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In 2024, India witnessed significant developments in its arbitration landscape, pivotal judicial decisions, and introduction of draft amendment to the Arbitration and Conciliation Act, 1996 (the "Arbitration Act"). Collectively, these developments in 2024 reflect India's ongoing efforts to strengthen its arbitration framework, aligning with international best practices and promoting efficient dispute resolution mechanisms.
I. SPOTLIGHT ON JUDICIAL PRONOUNCEMENTS
In the past year, the Courts in India have delivered several key rulings that significantly shaped the landscape for both domestic and international arbitration. These decisions provide much-needed clarity on crucial issues such as the limited judicial review of arbitral awards, the distinction between venue and seat in arbitration agreements when the arbitration clause is either silent or ambiguous, and that an arbitration agreement cannot bypass statutory remedies.
Limitation Period for Section 11 Applications
In the case of Arif Azim Co. Ltd. v. Aptech Ltd.1, a bench comprising the former Chief Justice of India Justice D.Y. Chandrachud, Justice J.B. Pardiwala and Justice Manoj Misra held that the Limitation Act, 1963 is applicable to proceedings for appointment of arbitrator under Section 11(6) of the Arbitration Act and a Court may refuse to make a reference if the claims, on the date of commencement of arbitration proceedings, are ex-facie barred. The Court ruled that such applications must be filed within three years from the date of serving of the notice invoking arbitration, unless the claims to be raised therein are manifestly time-barred as Article 137 of the Limitation Act, 1963, i.e., the residual provision, would apply to these proceedings. The judgment further recommended that the Parliament amend the Arbitration Act to prescribe a specific limitation period for Section 11 applications for appointment of arbitrators. Considering the findings of the Apex Court, the Draft Bill (Arbitration and Conciliation (Amendment) Bill, 2024) suggests that parties must file a Section 11 application within 60 days from the date of failure of appointment of an arbitrator.
Disputes Arising from Arbitration Clauses in Contracts
The Supreme Court addressed the nuanced issue of the presence or absence of an arbitration clause in a contract in NBCC (India) Ltd. v. Zillion Infraprojects (P) Ltd.2. The Court held and reaffirmed that incorporating arbitration clauses by reference into contracts requires specific conditions to be met. Firstly, the contract must clearly reference the document containing the arbitration clause, show intent to include it, and ensure the clause is applicable without contradicting other terms. General references to another document do not suffice; a direct mention of the arbitration clause is necessary for incorporation. Secondly, if a contract stipulates that its performance is governed by another contract's terms, only those performance-related terms are adopted unless the arbitration clause is explicitly referenced. However, standard terms from trade or professional institutions or general conditions from one party, like government contracts, can include arbitration clauses by mere reference, provided the parties acknowledge familiarity or acceptance of these terms.
In this case, the Letter of Intent (LOI) referred to the tender's terms but did not specifically make a reference to dispute resolution through arbitration. Moreover, the LOI mandated dispute resolution in civil courts in Delhi, making arbitration inapplicable. Thus, the court ruled that the arbitration clause was not incorporated.
The Court reaffirmed that arbitration is a consensual process, and any ambiguity must be avoided. The ruling underscored the importance of clarity when drafting arbitration clauses and resolving disputes via arbitration.
Patent Illegality and Curative Jurisdiction
In another significant ruling, the Supreme Court revisited its earlier decision through a curative petition in DMRC Ltd. v. Delhi Airport Metro Express (P) Ltd.3 The Apex Court examined a curative petition filed by the Delhi Metro Rail Corporation (DMRC) challenging the judgment passed by a two-judge bench of the Supreme Court that had restored an arbitral award in favour of Delhi Airport Metro Express Private Limited (DAMEPL), overturning the Delhi High Court's ruling that had set aside the award. The Court emphasized that the curative petition was maintainable to prevent abuse of the judicial process and to correct a miscarriage of justice. It noted that the Delhi High Court had correctly found the arbitral award to be perverse and legally flawed.
The case arose from a challenge to an arbitral award imposing an exorbitant liability on a public utility. The Court exercised its curative jurisdiction under Article 142 of the Constitution of India in terms of Rupa Hurra4 and concluded that the award suffered from patent illegality, and the restoration of such an award had resulted in a miscarriage of justice, particularly because it saddled DMRC, a public utility, with excessive liabilities. Therefore, it restored the decision of the Delhi High Court while overturning the Supreme Court Division Bench's decision. The arbitral tribunal had failed to justify why the steps taken by DMRC were ineffective within the contract's terms, thus rendering the award unreasoned and irrational. The judgment further highlighted that curative petitions should be an exceptional remedy and not used routinely to revisit arbitral awards. This decision emphasizes the Supreme Court's cautious approach to intervening in arbitral matters, preserving the finality of arbitration decisions.
Scope of Appellate Court's Powers under Section 37 of the Arbitration Act
The principle of limited judicial interference in arbitration under the Arbitration Act was reaffirmed by the Supreme Court in the case of Punjab State Civil Supplies Corporation Ltd. v. Sanman Rice Mills5. The dispute arose when the rice mill, contracted to mill paddy, returned a lesser quantity of rice than agreed, leading to an outstanding financial amount. An arbitrator ruled in favour of the Corporation, ordering the rice mill to pay INR 2.67 crore with interest. The rice mill challenged the award under Section 34, but the Additional District Judge upheld the award. The Rice Mill then appealed to the Punjab & Haryana High Court, which set aside both the award and the District Court's judgment, observing that the arbitrator had misinterpreted the contract.
