Arbitration Monthly Round Up- April 2023
ausaf ayyub
3 May 2023 9:30 PM IST
Supreme Court: Arbitration Agreement In Unstamped Contract Which Is Exigible To Stamp Duty Not Enforceable: Supreme Court Holds By 3:2 Majority Case Title: M/s. N.N. Global Mercantile Pvt Ltd vs M/s. Indo Unique Flame Ltd & Ors A Constitution Bench of the Supreme Court, on Tuesday, answered the reference, which pertains to the issue - whether the arbitration clause in...
Supreme Court:
Case Title: M/s. N.N. Global Mercantile Pvt Ltd vs M/s. Indo Unique Flame Ltd & Ors
A Constitution Bench of the Supreme Court, on Tuesday, answered the reference, which pertains to the issue - whether the arbitration clause in a contract, which is required to be registered and stamped, but is not registered and stamped, is valid and enforceable.
A 5-Judge Bench, comprising Justice K.M. Joseph, Justice Ajay Rastogi, Justice Aniruddha Bose, Justice Hrishikesh Roy and Justice C.T. Ravikumar decided the issue by 3:2 majority.
Justice Joseph in concurrence with Justice Bose and Justice Ravikumar decided that "an instrument which is exigible to stamp duty may contain an arbitration clause and which is not stamped cannot be said to be a contract enforceable in law within the meaning of S. 2(h) of the Contract Act and is not enforceable under S 2(g) of the Contract Act”.
Case Title: NTPC Ltd vs M/s SPML Infra Ltd
The Supreme Court has ruled that the court while exercising jurisdiction under Section 11(6) of the Arbitration and Conciliation Act, 1996 (A&C Act) is not expected to act mechanically, and that the limited scrutiny of the court at the pre-reference stage, through the “eye of the needle”, is necessary and compelling.
The bench comprising Chief Justice DY Chandrachud and Justice PS Narasimha remarked that the same is intertwined with the duty of the referral court to protect the parties from being forced to arbitrate when the matter is demonstrably non-arbitrable, adding that same is a legitimate interference by courts to refuse reference in order to prevent wastage of public and private resources.
Case Title: Bhimashankar Sahakari Sakkare Karkhane Niyamita vs Walchandnagar Industries Ltd. (WIL)
The Supreme Court has held that an application under Section 34 of Arbitration and Conciliation Act, 1996 must be filed within “prescribed period” of limitation i.e., 90 days, for seeking benefit of exclusion of period during which the Court remained closed from computation of limitation period.
Case Title: Narsi Creation Pvt Ltd and Anr. vs State of Uttar Pradesh and Ors.
The Supreme Court has reiterated that the courts normally ought not interfere with arbitral proceedings, especially till the time an award is not passed. The top court has deprecated the practice of filing applications in disposed of Special Leave Petitions (SLPs) in order to side-step the arbitration process, adding that the said applications must not be entertained by the court.
High Courts:
Bombay High Court:
Case Title: M/s Omanand Industries & Anr. vs The Secretary to the Government of India, Ministry of Road Transport and Highways
The Bombay High Court has ruled that though the scope for challenging the compensation awarded by the Arbitrator to the landowners under Section 3-G (5) of the National Highways Act, 1956 (NHA) is limited to the parameters provided under Section 34 of the Arbitration and Conciliation Act, 1996 (A & C Act), the same cannot be a ground to invoke the High Court’s writ jurisdiction under Article 226 of the Constitution of India.
The bench of Justice Avinash G. Gharote dismissed the contention of the landowners that since the Court under Section 34 of A&C Act has no power to modify the award or substitute a new award for further enhancement of the compensation than what was awarded by the Arbitrator, the petitioners were rendered remediless.
Case Title: Rahul S/o Omprakash Gandhi vs The Akola Janta Commercial Co-Operative Bank Limited
The Bombay High Court has ruled that the purpose of Section 31(5) of the Arbitration and Conciliation Act, 1996 (A&C Act), which provides for delivery of the signed copy of the arbitral award, is of imparting knowledge to the party regarding the contents of the award, and to make the party aware that the limitation to raise a challenge has started to run. The court held that the said knowledge/information is equally available to the party, when it receives the certified copy of the award signed by the Arbitrator. Thus, the Court remarked that the purpose of Section 31(5) is achieved whether a signed copy is delivered or a certified copy of the signed award is obtained by the party.
