5 Important Supreme Court Judgments On Arbitration [January 2024 To June 2024]

Case Title: Dani Wooltex Corporation & Ors. vs SheilProperties Pvt. Ltd. & Anr.

Case Number: CIVIL APPEAL NO.6462 OF 2024

The Supreme Court bench of Justice Abhay S. Oka and Justice Pankaj Mithal held that the power under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996 can be exercised only if, for some reason, the continuation of proceedings has become unnecessary or impossible.

The bench held that the mere existence of a reason for terminating the proceedings is not sufficient. The reason must be such that the continuation of the proceedings has become unnecessary or impossible.

It held that:

“The abandonment of the claim by a claimant can be a ground to invoke clause c of subsection 2 of Section 32 The abandonment of the claim can be either express or implied The abandonment cannot be readily inferred There is an implied abandonment when admitted or proven facts are so clinching that the only inference that can be drawn is of the abandonment Only if the established conduct of a claimant is such that it leads only to one conclusion that the claimant has given up hisher claim can an inference of abandonment be drawn Even if it is to be implied there must be convincing circumstances on record which lead to an inevitable inference about the abandonment Only because a claimant after filing his statement of claim does not move the Arbitral Tribunal to fix a date for the hearing the failure of the claimant per se will not amount to the abandonment of the claim”

Parliament Should Consider Amending Arbitration Act To Prescribe Limitation Period To File S.11 Application : Supreme Court

Case Details: M/S Arif Azim Co Ltd v. M/S Aptech Ltd. Arbitration Petition No. 29 of 2023

In a recent verdict, the Supreme Court delved into the crucial question of whether the Limitation Act, 1963 is applicable to applications for the appointment of arbitrators under Section 11(6) of the Arbitration and Conciliation Act, 1996. The court highlighted the absence of a statutory prescription regarding the time limit for such applications and expressed concerns about the unduly long three-year period allowed for filing under Article 137 of the Limitation Act. 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). The decision emphasized the need for expeditious resolution of commercial disputes and addressed the potential impact of the absence of a time-bound framework.

In its concluding part, the Court observed :

“ 94. … this Court while dealing with similar issues in many other matters has observed that the applicability of Section 137 to applications under Section 11(6) of the Act, 1996 is a result of legislative vacuum as there is no statutory prescription regarding the time limit. We would again like to reiterate that the period of three years is an unduly long period for filing an application under Section 11 of the Act, 1996 and goes against the very spirit of the Act, 1996 which provides for expeditious resolution of commercial disputes within a time-bound manner. Various amendments to the Act, 1996 have been made over the years so as to ensure that arbitration proceedings are conducted and concluded expeditiously. We are of the considered opinion that the Parliament should consider bringing an amendment to the Act, 1996 prescribing a specific period of limitation within which a party may move the court for making an application for appointment of arbitrators under Section 11 of the Act, 1996…” Opined Justice Pardiwala.

The bench comprising CJI DY Chandrachud and Justices JB Pardiwala and Manoj Misra through its decision, highlighted the need to have clarity in the limitation period for the appointment of the arbitrator, and the immediate filling of the said legislative vacuum.

The present case dealt with an arbitration dispute relating to the appointment of an arbitrator under S.11(6). One of the key questions that the court was tasked to examine was - 'Whether the Limitation Act, 1963 is applicable to an application for appointment of arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996? If yes, whether the present petition is barred by limitation?'

Section 11(6) of the Arbitration and Conciliation Act, 1996 pertains to the procedure for the appointment of arbitrators. This provision outlines the steps and responsibilities when a party seeks the court's assistance in appointing an arbitrator or a panel of arbitrators. Once the applicant has completed all the necessary steps and the application satisfies judicial scrutiny, the court becomes duty-bound to appoint an arbitrator and refer the matter to the arbitral tribunal.

Enforcement Of Foreign Award Must Be Refused Only Rarely, International Standards To Be Applied To Determine Bias : Supreme Court

Case Title: AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI HOLDINGS (MAURITIUS) LIMITED.,

Citation: 2024 LiveLaw (SC )267

In a crucial judgment, while allowing the enforcement of a foreign arbitral award, the Supreme Court (on March 04), held that to determine the factor of arbitral bias, Court must endeavour 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.

"Embracing international standards in arbitration would foster trust, certainty, and effectiveness in the resolution of disputes on a global scale. The above discussion would persuade us to say that in India, we must adopt an internationally recognized narrow standard of public policy, when dealing with the aspect of bias"

"...there can be no difficulty in holding that the most basic notions of morality and justice under the concept of 'public policy' would include bias. However, Courts must endeavor to adopt international best practices instead of domestic standards, while determining bias. It is only in exceptional circumstances that enforcement should be refused on the ground of bias"

"This sort of challenge where arbitral bias is raised at the enforcement stage, must be discouraged by our Courts to send out a clear message to the stakeholders that Indian Courts would ensure enforcement of a foreign Award unless it is demonstrable that there is a clear violation of morality and justice. The determination of bias should only be done by applying international standards. Refusal of enforcement of foreign award should only be in a rare case where, non- adherence to International Standards is clearly demonstrable."

The matter was decided the Division bench of Justices Hrishikesh Roy and Prashant Kumar Mishra.

Court Doesn't Sit In Appeal Over Arbitral Tribunal's Interpretation Of Contract : Supreme Court

Case Title : National Highway Authority of India v. M/s Hindustan Construction Company Ltd

Citation : 2024 LiveLaw (SC) 361

The Supreme Court held that it is for the Arbitral Tribunal to adjudicate upon the construction of the terms of a contract and the Court under Section 34, Arbitration and Conciliation Act, 1996 does not sit in appeal over the findings of the arbitrator.

