Supreme Court Half Yearly Digest 2023- Arbitration

12 months’ time limit under Section 29A Arbitration Act not applicable to international commercial arbitration. TATA Sons Pvt. Ltd. v. Siva Industries and Holdings Ltd., 2023 LiveLaw (SC) 39 : 2023 INSC 13 : (2023) 5 SCC 421

2015 Arbitration Amendment not applicable though S.11 application was filed after it, if arbitration notice was issued pre-amendment. Shree Vishnu Constructions v. Engineer in Chief Military Engineering Service, 2023 LiveLaw (SC) 417 : 2023 INSC 508

Arbitration agreement in unstamped contract which is exigible to stamp duty not enforceable: Supreme Court holds by 3:2 majority. N.N. Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd., 2023 LiveLaw (SC) 343 : 2023 INSC 423

Arbitration and Conciliation Act, 1996 - Supreme Court has reiterated that the courts ought not to normally interfere with the arbitral proceedings, especially till the time an arbitral 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. Narsi Creation Pvt. Ltd. v. State of Uttar Pradesh, 2023 LiveLaw (SC) 325 : 2023 INSC 387

Arbitration and Conciliation Act, 1996; Section 11 - Certified copy can be produced at the Section 11 stage only if it clearly indicates the stamp duty paid. If the same is not mentioned, the Court should not act on the said certified copy. N.N. Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd., 2023 LiveLaw (SC) 343 : 2023 INSC 423

Arbitration and Conciliation Act, 1996; Section 11 - The Apex Court has set aside the decision of the Delhi High Court where the Court had referred the parties to arbitration under Section 11(6) of the A&C Act, after the parties had entered into a Settlement Agreement which recorded that there were no subsisting issues pending between them. The Supreme Court held that the High Court should have exercised the prima facie test to screen and strike down the ex-facie meritless and dishonest litigation. Further, it ought to have examined the issue of the final settlement of disputes in context of the principles laid down in Vidya Drolia and Ors. vs. Durga Trading Corporation ((2021) 2 SCC 1 - The Supreme Court has ruled that while exercising jurisdiction under Section 11(6) of the A&C Act, the court 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. NTPC Ltd v. SPML Infra Ltd; 2023 LiveLaw (SC) 287 : AIR 2023 SC 1974 : 2023 INSC 334 :(2023) 2 SCR 846

Arbitration and Conciliation Act, 1996; Section 11 - the Court at the Section 11 stage is bound to examine the instrument and if found to be unstamped or insufficiently stamped the instrument is to be impounded at this stage itself. N.N. Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd., 2023 LiveLaw (SC) 343 : 2023 INSC 423

Arbitration and Conciliation Act, 1996; Section 11 (6) - Post amendment in 2015, the jurisdiction of the Court under Section 11(6) of the Arbitration Act is confined to examining whether an arbitration agreement exists between the parties – “nothing more, nothing less”. Under Section 11(6A) of the Arbitration Act, referral court is duty bound to consider the dispute/issue with respect to the existence of an Arbitration Agreement. (Para 5.2) Magic Eye Developers Pvt. Ltd. v. Green Edge Infrastructure Pvt. Ltd., 2023 LiveLaw (SC) 444 : AIR 2023 SC 2339 : 2023 INSC 528

Arbitration and Conciliation Act, 1996; Section 11 (6) - The ‘pre-referral’ jurisdiction of Court under Section 11 (6) consists of two inquiries, (i) existence and validity of arbitration agreement; and (ii) non-arbitrability of dispute. The primary inquiry is about the existence and the validity of an arbitration agreement, which also includes an inquiry as to the parties to the agreement and the applicant’s privity to the said agreement. The said matter requires a thorough examination by the referral court. The Secondary inquiry that may arise at the reference stage itself is with respect to the non-arbitrability of the dispute. Both are different and distinct. So far as the first issue with respect to the existence and the validity of an arbitration agreement is concerned, as the same goes to the root of the matter, the same has to be to conclusively decided by the referral court at the referral stage itself. With respect to non-arbitrability of the dispute, the court at pre-referral stage may prima facie examine the arbitrability of claims. The review at the reference stage is done to sideline the cases where litigation must stop at the first stage. (Para 5.3) Magic Eye Developers Pvt. Ltd. v. Green Edge Infrastructure Pvt. Ltd., 2023 LiveLaw (SC) 444 : AIR 2023 SC 2339 : 2023 INSC 528

