This article is written by Divya Nimbalkar from ICFAI Law University, Hyderabad and the article is edited by Khushi Sharma (Trainee Associate, Blog iPleaders).
Table of Contents
Introduction
Arbitration is now a buzzword in present day commercial contracts. This field of law gives the parties the option of entering into commercial agreements knowing that if there is a dispute, they can refer to this easy, quick, convenient, and cost-effective approach rather than going through the lengthy and complicated procedures of litigation. This is one of the reasons for India’s improved international ease of doing business ranking, which has resulted in more foreign investment in the country.
The arbitration clause is a clause in a contract that requires the parties to resolve their disputes through an arbitration process. Sometimes, commercial transactions have two different arbitration clauses in two related agreements.
This article discusses the court’s reasoning in Balasore Alloys Limited v. Medima LLC (2020) 9 SCC 136[i] on three issues. First, Whether Clause 7 of the Agreement dated 19.06.2017 or Clause 23 of the Agreement dated 31.03.2018 is the correct dispute resolution clause in the current factual matrix; Second Whether the court has the power and jurisdiction to grant an anti-arbitration injunction against a foreign seated arbitral tribunal; and finally Whether Section 9 of the Act can be made applicable to a foreign award made under the Rules of the International Chamber of Commerce in arbitration proceedings governed by British law with the seat of arbitration in London.
Factual background
Balasore Allloys (Petitioners/ Balasore) and Medima LLC (Respondent/ Medima) entered into an agreement related to a transaction whereby Balasore agreed to supply the High Carbo Ferro Chrome manufactured by them to Medima for sale in the territory of the USA and Canada. In the exclusive agreement in 2017 (‘the 2017 Agreement’) limited to the sale of 2000MT and consequently, 37 purchase orders were placed by Medima, specifying the details of the supply to be made under each of the purchase orders. This was governing the dispute resolution through arbitration by the Arbitral Tribunal seated in India. Retrospectively, the parties also entered into another Agreement dated 31.03.2018 relating to the above transaction enumerating new terms of the transaction which is as know as umbrella Agreement, was executed in 2018 (“the 2018 Agreement”) which governed the dispute resolution through the rules of the International Chamber of Commerce (“ICC”) seated in London. As a result, when certain conflicts arose between the Parties that needed to be handled by arbitration, a discussion emerged.
Arbitration clause
In order to better understand the stipulations and the Agreement between the parties regarding arbitration, it is important to understand the arbitration clause.
Arbitration clause in the 2017 Agreement dated 19.06.2017 is as below:
“7. ARBITRATION: Disputes and differences arising out of or in connection with or relating to the interpretation or implementation of this contract/order shall be referred to the Arbitral Tribunal consisting of 3 Arbitrators of which each party shall appoint one Arbitrator, and the two appointed arbitrators shall appoint the third Arbitrator who shall act as the Presiding Arbitrator as per the provisions of the Arbitration and Conciliation Act, 1996 and any modification or re-enactment thereto. The venue of the arbitration proceedings shall be at Kolkata and language of the arbitration shall be English. The arbitration award shall be final and binding upon the parties and the parties agree to be bound thereby and to act accordingly. When any dispute has been referred to arbitration, except for the matters in dispute, the parties shall continue to exercise their remaining respective rights and fulfil their remaining respective obligations.”
Arbitration clause in the 2018 Agreement dated 31.03.2018 is as below:
“23. GOVERNING LAW; DISPUTES This Agreement shall be governed by and construed in accordance with the laws of the United Kingdom. Any claim, controversy or dispute arising out of or in connection with this Agreement or the performance hereof, after a thirty calendar day period to enable the parties to resolve such dispute in good faith, shall be submitted to arbitration conducted in the English language in the United Kingdom in accordance with the Rules of Arbitration of the International Chamber of Commerce by 3 (Three) arbitrators appointed in accordance with the said Rules, to be conducted in the English language in London in accordance with British Law. Judgment on the award may be entered and enforced in any court having jurisdiction over the party against whom enforcement is sought.”
Arguments of Balasore
Balasore approached an arbitrator to resolve the dispute and sought to rely on Clause 7 of the 2017 Agreement which states arbitration seated in Kolkata, India. As per Balasore, Medima has failed to appoint its arbitrator. Hence Balasore is before this court seeking the appointment of an arbitrator.