Taking note that the award debtor had obtained the certified copy of the signed award from the Arbitrator, the bench of justice Avinash G. Gharote rejected its plea that since the signed copy of the award was not delivered to it, the time for making the Section 34 application to set aside the award had not expired and thus, the execution proceedings were infirm.
Case Title: HSBC PI Holdings (Mauritius) Limited vs Avitel Post Studioz Limited and Ors.
The Bombay High Court, while dealing with a petition seeking enforcement of a foreign arbitral award, has observed that the “pro-enforcement bias” in the New York Convention has been specifically adopted in Section 48 of the Arbitration and Conciliation Act, 1996 (A&C Act).
The bench of Justice Manish Pitale was considering the guidelines issued by the International Bar Association (IBA) on ‘Conflicts of Interest in International Arbitration’ (IBA Guidelines), while considering the objection raised by the award debtor alleging bias attributable to the Chairman of the Arbitral Tribunal.
The bench observed that the IBA Guidelines have been adopted in the Vth and VIIth Schedules to the A&C Act. While perusing the ‘red’, ‘orange’, and ‘green’ list appended to the IBA guidelines, which set out specific situations warranting (or in the case of the green list, not warranting) disclosure, the court remarked that if the situation is not covered under any of the lists, the court would have to apply the test of a reasonable third person, and not the subjective test, as claimed by the award debtor.
Calcutta High Court:
Case Title: Marine Craft Engineers Pvt Ltd vs. Garden Reach Shipbuilders and Engineers Ltd
The Calcutta High Court has ruled that the date of execution of a contract between a buyer and a supplier under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) is irrelevant for the application of the provisions of the said Act. The Facilitation Council would have exclusive jurisdiction to decide on the reference, and to take up the dispute/ refer the same for arbitration under Section 18(4) of the MSMED Act, if the supplier’s claim relates to the goods or services supplied after the date of its registration under the MSMED Act, the Court held.
Arbitration- Limitation Starts From Failure Of Settlement Talks: Calcutta High Court
Case Title: Zillon Infraprojects Pvt Ltd vs BHEL
The High Court of Calcutta has held that the period of limitation will only begin to run when the talks of amicable settlement between the parties fail.
The bench of Justice Shekhar B. Saraf held that the period of limitation for referring a dispute to arbitration would be calculated from the date of the breaking point i.e., the date of failure of settlement talks, when the parties were trying to amicably settle the dispute.
Case Title: SREI Equipment Finance vs Sadhan Mandal
The High Court of Calcutta has held that an arbitration award passed by an arbitrator who was unilaterally appointed by one of the parties cannot be executed under Section 36 of the A&C Act.
The bench of Justice Shekhar B. Saraf held that a unilaterally appointed award does not carry the privilege of existence in the eyes of the law and is regarded as a nullity, therefore, there is nothing to execute in an enforcement petition.
Case Title: Essar Oil and Gas Exploration and Production Ltd vs Gargi Travels Pvt Ltd
The Calcutta High Court has held that a prior reference to the Facilitation Council under Section 18(1) of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), which is still at the stage of conciliation, does not debar the Court from passing an order under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) for appointment of arbitrator on the basis of an independent arbitration clause between the parties.
The court ruled that the bar contemplated under Section 24 of the MSMED Act only comes into operation if and when there is anything inconsistent between Sections 15 to 23 of the MSMED Act and any other law for the time being in force. The bench of Justice Sabyasachi Bhattacharyya remarked that there is no inconsistency per se between Section 11 of the A&C Act and the reference to conciliation under Section 18(1) and (2) of the MSMED Act, to attract the rigour of Section 24.
Case Title: West Bengal Housing Board vs Abhisek Construction
The High Court of Calcutta has held that Section 12(5) of the A&C Act, which provides for ineligibility of a person to act as an arbitrator whose appointment falls under any categories mentioned under the Seventh Schedule to the Act, would not apply to an arbitration that commenced before the 2015 Amendment.
The bench of Justice Shekhar B. Saraf held that the 2015 Amendment that added Section 12(5) to the A&C Act would not retrospectively apply to arbitration proceedings that commenced before the Amendment became operative.
Case Title: Bharat Vanijya Eastern Private Limited vs State of West Bengal
The Calcutta High Court has ruled that once the court has disposed of a civil suit and referred the parties to arbitration in an application filed by it under Section 89 of the Code of Civil Procedure, 1908 (CPC), and has appointed an arbitrator with the written consent of both the parties, the suit cannot be revived.
