Arbitration: Court Reckoner - July 2020

Section 8

In Dharamvir Khosla v Asian Hotels (North) Ltd.^[1], High Court of Delhi held that filing of a formal application under Section 8 is not needed if plea for seeking reference of parties to arbitration has been raised by Defendant before, either orally as was the case in hand or in the written statement. The Court further held that scope of consideration by the Court under Section 8 is much wider than Section 11 and in an application under Section 8 of the Act the Court is required to go into the issue whether the dispute between the parties is an arbitrable dispute or not and if the dispute falls in "excepted matters" or relates to specific or special remedies, than there can be no reference to the arbitration and the civil suit has to be proceeded and this continues to be the position even post the amendment to Section 8. It held that amendment to Section 8 of the Act, cannot be given an expansive meaning and intent so as to inundate entire regime of special legislations where such disputes were held to be not arbitrable. It eventually held that prima facie the plaintiffs have a right in their favour and interest in land which is more than that of a lessee or at least that of an irrevocable licensee but held that the said interest can be decided in arbitration and was not non-arbitrable. It held that if the arbitrator can direct creation of an interest in a property, the arbitrator can also award declaration of the interest of the parties in the property and that there is nothing in the Transfer of Property Act or the Specific Relief Act which forbids the rights of the parties being decided by arbitration. The rights of the plaintiffs therein at best governed by the Transfer of Property Act or the Specific Relief Act, or that of an irrevocable licensee under the Easements Act can still be decided in arbitration and held the suits to be not maintainable and parties may avail the remedy of arbitration.

Section 9

In Jayneer Infra Power & Multiventures P. Ltd. & Ors. V Hero Fincorp Ltd.^[2] High Court of Delhi applied the business efficacy test for interpreting terms of a multi- clause commercial contract to hold that the Court, while interpreting the terms of agreement, has to ensure its interpretation lends business efficacy to transactions between the parties and prevents any absurdity. It held that while doing so, it must be seen that the interpretation neither burdens the parties with nor emancipates them from obligations beyond those which were originally contemplated by them at the time of signing the contract. It held that meaning of contract ought to be gathered from the intent of the parties by adopting a common sense approach and not a pedantic one. On applying the said principles, the Court held that the Petitioner therein was entitled to interim protection against proposed sale of pledged shares. The Court further held balance of convenience in the Petitioner's favour by accepting the Petitioner's contention that sale of pledged shares in a market adversely impacted by pandemic would cause irreparable harm to the Petitioner.

In Khoobsurat Infra P. Ltd. v IDBI Trusteeship Services Ltd. & Anr.^[3] High Court of Delhi while refusing to grant restraint on sale of pledged shares, noted that the petitioner has not disputed the rights of the Respondent as a pawnee under Section 176 of the Indian Contract Act which confer absolute discretion on the pawnee to sell the shares when it likes and as it likes it and thus the Court cannot substitute that discretion with its own discretion. Repelling the argument that the Petitioner would be prejudiced by the sale of the shares in the emergency pandemic situation where market forces have been upended, the Court noted that the downward trend in the pledged shares' price pre-dated the pandemic and in fact there had been some minor increase in share price post pandemic. Further the Court held that reliance placed on the circulars issued by the RBI and SEBI to show that moratorium has been declared on all loans becoming due during COVID-19 and granted relaxation credit rating during COVID-19, would also not come to the aid of the Petitioner as there is no circular by SEBI to restrict the rights of pledgee of shares to invoke and sell pledged shares and held that when the regulator has not issued any circulars, to meet the eventuality of COVID-19, the Court, cannot read into the contracts, a clause akin to force majeure, for postponing the obligations under the contracts.

