As the year 2024 nears its end, LiveLaw brings to you a summary of important Supreme Court judgments of the year rendered in connection with the Arbitration and Conciliation Act, 1996. The same are as follows:1. Arbitral Awards Cannot Be Modified Under Sections 34 & 37 Of Arbitration & Conciliation Act : Supreme CourtCase: S.V. Samudram v. State of Karnataka [2024 LiveLaw (SC) 14]In...
As the year 2024 nears its end, LiveLaw brings to you a summary of important Supreme Court judgments of the year rendered in connection with the Arbitration and Conciliation Act, 1996. The same are as follows:
1. Arbitral Awards Cannot Be Modified Under Sections 34 & 37 Of Arbitration & Conciliation Act : Supreme Court
Case: S.V. Samudram v. State of Karnataka [2024 LiveLaw (SC) 14]
In this case, a bench of Justices Abhay S Oka and Sanjay Karol reiterated that any attempt to “modify an award” while adjudicating Sections 34 and 37 petitions is not permissible under the Arbitration Act.
2. Whether Courts Can Modify Arbitral Award U/S 34 or 37 of Arbitration Act? Supreme Court Refers To Larger Bench
Case: Gayatri Balasamy v. M/s ISG Novasoft Technologies Limited [2024 LiveLaw (SC) 149]
In this case, a bench comprising Justices Dipankar Dutta, KV Viswanathan and Sandeep Mehta referred to a larger bench the question whether courts have power to modify arbitral award under Sections 34 or 37 of the Arbitration Act. The Court referred following questions to the larger bench:
“1. Whether the powers of the Court under section 34 and 37 of the Arbitration and Conciliation Act, 1996, will include the power to modify an arbitral award?
2. If the power to modify the award is available, whether such power can be exercised only where the award is severable and a part thereof can be modified?
3. Whether the power to set aside an award under section 34 of the Act, being a larger power, will include the power to modify an arbitral award and if so, to what extent?
4. Whether the power to modify an award can be read into the power to set aside an award under section 34 of the Act?
5. Whether the judgment of this Court in Project Director NHAI vs. M. Hakeem, followed in Larsen Air Conditioning and Refrigeration Company vs. Union of India and SV Samudram vs. State of Karnataka lay down the correct law, as other benches of two Judges (in Vedanta Limited vs. Shenzden Shandong Nuclear Power Construction Company Limited, Oriental Structural Engineers Pvt. Ltd. vs. State of Kerala and M.P. Power Generation Co. Ltd. vs. Ansaldo Energia Spa) and three Judges (in J.C. Budhraja vs. Chairman, Orissa Mining Corporation Ltd., Tata Hydroelectric Power Supply Co. Ltd. vs. Union of India and Shakti Nath vs. Alpha Tiger Cyprus Investment No.3 Ltd.) of this Court have either modified or accepted modification of the arbitral awards under consideration?”
3. Parliament Should Consider Amending Arbitration Act To Prescribe Limitation Period To File S.11 Application : Supreme Court
Case: M/s Arif Azim Co Ltd v. M/S Aptech Ltd. [2024 LiveLaw (SC) 180]
In this case, a bench comprising former CJI DY Chandrachud and Justices JB Pardiwala, Manoj Misra held that the Limitation Act, 1963 is applicable to proceedings for appointment of arbitrator under Section 11(6) of the Arbitration Act and a Court may refuse to make a reference if the claims, on the date of commencement of arbitration proceedings, are ex-facie barred.
Since no specific time period is provided in the Limitation Act for Section 11(6) applications, the court identified Article 137 as the relevant provision, allowing a three-year limitation period from the accrual of the right to apply. It clarified that the limitation period would commence only after the right to apply had accrued.
While recognizing the legislative vacuum, the court urged Parliament to consider amending the Act to prescribe a specific limitation period for filing applications under Section 11(6).
