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 second quarter of 2022 that discuss the legal position concerning the interpretation and applicability of provisions of the Arbitration and Conciliation Act, 1996 have been summarised below:

1. M/s Tirupati Steels v. M/s Shubh Industrial Component & Anr.

Citation: Civil Appeal No. 2941 of 2022

Decision Date: 19 April 2022

Pre-Deposit As Per The MSMED Act Is Mandatory To Challenge An Arbitral Award

Brief Facts: The parties are governed by the provisions of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). The appellant, M/s Tirupati Steels, preferred a claim petition before the Micro and Small Enterprises Facilitation Council (Council) for the recovery of INR 1,40,13,053 and interest amounting to INR 1,32,20,100 which comes to a total amounting to INR 2,72,33,153. On the failure of conciliation proceedings, the dispute was referred to the Sole Arbitrator, who was appointed through the Council. The Sole Arbitrator passed an award in favour of the appellant, pursuant to which an execution petition was filed before the District and Sessions Judge, Faridabad (Faridabad Court). Thereafter, the respondent, M/s Shubh Industrial Component, filed an application before the Special Commercial Court, Gurugram (Gurugram Court) under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) for setting aside the arbitral award.

It was contended by the appellant that Section 19 of the MSMED Act directs the judgment debtor to deposit 75% of the arbitral award. The Gurugram Court granted six weeks' time to the Respondent to deposit 75% of the arbitral award before the application filed under Section 34 of the Arbitration Act could be entertained by the Court. Feeling aggrieved with the order passed by the Special Commercial Court, respondent filed the commercial appeal before the High Court. The Division Bench of the Punjab and Haryana High Court, while upholding the vires of Section 19 of the MSMED Act held that the pre-deposit of 75% of the arbitral award under Section 19 of the MSMED Act is merely directory in nature and not mandatory. Thereby, it permitted the proceedings under Section 34 of the Arbitration Act to continue without insistence on making a pre-deposit of 75% of the awarded amount. Feeling aggrieved with the impugned order the appellant had preferred the present appeal before the Supreme Court.

Issue: Whether the pre-deposit of 75% of the awarded amount as per Section 19 of the MSMED Act, 2006, while challenging an award under Section 34 of the Arbitration Act, 1996, is made mandatory or not?

Decision: While interpreting Section 19 of the MSMED Act and relying upon the case of Goodyear (India) Ltd. v. Norton Intech Rubbers (P) Ltd., (2012) 6 SCC 345, the Supreme Court observed that the requirement of deposit of 75% of the amount in terms of the award as a pre-deposit as per Section 19 of the MSMED Act is mandatory. However, the Supreme Court also observed that considering the hardship which may be projected before the appellate court and if the appellate court is satisfied that there shall be undue hardship caused to the appellant to deposit 75% of the awarded amount as a pre-deposit at a time, the court may allow the pre-deposit to be made in instalments. Ultimately, the Supreme Court held that the order passed by the High Court is unsustainable and thus, deserves to be quashed and set aside.

2. BBR (India) Pvt Ltd v. SP Singla Constructions Pvt Ltd

Citation: Civil Appeal Nos. 4130-4131 of 2022

Decision date: 18 May 2022

Conducting Arbitration Proceedings At A New Place Owing To The Appointment Of A New Arbitrator Would Not Shift The Seat Of The Arbitration

Brief Facts: BBR (India) Private Limited (the Appellant) and S.P. Singla Constructions Private Limited (the Respondent) had entered into a contract dated 30.06.2011, under which the Appellant was required to supply, install and undertake stressing of cable strays for the 592 metre long cable stay bridge being constructed by the Respondent. A letter of intent issued to the developer had an arbitration clause for resolution of disputes by a Sole Arbitrator. However, the clause was silent and did not stipulate the seat or venue of arbitration. The contract and letter of intent were executed at Panchkula in Haryana, as the corporate office of the Respondent is also located at Panchkula. However, the registered office of the Appellant is located in Bengaluru, Karnataka. When dispute arose between the parties, the Tribunal held that the venue of the proceeding would be in Panchkula, and neither party objected to the place of arbitration proceedings as fixed by the Arbitral Tribunal. Soon after, the Sole Arbitrator recused himself from the proceedings citing personal reasons, and a new Arbitrator took over as the Sole Arbitrator and recorded his consent in the first procedural order dated 30.06.2015, wherein the venue of the proceeding was stated to be Delhi. Accordingly, the proceedings took place at Delhi, even the award was pronounced and signed in Delhi on 29.01.2016. The Appellant filed a petition challenging the award under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) before the Delhi High Court on 28.04.2016, whereas the Respondent filed an application for interim orders under Section 9 of the Arbitration Act before the Additional District Judge, Panchkula, on 07.05.2016. As the Appellant and Respondent invoked the jurisdiction of two different courts, the question of the 'jurisdictional seat of arbitration' assumed importance in this matter.

