Indian Arbitration – Yearly Review (Landmark judgments rendered in the year 2020)
In recent years, various Indian courts have delivered decisions that have aimed to reduce the scope of intrusion in the arbitral process and make India an arbitration-friendly jurisdiction. The year 2020 was no exception to the trend of promoting arbitration, as we witnessed some landmark judgments being delivered to fortify the contours of the law of arbitration. We have summarised twenty of the most significant judgments rendered during the year 2020 in this article.
- State of Gujarat and Ors. v. Amber Builders
Civil Appeal No. 8307 of 2019
Supreme Court of India
Decided On: 08.01.2019
The Gujarat Public Works Contract Disputes Arbitration Tribunal constituted under Section 3 of the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992 has the requisite jurisdiction to make interim orders in terms of Section 17 of the Arbitration and Conciliation Act, 1996.
Brief Facts: The present matter concerns the Gujarat Public Works Contract Disputes Arbitration Tribunal ("GPWCD Arbitral Tribunal") constituted under Section 3 of the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992 ("Gujarat Act"). The moot question is whether the GPWCD Arbitral Tribunal has the requisite jurisdiction to make interim orders in terms of Section 17 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act").
Held: The Supreme Court of India noted that the Gujarat Act was enacted to compulsorily refer all disputes arising out of any "works contract" entered into by the State government or public sector undertaking with any other person, for certain defined works under the Gujarat Act. In the present case, it was not disputed that the contract entered between the parties was a "works contract", and that the Gujarat Act applied to the parties.
Therefore, on a conjoint reading and careful analysis of the Arbitration Act and the Gujarat Act, the Supreme Court held that the GPWCD Arbitral Tribunal could exercise the powers vested under Section 17 of the Arbitration Act, because there is no inconsistency in the two statutes as far as the granting of interim relief is concerned.
The Apex Court was further of the opinion that the decision in Gangotri Enterprises Limited v. Union of India1 is per incuriam, since it relied on Union of India v. Raman Iron Foundry2, which has been specifically overruled by the three judges bench ruling in H.M. Kamaluddin Ansari & Co. v. Union of India.3
- Vijay Karia v. Prysmian Cavi E Sustemi Srl & Ors.
Civil Appeal No. 1544 of 2020
Supreme Court of India
Decided On: 13.02.2020
In case of challenging international arbitral awards, the courts of the country where the award has been rendered have far more power when it comes to reviewing an arbitral award, as compared to the courts where the execution of the foreign award is sought. The minimal scope of intervention from the courts executing an international arbitral award is in recognition of the pro-enforcement bias.
Brief Facts: Respondents in the instant matter had initiated arbitration under the London Court of International Arbitration Rules (2014) against the Appellants, alleging material breach of contractual obligations. The Appellants, in turn, had raised several counterclaims against the Respondents. The arbitrator had pronounced three partial awards on the issues of jurisdiction, material breaches, and counterclaims as raised by the Appellant. Subsequently, the final award was passed in April 2017. The four awards in question were not challenged before England's courts, although the provision for such challenge was available to the Appellants. These awards were challenged for the first time when they were sought to be enforced before the High Court of Bombay. However, the challenge was declined by the High Court of Bombay, stating that none of the grounds raised to resist enforcement of the awards fell within the scope of the narrow exceptions provided in Section 48 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act"). Thereafter, the Appellants preferred a special leave petition before the Supreme Court, under Article 136 of the Constitution of India.
Held: The Supreme Court took this opportunity to clarify that the Apex Court's scope of intervention under Article 136 of the Constitution is minimal and could not be used to circumvent legislative policy set out in the Arbitration Act. Having established this, the Supreme Court proceeded to discuss the matter at hand in the context of international jurisprudence on enforcement of foreign arbitral awards and recognising the "pro-enforcement bias" being adopted in countries where execution is sought. The Apex Court also observed that courts in a country of primary jurisdiction, i.e., a country where the award has been rendered has far more power when it comes to review of an arbitral award, as compared to the courts in countries of secondary jurisdiction, i.e., the countries where the execution of the foreign award is sought. In this case, India is a country of secondary jurisdiction; the courts in India have very limited scope to interfere with a foreign arbitral award. The Supreme Court further stated that ground of violation of 'principles of natural justice' may be invoked for resisting enforcement of a foreign arbitral award only if it is such that the party resisting enforcement was not given a fair opportunity of hearing. The onus is on the party seeking the benefit of this ground to prove that it was not given a fair opportunity to present its case. As far as the 'public policy' ground goes, the Apex Court opined that the arbitral tribunal's failure to consider an issue that goes to the root of the matter or contravention of 'fundamental policy' of Indian law may be valid grounds for resisting enforcement. However, contravention of 'fundamental policy' is not to be equated with contravention of just about any statute/statutory provision, which may be easily rectifiable in nature. The Appellant here tried to plead breach of a Foreign Exchange Management Act, 1999 provision as a violation of "fundamental policy", but the Supreme Court outright rejected this argument.
- M/s Dharmaratnakara Rai Bahadur v. M/s Bhaskar Raju & Brothers
Civil Appeal No. 1599 of 2020
Supreme Court of India
Decided On: 14.02.2020
Unless an instrument is duly registered and the stamp duty or penalty due in respect of the instrument is paid, a court cannot act upon an arbitration agreement which forms part of such an unstamped instrument.
Brief Facts: The claims in the instant matter arose out of lease deeds, which were admittedly neither registered nor sufficiently stamped, as required under the Karnataka Stamp Act, 1957 ("Karnataka Stamp Act"). It was also an admitted fact that the Respondents had not paid stamp duty and penalty despite being directed to do so by the Registrar (Judicial), High Court of Karnataka. In this background, the moot question before the Supreme Court was whether an insufficiently stamped lease deed could be acted upon to enforce the arbitration clause contained within the deed.
Held: The Supreme Court held that when a lease deed or any other instrument is relied upon as the document containing an arbitration agreement, the court should at the outset, consider whether an objection in that behalf is raised or not and whether the document is appropriately stamped. The Apex Court relied upon its decision in SMS Tea Estates Private Limited v. Chandmari Tea Company Private Limited4, wherein the same question had arisen for its consideration in relation to the Karnataka Stamp Act. The Court held that Section 35 of the Karnataka Stamp Act mandates that instruments are duly stamped, in order to be admissible in evidence and acted upon. Therefore, it was clarified and reiterated that unless the stamp duty and penalty due in respect of an instrument is paid, a court cannot act upon an arbitration agreement which forms part of such an unstamped instrument.
- Mankastu Impex Private Limited v. Airvisual Limited
Arbitration Petition No. 32 of 2018
Supreme Court of India
Decided On: 05.03.2020
Mere expression' place of arbitration' cannot be the basis to determine the parties' intention that they have intended place as the juridical seat of arbitration.
Brief Facts: Mankastu Impex filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") before the Supreme Court. Mankastu Impex and Airvisual had entered into a memorandum of understanding ("MoU") on 12 September 2016, agreeing that Mankastu Impex would be the exclusive distributor of Airvisual's air quality monitors for a period of five (5) years. Airvisual was subsequently acquired by IQAir, who rejected Mankastu Impex's exclusive rights of sale of Airvisual's products, thereby leading to the present dispute. Mankastu Impex invoked the arbitration against Airvisual on 8 December 2017.
Held: The question before the Supreme Court pertained to whether Hong Kong would be the 'place of arbitration' or the 'seat of arbitration', and whether the Supreme Court has the jurisdiction to entertain the instant petition. The Apex Court observed that mere expression' place of arbitration' cannot be the basis to determine the parties' intention that they have intended place as the juridical seat of arbitration. The expression 'arbitration administered in Honk Kong' was the determining factor in the Apex Court's decision to conclude that Hong Kong was indeed intended by the parties to be the 'seat of arbitration'. The Supreme Court, therefore, declined to exercise jurisdiction in the matter.