4. General Reference Won't Have Effect Of Incorporating Arbitration Clause In Another Contract, Specific Reference Needed : Supreme Court
Case: NBCC (India) Limited v. Zillion Infra Projects Pvt. Ltd. [2024 LiveLaw (SC) 246]
In this case, a bench comprising Justices BR Gavai and Sandeep Mehta reiterated that a dispute cannot be referred to arbitration based on the arbitration clause contained in another contract unless a specific reference was made in the main contract to incorporate the arbitration clause into the main contract.
5. Enforcement Of Foreign Award Must Be Refused Only Rarely, International Standards To Be Applied To Determine Bias : Supreme Court
Case: Avitel Post Studioz Limited & Ors. v. HSBC PI Holdings (Mauritius) Limited [2024 LiveLaw (SC) 267]
In this case, a bench of Justices Hrishikesh Roy and Prashant Kumar Mishra held that to determine the factor of arbitral bias, Court must endeavor to follow international standards than domestic ones. It is only in exceptional circumstances that enforcement of a foreign should be refused on the ground of bias, the Court said.
6. Court Doesn't Sit In Appeal Over Arbitral Tribunal's Interpretation Of Contract : Supreme Court
Case: National Highway Authority of India v. M/s Hindustan Construction Company Ltd [2024 LiveLaw (SC) 361]
In this case, a bench of Justices Abhay S Oka and Pankaj Mithal held that it is for the Arbitral Tribunal to adjudicate upon construction of terms of a contract and the Court (under Section 34 of the Arbitration Act) does not sit in appeal over findings of the Tribunal.
7. High Court Not Having Original Civil Jurisdiction Cannot Extend Time To Pass Arbitral Award As Per S.29A(4) Arbitration Act : Supreme Court
Case: Chief Engineer (NH) PWD (Roads) v. M/s BSC & C and C JV [2024 LiveLaw (SC) 425]
In this case, a bench comprising Justices Abhay S Oka and Ujjal Bhuyan held that a High Court which does not have original civil jurisdiction does not have the power to extend the time limit for passing of the arbitral award as per Section 29A of the Arbitration Act.
The Court further clarified that as per Section 29A(4) of the Act, the power to extend the time limit for passing of the arbitral award vests within the principal Civil Court of original jurisdiction, but there is no impediment for the High Court which is exercising the ordinary original civil jurisdiction to extend the time limit.
8. Avoid Bulky Pleadings & Lengthy Submissions In Arbitration Appeals : Supreme Court To Advocates
Case: Bombay Slum Redevelopment Corporation Private Limited v. Samir Narain Bhojwani [2024 LiveLaw (SC) 445]
In this case, a bench of Justices Abhay S Oka and Pankaj Mithal, while expressing displeasure over the filing of bulky and lengthy submissions in arbitral proceedings, called upon advocates to urge only legally permissible grounds in proceedings carried under Sections 34 and 37 of the Arbitration Act. The Court opined that bulky pleadings make arbitration proceedings time-consuming and ineffective.
9. S. 4 Limitation Act Can't Be Invoked Using 30-Day Extension For Arbitration Appeals Filed Beyond 3-Months From Award: Supreme Court
Case: State of West Bengal & Ors. v. Rajpath Contractors and Engineers Ltd. [2024 LiveLaw (SC) 454]
In this case, a bench of Justices Abhay S Oka and Pankaj Mithal reiterated that if an arbitral award is challenged beyond the 3-month limitation, the benefit of section 4 of the Limitation Act will not be available. The Court held that the 30-day extension period mentioned in the proviso to Section 34(3) of the Arbitration Act cannot be included in the "prescribed period" in Section 4 of the Limitation Act.
10. Arbitration | Dispute Regarding Full & Final Settlement Of Contract Is Arbitrable : Supreme Court
Case: SBI General Insurance Co. Ltd. v. Krish Spinning [2024 LiveLaw (SC) 489]
In this case, a bench comprising former CJI DY Chandrachud and Justices JB Pardiwala, Manoj Misra held that if any dispute arises as to whether a contract has been discharged or not, such a dispute is arbitrable. It was observed that ordinarily, after a full and final settlement of the claim, no arbitrable disputes subsist, but when there arises a dispute about the full and settlement of the claim, then the referral courts would not be precluded from referring the dispute to arbitration.