The petition filed by the Respondent under Section 9 was dismissed on the ground of lack of territorial jurisdiction, recording that the jurisdiction to entertain the application vests solely with the Delhi High Court, where a prior petition under Section 34 had been filed, and was pending. However, this order was later set aside by the High Court of Punjab and Haryana (Punjab High Court) with the finding that the courts of Delhi did not have the jurisdiction to entertain the objections under Section 34 of the Arbitration Act. The Punjab High Court further recorded that the agreement between the parties was silent as to 'the seat' of the arbitration proceedings, and even the Arbitrator had not determined Delhi to be the 'seat of arbitration'. While relying on the decisions rendered by the Supreme Court, the Punjab High Court held that the courts at Panchkula had jurisdiction to deal with the case. Aggrieved by the same, the Appellant filed the instant petition before the Supreme Court.

Issue: What will be the jurisdictional seat of the arbitration in the instant case?

Decision: The Supreme Court observed that if the arbitration proceedings were held throughout in Panchkula, there would have been no difficulty in holding that Delhi is not the jurisdictional 'seat'. However, that was not the case, as after the appointment of the new Sole Arbitrator the arbitration proceedings were held at Delhi. When first order passed by the Arbitral Tribunal it indicated that the place of the proceedings would be Panchkula in Haryana, and in the absence of other significant indica on application of Section 20(2) of the Arbitration Act, Panchkula would be the jurisdictional 'seat' of arbitration. The Supreme Court further held that when the seat is once fixed by the Arbitral Tribunal under Section 20(2), it should remain static and fixed; whereas the 'venue' of arbitration can change and move from 'the seat' to a new location. A pivotal point that the Apex Court had reiterate here is that the venue is not constant and stationary and can move and change in terms of Sub-Section (3) to Section 20 of Arbitration Act, however, this change of venue does not result in change or relocation of the 'seat of arbitration'. While relying upon BGS SGS Soma JV v. NHPC Limited, the Supreme Court opined that once the jurisdictional 'seat' of arbitration is fixed in terms of Sub-Section (2) of Section 20 of Arbitration Act, then, without the express mutual consent of the parties to the arbitration, 'the seat' cannot be changed. Therefore, while dismissing the appeal, the Court held that the appointment of a new Arbitrator who holds the arbitration proceedings at a different location would not change the jurisdictional 'seat' already fixed by the earlier or first Arbitrator. The place of arbitration in such an event should be treated as a venue where arbitration proceedings are held.

3. Mr. Rajesh Gupta v. Ram Avtarㅤㅤ

Citation: O.M.P. (Comm.) 121 of 2020

Decision date: 19 May 2022

Forfeiture Of The Consideration Without Proof Cannot Be Allowed By The Arbitrator On The Ground Of It Being Referred To As Earnest Money

Brief Facts: The parties to the dispute entered into an Agreement to Sell and Purchase Cum Receipt (Agreement) dated 05.12.2008, as per which, the petitioner agreed to purchase the manufacturing unit including the built-up factory, rights in the leasehold property No. C-37, Sector B-2, Tronica City, Loni Ghaziabad and all movable assets (the Property) for a sale consideration of INR 1,60,00,000. As the petitioner paid a sum of INR 60,00,000 to the respondent, the receipt of the said amount was expressly acknowledged in the Agreement as receipt of 'earnest money'. After entering into the Agreement, the petitioner claimed that the respondent had committed fraud by representing that the entire constructed area of the factory premises was 10,000 sq. ft. However, upon taking measurements, the actual constructed area was found to be only 6,500 sq. ft. Subsequently, the petitioner sent a legal notice calling upon the respondent to either refund the amount paid i.e., INR 60,00,000, or in the alternative, execute the sale deed in respect of the factory premises based on actual measurements. When the respondent failed to respond to the said legal notice, the petitioner filed a suit before the Delhi High Court for recovery of the earnest money along with damages. In response, an application under Section 8 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) was filed by the respondent, which was also allowed and the parties were referred to arbitration under the aegis of the Delhi International Arbitration Centre.

