Arbitration Court Reckoner : January 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 January 2021 under the Arbitration & Conciliation Act, 1996. 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 8

1. Arbitration agreement would not be rendered invalid/un-enforceable even if the substantive contract is not admissible in evidence, or cannot be acted upon on account of non-payment of Stamp Duty – however question referred to Constitution Bench

In M/s. N.N. Global Mercantile Pvt. Ltd v M/s. Indo Unique Flame Ltd. & Others^[1], Supreme Court held that that since the arbitration agreement is an independent agreement between the parties, and is not chargeable to payment of stamp duty, the non-payment of stamp duty on the underlying commercial contract, would not invalidate the arbitration clause, or render it un-enforceable, since it has an independent existence of its own and held that the law laid down in SMS Tea Estates Pvt. Ltd. v. M/s. Chandmari Tea Co. Pvt. Ltd.^[2] was not the correct law. However, the Court held, that the adjudication of the rights and obligations under the Work Order or the substantive commercial contract would however not proceed before complying with the mandatory provisions of the Stamp Act. The Court referred the findings in paras 22 and 29 of Garware Wall Ropes Limited v. Coastal Marine Constructions and Engineering Limited^[3], which has been affirmed in paragraph 92 of Vidya Drolia & Ors. v. Durga Trading Corporation^[4], to a Constitution Bench of five judges. The Court further laid down how the arbitrator or the court u/s 8 or 11 would impound the substantive contract which is either unstamped or inadequately stamped, and direct the parties to cure the defect before the arbitrator / tribunal can adjudicate upon the contract. In case of a S. 9 application, if the substantive contract is not duly stamped, the Court would grant ad-interim relief to safeguard the subject-matter of the arbitration. However, the substantive contract would then be impounded, and the concerned party be directed to take the necessary steps for payment of the requisite stamp duty in accordance with the provisions of the relevant Stamp Act, within a time-bound period.

Section 9

1. an order under Section 9(1)(ii)(b) is essentially an order in the nature of attachment before judgement and therefore, the principles as applicable under Order XXXVIII Rule 5 of the CPC would guide grant of such relief

In Beigh Construction Company P. Ltd. v Vahara Infra Ltd.^[5] High Court of Delhi held that where the petitioner essentially seeks an order under Section 9(1)(ii)(b) of the Act to secure the amounts, which it asserts are owed to it, it essentially seeks an order in the nature of attachment before judgement and therefore, the principles as applicable under Order XXXVIII Rule 5 of the CPC would guide the grant of such relief. Thus viewed, it held that the petitioner must satisfy twin conditions , one, must establish a strong prima facie case; and second, prima facie satisfy the court that the defendant is acting in a manner so as to defeat the realisation of the decree that may be passed. The Court refused grant the order S. 9(1)(ii)(b) as it found that the petition did not contain any averments to the effect that the respondent is acting in the manner so as to frustrate an award that may be made by made in favour of the petitioner.

1. Merely because the Section 9 proceedings entails disputed facts does not lead to dismissal of a Section 9 application/petition

In Luxe Passion Private Limited v Freedom Roost^[6], High Court of Delhi held that mere fact that S. 9 proceedings entail disputed facts would be no ground to reject the S. 9 petition as in the Section 9 proceedings, there are bound to be disputed facts which are to be adjudicated in arbitration, by the Arbitral Tribunal agreed upon by the parties. The Court, in a Section 9 proceeding, is merely required to consider the grant/non-grant of interim measures claimed, applying the same principles as applicable to disposal of applications under Order XXXIX Rules 1&2 of the Code of Civil Procedure, 1908 (CPC). The Court further held that it is not as if in exercise of powers under Section 9, no mandatory relief can be granted.

1. Incorporation by reference can only be established by material evidencing, unequivocally, intent to so incorporate

In SMS Limited v Oil & Natural Gas Limited^[7]¸ the High Court of Delhi held that the recital, at the conclusion of the Bank Guarantees, in the case in question, to the effect that guarantees were being furnished by Petitioner to cover the liquidated damages, as per relevant Clauses of the contract, neither result in incorporation, by reference, bodily or otherwise, of the said Clauses in the Bank Guarantees, nor result in the exigencies, contemplated under the said Clauses, becoming conditions of the Bank Guarantees, fulfilment of which is necessary before the Bank Guarantees can be invoked. Any conclusion that the covenants of one contract have been incorporated, by reference, into another, would have to be preceded by material evidencing, unequivocally, intent to so incorporate. Covenants, which are not to be found in contracts, cannot readily be read thereinto, by applying the principle of incorporation by reference. One of the principal considerations which would militate against any such conclusion of incorporation by reference would be where the incorporation results in conflict, or even disharmony, vis-a-vis other covenants in the contract.