Arguments of Medima
Per Contra, Medima on being notified in this petition filed a counter affidavit. Medima contends that the entire transaction is governed by clause 23 of the 2018 Agreement which states arbitration seated in London. Medima has duly filed a petition before the International Chamber of Commerce (‘ICC’) and an arbitral tribunal had already been constituted under the ICC. Hence Medima prayed for the dismissal of the Section 11 Application filed by Balasore.
Two Arbitration Clauses in two related agreements
Discussing the first issue whether Clause 7 of the Agreement dated 19.06.2017 or Clause 23 of the Agreement dated 31.03.2018 is the correct dispute resolution clause in the current factual matrix;
At the outset, the Hon’ble Supreme Court referred to the decision in the case of Olympus Superstructures Pvt. Ltd. vs. Meena Vijay Khetan & Ors. (1999) 5 SCC 651[ii] wherein this court contended with a similar issue. In that context, it was held on facts
“where dispute and difference in connection with the main agreement and also dispute in respect of” any other matter in any way connected with” the subject of the main agreement exist, the situation would be governed by the general arbitration clause in the main agreement, under which dispute ‘connected’ with can be referred to the same arbitral tribunal.”
Medima sent a notice dated 13.03.202 to Balasore referring to the breach of the 2018 Agreement and provided for arbitration seated in the United Kingdom through the ICC. Balasore in the reply notice dated 13.04.202 disputed the claims put forth by Medima and referred to their claims in price and the terms of the payment and provided for arbitration seated in the United Kingdom as mentioned in the 2017 Agreement.
This Court observed the reference made in the reply notice dated 13.04.2020 by Balasore with regard to the price and the term of the payment governing individual agreement is with reference to the Pricing Agreement which is mentioned in the 2018 Agreement. Clauses 5, 8, 9 and 10 of the Pricing Agreement outline the mechanism relating to purchases and sales, final price, payment of provisional price and adjustment of advance, determination of the final sale price and monthly accounting and payment. On the other hand, Purchase Order did not provide for such determination of pricing except referring to the price of quantity ordered and special terms relating to provisional price etc.
In the view of the matter, the 2017 Agreement provided arbitration clause was for the limited purpose of governing disputes arising out of the supply of the product and the 2018 Agreement provided all terms of the transaction relating to the contract terms, the pricing, payment, deductions etc.
Lastly, the Hon’ble Supreme Court ultimately dismissed the petition filed by Balasore that the arbitration proceeding would be governed by clause 23 in the 2018 Agreement because the disputes raised by the Parties were in relation to price, terms of payment etc. It held that it would be inappropriate for Balasore to invoke Clause 7 in the 2017 Agreement at this juncture.
Civil Courts Jurisdiction to grant an anti-arbitration injunction against a foreign seated arbitral tribunal
Discussing the second issue whether the court has the power and jurisdiction to grant an anti-arbitration injunction against a foreign seated arbitral tribunal[iii]
Following the dispute, Medima filed arbitration proceedings in London under the 2018 Agreement. An award was granted in favour of Medima by the ICC in proceedings governed by British law with the seat of arbitration in London, United Kingdom. Subsequently, to protect the outstanding amount payable by Balasore Alloys Ltd under the said Award, Medima filed a post-award application under Section 9 of the Arbitration and Conciliation Act, 1996 (Act) in the Calcutta High Court. Balasore approached Calcutta High Court seeking an injunction against the award given by the Arbitral Tribunal constituted by ICC
Balasore relied on SBP Co. v. Patel Engineering[iv], the Supreme Court dealt with the question of whether the Chief Justice’s power to appoint an arbitrator under section 11 of the Act. This judgment pertains to the powers of a civil court to rule on the tribunal’s jurisdiction. The High Court considered this case and held that the civil courts in India have the power to grant anti-arbitration injunctions against a foreign-seated arbitration, notwithstanding, this power is to be used sparingly and with abundant caution.
On the other hand, Medima relied on the case Kvaerner Cementation India Ltd. v. Bajranglal Agarwal & Anr[v] wherein the Supreme Court held that a tribunal’s power to rule on its own jurisdiction under section 16 of the Act. It applies to an anti-arbitration injunction in domestic seated arbitration. However, Kvaerner was implicitly overruled by SBP & Co. v Patel Engineering. On close perusal, the Supreme Court reveals that both these cases operate in totally different aspects.
