This article is written by Anirudh Agarwal, a student of O.P. Jindal Global University.

Kerala State Electricity Board and Anr vs. Kurien Kalathil and Anr [1]

Court: Supreme Court of India

Bench: Division Bench

Citation: AIR 2018 SC 1351

Facts: 

The appellant entered into an agreement with the respondent contractor for the construction of the dam. Later, the Government of Kerala issued a notification which revised the minimum wages payable to certain classes of workers. The respondent claimed the escalation charges of Rs. 6,32,84,050 and Rs. 7,66,35,927 as interest at 18% per annum. The Government of Kerala referred the matter to the industrial tribunal who passed the award stating that the notification by the government would be applicable. The matter was referred to the High Court who with the consent of the counsel for the parties referred the matter to sole arbitrator in the absence of arbitration agreement between the parties to resolve the dispute which they are not able to amicably resolve.

Issue: 

Whether in the absence of the written consent from the parties can the High Court refer the matter to the arbitrator on the basis of oral consent?

Rule of law: 

Section 89 CPC

Analysis: 

Referring parties to arbitration has serious civil consequences. As per section 89 of CPC, the parties could be referred to arbitration only when the parties agreed for settlement of dispute through arbitration by making a joint application or joint affidavit before the court. As per section 19 of the arbitration and conciliation act, the arbitral tribunal is not bound by CPC and the Indian Evidence Act. Hence, once the award is passed it can only be set aside under limited grounds. In the present case, there was no arbitration agreement between the parties to resolve the dispute.

Conclusion: 

The High court order was set aside and it was held that in the absence of arbitration agreement between the parties, they could be referred to arbitration only with the written consent of the parties in form of joint application or joint memo and not on the basis of oral consent given by their counsel.

Perkins Eastman Architects DPC & Anr vs. HSCC (India) Ltd[2].

Court: Supreme Court of India

Bench: Division Bench

Citation: AIR 2020 SC 59

Facts: 

A contract was entered into by both the parties for architectural and designing work. The contract contained an arbitration clause which provided that in case of any dispute the sole arbitrator will be appointed by the chief managing director of the respondent within 30 days from the receipt of request. When the dispute arose, the respondent appointed the sole arbitrator as per clause 24 of the contract. However, the appellant challenged the appointment of the arbitrator under section 11 (6) read with section 11 (12) (a) of the arbitration act, looking for the appointment of independent and impartial sole arbitrator.

Issue: 

Whether a person who has an interest in the outcome or decision of the dispute has the power to appoint a sole arbitrator?

Rule of law: 

Section 11 (6) and Section 11 (12) (a) of the Arbitration and Conciliation Act

Analysis: 

The court relied on the judgement TRF Limited v/s Energo Engineering Projects Limited[3]which dealt with the similar issue. The court analysed that the arbitrator appointed would be subject to mandatory declaration under Section 12 of the Arbitration and Conciliation Act in terms of independence and impartiality. The element of bias and exclusivity would be inherent with respect to the course of arbitration where only one party has the exclusive right to appoint the sole arbitrator. The arbitrator should be able to devote appropriate time to complete the arbitration and not be interested in the outcome of the dispute.

Conclusion: 

The court ruled that a party who has an interest in the outcome of a dispute holds no authority in the appointment of a sole arbitrator in order to maintain a healthy arbitration environment. The court reiterates the principle that one cannot be a judge in his/her own cause.

National Highways Authority of India vs. Sayedabad Tea Company Ltd and Ors[4].

Court: Supreme Court of India

Bench: Three Judge Bench

Citation: 2019 (137) ALR 712

Facts:

The land comprising Sayedabad Tea Estate was acquired by the appellant in exercise of its power under section 3 (d) of the National Highways Act, 1956 in view of construction of highways. The compensation for the land acquired will be determined by the competent authority as per section 3G of the Act, 1956. If the amount so determined is not acceptable to either of the parties then it would be decided by the arbitrator appointed by the Central Government under section 3G (5) of the Act, 1956. Dissatisfied with the award the respondent moved an application for appointment of arbitrator under section 3G (5), but the Central Government has not responded within 30 days. Hence, the respondent filed an application to Chief Justice for appointment of arbitrator under section 11 (6) of the ACT, 1996.

Issue: 

Whether an application under Section 11 of the Arbitration and Conciliation Act for appointment of an Arbitrator in terms of dispute with National Highways Authority of India is maintainable or not in view of Section 3G (5) of the National Highways Act, 1956?

Rule of Law: 

Section 11 of the Arbitration and Conciliation Act and Section 3G (5) of the National Highways Act, 1956

Analysis: 

It is a settled principle of law that a special law trumps the general law. In the current scenario, the scheme of Act, 1956 is a special enactment and a complete code in itself for the said purpose of acquiring land including disbursement and settlement of disputes and for the appointment of the arbitrator by the Central Government under Section 3G of the Act. As per section 3G (6) the provisions of the Act, 1956 would be applicable to every arbitration to the extent where the Act 1956 is silent and Section 11 of the Act, 1996 has no application as far as the appointment of arbitrator is concerned.