- Quippo Construction Equipment Limited v. Janardan Nirman Pvt. Limited
Civil Appeal No. 2378 of 2020 (Arising out of SLP (C) No. 11011 of 2019)
Supreme Court of India
Decided On: 29.04.2020
A party is free to refrain from objecting to the jurisdiction of the arbitral tribunal within the time prescribed in Section 16(2), i.e., before filing the statement of defence. Once a party fails to object to the arbitral tribunal's composition within the prescribed time, it loses its right to object.
Brief Facts: The dispute in the instant matter was regarding non-payment of outstanding dues under the contracts entered between the parties to supply construction equipment. The Appellant sent a notice to the Respondent, invoking arbitration against the Respondent to recover outstanding dues. The Respondent denied the existence of any arbitration agreement between the parties and refused to participate in the arbitral proceedings. Consequently, an ex-parte award was passed against the Respondent, allowing claims of the Appellant. Thereafter, the Respondent challenged the arbitral award by way of an application under Section 34 ("Section 34 Application") of the Arbitration and Conciliation Act, 1996 ("Arbitration Act"). The Section 34 Application was dismissed for want of jurisdiction by the Court at Alipore, which held that the courts of New Delhi had the requisite jurisdiction to entertain the matter. The Respondent then challenged the decision of the Court of Alipore by filing a petition before the High Court of Calcutta ("High Court") wherein it reiterated its case of non-existence of any arbitration agreement and further objected to the venue of the arbitration being Delhi, as one of the agreements stated that the venue was Calcutta. This petition before the High Court was allowed. The Appellant being aggrieved by the decision of the High Court challenged the same before the Supreme Court of India ("Supreme Court"). The moot question before the Supreme Court was whether the Respondent could object to the venue of the arbitration, particularly when it failed to participate in the arbitral proceedings and raise any submission regarding the same.
Held: The Supreme Court held that the Respondent was precluded from raising any submission or objection regarding the venue of the arbitration, given that it failed to participate in the proceedings before the arbitrator. The High Court of Calcutta had erred in setting aside the impugned order of the Court of Alipore. To arrive at this conclusion, the Supreme Court relied upon Section 4 of the Arbitration Act, as interpreted in the case of Narayan Prasad Lohia v. Nikunj Kumar Lohia and Ors.5 The Apex Court observed that a conjoint reading of Section 10 and Section 16 of the Arbitration Act shows that an objection to the composition of the Arbitral Tribunal is a matter which is derogable, because a party is free to refrain from objecting within the time prescribed in Section 16(2), i.e., before filing the statement of defence. Therefore, if a party chooses not to oppose the arbitral tribunal's composition, then there will be a deemed waiver Under Section 4 of the Arbitration Act.
- Patel Engineering Ltd. v. North Eastern Electric Power Corporation Ltd. (NEEPCO)
Special Leave Petition (C) Nos. 3584-85 of 2020, Special Leave Petition (C) Nos. 3438-3439 of 2020 and Special Leave Petition (C) Nos. 3434-3435 of 2020
Supreme Court of India
Decided On: 22.05.2020
The construction of the terms of the contract is in the arbitrator's domain to decide. The court would not interfere with the arbitrator's decision unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; and that the arbitrator's view is not even a possible view to take.
Brief Facts: The Respondent had filed three applications under Section 34 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") challenging three arbitral awards passed in respect of contracts entered amongst the parties. The three applications under Section 34 of the Arbitration Act were rejected vide a common order by the Additional Deputy Commissioner (Judicial). Thereafter, the Respondent filed three appeals under Section 37 of the Arbitration Act before the High Court of Meghalaya ("High Court"), which the High Court allowed. Aggrieved by the decision of the High Court, the Petitioner preferred special leave petitions before the Supreme Court of India ("Supreme Court"). Upon hearing both the parties, the Supreme Court dismissed all the special leave petitions filed by the Petitioner, indicating that it is not inclined to interfere with the judgment of the High Court. Thereafter, the Petitioner preferred review petitions before the High Court on the ground that the High Court's judgment suffers from errors apparent on the face of the record. The Petitioner asserted that the High Court had failed to consider the amendments made to the Arbitration and Conciliation (Amendment) Act of 2015. The review petitions filed by the Petitioner were dismissed by the impugned orders. The present special leave petitions arise out of the High Court's impugned order, which declined to entertain the review petitions filed by the Petitioner for the lack for any ground for review and delay in applying for review.
Held: The Supreme Court carefully read through the judgment in Associate Builders6 and further discussed the evolution of patent illegality as a ground for challenging an arbitral award. The Supreme Court reiterated the law laid in the case of Ssangyong Engineering and Construction Company Limited7 to observe that the construction of the terms of the contract was primarily for an arbitrator to decide unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; and that the arbitrator's view is not even a possible view to take. The Supreme Court noted that in the present case, the High Court had referred to the judgment in Associate Builders case at length and arrived at a correct conclusion that the arbitral award can be set aside if it is patently illegal or perverse. Therefore, in conclusion, the Supreme Court held that even though the High Court relied upon a judgment8 which no longer holds good in law, the case has been rightly decided on the test set out in Associate Builders. Hence, there was no reason to interfere with the impugned orders, and the special leave petitions were dismissed.
- South East Asia Marine Engineering and Constructions Ltd. v. Oil India Limited
Civil Appeal Nos. 673 and 900 of 2012
Supreme Court of India
Decided on: 11.05.2020
A change in law clause is inserted in a contract on the lines of Section 56 of the Indian Contract Act, 1872, which states that the contract becomes void on the occurrence of an event that renders the performance impossible.
The court will interpret provisions of a contract literally in the absence of evidence that indicates that the parties envisaged ascribing a broad interpretation of the clause in question.
Brief Facts: The parties in the present case had entered into a contract pursuant to a tender floated by the Respondent. The contract was for well drilling and other auxiliary operations in Assam. During the subsistence of the contract, the price of High-Speed Diesel ("HSD"), an essential component for carrying out the contract, had increased. The Appellant raised a claim against the Respondent for the increase in the price of HSD, stating that the 'change in law' clause of the contract had been triggered. The Respondent kept rejecting the Appellant's repeated requests for reimbursement; therefore, the Appellant invoked the arbitration clause.
The arbitral tribunal issued a majority award allowing the claim of the Appellant along with interest from the date of award until the date of recovery of the money. The arbitral tribunal held that the circular issued by the State or Union for an increase of the price of HSD might not be a 'law' in the literal sense, but it has the force of law and thus fell within the ambit of the 'change in law' clause of the contract. Aggrieved by the award, the Respondent challenged the same under Section 34 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act"). The District Judge upheld the findings of the tribunal and rejected the petition of the Respondent. The Respondent then appealed against the order of the District Judge under Section 37 of the Arbitration Act. By the impugned judgment, the High Court allowed the appeal and set aside the award passed by the arbitral tribunal. Hence, the present matter before the Supreme Court.
Held: The Supreme Court at first carefully examined how the arbitral tribunal and the High Court arrived at their respective conclusions. The arbitral tribunal held that the change in law clause of the contract required a liberal interpretation for assessing the expression 'law' or the change in the law. According to the arbitral tribunal, in matters such as the present one, the beneficial rule of construction should be used to suppress mischief and advance remedies. It was not denied that an increase in operational cost is one of the subject matters of the contract enshrined in the change in law clause. It was also clear that at the time when the change in law was incorporated into the agreement, the change in oil prices was never made by any statutory legislation but only by government order, resolution or instruction, as the case may be. Therefore, the arbitral tribunal observed that the interpretation of expression 'law' or change in the law required an extended meaning to include the statutory law or any order, instruction and resolution issued by the concerned government.
On the other hand, the High Court held that the change in law clause was inserted by parties in agreement to meet uncertain and unforeseen eventualities and not for revising a fixed rate within the contract. The High Court suggested that the contract's change in law clause is akin to a force majeure clause and is pari materia to the "doctrine of frustration and supervening impossibility". In other words, the change in law clause was inserted, keeping in mind Section 56 of the Indian Contract Act, 1872 ("Contract Act"), which states that the contract becomes void on the occurrence of an event that renders the performance impossible. In its conclusion, the Supreme Court held that it did not subscribe to either the reasons provided by the arbitral tribunal or the High Court. It further observed that the position in Sumitomo Heavy Industries Limited v. Oil and Natural Gas Corporation Limited9 did not apply to the present matter. In Sumitomo Heavy Industries Limited (supra) it was held that based upon the appreciation of evidence, an additional tax burden was covered within the scope of an indemnity clause. However, in the present case, there was no evidence to indicate that the parties envisaged ascribing a broad interpretation of the clause in question. Therefore, the interpretation of the arbitral tribunal to expand the meaning of change in law clause to include the change in the price of HSD was held not to be a possible interpretation of this contract, as the Appellant did not introduce any evidence which proves the same.
