Lis pendens
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This article is written by Ananya Rai who is pursuing a Certificate Course Arbitration: Strategy, Procedure and Drafting from LawSikho.

Tulsi Narayan Garg v. The M.P. Road Development Authority, Bhopal and Ors.

Facts:

In the case at hand, the appellant was a proprietorship firm. An agreement was entered into between the appellant and first respondent, where the appellant was required to construct and maintain two roads. Accordingly, the date of completion was 12 months, culminating on 21st October 2009. However, the first respondent being a state party invoked clause 52 of the agreement and terminated the sane citing reasons of slow progress of work by the appellant. The first respondent also invoked clause 44.1 and 53.1 of the agreement and sent a notice to the appellant to ascertain liquidated damages, that were challenged by the appellant before the Madhya Pradesh High Court. The same was disposed off, with the option to the appellant of challenging the order by virtue of arbitral tribunal, which the appellant undertook before the MP arbitral tribunal under section 7 , Adhiniyam, 1983. When the same was pending, the respondent served notice to the appellant for certain packages to recover above said damages. The appellant then challenged this action stating the question of damages were sub judice before the arbitral tribunal.

Issue:

  1. Whether a party to an agreement may be an arbiter in his own cause?

Rule:

  1. Agreement clauses  44.1 r/w   53.1:

In a case where liquidated damages are required to be paid on frustration of the agreement by the contractor, the parties need to follow the procedure as mentioned under Clause 24 of the agreement.

2. S. 24 of the agreement:

The clause stipulates a procedure for redressal of disputes under the contract through arbitration through the arbitration tribunal.

Analysis:

The argument on behalf of the appellants is that when the very question of damages if pending before the tribunal, an action for the recovery of the same is unwarranted. The argument on behalf of the respondent is that, when the damages are quantified, and notice has been served to the appellant for the recovery, the same is justified. 

On hearing the arguments of both the sides, the court perused the clause in the agreement that provides for dispute resolution. As per clause 24, in case a dispute arises out of the contract relating to the work, termination, abandonment or breach, the same shall be referred to a competent authority, who shall decide on the matter in 45 days, which subject to review, will be binding on the parties. Clause 25 of the agreement provides for the right of the parties to appeal before the MP Arbitration Tribunal against the decision of the competitive authority. Therefore both the clauses provide ample rights to the appellant to approach the arbitration tribunal. As per 44 and 53 of the arbitration, the respondents have the right to assess damages in case of breach. 

In the present case, the respondents have quantified the liquidated damages to be paid by the appellant. In a similar case, the court held that the clause providing the right to the respondent to assess damages would only come to life when the breach is admitted. It is a subsidiary and consequential right to the breach, and not a primary right.

In the present case, the issue as to whether there was a breach committed by the appellant is a question pending before the appellant tribunal. When matters are such, the action of the respondent exercising right to quantify damages in case of breach would not be justified. The question of breach must be resolved by an independent authority and not a party to the agreement. As held in Virendra Sharma V. State of MP and Ors., damages are payable only on adjudication of the dispute, which shall be done by a person neutral to the agreement.

Conclusion:

In all cases except when the matter is resolved by a method endorsed under the law, the respondents may not avail recovery measures. As the agreement itself, under clause 24 and 25 provides for a mechanism for dispute resolution, it would be of no substance to argue that the same would be determined by the respondents. Therefore it is not justified for the respondents to initiate recovery proceedings pending the disposal of the matter As no person can be a judge in his own cause, similarly, it must be noted that no party to an agreement may be an arbiter in his own cause.So say the principles of natural justice. In a change of circumstances however, if there was consensus between the parties in terms of commission of breach, the respondent could have quantified the damages as per the agreement. However in this case, it would be against the strictures of justice, equity and good conscience. 

arbitration

National Highways Authority of India v. Sayedabad Tea Company 2019 SCC Online SC 1102 

Facts:

The Highways Act is a statute determined at acquirement of land for the purpose of construction of roads and ascertaining reimbursement to persons who have lost their land for the same. As per 3G(5) of the act, any person aggrieved under the act may approach a centrally appointed arbitrator.The NHAI under the act acquired an estate from the Sayedabad Tea Company in 2005, providing it with certain amount as compensation. The discontented company applied for an arbitrator under s 3G(5) of the Highways Act. The central government however made no action, consequent to which, the company filed an application under the Arbitration Act. At this point, the government appointed an arbitrator

Issues Raised:

  1. Is the Indian Arbitration and Conciliation Act 1996 special or general law?
  2. Whether the application of an arbitrator under s. 11 (6) of the Arbitration& Conciliation act is maintainable when a special act provides for a specific mode of such appointment?

Rule:
1.  Section 11(6) of the Arbitration and Conciliation Act, 1996. :

While section 11 provides for appointment of an arbitrator, section 11 (6) states that, when there are differences or complexities in the appointment a party may approach the chief justice or an official so instructed to undertake measures in this regard.

  1. Section 3G(5)of the Highways Act, 1956

If a party under the Highway act is dissatisfied by the compensation quantified under the act, such dispute may be referred to an arbitrator appointed by the Central Government 

Analysis:

The contention of NHAI was that as the supreme court had recently held, the Highways Act in its very text lays down the mode of appointment of arbitration, is-avis the central government, in case of  dispute. When situation is such, an application needed to be processed through the act itself, as the act is the governing statute with respect to matters concerning acquirement and reimbursement for the acquirement of land for the purpose of building highways, making it a special act.

When the Act specifically provides under Section 3G, a mode of appointment of an arbitrator, an application under any other mechanism would mean an invalidation of the power of the central government. 

The contention of the tea Company, was that the arbitration act 1996 would be germane to all cases of arbitrations, only ‘subject to’ the Highways act. The company had filed an application under the highways act. However the central government took no action under the same within 30 days, as prescribed under the act. Only then, did the tea company resort to the arbitration and conciliation act. As the tea company did follow the highways and , and on not receiving a redressal on the grievance, took recourse to the arbitration act, by means of literal interpretation f the clause ‘subject to’,  there was no legal anomaly caused by the company.

Terms such as ‘notwithstanding’, ‘without prejudice to’ and ‘subject to, are non obstante clauses, denoting an overriding effect of one statute over another. The usage of the term suggests exclusive application of a particular law over the other generally applied sections or law. The Arbitration and Conciliation act, 1996 is a general act providing for definition, consolidation and enforcement of laws relating to arbitration and conciliation. It applies to matters of arbitration generally. If however, there is a special act that governs a specific legal arena, providing for a mode of arbitration, it would prevail over the Arbitration act. It is settled law that special acts have an overriding effect over general laws. As the act exclusively provides for a mechanism for arbitration proceeding, the Arbitration act would not apply.

Under Section 3G (5) and (6) of the Highways Act if the central government does not appoint an arbitrator on time, it is open to the parties to file a writ under article 226 of the Constitution. National Highways is an entry under the Union list, therefore grant sole power to the Centre. All matters from acquirement of land to determining compensation and subsequent dispute resolution fall under the purview of the powers of the central government. Therefore, while the power of appointing an arbitrator rests with the central government by virtue of the Highways act being a special enactment, a S. 11 application cannot sustain.

Conclusion:

The ruling as brought into question a matter that is a settled provision in law- a question on the prevalence of special law over a general one. The court first categorized the Highways Act to be special act and the ACA to be a general act. While in Consolidated Engineering Enterprises v. Principal Secretary, Irrigation Departmentthe court noted that the Arbitration act in comparison to the limitation act was a special act and would prevail over the limitation act with reference to period of limitation in arbitration disputes, the court in the Highways case, read that Highways act Highways contracts. Therefore, we understand that it is difficult to bring about a hard and fast distinction as to which legislation would be a general act and which would be a special act.  The material challenge in such cases would be to ask oneself which statute concentrates most on the subject matter in question, and which deals with the broader, more generic aspect of the same. Whatever be the answer, the special law, shall always preclude the application of the general law. 