Arbitration and Conciliation Act, 1996; Section 11 (6) - When the issue of ‘existence and validity of an arbitration agreement’ is raised at pre-referral stage, then the Court is duty bound to conclusively decide the issue. If the issue regarding ‘existence and validity of an arbitration agreement’ is left to the Arbitral Tribunal, then it will be contrary to Section 11(6A) of the Arbitration Act. This is to protect the parties from being forced to arbitrate in absence of a valid arbitration agreement. (Para 5.3) Magic Eye Developers Pvt. Ltd. v. Green Edge Infrastructure Pvt. Ltd., 2023 LiveLaw (SC) 444 : AIR 2023 SC 2339 : 2023 INSC 528

Arbitration and Conciliation Act, 1996; Section 11(6) - Appointment of Arbitrator - Limitation period for arbitration - the cause of action to appoint an arbitrator would commence from the “Breaking Point” at which any reasonable party would abandon efforts for at arriving at a settlement and contemplate referral of the dispute for arbitration. “Breaking Point” should be treated as the date at which the cause of action arose for the purpose of limitation. B and T AG v. Ministry of Defence, 2023 LiveLaw (SC) 466 : AIR 2023 SC 2731 : 2023 INSC 549

Arbitration and Conciliation Act, 1996; Section 11(6) - Appointment of Arbitrator - Limitation period for arbitration - Entire history of the negotiation between the parties must be specifically pleaded and placed on record, in order to facilitate the Court to find out what was the “Breaking Point” for the purpose of limitation computation. B and T AG v. Ministry of Defence, 2023 LiveLaw (SC) 466 : AIR 2023 SC 2731 : 2023 INSC 549

Arbitration and Conciliation Act, 1996; Section 11(6) - Appointment of Arbitrator - Limitation period for arbitration - “Cause of action” to mean material facts that are necessary to be proved by the plaintiff to succeed in a suit; and it plays a necessary role in computation of limitation period for bringing an action. If a party simply delays sending a notice seeking reference under the Act 1996 because they are unclear of when the cause of action arose, the claim can become time-barred even before the party realises the same. B and T AG v. Ministry of Defence, 2023 LiveLaw (SC) 466 : AIR 2023 SC 2731 : 2023 INSC 549

Arbitration and Conciliation Act, 1996; Section 11(6) - Appointment of Arbitrator - Limitation period for arbitration - Mere negotiations will not postpone the cause of action for the purpose of limitation - the limitation period of three years for filing such application would commence from the date when the cause of action arose. Subsequent negotiations between the parties, which take place after the cause of action has arisen, will not postpone the cause of action for the purpose of limitation computation. B and T AG v. Ministry of Defence, 2023 LiveLaw (SC) 466 : AIR 2023 SC 2731 : 2023 INSC 549

Arbitration and Conciliation Act, 1996; Section 11(6) - Appointment of Arbitrator - Limitation period for arbitration - Negotiations may continue even for a period of ten years or twenty years after the cause of action had arisen. Mere negotiations will not postpone the “cause of action” for the purpose of limitation. The Legislature has prescribed a limit of three years for the enforcement of a claim and this statutory time period cannot be defeated on the ground that the parties were negotiating. B and T AG v. Ministry of Defence, 2023 LiveLaw (SC) 466 : AIR 2023 SC 2731 : 2023 INSC 549

Arbitration and Conciliation Act, 1996; Section 11(6) - Limitation Act, 1963; Article 137 - the Arbitration Act does not prescribe any time period for filing an application under Section 11(6) for appointment of Arbitrator. Thus, the limitation of three years provided under Article 137 of the Limitation Act, 1963 would apply to such proceedings. The time limit of three years would commence from the period when the right to apply accrues. B and T AG v. Ministry of Defence, 2023 LiveLaw (SC) 466 : AIR 2023 SC 2731 : 2023 INSC 549

