Starting Point Of Limitation U/ Section 34(3) Arbitration Act In Cases Of Suo Motu Correction Of Award: Supreme Court Explains

The Supreme Court observed that the starting point for the limitation under Section 34(3) Arbitration and Conciliation Act, 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 bench of Justices Sanjiv Khanna and M M Sundresh observed. USS Alliance versus State of Uttar Pradesh 023 LiveLaw (SC) 20

12 Months Time Limit Under Section 29A Arbitration Act Not Applicable To International Commercial Arbitration: Supreme Court

The Supreme Court has held that the time limit of twelve months as prescribed in Section 29A of the Arbitration and Conciliation Act is not applicable for international commercial arbitration.

"In terms of the amended provisions of Section 29A, 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.", the bench of CJI D Y Chandrachud and Justice P S Narasimha observed. TATA Sons Pvt Ltd versus Siva Industries and Holdings Ltd 2023 LiveLaw (SC) 39

Limited Scrutiny of Court Under Section 11 Of Arbitration Act Through The “Eye Of The Needle”, Is Necessary And Compelling: Supreme Court

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. The Court reiterated if this duty within the limited compass is not exercised, and the Court becomes too reluctant to intervene, it may undermine the effectiveness of both the arbitration and the court. NTPC Ltd vs. M/s SPML Infra Ltd 2023 LiveLaw (SC) 287

Arbitration | Section 34 Application Must Be Filed Within 90 Days Limitation To Claim Exclusion Of Period When Court Remain Closed: Supreme Court

The Supreme Court has held that an application under Section 34 of the Arbitration and Conciliation Act, 1996 must be filed within the “prescribed period” of limitation i.e. 90 days, for seeking the benefit of exclusion of the 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 the Arbitration Act, which extends the limitation period to a further 30 days at the Court's discretion, then the benefit of such exclusion would not be available to the applicant.

The Bench comprising of Justice M.R. Shah and Justice Krishna Murari further held that the Proviso to Section 10 of the General Clauses Act, 1897, specifically excludes the application of Section 10 to any act or proceeding to which the Indian Limitation Act, 1877 (now Limitation Act, 1963) applies. Since the Limitation Act, 1963 is applicable to arbitration proceedings, Section 10 of the General Clauses Act cannot be pressed into service to seek condonation of delay in filing of application on the ground that the last day of the condonable period falls on a Court holiday. Bhimashankar Sahakari Sakkare Karkhane Niyamita v Walchandnagar Industries Ltd. (WIL) 2023 LiveLaw (SC) 288

Referral Court Has Duty To Conclusively Decide Issue Of 'Existence & Validity Of Arbitration Agreement' Raised At Pre-Referral Stage: Supreme Court

The Supreme Court has held that under Section 11(6) of the Arbitration and Conciliation Act, 1996, when the issue of 'existence and validity of an arbitration agreement' is raised at the pre-referral stage, then the Court is duty bound to conclusively decide the issue. If the issue regarding the '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 the absence of a valid arbitration agreement.

The Bench comprising of Justice M.R. Shah and Justice C.T. Ravikumar has observed that the 'pre-referral' jurisdiction of the Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 consists of two inquiries, (i) existence and validity of the arbitration agreement; and (ii) non-arbitrability of dispute. Magic Eye Developers Pvt. Ltd. v M/s. Green Edge Infrastructure Pvt. Ltd. & Ors. 2023 LiveLaw (SC) 444

Award Can Be Said To Be Suffering From 'Patent Illegality' Only If It Is An Illegality Apparent On The Face Of It: Supreme Court

The Supreme Court has observed that 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 the award is 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”, the bench of Justices Dinesh Maheshwari and Sanjay Kumar observed while allowing appeals filed by Reliance Infrastructure Ltd. Reliance Infrastructure Ltd. vs State of Goa 2023 LiveLaw (SC) 416

2015 Arbitration Amendment Not Applicable Though S.11 Application Was Filed After It, If Arbitration Notice Was Issued Pre-Amendment: Supreme Court

The Supreme Court has ruled that where the notice invoking arbitration is issued prior to the coming into force of the Arbitration and Conciliation (Amendment) Act, 2015, i.e., prior to 23.10.2015, and the application under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act), seeking appointment of an arbitrator, is made post the enforcement of the Amendment Act, the 2015 Amendment Act shall not be applicable.

It is observed and held that in a case where the notice invoking arbitration is issued prior to the Amendment Act, 2015 and the application under Section 11 for appointment of an arbitrator is made post Amendment Act, 2015, the provisions of pre-Amendment Act, 2015 shall be applicable and not the Amendment Act, 2015", the Court held. M/s. Shree Vishnu Constructions vs The Engineer in Chief Military Engineering Service & Ors. 2023 LiveLaw (SC) 417

Limitation Period For Arbitration | Cause Of Action To Appoint Arbitrator Commences From The “Breaking Point” Between Parties : Supreme Court

The Supreme Court has held that 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.