Before the Arbitral Tribunal, the petitioner claimed an amount of INR 1,20,00,000 due to the failure on the part of the respondent in fulfilling his obligations under the Agreement. Additionally, besides costs, the petitioner also claimed pendente lite interest as well as future interest at the rate of 18% per annum and 5% per annum respectively to be compounded quarterly. All the claims of the petitioner were rejected on the ground that it was incumbent upon the petitioner to make reasonable inquiry as to the area of the property and held that the doctrine of 'caveat emptor' applied to the facts of the case. The Arbitral Tribunal also rejected the petitioner's contention that the sum of INR 60,00,000 paid by the petitioner was part payment of the consideration and not earnest money. Consequently, the respondent was entitled to forfeit the same in terms of the Agreement. Aggrieved by this, the petitioner filed the present petition under Section 34 of the Arbitration Act challenging the award.


  1. Whether there was any misrepresentation on the part of the respondent with respect to the constructed area?
  2. Whether the Arbitral Tribunal erred in denying the petitioner's claim for a refund of INR 60,00,000?

Decision: While deliberating upon the first issue, the High Court noted that the Agreement expressly indicated that the respondent had constructed an area of 10,000 sq. ft. However, on an independent assessment by the architect, it was established during the arbitral proceedings that the constructed area was neither 6,500 sq. ft nor 10,000 sq. ft. but was actually 7,506 sq. ft. Therefore, the representation regarding the covered area as reflected in the Agreement was held to be incorrect. The High Court observed that although it is not stated explicitly in so many words, but it was discernible from the impugned award that the Sole Arbitrator was of the view that the reduced area was not material. The High Court opined that it was difficult to accept that a reduced area of the Property to the extent of almost 25% could be considered as not material. The High Court also observed that the principle of 'caveat emptor' did not apply where an express representation is made by the seller and is relied upon by the purchaser. The High Court then referred to the decision of the Sole Arbitrator holding the claim of the petitioner to be barred under the exception clause mentioned in Section 19 of the Indian Contract Act. In view of the limited scope of intervention under Section 34, and the general rule that a court could not supplant its understanding with that of the Arbitrator, the High Court held that the Arbitrator's observation on the claim being barred under Section 19 of the Indian Contract Act did not warrant any interference under Section 34 of the Arbitration Act.

For the second issue, the High Court noted that the Sole Arbitrator had held that the payment of INR 60,00,000 could not be taken up as part payment of the sale price as it was made in the nature of earnest money, and as per Clause 12 of the Agreement, the respondent was entitled to the entire earnest money in the event of the failure on the part of the petitioner to fulfill his obligations under the Agreement. In this regard, the High Court opined that the question of whether an amount of INR 60,00,000 could be considered as a guarantee for entering into a binding contract was also required to be considered keeping in view the quantum of the said amount. The fact that the amount was merely referred to as 'earnest money' in the Agreement would not necessarily cater to the question of the amount being in fact earnest money or being paid as part of the consideration. The High Court, thus, observed that a sum of INR 60,00,000 which represented substantial portion of the total consideration (i.e., 37.5%) could not be forfeited without the respondent establishing that he had suffered any loss. Reliance was also placed by the High Court on the decision in Kailash Nath Associates v. Delhi Development Authority and Anr.,1 to reiterate that Section 74 of the Contract Act applies to forfeiture of earnest money and the requirement to prove the actual loss is not dispensed with. Thus, the High Court held that without the respondent establishing that it had suffered any loss on account of the petitioner failing to close the transaction for the purchase of the Property, it would be impermissible for the respondent to forfeit the amount of INR 60,00,000, which admittedly is not a nominal amount and constitutes a substantial portion of the consideration. Accordingly, the impugned arbitral award was set aside to the extent that it accepts that the respondent was entitled to forfeit the amount of INR 60,00,000.

