NOTABLE JUDGEMENTS FEBRUARY 2025 ARBITRATION LAW
I. Case Title: AC Chokshi Share Broker (P) Ltd. v. Jatin Pratap Desai
Citation: 2025 SCC OnLine SC 281
Court: Supreme Court of India
Decided on: 10 February 2025
Brief Facts:
The appellant, a stockbroker and BSE member, entered into a trading relationship with respondent nos. 1 and 2 (husband and wife) in 1999. Following the 2001 stock market crash, respondent no. 2 incurred a debit of Rs. 1,18,48,069/-, which the appellant offset using respondent no. 1's credit balance based on alleged oral assurances of joint liability. The appellant sought arbitration under BSE Bye-law 248(a) for Rs. 1,27,36,670/- with 18% interest. The arbitral tribunal upheld joint liability, awarding Rs. 1,18,48,069/- with 9% interest. On challenge, the single judge upheld the award, citing an implied agreement. However, on appeal under Section 37, the Division Bench set aside the award against respondent no. 1, ruling that the tribunal lacked jurisdiction over him. It held that claims against respondent no. 2 arose from stock market transactions, whereas liability against respondent no. 1 was based on an alleged oral understanding, which could not be adjudicated under the arbitration clause. The Court emphasized that the arbitration clause was statutory, and jurisdiction could not be conferred by consent. The Court further found the tribunal's conclusion on joint liability patently illegal, as no documentary evidence established such liability, and the fund transfer violated SEBI regulations. Since respondent no. 1 was improperly impleaded, his counter-claim was also held non-maintainable. Consequently, the High Court set aside the award against respondent no. 1 while upholding its validity in respect of respondent no. 2.
Issue: Whether husband is jointly and severally liable for the debit balance in wife trading account, despite both having separate client accounts and trading independently.
Judgement:
The Supreme Court, in a judgment delivered by Justice Narasimha, set aside the decision of the High Court. Noting the limited jurisdiction to intervene in arbitral awards save for violations of public policy, the Court held that the High Court had erred in setting aside the award on the technicality of the husband's "separate" liability. The Court determined that the husband's liability for the debit balance in his wife's account provided sufficient grounds for invoking the arbitration clause. "They have effectively entered into the transactions undertaken in each of their trading accounts together, i.e., the performance of the transactions in respondent no. 2's trading account is not only on her behalf but also on behalf of respondent no. 1. Therefore, respondent no. 1 is effectively a party to the client agreement between the appellant and respondent no. 2.", the court observed.
The Supreme Court held that an oral contract undertaking joint and several liability falls within the scope of an arbitration clause. Holding so, the Court affirmed an arbitral award against a husband, finding him jointly liable for the award due to a debit balance in a joint demat account registered in his wife's name. The Court rejected the contention that the husband's liability constituted a "private transaction" beyond the scope of arbitration. Instead, it held that the arbitration clause, applicable to non-signatories, in conjunction with the husband's active participation in transactions within his wife's account, gave rise to an implied oral agreement establishing joint and several liabilities for both parties.
[ Click Here]
II. Case Title: Union of India v. Reliance Industries Limited & Ors.
Citation: 2025 SCC OnLine Del 841
Court: Delhi High Court
Decided on: 14 February 2025
Brief Facts
The dispute arose between the Union of India (UOI) and Reliance Industries Limited (RIL) over a Production Sharing Contract (PSC), where ONGC alleged that RIL had unjustly enriched itself by extracting migrated natural gas from an adjoining ONGC block. Based on reports from D&M and the Shah Committee, UOI raised a demand of $1.74 billion against RIL. The Arbitral Tribunal (AT), by a 2:1 majority, held RIL in breach of Article 26.1 of the PSC but deemed it immaterial. UOI's Section 34 challenge on grounds of patent illegality was dismissed by a Single Judge, who ruled that the arbitration was international in nature. On appeal under Section 37, the Delhi High Court held the arbitration to be domestic, finding the AT's award patently illegal for disregarding the 1959 PNG Rules, PSC, and the Public Trust Doctrine. The Court emphasized that natural resources belong to the State under Article 297 of the Constitution and that RIL's failure to disclose key reports amounted to suppression of material facts. Consequently, the Court set aside the arbitral award, reaffirming that private entities cannot extract natural resources without explicit governmental approval. The single judge while dismissing the Section 34 application, observed that the arbitration between UOI and RIL was an 'International Commercial Arbitration' and the ground of patent illegality was not available, for the Courts to interfere with the arbitral award. Aggrieved by the order of the single-judge bench, the UOI filed the present appeal u/s 37 of the A&C Act.
