Arbitration and Conciliation Act

This article is written by Vivek Maurya from ICFAI Law University, Dehradun. This article describes the recent judgment passed by the Court for the proper interpretation of the provision of the Arbitration Act.

Table of Contents

Introduction

In recent years, numerous notable judgments regarding arbitration law have been delivered by Indian Courts. Some decisions of the Supreme Court given in 2021 that analyse and set forth the legal position on the interpretation and applicability of provisions of the Arbitration and Conciliation Act, 1996 have been summarised below.

Important judgments by the Supreme Court of India

Sanjiv Prakash v. Seema Kukreja, April 2021

Issue

The dispute stemmed from a Memorandum of Understanding signed by members of the Prakash family (i.e., the Appellant and the Respondents), who together owned 100% of ANI Media Private Ltd. The Memorandum of Understanding stated among other things that if any member of the Prakash family wanted to sell or donate their interests, they may do so to the Appellant. The Memorandum of Understanding included an arbitration clause that stipulated that disputes would be resolved by a single arbitrator.

Download Now

Judgment

The Supreme Court of India has examined the limiting scope of Section 11 of Arbitration and Conciliation Act, 1996 and concluded that the issue of novation of an agreement cannot be determined by the courts in the limited prima facie assessment of whether the parties have entered into an arbitration agreement. The Supreme Court relied on the decision in Vidya Drolia vs Durga Trading Corporation, (2020) which ruled that the Court can only intervene at the pre-reference stage if it can be demonstrated that the claims are prima facie time-barred and dead or that there is no pending dispute. All other cases should be sent to an arbitral tribunal for a merits ruling. This would likewise be the situation if a motion for novation was filed.

Analysis of the judgment

This decision is a welcome respite for a judiciary overburdened with such suits, which obstruct the efficient operation of a separate and independent conflict settlement process. However, one disadvantage of this decision is that it may prevent parties who are subjected to onerous arbitrations from seeking relief in civil court if the arbitration agreements are no longer in effect owing to the novation of the original contract. In any event, it is extremely difficult to please everyone, no matter what you do.

M/S NN Global Mercantile Pvt Ltd v. M/S Indo Unique Flame Ltd & Others, January 2021

Issue

The main legal question in the Global Mercantile decision was whether an arbitration agreement or an arbitration clause included in a contract might be declared void due to non–stamping and non–fulfillment of technical compliances. 

Judgment

The Supreme Court ruled that non-stamping/inadequate stamping is treatable. In addition, because the arbitration agreement is,

  1. An independent agreement.
  2. The non-payment of duty on the contract was not actionable under the stamping legislation, but it did not preclude the parties from relying on the contract’s arbitration clause.

The Supreme Court reversed its prior decision in M/S Sms Tea Estates P.Ltd vs M/S Chandmari Tea Co. P.Ltd, (2011) and found the conclusions in Garware Wall Ropers Ltd. vs Coastal Marine Constructions, (2019) to be incorrect. However, because this ruling had just been confirmed by a Supreme Court coordination bench. The Supreme Court referred the case to a bigger court for decision. The Supreme Court has issued instructions for how courts and tribunals should handle non-stamping or inadequate stamping objections.

  • An arbitral tribunal will seize the document and order the parties to pay the stamp duty and any penalties to the collector’s satisfaction.
  • The court will send the case to arbitration rather than impounding the document under Section 8. However, before the tribunal decides on the issue, the court will order the parties to stamp the document.
  • The court can provide remedies to protect the arbitration’s subject matter under Section 9, but it will then seize the document and order the parties to pay the stamp duty.
  • The court will appoint a tribunal under Section 11, but the parties must stamp the document before the tribunal may rule on the issue.

Analysis of the judgment

The Global Mercantile decision was a welcome one, preserving the core of Section 16 of the Arbitration Act and honouring the draftsmen’s purpose. The primary purpose of this Act is to protect the parties’ “Equitable Rights,” not to compel them to go to court or to use litigation as an alternative remedial mechanism, which will in no way fulfill the actual objective of the Arbitration Act and would cause the parties to suffer. The Indian courts, through its precedents, must set an example and encourage parties to use arbitration as an alternative dispute resolution process, rather than focusing on technical compliances. Instead, the focus should be on the bigger picture, which will benefit the parties.