1. Court can mould relief u/s 9

In Mohit Saraf v Rajiv K Luthra^[8] High Court of Delhi held that it can be stated that this Court may not necessarily consider the prayers in the manner made by the petitioner in this petition but on a finding of prima facie case, irreparable injury and balance of convenience grant, pending adjudication of the disputes in the prospective arbitration proceedings between the petitioner and respondent, such reliefs as deem appropriate. On merits, the Court firstly held that in law there can be no termination of a partner of a partnership firm but only expulsion and that too in good faith of powers stipulated in the partnership deed and prima facie held the termination of the petitioner from partnership firm was firstly not an expulsion/there was no power of expulsion in the deed and secondly not in good faith and thus stayed the email terminating the petitioner from the partnership till the conclusion of the prospective arbitration proceedings

1. a party not intending to refer the dispute to arbitration and opposing appointment of arbitrator u/s 11 would not be entitled to grant of interim relief under Section 9 of the Act

In Innovative Facility Solutions Private Limited v AEC Digitial Studio Private Limited and Ors.^[9], High Court of Punjab & Haryana held that it can no longer be disputed that a party invoking the jurisdiction of the Court under Section 9 of the Act must have the immediate intention of referring the dispute to arbitration as only then, the interim protection granted would remain proximate to the arbitral proceedings. It further held that a party not intending to refer the dispute to arbitration would not be entitled to grant if interim relief under Section 9 of the Act. On the said principle of law, the Court set aside the order of the Trial Court granting relief u/s 9 to the party who was opposing the appointment of arbitrator u/s 11 but clarified that the party would be at liberty to obtain appropriate interim relief from the arbitrator in case it agrees to refer the dispute to arbitration.

1. Between a Seat of Arbitration clause and a Jurisdiction clause, the former would prevail in case both stipulate for different places/courts

In Aniket SA Investments LLC v Janapriya Engineers Syndicate Private Limited and Ors.^[10], High Court of Bombay reiterated that A choice of seat is itself an expression of party autonomy and carries with it the effect of conferring exclusive jurisdiction on the Courts of the seat. It thus held that in a case where the contract conferred exclusive jurisdiction on one place and separately provided for a seat of arbitration in another place, the courts at the latter place would have jurisdiction for entertaining a S. 9 petition.

Section 11

1. merely because the Respondent could have further broad based the panel cannot be a ground to hold that the panel of 51 names is not broad based for choosing an arbitrator

In Consortium Of Autometers Alliance Ltd. and Canny Elevators Co. LTD. v Chief Electrical Engineer/Planning, Delhi Metro Rail Corporation & Ors.^[11] High Court of Delhi held that merely because the Respondent could have further broad based the panel cannot be a ground to hold that the current panel of 51 names is not broad based when it consists of names of 26 retired High Court / District / Additional District Judges and serving / retired officers of the other Public Sector Undertakings and thus upheld the clause providing the petitioner to choose its nominee arbitrator out of the panel maintained/prepared by the Respondent.

1. Venue of meetings of committee constituted to amicably resolve disputes would additionally constitute cause of action to confer jurisdiction at the courts at the said venue

In Siddhast Intellectual Property Innovations Pvt Ltd v The Controller General Of Patents Designs Trademarks (CGPDTM)^[12], High Court of Delhi held that in the absence of clause specifying seat of arbitration, what would be seen was the fact that the meetings of the committee constituted to amicably resolve the disputes, in terms of Dispute Resolution clause of the Contract, had taken place in Delhi. It held that thus it was clear that part of the Dispute Resolution Clause has been performed in Delhi and thus High Court of Delhi would have jurisdiction to entertain petition for appointment of arbitrator.

1. Limitation of 3 years for filing S. 11 would be from date of order in S. 8

In Jones Lang Lasalle Building Operations Private Limited v Techpark Maintenance Services Private Limited,^[13] High Court of Delhi held that in a case where the parties had been referred to arbitration under S. 8 by directing the parties to proceed for arbitration, then in such a case the limitation for filing a S. 11 petition would run from the date of the order referring parties to the arbitration and not the original notice of dispute.

1. Mere commonality/inter twinning of scope of agreements is not enough to maintain composite petition for appointment of arbitrator where procedure for appointment of arbitrator is distinct in the agreements

In Tamilnadu Road Sector Project II, Highways Department v IRCON International Ltd. and Ors.,^[14] High Court of Madras was considering a composite petition for appointment of arbitrator on the plea of work under the 2 agreements being intertwined even though both agreements provided for different arbitration clauses. The Court held that while there is a commonality of purpose in the 2 agreements and the work involved is intrinsically intertwined, but held that the procedure for appointing the arbitrator under the two agreements are totally in variance and cannot be reconciled. The Court thus dismissed the petition as the petitioner has also not followed the procedure contemplated prior to the invocation of the arbitration clause under the respective agreements.