The Bench comprising of Chief Justice Dr Dhananjaya Y. Chandrachud and Justice J. B. Pardiwala, while adjudicating an appeal filed in M/s B and T AG v Ministry of Defence, has observed that the 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. It was further held, that “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.” M/s B and T AG v Ministry of Defence 2023 LiveLaw (SC) 466

Court Cannot, After Setting Aside Arbitration Award, Proceed To Grant Further Relief By Modifying Award: Supreme Court

The Supreme Court observed that, in arbitration cases, a Court cannot, after setting aside the award, proceed to grant further relief by modifying the award.

In an appeal before the Apex Court, the corporation contended that the view taken by the Arbitrator was a plausible view and that a construction of the contract by the Arbitrator is not open to interference on the score that the court finds the same incorrect. Agreeing with this contention, the bench of Justices K M Joseph and B V Nagarathna said: "We are unable to find that the 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”. Indian Oil Corporation vs Sathyanarayana Service Station 2023 LiveLaw (SC) 415

'Every Arbitrator May Not Be Legally Trained, Some Decisions Are Based On Equity' : Supreme Court Explains Scope Of Judicial Interference In Arbitral Awards

The Supreme Court bench comprising Justice Sanjiv Khanna and Justice M.M. Sundresh has held that while setting aside an arbitral award for being violative of Section 28(3) of the Arbitration and Conciliation Act, 1996, it must be considered that the Arbitrator is empowered to interpret the contract terms reasonably.

The arbitrator's interpretation cannot be a ground for setting aside of award, since the construction of the contract's terms is finally for the arbitrator to decide. Under Section 28(3), the award can only be set aside if the arbitrator interprets it in a manner as no fair-minded reasonable person would do. Batliboi Environmental Engineers Limited vs Hindustan Petroleum Corporation Ltd and Anr. 2023 LiveLaw (SC) 817

Arbitration | Awarding Claim For Loss Of Profit Without Substantial Evidence Is In Conflict With Public Policy Of India: Supreme Court

Recently, the Supreme Court, while rendering an arbitral award as patently illegal and being in conflict with the “public policy of India”, held that a claim for damages cannot as a matter of course result in an arbitral award without proof of the claimant having suffered injury. The present decision emphasised the importance of substantial evidence in awarding claims for loss of profit.

“A claim for damages, whether general or special, cannot as a matter of course result in an award without proof of the claimant having suffered injury. The arbitral award in question, in our opinion, is patently illegal in that it is based on no evidence and is, thus, outrightly perverse; therefore, again, it is in conflict with the “public policy of India” as contemplated by section 34(2)(b) of the Act.,” Justices S. Ravindra Bhat and Dipankar Datta. M/S UNIBROS v. ALL INDIA RADIO 2023 LiveLaw (SC) 918

Arbitrator Won't Become Ineligible By Unilaterally Revising Fee; Mandate Can't Be Terminated On Grounds Not Mentioned In Schedule: Supreme Court

In a notable judgment, the Supreme Court has held that unilateral revision of fee by an arbitral tribunal, though not permissible, will not terminate its mandate on the ground of ineligibility as per Section 12 of the Arbitration and Conciliation Act 1996.

Although the Supreme Court has held in Oil and Natural Gas Corporation Ltd. vs Afcons Gunanusa JV 2022 LiveLaw (SC) 723 that the arbitrators should revise the fee only in consultation with the parties and should not do it unilaterally, a bench comprising Justices S Ravindra Bhat and Aravind Kumar held in the present case that a breach of the rule laid down in ONGC will not render the arbitrator ineligible.

The bench categorically held that only the grounds specified in the Fifth and Seventh Schedule of the Arbitration and Conciliation Act can be considered to determine the ineligibility of an arbitrator. The ineligibility of the arbitrator must be something "going to the root of the jurisdiction, divesting the authority of the tribunal, thus terminating the mandate of the arbitrator". M/S CHENNAI METRO RAIL LIMITED vs. M/S TRANSTONNELSTROY AFCONS JV 2023 LiveLaw (SC) 909

Court Can Examine If Arbitration Clause Is Arbitrary & Violates Article 14 While Considering S.11(6) Application: Supreme Court

In a significant judgment, the Supreme Court held that a clause in an arbitration agreement which is not in consonance with the Constitution cannot be enforced. The Court further held that it can examine if the arbitration clauses are manifestly arbitrary and violative of Article 14 of the Constitution while considering an application for the appointment of an arbitrator.

