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Arbitration Cases Monthly Round-Up: May 2023
ausaf ayyub
7 Jun 2023 6:16 PM IST
SUPREME COURT:Referral Court Has Duty To Conclusively Decide Issue Of ‘Existence & Validity Of Arbitration Agreement’ Raised At Pre-Referral Stage: Supreme CourtCase Title: Magic Eye Developers Pvt. Ltd. vs M/s. Green Edge Infrastructure Pvt. Ltd. & Ors. The Supreme Court has held that under Section 11(6) of the Arbitration and Conciliation Act, 1996, when the issue of...
SUPREME COURT:
Case Title: Magic Eye Developers Pvt. Ltd. vs M/s. Green Edge Infrastructure Pvt. Ltd. & Ors.
The Supreme Court has held that under Section 11(6) of the Arbitration and Conciliation Act, 1996, when the issue of ‘existence and validity of an arbitration agreement’ is raised at pre-referral stage, then the Court is duty bound to conclusively decide the issue. If the issue regarding ‘existence and validity of an arbitration agreement’ is left to the Arbitral Tribunal, then it will be contrary to Section 11(6A) of the Arbitration Act. This is to protect the parties from being forced to arbitrate in absence of a valid arbitration agreement.
The Bench comprising of Justice M.R. Shah and Justice C.T. Ravikumar has observed that the ‘pre-referral’ jurisdiction of Court under Section 11(6) of Arbitration and Conciliation Act, 1996 consists of two inquiries, (i) existence and validity of arbitration agreement; and (ii) non-arbitrability of dispute.
Case Title: Reliance Infrastructure Ltd. vs State of Goa
The Supreme Court has observed that an award could be said to be suffering from “patent illegality” only if it is an illegality apparent on the face of the award and the award is not to be searched out by way of re-appreciation of evidence.
The narrow scope of “patent illegality” cannot be breached by mere use of different expressions which nevertheless refer only to “error” and not to “patent illegality”, the bench of Justices Dinesh Maheshwari and Sanjay Kumar observed while allowing appeals filed by Reliance Infrastructure Ltd.
Case Title: M/s. Shree Vishnu Constructions vs The Engineer in Chief Military Engineering Service & Ors.
The Supreme Court has ruled that where the notice invoking arbitration is issued prior to the coming into force of the Arbitration and Conciliation (Amendment) Act, 2015, i.e., prior to 23.10.2015, and the application under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act), seeking appointment of an arbitrator, is made post the enforcement of the Amendment Act, the 2015 Amendment Act shall not be applicable.
"It is observed and held that in a case where the notice invoking arbitration is issued prior to the Amendment Act, 2015 and the application under Section 11 for appointment of an arbitrator is made post Amendment Act, 2015, the provisions of pre-Amendment Act, 2015 shall be applicable and not the Amendment Act, 2015", the Court held.
Case Title: M/s B and T AG vs Ministry of Defence
The Supreme Court has held that the cause of action to appoint an arbitrator would commence from the “Breaking Point” at which any reasonable party would abandon efforts for at arriving at a settlement and contemplate referral of the dispute for arbitration. “Breaking Point” should be treated as the date at which the cause of action arose for the purpose of limitation.
The Bench comprising of the Chief Justice Dr. Dhananjaya Y. Chandrachud and Justice J. B. Pardiwala, while adjudicating an appeal filed in M/s B and T AG v Ministry of Defence, has observed that the entire history of the negotiation between the parties must be specifically pleaded and placed on record, in order to facilitate the Court to find out what was the “Breaking Point” for the purpose of limitation computation.
Case Title: M/s B and T AG vs Ministry of Defence
The Supreme Court while adjudicating an application filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 for appointment of arbitrator, has held that the limitation period of three years for filing such application would commence from the date when the cause of action arose. Subsequent negotiations between the parties, which take place after the cause of action has arisen, will not postpone the cause of action for the purpose of limitation computation.
The Bench comprising of the Chief Justice Dr. Dhananjaya Y. Chandrachud and Justice J. B. Pardiwala, while adjudicating an appeal filed in M/s B and T AG v Ministry of Defence, has held that, “Negotiations may continue even for a period of ten years or twenty years after the cause of action had arisen. Mere negotiations will not postpone the “cause of action” for the purpose of limitation. The Legislature has prescribed a limit of three years for the enforcement of a claim and this statutory time period cannot be defeated on the ground that the parties were negotiating.”