All said and done, the Supreme court decided the question of appointment of arbitrators , 12 years after institution of suit. After this, it gave a deadline of 6 months for the Central Government to appoint an arbitrator. The law in this regard requires more clarity, so as ro ensure that decades of delays may be ousted.

  • M/s Icomm Tele Ltc. v. Punjab State Water Supply & Sewage Board

Facts:

The State Board had issued a notice inviting tender for certain works related to expansion of water supply, sewerage schemes, pumping stations and M/S Icomm Tele Ltd (the Contractor) was eventually awarded the tender. Accordingly, a formal contract was entered between the State Board and the Contractor. The contract stated that when a party invokes the arbitration clause in it, it shall deposit 10% of the claim amount. When disputes arose and arbitration was subsequently invoked, the Contractor sought waiver of the pre-deposit. On such a request being denied, the Contractor approached the High Court of Punjab & Haryana challenging the validity of such a pre-deposit requirement. However, the High Court did not find the condition to be unreasonable, thereby refusing to strike it down. The Contractor approached the Supreme Court to decide whether such a clause was violative of Article 14 of the constitution of India and therefore liable to be set aside.

Punjab water supply announced a tender for specific works concerning augmentation of water supply, sewerage plans, etc. and M/S Icomm Tele Ltd (the Contractor) was ultimately granted the same. Consequently, an agreement was formalised between the Board and the Contractor. The agreement expressed that when a party calls upon the arbitration clause in it, it must deposit 10% of the prayed sum. When the arbitration clause was eventually pleaded, the Contractor prayed for relinquishment of the pre-deposit. When the same was refused, the Contractor moved the High Court questioning the legitimacy of the pre-deposit. Nonetheless, the High Court did not consider the requirement to be preposterous and declined to nullify it. The Contractor moved the Supreme Court to determine if the requirement was contrary to Article 14 of the constitution of India and must be struck down.

Issue:

  • Whether an arbitration clause requiring pre deposit on the price claimed in the arbitration is unconstitutional under article 14 of the constitution?

Rule:

The arbitration clause: 

The party invoking arbitration is required to deposit 10% of the sum that is prayed upon in a bank in the name of the Arbitrator until the award is pronounced. If the award given is in support of the claimant, the furnished amount shall be reimbursed to him in ratio to the sum awarded. The sum prayed and the remainder shall be awarded to the other party.’

Article 14 of Constitution of India, 1949

The state shall ensure that every person is equal before law and has equal protection of the laws.

Analysis:

The submission of the contractor argued that there exists an unequal bargaining influence between the contractor and the respondent and so, the arbitration clause is discriminatory. The reasoning given by the contractor is that regardless of whether the determination is in favor of the petitioner, what might be reimbursed is merely in proportion to the real sum granted and the remainder is relinquished to the respondent, notwithstanding having suffered defeat in the case. Additionally, the requirement of deposit of 10% would deter a rightful claimant from invoking an arbitration clause, in fear of losing the amount. 

The State Board denied that the arbitration clause was ultra vires Article 14 of the constitution as the same would apply to both parties equally, hence it was no discriminatory and must not be struck down. The government placed reliance on the case of Central Inland Water Transport Corp. which held that the rule that agreements where there exists and is proportionate bargaining influence among private persons and the State, are required to be quashed, does not apply where the contract is a commercial transaction. 

The Apex court agreed with the contention of the respondent that contracts of adhesion may not be set aside when the same is a commercial transaction with parties as businessmen. Hence it may not be held as discriminatory by virtue of that rule. This is because contract are in the very ambit of business and he parties must be aware of the nook of the transactions they are entering and may not be allowed to make use of the defence of unequal bargaining power.  However, even when the question is of a commercial transaction, the necessity for a state party to act fairly, justly and reasonably and thereby abide by Article 14 exists.