The Global Mercantile decision has not only set a precedent on a national level, but it has also had international ramifications. In conformity with the arbitration process created in India, this precedent will undoubtedly favor a foreign firm. This judgment has also assumed the onus of clearing the air with regard to the debates over the arbitrability of fraud in India and has used a holistic approach in reaching its conclusion on the topic. This decision has unquestionably raised the bar and provided a glimmer of hope to the parties by preserving the substance of the two interlinked historic concepts of “Doctrine of Severability” and “Kompetenz Kompetenz.”

Haryana Space Application Centre (HARSAC) and Anr. v. Pan India Consultants Pvt. Ltd. and Anr., January 2021

Issue

Pan India filed an application with the Additional District Judge, Chandigarh (District Judge) under Section 29A(4) of the Arbitration and Conciliation Act, 1996 stating that the arbitral judgment was ready to be pronounced and that the whole cost had been paid to the tribunal. HARSAC objected to the application, claiming that it should be denied due to a lack of adequate grounds for granting an extension under Section 29A(4). The panel was given a three-month extension by the District Judge to complete the procedures. HARSAC then filed a revision appeal with the High Court, asking the court to overturn the District Judge’s ruling and granting an extension of time to pass the arbitral award. Due to the epidemic, the High Court granted a four-month extension to let the parties finish their arguments within three months, with one month set aside for the tribunal to issue the arbitral decision. HARSAC filed a special leave petition with the Hon’ble Supreme Court, expressing its dissatisfaction with the aforementioned High Court judgment.

Judgment

The Hon’ble Supreme Court was of the opinion that, under Section 12(5) of the Arbitration Act, 1996 read with the Seventh Schedule, the nomination of the Principal Secretary, Government of Haryana as the nominee arbitrator of the appellant, which was a nodal agency of the Government of Haryana, was unlawful. It was pointed out that under Section 12(5) of the Arbitration Act, any individual whose connection with the parties falls into any of the categories listed in the Seventh Schedule is ineligible to be chosen as an arbitrator, regardless of any prior agreement to the contrary. The Hon’ble Supreme Court ruled that Section 12(5) of the Arbitration Act, coupled with the Seventh Schedule, was an obligatory and non-derogable clause.

In the instance at hand, it was determined that the Principal Secretary of the Government would be unqualified to serve as an arbitrator because he would have a controlling influence on the HARSAC, which is a state-run nodal agency. During the hearing, the counsel for both parties agreed to the replacement of the present panel by selecting a single arbitrator to finish the arbitral procedures. The Hon’ble Supreme Court then appointed a substitute arbitrator, who would continue the proceedings from where they were at the time of the order’s receipt and issue an arbitral decision within six months.

Analysis of the judgment

The Supreme Court’s current decision is extremely important. As previously stated, neither party has ever objected to any of the arbitrators being appointed because they were unqualified under Section 12(5) of the Act. Despite the fact that the arbitral proceedings had been ongoing for nearly four years and were nearing completion, the Supreme Court, in an SLP arising from a petition filed under Section 29 A, took suo motu cognizance of the invalidity of appointing the Principal Secretary of the Haryana Government as an arbitrator.

The Supreme Court has often ruled in favour of “arbitrator neutrality” since the addition of Section 12(5) to the Act by the Arbitration and Conciliation (Amendment) Act 2015. The current judgment appears to serve the same goal, in that the SC looked at the issue of ineligibility for the appointment of an arbitrator, regardless of whether such objections were submitted by any of the parties or the stage of the arbitral proceedings at the time.

Government of Maharashtra v. Borse Brothers Engineers & Contractors Pvt. Ltd., March 2021

Issue

Three identical appeals were heard by the Hon’ble Supreme Court, with the main issue being whether the ruling in N.V. International v. State of Assam, (2019) correctly established the law. The High Court of Bombay rejected the Government of Maharashtra’s appeal in a Civil Appeal resulting from the SLP in a ruling dated December 17, 2020. The High Court of Bombay declined to excuse the 120 days delay in filing the appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (Arbitration Act). The issue in all of the appeals before the Hon’ble Supreme Court is the time limit for filing an appeal under Section 37 of the Arbitration Act, contesting a judgment made under Section 34 of the Arbitration Act.