- Centrotrade Minerals and Metals Inc. v. Hindustan Copper Ltd.
Supreme Court of India
Civil Appeals Nos. 2652 and 2564 of 2006
Decided On: 02.06.2020
What is the legal validity of a two-tier arbitration procedure in India?
Brief Facts: The present dispute arose from a contract entered between the parties for the sale of copper concentrate. The dispute was concerning the dry weight of the copper concentrate delivered. The Appellant invoked the arbitration clause, which contained a two-tier arbitration agreement. The arbitration agreement provided that the dispute in the first tier was to be settled by arbitration in India. However, if either party disagreed with the result, an appeal could be made before the ICC in London. The first arbitration resulted in a NIL Award. Thereafter, the Appellant filed an appeal before the ICC in London. Even before the award of the ICC was delivered, the Respondent challenged the arbitration clause before the High Court of Rajasthan. The challenge before the High Court of Rajasthan resulted in an ad interim ex-parte stay granted in favour of the Respondent. The ad interim ex-parte stay was ultimately vacated by the Supreme Court, allowing the arbitral proceedings to continue. Eventually, the arbitrator appointed by ICC delivered an award in London, allowing the claims of the Appellant on several counts. When the award was sought to be enforced, the Respondent objected to the enforcement. The matter after a series of litigation came before the Apex Court wherein the moot question was whether the two-tier arbitration agreement was valid and whether the appellate award from ICC, London was enforceable. The division bench of the Supreme Court which adjudicated upon the matter arrived at a split decision, and the matter was therefore referred to a three-judge bench. The three-judge bench held that the two-tier arbitration procedure as provided in the present case was indeed valid and permissible under the laws of India. The appeals were listed again for deciding the second question as to whether the appellate award from the ICC, London was enforceable in India. Hence, the present matter.
Held: The Supreme Court, after a thorough examination of the facts of the case, held that the foreign award could be enforced in India. It observed that despite being requested time and again to appear before the tribunal and submit their response and evidence in support thereof, it is only after the arbitrator indicated that he was going to pass an award that the Respondent's attorneys woke up and started asking for time to present their response. This too was granted by the learned arbitrator, by not only granting an extension of time but by extending this time even further upon a subsequent request for extension. Finally, when the legal submissions were sent even beyond the time that was given, the arbitrator took this into account and then passed his award. This being the case, on facts, the Supreme Court held that it could find no fault whatsoever with the conduct of the arbitral proceedings.
- Avitel Post Studioz Limited and Ors. v. HSBC PI Holdings (Mauritius) Limited and Ors.
Civil Appeal Nos. 5145, 5158 and 9820 of 2016
Supreme Court of India
Decided On: 19.08.2020
What constitutes a serious allegation of fraud?
Only those cases where serious allegations of fraud are involved are to be treated as non-arbitrable, and only the civil court should decide such matters. However, where there are allegations of fraud simpliciter and such allegations are merely alleged, the dispute shall remain arbitrable.
The mere fact that criminal proceedings can or have been instituted in respect of the same subject matter would not lead to the conclusion that an otherwise arbitrable dispute, ceases to be so.
Brief Facts: The instant case involves a challenge to the interlocutory judgment and the order passed in an appeal under Section 9 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act"). The Respondent, i.e. HSBC had entered into two agreements namely a Share Subscription Agreement ("SSA") and a Share Holders Agreement ("SHA") with the Appellants. Through the SSA and the SHA, the Respondent agreed to invest 60 million USD into the Avitel Group. The prime contention of the Respondent is that the Appellants had made a representation that they were at an advanced stage of finalising a contract with the British Broadcasting Company ("BBC") which was expected to generate a revenue of 300 million USD in the first phase and ultimately over a billion USD. The prospects lured the Respondent, and hence, it agreed to invest 60 million USD into the Avitel Group.
The Respondent grew suspicious of the Appellant's operations and appointed Ernst & Young and KPMG Dubai to inquire into the business activities of the Avitel Group. The HSBC was informed that the purported BBC contract was non-existent and around 51 million USD of the invested money appeared to have been siphoned off to companies in which the promoters of the Avitel Group had a stake. The Respondent proceeded with arbitration under the SSA and the SHA, which had a similarly worded arbitration clauses. After rounds of arbitration and litigation amongst the parties, the final award was passed by the SIAC. The arbitral tribunal ruled in favour of the Respondent and held that the Appellant had committed the tort of deceit and fraudulently misrepresented. Therefore, the arbitral tribunal through a final award granted the invested sum of 60 million USD and interest along with the legal costs to the Respondent, i.e. HSBC. Aggrieved by the said award, the Appellant challenged the final foreign award but failed in both the appeals presented under Section 34 and 37 of the Arbitration Act. Thereafter, the Respondent moved to the Bombay High Court to enforce the final foreign award. Hence, the present matter.
Held: The Supreme Court noted that the only moot point in the entire dispute was whether the Respondent could be said to have a strong prima facie case in the enforcement proceedings under Section 48 of the Arbitration Act. If so, whether irreparable prejudice would be caused to the Respondent if the protective orders were not issued in its favour.
The Supreme Court first and foremost stated that the instant case would depend upon the position of substantive law in India qua arbitrability of fraud alleged by a party to the arbitration agreement. The decision in Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee10 was referred to, and it was observed that the judgment delivered by a learned Single Judge under a Section 11 jurisdiction would not be a binding precedent. However, the learned Judge's reasoning had a strong persuasive value which the bench in the instant matter was inclined to adopt. Therefore, the Supreme Court further concluded that the decision in N. Radhakrishnan v. Maestro Engineers11 was no more having precedential value. The judgment in Ayyasamy A. v. A. Paramasivam12 was relied upon through which the Supreme Court reiterated that only those case where serious allegations of fraud were involved were to be treated as non-arbitrable and it is only the civil court which should decide such matters. However, where there were allegations of fraud simpliciter and such allegations were merely alleged, the Supreme Court held that it may not be necessary to nullify the effect of the arbitration agreement between the parties as such issues could be determined by the Arbitral Tribunal.
Inasmuch as what would constitute a serious allegation of fraud, the following two tests were reiterated by the Supreme Court:
- Does the plea permeate the entire contract and above all, the agreement of arbitration, rendering it void? or
- Whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain?
The Supreme Court then relied upon the judgment in Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.13 and Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd.14 to hold that the same set of facts may lead to civil and criminal proceedings and if it was clear that a civil dispute involves questions of fraud, misrepresentation, etc. which can be the subject matter of proceeding under Section 17 of the Contract Act, 1872 and/or the tort of deceit, the mere fact that criminal proceedings can or have been instituted in respect of the same subject matter would not lead to the conclusion that a dispute which is otherwise arbitrable, ceases to be so. In reference to the present matter, it was held that there could be no doubt whatsoever after reading the issues and some of the material findings in the Foreign Final Award that the issues raised and answered are the subject matter of civil as opposed to criminal proceedings. The fact that a separate criminal proceeding was sought to be initiated and may have failed is of no consequence whatsoever.
The Supreme Court concluded that HSBC had made out a strong prima facie case necessitating that USD 60 million, being the principal amount awarded to them, was kept apart in the manner indicated by the learned Single Judge of the Bombay High Court. The balance of convenience was also in favour of the Respondent. It was clear that in case HSBC was to enforce the Foreign Final Award in India under Section 48 of the 1996 Act, an irreparable loss would be caused to it unless at least the principal sum was kept aside for purposes of enforcement of the award in India. Accordingly, the Supreme Court dismissed the petition.
- Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties and Ors.