1. only in exceptional cases when prima facie no valid arbitration agreement exists/dispute is not arbitrable can the court refuse to exercise its jurisdiction u/s11

In Smt Manju Gupta & Ors. v Sh. Vilas Gupta & Ors.^[15], High Court of Delhi held that qua the existence of the arbitration agreement, as a consideration to be examined by a Court exercising jurisdiction under Section 11(6), the Supreme Court in Vidya Drolia v Durga Trading Corporation^[16] has held that it is only where the Court finds that "prima facie no valid arbitration agreement exists", the Court can refuse to refer the parties to arbitration. The Court held that it is only in exceptional cases when prima facie no valid arbitration agreement exists/dispute is not arbitrable can the court refuse to exercise its jurisdiction u/s11 but ordinarily as held in Vidya Drolia (supra), issues relating to contract formation, existence, validity and non-arbitrability would be factual and disputed and for the arbitral tribunal to decide.

1. no appointment of arbitrator by a party from a panel if the arbitration clause did not provide for appointment from a panel

In M/S VSK Technologies Private Limited & Ors. v Delhi Jal Board^[17], High Court of Delhi held that there could be no appointment by a party of an arbitrator from a panel maintained/proposed by it if the arbitration clause did not provide for appointment from a panel. It further held that judgment in Perkins Eastman Architects DPC v. HSCC (India) Ltd^[18] must be read in expansive manner as it recognizes the importance of ensuring that Arbitrators not be appointed by persons who are otherwise interested in the matter so as to obviate any doubt as to the impartiality and independence of the Arbitral Tribunal.

1. Residuary power to appoint arbitrator out of a panel, in case the other party fails to choose a name, is hit by judgment in Perkins

In C S Electric Ltd. v JOP Power^[19] High Court of Delhi was dealing with an arbitration clause which provided that Respondent was to propose a panel of 3 names to the Petitioner for appointment as arbitrator but in case the Petitioner did not choose one name in 30 days, then Petitioner had the right to appoint an arbitrator out of the said 3 names. The High Court held that while the time limit of days was sacrosanct and the Petitioner lost the right to choose one name after the said 30 days but also held that the residuary power in the clause which empowered the Respondent to appoint in case of failure of Petitioner, was in the teeth of the law laid down by the Supreme Court in Perkins Eastman Architects DPC v. HSCC (India) Ltd and TRF Limited v. Energo Engineering Projects Ltd^[20] read with Section 12(5) and Schedule VII to the 1996 Act.

Section 14 & 15

1. Order terminating proceedings u/s 32(2) is not an award & S. 34 would not lie against the same and the same can be impugned u/s 14(2)

In PCL Suncon v National Highway Authority Of India^[21], High Court of Delhi held that in order for a decision of the Arbitral Tribunal to qualify as an award, the same must finally decide a point at which the parties are at issue. It further held that in cases where the same is dispositive of the entire dispute referred to the Arbitral Tribunal, the said award would be a final award, which would result in termination of the arbitral proceedings. Viewed in the aforesaid context, the Court held, that it is clear that an order, which terminates the arbitral proceedings as the Arbitral Tribunal finds it impossible or unnecessary to continue the arbitral proceedings, would not be an award because it does not answer any issue in dispute in arbitration between the parties; but is an expression of the decision of the Arbitral Tribunal not to proceed with the proceedings. The Court held an order terminating the proceedings under S. 32(2)(c) of the Act can be impugned under S. 14(2) of the Act.

Section 31

1. Award based on surmises or conjectures suffers inadequacy with regard to basis.

In R. Rajamohan v Coimbatore Capital Limited^[22], High Court of Madras held Section 31(3) talks about basis on which the impugned award is made and this basis on which an impugned award has been made has three facets which are (a) proper, (b) intelligible and (c) adequate. To put it as grounds, they are a) impropriety; b) unintelligible and c) inadequacy. The Court set aside the award of the Appellate AT as it found that the Appellate AT has proceeded on the basis of surmises or in other words, by going to the realm of conjectures and surmises qua imputing knowledge to a party with no material before it which is clearly inadequacy with regard to basis.

Section 32

1. Objection as to arbitrability is jurisdictional issue and not a subject matter of S. 32(2)

In Medisprouts India Pvt Limited v M/S Silver Maple Healthcare^[23], High Court of Delhi held that the question whether the disputes are arbitrable or not is a matter effecting the jurisdiction of the Arbitral Tribunal and the same is not a subject matter of Section 32(2)(c) of the Act and further held that an order dismissing an objection with regards to arbitrability/ non-arbitrability of dispute, though styled as a S. 32(c) application, cannot be assailed by filing a petition u/s 14 of the Act. It held that recourse to S. 14 of the Act is not available to challenge the decision of the Arbitral Tribunal regarding any question of arbitrability/jurisdiction unless the issue relates to the ineligibility of an arbitrator to act, such as in terms of S. 12(5) of the Act.

