This article is written by Dnyaneshwari Patil, from RTMNU Babasaheb Ambedkar College of Law, Nagpur. In this article, she discusses various recent judgments passed by the Supreme Court on arbitration.
Arbitration is a form of alternative dispute resolution (ADR). This form has certain advantages such as lower cost, informal, flexible process, greater likelihood of settlement, choice of forum etc. People prefer arbitration as it is less expensive than litigation. Arbitration in India is trending since the establishment of the Arbitration Act, 1940. After some criticism faced by the law, India adopted the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, 1985. It enacted the Arbitration and Conciliation Act, 1996. Since then, several cases have been referred to the higher court of appeal. In this, we will discuss the recent judgement passed by the Indian courts to reduce the scope of intrusion in the arbitral process and make India an arbitration-friendly jurisdiction.
Recent judgments on the Arbitration Laws
State of Gujarat and Ors. v. Amber Builders (2020)
In this case, Amber builder was awarded a work contract by the state of Gujarat for repairing a section of a national highway. A dispute arose between them concerning the work, and the state of Gujarat threatened them to withhold the payment from the security deposits and bills of other pending works. This was challenged before the Gujarat High Court. However, the Court held in favour of Amber Builder, saying that the state of Gujarat cannot recover the recoverable amount. So the following judgment was challenged, and it was raised that the High Court lacked jurisdiction to hear the dispute. The dispute needed to be referred to the Tribunal and the Tribunal was empowered to grant interim relief in the form of an interim injunction. Thus, whether the Gujarat Public Works Contract Disputes Arbitration Tribunal (GPWCD arbitration tribunal) constituted under Gujarat Public Works Contract Disputes Arbitration Tribunal Act, 1992 (Gujarat Law, 1992), has the power to issue interim relief under Section 17 of the Arbitration and Conciliation Act, 1996.
The Supreme Court held that under the Gujarat Public Works Contract Disputes Arbitration Tribunal Act, 1992, it is compulsory to refer all the work contracts between the State Government and the contractor to the arbitration tribunal. Therefore, on a conjoint reading of the Arbitration Act, 1996 and the Gujarat Act, the GPWCD Arbitral Tribunal has requisite jurisdiction under Section 17 of the Arbitration Act, 1996 to order interim relief.
Vijay Karia v. Prysmian Cavi E Sustemi Srl & Ors.(2020)
In this case, the respondent initiated arbitration under the London Court of International Arbitration Rules (2014). The London Court of International Arbitration passed the foreign award directing the appellant, an Indian entity, to transfer securities to the Respondent, which is a foreign entity, at a discount of 10%. However, according to Foreign Exchange Management Act, 1999 (FEMA), the transfer should be made at the prevailing fair market value, and no lesser. Thus the appellant challenged the enforcement of the foreign award, alleging that it contravened the “public policy of India ” by violating FEMA’s provisions.
The Supreme Court held that countries in which the award is rendered have far more power to review an arbitral award than the courts in which the execution of the award is sought. India being a secondary jurisdiction, has less capacity to interfere with foreign awards from the country having primary jurisdiction.
SC further added that the ground of natural justice could only be invoked only if the appellant was not offered a fair opportunity of hearing. Thus, the SC rejected the contention of the appellant pleading violation of fundamental policy by saying that the fundamental policy cannot be equated with any provision of the statute which could be easily rectified.
M/s Dharmaratnakara Rai Bahadur v. M/s Bhaskar Raju & Brothers (2020)
In this case, the claim was made, after a dispute arose regarding a lease deed that was not sufficiently stamped or registered as per the Karnataka Stamp Act, 1957, that whether an insufficiently stamped lease deed could invoke the arbitration clause mentioned in the deed.
Further, it was also admitted that the respondent did not pay the stamp duty and penalty even after being directed by the registrar, High Court of Karnataka.
The Supreme Court held that when a deed or any document containing an arbitration clause, the court, in the beginning, considers whether an objection is raised on its behalf or not, or whether it is duly stamped. So, Section 35 of the Karnataka Stamp Act requires the document to be duly stamped in order to be admissible in evidence and acted upon. Hence, unless the stamp duty and penalty due are not paid regarding the instrument, the court cannot act upon its arbitration clause as it is a part of an unstamped instrument.
Mankastu Impex Private Limited v. Airvisual Limited (2020)
In this case, Mankastu Impex entered into a memorandum of understanding (“MoU”) with Airvisual regarding the distribution of Airvisual’s air quality monitors. It mentioned and agreed that Mankastu Impex would be the exclusive distributor of Airvisual’s air quality monitors for five years. However, the dispute arose when Airvisual was acquired by IQAir, who rejected the exclusive rights of sale of Airvisual’s products by Mankastu Impex. Subsequently, Mankastu Impex invoked the arbitration clause mentioned under the MOU, which stated that any disputes arising regarding the MOU should be referred to and resolved by arbitration administered in Hong Kong, which would be the place of arbitration.
