Arbitration Cases Weekly Round-Up: 28 May To 3 June 2023

Delhi High Court:

SpiceJet Should Pay Entire Arbitral Award Of Rs 380 Crore To Its Former Promotor Kalanithi Maran: Delhi High Court

Case Title: Kal Airways Pvt. Ltd vs M/s SpiceJet Ltd. & Anr.

The Delhi High Court has directed SpiceJet to pay the entire arbitral award of Rs. 380 crore to the airline’s former promotor, Kalanithi Maran, and his firm, Kal Airways Pvt. Ltd, in an execution petition filed by Maran seeking enforcement of a 2018 arbitral award passed in his favour.

The court has also directed the airline to file an Affidavit of its assets within the specified time frame.

The bench of Justice Yogesh Khanna passed the order after noting that the airline had failed to comply with the Supreme Court’s order dated 13.02.2023. The Apex Court in the said order had directed SpiceJet to pay an amount of Rs.75 crore to Maran within a period of three months, towards its interest liability, pending the disposal of the petition under Section 34 of the Arbitration and Conciliation Act, 1996. In the event of default in compliance with the said order, the top court had held that the entire arbitral award would be executable forthwith.

Third Party Funders In Arbitration Play A Vital Role In Ensuring Access To Justice; Arbitral Award Cannot Be Enforced Against Them: Delhi High Court

Case Title: Tomorrow Sales Agency (P) Ltd. vs SBS Holdings, Inc.

The Delhi High Court has ruled that a third-party funder, i.e., a non-signatory to arbitration agreement, who is not a party to the arbitral proceedings or the award, cannot be held liable for the awarded amount merely because it has funded a party in arbitral proceedings.

The court dismissed the contention that third-party funders must be held liable for funding impecunious persons who are unsuccessful in pursuing their claims in the arbitral proceedings. It held that permitting enforcement of an arbitral award against a non-party which has not accepted any such risk, is neither desirable nor permissible.

The court remarked that third-party funders play a vital role in ensuring access to justice. In absence of third-party funding, a person having a valid claim would be unable to pursue the same for recovery of amounts that may be legitimately due, the bench comprising Justices Vibhu Bakhru and Amit Mahajan observed.

The Expression “Any” Member of Arbitral Tribunal Cannot Be Read As “All Members”: Delhi High Court

Case Title: Shapoorji Pallonji and Company Private Limited vs Union of India

The Delhi High Court has ruled that the expression “any member” contained in a clause that lays down a mandatory qualification to be appointed as arbitrator, cannot be read as “all members” of the Arbitral Tribunal. The court said that the phrase “any member” must be interpreted in the context in which it is used.

The bench of Justice Yashwant Varma was dealing with an Arbitration Clause that required that “any member” of the Arbitration Tribunal shall be a “Graduate Engineer with experience in handling public works engineering contracts” at a level “not lower than Chief Engineer (Joint Secretary level of Government of India)”. The said Clause provided that the same was “a mandatory qualification to be appointed as arbitrator”.

‘Balance Rent’ During The Lock-In Period Is A Genuine Pre-Estimate Of Loss, Requires No Further Of Actual Loss: Delhi High Court

Case Title: DAG Private Limited vs Ravi Shankar Institute for Music and Performing Arts

The High Court of Delhi has upheld an arbitral award wherein the arbitrator held that the ‘Balance Rent’ during the lock-in period is a genuine pre-estimate of loss which requires no further proof of loss.

The bench of Justice V. Kameshwar Rao held that when the contract provides for payment of entire balance rent for the lock-in period if the deed is terminated before the expiry of the lock-in period, it would be a genuine pre-estimate of the losses that the lessor would bear for the early termination of the contract/deed. It held that lock-in period acts an assurance for the lessee that his possession would not be disturbed and it also guarantees the lessor a certain sum of money for a definite period and any breach involves consequences for both the parties.

Clause Prohibiting Payment Of Interest On Delayed Payments, Doesn’t Prohibit Arbitrator From Granting Interest Under S. 31(7) Of The Act: Delhi High Court

Case Title: M/s Mahesh Construction vs Municipal Corporation of Delhi & Anr.

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.

The bench concluded that the arbitrator is empowered under Section 31(7) of the A&C Act to grant interest for all the three periods namely, pre-reference, pendente-lite and post award periods, unless the contract prohibits the arbitrator from granting interest under Section 31(7).

Insurance Policy Is To Be Referred To Arbitration When Only One Head Of The Claims Is Disputed And Not The Entire Liability: Delhi High Court

Case Title: Shivalaya Construction Co. Pvt Ltd. vs National Insurance Company Ltd

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. 

The Court held that there cannot be any arbitration in the first scenario, however, the second issue would not put the dispute beyond the ambit of the arbitration clause and it would be proper for the respondent to raise such objections before the arbitrator. 

Arbitration Between Co-op Society and Member, Governed By S. 85(1) of the MSCS Act and Not Limitation Act: Delhi High Court

Case Title: Najmus Sehar vs M/s Bombay Marcantile Coop Bank & Ors.

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.

Karnataka High Court:

Power Of Arbitrator To Resolve Dispute In A Partnership Flows From Clauses Of Partnership Deed: Karnataka High Court

Case Title: Jameela vs Sullia Afsa & Others

The Karnataka High Court has made it clear that in a partnership deed that provides for appointment of Arbitrator, the power of Arbitrator to resolve the dispute flows from the clauses of the partnership deed.

Non-Signatory Defendants Cannot Be Exposed To Arbitration Under Section 8 Of The A&C Act: Karnataka High Court

Case Title: Town Essentials Pvt Ltd. vs Daily Ninja Delivery Services Pvt Ltd

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.