Case Title: Indian Oil Corporation vs Sathyanarayana Service Station
The Supreme Court has observed that, in arbitration cases, a Court cannot, after setting aside the award, proceed to grant further relief by modifying the award.
HIGH COURTS:
Bombay High Court:
Case Title: Sunil Kumar Jindal vs Union of India
The Bombay High Court has held that illegality of the appointment procedure does not render the entire arbitration agreement invalid.
The bench of Justice Avinash G. Gharote held that merely because the procedure for the appointment of the arbitrator under the arbitration agreement is rendered invalid on account of the insertion of Section 12(5) and the Supreme Court judgment in Perkins Eastman, the same would not make the entire arbitration agreement unworkable.
The Court held that the choice of getting the dispute resolved through arbitration is one thing and the choice of a specific arbitrator is another thing and both are severable and different from each other. It held that the Courts while dealing with an arbitration clause that has partially become invalid can sever the illegal part and retain the remaining portion when the intention to arbitration is evident.
Case Title: Palmview Investments Overseas Limited vs Ravi Arya
The High Court of Bombay has held that any defect in the board resolution authorizing a person to initiate arbitration is only a procedural and a curable defect, thus, it cannot be a ground for the rejection of the claims and termination of the arbitral proceedings.
The bench of Justices K.R. Shriram and Rajesh S. Patil held that requirement of a board resolution authorizing a person to take legal action on behalf of a company is a procedural requirement and any defect in such a resolution would only be a procedural irregularity and thus it cannot be allowed to defeat a substantive right of a party.
Case Title: Gurumahima Heights Co-operative Housing Society Ltd vs M/s Admirecon Infrastructure Pvt Ltd
The Bombay High Court has ruled that mere signing of the arbitral award at a place cannot be the determinative factor for ascertaining the place of arbitration. It added that if there is no agreement between the parties regarding the place of arbitration and the arbitrator has not determined the place of arbitration, the overall circumstances of the case would have to be taken into consideration to reach a conclusion regarding the same.
Calcutta High Court:
Case Title: Godrej & Boyce Mfg. Co. Ltd vs Shapoorji Pallonji and Company Pvt Ltd
The Calcutta High Court has ruled that a single composite invocation of arbitration under Section 21 of the Arbitration and Conciliation Act, 1996 (A&C Act), pertaining to a consolidated claim arising out of three different Purchase Orders, containing separate arbitration clauses, cannot be labelled as invalid or unlawful.
The court made the observation while noting that all the Purchase Orders, though issued at different times, were a sub-set of the respondent’s performance of a single Main Contract. Further, the relevant clauses of the Purchase Order established a link between the liabilities arising out of the Purchase Orders and the Main Contract, and contained identically worded arbitration clauses.
Case Title: East India Minerals Limited vs The Orissa Mineral Development Company Limited
The Calcutta High Court has held that once the arbitral proceedings have been commenced pursuant to reference under Section 21 of the Arbitration and Conciliation Act, 1996, any delay in the conclusion/resumption of such proceedings would not wipe out the arbitral reference.
The bench of Justice Shekhar B. Saraf held that arbitral proceedings cannot be rendered inoperative for the reason that there was some delay in the conclusion of the proceedings or that the proceedings were stalled and its resumption took a long time.
Case Title: State of West Bengal vs Rajpath Contractors and Engineers Limited
The High Court of Calcutta has invoked its powers under Article 133(1)(a) r/w Article 134A of the Constitution to allow the aggrieved party to directly appeal against its judgment to the Supreme Court on the ground that the case involves a substantial question of law of general importance.
The bench of Justice Shekhar B. Saraf was dealing with a peculiar situation wherein the application filed under Section 34 of the A&C Act was rendered barred in law for the reason that the entire 30 days grace period provided under proviso to Section 34(3) coincided with the Court holidays.
