the provisions of the Arbitration Act by a mutually appointed sole arbitrator. Disputes arose amongst the parties as a result of which the appellant invoked the arbitration clause in November 2020. The appellant claimed that the respondent did not respond to the notice of arbitration.

Accordingly, the appellant approached the High Court of Gujrat at Ahmedabad (High Court) under Section 11 of the Arbitration Act for appointment of an arbitral tribunal. In December 2020, the respondent replied to the notice of arbitration, contending that the disputes amongst the parties were not arbitrable. In January 2021, the appellant filed an application under Section 9 of the Arbitration Act in the Commercial Court at Surat. Similarly, in March 2021, the respondent filed an application under Section 9 of the Arbitration Act before the Commercial Court.

The Commercial Court heard both the applications filed by the appellant and the respondent under Section 9(1) of the Arbitration Act and reserved the same for orders in June 2021. In July 2021, the application filed by the appellant under Section 11(6) of the Arbitration Act was disposed of by appointment of a three-member arbitral tribunal (Arbitral Tribunal). Consequently, in July 2021, the appellant filed an application before the Commercial Court praying for reference of both the Section 9 applications filed by the appellant and the respondent respectively to the Arbitral Tribunal.

On 16 July 2021, the Commercial Court dismissed the appellant's application. However, the appellant was granted 10 (ten) days to challenge the order of the Commercial Court. The appellant filed an application in the High Court under Article 227 of the Constitution of India challenging the order of the Commercial Court. On 17 August 2021, the High Court dismissed the application filed by the appellant, holding that the Commercial Court had the power to consider whether the remedy under Section 17 was inefficacious and pass orders under Section 9 of the Arbitration Act. Aggrieved by the decision of the High Court, the appellant approached the Hon'ble Supreme Court by way of a special leave petition.

The moot propositions before the Hon'ble Supreme Court were as follows:

Whether a court has the power to entertain an application under Section 9(1) of the Arbitration Act once the arbitral tribunal had been constituted, and if so, what is the true meaning and purport of the expression "entertain" in Section 9(3) of the Arbitration Act?
Whether the court is obliged to examine the efficacy of the remedy under Section 17 before passing an order under Section 9(1) of the Arbitration Act, once an arbitral tribunal is constituted?

Held: Upon hearing the parties, the Hon'ble Supreme Court observed that in this case there was no material on record to show that there were any lapses or laches on the part of the respondent, which delayed the constitution of the Arbitral Tribunal. The allegation that the respondent had disabled itself from availing the remedy under Section 17 remained unsubstantiated. Moreover, mere delay in agreeing upon an arbitrator did not dis-entitle a party from relief under Section 9 of the Arbitration Act.

The Apex Court then referred to several cases to hold that even after the constitution of an arbitral tribunal, the court was not denuded of the power to grant interim relief under Section 9(1) of the Arbitration Act.⁷ The Apex Court clarified that once an arbitral tribunal is constituted, the court cannot take up an application under Section 9 for consideration, unless the remedy under Section 17 is inefficacious. However, once an application is taken up for consideration and the court has applied its mind, the court can certainly proceed to adjudicate the application. The Apex Court accepted the respondent's submission that the intent behind Section 9(3) was not to turn the clock back and require a matter already reserved for orders to be considered in entirety by the arbitral tribunal under Section 17 of the Arbitration Act. Even after an arbitral tribunal is constituted, there could be myriads of reasons why the arbitral tribunal may not provide an efficacious alternative to Section 9(1).

The Hon'ble Supreme Court reiterated that applications for interim relief are inherently applications that must be disposed of urgently. Unless applications for interim measures are decided expeditiously, irreparable injury or prejudice may be caused to the party seeking interim relief. Therefore, the Apex Court concluded that it could never have been the legislative intent that even after an application under Section 9 is finally heard, relief would have to be declined, and the parties are remitted to their remedy under Section 17. Accordingly, the appeal was allowed only to the extent of clarifying that it shall not be necessary for the Commercial Court to consider the efficacy of relief under Section 17 since the Commercial Court had already entertained the application under Section 9.