Clarifying an aspect of the judgment in Arif Azim, the Court also held that while deciding a Section 11(6) petition for appointment of an arbitrator, the referral courts must not conduct an intricate evidentiary enquiry into the question whether the claims raised by the applicant are time-barred and should leave that question for determination by the arbitrator.
11. Proceedings For Cheque Dishonour U/s. 138 NI Act Do Not Constitute Continuing Cause Of Action To Initiate Arbitration: Supreme Court
Case: Elfit Arabia & Anr v. Concept Hotel BARONS Limited & Ors [2024 LiveLaw (SC) 494]
In this case, a bench of former CJI DY Chandrachud and Justices JB Pardiwala, Manoj Misra dismissed an arbitration petition seeking the appointment of an arbitrator eleven years after cheques were dishonored, on the ground that the claims were barred by limitation. It was observed that initiation of proceedings under the Negotiable Instruments Act, 1881 for cheque dishonor does not constitute continuing cause of action for initiating arbitration under the Arbitration Act.
It was noted that while determination of whether a claim is barred by limitation typically falls within the arbitral tribunal's domain, the Court may intervene to reject clearly non-arbitrable or dead claims.
12. Arbitration| Judge Hearing Sec.34 Application Must Apply Mind To Grounds Of Challenge: Supreme Court
Case: Kalanithi Maran v. Ajay Singh and Anr. [2024 LiveLaw (SC) 520]
In this case, a bench of former CJI DY Chandrachud and Justices JB Pardiwala, Manoj Misra stressed on the need for High Courts to ensure that orders dealing with challenges to arbitral awards precisely reflect adequate application of judicial mind on the merits of the case.
"Interference with an arbitral award under Section 34 must be confined to the grounds which are permissible under the statute. But equally, the Judge hearing an application under Section 34 must apply their mind to the grounds of challenge and then deduce as to whether a case for interference within the parameters of Section 34 has been made out", the Court said.
13. Arbitration | Impermissible For Arbitral Tribunal Or Courts To Grant Interest Upon Interest Under 1940 Act : Supreme Court
Case: M/s D. Khosla and Company v. The Union of India [2024 LiveLaw (SC) 558]
In this case, a bench comprising Justices PS Narasimha and Pankaj Mithal held that an Arbitral Tribunal is not empowered to grant interest upon interest while passing an arbitral award as the Arbitration Act, 1940 does not specifically provide for the grant of interest on interest. The Court said that once the interest is granted on the arbitral award for the pre-award period, then an interest cannot be granted on the arbitral award for the post-award stage.
14. How To Determine Conversion Of Arbitral Award In Foreign Currency To Indian Currency? Supreme Court Explains
Case: DLF Ltd. (formerly known as DLF Universal Ltd) and Anr. v. Koncar Generators and Motors Ltd. [2024 LiveLaw (SC) 565]
In this case, a bench comprising Justices PS Narasimha and Aravind Kumar returned two important findings related to enforcement of an arbitral award expressed in foreign currency to Indian currency:
(1) That the relevant date for determining the conversion rate of foreign awards expressed in foreign currency is the date when the award becomes enforceable (It was held that the award is deemed to be enforceable from the date on which the objections against its enforceability are finally decided);
(2) That when the award holder withdraws a certain amount deposited by the award debtor during the arbitral proceedings, then the date of conversion of the award from foreign currency to Indian currency would be the date on which the award debtor deposited the amount.
The court clarified that once the award holder withdraws the award amount deposited by the award debtor than the exchange rate of the remaining award amount to be payable in a future course of action would be determined based on the date on which the arbitral award gets enforceable.