Civil Appeal No. 5147 of 2016
Supreme Court of India
Decided On: 19.08.2020
Merely because a particular transaction may have criminal overtones, it does not mean that its subject matter becomes non-arbitrable.
Brief Facts: The Appellant, Deccan Paper Mills Co. Ltd., was the owner of a piece of land in Pune. The Appellant decided to develop a segment of the said land, and for this purpose, it entered into a contract ("Contract") with M/s Ashray Premises Pvt. Ltd., i.e. the Second Respondent. The Contract between the Appellant and the Second Respondent did not contain any arbitration clause. Further, the contract under clause 2(m) allowed the developer the right of assignment. In furtherance of the Contract, the Second Respondent entered into a contract ("Contract II") with Regency Mahavir Properties, i.e. the first Respondent. The Second Respondent by Contract II assigned the execution of Contract I to the first Respondent. Contract II contained an arbitration clause.
A deed of confirmation which was to be treated as a part of Contract II was signed amongst the First and the Second Respondent wherein the assignment was reaffirmed. The Appellant alleged that it was falsely made to believe by one of the top partners of the Second Respondent that the development of the property would be carried out as quickly as possible. The Appellant continued to be under the impression that one of the ex-partners of the First Respondent, Mr. Atul Chordia was responsible for the development work. However, on monitoring the situation and failing to find any progress, the Appellant discovered that the ex-partner was no more responsible for the development of the land. The Appellant contended that the Contract II and the deed of confirmation were void ab initio since a fraud had been played on the Appellant. The Appellant thereafter, approached the court of Ld. Civil Judge (Senior Division), Pune seeking a declaration that all agreements and deed were obtained by fraud and therefore be declared null and void. The first Respondent filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") relying upon Contract II. The Appellant challenged the enforceability of the agreement on the ground that the same was null and void. The Additional Judge, Small Causes Court, Pune after hearing both sides referred them to arbitration.
The Appellant then approached the Bombay High Court ("High Court") with a writ petition challenging the decision of the district court at Pune. The High Court upheld the decision of the district court in referring the parties to arbitration by placing reliance upon the decision in Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee.15 The Appellant finally appeared before the Supreme Court of India wherein it challenged the arbitrability of the dispute on several grounds. The Appellant at first argued that the disputes arose out of contracts that were fraudulently executed. Secondly, the Appellant contended that the root of all agreements that is Contract I never contained an arbitration clause. Lastly, the Appellant relied upon the decision in Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.16 to contend that the present proceeding was an exception under Section 31 of the Specific Relief Act, 1963 for the Appellant prayed for the cancellation of Contract I, Contract II and the deed of confirmation. The Respondent contended that the fraud exception would apply only in cases where the agreement itself was not executed and not otherwise. In so far as the argument of the Appellant under Section 31 of the Specific Relief Act, 1963 was concerned, the Respondent contended that the court's discretion under the said provision is for the benefit of the party interested in setting aside a written instrument; therefore, proceedings would be in personam.
Held: The Supreme Court carefully considered the rival submissions and came to the following conclusions:
- Firstly, the Supreme Court relied upon its recent decision in the case of Avitel Post Studioz Limited & Ors. v. HSBC PI Holding (Mauritius) Ltd.17 wherein it was held that when the alleged fraud lies within the scope of performance of the contract or under Section 17 of the Indian Contract Act, 1872 – the dispute would be arbitrable. The Apex Court further clarified that the decision in Radhakrishnan v. Maestro Engineers18 was bad in law and had no legs to stand on. It was also reiterated that merely because a particular transaction may have criminal overtones, it does not mean that its subject matter becomes non-arbitrable.
- Secondly, in view of recent judgments,19 it was clear that there has been a sea of change in Section 8 as we see in the Arbitration Act and Section 20 of the Arbitration Act of 1940. The Supreme Court reiterated that post amendment, if an action was brought before a judicial authority and all other conditions of Section 8 are met, then such judicial body shall refer the parties to arbitration unless it finds that prima facie, no valid arbitration agreement exists.
- Lastly, it was held that to determine whether the proceedings under Section 31 of the Specific Relief Act, 1963 were held in rem or in personam the Supreme Court relied upon the interpretation of a few decisions.20 It was concluded that it would be wholly incorrect to hold that cancellation of very same deed, if done under Section 31 would be an action in rem, however, if done under Section 34 of Specific Relief Act, 1963 would be an action in personam. Therefore, it was held that an action instituted under Section 31 of the Specific Relief Act, 1963 is an action in personam and not an action in rem.
Therefore, the Supreme Court concluded that the judgments of the district court and the High Court, in this case, needed no interference.
- Balasore Alloys Limited v. Medima LLC
Arbitration Petition (Civil) No. 15/2020 and SLP (Civil) No. 10264 of 2020
Supreme Court of India
Decided On: 16.09.2020
In an apparent conflict between two arbitration agreements, the agreements shall be harmonised, and the parties would get the disputes resolved under the main agreement. The rationale behind such harmonisation is to prevent conflicting awards regarding items that overlap in two agreements.
Brief Facts: The instant case involves a petition filed under Section 11(6) read with Section 11(12) of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") filed by the Applicant praying for the appointment of a sole arbitrator. The Applicant entered into 37 transactions or purchase orders whereby the Applicant agreed to supply High Carbon Ferro Chrome to the Respondent. The parties also entered into an agreement ("Agreement") relating to said transactions wherein the terms of the deal were enumerated. Disputes emerged amongst the parties concerning the transactions. The Applicant relied upon clause 7 of the 37 purchase orders for resolution of disputes. The Respondent to the contrary relied upon the Umbrella Agreement ("Agreement") under which clause 23 provided for resolution of disputes before the International Chamber of Commerce ("ICC"). The Respondent also stated that it had already invoked the arbitration by the issue of notice and that an arbitral tribunal was already constituted. The Respondent, therefore, argued that the instant application seeking appointment of an arbitrator under clause 7 of the purchase orders was not bona fide. Hence the present matter.
Held: The Supreme Court relied upon the decision in Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan and Ors.21 wherein a similar issue of two different arbitration clauses in two related agreements was considered. The Apex Court noted that in such cases, the two arbitration clauses had to be harmonised and the parties would get the disputes resolved under the main agreement. The rationale behind such harmonisation was that there could not be conflicting awards in regards to items which overlap in two agreements. The parties would never contemplate such a situation. Turning back to the facts, the Supreme Court noted that the parties were ad idem to the terms of the Agreement which were comprehensive and all-encompassing. It was observed that the arbitration clause contained in clause 23 would, therefore be a part of the main agreement. Hence, the Supreme Court held that it would not be appropriate for the Applicant to invoke arbitration under clause 7 of the purchase orders.
- Government of India v. Vedanta Limited and Ors.
Civil Appeal No. 3185 of 2020 (Arising out of SLP (Civil) No. 7172 of 2020)
Supreme Court of India
Decided On: 16.09.2020
While considering the enforceability of foreign awards, the court does not exercise appellate jurisdiction over the foreign award nor does it enquire as to whether, while rendering the foreign award, some error has been committed.
Brief Facts: In 1994, the Government of India entered into a Product Sharing Contract ("PSC") with Cairn Energy India Pty. Ltd., Ravva Oil (Singapore) Pty. Ltd., Videocon Industries Limited and Oil and Natural Gas Corporation Ltd. for, among other things, exploring and developing petroleum resources in Ravva Gas and Oil Fields. Article 15 of the PSC provided that the Respondents were entitled to recover development costs (for development of the Ravva Gas and Oil Fields). The disputes arose on the interpretation of Article 15.5, which pertained to Base Development Costs ("BDC"). The Respondents in the instant matter incurred BDC, which was higher than the contractually capped amount. The Respondents, therefore, requested the Government of India to increase the cap in Article 15.5 in order to recover the developments costs expended under the PSC. Accordingly, the parties were referred to arbitration, seated at Kuala Lumpur, Malaysia. The arbitral tribunal passed an award inter alia holding that:
- Firstly, the Respondents were required to credit the Appellant, i.e. the Government of India with the BDC recovered above and beyond the scope of Article 15.5 of the PSC between 1994 and 2000.
