Arbitration Court Reckoner : February 2021

By way of the present column, an attempt is made to briefly review the salutary judgments pronounced by the Courts in the month of February 2021 under the Arbitration & Conciliation Act, 1996 (hereinafter referred to as the 'Act'). That while as many judgments as possible are sought to be reviewed, owing to the limited column space, some judgments would invariably be left out. That also while an attempt is made to include and review some judgments of various other High Courts, the emphasis is essentially on the judgments of the High Court of Delhi and Supreme Court of India. That judgments have been compiled for review with reference to the Section of the Act that they are primarily dealing with and a detailed analysis has been forgone in favour of succinctness.

Section 2(2)

• To oust the jurisdiction of Indian Courts u/s 9, a specific 'ouster clause' or 'exclusive jurisdiction clause' is required

In Mewa Mishri Enterprises Private Limited v AST Enterprises Inc.^[1], High Court of Delhi held that the jurisdiction of the Court to entertain Section 9 application will not be ousted merely because the seat of arbitration is outside India. It held that to oust the jurisdiction of this Court, a specific 'ouster clause' or 'exclusive jurisdiction clause' is required, which admittedly was absent in the case before the Court. The Court held that even though exercise of powers us/ 9 is premised on the underlying principles of Orders XXXVIII and XXXIX of the C.P.C., yet the Court is not unduly bound by the text of these provisions. On the facts of the case, the Court directed the Appellant to either deposit the entire claimed amount in cash with the Registry of the Court or to furnish a bank guarantee. To balance the equities, the Court directed that in the event the respondent-petitioner's claim is rejected by the arbitral tribunal, then the appellant shall be entitled to claim reimbursement of bank guarantee charges as well as loss of interest that it may have incurred in depositing the money or in providing the bank guarantee.

Section 2(h)

• Jurisdiction is conferred on an Arbitral Tribunal under the Act only by agreement of parties and not by operation of law

In M. Mythrai and Ors. v T. Ramesh and Ors.^[2] High Court of Madras held that a reading of the Act would indicate that the framers of the Act have not contemplated the impleadment of Third parties, which is clearly evident from the fact that jurisdiction is conferred on an Arbitral Tribunal under the Act only by agreement of parties and not by operation of law as party is defined in S. 2(h) in relation to the arbitration agreement. The Court held that it is the intention of the law makers to restrict the jurisdiction of an Arbitral Tribunal to the four corners of the Agreement and to persons, who are parties to the Agreement. The Court held that while amendment to Section 8(1) by the amending Act 3 of 2016 has expanded this to include "a person claiming under a party to the Arbitration Agreement" , even such a third party should be one who is claiming under a "party to the Agreement". In the facts of the case, the Court held that agreement by one third party binding herself to the arbitration agreement will not bind other third parties, who were successors in interest from her and who had not given any such consent, and interests in whose favour stood transferred by the consenting third party before she had given her consent.

Section 9

• Court required to mould relief to secure claim of applicant in arbitral proceedings where Respondent has no assets at all or its assets are fully encumbered

In Essar House Private Limited v Arcellor Mittal Nippon Steel India Limited^[3] High Court of Bombay held that it cannot be said that the Court is required to dismiss the petition u/s 9 of only on the ground that the opponent has no assets at all or the assets of the opponent are fully encumbered, as that will be against the principles of equitable justice required to be exercised by the Court while exercising powers u/s 9 of the Arbitration Act so as to secure the claim of the applicant in the arbitral proceedings who prima-facie has good chances of succeeding in arbitration.

• Where default pre-dated the onset of the COVID-19 pandemic, the Petitioner not entitled to relief u/s 9 against termination

In Mep Sanjose Talaja Mahuva Road Pvt. Ltd. and Ors. v National Highways Authority of India and Ors.^[4], High Court of Delhi High Court of Delhi was dealing with a fact situation where the petitioner had been in prior default, as on 19.02.2020, of its obligations under the concession agreement with the Respondent. The Court held that as default pre-dated the onset of the COVID-19 pandemic, the petitioner would not be entitled to the benefit of Circulars issued by the government/the Respondent giving concession in view of the pandemic, as the said circulars carried the riders i) concessionaire should not be in default under the Concession Agreements as on 19.02.2020 and that (ii) the concessionaires inability or the impossibility of performing the contract had a direct nexus with the unexpected event which it claimed had rendered the performance of the contract impossible. The Court thus declined to grant relief seeking stay of notices of termination of the concession agreement.

