Arbitration : Court Reckoner [May 2020]

Section 2(1)(e)

In Microvision Technologies P. Ltd. v Union of India^[1] , High Court of Bombay while deciding an application under S. 42 of the Act held that in view of the fact that arbitration between the parties was under arbitration clause contained in agreement between the parties which provided for place of arbitration as Mumbai and not under S. 18(3) of MSME Act and the appointment of Arbitrator was made under S 11 by the Court, thus the competent court for S. 2(1)(e) would be the High Court of Bombay and not Nashik Court where the Facilitation Council, to whom reference was initially made, was located. By obiter, it was also held that Section 18(3) of the MSME Act cannot be treated as an arbitration agreement for the Chief Justice or his designate to act upon under Section 11(6) of the Act upon failure of the Council to take up the dispute or refer it to arbitration.

Section 7

In Galaxy Infra and Engineering P Ltd. v Pravin Electricals P. Ltd.^[2], High Court of Delhi after discussing several precedents held that it is not mandatory that an arbitration agreement be signed and the facts of the case at hand make it squarely covered within S. 7(4)(b) of the Act.

Section 8

In Magic Eye Developers P. Ltd v Green Edge Infra P. Ltd. & Ors.^[3], High Court of Delhi allowed application under S. 8 and in doing so referred non-parties to the arbitration agreement to arbitration by holding that plaintiff's own contention calls for piercing of the corporate veil and thus defendant nos. 2 and 3, who though having pleaded misjoinder but having not opposed the plea of defendant no. 1 that the disputes are liable to be referred to arbitration, are also amenable to arbitration being group companies of defendant no. 1 and from the intent of the parties as gleaned from the various agreements.

Section 9

In M/s. Haliburton Offshore Services Inc v Vedanta Ltd. & Anr.^[4], the High Court of Delhi, refused to grant injunction against invocation/encashment of performance bank guarantees and in doing so rejected the petitioner's contention that the injunction be granted on account of the invocation of force majeure clause by the petitioner owing to Covid-19 induced lockdown. The Court held that while Covid-19 was a force majeure condition, there has to be a real reason and real justification for invoking the force majeure clause which would have to be seen in the facts of each case and it cannot be used to justify past non-performance by a party as was the case at hand.

In Ashwani Minda & Anr. v U-Shin Ltd. & Anr.^[5], the High Court of Delhi, while deciding a petition under S. 9 filed in an international commercial arbitration after the Petitioner had been unsuccessful before the Emergency Arbitrator, held that petitioner having excluded the applicability of Part I of the Act by agreeing to be governed by different Rules and procedures, binding on the parties and having invoked the same, cannot invoke jurisdiction of the High Court of Delhi and the petition was not maintainable.

Section 11

In M/s Distribution Logistics P. Ltd. v M/s. BPB Builders P. Ltd.^[6], High Court of Delhi held that there was a valid arbitration agreement between the parties as Petitioner was a successor in interest of the original contracting party. Further, it was reiterated that under S. 11(6A) Court only examines the existence of arbitration agreement and no more and thus the issue as to whether claims are barred by time was not to be seen by the Court while appointing the Arbitrator and allowed the petition for appointment of arbitrator.

In Parsvnath Developers Ltd. & Anr. v Rail Land Development Authority^[7] High Court of Delhi reiterated that under S. 11(6A) Court only examines the existence of arbitration agreement and held that Respondent's contentions that disputes sought to be raised are overlapping with the claims in the earlier arbitrations between the parties and / or are barred by principles of Order II Rule 2 CPC would have to be examined by the Arbitrator and cannot be a ground to oppose appointment of Arbitrator.

Section 29A

In DDA v M/s. Tara Chand Sumit Construction Co.^[8] the High Court of Delhi held that an application under S. 29 A would lie only before the court which has the power to appoint the Arbitrator under S. 11 and not with the civil courts and S. 29A petitions would be filed before such Court irrespective of pecuniary jurisdiction, just like in case of petitions under 11 of the Act.

In Suryadev Alloys and Power P. Ltd. v Shri Govindraja Textiles P. Ltd.^[9] the High Court of Madras held that unlike S. 28 (1) of the Arbitration Act, 1940 which gave the court power to enlarge time even after making the award and thus an award passed after the extended period could be validated, no such provision is available under S. 29 A of the 1996 Act and thus set aside an award passed after the expiry of the extended period under S 29A(4) holding that the mandate of the arbitrator stood terminated on the date of making the award.