- Secondly, the Respondents were entitled to recover the entire base development costs incurred for the contract years 2000-2009
The Government of India challenged the award under Section 37 of the Malaysian Arbitration Act, 2005 ("Malaysian Arbitration Act") before the Malaysian High Court. The challenge under Section 37 of the Malaysian Arbitration Act was dismissed since the requirements of Section 37 were not met. Aggrieved by the decision of the Malaysian High Court, the Government of India challenged the order dismissing the appeal. The Malaysian Court of Appeal dismissed the second appeal as well.
In 2014, the Respondents sought to enforce the petition under Section 47, read with Section 49 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act"), before the Delhi High Court. The Respondent also applied for condonation of delay. The Government filed an Application Under Section 48 resisting the enforcement of the award before the Delhi High Court inter alia on the ground that the enforcement petition was filed beyond the period of limitation; the enforcement of the award was contrary to the public policy of India, and contained decisions on matters beyond the scope of the submission to arbitration. The Delhi High Court rejected the Section 48 application and allowed the application for condonation of delay filed by the Respondents and directed that the award be enforced. The Appellant challenged this order of the Delhi High Court before the Supreme Court. Hence, the present case.
Held: The Supreme Court presented its judgment in the instant matter under four different heads, as stated below:
- Limitation for filing an enforcement/ execution petition of a foreign award Under Section 47 of the 1996 Act
The Supreme Court relied upon a catena of decisions22 to hold that the period of limitation for filing a petition for enforcement of a foreign award under Sections 47 and 49 of the Arbitration Act, would be governed by Article 137 of the Limitation Act, 1963, which prescribed a period of three years from when the right to apply accrued. The Supreme Court, therefore, concluded that the instant petition for enforcement of the foreign award was filed within the period of limitation prescribed by Article 137 of the Limitation Act, 1963. In any event, it was added that there were sufficient grounds to condone the delay, if any, in filing the enforcement/execution petition under Sections 47 and 49, on account of lack of clarity for the period of limitation for enforcement of a foreign award.
- Scheme of the 1996 Act for enforcement of New York Convention awards
The Supreme Court amongst other things reiterated that the enforcement court is not to correct the errors in the award under Section 48, or undertake a review on the merits of the award, but is conferred with the limited power to "refuse" enforcement if the grounds are made out. If the court was satisfied that the application under Section 48 is without merit, and the foreign award is found to be enforceable, then Under Section 49, the award shall be deemed to be a decree of "that Court". The limited purpose of the legal fiction is for the enforcement of the foreign award. The concerned High Court would then enforce the award by taking recourse to the provisions of Order XXI of the Code of Civil Procedure
- Whether the Malaysian Courts were justified in applying the Malaysian law of public policy while deciding the challenge to the foreign award?
The Supreme Court held that the Malaysian Courts rightly examined the public policy challenge under the Malaysian Act, being the curial law of the arbitration. It was observed that even though the substantive law of the contract was Indian law, it would not be applicable for deciding the challenge to the issue of the excess of jurisdiction.23
- Whether the foreign award is in conflict with the Public Policy of India?
The Supreme Court relied upon several decisions24 to reiterate that while considering the enforceability of foreign awards, the court does not exercise appellate jurisdiction over the foreign award nor does it enquire as to whether, while rendering the foreign award, some error has been committed. Under Section 48(2)(b) the enforcement of a foreign award could be refused only if such enforcement was found to be contrary to (1) fundamental policy of Indian law, or (2) the interests of India, or (3) justice or morality.
The Supreme Court also stressed upon the substantive amendments which were made to Section 48 by the 2016 Arbitration Amendment Act. It was held that the scope of Section 48 was narrowed down since the phrase "interests of India" was dropped by the Renusagar judgment.25
The Supreme Court stated that it was unable to accept the contention of the Appellant that the award was contrary to the basic notions of justice for two reasons. Firstly, the Appellant has not made out a case of violation of procedural due process in the conduct of the arbitral proceedings. Secondly, the Appellants failed to explain as to how the award conflicts with the basic notions of justice, or was in violation of the substantive public policy of India. Therefore, the Apex Court affirmed the judgment of the Delhi High Court.
- Arun Kumar Kamal Kumar and Ors. v. Selected Marble and Ors.
Civil Appeal No. 8980 of 2017
Supreme Court of India
Decided On: 01.10.2020
A tenant continues to be liable for rent/damages even if the premises are destroyed and the only option of the tenant if desirous to stop the running of rent is to surrender the premises.
Brief Facts: The Appellants entered into two separate license agreements ("License Agreements") whereby it was agreed that the Appellants would operate and run a restaurant cum sweets shop at Respondents' premises against payment on a commission basis. The Appellants contended that the Respondents violated terms of the License Agreements after the business commenced and raised obstacles in the smooth functioning of the business. The Appellants also alleged that the Respondents had failed to make sufficient arrangements for the supply of electricity, due to which the business could not continue. The shop premises remained closed for more than five years. Thereafter, the Respondent on account of Appellants' non-payment of commission and failure to handover vacant possession of the shop filed a suit before the High Court of Delhi ("High Court") under Section 20 of the Arbitration Act, 1940 ("Arbitration Act"). The High Court appointed an arbitrator to adjudicate upon the dispute. Meanwhile, the business was reopened for a few months, after which the Appellants handed over the shop's possession to the Respondents.
During the arbitral proceedings, the arbitrator directed the Appellants to file a statement of accounts calculating the commission that became payable to the Respondents after reopening the business. The Appellants complied with the direction and filed the statement of accounts. Since the Respondents did not raise any objections to the statement of accounts filed by Appellants, the arbitrator calculated the damages payable by the Appellants to the Respondents on the basis of the said statement of accounts. However, the Appellants later stated that certain inadvertent errors had crept in the statement of accounts, which must be corrected before the arbitral award was passed. The arbitrator passed the award rejecting the Appellants' submissions. The Appellants challenged the award before the High Court, which declined to interfere in the matter and made the award the rule of the High Court. The Appellants then appeared before a division bench of the High Court which confirmed the judgment of the single judge, while allowing a reduction of interest rate from 16% per annum to 9% per annum. Hence, the present matter.
Held: The Supreme Court carefully considered submissions on both ends. It was noted that clause 10 of the License Agreements mandated that the Appellants needed to hand the premises over in case of a dispute. However, in the instant matter, the Appellants failed to hand the premises over to the Respondents until the arbitration commenced. Thus, the arbitrator rightly concluded that the Appellants were liable to pay the damages. The Supreme Court also considered the judgment of the single judge of the High Court, wherein it was held that the matter was case was of tenancy and not of a license. Even the Appellants considered themselves to be the tenants at a rent equivalent to the commission of 11% a month. The single judge also placed reliance upon the case of State Bank of Patiala v. Chandermohan26, wherein the division bench of the High Court held that a tenant continued to be liable for rent/damages even if the premises are destroyed and the only option of the tenant if desirous to stop the running of rent is to surrender the premises. The Supreme Court concluded that it did not find any error in the findings of the single judge. The Apex Court further held that the single judge was correct in not permitting the Appellants to withdraw their own statement of accounts and raise a contrary plea than what was in their defence. The Supreme Court then concluded by stating that it was inclined to give the Appellants the benefit of reducing the interest rate as held by the division bench of the High Court.
- Noy Vallesina Engineering Spa v. Jindal Drugs Limited and Ors.
Civil Appeal No. 8607 of 2020
Supreme Court of India
Decided On: 26.11.2020
The law governing the challenge to an arbitration shall be the law of the seat. If the legal or juridical seat of arbitration is outside India, then Part-I of the Arbitration and Conciliation Act, 1996 shall be inapplicable to such arbitrations even if the arbitral award was rendered prior to the BALCO dictum.