Consequently, the article in question is arbitrary and hence against Article 14. The reasoning for the same would be a) the reason why the arbitration clause required the pre deposit was to avoid filing of frivolous claims. Anyway, there is no connection between trivial cases and the requirement of pre-deposit, since the sum is needed to be furnished regardless of whether the case is trivial or bona fide. Trivial cases may be dodged by forcing notable costs and so, an unreasonable requirement like the one above may not have to be drafted.

  1. b) The arbitration clause provided for a reimbursement only in proportion to the amount awarded, with the balance being forfeited to the other party, even though such a party may have lost the case, the same is certainly arbitrary and violative of Article 14.A significant reason for the promotion of the concept of arbitration is to lessen the burden of the court. discouraging a party from invoking arbitration is contrary to this objective. If Arbitration is to be preferred to avoid high court fees, then by adding such a clause that demands a deposit of 10% of the amount claimed would, by being greater than any court fee, be counter-productive. Therefore it is only right that the court strikes down such a clause. 

Conclusion:

By this judgment, the Supreme Court has indicated that while pre-arbitral deposit requirements are not invalid per se, such pre-conditions to initiation of arbitration cannot be disproportionate and/or burdensome so as to make arbitration a less viable dispute resolution mechanism vis-à-vis litigation in Courts.

In the recent past, we have witnessed courts increasingly adopting a pro-arbitration approach by refraining from interfering in the arbitral process. This judgment however, is a unique example of a court forwarding the object of arbitration by in fact taking the bold step of ‘interfering’ and rectifying a commercial understanding between parties that was found to be arbitrary and discouraging towards the arbitration process. Through this judgment, the judiciary has demonstrated the ideal way in which courts may play a guiding role in the arbitral process by stepping in constructively when parties may overstep the four corners of the constitution or may act against the very objective of arbitration, while maintaining utmost reverence for party autonomy, the very crux of alternative dispute resolution mechanism. Parties should be mindful that although commercial contracts may be protected from judicial scrutiny, they are still required to be fair, just and reasonable. The Supreme Court’s decision in this case is yet another example of a systematic and progressive shift in favour of arbitration as a means to resolve disputes. It will also be interesting to see if this judgment leads to development of a new jurisprudence around claiming exemplary costs and damages and the calculation thereof in cases of frivolous claims.

Emkay Global Financial Service Limited v. Giridhar Sondhi

Facts:

M/s Emkay Global Financial Services Ltd. was a registered broker with the National Stock Exchange and Mr. Girdhar Sondhi was Appellant’s client. The Respondent had initiated arbitration proceedings against Appellant. Under the agreement and the NSE bye-laws, exclusive jurisdiction was granted to the courts in Mumbai. The bye-laws further prescribed that if the dispute did not involve NSE, no court was prohibited by it from having jurisdiction. NSE referred the present dispute to a sole arbitrator at Delhi and passed an award rejecting the claim of Respondent. The Respondent filed an application to set aside the Award under Section 34 of the Arbitration and Conciliation Act, 1996, which was dismissed by the District Court in Delhi on the ground that it would not have the jurisdiction in light of the exclusive jurisdiction clause. On appeal, the Delhi High Court held that the issue of jurisdiction in the present case was a question of fact and the court was wrong in not allowing the parties to lead evidence on it and directed the court to do so. The order was challenged before the Supreme Court.

Issue:

  1. Whether seat is akin to exclusive jurisdiction clause ?
  2. Whether evidence may be lead under Section 34 proceedings ?

Rule:

Section 34 of the Arbitration and Conciliation Act, 1996:

The section provides for grounds for setting aside an arbitral award. According any party to an award may file an application to set aside an award if he furnishes proof that he was under some incapacity, the arbitration agreement is invalid, the subject matter of the dispute may not be arbitrable, the award is against the public policy of India.