In Rategain Travel Technologies P. Ltd. v Ujjwal Suri^[10], the High Court of Delhi held that in all cases where the time limit for passing the award expired during the lockdown, no separate petition under S. 29 A would be required to be filed and parties would have two weeks after the lockdown is lifted to approach the Court in terms of order dated 06.05.2020 passed by S.C In re: Cognizance of Extension of Limitation, Suo Moto Writ^[11]

Section 34

In South East Asia Marine Engineering & Constructions Ltd. v Oil India Ltd.^[12] the Supreme Court of India while upholding the decision of the High Court in setting aside the arbitral award under S 37 held that the test is whether interpretation provided to the contract in the award was reasonable and fair to pass muster under S. 34 and upon scrutiny of the clauses of the underlying contract, and held that the arbitrator erred in giving a wide interpretation of the clause and ignored the basic rule of interpretation that all clauses of a contract should be read as a whole and mutually explanatory .

In Salar Jung Museum & Anr. v Design Team Consultants P. Ltd^[13] the High Court of Delhi held that a jurisdictional challenge to an arbitral award based upon the ground that the arbitrator could not have adjudicated claims that were not referred under S 11 being a ground that was capable of waiver by the affected party, then such ground not having not been taken before the Arbitrator signifies consent to arbitrator's jurisdiction and cannot be taken at the stage of S 34.

In Jackie Kukubhai Shroff v Ratnam Sudesh Iyer^[14] the High Court of Bombay set aside the arbitral award holding that the conclusions reached by the Arbitrator qua the finding of breach as also stipulation of liquidated damages exhibit an unmitigated perversity and shock the conscience of the Court and the award does not measure up to the minimum judicial scrutiny contemplated under S 34 and is based partly on no evidence, partly on non-application of mind and partly on misapplication of law.

In AVR Enterprises v Union of India^[15], the High Court of Delhi held that though the Petitioner may be covered under the MSME Act, however as the arbitration did not take place by reference under S 18 of the MSME Act, there was no requirement on the Respondent to deposit 75% of the awarded amount in the S. 34 Petition in compliance with S. 19 of the MSME Act and S. 19 would not apply to award published by an Arbitrator appointed by the parties otherwise than in accordance with S 18 of the MSME Act.

In Turner Morrison Ltd. v Rani Parvati Devi & Anr.^[16], High Court of Delhi set aside the award to the extent that the Arbitrator awarded interest @ 7.5% instead of 36% p.a. as provided in the contract and held that once the rate of interest was agreed between the parties, the Usurious Loans Act 1918 will not come into play.

In M/s. SMS Ltd. v Konkan Railway Corporation Ltd ^[17], the High Court of Delhi after a detailed factual analysis set aside the award under Section 34 of the Act holding that the mechanism of notional idling costs devised by the Arbitrator to determine the compensation payable to the petitioner/claimant was perverse/incorrect and Arbitrator ought to have awarded idling costs in a more practical manner more so because neither the factum of the loss suffered by the petitioner nor the quantum of the loss suffered was disputed by the respondent in its statement of defence.

Section 37

In Patel Engineering Ltd. v North Eastern Electric Power Corporation Ltd.^[18] Supreme Court of India upheld the decision of High Court in setting aside arbitral award under S 37 and held that ground of patent illegality is available for setting aside a domestic award if decision of arbitrator is perverse or so irrational that no reasonable person would have arrived at the same or construction of the contract is such that no fair or reasonable person would take or the view of the arbitrator is not even a possible view.

In V4 Infrastructure P. Ltd. v Jindal Biochem P. Ltd^[19], a Division Bench of the Delhi High Court reduced the rate of interest, awarded by the Ld. Arbitrator and upheld by the Ld. Single Judge, from 18% to 9% holding that though jurisdiction under Section 37 of the Act is restricted, but the award of interest @ 18% p.a. is wholly unjustified and the same shocks the Court's conscience since there are glaring contradictions between the claim made by the Respondent/claimant and the relief granted by the Arbitral tribunal.

Section 44 & 45

In Spentex Industries Ltd. v Quinn Emanuel Urquhart & Sullivan LLP^[20] High Court of Delhi allowed the Defendant's application under O7 R 11 CPC and rejected the plaint which had sought declaration to the effect that the arbitration clause is null and void and against the public policy of India. That while doing so, the Court rejected the plaintiff's argument that the underlying agreement containing the arbitration clause being a Letter of Engagement between a client and lawyer cannot be considered as 'commercial under the law in force in India' to fall within S. 44 of the Act and held that the term 'commercial has to be interpreted liberally consistent with its literal and grammatical sense' and the proceedings by a foreign law firm for recovery of professional charges being essentially for recovery of money would tantamount to commercial relationship as per S. 45 of the Act.