NOTABLE JUDGEMENTS NOVEMBER 2024 ARBITRATION LAW
I. Case Title: Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML
Citation: 2024 SCC OnLine SC 3219
Court: Supreme Court
Decided on: 08.11.2024
Brief Facts:
- The dispute arose between the Central Organization for Railway Electrification (Appellant) and M/s ECI SPIC SMO MCML (JV) (Respondent) concerning the appointment and impartiality of arbitrators under the Arbitration and Conciliation Act, 1996.
- The core issue involved the validity of the arbitration clause in a contract that allowed one party (a public sector entity) to have unilateral control in appointing arbitrators or creating an arbitrator panel, limiting the other party's options.
- The contract stipulated that a panel of retired railway officers would serve as arbitrators, with the General Manager having significant control over the selection process.
- The Respondent contended that such unilateral appointment practices compromised the principles of equality and impartiality under the Arbitration Act.
Issues:
i. Whether a party with a vested interest (like a public authority) can unilaterally appoint a sole arbitrator or restrict the selection process, impacting the fairness of arbitration.
ii. Does the principle of equal treatment of parties under Section 18 of the Arbitration Act apply at the stage of appointing arbitrators?
iii. Whether allowing a public entity to appoint arbitrators violates Article 14 of the Indian Constitution, which ensures equality before the law.
Judgment:
The Supreme Court set aside the provisions in the contract that allowed for unilateral appointments by the public entity and directed that the arbitration process must be conducted in a manner that upholds impartiality, fairness, and equality. The Court held that the process of appointing arbitrators must be impartial and neutral. The Court invalidated the practice where one party, especially a public authority or entity, unilaterally appoints arbitrators or controls the selection of the arbitral panel. This compromises the fairness of the arbitration process. The Court found that the unilateral appointment process violated the principle of equal treatment of parties, which is enshrined in Section 18 of the Arbitration and Conciliation Act, 1996. This provision mandates that both parties in arbitration should be treated equally, and no party should have a disproportionate advantage in selecting arbitrators. It was also opined that Government contracts are not exempt from these principles. Public sector undertakings (PSUs) must adhere to the same standards of fairness and transparency as private entities.
The Court emphasized that in public-private contracts, the arbitration process must instil confidence in all parties, avoiding any perception of favoritism. The judgment referenced global best practices and the UNCITRAL Model Law, underscoring the importance of maintaining the integrity and neutrality of arbitral tribunals. Cases such as Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd. and Perkins Eastman Architects DPC v. HSCC (India) Ltd. were cited to highlight the necessity for impartial and broad-based arbitrator panels. [Click Here]
II. Case Title: HPCL Bio-Fuels Ltd vs. Shahaji Bhanudas Bhad
Citation: 2024 SCC OnLine SC 3190
Court: Supreme Court of India
Decided on: 07.11.2024
Brief Facts:
The appellant, a government company in the bio-fuel industry, issued tenders in 2012 for enhancing the capacity of its process stations and Boiling Houses at Lauriya and Sugauli. The respondent, a company supplying and erecting machinery for sugar factories, was awarded the contract and issued purchase orders for a turnkey project. The respondent supplied equipment and raised invoices, but the appellant raised concerns regarding the quality, timeline, and progress of work. Despite mutual discussions, disputes persisted.
In 2013, the appellant issued additional purchase orders for completing work on a lump-sum basis. The respondent claimed the total amount payable was ₹38.18 crore, of which ₹19.02 crore was paid by the appellant, leaving ₹18.12 crore unpaid. The appellant contested this, citing unsatisfactory performance by the respondent.
The respondent initially filed an arbitration petition under Section 11 of the Arbitration and Conciliation Act, 1996 but withdrew it. The respondent also sent a demand notice under Section 8 of the Insolvency & Bankruptcy Code (IBC) for the unpaid amount. The NCLT admitted the respondent's insolvency petition, but the NCLAT set aside this order, finding a genuine dispute between the parties. Subsequently, the respondent filed a fresh petition under Section 11(6) of the Arbitration Act, seeking the appointment of an arbitrator. The High Court allowed the petition and appointed an arbitrator.
Issues:
i. Whether the fresh application under Section 11(6) of the Arbitration and Conciliation Act, 1996 filed by the respondent is maintainable, particularly when no liberty to file a fresh application was granted after the first application was withdrawn.
ii. Whether the application under Section 11(6) filed on 09-12-2022 is time-barred, and whether the time spent pursuing proceedings under the Insolvency & Bankruptcy Code (IBC) should be excluded while computing the limitation period for filing the application.
Judgment:
Issue I –
The Court held that Section 11 of the Arbitration Act does not prevent filing multiple applications for the appointment of an arbitrator for disputes arising from the same contract. It distinguished the application of Order 23 Rule 1 (CPC) to arbitration proceedings, clarifying that the principle of res judicata or estoppel does not bar a fresh application if the cause of action is different. Furthermore, the Court stated that a party can invoke the same arbitration clause multiple times if the cause of action arises anew, even after a previous arbitration process. However, in this case, since no liberty was granted for filing a fresh application after the first was withdrawn, the fresh Section 11 petition was deemed not maintainable.
