Arbitration : Court Reckoner October 2020

Section 8

(i) Intention of the parties to arbitrate must be discernible for reference to be made under S. 8

BVM Finance Private Limited v Vistra ITCL (India) Ltd. and Ors.^[1]High Court of Bombay held that it is settled position of law that when the parties have agreed to get their disputes resolved through arbitration, then all efforts be made to encourage and facilitate resolution of dispute through arbitration but for that purpose the arbitration agreement must exist between the parties and the intention of the parties to arbitrate must be discernible. The Court held that first what is to be seen is the subjective intention of the parties, and if it is not clear then mutually shared common intention. The Court rejected the argument of the Respondent that the suit/dispute was premised on a composite transaction with interconnected documents and as one such document contained an arbitration clause, the parties had to be referred to arbitration. The Court agreed with the plaintiff that the suit/dispute was premised on one document mainly i.e. Debenture Trust Deed which was the final document and superseded all earlier documents by virtue of a clause contained in same which stated it constitutes the Entire agreement between parties and as the said Trust Deed did not contain any arbitration clause the intention of the parties was not to arbitrate.

(ii) Principles of Specific Relief Act & Code of Civil Procedure to guide Court exercising power u/s 9 but do not strictly the course of decision

In Western Haryana Highways Projects P. Ltd. v NHAI & Ors.^[2] High Court of Delhi held that while the well-settled principles governing grant of injunctions, as laid out under the provisions of the Specific Relief Act and Code of Civil Procedure, are to guide the Court while exercising its powers under Section 9, they do not strictly bind the course of the decision. Ultimately, the Court, after examining the facts of the case, has a duty to assess and decide which would be the most just and convenient route to take as also to prevent the ends of justice from being defeated. That the Court rejected the prayer of the Petitioner seeking grant of injunction against the NITs issued by Respondent for repair & maintenance work taking note that there is a serious dispute between the parties regarding the quality of work rendered by the petitioner, and thus any injunction granted upon these NITs could possibly impede or delay the repair and maintenance work on the highway as also have a direct impact on its safety and condition and granting such an injunction, would fall foul of Section 20A of the Specific Relief Act and operate against public interest. However it found in favour of the petitioner with regards to its relief against the Respondent No. 1's act of suspending the Petitioner's right of toll collection noting that, pending arbitration, withholding the rights of the petitioner under the Concession Agreement, including the right to collect toll, would cause it serious injury and expose it to greater financial vulnerability by aggravating its debts and increasing its liabilities to its lenders under the financing agreement. It thus held that Petitioner had made out a sufficient prima facie case and proved balance of convenience in its favour, and also established that it is likely to incur irretrievable injury were it to be denied its rights under the Concession Agreement, including its right to collect toll. The Court further observed that the action of Respondent NHAI in appointing a third party agency even before suspending Petitioner's rights under the Concession Agreement, is not only unfair, it also robs private players of their motivation to participate in any infrastructure development projects in the future and harms national interest in the long run.

(iii) Assessment of Jurisdiction in S. 9 application different than in case of a suit

In Srei Equipment Finance Limited v. Seirra Infraventure Private Limited^[3], High Court of Calcutta held that unlike a challenge made to the territorial jurisdiction of a court in a suit where the court decides on the issue of rejection of a plaint on a meaningful reading thereof, the assessment of the jurisdiction issue in an application under section 9 of the 1996 Act stands on a different footing. It held that an application under section 9 for interim relief urged in the background of an arbitration agreement between the parties is time-sensitive where the court has to decide on a prima facie assessment of the materials available before it and hence, such applications are antithetical to leading evidence for deciding the issue of jurisdiction. For purposes of deciding the issue of jurisdiction, the Court must proceed on a conjoint reading of the averments, the documents and the strength of the rebuttal of such by the party who asserts that the petition must be taken elsewhere and that first principles of the burden of proof under The Indian Evidence Act, 1872, would also come into play in such cases; namely that whoever asserts the existence of certain facts to a legal right, must prove that those facts exist. High Court also additionally held that that an application under section 9 can be filed where a part of the cause of action has arisen or where the seat of arbitration has been chosen by the parties with the definitive caveat that the court determined, otherwise has the jurisdiction to receive and adjudicate the disputes between the parties.