Section 11

• When the appointment of the arbitrator is non-est, being not in accordance with the agreed procedure, the petitioner can directly invoke S. 11, without recourse to S. 14

In Oyo Hotels and Homes P. Ltd. v Rajan Tewari & Anr.^[5], High Court of Delhi held that when the appointment of the arbitrator is non-est, being not in accordance with the agreed procedure, the petitioner is within its right to approach the Court for appointment of an arbitrator under S. 11 of the Act directly without recourse to S. 14.

• A clause which makes the agreement to arbitrate contingent at the discretion of any one party/authority is violative of the provisions of the Act

In Technocrats Advisory Services Private Limited v Ministry of Road Transport & Highways^[6] High Court of Delhi that clause in the agreement which provided that the matter would not be referred to Arbitration, if it is not possible for a person appointed by IRC to act as an Arbitrator, is in violation of the provisions of the Act as the Act expressly provides for a recourse to a party in case an arbitrator is not appointed as per the procedure set out under the Arbitration Agreement. The Court also held that such a clause would not control the operation of the Arbitration Agreement. It held that the parties having agreed, in unambiguous terms, to refer the disputes and differences to Arbitration, cannot thereafter, include a term which makes the said agreement to arbitrate contingent at the discretion of any one party/authority.

• The scope of examination at S. 11 stage is preliminary and summary and not in the nature of a mini-trial

In Mahindra Susten Private Limited v NHPC Ltd.^[7], High Court of Delhi held that the scope of examination by the referral court under S 11(6), into the aspects of existence of the arbitration agreement, or arbitrability of the dispute, is, strictly, prima facie and it is only if, prima facie, the Court finds that no valid arbitration agreement exists, that it would refuse to refer the dispute to arbitration and in undertaking this exercise, the Court should not enter into debatable factual issues. The Court held that unless there are good and substantial reasons to the contrary, the Court is required to compel the parties to abide by the arbitration agreement and it is only in the case where the arbitration agreement is "ex facie non-existent or invalid", or the dispute is ex facie non-arbitrable, that the court would refuse to refer the dispute to arbitration. On the facts of the case, it held that there can be, therefore, no manner of doubt that the contract between the parties cannot be said to have come into existence only when the Contract Agreement between them was signed, but that a contractual relationship commenced from the date of notification of award by the respondent, i.e. from the date of issuance of the letter of acceptance in the present case and thus held the terms of GCC, which contained an arbitration clause, to be applicable and rejected the Respondent's contention that there was no concluded contract.

• Existence/non-existence of the arbitration agreement to be considered by the arbitral tribunal

In Rollform Equipment Pvt. Ltd. v Hema Engineering Industries Limited^[8], High Court of Delhi held that the issue of existence or non-existence of the arbitral agreement is arguable and appropriately ought to be considered by the arbitral tribunal and appointed the arbitrator in a case where the Respondent was seeking to contend that no concluded contract containing the arbitration clause came into existence.

Section 21

• Fresh arbitral proceedings post setting aside of an award would require a fresh notice u/s 21

In T.S. Kisan & Company Private Limited v Union of India & Ors.^[9], High Court of Madras was called upon to answer the question as to 'when in case of on an Award being set aside and proceedings with regard to the same subject matter sought to be revived, whether the same has to be commenced with a fresh notice as contemplated under S. 21 of the Act or whether it can be initiated on the basis of the S. 21 notice which was the trigger point for the earlier arbitral proceedings". The Court held that a fresh notice would be required to be given as S. 11(4), 11(5) and 11(6) would come into play only when the respondent fails to act on this notice contemplated under S. 21. However, the Court clarified that a fresh notice reiterating the subject matter of the earlier dispute will not give rise to a fresh cause of action but is only a continuation of the very same dispute.