Issue II –
The Court ruled that the respondent's choice to pursue IBC proceedings and then abandon them could not be considered a mistake or ignorance. Since the relief sought under Section 11(6) is distinct from relief under Section 9 of the IBC, the time spent in IBC proceedings could not be excluded under Section 14(2) of the Limitation Act. The Court further clarified that insolvency proceedings are distinct from regular recovery proceedings. Insolvency focuses on the corporate debtor's revival, whereas ordinary recovery proceedings seek to recover specific debts owed to individual creditors.
Thus, the Court concluded that the fresh application under Section 11(6) was time-barred, and the period spent in IBC proceedings could not be excluded. [Click Here]
III. Case Title: Ajay Protech (P) Ltd. vs General Manager
Citation: 2024 SCC OnLine SC 3381
Court: Supreme Court
Decided on: November 22, 2024
Brief facts:
M/s Ajay Protech Pvt. Ltd., the appellant, entered into a works contract with the respondent, which led to disputes and subsequent arbitration proceedings. On February 12, 2018, the appellant initiated arbitration by issuing a notice, and a sole arbitrator was appointed through the Gujarat High Court's orders in February 2019.
The arbitration proceedings began on June 24, 2019, with pleadings completed on October 9, 2019. As per Section 29A(1) of the Arbitration and Conciliation Act, 1996, the arbitral award was to be issued within 12 months (by October 8, 2020), extendable by mutual consent to 18 months (ending April 9, 2021). However, the COVID-19 pandemic disrupted the schedule, and the Supreme Court excluded the period from March 15, 2020, to February 28, 2022, from statutory limitations.
The arbitration resumed in 2022 and concluded hearings on May 5, 2023. The parties agreed to seek an extension under Section 29A(4), and the appellant approached the Gujarat High Court in August 2023. However, the High Court dismissed the application, citing an unexplained delay and noting that the tribunal's mandate had expired in April 2021. The appellant challenged this decision before the Supreme Court.
Issue:
Whether the mandate of the Arbitral Tribunal could be extended under Section 29A(4) of the Arbitration and Conciliation Act, 1996, despite a delay in filing the application for extension?
Judgment:
The Supreme Court allowed the appeal and set aside the Gujarat High Court's judgment. It ruled that:
- Section 29A(4) permits courts to extend the arbitral tribunal's mandate both before and after its expiry. The phrase "prior to or after the expiry" explicitly grants this discretion. The timeline for filing the extension application must account for the COVID-19 exclusion period, making March 31, 2023, the effective deadline. The delay between this date and the actual filing on August 1, 2023, was considered justified due to the complexities of the case and the pandemic's impact.
- The court found "sufficient cause" to extend the timeline, given the pandemic disruptions, the respondent's agreement to seek an extension, and the nearing completion of proceedings. The court emphasised that efficient dispute resolution is central to arbitration. Accordingly, the tribunal's mandate was extended until December 31, 2024, to allow the delivery of the arbitral award. Both parties were directed to bear their own costs. [Click Here]
IV.Case Title: Goqii Technologies (P) Ltd. vs Sokrati Technologies (P) Ltd.
Citation: 2024 SCC OnLine SC 3189
Court: Supreme Court
Decided on: 07.11.2024
Brief Facts:
The appellant, a technology-based wellness venture providing lifestyle consultancy services, entered into a Master Services Agreement (MSA) with the respondent, a digital marketing services entity, to manage its advertising campaigns. The MSA was extended in April 2022 for a three-year term with amendments. Between August 2021 and April 2022, the appellant made payments for services rendered by the respondent. However, following media reports in September 2022 alleging malpractices in the advertising industry, and a complaint lodged by the Economic Offences Wing against the respondent's parent company, Dentsu International Limited, the appellant became suspicious of the respondent's activities.
The appellant engaged an independent auditor in November 2022 to review the respondent's activities from April 2021 to December 2022. The auditor's report, submitted in February 2023, highlighted poor returns on investment but did not substantiate claims of fraudulent practices. Despite this, the appellant rejected the respondent's demand notice under Section 8 of the Insolvency and Bankruptcy Code (IBC) for outstanding payments and invoked arbitration under Clause 18.12 of the MSA, filing a counterclaim for a refund, damages, and interest.
Subsequently, the appellant filed a Commercial Arbitration Application in the High Court seeking the appointment of a sole arbitrator. In response, the respondent filed a Company Petition under Section 9 of the IBC to initiate the corporate insolvency resolution process (CIRP) against the appellant. The High Court dismissed the appellant's arbitration application, ruling that the audit report did not substantiate the appellant's claims of fraudulent practices and that the appellant failed to show substantial discrepancies in the invoices.
Aggrieved, the appellant appealed the decision
Issue:
Whether the High Court erred in dismissing the appellant's application under Section 11 of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator.
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