In K.L. Enterprises LLP & Ors. v Bajaj Finance Ltd.^[4], High Court of Delhi while dealing with a petition seeking restraint on sale of pledged shares on the ground that the fall in the Minimum Security Margin under the agreements in question, was solely attributable to the fall in prices of the pledged shares which was due to the un-precedented pandemic situation, firstly held that there being no Force Majeure Clause in the Agreements between the parties, no benefit of the same can be claimed by the Petitioner and then went further, to hold that, assuming that the Agreement contained such a Clause, even then the Petitioners would not be entitled to its benefit as fall in minimum margin security predates the pandemic and reiterated that past breach cannot be condoned on a plea of Force Majeure on account of Covid-19 Pandemic. It further held that no benefit can be claimed by the Petitioner by relying on RBI circulars on repayment of loans moratorium as the said circulars cover repayment of Loan instalments that have fallen due from 01.03.2020 whereas in the case at hand, the alleged breach is not with respect to repayment of loan instalments, but fall in the Security Margins and significantly, the fall in the margins is from December, 2019 and not on account of Covid-19. However, in the final analysis and on account of certain consent terms being agreed to by the Respondent, the Court directed the Petitioner to submit certain approved securities and subject to receipt of same, directed the Respondent not sell/alienate the pledged shares.

In Hero Wind Energy P. Ltd. v Inox Renewables Ltd. & Anr.^[5] High Court of Delhi firstly held that the interim measures claimed by way of Section 9 Petition allegedly on a new cause of action, cannot be denied on the ground of the dispute in the context whereof interim measures are sought, are barred by Order II Rule 2 of the CPC on account of an earlier pending arbitration, because it is not as if there is an arbitral award in existence with respect to disputes earlier raised and on the basis whereof the plea of Order II Rule 2 of the CPC is urged and the plea of later dispute being hit by principles of Order II Rule 2 is something that would have to be adjudicated by the arbitrator and thus Section 9 petition can be entertained without deciding the applicability of principles of Order II Rule 2. The Court then went to consider the question that if out of the agreement containing an arbitration clause, subsequent to the date when an arbitral tribunal with respect to an earlier cause of action is constituted, another cause of action arises, whether with respect to interim measures qua this second cause of action, bar of Section 9(3) of the Arbitration and Conciliation Act, 1996 would apply? And answered the question in the negative holding that the scheme of the Act shows that there can be multiple claims and multiple references at multiple stages and held that the arbitral proceedings referred to in Section 9, have to be to the arbitral proceedings for adjudication of a particular dispute qua which the interim protection is sought and not earlier arbitration proceedings initiated for a different dispute.

In Ashwani Minda & Anr. v M/s. U-Shin Ltd. & Anr.^[6] High Court of Delhi held Section 9(3) of the Act is applicable when interim measures are sought in the Indian courts in connection with a foreign-seated arbitration and an application under Section 9, for a foreign- seated arbitration, would not lie after the constitution of the arbitral tribunal, unless the applicant demonstrates that it does not have an efficacious remedy before the tribunal. In making the assessment of whether efficacious remedy is available or not, the manner in which the applicant has framed the relief sought cannot be determinative; the more appropriate test is whether the tribunal is sufficiently empowered to grant effective interim measures of protection. Further held that, after the amendment of Section 2(2), a party to a foreign-seated arbitration has the option of seeking interim measures of protection in the Indian courts, or of going to the seat court or the tribunal for interim relief and in a case party elects to go to the emergency arbitrator, and having failed in its endeavor to obtain interim relief before the same, the party can then seek the self-same relief in Section 9 proceedings and distinguished the judgment in Raffles Design Int'l India Pvt. Ltd. vs. Educomp Professional Education Ltd. & Ors. and held that observations made therein would only apply when an emergency order has been made by the arbitrator and not in a situation where the arbitrator has rejected that relief, like was the case at hand.

In Uni Construction v Ircon International Ltd.^[7] High Court of Delhi refused to grant interim relief as prayed for by the Petitioner seeking restraint from invocation of bank guarantees/term deposits as not only did the Court find no prima facie case or balance of convenience in favour of Petitioner but it also took note of the fact that the Petitioner had suppressed the act of encashing one of the term deposits on its own. The Court held that Invocation of the discretionary jurisdiction of a court necessarily requires, as a condition precedent, the applicant invoking the jurisdiction to be candid, and to make a clean breast of its affairs; to approach the Court, as it were, "with clean hands" and further held suppression of material fact, and invocation of the discretionary and equitable jurisdiction of the court, are strange bedfellows.