Section 31(3)

• Broad premise on which the quantum of awarded amount is founded has to be discernible from award itself

In Hindustan Petroleum Corporation Ltd. v Banu Constructions and Ors.^[10] High Court of Madras held that while it is not necessary for an arbitral award to justify every paisa or a rupee awarded to the claimant, the broad premise on which the quantum is founded has to be discernible from award itself for the award to be meaningful or even intelligible in legal terms. The Division Bench held that exercise undertaken by the Arbitration Court u/s 34 to rewrite the arbitration award by ascribing reasons in support of the claims allowed and quantum awarded is not the business of the Arbitration Court and such an exercise could not have been undertaken in this jurisdiction or within the limited arena of operation permitted by S. 34 of the Act of 1996.

Section 34

• Party which did not take steps to collect signed copy of award despite having knowledge of the same, cannot seek to claim limitation from eventual date of collection of signed copy

In Hindustan Petroleum Corporation Ltd. v Delhi Transport Corporation^[11] High Court of Delhi held that in a case where electronic copy of the award had been provided and the Petitioner had full knowledge of award being passed, then it could not seek to state that limitation only commenced when signed copy was collected by it as it took no steps to get the signed copy collected even after receipt of a communication from the Arbitrator that signed copy had been sent. The Court took exception to the fact that Petitioner had not placed on record, copies of the Dak inward register, to establish that it had not received any communication/courier from the Arbitrator. Despite holding the petition time barred, the Court also proceeded to consider and dismiss it on merits holding that there could be no quarrel with the view taken by the Arbitrator that merely because a contract has become financially unviable, it would not absolve the contracting parties to perform the same.

• Claim for loss to be substantiated with evidence

In Telecommunication Consultants India Ltd. v MBL Infrastructure Ltd.^[12] High Court of Delhi set aside the award to the extent it awarded a sum as a "just and fair compensation" to Claimant for wrongful and illegal invocation of the Bank Guarantees. The Court set aside the claim on the ground that Claimant had not substantiated its claims for the losses allegedly incurred by it, as noted by the Arbitral Tribunal itself, and thus Tribunal could not proceed to award any amount as fair compensation for the wrongful invocation of the Bank Guarantees and there is no evidence on record to establish the measure of damages. Similarly, the Court set aside the award qua another claim compensation for "the loss and damages caused due to non-confirmation of the performance certificate issued by Respondent", holding that while default on part of Respondent was established there was no evidence on record to establish that Claimant had suffered a loss to the aforesaid extent.

• Limitation for S. 34 petitions which had expired during the lockdown would get only an additional benefit of 15 days from date of lifting of lockdown

In New India Assurance Co. Ltd. v Rudraksh Laminates Private Limited^[13], High Court of Delhi construed the orders dated 23.03.2020 and 06.05.2020 passed by the Supreme Court in Re: Cognizance for Extension of Limitation^[14] to mean that limitation for S. 34 petitions which had expired during the lockdown would get only an additional benefit of 15 days from 01.06.2020 which is the date lockdown for lifted in NCT of Delhi. It further held that if period of limitation expired after lifting of lockdown i.e. after 01.06.2020 , then orders passed by the Supreme Court would not inure to the benefit of the petitioner.

Section 36

• Limitation to file an execution would not run from the date of award but from the date it became enforceable i.e. dismissal of S. 34 petition

In North Delhi Municipal Corporation v Tarun Kumar Jain^[15], High Court of Delhi rejected the Execution Appellant's contention that execution was time barred. It held that period of limitation provided under Article 136 of Limitation Act, which is 12 years, in the facts of the case, could not have stated to have commenced from the date of the award but from the date of dismissal of S. 34 petition as limitation would commence from the date the award became enforceable.