Judgment

The Hon’ble Supreme Court stated that the Commercial Courts Act, 2015 (Commercial Courts Act), which establishes a stipulated value for application, would only apply to appeals under Section 37 of the Arbitration Act if the specified value exceeded three lakh rupees. The limitation period would be 60 days in such situations when an appeal under Section 37 of the Arbitration Act was directed by Section 13 of the Commercial Courts Act.

Where the Commercial Courts Act does not cover an appeal under Section 37 of the Arbitration Act because the stated value is less than three lakhs, the provisions of Articles 116 and 117 of the Limitation Act, 1963 apply. According to Article 116 of the Limitation Act, if an appeal was brought to the High Court from an order of a subordinate court, the term of limitation was set at 90 (ninety) days from the day the order was passed by the subordinate court. Similarly, if an appeal is brought from a High Court order to the same court or a court other than the High Court, the term of limitation is 30 (thirty) days under Article 117 of the Limitation Act.

On the issue of the delay being excused, the Hon’ble Supreme Court concluded that in all of the aforementioned appeals, a little delay may be excused as an exception rather than a rule. A court may only allow a limited-term if the party operated in good faith and the court considers that the opposing party may have gained equity and justice that is now being lost due to the first party’s inaction and negligence.

Analysis of the judgment

The Court has offered essential clarification on the limitation time for submitting appeals under Section 37 of the Arbitration Act, as well as the condonation of delays in filing such appeals, focusing on the underlying goal of quick resolution of disputes. The Court has made comprehensive observations on the subject, taking into account the relevant legal rules as well as the importance of adhering to deadlines, particularly in business disputes. Furthermore, in keeping with the principle of “equality before the law,” the Court has tried to put all parties participating in commercial activity on an equal basis by adopting the same yardstick to postpone condonation in instances involving public sector businesses. The Supreme Court has made yet another commendable and forward-thinking effort in the area of arbitration and commercial disputes.

Indus Biotech Pvt. Ltd. v. Kotak India Venture (Offshore) Fund, March 2021

Issue

Indus Biotech Private Limited issued Optionally Convertible Redeemable Preference Shares (OCRPS) to Kotak India Venture Fund. The parties agreed on the terms of conversion and redemption of the OCRPS in their Share Subscription and Shareholders Agreement (SSSA). An arbitration clause was included in the SSSA. The parties couldn’t agree on the proper methodology to use for converting Kotak’s OCRPS into paid-up equity shares, as well as the amount of any subsequent refund.

When Indus failed to redeem the Optionally Convertible Redeemable Preference Share, Kotak filed an application with the National Company Law Tribunal under Section 7 of the Insolvency & Bankruptcy Code, 2016 (IBC) to initiate a corporate insolvency resolution procedure. Indus responded by requesting that the Tribunal submit the parties to arbitration under Section 8 of the Arbitration & Conciliation Act 1996 under the SSSA.

Judgment

To decide whether the subject matter, in this case, was arbitrable, the Hon’ble Supreme Court looked to the recent decision in Vidya Drolia and Others v. Durga Trading Corporation, (2020). The Hon’ble Supreme Court stated that when a process is in rem, a dispute is non-arbitrable, and the IBC proceeding is to be deemed in rem only after it is allowed, based on the comprehensive analysis undertaken in Vidya Drolia. However, it should be emphasized that in this case, the application under Section 7 of the IBC was denied. Given the request to send parties to arbitration made under Section 8 of the Arbitration Act, the moot question was whether an application filed under Section 7 of the IBC before it was admitted may be referred to arbitration.

The Hon’ble Supreme Court noted that the legal position of IBC supersedes all other laws, as stipulated in Section 238 of the IBC, was well-established. In such a case, even though the corporate debtor filed an application under Section 8 of the Arbitration Act, the NCLT must consider the contentions raised in the application filed under Section 7 of the IBC, review the financial creditor’s materials, and assess whether there is a default. Despite the presence of an arbitration agreement between the parties, if the NCLT comes to the inescapable conclusion that there is a default and the debt is due, no reference to arbitration will be made.