In Virmati Villa CHS Ltd. v Shamik Enterprises P Ltd.^[8] High Court of Bombay taking note of the fact that the Respondent is in financial distress, allowed the Petitioner's prayer that pending commencement and culmination of arbitral proceedings, the Respondent, its Directors and their family members be directed to file affidavits disclosing their assets; companies or firms that they are directors, partners or shareholders of and the assets of such companies/firms, income tax returns, profit and loss accounts, balance sheets, bank statements of all the accounts held by them or their family members.

Section 11

In Aarka Sports Management P. Ltd. v Kalsi Buildcon P Ltd.^[9] High Court of Delhi held that if parties have determined seat of arbitration in the agreement, the Court of that place shall have exclusive jurisdiction to deal with all matters relating to arbitration agreement between the parties but if the parties have not agreed on the seat of the arbitration, the Court competent to entertain an application under Section 11 of the Act would be the 'Court' as defined under Section 2(1)(e) of the Act reads with Section 16 to 20 of the Code of Civil Procedure. The Court held that the exclusive jurisdiction clause in the agreement in question, not being a clause determining the seat of arbitration, is not valid as the parties cannot confer jurisdiction on a Court which otherwise has no jurisdiction.

In M/s. Hamdard Laboratories (India) v M/s. Sterling Electro Enterprises^[10] High Court of Delhi held that the absence of the term 'seat' while referring to the courts at Delhi in the arbitration clause in question, does not alter the significant fact that the Courts of law at Delhi alone have been vested with the jurisdiction upon arbitration proceedings and thus the High Court of Delhi would have jurisdiction to entertain petition for appointment of arbitrator even when no part of cause of action has arisen in Delhi. The Court further distinguished the facts of the present case from Aarka Sports (supra) on the ground that in Aarka Sports (supra), the contract did not provide for exclusive jurisdiction of the Courts at Delhi in respect of arbitration, rather in said case reliance was sought to be placed in the jurisdiction clause contained in the dispute resolution clause titled Governing Law, Jurisdiction & Dispute Resolution, which was in fact a general stipulation on dispute resolution, not a part of the arbitration clause like the present case.

In NKB Infrastructure P. Ltd. v Northern Railway^[11], the High Court of Delhi following the judgment of the Supreme Court in Central Organisation for Railway Electrification vs. ECI-SPIC-SMO-MCML (JV) A Joint Venture Company^[12] disposed of the Section 11 petition with direction to the Respondent to constitute the arbitral Tribunal as per Clause 64 of GCC, which had been upheld in Central Organisation (supra).

Section 14

In Rail Vikas Nigam Ltd. v Simplex Infrastructure Ltd.^[13] High Court of Delhi while dismissing a petition seeking termination of mandate of the Arbitral Tribunal on the ground of non-adherence to Schedule IV while fixing the arbitral fee, held, that the language of Schedule IV is quite clear and consonant with the very purpose of its enactment and that Entry No. 6 is not in conflict with the recommendations of the Law Commission Report or the DIAC Rules, and the ceiling limit of Rs. 30,00,000/- is not inclusive of the base fee of Rs. 19,87,500/-, but has rightly been interpreted by the learned Tribunal as a cap on the additional fee chargeable, i.e., 0.5% of the claim amount which is over and above Rs.20 crores.

Section 16

In Sh. Pankaj Arora v AVV Hospitality LLP & Ors.^[14] High Court of Delhi while dealing with a petition under S. 14 of the Act, where the petitioner had restricted its prayer to a direction that Arbitrator be directed to decide the application, preferred by it under Section 16 at the outset and not after recording of evidence and at the stage of final arguments as the arbitrator had done. The Court firstly held that that the order of the Arbitrator disposing of the application under Section 16 keeping the issue regarding his jurisdiction, as ventilated in the said application, open, to be decided after recording of evidence and at the stage of final arguments, was an interim order and was amenable to challenge under Section 34 of the 1996 Act and held that without ventilating such a challenge, the petitioner could not have preferred the present petition, for termination of the mandate of the Arbitrator. Be that as it may, the Court held that even otherwise the direction prayed by the Petitioner cannot be granted as the procedure to be followed, in arbitral proceedings, is essentially the province of the arbitrator, or the arbitral tribunal. Unless the decision, in that regard, falls foul of any mandatory stipulation, contained in the 1996 Act, this Court would be loath to interfere, the autonomy of the arbitral proceedings, and of the arbitrator, being statutorily pre-eminent. The Court further held that Section 16(5) cannot be read as casting a mandate, on the arbitrator, or the arbitral tribunal, to decide the objection, to its/his jurisdiction, to adjudicate on any claim/counter claim, necessarily before recording of evidence. It held that while issues of jurisdiction are, ordinarily, to be addressed at the outset, the same is more a rule of prudence than one of inflexible procedure and so long as the said decision is taken prior to the making of the final arbitral award, no infraction of Section 16 could be said to have occurred, especially as disputed question of fact would need to be adjudicated to decide the jurisdictional objection.