Case Title: Ugro Capital Limited vs Raj Drug Agency
The Calcutta High Court has held that mere allegations of fraud inter-se the respondents would not make a dispute non-arbitrable. The bench of Justice Shekhar B. Saraf held that merely because the respondents inter-se dispute the validity of the agreement containing arbitration clause and also their signature on it, it does not make the dispute non-arbitrable. It further held that mere possibility or existence of criminal proceedings arising out of the same facts would not put the dispute beyond the scope of arbitration.
Delhi High Court:
Case Title: Department of Transport, GNCTD vs Star Bus Services Pvt Ltd
The Delhi High Court has ruled that an arbitral award passed after an inordinate, substantial and unexplained delay would be “contrary to justice and would defeat justice”. Consequently, the same would also be in conflict with the public policy of India.
The bench of Justice Chandra Dhari Singh said that a substantial delay in making the award cannot be a regular phenomenon and that the Arbitrator must use reasonable despatch in conducting the proceedings and making an award. He further observed that the question whether the delay in pronouncement of the arbitral award places it in conflict with the public policy of India, must be construed in the facts of each case.
Case Title: S.S. Con-Build Pvt Ltd vs Delhi Development Authority
The Delhi High Court has ruled that the disputes relating to determination of a lease or the arrears of rent payable in respect of public premises, are questions statutorily mandated to be determined exclusively by the Estate Officer under the Public Premises (Eviction of Unauthorised Occupants) Act, 1971 (PP Act). Thus, the same are non-arbitrable.
The bench of Justice Yashwant Varma observed that the PP Act was enacted for the purpose of setting up a speedy machinery for eviction of persons found to be in unauthorized occupation of public premises. Further, Section 15 of the PP Act ousts the jurisdiction of courts in respect of eviction of persons from public premises and in relation to other connected aspects.
The court remarked that though the Estate Officer under the PP Act is not entitled to go into questions of competing ownership, all other issues of determination which relate to the occupation of public premises and questions incidental to it, would clearly fall within the exclusive jurisdiction of the Estate Officer. Thus, the same are non-arbitrable.
Case Title: Radnik Exports vs Supertech Realtors Pvt Ltd
The Delhi High Court has held that an issue of full and final settlement of dispute between the parties will be a question of fact which has to be decided by the arbitrator.
The bench of Justice Navin Chawla held that the Court while exercising powers under Section 11 of the Arbitration and Conciliation Act, 1996 cannot determine a disputed question of fact as its jurisdiction is confined to a prima facie conclusion of the existence of the arbitration agreement.
Case Title: Union of India vs Reliance Industries Limited & Ors.
The Delhi High Court bench comprising Justice Anup Jairam Bhambhani has upheld the 2018 arbitral award passed in favour of Reliance Industries Limited (RIL) in an international commercial arbitration arising from a dispute between the conglomerate and the Ministry of Petroleum & Natural Gas, Government of India, under a ‘Production Sharing Contract’ (PSC) executed in 2000, involving the exploration and extraction of natural gas in the Krishna-Godavari Basin.
The High Court upheld the majority arbitral award passed by a three-member Arbitral Tribunal, which had ruled that Reliance was permitted to extract the migrated gas under the PSC and that the “Public Trust Doctrine” was not contravened.
Case Title: Union of India vs Reliance Industries Limited & Ors.
The Delhi High Court bench comprising Justice Anup Jairam Bhambhani has upheld the 2018 arbitral award passed in favour of Reliance Industries Limited (RIL) in an international commercial arbitration arising from a dispute between the conglomerate and the Ministry of Petroleum & Natural Gas, Government of India, under a ‘Production Sharing Contract’ (PSC) executed in 2000, involving the exploration and extraction of natural gas in the Krishna-Godavari Basin.
The High Court upheld the majority arbitral award passed by a three-member Arbitral Tribunal, which had ruled that Reliance was permitted to extract the migrated gas under the PSC and that the “Public Trust Doctrine” was not contravened.
Case Title: Fedders Electric & Engineering vs Srishthi Constructions
The Delhi High Court has held that the Court while exercising powers under Section 9(3) of the A&C Act cannot examine the allegations of fraud or forgery when the arbitral tribunal is already in place and seized of the matter. The bench of Justice Chandra Dhari Singh held that once the arbitral tribunal has been constituted, the Court shall not entertain any application under Section 9 except in cases of exceptional circumstances in which the remedy before the tribunal would not be efficacious.