Delhi High Court:
Case Title: IRCON International vs. Pioneer Fabricators
The High Court of Delhi has held that the location of the Facilitation Council administering arbitration under Section 18 of the MSMED Act, 2006 would remain the ‘Venue’ of arbitration when the parties have conferred exclusive jurisdiction on a Court situated in a different place.
The bench of Justices V. Kameshwar Rao and Anoop Jairam Bhambhani held that by virtue of the provisions of the MSMED Act, only the procedure of constitution of the Arbitral Tribunal is obliterated and the same does not eclipse the agreement between the parties of foisting exclusive jurisdiction on a particular Court.
The Court disagreed with the view taken by a single bench in Ahluwalia Contracts v. Ozone Research, 2023 LiveLaw (Del) 114 wherein the Court had held that the location of the Facilitation Council would be the seat of arbitration despite the agreement between the parties conferring exclusive jurisdiction on a court in a different place.
Case Title: Gaurav Dhanuka & Anr. vs Surya Maintenance Agency Pvt Ltd & Ors.
The Delhi High Court has invoked the “direct benefits” estoppel theory and the “intertwined estoppel theory” to refer a non-signatory to arbitration.
While referring the builder/developer (non-signatory) of a building to arbitration in a dispute between the owner of the flat and the maintenance agency under the ‘maintenance agreement’, the court observed that its impleadment was mandated not on account of the “group of companies” doctrine but on the ground that the maintenance agency’s authority was directly derived from the developer under the ‘service agreement’ executed between them.
The High Court reckoned that the developer was deriving direct benefit from the service agreement with the maintenance agency. Further, the said service agreement was inextricably linked to the maintenance agreements containing the arbitration clause.
Therefore, both the “direct benefits” estoppel theory and the “intertwined estoppel theory” were applicable in the case to refer the non-signatory developer to arbitration, the court ruled.
Case Title: Goyal Mg Gases Pvt Ltd vs. Panama Infrastructure Developers Pvt Ltd & Ors
The Delhi High Court has reiterated that a party who is a non-signatory to the arbitration agreement, can be impleaded as a necessary party in the arbitration proceedings.
The bench of Justices Najmi Waziri and Sudhir Kumar Jain further ruled that the Arbitral Tribunal’s order rejecting the application for impleadment of parties in the arbitral proceedings, does not constitute an ‘interim award’ under the Arbitration and Conciliation Act, 1996 (A&C Act), since it does not decide any substantive question of law or deal with the merits of the case.
Case Title: M/s Promax Power Ltd vs M/s Tahal Consulting Engineers India Pvt Ltd
The Delhi High Court has ruled that though the power to pass an attachment order before an award is rendered by the Arbitral Tribunal may not have been specifically set out in Sections 9 and 17 of the Arbitration and Conciliation Act, 1996 (A&C Act), however, such an order could be made if the circumstances so warrant.
However, the bench of Justice Yashwant Varma remarked that the said power cannot be invoked merely because the claimant is found to have a just or valid claim upon a prima facie evaluation. It would also be obligatory upon the claimant to establish that the defendant before the Tribunal is indulging in activities aimed at dissipation of assets or is seeking to remove the assets with an intent to defeat the arbitral award that may be ultimately passed. The said twin test must be satisfied before such an attachment order is justifiably made, the Court said.
Case Title: Tehri Hydro Development Corporation India Limited vs M/s C. E. C. Limited
The Delhi High Court has reiterated that the agreement between the parties has primacy over the powers of the Arbitral Tribunal to grant pre-award interest under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 (A&C Act). The bench of Justice Chandra Dhari Singh held that since the Agreement between the parties specifically provided that no interest shall be granted on the accrued amount under the contract, the same took away the power of the Arbitrator to deviate and grant his own rate of interest.
Noting that the Arbitral Tribunal is a creature of a contract, the court remarked that since the Agreement between the parties was the “birth-giver”, it should be held at a higher stature when it concerns an issue that has been pre-decided and mutually agreed between the parties.
Case Title: Daiichi Sankyo Company Limited vs Malvinder Mohan Singh and Ors.