(iv) 'Agreement to the contrary' as referred to in proviso to S. 2(2) would have to expressly stipulate that S. 9 would not apply

In Big Charter Private Limited v Ezen Aviation Pty. Ltd. and Ors.^[4] High Court of Delhi held that any "agreement to the contrary" as referred to in proviso to S. 2(2) would have to expressly stipulate that S. 9 would not apply in that particular case and absent such a specific stipulation, the beneficial dispensation, contained in the proviso, cannot stand excluded. The Court held that a clause that stipulates that "the parties shall submit to the exclusive jurisdiction of the courts of Singapore" would not constitute an agreement to the contrary as envisaged in S. 2(2) as the courts at Singapore cannot grant pre-arbitration interim relief of the nature contemplated under S. 9 of the 1996 Act. It further held that mere submission, by the parties, to the jurisdiction of Singapore courts, in the "Governing Law" clause cannot suffice to operate as "agreement to the contrary", excluding the applicability of S. 9 of the 1996 Act. The Court held that a S. 9 court has also to be circumspect and should not take care not to entrench on the jurisdiction vested in the arbitrator by S. 17 and held that the degree of satisfaction, of the S. 9 court, at the pre-arbitral stage, is not the same as the degree of satisfaction of the arbitrator, while exercising jurisdiction under S. 17. However, once a dispute, amenable to, and deserving of, resolution by arbitration, is found to exist, and the apprehension, of dissipation of the assets forming the corpus of the dispute, is found to be real and subsisting, or where the circumstances indicate that enforcement of the award, as and when delivered, would otherwise be hindered, a S. 9 court can grant "interim measures of protection".

Section 11

(v) A party against whom an award can be enforced as per the contract is the proper party to arbitration

In Odeon Builders v Engineers India Ltd.^[5] , High Court of Delhi rejected the argument that as EIL had only executed the agreement as an agent of the Principal party/client, EIL would not be a party to the arbitration and arbitration proceedings would only lie against the principal. The High Court took note of a clause in the agreement which provided that any award passed by the Arbitral Tribunal 'would be enforced against EIL only' albeit with the rider 'on receipt of the amount so awarded by the Arbitral Tribunal from the Client'. The Court held that 1996 Act does not envisage the enforcement of an award against a stranger to the arbitral proceedings and a holistic appreciation of all the documents, therefore, clearly indicates that Principal client had conferred, on EIL, the authority, to act independently, albeit as its constituent attorney and thus the proper party to arbitration would be EIL.

(vi) Non-registered firm can be a party to an arbitrable dispute arising between partners

In Harsh Manish Hakani & Ors. v Sunny Chemist & Ors.^[6], High Court of Bombay while dealing with a petition for appointment of an arbitrator in a dispute between a partner and legal heirs of a deceased partner of an unregistered firm, rejected the plea of the Respondent that petition was not maintainable as the firm was unregistered. The Court held that the requirement of registration was for the protection of third parties and was not meant to prohibit partners from taking the necessary actions in regard to their own rights.

(vii) While Defaulting Respondent loses its right to appoint its nominee arbitrator, the Court can still appoint the arbitrator suggested by the Respondent, if he/she is suitable & qualified

In Tata Projects Ltd. v Oil & Natural Gas Corporation Ltd.^[7]¸ High Court of Delhi held that there is no proscription, directly or indirectly, on the court, in exercise of powers vested in the Court under Section 11(6) of the 1996 Act, appointing the person, whose name was suggested by the defaulting respondent, as its arbitrator. It held that no doubt, once the respondent has defaulted in complying with its obligation, under the arbitration clause contained in the agreement, and the petitioner has approached the Court, under Section 11(6), the respondent loses its right to appoint an arbitrator of its choice but the only consequence would be that, if the respondent suggests a name of a person, to act as its arbitrator, the Court could override the request and appoint another arbitrator, in place of the person whose name has been so suggested. Further held , that, however, there is no mandate, in the law, that the Court should do so and there is no embargo, explicit or implied, on the Court appointing the person, whose name has been suggested by the respondent, as its arbitrator, if the court is convinced that a person whose name has been suggested is suitable and qualified in that regard.

(viii) Limitation for S. 11 starts from expiry of 30 days from invocation

In Nortel Networks (India) P. Ltd. v Bharat Sanchar Nigam Limited & Ors.^[8], High Court of Kerala held that for considering the issue of limitation vis-a-vis the application under Section 11 of the Act, the starting point of limitation, for proceedings under the said Section, is the expiry of 30 days from the date on which a letter sent by the party invoking the Arbitration Clause is received by the other party to the dispute.