Arbitration and Conciliation Act, 1996; Section 11(6) – Limitation Act, 1963; Article 137 - If an infringement of a right happens at a particular time, the whole cause of action will be said to have arisen then and there. In such a case, it is not open to a party to sit tight and not to file an application for settlement of dispute of his right, which had been infringed, within the time provided by the Limitation Act, and, allow his right to be extinguished by lapse of time, and thereafter, to wait for another cause of action and then file an application under Section 11 of the Act 1996 for establishment of his right which was not then alive, and, which had been long extinguished because, in such a case, such an application would mean an application for revival of a right, which had long been extinguished under the Act 1963 and is, therefore, dead for all purposes. Such proceedings would not be maintainable and would obviously be met by the plea of limitation under Article 137 of the Act 1963. B and T AG v. Ministry of Defence, 2023 LiveLaw (SC) 466 : AIR 2023 SC 2731 : 2023 INSC 549

Arbitration and Conciliation Act, 1996; Section 11(6), 11 (6A), 21 - Arbitration and Conciliation (Amendment) Act, 2015 - Where the notice invoking arbitration is issued prior to the coming into force of the 2015 Amendment Act, i.e., prior to 23.10.2015, and the application under Section 11 of the Arbitration Act, seeking appointment of an arbitrator, is made post the enforcement of the Amendment Act, the 2015 Amendment Act shall not be applicable. In Parmar Construction (2019) and Pradeep Vinod Construction (2020), the Supreme Court had specifically held that where the request to refer the dispute to arbitration was made before the 2015 Amendment Act came into effect, the unamended A&C Act shall be applicable for appointment of arbitrator. In BCCI (2018), the Apex Court has ruled the 2015 Amendment Act, 2015 to be prospective in nature only so far as the proceedings under Sections 34 & 36 of the Act are concerned. Further, the application under Section 11(6) was not in issue before the court. Shree Vishnu Constructions v. Engineer in Chief Military Engineering Service, 2023 LiveLaw (SC) 417 : 2023 INSC 508

Arbitration and Conciliation Act, 1996; Section 12(5) r/w Schedule VII - the Arbitrator appointed by Union, who is an employee of the Union, is ineligible to be appointed as the Arbitrator as per Para 1 of Schedule VII read with Section 12(5) of the Arbitration Act. Glock Asia-Pacific Ltd. v. Union of India, 2023 LiveLaw (SC) 459 : AIR 2023 SC 2777 : 2023 INSC 568

Arbitration and Conciliation Act, 1996; Section 29A - Post 2019 amendment, the time limit of twelve months as prescribed in Section 29A is applicable to only domestic arbitrations and the twelve-month period is only directory in nature for an international commercial arbitration - Arbitral tribunals in international commercial arbitrations are only expected to make an endeavor to complete the proceedings within twelve months from the date of competition of pleadings and are not bound to abide by the time limit prescribed for domestic arbitrations. (Para 25-29) TATA Sons Pvt. Ltd. v. Siva Industries and Holdings Ltd., 2023 LiveLaw (SC) 39 : 2023 INSC 13 : (2023) 5 SCC 421

Arbitration and Conciliation Act, 1996; Section 29A - Section 29A(1), as amended, is remedial in nature, it should be applicable to all pending arbitral proceedings as on the effective date i.e., 30 August 2019 - The amendment is remedial in that it carves out international commercial arbitrations from the rigour of the timeline of six months. (Para 34) TATA Sons Pvt. Ltd. v. Siva Industries and Holdings Ltd., 2023 LiveLaw (SC) 39 : 2023 INSC 13 : (2023) 5 SCC 421

Arbitration and Conciliation Act, 1996; Section 31(7) - Unless there is a specific bar under the contract, it is always open for the arbitrator / Arbitral Tribunal to award pendente lite interest. (Para 7.5) Indian Railway Construction Company v. National Buildings Construction Corporation, 2023 LiveLaw (SC) 210 : 2023 INSC 248 : (2023) 2 SCR 713

Arbitration and Conciliation Act, 1996; Section 33(3) and 34(3) - The starting point for the limitation in case of suo moto correction of the award, would be the date on which the correction was made and the corrected award is received by the party - Once the arbitral award has been amended or corrected, it is the corrected award which has to be challenged and not the original award. The original award stands modified, and the corrected award must be challenged by filing objections. USS Alliance v. State of Uttar Pradesh, 2023 LiveLaw (SC) 20

