Arbitration Court Reckoner: September 2020

Section 7

(i) Non-signing of agreement containing arbitration clause by one party not a ground to hold that there was no binding arbitration clause

In M/s. Chaitanya Construction Company v Delhi Jal Board^[1] High Court of Delhi took note of the fact that S. 7(4) of the Act itself provides that the arbitration agreement need not be in any concrete or particular form and held that the mere fact that the Respondent therein, who had invited tenders for the work in question, had not signed the agreement containing the arbitration clause was not a ground to hold that there was no arbitration clause. The Court took note of the fact that the petitioner signed the agreement containing the arbitration clause, as provided by the respondent, and that the respondent had issued the work orders based on this contract, and thus it cannot be said that the parties were not ad idem on the applicability of the arbitration clause, even though the Respondent had not eventually signed the agreement.

Section 8

(ii) Averment in Written Statement that it is being filed "Without Prejudice to the Arbitration agreement" does not constitute an application u/s 8

Power of the Court to stay Arbitration must be impliedly read into the 1996 Act

In Lindsay International P. Ltd. & Ors. v Laxmi Niwas Mittal & Ors.^[2] High Court of Calcutta took note of the fact that the Defendant before it had filed a comprehensive Written Statement of Defence taking objections and addressing on merits each of the claims in the plaint individually and specifically and it was not until the expiry of three full years that the said Defendant has moved for Request For Arbitration. It, thus held, that it could therefore safely be said that the Defendant has waived the Arbitration agreement and has submitted to the jurisdiction of the Court for all intents and purposes and the Arbitration agreement has been rendered inoperative by waiver. Further, held that an averment in the Written Statement of defense that it is being filed "Without Prejudice to the Arbitration agreement" does not constitute an application under S. 8 of the Act and a clear, specific and overt Act in the form of an independent, stand alone application is required to be made which the Defendant had not done. It held that while the Defendant has referred to the Arbitration agreement in his written statement but has not prayed or pleaded that it seeks reference of the disputes to arbitration. The Court further held that the power of the Court to stay arbitration must be impliedly read into the 1996 Act and to allow an arbitration to proceed even after the Defendant has waived the arbitration agreement, or that the same is null and void or inoperative would be a travesty of justice and thus accordingly restrained the Defendant from proceeding with the Request for Arbitration.

Section 9

(iii) Copyright disputes pertain to rights in rem and thus not arbitrable

In Sanjay Lalwani v Jyostar Enterprises & Ors.^[3] High Court of Madras held the S. 9 petition filed by the petitioner therein not maintainable as dispute were arising from Copyright Assignment, and thus pertained to right in rem and as such, were not arbitrable.

(iv) In absence of manifest intention to arbitrate, Court would be reluctant to pass interim measures

In H. Thiagaraj & Ors. v Maryammal & Ors.^[4], High Court of Madras set aside the injunction granted by the District Judge in a S. 9 petition inter alia on the ground that though the dispute was raised by the applicant in the year 2009 and the Court had directed the parties to go for arbitration as early as 02.03.2011, no steps whatsoever was taken out by the applicant or some other party to refer the matter to arbitration. Only in the year 2014, the application u/s 9 of the Act has been filed. It held that the above conduct of parties makes it clear that manifest intention to arbitrate the dispute is absent on the part of the applicants, who were the parties to the earlier proceedings. Therefore, it held, that in view of absence of manifest intention shown by the petitioners, who seek interim measure u/s 9 of the Act, the Court normally would be reluctant to pass interim measures and set aside the order of the District Court.