Legal Issue: Whether the arbitral award suffered from patent illegality and violated Indian public policy.
Judgement:
The Delhi High Court (Division Bench) set aside the arbitral award in favor of Reliance Industries Limited (RIL), holding that the Arbitral Tribunal's findings were patently illegal and contrary to Indian public policy. The Court ruled that the arbitration was domestic in nature, as RIL was the sole claimant, and the Single Judge erred in treating it as international commercial arbitration. It further held that the arbitral award suffered from patent illegality, as the Tribunal incorrectly concluded that RIL's breach of Article 26.1 of the Production Sharing Contract (PSC) was not material. The Court emphasized that under Article 297 of the Constitution and the Public Trust Doctrine, natural resources belong to the State, and RIL could not extract migrated gas without explicit governmental permission. RIL's failure to disclose D&M Reports (2003, 2004, 2005) constituted suppression of material facts, further justifying UOI's claim of unjust enrichment. Since the arbitral award violated public policy by allowing a private entity to benefit from a regulatory loophole, the Court, exercising its power under Section 37 of the Arbitration and Conciliation Act, 1996, set aside both the Single Judge's order and the arbitral award, reaffirming State control over natural resources.
[ Click Here]
III. Case Title: Maharashtra Public Service Commission v. Vast India Pvt. Ltd.
Citation: (2025:BHC-OS:2179)
Court: Bombay High Court
Decided on: 11 February 2025
Brief Facts:
In this Petition under Section 34 of the Arbitration and Conciliation Act, 1996, the Petitioner, the Maharashtra Public Service Commission has challenged an arbitral award passed in favour of the Respondent Vast India Private Ltd. The Award has been passed by the Facilitation Council ("Council") formed under the Micro, Small and Medium Enterprises Development Act, 2006 ("MSME Act") - Vast India is a "small enterprise" for purposes of the MSME Act. MPSC issued a Tender for Digital Asset Management on July 20, 2010 and the contract was awarded to Vast India. The Vast India claimed an unpaid amount from the MPSC which was denied. Subsequently, Vast India filed a reference before the MSME Facilitation Council. Arbitration commenced on June 10, 2021. The Arbitral Tribunal also found that there had been no complaints from MPSC during the performance of the contract either about the quality of work done or about any requirement not being met. However, the payment due to Vast India had not been released. The Arbitral Tribunal, on facts, upon a review of the evidence before it, has returned a conclusive finding that there had been no default on the part of Vast India and the payments due to it ought to be made. The Arbitral Tribunal has ruled that the benefit of access to the forum would not be available to an entity that is not a protectee of the special provisions of the MSME Act.
Issue: Whether the arbitral award passed by the MSME Facilitation Council in favor of Vast India Private Ltd. was invalid on the ground that it was rendered beyond the prescribed time limits under the MSME Act and the Arbitration and Conciliation Act, 1996.
Judgement:
The court examined Section 18 of the MSME Act and affirmed that the MSME Facilitation Council can act as both a conciliator and an arbitrator, with arbitration proceedings governed by the Arbitration and Conciliation Act, 1996. It clarified that the 90-day period under Section 18(5) is directory, not mandatory, meaning a delay in rendering the award does not invalidate the proceedings. Once arbitration begins, the 12-month timeline under Section 29A of the Arbitration Act applies. Since MPSC filed a counterclaim, the 12-month period reset, making the award timely and valid. The court also upheld the rejection of MPSC's counterclaim, citing Order VIII Rule 6A CPC, which requires counterclaims to be filed before or within the time for submitting the statement of defence. Since MPSC filed its counterclaim nearly a year late, the rejection was legally sound. Concluding that the award was free from jurisdictional defects or illegality, the court dismissed the petition.