Arbitration and Conciliation Act, 1996; Section 34 - An application under Section 34 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. If the application is filed by invoking proviso to Section 34(3) of Arbitration Act, which extends the limitation period to further 30 days on the Court’s discretion, then benefit of such exclusion would not be available to the applicant. Bhimashankar Sahakari Sakkare Karkhane Niyamita v Walchandnagar Industries Ltd; 2023 LiveLaw (SC) 288 : AIR 2023 SC 1990 : 2023 INSC 335

Arbitration and Conciliation Act, 1996; Section 34 - Supreme Court sets aside the HC order which set aside an arbitral award - SC hold that HC exceeded in its jurisdiction under Section 34 of the Arbitration Act quashing and setting aside the well-reasoned award passed by the Arbitral Tribunal. Indian Railway Construction Company v. National Buildings Construction Corporation, 2023 LiveLaw (SC) 210 : 2023 INSC 248 : (2023) 2 SCR 713

Arbitration and Conciliation Act, 1996; Section 34(3) - Purpose and Object - To enable the parties to study, examine and understand the award, thereupon, if the party chooses and is advised, draft and file objections within the time specified. USS Alliance v. State of Uttar Pradesh, 2023 LiveLaw (SC) 20

Arbitration and Conciliation Act, 1996; Section 34(3) Proviso - Court has the power to condone the delay for further period of thirty days - Application for condonation of delay can be filed at any time till the proceedings are pending. Of course, exercise of discretion and whether or not the delay should be condoned is a different matter. USS Alliance v. State of Uttar Pradesh, 2023 LiveLaw (SC) 20

Arbitration and Conciliation Act, 1996; Section 34, 37 - An award could be said to be suffering from “patent illegality” only if it is an illegality apparent on the face of the award and not to be searched out by way of re-appreciation of evidence - The narrow scope of “patent illegality” cannot be breached by mere use of different expressions which nevertheless refer only to “error” and not to “patent illegality - if an Arbitrator construes the term of contract in a reasonable manner, the award cannot be set aside with reference to the deduction drawn from construction - The possibility of interference would arise only if the construction of the Arbitrator is such which could not be made by any fair minded and reasonable person. (Para 18, 25, 36) Reliance Infrastructure Ltd. v. State of Goa, 2023 LiveLaw (SC) 416 : AIR 2023 SC 2280 : 2023 INSC 514

Arbitration and Conciliation Act, 1996; Section 34, 37 - The Court cannot, after setting aside the award, proceed to grant further relief by modifying the award. It must leave the parties to work out their remedies in a given case even where it justifiably interferes with the award. (Para 27) Indian Oil Corporation v. Sathyanarayana Service Station, 2023 LiveLaw (SC) 415 : 2023 INSC 507

Arbitration and Conciliation Act, 1996; Section 34, 37 - View taken by the arbitrator in the facts, can be characterised as being perverse. It is undoubtedly a plausible view. It closes the door for the court to intervene. The finding of the arbitrator cannot be described as one betraying “a patent illegality". (Para 22) Indian Oil Corporation v. Sathyanarayana Service Station, 2023 LiveLaw (SC) 415 : 2023 INSC 507

Arbitration and Conciliation Act, 1996; Section 7 - An arbitration agreement within the meaning of Section 7 of the Act attracts stamp duty and which is not stamped or insufficiently stamped cannot be acted upon in view of Section 35 of the Stamp Act unless following impounding and paying requisite duty. The provisions of Section 33 and the bar under Section 35 of the Stamp Act would render the arbitration agreement contained in such instrument as being non-existent in law until the instrument is validated under the Stamp Act. N.N. Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd., 2023 LiveLaw (SC) 343 : 2023 INSC 423

Arbitration and Conciliation Act, 1996; Section 7 - 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? Held, 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. N.N. Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd., 2023 LiveLaw (SC) 343 : 2023 INSC 423