Section 29A

In ONGC Petro Additions Ltd. v Ferns Construction Co. Inc.^[15], High Court of Delhi held that the 2019 amendment to Section 29 A being procedural in nature shall be applicable to all pending arbitrations as on the date of amendment and thus held that the provisions of Section 29A (1) shall be applicable to all pending arbitrations seated in India as on August 30, 2019 and commenced after October 23, 2015. While doing so, the Court, concurred with the view taken by a Coordinate Bench in Shapoorji Pallonji and Co. Pvt. Ltd v Jindal India Thermal Power Limited^[16] and held the view taken by another Coordinate Bench in MBL Infrastructures Ltd. v. Rites Ltd.^[17] to be per incuriam as it did not consider the judgment in Shapoorji (supra). The Court also held that there is no strict time line of 12 months prescribed for proceedings which are in nature of international commercial arbitration as defined under Act, seated in India.

In Reliance Infrastructure Ltd. v Haryana Power Generation Corporation Ltd.^[18] High Court of Punjab & Haryana held that the petitioner having filed a substantive petition for termination of the arbitrator's mandate under Section 14 and having failed in the same, cannot seek to challenge the order passed by the Trial Court granting extension of time under Section 29A on the ground that the Trial Court while extending the time ought to have considered substitution of the Arbitrator keeping in view the facts of the case.

Section 33

In Nirmal Singh v. Horizon Crest India Real Estate & Ors^[19] High Court of Delhi held that when the Petitioner had filed an application under Section 33 but essentially in the garb of seeking correction of errors, the petitioner in effect had sought review of the award, the period of limitation for filing petition under Section 34 must be counted from the date of receipt of the award and not from date of dismissal of said application under Section 33 and thus the petition was found to be time barred. The Court held that otherwise the losing party on the pretext of seeking correction of error, shall challenge the findings in the award on merit in a Section 33 application in order to buy time, which should be discouraged.

Section 34

In M.R. Hi Tech Engineers P. Ltd. v Union of India & Ors^[20], High Court of Madras held that the Arbitrator by proceeding to entertain and adjudicate on a counter claim arising from sums dues under another contract between the same parties, which had a separate arbitration clause which had not been invoked, tantamounts to dealing with disputes not falling within the terms of submission to arbitration and is thus a decision on matters beyond the scope of submission to arbitration and the award is liable to be set aside. It further held that the Arbitrator had also allowed the counter claim against public policy and specifically the requirement of public policy for the Arbitrator to adopt a judicial approach as the counter claim has been allowed in its entirety by merely parroting plea of Respondent without saying why and how the same needs to be acceded to.

In Three C Universal Developers P. Ltd. & Ors. v Horizon Crest India Real Estate & Ors.^[21] High Court of Delhi dismissed the petition filed under Section 34 of the Act as being time bared as the Petitioner therein had been unable to produce the petition as originally filed and thus the original filing was held to be non-est and the petition filed on refiling was to be treated as a fresh petition and also not as a proper petition, as it had several defects, which was beyond period of 3 months, and in the absence of an application seeking condonation of delay showing sufficient cause, the period beyond 3 months cannot be condoned.