Case Title: M/s Vindhya Vasini Construction Co vs M/s Bharat Heavy Electricals Ltd
The Delhi High Court has ruled where the Arbitration Agreement unambiguously provides that in case the stipulated person cannot act as an Arbitrator, the dispute is not to be referred to Arbitration at all, the same reflected the conditional acceptance of Arbitration by the party.
The bench of Justice Navin Chawla further remarked that it cannot be said that the said condition stipulated in the subsequent part of the Arbitration Agreement is severable, in view of the express provision contained in the Agreement regarding its non-enforceability.
Case Title: Roadway Solutions India Infra Limited vs National Highway Authority of India
The Delhi High Court has ruled that in view of Sections 20A and 41(ha) of the Specific Relief Act, 1963, the courts should grant no injunction relating to infrastructure projects where delay may be caused by such an injunction.
The bench of Justice Chandra Dhari Singh remarked that the role of courts is to interfere to the minimum extent so that public work projects are not impeded or stalled.
Case Title: Maj Pankaj Rai vs NIIT Ltd
The Delhi High Court has held that an arbitrator can be removed under Section 14(1)(a) of the Arbitration and Conciliation, 1996 (A&C Act) which provides for de jure ineligibility of arbitrator only if his appointment falls within the grounds mentioned under the VII Schedule.
The bench of Justice Chandra Dhari Singh held that the mandate of the arbitrator on grounds of bias and prejudice cannot be terminated if the test of Schedule VII is not satisfied as the grounds mentioned therein are the only situations that render an arbitrator de jure ineligible to act as arbitrator.
Case Title: Najmus Sehar vs M/s Bombay Marcantile Coop Bank & Ors.
Citation: 2023 LiveLaw (Del) 452
The Delhi High Court has ruled that the limitation period for reference of money dispute between the cooperative society and its defaulting member to arbitration, would be determined as per the provisions of Section 85(1)(a) of the Multi State Co-operative Societies Act, 2002 (MSCS Act), and not as per the Limitation Act, 1963.
The bench of Justices Rajiv Shakdher and Girish Kathpalia observed that Section 85(1)(a) of the MSCS Act clearly provides that in such disputes, the limitation period for referral to arbitration would be computed from the date on which the member dies or ceases to be a member of the society. Further, the same is notwithstanding anything contained in the Limitation Act.
The court remarked that though Section 85(1)(a) of the MSCS Act carves an extraordinary niche out of the general law of limitation, however, the same is in absolute consonance with the basic purpose of creation of the said statute.
Case Title: Shivalaya Construction Co. Pvt Ltd. v. National Insurance Company Ltd
Citation: 2023 LiveLaw (Del) 453
The High Court of Delhi has held that ordinarily the dispute under insurance policy claims would not be referred to arbitration when the reference is limited to quantum of compensation and the insurer disputes liability.
The bench of Justice Prateek Jalan distinguished between a situation wherein the insurer denied the entire liability and where the entire liability is not disputed but only claims under one of the heads is disputed as being outside the scope of reference.
Case Title: M/s Mahesh Construction vs Municipal Corporation of Delhi & Anr.
Citation: 2023 LiveLaw (Del) 459
The Delhi High Court has ruled that a clause in a contract that prohibits payment of interest on delayed payments, does not prohibit the arbitrator from granting interest under Section 31(7) of the Arbitration and Conciliation Act, 1996 (A&C Act). The bench of Justice Manoj Kumar Ohri held that the said stipulation only puts a restriction on the contracting party to claim interest on delayed payments. Since interest is compensatory in nature, the arbitrator’s powers are not curtailed by such narrow clauses in the contract.
Gujarat High Court:
Case Title: Yashang Navinbhai Patel vs Dilipbhai Prabhubhai Patel
The Gujarat High Court has ruled that once the partnership at will is dissolved, the arbitration clause contained in the partnership deed cannot be invoked to refer the dispute between the partners to arbitration. The bench of Justice Biren Vaishnav was dealing with an arbitration clause which provided for reference of the dispute between the partners with regard to the “dealing of the firm” to arbitration. The court held that the term “dealing” would mean engaging in business and thus, for the dispute to fall within the ambit of the arbitration clause, the firm must be subsisting.