6. Delhi Airport Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd.

Hon'ble Supreme Court
Citation: 2021 SCC OnLine SC 695
Decision dated: 09 September 2021

Section 34 of the Arbitration and Conciliation Act, 1996 is not an appellate provision.

Courts acting under Section 34 are not empowered to reappreciate evidence to find faults in the arbitral award.

Brief Facts: The Delhi Metro Rail Corporation Ltd. (DMRC), proposed the implementation of the Airport Metro Express Line project (AMEL) which was to be developed by engaging a concessionaire. A bid of consortium comprising of Reliance Energy Limited (renamed as Reliance Infrastructure Limited) and M/s Construcciones y Auxiliar de Ferrocarriles, S.A. namely Delhi Airport Metro Express Pvt. Ltd. (DAMEPL) was accepted by DMRC for engaging in a public private partnership for development of AMEL.

DAMEPL and DMRC entered into an agreement (Concession Agreement) dated 21 August 2008 for development of the AMEL. It was agreed amongst the parties that all civil works, land acquisition, and other clearances from the Government would be handled by DMRC while supply, installation, testing, and commissioning of various systems were to be handled by DAMEPL. The commercial operation date was achieved on 23 February 2011. On 22 March 2012, DAMEPL requested DMRC to conduct a joint inspection of viaduct and its bearing before expiry of defect liability period of civil contractors.

Disputes arose amongst the parties in relation to certain design and quality issues in the project construction. DAMEPL stopped operations of the line on 8 June 2012. A notice was issued by DAMEPL on 9 June 2012 requiring DMRC to cure the defects in DMRC's works within the prescribed period of 90 days. Thereafter, a number of meetings were conducted between the parties. Ultimately, DAMEPL terminated the Concession Agreement on 8 October 2012 as the defects were not cured by DMRC resulting in default under the Concession Agreement. Aggrieved by DAMEPL's termination of the Concession Agreement, DMRC invoked arbitration under the Concession Agreement. The matter proceeded to arbitration where the main issue concerned the validity of the termination notice dated 8 October 2012. DMRC claimed that the termination notice issued by DAMEPL was illegal as DMRC had allegedly taken steps to honor its commitments under the Concession Agreement. DMRC sought a direction from the arbitral tribunal to DAMEPL to take over operations of the AMEL or to grant in alternative, inter alia, compensation of INR 31.73 billion with interest of 18% per annum. DAMEPL justified the termination of Concession Agreement stating that DMRC did not cure the defects and sought an amount of INR 34.7 billion as termination payment along with interest and other amounts in its counter claim.

The arbitral tribunal found that there were as many as 1551 cracks in 367 girders, i.e., 72% of the girders under the AMEL were affected by cracks. The arbitral tribunal held that such defects adversely impacted the integrity of the structure and held DMRC to be in breach of Concession Agreement. The arbitral tribunal further held that DMRC did not take any effective steps to cure the defects. Accordingly, the termination notice issued by DAMEPL was held to be valid and DAMEPL was awarded a total of INR 27.8233 billion payment in termination payment.

DMRC filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) for setting aside the award of the arbitral tribunal dated 11 May 2017. The Single Judge of the Delhi High Court dismissed the Section 34 petition observing that no grounds for interference had been made out by DMRC. DMRC then filed an appeal under Section 37 of the Arbitration Act read with Section 13 of the Commercial Courts Act, 2015. The Division Bench reversed the judgment of the Single Judge and allowed the appeal filed by DMRC. The award passed by the arbitral tribunal was partly set aside. The judgment of the Division Bench was then challenged by both the parties in the present appeals before the Hon'ble Supreme Court of India.