15. Duty Of Every Arbitral Tribunal & Court To Examine What The Contract Provides : Supreme Court
Case: Pam Developments Private Limited v. State of West Bengal & Anr. [2024 LiveLaw (SC) 613]
In this case, a bench of Justices PS Narasimha and Pankaj Mithal emphasized that courts and arbitral tribunals have the duty to examine contract clauses in proceedings concerning arbitration. Further, it was observed that under Section 31(7) of the Arbitration Act, the Arbitrator has the authority to grant interest for the pre-reference period unless the contract prohibited it.
16. Arbitration | Courts At Referral Stage Must Not Enter Into Contested Questions Involving Complex Facts : Supreme Court
Case: Cox & Kings Ltd. v. SAP India Pvt. Ltd. & Anr. [2024 LiveLaw (SC) 676]
In this case, a bench comprising former CJI DY Chandrachud and Justices JB Pardiwala, Manoj Misra emphasized upon the doctrine of competence-competence enshrined under Section 16 of the Arbitration Act and said that a referral court, while deciding a petition for appointment of an arbitrator under Section 11(6) of the Act, shall restrict its inquiry to whether there exists a valid arbitration agreement or not, and it would be impermissible for the referral court to lead a detailed inquiry into contested questions involving complex facts.
17. Arbitration | Application To Extend Time To Pass Arbitral Award Maintainable Even After Expiry Of Period Under S.29A(4) : Supreme Court
Case: Rohan Builders (India) Private Limited v. Berger Paints India Limited [2024 LiveLaw (SC) 693]
In this case, a bench comprising Justice Sanjiv Khanna (now CJI) and Justice R Mahadevan held that application for extending time for passing of an arbitral award can be filed even after the expiry of the 12-month or the extended 6-month period. According to the Court, termination of the arbitral mandate is conditional upon the non-filing of an extension application and cannot be treated as termination stricto sensu.
18. Arbitration | Non-Signatory Party's Conduct And Relationship With Signatories May Indicate Intent To Be Bound : Supreme Court
Case: Ajay Madhusudan Patel & Ors. v. Jyotrindra S. Patel & Ors. [2024 LiveLaw (SC) 727]
In this case, a bench of former CJI DY Chandrachud and Justices JB Pardiwala, Manoj Misra observed that an arbitration agreement is not necessarily non-binding on a non-signatory party. Such party, though not a signatory, may have intended to be bound through its conduct or relationship with the signatory parties. A referral court must determine the issue from a prima facie perspective; although, ultimately, it is the arbitral tribunal which shall decide the same based on evidence.
The Court further said that the intention of the parties to be bound by an arbitration agreement can be gauged from the circumstances that surround the participation of the non-signatory party in the negotiation, performance, and termination of the underlying contract containing such an agreement.
19. S. 34 Arbitration Act |Mere Violation Of Law Won't Make Arbitral Award Invalid, Fundamental Policy Of Law Must Be Violated : Supreme Court
Case: OPG Power Generation Pvt. Ltd. v. Enexio Power Cooling Solutions India Pvt Ltd. & Anr. [2024 LiveLaw (SC) 738]
In this case, a bench of former CJI DY Chandrachud and Justices JB Pardiwala, Manoj Misra observed that mere violation of law is not enough to interfere with an award. Rather, it must conflict with the most fundamental aspects of public policy, justice.
Explaining the scope for judicial interference in arbitral awards under Section 34 the Arbitration Act on the ground of violation of public policy, the Court highlighted that it is very limited, particularly after the 2015 amendment.
Further, it was opined that courts can read an implied term into a contract only when the term was clearly intended by the parties (but was not explicitly stated). The Court outlined five conditions for reading an implied term into a contract: (a) it must be reasonable and equitable; (b) it must be necessary to give business efficacy to the contract, that is, a term will not be implied if the contract is effective without it; (c) it must be obvious that “it goes without saying”; (d) it must be capable of clear expression; (e) it must not contradict any terms of the contract.