(iv) Specific reference necessary to incorporate arbitration clause upon assignment

In Vishranti CHSL v Tattva Mittal Corporation P. Ltd.^[9], High Court of Bombay held that an arbitration clause is an agreement within an agreement and it is a dispute resolution mechanism chosen by the parties. It held that if, therefore, an arbitration clause is to be 'carried forward' to a later agreement which introduces a new contracting party, then the arbitral intent between the original party and the assignee of the other party must be made manifest which can be done by having a separate arbitration agreement or by incorporating by specific reference to the earlier arbitration agreement. It held that the assignee cannot be 'assumed' to have consented to the arbitral agreement and a generalized reference to the previous contract ("all terms and conditions", etc.) without specific reference does not satisfy the requirement of Section 7 of the Arbitration Act that an arbitration agreement must be in writing, subject to the exceptions recognised in M R Engineers & Contractors (P) Ltd. v Som Datt Builders Ltd.^[10].

(x) Plea of novation of contract to determine existence of arbitration agreement can be looked at by Court at the stage of S. 11

In Sanjiv Parkash v Seema Kukreja & Ors.^[11] High Court of Delhi was seized with the question whether at the stage of considering the request of the petitioner for the appointment of an Arbitrator, it is only the existence of an Arbitration Agreement that needs to be seen, leaving it to the Arbitrator to decide the issue of validity of the Agreement, including the plea of novation of agreement which contained the arbitration clause. The Court rejected the argument that novation of the contract, to determine existence of arbitration agreement, could not be looked by the Court into at the stage of S. 11 due to limited scope of enquiry u/s 11(6A) and further rejected the reliance placed on plea of doctrine of 'kompetenz-kompetenz' by petitioner to plead that the issue must be left to the arbitrator to decide. The Court held that an arbitration agreement being a creation of an agreement may be destroyed by agreement and if the contract is superseded by another, the arbitration clause, being a component/part of the earlier contract, falls with it or if the original contract in entirety is put to an end, the arbitration clause, which is a part of it, also perishes along with it. The Court, on consideration of facts, came to the conclusion that the agreement containing arbitration clause relied by Petitioner stood novated and superseded and thus the said arbitration clause does not survive.

Section 14

(xi) If arbitration clause provides a time period for completing arbitration, then award has to be made within said time period unless mutually extended

In Supreme Cylinders Ltd. v S.P. Donadkar & Ors.^[12]High Court of Bombay held that where the arbitration clause provided a time period for passing an award, in an arbitration commenced prior to the 2015 amendment, then the Arbitrator was bound to make and publish his Award within the time mutually agreed, whether in the contract or a later extension by consent and held that without consent to any extension, the arbitral authority ends and thus allowed the application for termination of mandate of the Arbitrator.

Section 17

(xii) Court under S. 17(2) is to only enforce interim order of arbitrator, cannot determine its validity or otherwise

In Manoj v Shriram Transport Finance Company Limited^[13] High Court of Kerala held that the Court has also no power under S. 17(2) of the Act to determine the validity or otherwise of the interim order passed under S. 17(1) of the Act by the arbitral tribunal and does not have any power to modify or vary the interim order passed by arbitral tribunal. What is contemplated under S. 17(2) of the Act is only enforcement of the interim orders passed by the arbitral tribunal under S. 17(1) of the Act and while exercising the jurisdiction under S. 17(2) of the Act, the court is not sitting in appeal over the correctness or otherwise of the interim order passed by the arbitral tribunal.

Section 34

(xiii) Plea contrary to stand taken before Arbitrator cannot be set up in challenge to award

In Arun Kumar Kamal Kumar & Ors. v Selected Marble Home & Ors.^[14], Supreme Court while dealing with a challenge to an arbitral award on the ground that the statement filed by Appellant themselves and relied on by the Arbitrator contained certain errors, held that that the Appellants cannot be permitted to withdraw their own statement made before the Arbitrator which is predicated to on a mode of calculation, the same not being disputed by the Respondents and accepted by the Arbitrator as correct. The Court also held that that the Appellants are not justified in raising a contrary plea other than what was their defence and statement of counter claim in the arbitral proceedings.