Held: The arbitral tribunal at the outset, delineated the contours of the court's powers to review arbitral awards. The Apex Court observed that in respect of Part I of the Arbitration Act, Section 5 imposed a bar on intervention by a judicial authority except when provided for statutorily. An application for setting aside an arbitral award could only be made within the four walls of the grounds mentioned under Section 34 of the Arbitration Act. The Hon'ble Supreme Court relied upon a catena of judgments to hold that the courts under Section 34 of the Arbitration Act must refrain from appreciating or re-appreciating matters of fact as well as law.⁸ The Hon'ble Supreme Court then referred to the decision in Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI)⁹ to stress upon the restraint to be shown by courts while examining validity of arbitral awards. The Apex Court observed that there was a disturbing tendency of courts setting aside arbitral awards, after dissecting and reassessing factual aspects of the case to come to a conclusion that the award needs intervention. It was emphasized that such an approach would lead to corrosion of the object of the Arbitration Act.

Commenting upon patent illegality, the Hon'ble Supreme court held that not every error of law committed by arbitral tribunal would fall within the expression 'patent illegality'. The Apex Court also observed that it was not open for courts to re-appreciate evidence to conclude that an award suffered from patent illegality as the courts did not sit in an appeal against an arbitral award. The Apex Court found no fault in the findings of the arbitral tribunal. Accordingly, DAMEPL's appeal was allowed and the judgment of the division bench was set aside.

7. Laxmi Continental Construction Co. v. State of U.P. and Anr.

Hon'ble Supreme Court of India
Citation: 2021 SCC OnLine SC 750
Decision dated: 20 September 2021

The mandate of a sole arbitrator who was appointed by designation cannot be terminated solely on ground of their retirement.

Brief Facts: A contract for certain works was entered into between the appellant and the respondents vide an agreement dated 6 February 1988 (Agreement). During the contract work, various disputes arose amongst the parties. The Agreement in its arbitration clause provided that the disputes shall be resolved by the government officers of the rank of superintending engineer or higher, who were not connected with the work under the Agreement. Accordingly, a sole arbitrator was appointed who was the Chief Engineer at the relevant point in time. The claimant filed its claim while the respondents filed their objections to claimant's claim before the sole arbitrator.

During the intervening period, the sole arbitrator retired from the post of Chief Engineer on 30 November 1995. In the arbitral proceedings, the time for making and publishing the award was getting extended from time to time by to the respondents. The respondents on 9 August 1996 were refused further extension of arbitration particularly when the arbitration was about to close and the same could not be completed on account of respondent's lapses, default, and frequent requests seeking adjournments. The appellant eventually filed an arbitration suit under Section 28 of the Arbitration Act, 1940 (Arbitration Act) praying for extension of time for making the award and for hearing and conducting the arbitration. The respondents took their objections that the sole arbitrator had retired from his services as a department official during the conduct of the arbitration proceedings. The respondents accordingly filed a miscellaneous suit with a prayer for declaring the reference sent to the sole arbitrator as inoperative and illegal. Both the suits were heard together by the Ld. Civil Judge (Senior Division), Roorkee. By a common order dated 11 December 1997, the Ld. Civil Judge extended the period of arbitration for 30 days and directed the sole arbitrator to decide the matter within the extended timeline.

The sole arbitrator declared the award on 8 January 1998 and ordered the respondents to pay a total sum of INR 1,097,024 (Rupees one million ninety-seven thousand and twenty-four) with interest from 1 October 1990 to 7 January 1998. The respondents filed their objections under Section 30, and 33 of the Arbitration Act. The matter eventually reached the Hon'ble Supreme Court after a series of litigation. Before the Hon'ble Supreme Court, the original claimant preferred an appeal challenging the setting aside of the award by the High Court of Uttaranchal.

Held: The moot questions before the Hon'ble Supreme Court were as follows:

Whether the mandate of a department officer acting as an arbitrator comes to an end on his retirement?
Whether continuance of the arbitral proceedings by the arbitrator post his retirement could be said to be a misconduct of a sole arbitrator?