[ Click Here]
IV. Case Title: M/s. Kranthi Grand DKNV Hospitalities and another Vs. M/s. Manasa Estates and Hospitality Pvt. Ltd. and 2 others
Case Number: 2025 SCC OnLine AP 671
Court: Andhra Pradesh High Court
Decided on: 20 February 2025
Brief Facts:
M/s. Kranthi Grand DKNV Hospitalities (Applicant) entered into a Sub-Lease/Agreement with respondent No.1 – M/s. Manasa Estates and Hospitality Pvt. Ltd., who was a lessee of a property with a right of creating a Sub-Lease in favour of third parties. The Sub-Lease was taken to run a hotel from the premises in question, for a period of eight years. The applicant argued that an amount of Rs. 30 lakhs has been invested in renovating the building to make it suitable for running a hotel or restaurant. However, the respondent started interfering into the peaceful possession of the applicant even though the applicant was entitled to remain in possession till 2026 as per the lease deed. The respondents forcibly occupied the property in violation of the terms and conditions of the lease. The Applicant contended that it served a notice upon the respondents invoking the arbitration clause in which name of arbitrator other than the named arbitrator was proposed to which the respondents did not give their consent. Therefore, the present application under section 11(6) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) seeking appointment of an independent arbitrator has been filed.
Issue: Whether an independent arbitrator can be appointed under Section 11(6) of the Arbitration and Conciliation Act, 1996, when the arbitration agreement already specifies a named arbitrator, and there is no evidence to suggest bias or ineligibility of the named arbitrator under Section 12(5) of the Act.
Judgement:
The court dismissed the application under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an independent arbitrator. The Court held that the appointment of the named arbitrator, as per the arbitration agreement, is the rule, and appointing an independent arbitrator is an exception that requires valid reasons, such as bias or ineligibility under Section 12(5) of the Act. The applicant failed to provide any material evidence to demonstrate that the named arbitrator would act in a partial or biased manner. Relying on the Supreme Court's ruling in Indian Oil Corporation Limited v. Raja Transport Private Limited (2009), the Court reiterated that a party cannot invoke an arbitration clause while disregarding the agreed appointment procedure. Consequently, the Court dismissed the application, upholding the validity of the named arbitrator in the agreement
[ Click Here].
V. Case Number: Dixon Technologies (India) Limited vs. M/s Jaiico & Anr.
Citation: 2025 SCC OnLine Del 893
Court: Delhi High Court
Decided on: 06 February 2025
Brief Facts:
The petitioner, Dixon Technologies (India) Limited, filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator to adjudicate disputes arising under the Standard Transportation Agreement dated 01.03.2021 and the Customs Clearing Agent Agreement dated 01.04.2022 with Respondent No.1, M/s Jaiico. The petitioner initially impleaded Respondent No.2, but upon the Court's suggestion that Respondent No.2 was not a signatory to the agreements, the petitioner sought and was granted permission to delete Respondent No.2 from the array of parties, with liberty to move an application under Order I Rule 10 of the CPC before the arbitrator if necessary. The arbitration clauses in Clause 12 of the Standard Transportation Agreement and Clause 23 of the Customs Clearing Agent Agreement stipulated that the seat of arbitration would be Delhi, leading the petitioner to seek judicial intervention for the appointment of an arbitrator.
Issue:
Whether the Court should appoint an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, when one of the parties was a non-signatory to the agreements.
Judgement:
The Delhi High Court bench of Justice Subramonium Prasad has reaffirmed that an Arbitral Tribunal has the authority to implead non-signatories to an arbitration, provided they are deemed 'necessary parties' to the proceedings. he Court also permitted the petitioner to delete Respondent No.2 from the array of parties since, it was not a signatory to the agreements with liberty to later move an application under Order I Rule 10 of the CPC if it is later deemed a 'necessary party'. The court appointed an Arbitrator.
To view the full article click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