(xiv) Where S. 34 petition is dismissed on merits in addition to non-prosecution, an application under O. IX R 9 CPC would not lie

In M/s Crest Educations (P) Ltd. v M/s. Career Launcher (I) Ltd.^[15] High Court of Delhi was seized with an application under Order IX Rule 9 of CPC filed by the Petitioner against dismissal of the petition under S. 34 inter alia on ground of non-prosecution and the Respondent's contention that such application was not maintainable as the dismissal was also on merits and thus there could be no restoration. The Court observed that an application, under Order IX Rule 9 of the CPC would not lie, where the petition has been dismissed on merits. The Court permitted the petitioner, in view of the prima facie observations of the Court, to withdraw the application to pursue, instead, his appellate or other remedies, as available, in accordance with law.

(xv) Actual costs to be awarded in case of dismissal of a S. 34 petition under the Commercial Courts Act

In Reliable Spaces P. Ltd. v Evonik India P. Ltd.^[16] High Court of Bombay dismissed the petition challenging the interpretation given by the Arbitrator to the force majeure clause of the contract and held that the interpretation so given by the arbitrator was not only plausible but in fact the only possible arbitration. It further held that as the Commercial Courts, Commercial Division & Commercial Appellate Division Of High Courts Act, 2015 ("the Commercial Courts Act") applies to the Petition, the costs are to be awarded against the unsuccessful party to the successful party as per Section 35(2) of the said Act and awarded costs of Rs. 7,35,500/-, as actual costs towards legal fees borne by Respondent in the S. 34 petition.

Section 36

(xvi) As charge on asset in favour of Bank pre-dated the status quo order passed in execution, sale of asset by Bank allowed and status quo modified

In Daiichi Sankyo Company Limited v Malvinder Mohan Singh and Ors.^[17] High Court of Delhi Rejected the Decree Holder's objection to sale of an encumbered asset of one of the JDs by the concerned bank in view of the fact that Bank's charge on the asset pre-dated the status quo but directed that the sale proceeds be deposited in Court till decision on allegations made by decree holder alleging collusion between the bank and the judgment debtors.

Section 37

(xvii) Order returning S. 34 petition for lack of territorial jurisdiction is not an order appealable under S. 37

In Raj Kumar Brothers v Life Essentials Personal Care (P.) Ltd.^[18] High Court of Delhi relying on BGS SGS Soma JV v NHPC Ltd.^[19] dismissed the appeal, preferred against order returning the S. 34 petition for filing in the Court of appropriate territorial jurisdiction, holding it to be not maintainable reiterating the principle that when there is no adjudication under Section 34 of the Act and the petition under Section 34 of the Act is simply returned on the ground that the court had no territorial jurisdiction, there is no application of grounds under S. 34; and the appeal against the said order does not fall within the ambit of S. 37 of the Act and is not maintainable

(xviii) A party whose claim has been rejected by the Arbitral Tribunal cannot maintain a Section 9 application for an interim relief

In GMR Ambala Chandigarh Expressways P. Ltd v NHAI,^[20] Division Bench of High Court of Delhi following the earlier decision of a Coordinate Bench in Nussli Switzerland Ltd. Vs. Organizing Committee Commonwealth Games, 2010^[21], dismissed the appeals filed by the Appellants therein reiterating the principle that a party whose claim has been rejected by the Arbitral Tribunal cannot maintain a Section 9 application for an interim relief. The Court, however, directed that the respondents shall not take any coercive action against the appellants for a period of three weeks to enable the appellants to approach the Hon'ble Supreme Court against the judgment.

Section 45

(xix) Arbitration clause contained in main agreement under which disputes arose would prevail over jurisdiction clauses of latter agreements

In Finnish Fund for Industrial Corporation Ltd. v VME Precast Pvt. Ltd. and Ors.^[22]High Court of Madras was dealing with objections to enforcement of a foreign award on the ground that arbitral tribunal based in Finland had no jurisdiction to pass the award in view of the fact that arbitration clause providing for arbitration in Finland contained in loan agreement between parties was followed by certain other agreements, being security trustee agreement, between the parties providing for jurisdiction in courts at Chennai. The Court dismissed the said objections and held that master agreement from which the disputes arise is a loan agreement and in the loan agreement, the parties have specifically agreed to the jurisdiction of the Finland to resolve their dispute through arbitrator and in such view of the matter, it cannot be said that merely because some security agreement have been executed later by the lender to enforce security in respect of their obligations and rights, the clause governing the dispute in the latter agreement can be imported to principal agreement of loan and the said clause in the latter agreement would only be attracted when the dispute arise in respect of the enforcement of the security, which was not the dispute at hand.

Also by the same author :

Arbitration : Court Reckoner [September 2020]

Arbitration : Court Reckoner [August 2020]