Section 37

• appeal u/s 37(1)(c) of the Arbitration Act, 1996 would be maintainable against an order refusing to condone delay in filing an application u/s 34

In Chintels India Ltd. v Bhayana Builders P. Ltd.^[16], Supreme Court of India held that a order refusing to condone delay u/s 34(3) would be appealable u/s 37(1)(c). The Court held that u/s 37 (1) (c) reference is to entire "S. 34" and thus includes a case where there is rejection u/s S. 34(3) by refusing to condone delay, unlike u/s 37(2)(a), where an appeal lies only when a plea referred to in Sub-section (2) or (3) of Section 16 is accepted and this shows that the Legislature, when it wished to refer to part of a section, as opposed to the entire section, did so. It further held that S. 39(1)(vi) of the 1940 Act is in pari materia to S 37(1)(c) of the Arbitration Act, 1996 and thus judgment in Essar Constructions v. N.P. Rama Krishna Reddy^[17], which was a judgment delivered Under S. 39 of the Arbitration Act, 1940 similarly holding appeals against order refusing to condone delay appealable, would apply. The Court also clarified that its observations in BGS SGS Soma J.V. v. NHPC Limited^[18] was in a completely different context, namely, as to whether an appeal would lie from an order returning a application to set aside an award u/s34 to be filed in court of competent jurisdiction and it was in that context that such an order was not appealable as it did not lead to the application being rejected finally,.

• Order issuing notice on only a few grounds u/s 34 not appealable unless it has the effect of upholding any part of the award finally

In Landmark Housing Projects P Ltd. v Savithri Naidu & Ors.^[19] High Court of Madras made a distinction between a scenario where the arbitral award comprises of several heads and the challenge to certain heads are not entertained or irreversibly repelled at the initial stage and limited notice issued u/s 34 and a second scenario where when diverse grounds are urged to challenge an award and some of such grounds are not entertained and the scope of the challenge is restricted to certain grounds at the initial stage. The Court held that while in the first scenario, a right to appeal u/s 37 accrues, not so in the second scenario. The Court held that the test appears to be whether any part of the arbitral award becomes enforceable as a result of the Court repelling a challenge to a part of the award even at the initial stage, the award-debtor is entitled to prefer an appeal therefrom as the order of the Arbitration Court amounts to refusing to set aside such part of the award and immediately gives rise to a right of appeal in such regard. However no right to appeal accrues when notice is issued on limited grounds and certain grounds are rejected at initial stage. The Court inserted a caveat that in the latter case after final disposal of the S. 34, all the grounds that had been disallowed at the initial stage may be urged in course of the resultant appeal. The Court further observed that Ideally, the grounds challenging an arbitral award should not be confined to certain aspects and other counts of challenge excluded at the initial stage, unless the grounds excluded are scandalous or ex facie impermissible and are directed to be struck out, just as completely unnecessary and scandalous pleadings may be in a civil suit.

Section 47

• Subject of award for the purposes of S. 47 is to be discerned from nature of relief awarded by arbitral tribunal

In Rishima SA Investments LLC v Shristi Infrastructure Development Corporation Limited and Ors.^[20]High Court of Delhi held that 'Court' as defined in under Section 47 of the Act is a Court distinct from a Court defined under Section2(1)(e) of the Act and the position of law in this respect is unchanged post the 2015 Amendment to the Act. The Court then proceeded to decide what was the subject-matter of the Award which would determine the territorial jurisdiction of the Court in as much as in case the relief is in the nature of a money Award, the place of location of assets of the judgment debtor would give jurisdiction to the Court, while in case it is in the nature of specific performance then the considerations of the situs of the shares, registered office of the judgment debtor, etc. would be the relevant factors. The Court, on consideration of the facts, held that directions by the Arbitral Tribunal in the Award in the present case, though styled as relief of specific performance, do not satisfy the requirements which have to be met in a case relating to relief of specific performance. The Court held that the relief given in the Award is in the nature of a direction to Respondent No. 1 to pay money to the Petitioner and a consequential direction to return the title documents has been issued to the Petitioner and is thus a money award and thus would derive jurisdiction for enforcement from location of assets of judgment debtor.