Analysis:

Issue 1:

The Supreme Court first, relied on its own judgment in Indus Mobile Case, where it held that as soon as a seat is determined in an arbitration agreement, it becomes parallel to an exclusive jurisdiction clause. The court held that, under law of arbitration, CPC which applies to civil suits, a seat can be chosen by parties to an arbitration clause. Such a place may not have jurisdiction as per CPC. However, in arbitration, the reference to a seat in the clause bestows such a court with jurisdiction. If the seat is Mumbai, the courts of Mumbai shall have exclusive jurisdiction over the dispute automatically. Therefore, Mumbai courts will have exclusive jurisdiction owing to the Agreement and NSE bye-laws in the present case.

Issue 2:

Subsequently, the Court analyzed the second aspect of the Delhi High Court’s order. The Delhi High Court had directed District Court to conduct a trial on the question of fact relating to jurisdiction by allowing parties to lead evidence on it.

The court while pointing out at precedents set by Delhi high Court, pointed that the same court had held that there is no requirement under Section 34 for parties to lead evidence. Additionally, the Apex court had held that unlike in  a normal suit as per Order XIV Rule 1 of the CPC , issues were not required to be framed in proceedings under section 34, as it was a summary trial.  Thus, the Court indicated that proceedings under Section 34 may not have the facets of a normal civil suit.

The framing of section 34 provides for wording such as furnish proof” as to the existence of the grounds under Section 34, which leads to the assumption of leading evidence. Hence it would serve the purpose of law as per Srikrishna Committee to amend the language of Section 34(2)(a) such that petitions under Section 34 do not take form of a civil suit.  Taking heed from the Committee report, the government recently introduced Arbitration and Conciliation (Amendment) Bill of 2018 which proposes to incorporate this change into the Act. Relying on the above, the Court clarified that “an application for setting aside an arbitral award will not ordinarily require anything beyond the record that was before the Arbitrator. However, if there are matters not contained in such record, and are relevant to the determination of issues arising under Section 34(2)(a), they may be brought to the notice of the Court by way of affidavits filed by both parties. Cross-examination of persons swearing to the affidavits should not be allowed unless absolutely necessary, as the truth will emerge on a reading of the affidavits filed by both parties.”

Conclusion:

The objective underlying the enactment of Arbitration Act in 1996 was speedy resolution of disputes. If issues are framed and oral evidence is led in a summary proceeding under Section 34, then obviously, this objective would be vitiated. With the present judgment, the Court has tightened the lid around Section 34 proceedings and set the law in its right place.

Even so, the judgment leaves room for challenges in the future. There may be situations where parties may want to bring on record certain facts which came to light post the arbitral proceedings. A few examples could be:

  1. Facts regarding incapacity of party to the agreement, being of unsound mind or minor etc.;
  2. Misrepresentation of facts (or fraud played) by a party in arbitration not then known to other party;
  3. Facts relating to impartiality / conflict of interest of the arbitrator, not then known to the innocent party.

Hence, under limited circumstances, certain material facts should be allowed to be examined in proceedings under Section 34. One may argue that even after the adoption of the language under the Proposed Amendments, the courts can still examine additional facts in light of arbitral tribunal’s record and give their findings. However, it now remains to be seen how the new language of Section 34(2)(a) under the Proposed Amendments will operate in light of this judgment.

The Oriental Insurance Co. Ltd. and Ors. v. Dicitex Furnishing Ltd.

Facts:

Dicitex had its stock goods insured for an amount of Rs. 13 Cr from Oriental Insurance. It was due to a fire accident that the stock got destroyed and the company made a claim of Rs. 14.88cr when in fact the initial value was claimed at Rs. 12.93cr by the surveyor by the Insurer. 

Despite requests of Dicitex to settle the claims on priority, another surveyor appointed by the Insurer kept putting it on hold. Following 26 months of the fire, the Insurer sent Dicitex a release voucher, which esteemed the claim at Rs. 7.16 Cr. furthermore, expressed that if the discharge voucher was not acknowledged by Dicitex, the Insurer would not make any installments.