The SC held that the mere expression ‘place of arbitration’ does not show the intention of the parties to make it a juridical seat of arbitration. However, the words in the MOU, ‘arbitration administered in Honk Kong’, states that the place of arbitration, Hong Kong, is indeed intended by the parties to be the ‘seat of arbitration’. Thus the SC held that it could not have jurisdiction in this matter.
Quippo Construction Equipment Limited v. Janardan Nirman Pvt. Limited (2020)
In this case, a contract was entered into between the parties. The dispute arose when the respondent failed to pay the outstanding dues, and thus the appellant invoked the arbitration against the Respondent to recover outstanding dues. An ex-parte award was passed against the respondent as the respondent denied the existence of the arbitration clause and did not participate in the proceedings. The respondent challenged the award at the Court at Alipore, under Section 34, for setting aside the award. The court ordered that it does not have a requisite jurisdiction and held that the jurisdiction lies at the court of New Delhi for the concerned matter. Thus, the respondent challenged this order of the Court of Alipore before the Court of Calcutta. He again contended that the arbitration agreement does not exist and objected to the venue of the arbitration as Delhi because one of the agreements stated Calcutta as the venue of arbitration. The High Court accepted this petition. Thus, the appellant, being deprived by the high court’s decision, challenged it before the SC. The issue raised was whether the respondent could challenge the venue of arbitration when it failed to participate and raise any submission in the arbitration proceedings.
The SC held that the High Court of Calcutta erred in setting aside the order of the Court of Alipore, and the respondent could not raise any submission and object to the venue of the jurisdiction. It further held that a party is free to object to the jurisdiction of the arbitral tribunal within the time prescribed in Section 16(2). Once the party fails to do so within the specified time, it loses its right to object.
Patel Engineering Ltd. v. North Eastern Electric Power Corporation Ltd. (NEEPCO) (2020)
In this case, the respondent filed three appeals under Section 37 of the arbitration act before the High Court of Meghalaya after its three applications under Section 34 of the Arbitration Act for setting aside the arbitral order were rejected by the Additional Deputy Commissioner. Being aggrieved by the High Court order, the petitioner filed a special leave petition before the supreme court which got rejected. Then, the petitioner filed review petitions before the Meghalaya HC, asserting that the order of the HC ‘suffers from error apparent on the face of the record as it had not taken into consideration the amendments made to Arbitration and Conciliation Act, 1996 by Amendment Act of 2015’. The same was dismissed, and consequently, it led to the present challenge before the SC.
The SC held that the amended section would apply to the present case and also reaffirmed its decision in Associate Builders v. Delhi Development Authority (2014) and Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (2019). The patent legality can be a ground for setting aside the award if: “the decision of the arbitrator is found to be perverse, or so irrational that no reasonable person would have arrived at the same; or, the construction of the contract is such that no fair or reasonable person would take; or, that the view of the arbitrator is not even a possible view.”
Thus the Meghalaya HC has reached a correct conclusion by setting aside the award, which was patently illegal or perverse. Therefore, the High Court, based upon a judgment that is no longer good in law, has correctly decided on the test set out in Associate Builders. Hence, the SC will not interfere with the impugned orders and dismiss the special leave petitions.
Centrotrade Minerals and Metal Inc. v. Hindustan Copper Ltd. (2020)
In this case, a dispute arose from a contract entered between the parties dealing with the sale of copper concentrate. The appellant invoked the arbitration clause, containing a two-tier arbitration procedure. In this agreement, it was mentioned that the first tier arbitration shall be settled in India and then the aggrieved party can make an appeal to the International Chamber of Commerce (ICC) in London. The arbitration in India resulted in the NIL award. Subsequently, it was appealed in ICC London. Even before the passing of the award, the respondent challenged the arbitration clause in Rajasthan High Court, which resulted in an ad interim ex parte stay granted in favour of the respondent; however, it was vacated by the SC. Thus the SC allowed the continuation of the arbitral proceeding. Eventually, the award was passed by the arbitrator of ICC in favour of the appellant. The respondent objected to its enforcement.
After a series of litigation, the matter came before the SC, and the question raised was, what is the legality of two-tier arbitration procedure in India and whether the appellate ward from ICC was enforceable?