Brief Facts: The Respondent, Jindal Drugs Limited entered into four related agreements with Engineering Chur AG ("Enco") to establish an ascorbic acid plant in India. Enco later assigned these agreements to the Appellant with the consent of the Respondent. Disputes arose between the Appellant and the Respondent, as a result of which the Respondent terminated the agreements and claimed damages. The Respondent proceeded for arbitration under one of the agreements, before the International Chamber of Commerce ("ICC"). The ICC delivered a partial award rejecting the Respondent's claims and awarding 44,33,416 Swiss Francs favouring the Appellant. The ICC further directed the parties to present written representations on interest and costs in terms of Article 20 of the ICC Rules of Arbitration for making the final award. The Respondent challenged the ICC's partial award before the High Court of Bombay ("High Court"). The High Court admitted the petition and passed an interim injunction restraining the Appellant and ICC from continuing the proceedings. The ICC held that the High Court's interim order was not binding upon it and consequently proceeded further. The Appellant filed its written submissions on interest and cost. The Respondent did not make any submissions.
Consequently, the ICC delivered the final award in favour of the Appellant. The Respondent challenged the final award under Section 34 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act"). After rounds of litigation, the Respondent's challenge reached the division bench of the High Court. During the pendency of Respondent's appeal, the Appellant applied for enforcement of the partial and final awards under Sections 47 and 48 of the Arbitration Act. The enforcement petition was allowed by the single judge of the Court in favour of the Appellant except for some quantum of money claimed by the Appellant. Hence, the parties filed cross-appeals impugning the enforcement order.
On the other hand, the division bench passed the impugned judgment in favour of the Respondent further setting aside the enforcement order. The division bench of the High Court held that a foreign award could be challenged through a petition preferred under Section 34 of the Act. Hence, the instant appeal was filed before the Supreme Court of India. The Appellant relied heavily on Bharat Aluminium Company v. Kaiser Aluminium Technical Services27 ("BALCO") which had overruled the decisions in Bhatia International28 and Venture Global Engineering29 that were relied upon by the division bench of the High Court. The Appellant further contended that pre-BALCO awards wherein the arbitration was not seated in India and the governing law was not Indian law would not be guided by the BALCO dictum. The Respondent sought the umbrage of Bhatia International case stating that instant matter dated before the BALCO judgment and therefore, the Division Bench was correct in relying upon Bhatia International's decision. The Respondent further clarified that while the arbitration was supposed to occur in London, the governing law was Indian law.
Held: The moot question before the Supreme Court was whether a foreign arbitral award could be challenged under Section 34 of the Arbitration Act given that the award was delivered before the BALCO dictum?
The Supreme Court noted that while the decisions in Bhatia International, and Venture Global Engineering had ruled that resort to remedies under Part I of the Arbitration Act could be made in respect of foreign awards, despite the clear dichotomy in the enactment between domestic and foreign awards. This understanding was revisited in the BALCO decision. The BALCO dictum and a catena of decisions30 were referred to establish the present position in law which states that law governing the challenge to an arbitration shall be the law of the seat. The Supreme Court further reiterated that the law of the seat shall be the law of the place where the arbitration has been held. Therefore, Part I of the Arbitration Act would stand excluded if it is found that the juridical seat of the arbitration was outside India or the law governing the arbitration was a law other than Indian law.31 Reliance was also placed on the recent judgments in BGS SOMA JV v. National Hydro Electric Power Corporation32 and Government of India v. Vedanta Ltd.33 which held that the selection of seat of arbitration would amount an exclusive jurisdiction clause.
The Apex Court noted that the seat of the arbitration was in London where the arbitration proceedings were held. The Supreme Court concluded that since both partial and final awards in the instant matter were foreign awards, the provisions of Sections 47 and 48 were correctly invoked by the Appellant to enforce the said awards. Hence, the impugned judgment of the division bench of the High Court was not sustainable.
- Vidya Drolia and others v. Durga Trading Corporation
Supreme Court of India
Civil Appeal No. 2402 of 2019
Decided On: 14.12.2020
Landlord-tenant disputes are arbitrable under the Arbitration and Conciliation Act, 1996 unless covered by a special enactment which specifically calls for adjudication of the disputes at a particular Court/Forum.
Brief Facts: The instant matter involves a dispute that revolves around a tenancy agreement. The landlord in the present matter had applied before the High Court of Calcutta ("High Court") for the appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act"). The tenant's primary contention was that tenancy matters were not arbitrable. During the pendency of the case, the Supreme Court in the decision of Himangni Enterprises v. Kamaljeet Singh Ahluwalia34 held that a tenant's application for referring the matter to arbitration was dismissed properly since the arbitrator did not have the jurisdiction to decide a rent/ eviction dispute. The tenant in the instant matter took the umbrage of the decision in Himangni to contend its case. Eventually, the present matter reached before the two-judge bench of the Supreme Court of India which was of the view that the decision in Himangni was wrongly decided and hence the matter was referred to a larger bench of three judges. Hence, the present case.
Held: Amongst the several noteworthy observations that the Supreme Court made in the present matter were the fourfold test for determining a subject matter's arbitrability. The fourfold test is as follows:
- When the cause of action and subject matter of the dispute relates to actions in rem, that do not pertain to subordinate rights in personam that arise from rights in rem;
- When the cause of action and subject matter of the dispute affects third party rights; have erga omnes effect; require centralised adjudication, and mutual adjudication would not be appropriate and enforceable;
- When the cause of action and subject matter of the dispute relates to the inalienable sovereign and public interest functions of the State and hence mutual adjudication would be unenforceable; and
- When the subject-matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statute(s).
The bench attached a cautionary note stating that these tests were not watertight compartments. However, if applied holistically and pragmatically, they would help determine the arbitrability of a matter.
On the arbitrability of tenancy disputes, the Supreme Court held that landlord-tenant disputes governed by the TPA were arbitrable. Such disputes were not actions in rem but pertained to subordinate rights in personam that arose from rights in rem. Therefore, in general, tenancy disputes would not affect third-party rights or have erga omnes effect or require centralised adjudication. Moreover, landlord-tenant matters were held not to be inalienable to the sovereign functions of the State. The only exception to the general rule was where a landlord-tenant dispute was covered by a special enactment which specifically called for adjudication of the disputes at a particular Court/Forum. Therefore, the decision in Himangni was overruled.
- Suresh Shah v. Hipad Technology India Private Limited
Supreme Court of India
Arbitration Petition (Civil) No. 8/2020
Decided On: 18.12.2020
Tenancy matters governed by special statutes where a Court/ Forum is conferred exclusive jurisdiction under the statute are non-arbitrable.
Brief Facts: The facts of the case are such that the Petitioner had sub-leased his property to the Respondent. In respect of the sub-lease, certain disputes emerged between the parties. The sub-lease deed between the parties provided for resolution of the disputes through arbitration. Therefore, the Petitioner being a foreign citizen approached the Supreme Court under Section 11(5) and 11(9) of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") for appointing a sole arbitrator. The Petitioner also submitted that the instant case was arbitrable since the tenancy in the instant case was not created under or governed by a special statute. Thus, the Petitioner asserted that there would be no impediment for resolving the dispute through arbitration. The Respondent had chosen not to appear and oppose the instant petition. Hence, the present matter.
Held: The Supreme Court of India before proceeding with the plea of the Petitioner seeking appointment of arbitrator held that it was imperative to consider the arbitrability of the disputes relating to lease/tenancy when such lease was governed by the Transfer of Property Act, 1882 ("TPA"). The case of Vidya Drolia and Ors. v. Durga Trading Corporation35 was referred to hold that in tenancy matters governed by special statutes where a Court/ Forum was conferred jurisdiction under the statute, the Court/Forum named alone could adjudicate the matters. Hence, the dispute under such enactments would be non-arbitrable. If the special statutes did not apply to the property and the lease/tenancy and if an arbitration clause governed such transaction; then the dispute between the parties was arbitrable, and there shall be no impediment whatsoever to invoke the arbitration clause. Therefore, the Supreme Court allowed the petition and appointed an arbitrator.
- Cairn India Ltd. and Ors. v. Government of India
O.M.P. (EFA) (Comm.) 15/2016, I.A. Nos. 20459/2014 and 3558/2015
High Court of Delhi
Decided On: 19.02.2020
A foreign award is enforceable on its own strength and not necessarily dependent on whether or not it goes through the process of Section 48 proceedings under the Arbitration Act.