(v)Interim measure/Relief in the nature of restraining person from carrying on trade or business cannot be granted

In Shraddha Entertainment v Kondaduvam Entertainment & Ors.^[5] High Court of Madras was seized of a matter where the petitioner/appellant therein had filed both appeals against the order of the arbitrator refusing to grant certain injunctions as also filed petitions u/s 9 seeking similar reliefs before Court. The Court firstly held that when the arbitrator has already rejected such a relief, which was challenged before the Court in the appeal, again seeking similar prayer by way of interlocutory applications cannot be maintainable. The Court further took note of the fact that Petitioner had sought 2 injunctions - One is injunction restraining the Respondent from opening or operating any bank account either in their individual or joint names and/or in the names of any entity in which any or all of them are in control and the other is to direct Respondents to disclose the names and details of all banks where they hold any account whatsoever operated by them either individually or jointly. The Court held that first relief sought by the appellant is in the nature of restraining the person from carrying on trade and business and such relief cannot be granted in the name of interim measure. Qua the second relief, Court held that the arbitrator had rightly negativated the same as to give any such relief the provision under Order 38 Rule 5 of CPC had to be satisfied which had not been done.

(vi) Execution of orders passed in S. 9

In Cupino Ltd. v Shree Ahuja Properties & Realtors P. Ltd. & Ors.^[6], High Court of Bombay rejected the contention of the Respondent therein that the order passed u/s 9 is not a final order/decree and there is no occasion to execute the order under Order XXI, CPC. The Court held Section 36 of the Code makes available all remedies for execution of decrees to be employed for execution of Orders as well. Further, held, the once an order under Section 9 has become final order of payment of that amount into court, even though arbitration is pending, Order XXI can certainly be resorted to for executing the said Order of the Court.

(vii) Mere claim, which is yet to be adjudicated, does not constitute special equities to entitle injunction against invocation of bank guarantee

In CRSC Research And Design Institute Group Co. Ltd v. Dedicated Freight Corridor Corporation Of India Limited & Ors.^[7] High Court of Delhi reiterated the criteria, which are required to be satisfied, before interim protection can be granted u/s 9 namely (a) the existence of an arbitration clause, and manifest intent, of the S. 9 petitioner, to invoke the said clause, and initiate arbitral proceedings, (b) the existence of a prima facie case, balance of convenience and irreparable loss, justifying such grant of interim relief to the applicant, and (c) the existence of emergent necessity. The Court rejected the argument of special equities premised on the ground, that the claim of the Petitioner therein against Respondent, is far in excess of the amounts of the bank guarantees and invocation must be stayed. The Court held that a mere claim, of the petitioner, against the respondent – the sustainability of which is yet to be adjudicated – cannot constitute "special equities", so as to justify injuncting the invocation of unconditional bank guarantees, even if such a claim is in excess of the amount covered by the bank guarantees. Further held that in case of an irrevocable and unconditional bank guarantee the condition, in the agreement between the parties, under which the bank guarantees could be enforced, cannot be cited as a ground to stay the invocation and encashment thereof.

Section 11

(viii) How to harmonise or reconcile two different arbitration clauses in two related agreements between the same parties and same transaction

In Balasore Alloys Ltd. v Medima LLC^[8] , Supreme Court of India held in order to harmonise or reconcile two different arbitration clauses in two related agreements between the same parties and to arrive at a conclusion as to which of the clauses would be relevant in the given facts; it would be necessary to refer to the manner in which the arbitration Clause was invoked and the nature of the dispute that was sought by the parties to be resolved through arbitration. On such consideration, in the facts of the case, the Court held that the nature of dispute raised by the parties indicate that those aspects are to be determined in terms of the provisions contained in the Main Agreement and thus disputes would have to be decided as per arbitration clause in the Main agreement and the same would be the relevant arbitration clause and not the arbitration clauses contained in various purchase orders.

(ix) S. 5 of Limitation Act does not apply to application u/s. 11 of the Act

In The Board of Trustees of the Port of Chennai v. X-press Container Line (UK) Ltd. & Ors.^[9], High Court of Madras held that Section 5 of Limitation Act cannot be applied to condone the delay in a suit and extend the period of limitation and this logic will apply to an application filed u/s 11 of the Act also.

