Arbitration: Application For Amendment Of Statement Of Claims Can Be Opposed On All Available Grounds, Including Ground Of Delay: Bombay High Court

The Bombay High Court has ruled that the opposite party is entitled to oppose the application for amendment of Statement of Claims on all available grounds. The bench of Justice Manish Pitale rejected the contention that under Section 23(3) of the Arbitration and Conciliation Act, 1996 (A&C Act), a party opposing the amendment application can oppose the same only on the ground of delay in making the amendment.

The court remarked that Section 23(3) uses the words ‘having regard to the delay in making it’ in contradistinction to the words ‘having regard only to’. Thus, the opposite party is entitled to oppose the application for amendment on all available grounds, including the ground of delay, the bench said.

The bench was dealing with a Section 34 petition filed by the petitioner/award debtor, where it had challenged the majority arbitral award on the ground that the Arbitral Tribunal had erred in rejecting the application for amendment of its Statement of Claims.

The court held that since the entire set of documents sought to be brought on record vide the amendment application, pertained to the negotiations between the parties that never fructified into an agreement, the said documents were irrelevant.

The bench thus upheld the order and the majority award passed by the Arbitral Tribunal.

The petitioner, Kavis Fashions Pvt Ltd, and the respondent, Dimple Enterprises, executed a Memorandum of Understanding (MoU) for sale of a land in which the respondent claimed to have development rights. The dispute between the parties under the MoU was referred for arbitration. By way of a majority award, the Arbitral Tribunal rejected the claims of the petitioner and passed an award in favour of the respondent-firm. It also rejected the application for amendment of claims filed by the claimant-petitioner.

The petitioner, Kavis Fashions, challenged the award under Section 34 of the A&C Act before the Bombay High Court. The petitioner argued that the Tribunal had erred in rejecting its amendment application, which was filed to bring on record the entire correspondence exchanged between the parties pertaining to the “without prejudice” negotiations between them. It claimed that the said documents were relevant for examining the petitioner’s readiness and willingness to abide by the conditions of the MoU.

The “without prejudice” negotiations were entered into between the parties after the “with prejudice” offer made by the respondent-firm in the midst of the arbitral proceedings, had expired after the stipulated 15-day period.

While challenging the award on merits, the petitioner further claimed that the Tribunal committed a grave error in interpreting the terms of the MoU. It argued that the Tribunal had wrongly concluded that the MoU was not a binding contract and that it was an agreement to enter into an agreement, specific performance of which could not be granted.

The court observed that the Tribunal in the majority award did refer to the “with prejudice” offer made by the respondent. The Tribunal also took into account that after the 15 days period, the “with prejudice” offer expired. After the expiry of the said offer, no reference was made to any of the documents that were exchanged between the parties during the course of such negotiations, the court reckoned.

It further noted that the “without prejudice” negotiations between the parties also met with failure.

“This Court finds substance in the contention raised on behalf of the respondents that since the “without prejudice” negotiations between the parties never fructified into an agreement, there was no question of the communications exchanged between the parties and the documents pertaining to the “without prejudice” negotiations being brought on record before the tribunal. Such negotiations clearly met with failure,” the court said.

The court also observed that the petitioner had nowhere claimed that such “without prejudice” negotiations indeed fructified into a new agreement or that there was a novation of the MoU. “In such a situation, it cannot be said that the tribunal erred in rejecting the amendment application,” the court concluded.

Referring to the top court’s decision in State of Goa vs. Praveen Enterprises, (2012) 12 SCC 581, and Rajesh Kumar Aggarwal vs. K. K. Modi, (2006) 4 SCC 385, the bench said: “There can be no quarrel with the proposition that the tribunal does have power to allow amendment under Section 23(3) of the Arbitration Act.” It added, “Similarly, the general principles governing amendment under Order VI, Rule 17 of the Code of Civil Procedure, 1908 (CPC) recognized by the Supreme Court in the case of Rajesh Kumar Aggarwal Vs. K. K. Modi (supra) cannot be disputed.”

The court, however, held that since the “without prejudice” negotiations between the parties admittedly did not fructify into an agreement, there was no question of the said documents being relevant to examining the aspect of readiness and willingness in the context of the MoU.

The bench held that no error can be attributed to the approach of the Arbitral Tribunal while rejecting the amendment application. It refused to interfere with the opinion recorded by the Arbitral Tribunal that the documents sought to be brought on record by the petitioner vide its amendment application, were wholly irrelevant to the reliefs sought by it.

The court thus concluded that the entire set of documents pertaining to the “without prejudice” negotiations between the parties were irrelevant as the negotiations never fructified into an agreement between the parties.

The bench also rejected the contention raised by the respondents that rejection of an amendment application cannot be challenged in a Section 34 petition. It reiterated that an order rejecting the amendment application, in itself may not be an interim award for being challenged by an independent petition under Section 34. But after the arbitral proceedings are disposed of and the final award is under challenge, grounds for challenging such rejection of an amendment application can certainly be raised in the Section 34 petition, the court said.

The court also dismissed the argument raised by the petitioner that under Section 23(3) of the A&C Act, a party opposing the amendment application can oppose the same only on the ground of delay.

Referring to the Calcutta High Court’s decision in Lindsay International Private Limited vs. IFGL Refractories Limited, (2021 SCC OnLine Cal 1979), the bench remarked, “This Court is in agreement with the judgement of the Calcutta High Court in the case of Lindsay International Private Limited Vs. IFGL Refractories Limited (supra), wherein it is held that such a party can oppose the amendment on various grounds, including the ground of delay. It is significant that Section 23(3) uses the words ‘having regard to the delay in making it’ in contradistinction to the words ‘having regard only to’. Thus, the respondents were entitled to oppose the application for amendment filed by the petitioner on all available grounds.”

While considering the award on merits, the court held that it cannot be said that the view adopted by the majority award of the Tribunal is not a possible view in the facts and circumstances of the case; adding that the approach of the Tribunal was reasonable.

The bench concluded that the petitioner had failed to make out a case in its favour for interfering with the award. The court thus dismissed the petition.

Case Title: Kavis Fashions Private Limited vs Dimple Enterprises and others

Dated: 05.06.2023

Counsel for the Petitioner: Mr. Shyam Mehta, Senior Advocate a/w. Mr. Bhavik Manek and Mr. Shehzad A. K. Najam-es-sani i/b. Maneksha & Sethna.

Counsel for the Respondents: Mr. S. U. Kamdar, Senior Advocate a/w. Mr. Indranil Deshmukh, Mr. Vineet Unnikrishnan, Ms. Samhita Mehra, Ms. Vaidehi Chande i/b. Cyril Amarchand Mangaldas.

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