A bench comprising Chief Justice of India DY Chandrachud, Justices JB Pardiwala and Manoj Misra was deciding an application filed by Lombardi Engineering Ltd., a Swiss company, under Section 11(6) of the Arbitration and Conciliation Act 1996 seeking appointment of an arbitrator in a dispute with the State of Uttarakhand.

The company filed the application before the Supreme Court taking objection to two clauses in the arbitration agreement - one, the condition that 7% of the total claim must be pre-deposited for invoking the arbitration clause; two, the discretion vested with the Principal Secretary/Secretary (Irrigation) to appoint a sole arbitrator. Lombardi Engineering Ltd v. State of Uttarakhand 2023 LiveLaw (SC) 958

Principle Of 'Alter Ego' Or 'Piercing Corporate Veil' Not The Basis For 'Group Of Companies' Doctrine: Supreme Court

While approving the 'group of companies' doctrine in the arbitration law jurisprudence, the Supreme Court clarified that the principle of "alter ego" or "piercing the corporate veil" cannot be the basis for applying this doctrine.

The Constitution Bench comprising Chief Justice of India DY Chandrachud, Justice Hrishikesh Roy, PS Narasimha, JB Pardiwala and Manoj Misra was answering a reference which doubted the "group of companies" doctrine which allows non-signatory companies to be bound by arbitration agreement.

The judgment, authored by CJI Chandrachud, explained that the "group of companies" doctrine does not dilute the separate corporate identity of different companies; its application is based on the conduct of non-signatories, which indicates an intention to be bound by the arbitration agreement. Cox and Kings Ltd v. SAP India Pvt Ltd 2023 LiveLaw (SC) 1042

Cancellation Of Deed Is Action In Personam, Not In Rem; It Is Arbitrable: Supreme Court

Supreme Court allowed arbitration between the parties in a property dispute based on the broad language of the arbitration clause in the Tripartite Agreements. The Court rejected the argument that since the suit was for cancellation of a deed, the dispute was not arbitrable, as the action was in rem. The Court held that cancellation of a deed was an action in personam and hence arbitrable.

The Court observed that the Tripartite Agreements formed the basis of all subsequent agreements entered between the parties, including the ones that gave rise to the present dispute.

“The Trial Court and the High Court have rightly held that the broad language of the “arbitration clause” in the two Tripartite Agreements dated 31.03.2007 and 25.07.2008 would cover the dispute raised by the appellants before the Civil Court, and hence the case has been rightly referred for arbitration.,” Justices Aniruddha Bose and Sudhanshu Dhulia. SUSHMA SHIVKUMAR DAGA vs. MADHURKUMAR RAMKRISHNAJI BAJAJ 2023 LiveLaw (SC) 984

Arbitration Clauses In Unstamped Agreements Enforceable: Supreme Court 7-Judge Bench Overrules 'NN Global' Decision

A seven-judge bench of the Supreme Court on Wednesday (December 13) ruled that arbitration clauses in unstamped or inadequately stamped agreements are enforceable. Insufficiency of stamping does not make the agreement void or unenforceable but makes it inadmissible in evidence. However, it is a curable defect as per the Indian Stamp Act, the Court pointed out.

The Court overruled the judgment rendered by a 5-judge bench in April this year in M/s. N.N. Global Mercantile Pvt. Ltd. v. M/s. Indo Unique Flame Ltd. And Ors which had by a 3:2 majority held that unstamped arbitration agreements are not enforceable.

The bench comprising Chief Justice of India DY Chandrachud, Justice Sanjay Kishan Kaul, Justice Sanjiv Khanna, Justice B R Gavai, Justice Surya Kant, Justice JB Pardiwala, and Justice Manoj Misra passed the judgement in the case In Re Interplay Between Arbitration Agreements Under The Arbitration And Conciliation Act 1996 And The Indian Stamp Act 1899.

CJI DY Chandrachud read out the conclusions of the judgment as follows :

a. Agreements which are not stamped or inadequately stamped are not void ab initio or unenforceable, they are inadmissible in evidence.

b. Non-stamping or inadequate stamping is a curable defect.

c. An objection as to stamping does not fall for determination under Sections 8 or 11 of the Arbitration Act. The concerned court must examine if an arbitration agreement prima facie exists.

d. Any objection in relation to the stamping of the agreement fall within the ambit of the arbitral tribunal.

e. The decisions in NN Global 2 and SMS Tea Estates are overruled. In Re Interplay Between Arbitration Agreements Under The Arbitration And Conciliation Act 1996 And The Indian Stamp Act 1899 2023 LiveLaw (SC) 1049