20. S. 37 Arbitration Act | An Award Can't Be Set Aside Merely Because Appellate Court's View Is A Better View : Supreme Court
Case: Punjab State Civil Supplies Corporation Limited & Anr. v. M/s Sanman Rice Mills & Ors. [2024 LiveLaw (SC) 754]
In this case, a bench comprising Justices PS Narasimha and Pankaj Mithal observed that unless an arbitral award suffers from the illegality mentioned under Section 34 of the Arbitration Act, no award can be interfered with or set aside by the Appellate Courts under Section 37 of the Act. The Court remarked that an award cannot be set aside merely for the reason that the view of the Appellate Court is a better view than the one taken by the arbitral tribunal.
The award cannot be touched unless it is contrary to the substantive provision of law, any provision of the Act or the terms of the agreement, it held.
21. Arbitration | Arbitral Award Must Carry Post-Award Interest As Per S. 31(7)(b) : Supreme Court
Case: R.P. Garg v. The Chief General Manager, Telecom Department & Ors. [2024 LiveLaw (SC) 794]
In this case, a bench comprising Justices PS Narasimha and Sandeep Mehta held that the post-award period shall carry a rate of interest decided as per Section 31(7)(b) of the Arbitration Act. It was observed that even an agreement between the parties not to grant post-award interest cannot eliminate the statutory right to post-award interest.
22. Eviction Order Under Public Premises Act Doesn't Bar Arbitration For Contractual Disputes : Supreme Court
Case: Central Warehousing Corporation & Anr. v. M/s Sidhartha Tiles And Sanitary Pvt. Ltd. [2024 LiveLaw (SC) 822]
In this case, a bench comprising Justices PS Narasimha and Sandeep Mehta observed that an eviction order passed by the Estate Officer under the Public Premises Act would not come in the way while invoking the arbitration clause upon filing an application under Section 11(6) of the Arbitration Act for appointment of an arbitrator to decide contractual disputes.
23. Arbitral Tribunal May Impose Costs On Party Abusing Referral Court's Limited Jurisdiction To Compel Another's Participation In Arbitration : Supreme Court
Case: Aslam Ismail Khan Deshmukh v. ASAP Fluids Pvt. Ltd. & Anr. [2024 LiveLaw (SC) 868]
In this case, a bench comprising former CJI DY Chandrachud and Justices JB Pardiwala, Manoj Misra held that in the interest of justice, an arbitral tribunal may impose costs on the party who abused the process of law constraining another party to participate in the arbitral proceedings by taking advantage of minimal judicial interference at the referral stage.
24. Unilateral Arbitrator Appointment Clauses In Public-Private Contracts Invalid; Can't Compel Selection Of Arbitrators From PSU's Panels : Supreme Court
Case: Central Organization for Railway Electrification v. M/s ECI SPIC SMO MCML (JV) A Joint Venture Company [2024 LiveLaw (SC) 874]
In this Constitution Bench ruling by former CJI DY Chandrachud and Justices Hrishikesh Roy, PS Narasimha, JB Pardiwala, Manoj Misra, the Court ruled against clauses allowing Public Sector Undertakings to unilaterally appoint arbitrators to decide disputes with private contractors. It was held that while PSUs can maintain a panel of potential arbitrators, they cannot compel the other party to select its arbitrator from the panel.
While the majority judgment rendered by former CJI Chandrachud held that unilateral appointment clauses in public-private contracts are violative of Article 14 of the Constitution, Justice Roy in a partial dissent emphasized on party autonomy and said that unilateral appointments must not be declared invalid. An eligible arbitrator not disqualified under schedule 7 can be appointed unilaterally and courts must refrain from interfering, the judge held.
Justice Narasimha added that it is duty of the court to ensure that the arbitration agreement inspires confidence. However, unilateral appointment of an arbitrator may not inspire confidence and violate public policy. The option of the Court to determine if the tribunal is independent and impartial is only when an application is made.
25. Determining 'Seat' In International Arbitration : Supreme Court Takes Shift From 'Closest Connection Test', Says Express Designation Of Place Matters
Case: M/s Arif Azim Co. Ltd. v. M/s Micromax Informatics FZE [2024 LiveLaw (SC) 871]
Taking a shift from the 'close connection test' to determine the seat of the arbitration, a bench comprising former CJI DY Chandrachud and Justices JB Pardiwala, Manoj Misra held in this case that when an arbitration agreement grants non-exclusive jurisdiction to a foreign court, that court is considered the "seat of arbitration."