As a result, the Hon’ble Supreme Court clarified, while summarising the procedure, that in any proceeding pending before the NCLT under Section 7 of the IBC, if such petition is admitted upon the NCLT recording the satisfaction with regard to the default and the debt due from the corporate debtor, any subsequent application under Section 8 of the Arbitration Act will not be maintainable. As a result, based on the circumstances of the case, the Hon’ble Supreme Court determined that the NCLT’s decision was reasonable, and Indus’ motion for the establishment of the arbitral tribunal was granted.

Analysis of the judgment

The NCLT’s decision is not based on the merits of the Section 7 IBC application. If the presence of a disagreement is not an inquiry for a Section 7 IBC action and the Section 7 IBC application must be reviewed first, the SC should have set aside the impugned order and returned the case to NCLT for a decision on the merits of the Section 7 IBC proceedings. If the chance comes, the Court might consider clarifying that the NCLT cannot resolve the Section 8 of Arbitration and Conciliation Act case first and then dismiss the Section 7 IBC suit as a corollary or result.

Inox Renewables Ltd. v Jayesh Electricals Ltd.

Issue 

This arbitration case began with a purchase order naming Jaipur as the site, but the parties decided to hold the proceedings in Ahmedabad instead. The award was made in favour of the respondent and was afterwards challenged in Ahmedabad because the arbitration was placed in Ahmedabad, the Petitioner claimed that the Ahmedabad courts had exclusive jurisdiction to hear the case. After the Ahmedabad Court and the High Court differed, the Petitioner went to the Supreme Court.

Judgment

The Supreme Court determined that the parties had consented to shift the venue to Ahmedabad and that no written agreement was required. When Ahmedabad was chosen as the site, it also became the “seat” of the arbitration, which meant that any challenges had to be brought before the Ahmedabad courts.

Analysis of the Judgment

This judgment follows BGS SGS Soma (2019), which ruled that in the absence of any contrary evidence, the agreed-upon “venue” would likewise be the “seat.” BGS SGS Soma, on the other hand, disagreed with hardy exploration, which ruled that the “venue” would not automatically be the “seat,” and that there must be other evidence indicating that the parties intended for the “venue” to also be the “seat.”

Oriental Structural Engineers Pvt. Ltd. v State of Kerala

Issue

The employer granted the contractor a contract for the upgrade of two segments of a state roadway. The lone issue of contention before the Supreme Court was the Contractor’s demand for interest for late payments under several headings. If the employer failed to make payments within the agreed-upon time frame, the contractor was allowed to seek interest compounded monthly. The interest rates were specified in the ‘Appendix to Bid.’ The contractor (as the winning bidder) has to fill out the blank interest clause. The contractor left the section in the ‘Appendix to Bid’ for entering the rate of interest blank. Furthermore, the contractor had previously indicated in letters that “we certify that there is no provision in the contract for interest on late payments, and hence interest would not be claimed.” Their “commitment not to demand any interest on the stated sum provided by you be considered simply as a goodwill gesture so that our future payments are delivered to us without any delay,” they said. The Supreme Court had to decide whether the contractor was entitled to interest for late payment despite a blank interest clause.

Judgment

Due to the lack of an exclusion clause, the SC held that the Tribunal may have awarded interest as a compensating or equitable remedy. The Supreme Court, in deciding whether the Tribunal can assign such interest, referred to the G.C. Roy case (1991), in which interest was determined to be fundamentally compensatory in character. It went on to say that under Section 31(7)(a) of the Act, the same was extensively included. As a result, the Supreme Court reinstated the tribunal’s decision, overturning rulings from previous courts.

The Supreme Court concluded by stating that the agreement was silent on the rate of interest, but provided for the payment of interest on late payments. As an equitable measure, the Supreme Court granted simple interest at the rate of 8% on outstanding monies.