Being under monetary trouble, Dicitex acknowledged the discharge voucher, in any case, raised a dispute within 12 days. However, the insurer the further claims as made by Dicitex as they had signed an unconditional discharge voucher and also they weren’t appointed an arbitrator for the same. Therefore, Dicitex went to the court and filed for a petition u/s 11(6) for the appointment of an arbitrator. The Bombay HC while allowing the petition opined that the matter was arbitrable as Dicitex had prima facie signed the voucher hesitantly because of monetary issues. Later the decision was challenged in the Supreme Court by the Insurer.

Issue:

  1. Whether a dispute is arbitrable pursuant to signing of the unconditional discharge vouchers?
  2. Whether the dispute is arbitrable if Dicitex had prima facie inferred that the unconditional discharge voucher had been signed under duress coercion or influence?

Rule:

  1.  Section 11(6):

While section 11 provides for appointment of an arbitrator, section 11 (6) states that, when there are differences or complexities in the appointment a party may approach the chief justice or an official so instructed to undertake measures in this regard.

Analysis:

The SC looked into certain illustrations to analyze if the matter at hand is arbitrable or not taking into considerations the signed unconditional discharge vouchers.

  • When the claims are made including the undisputed and disputed ones which have some to a settlement after dealings with the issuance of discharge vouchers or no claim certificates, at that point neither the agreement nor any question endures. Thus, the dispute may not be alluded to arbitration.
  • A contractor may do a work for specific sum while the employer might settle the same for a much lower sum. Furthermore, if the employer puts the condition of “take it or leave it” before the employers and not accepting the offer the contractor might end up losing the whole sum, such discharge would amount to economic duress. Therefore, this is no way considered as voluntary discharge and the matter would be arbitrable.
  • Similarly, if a party is insured (but facing financial crisis) and is given the offer of “take it or leave it” for an amount which is much lower than the actual amount claimed then the said matter would be arbitrable as the decision was made under economic duress. 
  • If the claimant voluntarily reduces the huge sum of claim to avoid any litigation proceedings and get a timely settlement even though he could have settled the claim due to financial issues then this will be regarded as free will and hence would not be arbitrable. 

Therefore, if an issue had to be an arbitrable one then there should be prima facie evidence that the discharge voucher would sign under any coercion, influence or financial duress.

Conclusion:

While concluding the court observed that Dicitex had executed the discharge vouchers out of coercion and under influence due to financial duress as the 2nd surveyor had reduced the amount for the claim to a much lower sum than the 1st one and adding to the misery gave the offer of “take it or leave it” and was paid 27 months after the incident therefore, established prima facie evidence of coercion, duress or under influence. The facts of the case fall within illustrations (iii) and (iv).

Therefore, the Hon’ble SC upheld the Bombay HCs decision on allowing the appointment of arbitrator.

This case has proven to be a groundbreaking one as it provides the security to parties who are compelled to choose between “take it or leave it” offers thereby taking advantage of their misery and economic condition. When a party establishes that there has been prima facie evidence of duress or influence in issuance of discharge vouchers then the matter becomes an arbitrable one and the party gets a chance to settle the claims as it would have been had not the injustice had happened. 

Rashid Raza v. Sadaf Akhtar

Facts:

The dispute arose on allegations of siphoning of the funds and various business improprieties, by one partner in a partnership deed against another. Going by the deed the partner had gone to the HC u/s 11 for arbitration. However, the HC held that the fact of the case involves allegations of fraud and is not arbitrable. Therefore, the petitioner challenged the view of the HC in the SC by an SLP.

Issues:

1.Whether serious fraud allegations may be dealt in an arbitration proceeding.

Rule:

Section 11

Analysis:

When there are allegations of such serious nature like forgery or fabricating documents in addition to the plea or when the allegation is regarding fraud in the arbitration clause itself or when the alleged fraud is applicable to the entire contract then such fraud would have an impact on the validity of such contract or the arbitration clause itself. This would have implications not just restricting to the internal affairs but also the external domain of the parties. Before dealing with the serious allegations of the fraud the court should first examine whether the jurisdiction of the arbitral tribunal has been ousted. The concern should not be regarding the ousting of the court’s jurisdiction. What the court should examine is whether the matter at hand is arbitrable or not even if there exists an agreement for arbitration.