Section 33

1. S. 29A(4) and (5) would also apply to grant of extension of time, in order to enable an arbitral tribunal to decide an application under S. 33(1)(a)

In M/S GPT-RAHEE (JV) v M/S IRCON International Ltd.,^[24] High Court of Delhi opined by way of obiter, that prima facie S. 29A(4) and (5) would also apply to grant of extension of time, in order to enable an arbitral tribunal to decide an application under S. 33(1)(a), as otherwise, in a case such as the present, the S.33(1)(a) applicant, despite having preferred the application before the learned Arbitrator in time, would be divested of the right to have the application decided.

Section 34

1. Failure by the Arbitrator to decide an issue, which was of such importance as to alter the outcome of the award, would merit interference with the award

In EFS Facilities Services (India) Pvt. Ltd. (Formerly Known As Daikia India Pvt. Ltd). v Indeen Bio Power Limited,^[25] High Court of Delhi held that the test, regarding the susceptibility of interference with an arbitral award , on the ground that issues canvassed before it were not addressed or decided, is whether prejudice has resulted to the party aggrieved by the failure, on the part of the learned Arbitral Tribunal, to decide the issue. The Court held that aspect of "prejudice", for its part, is to be decided by examining whether the issue was of such importance that, "had it been decided, the whole balance of the award would have been altered and its effect would have been different".

1. Award of interest an amount which includes both interest and penal interest at 36% p.a. is a case of patent illegality

In R.O. Palanisamy and Ors. v Five Star Business Credits Ltd. and Ors.^[26], High Court of Madras was dealing with a challenge to an award where the future interest had been granted at the rate of 24% p.a. not on the principal but on an amount which includes both interest and penal interest at 36% p.a. The Court held that this was clearly in conflict with public policy of India and it is in contravention with the fundamental policy of Indian law and is also a patent illegality. The Court held that there are only two exceptions to this patent illegality ground - One exception is mere erroneous application of law and another is, it should not turn on re-appreciation of evidence. The Court held that case of awarding 24% per annum future interest on a claim which includes interest and penal interest is clearly not a case of mere erroneous application of law and it requires no re-appreciation of evidence.

1. 100% deposit/security of the Awarded amount, or any part thereof is not mandatory in all cases as a pre-condition for having s. 34 heard, need to be seen on case to case basis

In SEPCO Electric Power Construction Corporation v Power Mech Projects Ltd,^[27] the High Court of Delhi accepted the contention that that deposit/security of the Awarded amount, or any part thereof is not mandatory in all cases and it would need examination on a case by case basis as to what arrangement should be worked out by the Court to secure the Awarded amount. However, in the facts of the case, it upheld the order directing deposit of 100% of the principal awarded amount as the Appellant before it was a foreign entity having negligible assets within the jurisdiction of this Court, or even within the territory of India coupled with the fact that Appellant had not complied with previous directions of deposit, and its overall failure in satisfying the Court of its financial health.

Section 36

1. A xerox copy of an award, though inadequately stamped, cannot possibly be considered an 'instrument' liable to be impounded under Section 33 of the Indian Stamp Act

In Mohini Electricals Ltd v Delhi Jal Board^[28], High Court of Delhi held that in a case where the initial award, filed before the Hon'ble Court in execution petition was merely a photocopy, the same could not be impounded, though inadequately stamped, in view of the express language employed in Section 2(14) of the Indian Stamp Act, 1899 and the ratio of decisions rendered on this aspect which show that, undoubtedly, a xerox copy of an instrument cannot possibly be considered an 'instrument' liable to be impounded under Section 33 of the Indian Stamp Act.

Article 226

1. Power under Article 226/227 needs to be exercised in exceptional rarity to interfere with arbitral proceedings case only in 2 cases, wherein one party is left remediless under the statute or a clear 'bad faith' shown by one of the parties

In Bhaven Construction Through Authorised Signatory Premjibhai K. Shah V Executive Engineer Sardar Sarovar Narmada Nigam Ltd.& Anr., the Supreme Court held that while a legislative enactment cannot curtail a Constitutional right and thus remedy under Article 226 & 227 would still be available despite the mandate of S. 5 of the Act but held that it is prudent for a Judge to not exercise discretion to allow judicial interference beyond the procedure established under the enactment. The Court held that power under Article 226/227 needs to be exercised in exceptional rarity, wherein one party is left remediless under the statute or a clear 'bad faith' shown by one of the parties and held that this high standard set by this Court is in terms of the legislative intention to make the arbitration fair and efficient. Viewed in this perspective, the Court did not find either of the two exceptional circumstances existing in the case at hand and set aside the order of the High Court where the High Court had exercised jurisdiction under 226 to set aside the order of the Arbitrator passed u/s 16 of the Act.