The bench of Justices A. S. Oka and Pankaj Mithal was pronouncing its judgment on an appeal by the NHAI against concurrent findings of the Arbitral Tribunal, the Single Judge and Division Bench of the Delhi High Court

(i) directing the reimbursement to the respondent-company of additional expenditure incurred due to an increase in the rates of royalty and associated sales tax;

(ii) directing payment to the respondent for executed work of embankment in accordance with the requirements of the contract; and

(iii) directing the reimbursement to the respondent of additional costs incurred due to an increase in the forest transit fee rates.

At the outset, the bench of Justices Oka and Mithal stated that it is in the light of the limited scope for interference under Section 37 appeal that it will have to deal with the submissions.

The bench, in its judgment, cited the earlier decisions of the Supreme Court which lay down that “only when the award is in conflict with the public policy in India, the Court would be justified in interfering with the arbitral award”; “that when a court is applying the 'public policy' test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected”; and that “the jurisdiction of the Court under Section 34 is relatively narrow and the jurisdiction of the Appellate Court under Section 37 of the Arbitration Act is all the more circumscribed”.

Arbitral Awards Cannot Be Modified Under Sections 34 & 37 Of Arbitration & Conciliation Act : Supreme Court

Case Title: S.V. Samudram v. State of Karnataka

Citation: 2024 LiveLaw (SC) 14

The Supreme Court has reiterated the settled position of law that any attempt to “modify an award” while adjudicating Sections 34 and 37 petitions is not permissible under the Arbitration and Conciliation Act, 1996.

The Division Bench of Supreme Court comprising Justices Abhay S. Oka and Sanjay Karol while deciding a Civil Appeal filed by the Appellant against the judgment and order passed by the High Court of Karnataka under Section 37 (1) of the Arbitration and Conciliation Act, 1996, framed a question of law that:

“Whether the High Court was justified in confirming the order dated 22nd April, 2010 under Section 34 of the Arbitration & Conciliation Act, 1996 passed by the Senior Civil Judge, Sirsi, in Civil Misc. No. 08/2003, whereby the award passed by the learned Arbitrator was modified and the amount awarded was reduced.”

While adjudicating the dispute, the Supreme Court has held as follows: -

1. Modification of Arbitral Award not allowed under Section 34: The Court has observed that the position as to whether an arbitral award can be modified in the proceedings initiated under Sections 34/37 of the A&C Act is no longer res integra. The court in para 14 reiterated the findings of it passed in National Highways Authority of India v. M. Hakeem and Another, categorically held that any court under Section 34 would have no jurisdiction to modify the arbitral award, which at best, given the same to be in conflict with the grounds specified under Section 34 would be wholly unsustainable in law. Moreover, the court in para 17 also observed that “the Arbitrator's view, generally is considered to be binding upon the parties unless it is set aside on certain specified grounds.” The Court also noted the importance of primacy granted to arbitral tribunal to adjudicate the disputes agreed to be resolved by the parties through arbitration. While placing reliance on three judge Bench Judgment of the Supreme Court in Dyna Technologies Private Limited v. Crompton Greaves Limited, the court reiterated the need for the Court to look at the substance of the findings, rather than its form, stood reiterated and the need for adopting an approach of reading the award in a fair and just manner, and not in what is termed as “an unduly literal way”. Thus, no interference by way of modifying the award can be made while adjudicating Section 34 petition.

2. No violation of Public Policy: In the instant case, the only provision under which the award could have been assailed was for it to have been in conflict with the public policy of India. The Court took reference to its own judgment Indian Oil Corporation. Ltd. v. Shree Ganesh Petroleum to summarize that an award could be said to be against the public policy of India in, inter alia, the following circumstances:

1. When an award is, on its face, in patent violation of a statutory provision
2. When the arbitrator/Arbitral Tribunal has failed to adopt a judicial approach in deciding the dispute.
3. When an award is in violation of the principles of natural justice.
4. When an award is unreasonable or perverse.
5. When an award is patently illegal, which would include an award in patent contravention of any substantive law of India or in patent breach of the 1996 Act.
6. When an award is contrary to the interest of India, or against justice or morality, in the sense that it shocks the conscience of the Court.

However, the court in para 29 declined to accept that there's a violation of public policy of India by observing that:

“the reasons recorded by the learned Civil Judge for modifying the arbitral award, as reflected from a perusal thereof, have been recorded in an earlier section of the judgment. None of those reasons even so much as allude to the award being contrary to the public policy of India, which would enable the court to look into the merits of the award.”

3. Modification of Award under Section 37 Petition: The Court while considering the order of the High Court upholding such modification, under the jurisdiction of Section 37 of the A&C Act, took a reference to one of its own Judgment in MMTC Ltd. v. Vedanta Ltd., where the observation conveyed in para 14 is meaningful i.e.,

“14. As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the court cannot undertake an independent assessment of the merits of the award and must only ascertain that the exercise of power by the court under Section 34 has not exceeded the scope of the provision. Thus, it is evident that in case an arbitral award has been confirmed by the court under Section 34 and by the court in an appeal under Section 37, this Court must be extremely cautious and slow to disturb such concurrent findings.”

Moreover, the court in para 38 took reference of a Judgment delivered in Larsen Air Conditioning and Refrigration Company v. Union of India and Others by holding that “the circumscribed nature of the exercise of power under Sections 34 and 37 i.e., interference with an arbitral award, is clearly demonstrated by legislative intent. The Arbitration Act of 1940 had a provision (Section 15) which allowed for a court to interfere in awards, however, under the current legislation, that provision has been omitted.”

Thus, the court in para 39 held that “the learned Single Judge, similar to the learned Civil Judge under Section 34, appears to have not concerned themselves with the contours of Section 37 of the A&C Act.”