Upon examining the arbitration clause in the Agreement, the Apex Court held that the only qualification for appointment as a sole arbitrator was that he should be the officer of the rank of the superintending engineer or higher. Once such an officer was appointed as the sole arbitrator, he continued to be an arbitrator until the proceedings were completed unless he incurred any disqualification under the provisions of the Arbitration Act.

The Apex Court relied on a similarly situated case in Himalayan Construction Co. v. Executive Engineer Irrigation Division, J&K and Anr.¹⁰ where it had overruled the objection that the sole arbitrator appointed by designation could not continue arbitral proceedings and pass an award upon his retirement. The Hon'ble Supreme Court then turned to the arbitration clause in the Agreement. The Apex Court observed that it could not be said that the mandate of the sole arbitrator would come to an end upon his retirement. Moreover, the Apex Court took note that the respondents had raised the very same objections before the Ld. Civil Judge. The Ld. Civil Judge had overruled such an objection and granted one month's extension to the sole arbitrator to complete the proceedings. The said order of the Ld. Civil Judge had attained finality. Therefore, it was not open for the respondents to again raise the same objection.

The Apex Court then referred to the respondents' allegations that the sole arbitrator had misconducted himself by continuing the arbitral proceedings post his retirement. The Hon'ble Supreme Court noted that the sole arbitrator passed an arbitral award within the extended period of time granted by Ld. Civil Judge. Therefore, it could not be said that he had misconducted himself. In view of the above, the Hon'ble Supreme Court passed an order quashing and setting aside the impugned judgment of the High Court. Accordingly, the instant appeal was allowed.

8. DLF Homes Developers Ltd. v. Rajapura Homes Pvt. Ltd. and Anr.

Hon'ble Supreme Court
Citation: 2021 SCC OnLine SC 781
Decision dated: 22 September 2021

Courts can decline reference under Section 11 of Arbitration and Conciliation Act, 1996 if disputes do not fall within the ambit of the arbitration agreement.

Brief Facts: The petitioner DLF Home Developers Ltd. (DHDL) filed two arbitration petitions under Section 11(6) of the Arbitration Act for appointment of sole arbitrator to adjudicate differences that had arisen out of two construction management Agreements (Construction Management Agreements). In 2007-2008, DHDL and Ridgewood Holdings Ltd. (Ridgewood) invested in a joint venture wherein Ridgewood invested in four special purpose vehicles, including Rajapura Homes Pvt. Ltd. (Rajapura) (first respondent in Arbitration Petition No. 17 of 2020) and Begur OMR Homes Pvt. Ltd. (Begur) (first respondent in Arbitration Petition No. 16 of 2020). Rajapura was engaged for construction, operation, and maintenance of certain properties in Bangalore, Karnataka (Rajapura Projects). Similarly, Begur was engaged for certain properties located in Tamil Nadu, and Karnataka (Southern Homes Projects).

In 2008, Ridgewood transferred its stake in joint ventures to its affiliate, Resimmo PCC (Second Respondent) which is a company incorporated in Mauritius. Subsequently, in 2015, it was agreed that the Second Respondent was to acquire sole ownership and control of Rajapura and Begur. Accordingly, to give effect to change in ownership of Rajapura and Begur, DHDL signed two share purchase agreements, one for Rajapura (Rajapura SPA) and one for Begur (Southern Homes SPA) respectively. The primary purpose of the share purchase agreements was to transfer shares from DHDL to Second Respondent. The share purchase agreements contained identical arbitration clauses providing for arbitration seated in Singapore in accordance with Singapore International Arbitration Centre Rules (SIAC Rules).