In Indian Oil Corporation Ltd. v FEPL Engineering (P) Ltd.^[22] High Court of Delhi held that Se. 19 of Micro, Small and Medium Enterprises Development Act, 2006 which mandates a pre-deposit of 75% of the awarded/decreed/ordered amount, for the Court to entertain a challenge against the award/decree/order, includes not only the principal amount but also the interest component and no discretion lies with the Court to reduce the amount or quantum of the pre-deposit of 75% awarded/decreed/ordered amount. It further held while dealing with an application for release of said amount, a purposeful interpretation of the proviso to Section 19 is to be given which means, if no viable security is provided by the supplier then the discretion can be exercised not to release the amount pre-deposited. In the facts of the case, it directed partial release of the amount subject to furnishing of bank guarantee.

In Narender Singh v VV Pankajakshan & Ors.^[23], High Court of Delhi while dismissing the challenge to the arbitral award held that the Court, in exercise of its jurisdiction under Section 34 of the 1996 Act, while examining the interpretation, by an arbitrator, is concerned not with the plausibility of the interpretation but with the possibility thereof. Once the interpretation placed by the learned sole arbitrator, on any provision that comes to her or his notice, is not an impossible interpretation, or perverse, as understood in law, interference therewith, by the Court under Section 34 of the 1996 Act, is not called for.

In Nuziveedu Seeds Ltd. v Mahyco Monsanto Biotech India (P) Ltd.^[24], High Court of Bombay upheld the finding of the Arbitral Tribunal that the monetary claims of the claimant therein were arbitrable and not barred by the provisions of the Competition Act and held adjudication by the tribunal shall be in the nature of the right and liability of the parties to the agreement and would relate to right in-personam and not right in-rem. If the arbitral tribunal would have held that it had no jurisdiction in the matter and would have dismissed the claim of the respondent, the respondent would not have any remedy at all since CCI did not have jurisdiction to grant any monetary claim for the sale of seeds under the agreement in favour of the respondent. It held that the jurisdiction of CCI under Competition Act and jurisdiction of the arbitral tribunal under the agreement are altogether different and distinct and are not overlapping. Both the proceedings can be conducted parallelly and do not oust the jurisdiction of each other in respect of the issues which can be exclusively decided by each of these forum. The arbitral tribunal has rightly decided whether its jurisdiction was ousted by looking at the pleadings filed by the parties. Non-arbitrable defence raised by the petitioner did not determine or oust the jurisdiction of the arbitral tribunal. The Court further held that the Tribunal was not bound to suspend the proceedings or could not have rejected the monetary claim merely on the ground that the complaint filed by the Central Government as well as the information filed by the petitioner were pending before the CCI. It held that the only provision which empowers the arbitral tribunal to suspend or to terminate the arbitral proceedings is for non-payment of fees, under Section 38(2) of the Act and the legislative intent is thus clear that where the powers for suspension was to be provided, it was specifically inserted in the Act and no other provision for termination or suspension of the arbitral proceedings due to the situation contemplated therein, can be exercised. Held, that Section 17 does not empower the arbitral tribunal to suspend the arbitral proceedings. Further held, Court has no power to grant such extension for indefinite period or to indirectly suspend the arbitral proceedings under Section 29A (4) of the Arbitration Act.

Section 37

In Prasar Bharti v M/s. Starcon India Ltd. & Anr.^[25] High Court of Delhi held that an appeal directed against an interlocutory order passed in proceedings under Section 36 of the A & C Act, whereby a part of the amount which had been deposited by the appellant in this court, has been directed to be released in favour of the respondents, would not be maintainable as it is neither an appealable order under Section 37 of the Act nor does the same fall under Order XLIII of Code of Civil Procedure and is thus not covered under Section 13 of the Commercial Courts Act.

In Khoobsurat Infra P. Ltd. v IDBI Trusteeship Services Ltd.^[26] High Court of Delhi reiterated that scope of interference by the court while exercising its jurisdiction in an appeal under Section 37, is extremely limited and unless the decision of the Single Judge appears to be perverse or completely untenable, the Appellate Court will not substitute it with its own view. On the merits of the case, it held that the economic stress faced by the appellants in order to discharge their legal liabilities founded on the contractual obligations agreed to by them cannot be a ground to restrain the respondent from exercising their rights as a pawnee as per their discretion, as per Section 176 of the Indian Contract Act, 1872 and thus dismissed the appeal holding that the Single Judge had rightly declined interim protection u/s 9.