The inquiry should be on whether the nature of the dispute is such that it cannot be referred to arbitration, even if there is an arbitration agreement between the parties to the contrary. Moreover, when allegations of serious fraud are made then it is of paramount importance that special attention is paid in the inquiry when such allegations are made to twist the arbitration agreement.

The SC had laid down a two step test to establish the matters which involve serious fraud as observed in the case of Rashid Raza:

  1. Whether a plea under the complex fraud impact the whole contract or arbitration agreement making it void.
  2. Whether such allegations affect the internal affairs of the parties and inter se have no impact in the public domain.

The SC by applying this test held that there was no such allegation as would impact and make void the whole partnership deed or even the arbitration clause attached in the deed. Adding that the such allegations of siphoning of funds fall under allegations against the partnership and does not impact the public domain. Hence, the SC overruled the ruling of the HC as both the tests failed. It should be duly noted that this ruling applies only to India seated arbitration and not foreign as foreign would be governed by the World Sport case and have the competency to arbitrate on any type of fraud.

Conclusion: 

This decision is a groundbreaking one as it has set a precedent on the matter involving allegations of complex or serious fraud. The SC has once again inclined towards the arbitration approach and this will assist the counsels and arbitrators to take a stand in such matters. Despite the fact that the Supreme Court has smoothed out or limited the threshold for inspecting the arbitrability of issues including the claims of fraud still there stays basic issues that require conversation. Matters involving construction or maritime are directed by arbitrators who are industry specialists, for example, engineers, port chiefs and so forth. For such arbitrators it would be an intense and monotonous task to inspect the claims of fraud and may need two court’s assistance or any expert assistance as fraud by its nature can be a civil or criminal action.

M/s Makro v. M/s The New India Assurance Co.  Ltd.

Facts:

This is a petition filed u/s 11(6) for appointment of an Arbitrator. The arbitration clause between the parties reads as under: If any dispute arises regarding the quantum to be paid under the Policy the same will be referred to a sole arbitrator to be appointed in writing by the parties or if they cannot agree upon a single arbitrator within 30 days of any party invoking arbitration, it shall be referred to a panel of 3 arbitrators, and arbitration shall be conducted as per the ACA 1996. No difference or dispute shall be referable to arbitration if the Company has disputed or not accepted liability under this Policy. 

Petitioners have filed a petition for appointment of an arbitrator.

Issues:

  1. Whether the full and final settlement of a claim acts as a defence to against arbitration proceedings?

Rule:

  1.  Section 11(6)

While section 11 provides for appointment of an arbitrator, section 11 (6) states that, when there are differences or complexities in the appointment a party may approach the chief justice or an official so instructed to undertake measures in this regard.

Analysis:

It was contended by the respondents that the petitioner had received the claim amount from the respondents towards full and final settlement of its claim and cannot invoke the arbitration clause as no dispute survives between the parties. It is further averred in the reply that the petitioner has failed to plead and establish any fraud/coercion/ undue influence by the respondent at the time of full and final settlement by the petitioner.

It is the arbitrator who has to examine the preliminary disputes and not the court within the scope available for it in appointment of arbitrator u/s 11(6). It can be said that appointment of an arbitrator is a judicial function and not an administrative one as it leaves a scope of judicial intervention and when the question of existence of prima facie arbitration agreement comes then it is pertinent to make sure that such process does not unnecessarily become prolonged.

In M/s. Mayavati Trading Pvt. Ltd. vs. Pradyuat Deb Burman, it was held that the defence of full and final settlement of a claim will not be considered by the Court while examining the petition u/s 11(6). The Apex Court has held that all that needs to be seen at the time of deciding Sec.11(6) of the Act is the existence of the Arbitration Agreement and no more and nothing else.

Conclusion:

After the above judgement, it has been made clear that the law before the 2015 Amendment that has been laid by this Court, which would have included going into whether accord and satisfaction has occurred, has now been revoked. Taking this into consideration it is hard to concur with the reasoning given in the above-mentioned judgment as sec. 11(6A) is bound to the examination of the existence of an arbitration agreement and is to be perceived in the restricted sense.