The share purchase agreements provided that the parties were to execute a construction management agreement as a condition precedent for closing the transactions. Thus, in terms of the enabling provisions contained in the Rajapura SPA and the Southern Homes SPA, the parties signed DLF-Rajapura Homes Construction Management Services Agreement (RCMA), and DLF-Southern Homes Construction Management Services Agreement (SCMA) respectively. Under the RCMA, DHDL was required to provide, inter alia, construction management services to Rajapura for completion of Rajapura Projects. Likewise, under the SCMA, DHDL had to provide similar services to Begur for completion of the Southern Homes Projects. As a consideration for the construction management services provided by DHDL, it was entitled to a fee. For having the fee paid to it, DHDL was required to submit a written notice of completion to Rajapura and Begur. Upon acceptance of the notice of completion by Rajapura and Begur, Second Respondent was obligated to invest a sum of INR 750 million in Begur of which DHDL would be an indirect beneficiary. RCMA and SCMA contained identical arbitration clauses which provided for arbitration seated in New Delhi under the Arbitration and Conciliation Act, 1996 (Arbitration Act).

DHDL issued competition notices as envisaged under the RCMA and SCMA to Rajapura and Begur respectively. The competition notices came to be rejected by Rajapura and Begur on account of various reasons such as delay in completion of projects, lack of necessary documents. DHDL invoked arbitration under the RCMA and SCMA and sought appointment of a sole arbitrator to decide disputes arising out of both, RCMA and SCMA. DHDL contended that the rejection of notice of completion issued to Rajapura and Begur was an attempt of avoiding the Second Respondent's obligation to invest INR 750 million in Begur as contemplated by the parties. Rajapura, Begur, and the Second Respondent (together referred to as Respondents) refused to appoint a sole arbitrator. The Respondents argued that the disputes related to construction obligations under the share purchase agreements and not under RCMA or SCMA. Aggrieved by the refusal of the Respondents to appoint an arbitrator, DHDL preferred two separate petitions under Section 11(6) read with Section 11(12) of the Arbitration Act before the Hon'ble Supreme Court for the appointment of a sole arbitrator.

Held: The Hon'ble Supreme Court, at the outset, observed that post the 2015 amendment, the scope of interference of the Apex Court at the stage of referring matters to arbitration was substantially restricted. The jurisdiction of the Hon'ble Supreme Court under Section 11 was primarily to find out whether there exists a written agreement amongst the parties for resolution of the disputes through arbitration and whether the aggrieved party made out a prima facie arbitration case.

However, it was clarified that the limited jurisdiction under Section 11(6), did not denude the Apex Court of its judicial function to look beyond the bare existence of an arbitration clause. The Hon'ble Supreme Court referred to the decision in Vidya Drolia and Others v. Durga Trading Corporation¹¹ to state that the Apex Court was empowered to conduct a 'prima facie review' under Section 11(6) to weed out any frivolous or vexatious claims and prevent wastage of public and private resources. To put it differently, it was held that the Hon'ble Supreme Court or a High Court, as the case may be, was not expected to act mechanically merely to deliver a purported dispute raised by an applicant at the doors of the arbitrator. Even in existence of an arbitration agreement, the courts would not be prevented from declining a prayer for reference if the dispute in question did not correlate to the arbitration agreement.

Based on the above legal position, the Hon'ble Supreme Court turned to the facts of the case. It was held that the share purchase agreements and the Construction Management Agreements had to be read in harmony and reconciled with each other so as to avoid any head on collision. It was observed that whether or not DHDL had complied with the condition's precedent under the share purchase agreement and became eligible to the contractual fee was purely a question of fact left to be determined by the arbitral tribunal. The Hon'ble Supreme Court observed that the nature of arbitration clauses contained in the share purchase agreements and the Construction Management Agreements was substantially different with neither overriding the other. The Apex Court then considered the argument of the Respondents that the disputes must be arbitrated under the share purchase agreements. It was held that even if Respondent's argument was accepted at face value, the result would be that any dispute relating to DHDL's construction obligation would be referred to arbitration under the share purchase agreements rendering the dispute resolution clauses under the Construction Management Agreements otiose.