Analysis of the Judgment

In construction contract disputes, blank interest provisions and letters similar to the Contractor’s correspondence are common. Contractors intentionally or unconsciously do not put in the rate of interest in the bid documents while bidding. Furthermore, in order to facilitate liquidity in the short term, contractors frequently address communications renouncing rights to interest on late payments. In such a circumstance, the foregoing ruling gives some advice for collecting interest on late payments.

  1. The employer appears to have failed to effectively establish a cause of waiver of interest payments before the arbitral tribunal in the first instance. Furthermore, by leaving the blank interest clause blank, the employer does not appear to have provided evidence as to the competitive advantage the contractor gained at the time of bidding. If the employer’s pleadings and evidence on these points had been comprehensive, it may have gotten a different result.
  2. The award of pendente lite interest is based on a compensating approach. Despite the absence of a clause entitling such an award of interest, employers are routinely saddled with compounded interest, as the tribunal found. In the absence of a provision entitling such an award, the Supreme Court confines the award of interest to the criteria given out by the Supreme Court in the G.C. Roy decision and the current decision.
  3. It’s worth emphasising that the current decision is based on case law from before the 2015 revision that interprets Section 34 of the 1996 Arbitration Act. This is because the challenge was brought before the modification before the District Court of Ernakulam under Section 34 of the Arbitration Act, 1996. This author has previously written on this blog on the Supreme Court’s view of the impact of the 2015 change to Section 34 of the Arbitration Act, 1996. Regardless, the principles established in this judgment will govern the interpretation of Section 31(7) of the Arbitration Act, 1996 under comparable facts and circumstances.

Bhaven Construction Through Authorised Signatory Premjibhai K. Shah v. Executive Engineer Sardar Sarovar Narmada Nigam Ltd.& Anr.

Issue 

The appellant and the first respondent entered into a contract for the manufacturing and supply of bricks (Agreement). As a result of the parties’ disagreements, the appellant invoked the arbitration provision and requested the appointment of a single arbitrator. In this case, the first respondent opposed the appellant’s request for an arbitrator by filing an application under Section 16 of the Arbitration Act. The first respondent claimed that the arbitration was time-barred because the issue was not subject to the Arbitration Act. Regardless of the first respondent’s concerns, the lone arbitrator was chosen.

In the current case, the appellant has challenged the decision of the Division Bench of the High Court. The appellant argued that the High Court’s Division Bench erred by interfering with the Single Judge’s ruling. The fact that the first respondent also filed a challenge to the final decision under Section 34 of the Arbitration Act demonstrated that the first respondent was attempting to circumvent the enactment’s framework.

Judgment

The Hon’ble Supreme Court recognised right away that the Arbitration Act is a code in and of itself, with clear legal implications. The non-obstante provision in Section 5 of the Arbitration Act, for example, is intended to limit undue court involvement. Section 5 explicitly says that no judicial authority may intervene in the arbitral proceedings unless the legislation expressly authorized it.

The Hon’ble Supreme Court decided in this case that the appellant had followed the procedure set forth in the Agreement to choose the only arbitrator. The first respondent then invoked Section 16(2) of the Arbitration Act to dispute the sole arbitrator’s authority. Following that, the first respondent filed a petition under Article 226 of the Indian Constitution challenging the arbitrator’s ruling under Section 16(2) of the Arbitration Act. It was noted that, as is customary, Section 34 of the Arbitration Act allows for a challenging procedure. The use of the term “only” under Section 34, according to the Hon’ble Supreme Court, served the dual goals of making the Arbitration Act a comprehensive law and establishing the mechanism for appealing arbitral decisions.

Analysis of the judgment

The Supreme Court has emphasised that the parties to an arbitration agreement must only seek adjudication within the bounds of the Arbitration Act, in keeping with the well-established norm of minimal judicial involvement. Parties are not expected to use additional statutory help unless they are left destitute or there is an element of bad faith involved, according to the Court. Parties should keep in mind that, while the Court’s power under Articles 226 and Article 227 of the Indian Constitution is vast and all-encompassing, it is only accessible in extraordinary situations. The Supreme Court’s decision is another step toward making India an arbitration-friendly country.