Section 14

(x)Once Managing Director of the Respondent is ineligible to appoint arbitrator, Company can also not appoint

In M/s. Omcon Infrastructure P. Ltd. v Indiabulls Investment Advisors Ltd.^[10], High Court of Delhi allowed the petition for termination of mandate of the arbitrator appointed unilaterally by the Respondent in view of the ratio of the judgment in Perkins Eastman Architects DPC & Anr. v HSCC India Ltd.^[11] While doing so, it rejected the narrow construction sought to be given by the arbitrator to the judgment of Perkins (supra) on the purported ground that judgement in Perkins (supra) was not applicable as the authority to nominate the arbitrator was vested in a Company (that being the word used in the arbitration clause) and not an individual. The Court held that once the Managing Director of the Respondent is ineligible to appoint arbitrator in view of Perkins (supra), the same would also bar the Company itself from unilaterally appointing the arbitrator.

(xi) Voluntary recusal of Arbitrator in one arbitral proceeding not a ground for terminating mandate of Arbitrator in a separate arbitral proceedings between same parties

In Himachal Pradesh Power Corporation Ltd. v Hindustan Construction Co. Ltd.^[12], High Court of Delhi held that that the voluntary recusal of the Presiding Arbitrator in another arbitration proceeding is not a ground for terminating the mandate of a Presiding Arbitrator in a separate arbitration proceedings, though between the same parties. It further held that Presiding Arbitrator's brother (mentions Petitioner's brother in para 16 of judgment but the context reveals that the reference is to the Presiding Arbitrator's brother) who appeared as a Senior Advocate on behalf of the respondent before the Himachal Pradesh High Court in a separate unconnected matter is not "close family member" as defined in Category 10 of the Seventh Schedule and therefore, the Presiding Officer is not ineligible to act as an Presiding Officer under Section 12 (5) of the Arbitration and Conciliation Act.

Section 17

(xii) Principles governing grant of injunctions, appointments of receiver etc are a part of substantive law of country within ambit of S. 28(1)(a)

In Flywheel Logistics Solutions P. Ltd. v Hinduja Leyland Finance Ltd. & Ors.^[13], High Court of Madras was dealing with challenge to orders passed by the arbitrator u/s 17 of the Act to seize the vehicles which had been purchased by way of loan agreement which was subject of arbitration. The Court held that though S. 19 of the Act states that the Arbitral Tribunal is not bound by the Code of Civil Procedure, 1908, this is primarily targeted at unshackling the Arbitral Tribunal from the procedural wrangles of the Code. Further held that, on the other hand, principles governing the grant of injunctions, appointments of receiver etc are a part of the substantive law of the country and by virtue of S. 28(1)(a) of the Act the Tribunal shall be bound to decide in accordance with the substantive law for the time being in force in India. While the finance company or Bank may have a contractual right to repossess the asset upon commission of default by the borrower, it cannot be gainsaid that in many cases mechanical seizure of vehicles, en masse, may lead to substantial injustice. It held that in a number of cases the borrowers generate income by putting these vehicles to use and therefore, it may be worthwhile for the Tribunal to balance equities, in appropriate cases, by allowing the vehicles to operate while at the same time direct that some portion of the income got from plying these vehicles be deposited to the credit of the finance company. Further held, that the Tribunals are under no obligation to pass orders seizing vehicles mechanically and in a vast majority of these cases, a common sense approach would not only ensure that the finance company is able to realise some portion of the outstanding dues periodically while at the same time enabling the borrower to retain the vehicle to generate income.

Section 34

(xiii) Multi-tier arbitration

In C.S. Sivanandan v Karvy Stock Broking Ltd. & Ors.^[14]¸High Court of Madras held that arbitration in the case at hand was governed by 'National Stock Exchange bye-laws' and Bye – law 19 provided for a multi-tier arbitration. The Court took note of the fact that the petition had been filed u/s 34 of Act assailing the award made by the Arbitral Tribunal, which is the second tier of the three-tiered/multi tiered arbitration mechanism provided for under Chapter XI of NSE Byelaws. It held that, therefore, the third tier of arbitration mechanism has not been exhausted. In this scenario, the Court was of the considered view that it would be appropriate to relegate the parties to Appellate Arbitral Tribunal under Chapter XI (19) of NSE by-laws leaving open all questions, rights and contentions of the parties and preserving the right of petitioner to seek exclusion of time spent in the petition before Court.