Karnataka High Court:
Case Title: Town Essentials Pvt. Ltd. v. Daily Ninja Delivery Services Pvt. Ltd, WP No. 15830 of 2022
Citation: 2023 LiveLaw (Kar) 189
The Karnataka High Court has held that the non-signatory defendants cannot be exposed to arbitration under Section 8 of the A&C Act by allowing the dispute to be referred to arbitration.
The bench of Justice Sreenivas Harish Kumar held that when the cause of action against all the defendants is stated to be the same, it cannot be bifurcated so to allow arbitration proceedings against few of the defendants and continuation of the suit against the others as it would lead to multiplicity of proceedings and delay in adjudication. It would also increase the cost of litigation and harassment to the parties and on occasions there is possibility of conflicting judgments and orders by two different forums.
Madras High Court:
Case Title: Prime Store vs Sugam Vanijya Holdings
The Madras High Court has recently held that the provisions for disqualification for appointment as arbitrator under the Seventh Schedule of the Arbitration and Conciliation Act would be applicable to any person, including a retired judge. The court noted that the provisions with respect to ineligibility and disqualification are mandatory and non-derogable.
Orissa High Court:
Case Title: Santosh Kumr Acharya vs Ratinakar Swain
The Orissa High Court has set aside the order passed by the Arbitral Tribunal under Section 26 of the Arbitration and Conciliation Act, 1996 (A&C Act), where the Tribunal had directed the appointment of an expert evaluator for evaluating the assets of the counter-claimant in the arbitral proceedings involving money claims.
While noting that the claims and counter claims raised by the parties were simply money claims, the bench of Justice Arindam Sinha held that expanding the scope of the arbitral reference by including evaluation of assets, would expose the petitioner to the risk of an award being passed beyond the four corners of the reference.
The court said that in the event there is an expansion of the scope of reference by the Arbitral Tribunal, there is no provision in Section 26 of the A&C Act to add the same as a ground of challenge under Section 34; thus, rendering the party remediless.
Patna High Court:
Case Title: M/s REW Contracts Pvt Ltd vs Bihar State Power Transmission Co. Ltd & Anr
The Patna High Court has ruled that an arbitration agreement executed by a Joint Venture cannot be invoked by the constituents of the said Joint Venture, since they cannot be considered as a party to the arbitration agreement.
While dealing with a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) seeking appointment of arbitrator, the bench of Chief Justice K. Vinod Chandran held that only the Joint Venture, being a separate legal entity and a party to the arbitration agreement, could invoke arbitration and not the petitioner, who was only one of the constituents of the said Joint Venture.
Telangana High Court:
Case Title: Hyderabad Metropolitan Development Authority vs Ramky Elsamex Hyderabad Ring Road Limited
The Telangana High Court held that once the tribunal has passed an order terminating the arbitral proceedings under Section 32(2)(c) r/w Section 38 of the A&C Act for non-payment of tribunal fees, the tribunal cannot recall the order and continue the arbitral proceedings.
The bench of Justices P. Naveen Rao and Nagesh Bheempaka held that once the arbitral proceedings are terminated under Section 32(2)(c) of the Act, the tribunal becomes functus officio and it cannot continue with the arbitral proceedings merely on the grounds that the parties did not take the issue of termination seriously and continued with the arbitral proceedings.
Uttarakhand High Court:
Case Title: M/s B.S. Polypack vs M/s Uttaranchal Agro Food Ruler Mills & Anr.
The Uttarakhand High Court has directed the Micro, Small and Medium Enterprises Facilitation Council to organize workshops and seminars to educate its officers, who undertake arbitration proceedings, to equip themselves with the law of Arbitration.
The court passed the said direction while hearing an appeal against the decision of the Commercial Court who had set aside the arbitral award passed by the Facilitation Council in the arbitration proceedings conducted under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). Upholding the decision of the Commercial Court, the court ruled that the arbitral award was passed in breach of Section 23 and Section 18 of the A&C Act, which provides for grant of equal and full opportunity to each party to present the case.