Chintels India Ltd. v. Bhayana Builders P. Ltd

Issue

The Supreme Court decided in Chintels India Ltd., whether an appeal under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 may be maintained from a decision refusing to excuse the appellant’s delay in submitting an application under Section 34 of the Act to set aside the arbitral award. The Ld. Single Judge denied the motion for condonation of delay in an application filed under Section 34 of the Act to set aside an award dated 3 May 2019, and so dismissed the Section 34 Application itself, in an order dated 4 June 2020.

Judgment

The Supreme Court differentiated BGS SGS Soma, stating that the delay was tolerated in that case and that the judgment did not constitute a definitive ruling on the issue. A refusal to tolerate delay, on the other hand, would be a final judgment, as it would result in the challenge being rejected. As a result, such orders are appealable under Section 37(1). (c). “Setting aside…an arbitral award under Section 34,” states Section 37(1)(c), according to the Court. This would entail dismissing a challenge not just on the merits but also for being late. The Court also maintained the long-held view that Section 5 of the Limitation Act of 1963 does not apply to Section 34 challenges, and that no delay longer than 3 months and 30 days may be excused.

Analysis of the judgment

In terms of the decision’s implications, the courts may now witness a rush of appeals under Section 37 of the Act coming from decisions refusing to set aside an arbitral award if the delay was not excused under Section 34(3) of the Act. While the Supreme Court has clearly said that any delay of more than 120 days cannot be excused under Section 34 of the Act, it remains to be seen if an appeal will be made against such decisions under Section 37, and how the Supreme Court would respond in such a case.

Pravin Electricals Pvt. Ltd. v Galaxy Infra and Engineering Pvt. Ltd.

Issue

Praveen Electricals Pvt. Ltd. filed a Special Leave Petition in the Hon’ble Supreme Court of India against Galaxy Infra Engineering Pvt. Ltd., contesting a judgment of the Hon’ble Delhi High Court. The HC appointed a Sole Arbitrator for the adjudication of disputes between the parties under Section 11(6) of the Arbitration and Conciliation Act, 1996, via the aforementioned order. Galaxy filed the suit after using the arbitration clause in a Consultancy Agreement that PEPL and Galaxy had signed. 

Judgment

The Hon’ble Supreme Court rules that determining whether the parties have entered into an arbitration agreement must be entrusted to an arbitrator, who will review the documentary material presented to him in detail after witnesses have been cross-examined on it. For these reasons, we reverse the Delhi High Court’s ruling insofar as it clearly concludes that the parties have entered into an Arbitration Agreement. However, the court supported the final judgment designating former Delhi High Court Judge Justice G.S. Sistani as a Sole Arbitrator.

The experienced Judge will first assess whether the parties have entered into an Arbitration Agreement as a preliminary issue, and will only examine the merits of the case if that agreement is discovered. It is stressed that all problems will be decided without regard to the court’s views, which are purely preliminary in nature. The appeal is granted in the conditions stated above.

Analysis of the judgment

In its 246th Report, the Law Commission of India looked at the degree to which a court might intervene in the appointment of an arbitrator under Section 11 of the Act. As a result, Section 11 of the Act must be added, which states that when selecting an arbitrator. The court shall limit its inquiry to the presence of an arbitration agreement. As a result, the court’s action at the time of the arbitrator’s selection is limited. It’s worth noting that the court has been given powers to assess the legality of an agreement under Section 8 of the Act, as opposed to the court’s jurisdiction under Section 11 of the Act, which only requires it to look at the presence of an arbitration agreement.

As a result, unlike the court under Section 11 of the Act, the court under Section 8 of the Act considers a variety of criteria while evaluating the legality of an arbitration agreement. Given that the area of investigation for a court in Section 11 and Section 8 scenario may differ, could it be stated that because an appeal arises from a judgment in a Section 8 application, the same should logically apply to a Section 11 application?

Bharat Sanchar Nigam Ltd. and Anr. v. M/s. Nortel Networks India Pvt. Ltd

Issue

The Hon’ble Supreme Court reviewed an appeal under Section 11 of the Arbitration and Conciliation Act, 1996 in this case. The division bench of Justice Indu Malhotra and Justice Ajay Rastogi focused on two key issues –

  1. The time limit for filing an application under Section 11 of the Act; and
  2. Whether the court can refuse to make a referral under Section 11 if the claims are prima facie time-barred.