In case of international arbitral awards, there is no restriction on forum in which the recognition or enforcement of such award can be sought.
Article 136 of the Limitation Act would apply to an enforcement petition for a foreign arbitral award.
Brief Facts: The present matter relates to an enforcement petition filed under Section 47 and Section 49 of the Arbitration Act. The petitioners unanimously sought the enforcement of a foreign award ("Award") dated 18 January 2011. The Government of India objected to the enforcement of the Award under Section 48 of the Arbitration Act. Although the award was rendered on 18 January 2011, the petitioners filed an enforcement petition under sections 47 and 49 of the Arbitration Act, as late as on 15 October 2014. Hence, the present dispute arose where one of the key issues was whether the enforcement petition was barred by limitation and in construing the period of limitation, whether Article 136 or Article 137 of the Limitation Act, 1963 ("Limitation Act") would apply.
Held: The Court noted that there are two diametrically opposite views on the issue as to which of the two articles, Article 136 or Article 137 of the Limitation Act would apply in the present case. On one hand, a single judge of the High Court of Madras in M/s. Compania Naviera 'SODNOC v. Bharat Refineries Ltd. & Anr.36 held that a foreign award is already stamped as a decree and hence a foreign award holder has got twelve (12) years like that of a decree-holder; whereas on the other hand, the Bombay High Court, to the contrary, held in Noy Vallesina Engineering Spa v. Jindal Drugs Limited37 that where an application for enforcement or execution of a foreign award was filed, it will be governed by the provisions of Article 137 of the Limitation Act (residuary provision), if at that stage the Court had not recorded its satisfaction that the award is enforceable. The Court considered the conflicting views in the above-mentioned judgments and held that in order to give effect to the purpose and object of the Arbitration Act, which is speedy and robust disposal of disputes, it would make sense to read the provisions of the Limitation Act "pragmatically" rather than in a "pedantic manner". The Court held that a foreign award is enforceable on its own strength and not necessarily dependent on whether or not it goes through the process of Section 48 proceedings under the Arbitration Act, because in case of international arbitral awards, there is no restriction on forum in which the recognition or enforcement of such award can be sought. Therefore, it was decided that Article 136 of the Limitation Act would apply to an enforcement petition and the present enforcement petition is not barred by limitation.
- Spentex Industries Ltd. v. Quinn Emanuel Urquhart Sullivan LLP
CS (OS) 568/2017.
Delhi High Court
Decided On: 12.05.2020
The charging of contingency fee by lawyers is not prohibited for a foreign law firm/ counsel, not governed by India's statutory regime under the Advocates Act.
Brief Facts: The plaintiff in the present case is a manufacturer of cotton and synthetic yarns, having a subsidiary based in the Netherlands. The defendant is an overseas law firm based in Washington DC, USA. Certain disputes had arisen between the plaintiff and its subsidiary on the one hand, and the Republic of Uzbekistan on the other. Therefore, the plaintiff approached the defendant for its legal services in connection with certain arbitration proceedings. The defendant issued an engagement letter ("Engagement Letter") in respect of the same, which the plaintiff and its subsidiary duly signed. When disputes arose between the plaintiff, its subsidiary and the defendant ("Parties") in relation to the memos/invoices raised by the defendant on the plaintiff, the defendant-initiated arbitration in terms of Clause 16 of the Engagement Letter between the Parties, under the aegis of JAMS. On 01 September 2017, JAMS issued a notice for commencement of tripartite arbitration to the Parties. The plaintiff, in turn, approached the High Court seeking a declaration that the Engagement Letter, as well as the arbitration clause contained therein, are null and void, inoperative, incapable of being performed and also against the public policy of India. The defendant responded with an application under Order 7 Rule 11 of the Civil Procedure Code, 1908 read with Section 45 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") for rejection of the plaint and reference of Parties to arbitration. The Delhi High Court ("Court") was posed with the following moot questions:
- a) Whether the suit brought by the plaintiff, seeking a declaration that the Engagement Letter, as well as the arbitration clause contained therein, are null and void, inoperative, incapable of being performed, is maintainable?
- b) Whether there exists a "commercial" relationship between the Parties, being a client and law firm?
- c) Whether the agreement is void on account of being a contingency fee agreement, which is barred by law in India?
Held: The court answered the first question in the affirmative but clarified that such a suit would be maintainable, only for the limited purpose of conducting an enquiry as to whether the arbitration agreement in question is null and void, inoperative and incapable of being performed. It also noted that courts have generally frowned upon suits containing vague, evasive and bald allegations to claim that the arbitration agreement between parties is null and void.38 It observed that the clear practice being
followed by Indian courts is to be extraordinarily circumspect and reluctant in any manner to interfere in arbitration proceedings and that the mandate is to refer parties to arbitration unless the arbitration agreement is on the face of it null and void, inoperative or incapable of being performed.
The Court then proceeded to discuss the nature of the contractual relationship between the Parties, to determine whether it would qualify as a "commercial" relationship. In terms of Section 44 of the Arbitration Act, a foreign award would mean an arbitral award arising out of a legal relationship considered as commercial under the law in force in India. However, the word "commercial" has not been defined in the Arbitration Act. The Court looked into a plethora of judgments cited by the Parties39, discussing the meaning of "commercial", and finally concluded that transactions relating to services for valuable consideration would clearly qualify as commercial legal relationships, and would be covered by Section 44 of the Arbitration Act. Lastly, the Court held that the charging of contingency fee by lawyers is prohibited under the Advocates Act, 1961 and the rules and regulations framed thereunder. However, in the present case, the defendant is a foreign law firm, not governed by the statutory regime prevailing in India, in relation to advocates. The Engagement Letter is also governed by the laws prevailing in the USA. Charging of contingency fee is not prohibited by law in the USA. Hence, the fact that the fee arrangement between the Parties involved a contingency fee is no reason to discard the Engagement Letter as being null and void.
- Cars24 Services Pvt. Ltd. v. Cyber Approach Workspace LLP
ARB P. 328/2020
High Court of Delhi
Decided On: 17.11.2020
Once Section 11 jurisdiction has contractually been conferred on the Courts of a place other than the seat of arbitration, then the Courts of such place would operate to vest an exclusive jurisdiction limited solely to the extent of entertaining an application for the appointment of an arbitrator.
Brief Facts: The instant matter involves a petition filed under Section 11 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act"). The Respondent had leased its premises to the Petitioner for running an office. Owing to the intervention of the COVID-19 pandemic, the Petitioner claimed that it had to suspend operations and enforce the force majeure clause to terminate the lease deed. A dispute having arisen, the Petitioner approached the High Court of Delhi ("High Court") for the appointment of an arbitrator under Section 11(5) of the Arbitration Act. The dispute resolution clause amongst the parties stated that either party may approach a court of competent jurisdiction at Haryana to appoint the sole arbitrator. However, the seat of the arbitration was decided to be at New Delhi. The High Court expressed its concerns about how the jurisdiction to appoint an arbitrator could be exercised given that the competent court at Haryana was given the exclusive jurisdiction on this aspect. Both the Petitioner and the Respondent submitted that the seat of the arbitration being at New Delhi, the High Court had exclusive jurisdiction to entertain the present petition. Hence, the present case.
Held: The High Court undertook the academic exercise of going through judicial precedents on the seat of arbitration. It was noted that while it is true that the Supreme Court in various decisions commencing from the case in BALCO v. Kaiser Aluminium Technical Services40 held that a clause fixing the seat of arbitration is akin to an exclusive jurisdiction clause, none of the said decisions pertained to a situation in which the contract contained a separate exclusive jurisdiction clause, conferring jurisdiction on a court in another territorial location solely for the appointment of an arbitrator. The High Court then referred to the decision in Mankastu Impex Pvt. Ltd. v. Airvisual Ltd.41 ("Mankastu") which threw some light upon the approach to be adopted in a case as the present. In Mankastu, the Supreme Court held that once the seat of arbitration had been fixed as Hong Kong, if exclusive jurisdiction, for obtaining interim relief, was required to be vested in courts at New Delhi, the agreement had necessarily to specifically so state. Applying the same reasoning to the instant case, the High Court held that once Section 11 jurisdiction had contractually been conferred on the High Court of Punjab and Haryana. Thus, High Court of Punjab and Haryana would operate to vest such exclusive jurisdiction, to the extent of entertaining an application for the appointment of an arbitrator. The High Court held that arriving at any other conclusion would amount to re-writing the contract between the parties. Therefore, for want of territorial jurisdiction, the petition was dismissed.