The Apex Court noted that there was nothing on record to suggest that the Respondents were aggrieved by non-compliance, deviation, or breach of promise to sell it shares by DHDL. On the contrary, it was accepted by the parties that the sale of shares stood completed. Thus, when neither party pleaded an infringement of the core provisions of the share purchase agreements, the Apex Court observed that it was difficult to agree that the dispute fell within the ambit of the said agreements. Thus, the Hon'ble Supreme Court concluded that the dispute could be adjudicated in arbitral proceedings under the RCMA and the SCMA. However, the arbitrator was at liberty to wind up proceedings under the Construction Management Agreements if, on appreciation of facts, it was found that the disputes stemmed from the share purchase agreements.

On whether the arbitral proceedings should be consolidated or not, the Apex Court highlighted the fact that RCMA and SCMA were two distinct agreements. Accordingly, it was held that it would not be appropriate to consolidate the proceedings. The matter of consolidation of proceedings was left to the wisdom of the arbitrator. Accordingly, the arbitration petitions were allowed and a sole arbitrator was appointed.

9. S.P. Singla Constructions Pvt. Ltd. v. Construction and Design Services

High Court of Delhi
Citation: 2021 SCC OnLine Del 4454
Decision dated: 23 September 2021

The choice of a venue is the choice of an arbitral seat in absence of any indication to the contrary.

Brief Facts: The petitioner, S.P. Singla Constructions Pvt. Ltd. (Petitioner) was awarded a works contract (Contract) on 8 February 2017 by the respondent which is a fully owned undertaking of the government of Uttar Pradesh (Respondent). The value of the Contract was of INR 9,845,375,000 (Rupees nine billion eight hundred forty-five million and three hundred seventy-five thousand). The project under the Contract was supposed to be completed in 30 (thirty) months of signing of Contract, followed by a defect liability period of 48 (forty-eight) months from the date of provisional certificate of completion. The Petitioner claimed that it had taken several steps under the Contract such as mobilization of resources, appointment of various third-party consultants, submission of general arrangement drawings, etc. However, the Respondent failed miserably in fulfilling its part of obligations by not providing the right of way to be provided in 15 (fifteen) days from the signing of Contract even after expiry of entire 30 (thirty) months. The Petitioner contended that the Respondent had not even compensated the Petitioner for the cost incurred by it towards fulfilling its part of the obligations. Due to non-performance of Respondent's obligations, the Petitioner claimed to have incurred a huge loss of productivity, turnover, overhead costs, contractor's profits, and earning capacity besides the cost of construction under the Contract. Accordingly, the Petitioner raised an invoice of INR 1,743,650,777 (Rupees one billion seven hundred forty-three million six hundred fifty thousand and seven hundred seventy-seven).

The parties exchanged multiple communications with respect to the status of the Contract. Eventually, the Petitioner invoked dispute resolution clause under the Contract towards the denial of the termination payments and nominated an arbitrator. Owing to the Respondent's reluctance to decide upon the arbitrator, the Petitioner approached the High Court for appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 (Arbitration Act).

Held: The High Court observed that the moot question in the instant matter was whether the seat of arbitration would be New Delhi or Lucknow?

The High Court referred to the decision of the Hon'ble Supreme Court in Bharat Aluminum Company Ltd. (BALCO) case¹² wherein it was held that the seat was the center of gravity of an arbitration whereas the venue was the geographic location where such an arbitration was conducted. The High Court reiterated the observation of the Apex Court in the BALCO dictum that the courts are required to adopt a pragmatic approach and not a pedantic or technical approach while interpreting or construing an arbitration clause.