The Court reaffirmed the Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (BALCO) principle underscoring that Indian courts cannot intervene in arbitration proceedings where the parties have designated a foreign seat unless explicitly specified otherwise.
26. Unconditional Withdrawal Of Arbitrator Appointment Application Bars Second Application On Same Cause Of Action: Supreme Court
Case: M/s HPCL Bio-Fuels Ltd. v. M/s Shahaji Bhanudas Bhad [2024 LiveLaw (SC) 879]
In this case, a bench comprising former CJI DY Chandrachud and Justice JB Pardiwala observed that when a party seeking appointment of an arbitrator unconditionally withdraws its application, then the subsequent application for an appointment of an arbitrator on the same cause of action would be barred. The Court ruled that Order 23 Rule 1 CPC would apply to arbitrator appointment applications under Section 11(6) of the Arbitration Act.
The court, however, clarified that the second application under Section 11(6) would be maintainable when the invocation of the same arbitration clause is sought for a different cause of action that arose later.
27. S. 11(6) A&C Act | Referral Courts Should Limit Its Enquiry To Prima Facie Existence Of Arbitration Agreement : Supreme Court
Case: GOQII Technologies Private Limited v. Sokrati Technologies Private Limited [2024 LiveLaw (SC) 891]
In this case, a bench comprising former CJI DY Chandrachud and Justices JB Pardiwala, Manoj Misra observed that the referral courts under Section 11(6) of the Arbitration Act should refrain from conducting an in-depth factual analysis of the dispute. Instead, their role is confined to assessing the prima facie existence of an arbitration agreement.
The court further said that an arbitral tribunal may impose costs on parties found guilty of initiating baseless proceedings to discourage misuse of arbitration.
28. S.29A Arbitration | 'Sufficient Cause' To Extend Time For Award Should Be Interpreted To Facilitate Effective Dispute Resolution : Supreme Court
Case: M/s Ajay Protech Pvt. Ltd. v. General Manager & Anr. [2024 LiveLaw (SC) 915]
In this case, a bench of Justices PS Narasimha and Sandeep Mehta observed that extension of time for passing an arbitral award can be allowed even after the expiry of the statutory (and extendable) period and the phrase "sufficient cause" under Section 29A of the Arbitration Act should take color from the underlying purpose of the arbitration process (ie facilitating effective dispute resolution).
29. S. 14 Limitation Act Applicable To Proceedings Under Arbitration & Conciliation Act : Supreme Court
Case: Kirpal Singh v. Government of India [2024 LiveLaw (SC) 970]
In this case, a bench comprising Justices PS Narasimha and Manoj Misra held that Section 14 of the Limitation Act is applicable to the Arbitration Act. The Court opined that it was necessary to interpret the provisions of the Limitation Act liberally as there is only a limited window to challenge an arbitral award.
30. Arbitration Can't Be 'Optional' When Agreement Provides Arbitration Clause : Supreme Court
Case: Tarun Dhameja v. Sunil Dhameja & Anr. [2024 LiveLaw (SC) 996]
In this case, a bench comprising CJI Sanjiv Khanna and Justice Sanjay Kumar held that there cannot be an 'optional' arbitration, where parties are required to mutually agree to invoke the arbitration clause. According to the Court, arbitration is not 'optional' in practice.
31. S. 33 Arbitration Act | Clarification On Award Can Be Issued Even After Arbitral Tribunal Becomes Functus Officio : Supreme Court
Case: North Delhi Municipal Corporation v. M/s S.A. Builders Ltd. [2024 LiveLaw (SC) 1010]
In this case, a bench comprising Justices Abhay S Oka and Ujjal Bhuyan observed that although the Arbitral Tribunal becomes functus officio after passing an award, it would still retain the limited jurisdiction to clarify or correct errors in an award under Section 33 of the Arbitration Act.