Judgment

The Supreme Court decided that the time limit for submitting an application under Section 11 of the Arbitration and Conciliation Act, 1996 is regulated by Article 137 of the first schedule of the Limitation Act, 1963. Article 137 is a supplemental provision that establishes a limitation period for any application for which no term of limitation is set forth in any of the Articles of the Limitation Act’s Schedule. It specifies a three-year restriction term from the date on which the right to apply accrues.

The time of limitation will begin to run from the date of failing to appoint the arbitrator, according to the ruling, which was issued on March 10, 2021. “It is now reasonably well-settled that the limitation for submitting an application under Section 11 would emerge if the arbitrator was not appointed within 30 days after the issue of the notification seeking arbitration,” the court said. In other words, an application under Section 11 can only be submitted after a notice of arbitration has been issued in respect of the specific claim(s) / dispute(s) to be referred to arbitration, and the appointment has not been made.

Analysis of the judgment

The Supreme Court’s decision, in this case, is a positive step toward providing much-needed clarification on the jurisprudence of Section 11, particularly in light of the many decisions and modifications to the statute itself. Interference at the Section 11 stage is only justified in rare circumstances, according to the court. However, in light of the Vidya Drolia decision (2020), where the Court equated examination under Section 11 of the Act with review under Section 8 of the Act, a well-defined and concise explanation from a bigger bench is still required.

Furthermore, the Hon’ble Court correctly observed that the three-year time limit for submitting an application under Section 11 of the Act, as established by Article 137 of the Limitation Act, is a lengthy period that is inconsistent with the Act’s goals. It is frequently observed that the parties abuse the lengthy term of limitation, and so a modification to decrease the period of limitation for filing an application under Section 11 of the Act would be highly helpful under the Indian arbitration regime.

Secunderabad Cantonment Board v B. Ramachandraiah & Sons

Issue

The current case includes appeals stemming from petitions filed under Section 11 of the 1996 Arbitration and Conciliation Act. The Secunderabad Cantonment Board, the appellant, had issued a Notice Inviting Tender (NIT) for a contract to rehabilitate roads. The Appellant and the respondent, B. Ramachandraiah and Sons, signed into three agreements in accordance with the NIT. The question, in this case, was whether sending letters/correspondences would prolong the time limit for filing a Section 11 petition and if the court may dismiss the petition because it was filed too late.

Judgment

The claim for arbitration in this matter was submitted via a letter dated November 7, 2006, according to the Hon’ble Supreme Court. This demand was reaffirmed in a letter dated January 13, 2007, in which it was also stated that an arbitrator must be appointed within 30 days. As a result, the Supreme Court ruled that the statute of limitations began to run on and from February 12, 2007. Even though the beginning point for restriction on merits was 16.02.2010, which was 30 days after the Appellant’s first refusal of the appointment of an arbitrator, and a period of three years had elapsed by February 2013, the claim on merits was determined to be hopelessly time-barred. As a result, the Supreme Court determined that the High Court could not have chosen an arbitrator. As a result, the appeals were granted.

Analysis of the judgment

The 1996 Act was written with the goal of resolving conflicts quickly. Timelines of various lengths have been presented. The Arbitration and Conciliation (Amendment) Act, 2015 modified the 1996 Act to provide additional measures for a speedy resolution of arbitral proceedings. Section 11 does not provide a deadline for filing an application for the appointment of an Arbitrator under Subsection (6).

new legal draft

There is no time limit for filing an application for appointment of an Arbitrator under the Schedule to The Limitation Act, 1963. It would be covered by Article 137’s residual provision, which stipulates a three-year term from the date when the right to apply accrues. However, this is an excessively long amount of time. It would be required for Parliament to alter Section 11, establishing a time limit within which a party may apply to the Court for the appointment of an arbitrator under Section 11 of the 1996 Act.

Chief General Manager (IPC), M.P. Power Trading Co. Ltd. and Ors. v Narmada Equipments P. Ltd.