Conclusion: 

The Supreme court observed that as far as the appointment of arbitrator is concerned the power exclusively vests with the Central Government under Section 3G (5) of the Act, 1956 and the application filed under Section 11 of the Arbitration and Conciliation Act for appointment of an Arbitrator was not maintainable.

The State of Bihar and Ors vs. Bihar Rajya Bhumi Vikas Bank Samiti[5]

Court: Supreme Court of India

Bench: Division Bench

Citation: AIR 2018 SC 3862

Facts: 

The appellants filed an application before the High Court of Patna under Section 34 of the Arbitration and Conciliation Act to set aside the arbitral award without issuing a prior notice to the respondents. Aggrieved by this, the respondents challenged the maintainability of the application but got dismissed by the single bench of Patna High Court. However, the decision was overturned by the division bench stating that the notice under Section 34 (5) is a condition precedent before challenging an award. Therefore, an appeal was filed challenging the order of the division bench before the Supreme Court of India.

Issue: 

Whether it is mandatory to give a prior notice under Section 34 (5) of the Arbitration and Conciliation Act before filing an application under Section 34 of the Act to set aside an arbitral award?

Rule of law: 

Section 34 of the Arbitration and Conciliation Act

Analysis: 

The court observed the language of Section 34 (5) which uses the expression “shall”, “only after” and “prior notice” which in turn supported the arguments of the respondents that the provision was mandatory in nature. However, the court cited the 246th Report of the Law Commission of India which indicated that the primary objective of Section 34 (5) and 34 (6) is the requirement that the application filed under Section 34 be disposed of expeditiously within a year from the date of service of the notice. Therefore, if Section 34 (5) is construed as mandatory in terms of ‘prior notice’ it will defeat the purpose of the advancement of justice and due to the non-compliance of the provision the vested rights of the party to challenge an award cannot be taken away.

Conclusion: 

The court concluded that the prior notice under section 34 (5) is not a condition precedent or mandatory provision but only directory in nature and no penal consequences are attached for non-compliance of the Section 34 (5) of the Act. 

Rashid Raza vs. Sadaf Akhtar[6]

Court: Supreme Court of India

Bench: Three Judge Bench

Citation: (2019) 8 SCC 710

Facts: 

A Partnership dispute arose between the partners of a company. A FIR was lodged by one of the partners alleging the siphoning of funds and other business improprieties were committed. The appellant filed a petition before the High Court under Section 11 of the Act for the appointment of arbitrator under the arbitration clause which was part of the partnership deed between the parties. The High Court dismissed the application citing para 26 of the case A. Ayyasamy vs. A. Paramasivam and others[7]that the facts in the present case are much more complicated and should only be undertaken by a Civil Court of competent jurisdiction. Hence, aggrieved by the order of High Court the appellant approached the Supreme Court by way of Special leave petition.

Issue: 

Whether simple allegations of fraud could be considered as a ground to nullify the arbitration agreement between the parties?

Rule of law: 

Section 8 and Section 11 of the Arbitration and Conciliation Act and Paragraph 25 of case A. Ayyasamy vs. A. Paramasivam and others

Analysis: 

The Supreme Court relied on para 25 instead of para 26 of the case A. Ayyasamy vs. A. Paramasivam and others and held that a simple allegation fraud cannot vitiate the arbitration agreement. When one of the parties move an application under Section 8 of the Act, alleging serious fraud, then a strict and thorough inquiry into the allegations of fraud must be dealt with and only upon the satisfaction of the court that the allegations are of serious and complex nature should be undertaken by the Civil Court of competent jurisdiction rather than referring the parties to arbitration. The court can disregard the arbitration agreement in view of para 25 of the A. Ayyasamy’s case which laid down several tests which clarifies the law that the arbitration agreement can be overlooked in cases where there are serious and complicated allegations of fraud which could only be adjudicated by civil court and the allegations are of such nature that it covers the entire contract including the provision of arbitration agreement.

Conclusion: 

The court set aside the High Court’s order and held that only those allegations which are of serious and complicated nature will be decided by the civil court and mere allegation of fraud cannot be considered as a ground to vitiate the partnership deed or nullify the arbitration agreement between the parties. Therefore, the application under Section 11 of the Act seeking the appointment of the arbitrator would be maintainable.

References

[1] AIR 2018 SC 1351

[2] AIR 2020 SC 59

[3](2017) 8 SCC 377

[4] 2019 (137) ALR 712

[5]AIR 2018 SC 3862

[6] (2019) 8 SCC 710 

[7](2016) 10 SCC 386

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