The Supreme Court ruled that the High Court had exceeded its powers under Section 37 by re-evaluating the evidence and substituting its interpretation of the contract. It emphasized that judicial review of arbitral awards is extremely limited, and courts cannot reappraise evidence or substitute their findings unless the award violates public policy or fundamental legal principles. The Court upheld the arbitrator's decision, reinforcing the principle that courts should respect the autonomy of arbitration and intervene only in exceptional cases where the award conflicts with public policy or the law.
Venue vs. Seat of Arbitration
The distinction between "venue" and "seat" of arbitration has always been a critical point in international and domestic arbitration agreements. In Arif Azim Co. Ltd. v. Micromax Informatics FZE6, the Supreme Court of India clarified key aspects of international arbitration, focusing on the distinction between 'seat' and 'venue'. The case involved a dispute between an Afghanistan-based company and a UAE-based subsidiary of an Indian firm, with the agreement specifying Dubai as the "venue" of arbitration but not explicitly mentioning the "seat." The Court distinguished between the two concepts, affirming that the seat determines the legal jurisdiction and supervisory authority over the arbitration proceedings. Despite the reference to Dubai as the venue, the Court concluded that Dubai was the seat of arbitration due to the application of UAE law and the absence of any contradictory evidence, thereby reinforcing the jurisdiction of Dubai courts.
The Supreme Court of India addressed three key issues in this case: the applicability of Part I of the Arbitration Act, the doctrine of concurrent jurisdiction, and the determination of the seat of arbitration. It clarified that Part I applies only to arbitrations seated in India, and does not extend to foreign-seated arbitrations, even if the agreement predates the BALCO7 decision. The Court ruled that Dubai, as the designated venue and with UAE law governing the arbitration, was the juridical seat of arbitration, rejecting the notion of concurrent jurisdiction in favour of the seat-based approach. The Supreme Court emphasized that once the seat is determined, courts at that seat, in this case, Dubai, have exclusive jurisdiction, and Indian courts cannot entertain the petition for arbitrator appointment, especially when Dubai is the more appropriate forum under the "Forum non Conveniens" doctrine. The decision reinforced that jurisdiction clauses indicating the seat of arbitration imply exclusive jurisdiction, even if not explicitly stated.
The ruling underscores the principle of party autonomy, emphasizing that the clear designation of the seat and the governing law of the arbitration agreement governs the jurisdictional determination. This decision serves as a crucial reminder for parties involved in cross-border transactions to draft precise arbitration clauses to avoid jurisdictional uncertainties.
Nomination of Arbitrators and Party Autonomy
In another landmark decision in Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV)8, the Supreme Court, in a five-judge bench decision, addressed the validity of unilateral appointment clauses in public-private contracts, ruling that such clauses violate the principle of equality and impartiality in arbitration. In the case, the Court examined the situation where one party, particularly a government entity, had the authority to unilaterally appoint a sole arbitrator or curate a panel for the other party to select an arbitrator. The Court held that these clauses undermine the integrity of the arbitration process, as they create doubts about the impartiality and independence of the appointed arbitrator. "The Arbitration Act does not prohibit PSUs from empanelling potential arbitrators. However, an arbitration clause cannot mandate the other party to select its arbitrator from the panel curated by PSUs.", it observed. The ruling emphasized the principle of equal treatment of parties applies at every stage of the arbitration, including the appointment of arbitrators, and concluded that unilateral appointment clauses in public-private contracts are unconstitutional, violating Article 14 of the Constitution. As a result of this ruling, such arbitration clauses can now be contested if they compromise impartiality or breach the principle of equal treatment. While the majority opinion agreed on the unconstitutionality of such clauses, Justice H. Roy concurred with the focus on party autonomy in arbitration but disagreed with invoking constitutional law principles to enforce equality in arbitration.
Post-Award Jurisdiction and Interest
In the case of North Delhi Municipal Corporation v. S.A. Builders Ltd.9, the Supreme Court clarified two important aspects of post-award jurisdiction. Firstly, the Court confirmed that while an Arbitral Tribunal becomes functus officio after delivering an award, it still retains the authority to correct errors or clarify ambiguities under Section 33 of the Arbitration Act. Secondly, the Court ruled that the awarded sum would comprise of the principal amount and the interest accrued from the date of the cause of action until the date of the award as per section 31(7) of the Arbitration Act.
The Court emphasized that the "sum" awarded by the Arbitrator would include any interest granted, and if no interest was awarded, the sum would carry a mandatory interest as prescribed under section 31(7) of the Arbitration Act from the date of the award to the date of payment. It was noted that the granting of interest was discretionary under certain clauses, but mandatory under others if the arbitrator did not grant interest. This judgment ensures that the enforcement of arbitral awards pertaining to payment of interest aligns with the legislative intent behind Section 31(7) of the Act, which mandates the payment of interest on sums due under an award.
Statutory Rights in Employment Disputes
In a decision that has far-reaching implications for employment disputes, the Supreme Court in the case of Dushyant Janbandhu v. Hyundai Autoever India (P) Ltd.10 reaffirmed that exclusive statutory rights related to wages and employment take precedence over arbitration clauses in employment contracts. The Court ruled that contractual agreements to arbitrate cannot override exclusive statutory protections available under labour laws, thereby ensuring that arbitration cannot be used to bypass statutory remedies. This judgment reinforces the primacy of workers' rights, especially in matters involving statutory protections in employment disputes
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