Brahmani River Pellets Ltd. v. Kamachi Industries Ltd. 

Facts:

Two industries namely, Brahmani River Pellets and Kamachi Industries entered into an agreement that they would sell iron ore pellets with their loading port and destination port being in Odisha and Chennai, respectively. The dispute emerged between the them with respect to the payment mode terms and conveyance of goods. This is when Kamachi went to the Madras HC to file petition u/s 11(6) as per the clause in the agreement which provides for the venue of arbitration as Bhubaneshwar. Brahmani challenged the jurisdiction of Madras HC stating that it did not have the jurisdiction as the seat was decided as Bhubaneshwar in the agreement and hence, only Orissa HC would had the jurisdiction to which the Madras HC when there is an absence of an express clause ousting the jurisdiction of other courts then both the court can have jurisdiction. Subsequently, Brahamani went to appeal before the SC for the above order.

Issue:

Whether by stating a venue in the arbitration agreement of the parties, the jurisdiction of court outside the court of venue becomes barred.

Rules: 

  1. Section 11(6)

While section 11 provides for appointment of an arbitrator, section 11 (6) states that, when there are differences or complexities in the appointment a party may approach the chief justice or an official so instructed to undertake measures in this regard.

2. Clause under the agreement:

“Arbitration shall be under the Arbitration, and Conciliation Law 1996 and the venue of the arbitration shall be Bhubaneshwar.”

Analysis:

If the contract under its arbitration clause provides for a certain place, only such place would have jurisdiction, and no other. In the present case, the court noted that both the parties had agreed to Bhubaneshwar as the venue for arbitration in their agreement, this shows the intent tat the parties have set out exclusive jurisdiction for the court having jurisdiction in Bhubaneshwar. And if the parties do not use words such as “exclusive jurisdiction”, “only”, “exclusive”, “alone” does not make is conclusive or make any material difference. Hence it was held that it is only rightful that Bhubaneshwar be the seat of arbitration. In the given case, the seller was located in Bhubaneshwar, the payment was to be made in Bhubaneshwar and the place of performance was also in Bhubaneshwar. Therefore, there was enough reasons to maintain the seat of Arbitration in Bhubaneshwar.

Therefore, the SC opined that when a party specifically mentions the jurisdiction of a particular that means that the intent behind is exclusion of jurisdiction of other courts and therefore in the present case, the parties specifically mentioned Bhubaneshwar as their venue of arbitration and hence the intent was clear that only court having jurisdiction in Bhubaneshwar will have relevant jurisdiction in the case. Hence, it was held that Odisha HC had exclusive jurisdiction in the case and Madras HC erred in the ruling.

Conclusion:

The conundrum of “seat vs venue” has been deliberated on, in various cases. In the case of UOI v. Hardy Exploration and Production Inc., it was observed that when an arbitration agreement contains a clause about the “venue” of the proceedings, it cannot be inferred that the “seat” of the arbitration would be the same and therefore the courts have the duty here to consider other factors for determining the same. Consequently, when the parties fail to designate a seat for the arbitral proceedings, the intention is to choose the country of one of the parties as the seat of the arbitration.

However, the ratio in the present case is at cross swords with settled position of law.
In the case the court has taken the exact opposite view by equating seat with venue. Unless there were other factors relating the venue to the facts of the case, the venue may not be settled as the seat. Although the reasoning of the court in terms of intention of the parties while drafting the contract is opposed to the established precedents, the court has abided by the test in Enercon. In the case of Enercon, the SC opined that when the parties fail to specify seat for arbitration then the court to apply the “closest connection” test to designate such seat. Applying this test, the court would still have chosen Bhubaneshwar as the seat. Therefore, although the reasoning of the court had scope to mislead it judgment, the end result was still the same. The judgment makes it clear for the parties that the use of clauses and language should be precise and accurate while drafting the agreement.


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