Arbitration and Conciliation Act, 1996; Section 8 - the reliefs claimed in the suit fell outside the arbitration clause contained in the agreement executed between the parties. The court reckoned that the issue raised in the civil suit involved multiple transactions, involving different contracting parties and different agreements, all of which, except for one, did not contain an arbitration clause. Gujarat Composite Ltd. v. A Infrastructure Ltd., 2023 LiveLaw (SC) 384 : 2023 INSC 470

Arbitration and Conciliation Act, 1996; Section 8 - The Supreme Court has upheld the decision of the Gujarat High Court where it had upheld the rejection of an application filed under Section 8 of the Act in a commercial civil suit, noting that the cause of action of the suit went beyond the transaction containing the arbitration agreement. Gujarat Composite Ltd. v. A Infrastructure Ltd., 2023 LiveLaw (SC) 384 : 2023 INSC 470

Arbitration and Conciliation Act, 1996; Section 8 - While noting that the reliefs claimed in the suit involved subsequent purchasers of the suit property, which were not signatories to the arbitration agreement, held that, the case did not involve any “doubt” about the non-existence of arbitration agreement in relation to the dispute in question. Gujarat Composite Ltd. v. A Infrastructure Ltd., 2023 LiveLaw (SC) 384 : 2023 INSC 470

Arbitration and Conciliation Act, 1996; Sections 11(6) and 12(5) r/w Schedule VII - Application for appointment of arbitrator - A contract entered into in the name of the President of India, does not create an immunity against the application of any statutory prescription imposing conditions on parties to an agreement, when the Government chooses to enter into a contract. Glock Asia-Pacific Ltd. v. Union of India, 2023 LiveLaw (SC) 459 : AIR 2023 SC 2777 : 2023 INSC 568

Arbitration: Supreme Court upholds rejection of S. 8 application since cause of action went beyond transaction containing arbitration agreement. Gujarat Composite Ltd. v. A Infrastructure Ltd., 2023 LiveLaw (SC) 384 : 2023 INSC 470

Award can be said to be suffering from 'patent illegality' only if it is an illegality apparent on the face of it. Reliance Infrastructure Ltd. v. State of Goa, 2023 LiveLaw (SC) 416 : AIR 2023 SC 2280 : 2023 INSC 514

Court cannot, after setting aside the arbitration award, proceed to grant further relief by modifying the award. Indian Oil Corporation v. Sathyanarayana Service Station, 2023 LiveLaw (SC) 415 : 2023 INSC 507

Limitation period for arbitration - cause of action to appoint arbitrator commences from the “breaking point” between parties. B and T AG v. Ministry of Defence, 2023 LiveLaw (SC) 466 : AIR 2023 SC 2731 : 2023 INSC 549

Limitation period for arbitration - mere negotiations between parties will not postpone the cause of action. B and T AG v. Ministry of Defence, 2023 LiveLaw (SC) 466 : AIR 2023 SC 2731 : 2023 INSC 549

Limited scrutiny of court under Section 11 of Arbitration Act through the “eye of the needle”, is necessary and compelling. NTPC Ltd v. SPML Infra Ltd; 2023 LiveLaw (SC) 287 : AIR 2023 SC 1974 : 2023 INSC 334 :(2023) 2 SCR 846

Section 34 application must be filed within 90 days limitation to claim exclusion of period when court remain closed. Bhimashankar Sahakari Sakkare Karkhane Niyamita v Walchandnagar Industries Ltd; 2023 LiveLaw (SC) 288 : AIR 2023 SC 1990 : 2023 INSC 335

Starting point of limitation u/section 34(3) Arbitration Act in cases of suo motu correction of award: Supreme Court explains. USS Alliance v. State of Uttar Pradesh, 2023 LiveLaw (SC) 20

Supreme Court deprecates practice of filing applications in disposed of SLPs to side-step arbitration process. Narsi Creation Pvt. Ltd. v. State of Uttar Pradesh, 2023 LiveLaw (SC) 325 : 2023 INSC 387

The Referral Court has the duty to conclusively decide the issue of ‘existence & validity of arbitration agreement’ raised at pre-referral stage. Magic Eye Developers Pvt. Ltd. v. Green Edge Infrastructure Pvt. Ltd., 2023 LiveLaw (SC) 444 : AIR 2023 SC 2339 : 2023 INSC 528