(xiv) View of the Arbitrator plausible view and merits no interference

In NHAI v Sahakar Global Ltd.^[15]¸ High Court of Delhi while dismissing the petition filed assailing the arbitral award held that not only was the scope of judicial interference in an arbitral award limited if the view taken by the Arbitrator is a possible view but also further held that the arbitrator has, after detailed analysis of the documents and pleadings, rightly come to the conclusion that implementation of GST by the Government of India constitutes change of law having material adverse affect on the obligations of parties and is thus a force majeure event as per the clause between the parties.

(xv) Statutorily imperative to examine limitation even if not set up as a defence

In P. Kothai & Ors. v. Shriram Transport Finance Company Ltd. & Ors.^[16] High Court of Madras held that that the trigger notice invoking arbitration was clearly barred by limitation and therefore, the impugned award therein is vitiated for entertaining arbitral proceedings which are barred by limitation and not examining limitation though S. 3 of Limitation Act read with S. 43 of the Act makes it statutorily imperative to do so even if it is not set up as a defence. The Court reiterated that in case of loan, that the date of commission of default would be the cause of action for purposes of limitation.

Section 36

(xvi) Subsequent application filed not hit by res judicate if execution petition had been disposed off with liberty

In Kal Airways P. Ltd. v M/s. Spicejet Ltd. & Anr^[17] High Court of Delhi held that when an enforcement petition had been disposed off with the liberty to the Decree Holder to approach the Court in the event of any subsequent development with respect to the 'status of the judgment debtor', then filing of an application on the ground of material change in the financial health of the Judgment debtor would not be hit by res judicata or constructive res judicate and the change in status need not be only limited to insolvency or bankruptcy proceedings but would include other events that would show material changes in the financial health of the Judgment Debtor including auditor's reports. The Court further held that contentions with regards to award being erroneously premised or the prospects of Judgment Debtor succeeding in their challenge under S. 34 of the Act would have no bearing in an execution petition once the award is not stayed and the award would have to be seen on the face of it.

Section 37

(xvii) Qualitative difference between the two challenges provided u/s 37(1) & 37(2) & even between S. 37(2)(a) & 37(2)(b)

In Dinesh Gupta & Ors. v Anand Gupta & Ors.^[18] High Court of Delhi held that principle that parties have by express choice excluded court's jurisdiction by opting for arbitration would apply, with equal force, to challenges to interlocutory orders of arbitral tribunals, u/s 37, as they would, to challenges to the final award, u/s 34. The Court held that there is, necessarily, a qualitative difference between the two challenges provided u/s 37(1) & 37(2), though both would lie to the High Court. The challenge u/s 37(1), which is directed against a final award of the arbitrator/arbitral tribunal, is akin to a second appeal. The challenge u/s 37(2), on the other hand, is directed against the decision of the arbitral tribunal and therefore must necessarily to conform to the discipline enforced by S. 5. The Court held it would, therefore, be improper for a Court to treat an appeal, u/s 37 (2) of the 1996 Act, as akin to an appeal under the CPC. An appeal against an order by an arbitrator, or by an arbitral tribunal, is an appeal sui generis, and interference, by the Court, in such appeals, has to be necessarily cautious and circumspect. The Court further held that this position would stand especially underscored where the order, under challenge, is discretionary in nature and in such case, merits interference, under Section 37(2)(b), therefore, only where such exercise is palpably arbitrary or unconscionable. If anything, therefore, the jurisdiction of the Court, under Section 37(2)(b), is even more limited than the jurisdiction that it exercises under Section 37(2)(a) or, for that matter, under Section 34. Further held, that while exercising jurisdiction under Section 17(1)(ii)(b), the arbitrator is not strictly bound by the confines of Order XXXVIII Rule 5 of the CPC, but is also proscribed from acting in a manner completely opposed thereto.