Issue

The State Electricity Commission has legislative authority to judge conflicts between licensees and generating firms and to send an issue to arbitration, according to Section 86(1)(f) of the Electricity Act, 2003. As a result, the commission’s nomination of arbitrators takes precedence over the High Court’s appointment of arbitrators.

Judgment

The Supreme Court stated that Section 86(1)(f) of the Electricity Act is a special provision that supersedes Section 11 of the Arbitration and Conciliation Act, 1996 Act’s general provisions. The State Electricity Commission has legislative authority to judge conflicts between licensees and generating firms and to send any issue to arbitration, according to Section 86(1)(f). Furthermore, Section 174 of the Electricity Act gives the 1996 Act precedence over anything conflicting in any other legislation now in force or in any instrument having effect under the authority of any law other than the 2003 Act.

The Supreme Court went on to say that if there is an inherent lack of jurisdiction, the plea might be raised at any point in the proceedings, even in collateral procedures. The Court reaffirmed the long-held principle that a decree issued by a court with no subject matter jurisdiction is null and void, and that its invalidity can be shown whenever and whenever it is attempted to be implemented or relied upon. Even if the parties agree, a jurisdictional fault cannot be remedied. Because Section 86(1)(f) exclusively pertains to disputes between licensees and producing firms, the State Electricity Commission has the power to appoint the arbitrator. As a result, the High Court’s decision appointing an arbitrator under Section 11(6) of the 1996 Act is void. As a result, the appeal was granted, and the High Court’s judgment was reversed.

The Supreme Court decided, “This will not prevent the respondent from availing himself of the legal remedies open to him.” However, we have expressed no view on the merits of the appellant’s concerns, which would be examined by the proper forum if raised. There will be no costing order.”

Dakshin Haryana Bijli Vitran Nigam Ltd. v Navigant Technologies Pvt. Ltd.

Issue

The issue, in this case, was whether the statute of limitations for filing a petition under Section 34 of the Act would begin on the day the draft award was disseminated or on the date the parties received the signed copy of the judgment. 

Judgment

The Supreme Court stated from the beginning, after thoroughly examining and discussing the 1996 Act’s framework, that the legislation accepts just one arbitral decision, whether unanimous or divided between the majority and minority views. As a result, a minority opinion, or an arbitrator’s dissenting position, is simply an opinion, not an award. However, a party aggrieved by the majority judgment may use the dissenting view’s logic and conclusions to support their separate arguments.

The Supreme Court said that an arbitral award is essentially a judgment reached by the majority members of an arbitral tribunal that is ‘final and binding’ on the parties. Even Section 35 of the 1996 Act states that an award must be final and binding, and a dissenting opinion does not meet these requirements: It does not decide the parties’ enforceable rights or obligations under Section 36, and (ii) it is not final and binding on the parties.

Finally, a decision to set aside an arbitral award under Section 34 of the 1996 Act is largely the decision of the majority members of the panel, not the dissenting opinion. As a result, an award, i.e., the judgment reached by the majority of the tribunal members, might be set aside.

Analysis of the judgment

The Supreme Court decided on merits that, despite the fact that the award was pronounced on 27.04.2018, the signed copy of the award was only given on 19.05.2018, after a comprehensive study and review of the scheme and phrasing used under the 1996 Act. Only a copy of the award was supplied on 27.04.2018 for the only purpose of pointing out any errors, but the parties did not do so, and the award was signed and handed over to the parties on 19.05.2018.

As a result, the Supreme Court stated unequivocally that the time of limitation for raising objections must be calculated from the day on which the parties were given a signed copy of the award.

Conclusion

The Arbitration and Conciliation Act of 1996 aims to provide a quick and effective means of resolving disputes. The new rule is designed to encourage parties to resolve their differences without the need for court intervention. It will also give the world’s mercantile community more confidence. The legal community may expect a significant increase in Arbitration and Conciliation operations in the nation. India has a contemporary, effective Arbitration Act in force. Some judgments have been made that are not in accordance with the Act’s language or spirit. Hopefully, the judiciary will solve these issues in the near future, and a genuinely effective ADR system will help to maintain the popularity of arbitrations.

References

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

RELATED ARTICLESMORE FROM AUTHOR

LEAVE A REPLY

Please enter your comment!
Please enter your name here