In addition, the High Court relied on principles provided in para 24 of Modi Entertainment Network v. WSG Cricket PTE Ltd[vi] the Court found that Balasore had failed to conclusively prove that the arbitral award is vexatious and ruled that a civil court lacks the power to grant anti-arbitration injunctions.
Application of Section 9 of the Arbitration and Conciliation Act to a foreign award is valid
Discussing the third issue Whether Section 9 of the Act can be made applicable to a foreign award made under the Rules of the International Chamber of Commerce in arbitration proceedings governed by British law with the seat of arbitration in London. [vii]
The Law Commission in its 246th Report inserted the provision to 2(2) of the arbitration and conciliation act in the Amendment Bill of 2015 which culminated in the Amendment Act of 2016.
“Section 2(2) envisages that Part-I shall apply where the place of arbitration is in India and that provisions of Sections 9, 27, 37(1) (a) and 37 (3) shall also apply to international commercial arbitration even if the seat of arbitration is outside India unless parties to the arbitration agreement have agreed to the contrary.”
The Calcutta High Court perused Bhatia International vs Bulk Trading S.A[viii] wherein the Supreme Court cited Article 23.2 of the ICC Rules, which were in effect at the time, and decided that Section 9 would apply to ICC arbitrations performed outside of India.
In PASL Wind Solutions vs GE Power Conversion India[ix] wherein the Supreme Court of India considered the applicability of section 2(2) of Part I of the Act to ICC arbitrations which take place outside India and argued that an award-holder of arbitration which took place outside India would be left hopeless if interim measures are not granted in relation to the assets of the award-debtor which are located in India. The Calcutta High Court applied the rule of harmonious construction and held that the Medima is entitled to seek interim measures against Balasore.
Conclusion
This case widened the scope of judicial interference in arbitration proceedings. The Supreme Court of India took a holistic view of the factual matrix and harmonized the series of judgements. Balasore and Medima entered into two related agreements with two different arbitration clauses. A dispute arose regarding the applicability of the arbitration clause. The court held that the arbitral tribunal constituted under the 2018 Agreement under the rules of ICC would be appropriate.
An award was granted in favor of Medima by ICC arbitral proceedings. Balasore approached the Calcutta High court for an anti-arbitration injunction against the award by ICC arbitration. The Court relied on Kvaerner Cementation v Bajranglal Agarwal and Modi Entertainment Network v WSG Cricket held that Balasore is not entitled to an anti-arbitration injunction as there is no reason which merits the grant of an injunction against the ICC arbitration award. There still exists a lack of clarity as to a civil court’s powers to issue an anti-arbitral injunction. The court has also touched upon the scope of section 9 of the Act can be made applicable to a foreign award. Medima filed an interim relief in post-award application scheme passed in a foreign arbitration in Calcutta High Court wherein the decision was held that Section 9 of the Act will apply to foreign arbitration unless the intention to exclude in the arbitration agreement. It pursued Aircon Beibars FZE v. Heligo Charters Pvt. Ltd[x] wherein the need to obtain interim relief under Section 9 was acknowledged. The Court held an application for interim protection under Section 9 of the Act in respect of the Award of ICC arbitration is maintainable. The ambiguity and balancing act that the Hon’ble Courts carried shows a positive approach towards arbitration in India.
References
[i] 13479_2020_31_1501_23958_Judgement_16-Sep-2020.pdf (sci.gov.in) [ii] 16833.pdf (sci.gov.in) [iii] https://www.livelaw.in/pdf_upload/pdf_upload-379944.pdf [v] https://indiankanoon.org/doc/1996678/ [iv] https://indiankanoon.org/doc/1641452/ [vi] Modi Entertainment Network & Anr vs W.S.G.Cricket Pte. Ltd on 21 January, 2003 (indiankanoon.org) [vii] https://indiankanoon.org/doc/142999955/ [viii] Bhatia International vs Bulk Trading S. A. & Anr on 13 March, 2002 (indiankanoon.org) [ix] Pasl Wind Solutions Private … vs Ge Power Conversion India Private … on 20 April, 2021 (indiankanoon.org)[x] Aircon Beibars Fze vs Heligo Charters Pvt. Ltd on 28 April, 2017 (indiankanoon.org)Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
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