4. Vistrat Real Estate Private Limited v. Asian Hotels North Ltd.

Citation: Arb. (P) 1124/2021

Decision date: 22 April 2022

The Decision To Join Parties Who Are Not Signatories To The Arbitration Agreement Lies In The Domain Of The Arbitrator

Brief Facts: Vistrat Real Estate Private Limited (Vistrat), the petitioner, purchased 6 floors along with its car parking areas in New Delhi from the respondent, Asian Hotels North Ltd. (AHNL), vide four registered Sale Deeds dated 12.05.2014 along with perpetual right to use car parking area. The petitioner transferred and assigned all rights and title of the premises to IndusInd Bank Limited along with the perpetual right to use the car parking area. Accordingly, the petitioner sought for a refund of the security deposit of INR 15 Crores that was deposited by the petitioner pursuant to Refundable Security Deposit Agreement (Agreement) dated 12.05.2014, which was entered into between the petitioner and the respondent. As the claim of the petitioner was in terms of the Agreement, Clause 7 of the same provided for an arbitration clause that stated that if the dispute is not resolved though such discussion within 30 days after one party has served a written notice requesting the commencement of discussions, then such dispute shall be referred, at the request of either of the parties, to a binding arbitration in accordance with Arbitration and Conciliation Act, 1996 (Arbitration Act). Subsequently, a demand notice was issued by the Petitioner, but the same was not responded to. This compelled the petitioner to issue another notice giving 30 days' time for resolution of the disputes; failing which the arbitration should be invoked in terms of the Agreements. However, even this notice was not replied by the respondent. Hence, the petitioner filed the instance petition under Section 11(6) of the Arbitration Act requesting to appoint an Arbitrator.

The respondents contended that since the property has been sold off by the petitioner to some other party, the respondent has to take the refundable security deposit money from the said third party. Accordingly, a no reply affidavit was filed despite time having been granted, and the respondent claimed that in view of a third-party intervention, the dispute cannot be referred to arbitration as the third party is not a signatory to the Agreement. Further, clause 2 and 3 of the Agreement reads that the amount of refundable security deposit shall be refunded by AHNL to Vistrat within 7 days from the date on which Vistrat transfers the title of the property to any third party, and that it shall be the responsibility of Vistrat to ensure that at the time of sale of the property to any third party, such third party shall provide the refundable security deposit of INR 60,00,000 in its name to AHNL before the refundable security deposit provided by Vistrat is refunded to Vistrat by AHNL. Pursuant to this clause, the respondent contended that as the petitioner has sold off the property to the third party, it was the third party that was required to give a refundable security to the respondent. However, since the same has not been done in the instant dispute, it was argued by the Respondent that because of the rights of a third party being involved in the matter as well, an Arbitrator cannot be appointed to adjudicate the disputes arising between the parties.

Issue: Whether in the absence of a third party, the petitioner can claim the refundable security deposit would be for the learned Arbitrator to determine?

Decision: It was noted by the Delhi High Court (High Court) that while the petitioner sought for reference to arbitration in terms of Clause 7 of the Agreements, Clauses 2 and 3 of the Agreements also played an integral part by providing that only when the third party provides for the refundable security deposit to the respondent, is when the petitioner can claim the deposit. Reliance was placed by the High Court on the Supreme Court decision of Chloro Controls India Private Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641, wherein while dealing with an international arbitration under Section 45 of the Arbitration Act, the Supreme Court held that even third parties who are not signatories to the arbitration agreement can be joined in arbitration. The judgement also lays down categories where the third parties can be impleaded to the arbitration; including the implied consent theory (where the intentions of the third-party beneficiaries come at play), and doctrines of agent-principal, relations, apparent authority, piercing of veil, joint venture relations, succession and estoppel – all that may be applied to bind a non-signatory to an arbitration.

The High Court, thus, held that once a valid arbitration agreement exists between the parties, the issue whether the petitioner is entitled to any relief in the absence of a third party to the agreement or that third party is required to be impleaded in the proceedings, is covered by the Doctrine of Competence-Competence and it will be for the Arbitrator to decide the said issue. For this, the Supreme Court case of Shin Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234 was emphasized upon by the High Court, which highlighted that the rule of priority in favour of the Arbitrators is counterbalanced by the courts' power to review the existence/validity of the arbitration agreement at the end of the arbitral process. Therefore, the correct approach to the review of the arbitration agreement is restricted itself to prima facie finding and have the courts' reviewing of the arbitration agreement to be limited to the principle of competence-competence.


1 Kailash Nath Associates v. Delhi Development Authority and Anr., 2015 4 SCC 13

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