The Delhi High Court has allowed Daiichi Sankyo to withdraw over Rs. 20.5 crores lying with the Registrar General of the High Court, which was transmitted pursuant to the Supreme Court’s 2022 order in the contempt proceedings initiated against the directors of Indiabulls Housing Finance Limited (IHFL) and Indiabulls Ventures Limited (IVL) for flouting the Supreme Court’s restraint orders in relation to the shareholding of Fortis Healthcare Holdings Private Limited (FHHPL) in Fortis Healthcare Limited (FHL).
The contempt proceedings had arisen out of the application filed by Daiichi in the execution petition pertaining to a 2016 foreign arbitral award passed in its favour in the arbitral proceedings initiated against the respondents, including the former promoters of FHL- Malvinder and Shivinder Mohan Singh. The award debtors were jointly and severally held liable to pay to Daiichi a sum aggregating to more than Rs. 4000 crores.
Case Title: Sanjay Mehra vs Sharad Mehra & Ors.
The Delhi High Court has ruled that once there is an arbitration agreement governing the parties, the matter must be referred for arbitration unless there is a “chalk and cheese” case of non-arbitrability.
The bench of Justice Jyoti Singh rejected the contention that since the Sale Deed executed subsequent to the Memorandum of Family Settlement (MOFS) exclusively conferred jurisdiction to courts, the parties cannot be referred to arbitration. The court ruled that since the Sale Deed was executed in furtherance of the MOFS, the two agreements were linked and inseparable. Thus, arbitration was the intended and consciously chosen forum for dispute resolution between the parties, with respect to the alleged breach of the terms of the MOFS.
Gauhati High Court:
Case Title: Union of India vs Jyoti Forge and Fabricators
The Gauhati High Court has held that a Court cannot condone the delay in the filing of the petition under Section 34 of the A&C Act beyond 120 days. The bench of Justice Malasri Nandi held that the Court cannot condone the delay beyond the period of limitation provided under Section 34(3) of the Act i.e., 3 months+ 30 days. It held that Section 5 of the Limitation Act does not apply to petition under Section 34(1) of the A&C Act.
Himachal Pradesh High Court:
Case Title: Graviss Foods Private Limited vs M/s Ice Cream Garden & Anr.
The Himachal Pradesh High Court has reiterated that the amendment incorporated in Section 37 (1) (a) of the Arbitration and Conciliation Act, 1996 (A&C Act) by the Arbitration and Conciliation (Amendment) Act, 2015, which provides for an appeal against an order of the court refusing to refer the parties to arbitration under Section 8, is prospective in nature. Thus, the same will apply to court proceedings which have commenced on or after the Amendment Act came into force, i.e., 23.10.2015.
The bench of Acting Chief Justice Sabina and Justice Satyen Vaidya added that since appeal is a continuation of original proceedings, the date of commencement of court proceedings would be the date of filing of the Section 8 application and not the date the order dismissing the said application was passed by the court.
Jharkhand High Court:
Case Title: Central Coalfields Ltd vs. M/s Rajdhani Carriers Pvt Ltd
The Jharkhand High Court has reiterated that the arbitrator derives authority from the contract and thus, the award passed by him in manifest disregard to the terms of the contract would be arbitrary in nature. The bench of Justice Anubha Rawat Choudhary remarked that deliberate departure from the contract amounts not only to manifest disregard of its authority or misconduct on the part of the arbitrator, but it may also tantamount to a malafide action.
The Court, while dealing with an appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996 (A&C Act) by the award debtor, rejected the argument raised by it that the Arbitrator was duty-bound to examine the point of limitation irrespective of any plea having been raised by it before the Arbitral Tribunal.
Madras High Court:
Case Title: P. Cheran vs M/s Gemini Industries & Imaging Limited
The Madras High Court has ruled that a party is entitled to challenge the appointment of the Arbitrator at any stage, if there is any violation of the provisions of the Arbitration and Conciliation Act, 1996 (A&C Act).
The court remarked that even if the award debtor had participated in the arbitral proceedings or, after having knowledge of the appointment of the sole Arbitrator, had failed to challenge the said appointment in terms of Section 13, the same would not deprive him of the right to challenge the said appointment under Section 34 for violation of the provisions of Section 12(5) of the A&C Act.
The bench of Justice Krishnan Ramasamy held that when the very appointment of the Arbitrator unilaterally, is improper and impermissible by virtue of Section 12(5), the arbitration proceedings are liable to be vitiated from the stage of the appointment of the Arbitrator. Further, a decision by an authority having no jurisdiction is non est in law and its invalidity can be set up whenever it is sought to be acted upon.