(xviii) Doctrine of Proportionality as part of special equities can only be applied if there is crystallized liability

In Hindustan Construction Co. Ltd. v National Hydro Electric Power Corporation Ltd.^[19] Division Bench of High Court of Delhi upheld the refusal of the Single Judge to grant injunction against encashment of bank guarantees and held that mere extension of the completion time can by no stretch be reckoned as satisfaction, to prevent invocation of performance BGs either because the contractor had failed to faithfully perform its obligations or it failed to commence work, or had suspended the work or had failed to take effective steps for making good the defects etc. It further held that while proportionality could be included in the exception of special equities, it can be applied only where the crystallized liability is significantly lower than the value of the Bank Guarantee furnished and the contract is a concluded one and held that the same did not apply in the present case, where neither condition prevails and the contract is neither a concluded one nor has it been terminated and thus the liabilities are not crystallized.

(xix) Court exercising jurisdiction u/s 37 must be extremely circumspect

In Bharat Sanchar Nigam Ltd. v Aksh Optifibre Ltd.^[20] High Court of Delhi reiterated that when the arbitral award has been upheld u/s 34 of the Act, the appellate court cannot, in exercise of jurisdiction u/s 37 of the Act, proceed to independently assess the relative merits and demerits of the case and while exercising jurisdiction u/s 37 of the Act, the court must be extremely circumspect in interfering. The Court further noted that the appellant, therein, had, in fact, agreed that the Arbitral Tribunal can fix the rate for the intercity bandwidth charges, payable by the respondent. After agreeing to such a position, it was now not open to the appellant to state that the view taken by the learned Sole Arbitrator was wrong since the rates were fixed and agreed.

Section 45

(xx)Period of limitation for filing an enforcement/execution petition for a foreign award

In Government of India v Vedanta Limited and Others, Supreme Court of India held that the period of limitation for enforcement of a foreign award in India would be governed by Indian law. It held that Foreign awards are not decree of Indian Courts and upon grant of recognition and enforcement u/s 48 of the Act, for the limited purpose of enforcement the foreign award is deemed to be a decree of the Court that granted such enforcement. Accordingly, the Court held that the period of limitation for enforcement of foreign award would be governed by Article 137 of the Limitation Act. Further held that the bar contained in Section 5 of the Limitation Act would not extent to a substantive application under the Act, consequently, delay may be condoned on an application under Section 5 of the Limitation Act. It also held that the Courts at the seat of the arbitration have "supervisory" or "primary" jurisdiction while the Courts at the place of enforcement have "enforcement" or "secondary" jurisdiction. That as seat of the arbitration was in Malaysia, thereby the curial law was Malaysian law and the curial law would determine the procedure of arbitration including challenge to an award. Therefore, the Malaysian Courts were right in applying Malaysian law for testing the Award on a challenge by the Petitioner. However, the Court further held that merely because the Malaysian Courts have upheld the Award, that would not be an impediment on the Indian enforcement Court to examine the Award for enforcement in light of S. 48 of the Arbitration Act. If the Award is found to be against public policy of India, it would not be enforced by Indian Courts. However, on consideration, Court held that the award is not against public policy of India.

Article 227

(xxi)As no restriction either in the arbitration agreement or in the order of reference, counter claims can be raised

In Ved Prakash Mithal & Sons v Principal, Kirori Mal College & Ors^[21], High Court of Delhi was dealing with a petition impugning the order of the Arbitrator rejecting the Petitioner's application for rejection of counter claims on the ground that there was no specific reference of counter claim by the Court while referring the parties to arbitration u/s 8 of the Act and thus arbitral tribunal is precluded from entertaining the counter claim. The Court held that there is no restriction either in the arbitration agreement or in the order of reference with regard to disputes that can be referred or exclusion from reference of certain disputes and thus contention of Petitioner that that the counterclaims could not have been entertained by the Arbitral Tribunal is not sustainable.

(Kanika Singh is a Delhi-based lawyer, and may be reached at kanikasingh09@gmail.com)

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