- Vishranti CHSL v. Tattva Mittal Corporation Pvt. Ltd.
Arbitration Application (L) No. 3311 of 2020
High Court of Bombay
Decided On: 19.10.2020
A general reference to another contract would not incorporate the arbitration agreement under such contract. Section 7(5) of the Arbitration and Conciliation Act, 1996 mandates a particular reference indicating a mutual intention to incorporate the arbitration clause from another instrument into the contract.
Brief Facts: The present case involves an application filed under Section 11 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") by a co-operative society. The Applicant had entered into a development agreement ("Development Agreement") with a construction company to redevelop its property in Mumbai. The Development Agreement consisted of an arbitration agreement which established a dispute settlement mechanism between the Applicant and the construction company. Several years later, the Applicant and the construction company assigned the development rights through a regular deed ("Assignment Deed") to the Respondent.
The Respondent, wanting to proceed with arbitration, sought shelter under Clause 16 of the Assignment Deed which stated that the assignee had an obligation to, "adhere to, observe, perform and fulfil all the terms and conditions stipulated in the Development Agreement." The Respondent contended that the arbitration agreement in the Development Agreement signed between the Applicant and the construction company was assigned to the Respondent. Hence, the present case as to whether the Respondent being the assignee of the development rights under the Development Agreement could call for arbitration.
Held: The High Court of Bombay ("High Court") at the outset, noted that none of the clauses within the Assignment Deed expressly referred to the arbitration agreement under the Development Agreement. In the absence of such specific reference, the High Court held that the law was well settled that a general reference to another contract would not be sufficient to incorporate the arbitration agreement under Section 7(5) of the Arbitration Act.42 The decision in MR Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd.43 was referred to reiterate that there should be a particular reference indicating a mutual intention to incorporate the arbitration clause from an instrument into the contract. The only exception to this threshold is when the document referred to is a standard form of terms and conditions published and circulated by trade associations or regulatory institutions. In the facts of the instant matter, the High Court concluded that it is inescapable that the arbitration clause in the development agreement was not incorporated as required by the law in the Assignment Deed. Hence, the Respondent could not call for arbitration under the Assignment Deed.
1 Gangotri Enterprises Limited v. Union of India (2016) 11 SCC 720.
2 Union of India v. Raman Iron Foundry (1974) 2 SCC 231.
3 H.M. Kamaluddin Ansari & Co. v. Union of India (1983) 4 SCC 417.
4 SMS Tea Estates Private Limited v. Chandmari Tea Company Private Limited (2011) 14 SCC 66.
5 Narayan Prasad Lohia v. Nikunj Kumar Lohia and Ors. (2002) 3 SCC 572.
6 Associate Builders v. Delhi Development Authority (2015) 3 SCC 49.
7 Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI) (2019) 15 SCC 131.
8 Oil & Natural Gas Corporation Ltd. v. Western Geco International Limited (2014) 9 SCC 263.
9 Sumitomo Heavy Industries Limited v. Oil and Natural Gas Corporation Limited (2010) 11 SCC 296.
10 Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee (2014) 6 SCC 677.
11 N. Radhakrishnan v. Maestro Engineers (2010) 1 SCC 72.
12 Ayyasamy A. v. A. Paramasivam (2016) 10 SCC 386.
13 Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. (2011) 5 SCC 532.
14 Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd. (2010) 8 SCC 24.
15 Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee 3 (2014) 6 SCC 677.
16 Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd (2011) 5 SCC 532.
17 Avitel Post Studioz Limited & Ors. v. HSBC PI Holding (Mauritius) Ltd. Appeal No. 196 of 2014 in Arbitration Petition No. 1062 of 2012.
18 N. Radhakrishnan v. Maestro Engineers (2010) 1 SCC 72.
19 Ameet Lalchand Shah v. Rishabh Enterprises (2018) 15 SCC 678; Mayavati Trading Pvt. Ltd. v. Pradyut Deb Burman (2019) 8 SCC 714; and Emaar MGF Land Ltd. v. Aftab Singh (2019) 12 SCC 751.
20 Suhrid Singh v. Randhir Singh (2010) 12 SCC 112; and Razia Begum v. Sahebzadi Anwar Begum 1959 SCR 1111.
21 Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan and Ors. (1999) 5 SCC 651.
22 State of Karnataka v. State of Tamil Nadu 2017 (3) SCC 274; Bank of Baroda v. Kotak Mahindra Bank AIR2020SC1474; The Kerala State Electricity Board, and Trivandrum v. T.P. Kunhaliumma (1976) 4 SCC 634.
23 Sumitomo Heavy Industries Ltd. v. Oil and Natural Gas Commission,  1 Lloyd's Law Reports 45
24 ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705]; Renusagar Power Co. v. General Electric Co. 1994 Supp (1) SCC 644; and ONGC v. Western Geco (2014) 9 SCC 263.
25 Renusagar Power Co. v. General Electric Co. 1994 Supp (1) SCC 644.
26 State Bank of Patiala v. Chandermohan 1996 RLR 404.
27 Bharat Aluminium Co. v. Kaiser Aluminium Technical Services 2012 (9) SCC 552.
28 Bhatia International v. Bulk Trading S.A. and Anr. (2002) 4 SCC 105.
29 Venture Global Engineering v. Satyam Computer Services Ltd. and Anr. 2008 (4) SCC 190.
30 Union of India v. Reliance Industries, (2015) 10 SCC 213; and Roger Shashoua v. Mukesh Sharma, (2017) 14 SCC 722.
31 Videocon Industries Ltd. v. Union of India (2011) 6 SCC 161; Dozco India (P) Ltd. v. Doosan Infracore Co. Ltd. (2011) 6 SCC 179; Yograj Infrastructure Ltd. v. Ssang Yong Engg. and Construction Co. Ltd. (2011) 9 SCC 735; Reliance Industries Ltd. v. Union of India, (2014) 7 SCC 603; and Harmony Innovation Shipping Ltd. v. Gupta Coal India Ltd. (2015) 9 SCC 172.
32 BGS SOMA JV v. National Hydro Electric Power Corporation 2020 (4) SCC 234.
33 Government of India v. Vedanta Ltd. AIR 2020 SC 4550.
34 Himangni Enterprises v. Kamaljeet Singh Ahluwalia (2017) 10 SCC 706.
35 Vidya Drolia and Ors. v. Durga Trading Corporation 2020 SCC OnLine SC 1018.
36 M/s. Compania Naviera 'SODNOC v. Bharat Refineries Ltd. & Anr. AIR 2007 MADRAS 251.
37 Noy Vallesina Engineering Spa v. Jindal Drugs Limited 2006 SCCOnLine Bom 545.
38 World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) PTE Ltd., (2014) 11 SCC 639; and Sasan Power Ltd. v. North American Coal Corporation (India) Pvt. Ltd., (2016) 10 SCC 813.
39 R.M. Investment and Trading Co. Pvt Ltd. v. Boeing Co. & Anr., (1994) 4 SCC 541; and New Delhi Municipal Council v. Sohan Lal Sachdev, (2000) 2 SCC 494.
40 BALCO v. Kaiser Aluminium Technical Services (2012) 9 SCC 552.
41 Mankastu Impex Pvt. Ltd. v. Airvisual Ltd. (2015)12 SCC 225.
42 Alimenta SA v. National Agricultural Cooperative Marketing Federation of India Ltd. & Anr. (1987) 1 SCC 615; MR Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd. (2009) 7 SCC 696; Inox Wind Ltd. v. Thermocables Ltd. (2018) 2 SCC 519; and Giriraj Garg v. Coal India Ltd. & Ors. (2019) 5 SCC 192.
43 MR Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd. (2009) 7 SCC 696.
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