The High Court then referred to the decision in BGS SGS SOMA JV¹³ to observe that if the arbitration agreement provides that the arbitral proceedings "shall be held" at a particular venue, then the arbitration proceedings would be anchored at such venue. Therefore, the choice of venue is also a choice of seat of arbitration. In view of the law laid in BGS SGS SOMA JV, that choice of venue is also a choice of seat of arbitration, the High Court held that the seat of the arbitration was at Lucknow. Therefore, the courts at Lucknow had the exclusive jurisdiction to entertain the disputes arising out of the Contract.

Inasmuch as the Petitioners arguments in relation to the ICADR rules were concerned, it was held that the rules provided that the place of arbitration shall be New Delhi or any of its regional office "as the parties may agree". Therefore, the High Court was of the considered opinion that the role of ICADR rule would come into play only after the arbitration commenced. Accordingly, the High Court held that it had no jurisdiction to entertain the instant petition seeking appointment of arbitrator. The petition was dismissed with liberty to the Petitioner to approach the court at Lucknow.

Footnotes

1. MMTC Ltd. v. Vedanta Ltd., 2019 4 SCC 163; Ssangyong Engg. & Construction Co. Ltd. v. NHAI, 2019 15 SCC 131; Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp 1 SCC 644; Maharashtra State Electricity Distribution Co. Ltd. v. Datar Switchgear Ltd., 2018 3 SCC 133; Mc Dermott International Inc. v. Burn Standard Co. Ltd., 2006 11 SCC 181; Cybernetics Network Pvt. Ltd. v. Bisquare Technologies Pvt. Ltd., 2012 SCC OnLine Del 1155; and Nussli Switzerland Ltd. v. Organizing Commonwealth Games, 2014 SCC OnLine Del 4834.

2. MMTC Ltd. v. Vedanta Ltd., 2019 4 SCC 163; and Ssangyong Engg. & Construction Co. Ltd. v. NHAI, 2019 15 SCC 131.

3. Associate Builders v. DDA, 2015 3 SCC 49; and Excise and Taxation Officer-cum-Assessing Authority v. Gopi Nath and Sons, 1992 Supp 2 SCC 312.

4. Sections 2(6), 2(8), and 19(2) of the Arbitration Act.

5. Antrix Corporation Ltd. v. Devas Multimedia Pvt. Ltd., (2014) 11 SCC 560; Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2016) 4 SCC 126; Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd., (2017) 2 SCC 228; and PASL Wind Solutions Pvt. Ltd. v. GE Power Conversion India Pvt. Ltd., 2021 SCC OnLine SC 331.

6. Ssangyong Engg. & Construction Co. Ltd. v. NHAI, 2019 15 SCC 131.

7. Energo Engineering Projects Limited v. TRF Ltd., 2016 SCC Online Del 6560; Benara Bearings and Pistons Limited v. Mahle Engine Components India Private Limited, (2017) SCC Online Del 7226; M. Ashraf v. Kasim V.K., (2018) SCC Online Ker 4913; Srei Equipment Finance Limited (Sefl) v. Ray Infra Services Private Limited & Anr., (2016) SCC Online Cal 6765; Avantha Holdings Limited v. Vistra ITCL India Limited, (2020) SCC Online Del 1717.

8. Uttarakhand Purv Sainik Kalyan Nigam Limited. v. Northern Coal Field Limited, 2020 2 SCC 455; Bhaven Construction Through Authorised Signatory Premjibhai K. Shah v. Executive Engineer Sardar Sarovar Narmada Nigam Ltd. and Another, 2021 SCC OnLine SC 8; and Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran, 2019 15 SCC 131.

9. Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI), 2019 14 SCC 131.

10. Himalayan Construction Co. v. Executive Engineer Irrigation Division, J&K and Anr., (2001) 9 SCC 359.

11. Vidya Drolia and Others v. Durga Trading Corporation, 2021 2 SCC 1.

12. Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc., 2012 9 SCC 552.

13. BGS SGS SOMA JV v. NHPC, 2020 4 SCC 234.

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.

India: Indian Arbitration Quarterly Roundup (July 2021 – September 2021)