The three-judge bench held that under the law of India, the two-tier arbitration process is permissible and valid. The parties are free to enter into an agreement that provides non-statutory appeal so that there is less interference by the court and can avoid the court procedures. The respondent contended that the passing of the award was foul of Section 48 of the Arbitration Act, and they were not able to present their case and were not provided adequate time to present the documents in support of the case. Thus the Court found that despite being requested to be present before the tribunal and present their evidence in support. At the time of passing the award, the respondent asked for additional time to submit their response. Thus, the respondent side failed to exercise those opportunities. Thus, the Court found that the respondent chose not to adhere to the timelines and held that the foreign award could be enforced in India.
Avitel Post Studioz Limited and Ors. v. HSBC PI Holdings (Mauritius) Limited and Ors. (2020)
In this case, Avitel and HSBC entered into two agreements, the Share Subscription Agreement, by way of which HSBC invested USD 60 million in Avitel to acquire 7.80% of its shareholding and the Shareholders’ Agreement (“SHA”). Both contained the provision providing for arbitration. A dispute arose between them; HSBC alleged that the promoters of the Avitel represented were on the verge of finalising a lucrative deal with the British Broadcasting Corporation, and hence, it invested in Avitel. However, HSBC found that there exists no contract as such and the 51 million USD invested by HSBC was already siphoned off to the companies in which the promoters of the Avitel have stakes. Thus, HSBC invoked the arbitration clause, and an award was passed favouring HSBC by holding its contention as accurate. The matter was then taken to the SC. HSBC filed a petition under Section 9 of the Arbitration and Conciliation Act seeking an order of deposit of the full claim amount of USD 60 million.
Challenging the enforcement award, Avitel contended that disputes regarding criminal offences, such as forgery and impersonation, are not arbitrable under Indian law and thus eventually making the award unenforceable. On the other hand, HSBC contended that the non-arbitrability could be invoked if the severe allegations of fraud would vitiate the arbitration clause.
Thus the SC laid down the test when the severe allegation of fraud would invoke non-arbitrability:
(1) Does this plea permeate the entire contract and, above all, the agreement of arbitration, rendering it void, or
(2) Whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain.
If cases do not meet the requirement of the above-laid test, then they are arbitrable. Hence, the SC held that the present case is of civil matter and upheld that the amount of USD 60 million to be kept aside for enforcement of the award in India.
Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties and Ors (2020)
In this case, the Deccan paper mill filed a suit against the Regency Mahavir Properties and others, contending that the declaration of the agreement and deed of confirmation is null-ab initio, illegal and not binding on the plaintiff as it was obtained by fraud. The appellant was under the impression that the development of the property would be carried out quickly, and the person carrying it out is the ex-partner of the respondent. However, later noticed that the ex-partner is not carrying out the development. The respondent filed an application under Section 8 of the Arbitration and Conciliation Act, the same was accepted, and the matter was referred to arbitration. The appellant approached the Bombay High Court, challenging the district court’s decision for referring the matter to the arbitration; however, the HC upheld the decision. Finally, the appellant approached the SC, wherein it challenged the arbitrability of the matter as it arose out of the contract that was fraudulently executed. Appellant contended that it comes within the exceptions of the Booz Allen Case, as the proceeding is a proceeding in rem under Section 31 of the Specific Relief Act, 1963. Appellant further prayed that the documents and deed should be cancelled.
The SC held that just because a particular transaction has criminal overtone does not mean that the subject matter is it is not arbitrable. Further, it held that cancellation of the deed under Section 31 of the Specific Relief Act would be action in rem, and under Section 34, it would be action in personam would be wholly incorrect. Thus, action initiated under Section 31 is an action in personam and not in rem.
Balasore Alloys Limited v. Medima LLC (2020)
In this case, the appellant entered into an agreement relating to transactions of purchase of High Carbon Ferro Chrome by the respondent. Disputes arose between the parties regarding the transaction. The purchase order was regularly entered, provided for an arbitration clause, and the venue for arbitration was Kolkata, India. Thus the appellant relied on this clause for the resolution of disputes. However, the respondent relied on the umbrella agreement provided for resolving disputes before the International Chamber of Commerce. Both started the arbitration proceedings at the same time, one at ICC and the other at Kolkata. The respondent argued that the initiation of the proceeding by the appellant is not bonafide as the respondent already invoked the arbitration by the issue of notice, and the arbitral tribunal was already constituted.
Thus the SC relied on the Olympus Superstructure Pvt. Ltd. v. Meena Vijay Khetan and Ors, (1999), and held that the two arbitration clauses should be harmonised and the main agreement should be taken into consideration for resolving the disputes. The rationale behind it was to avoid the contradiction of the awards regarding the items overlapping in the agreement. Thus, the umbrella agreement was considered the main agreement, and the appellant’s contentions were rejected.
PASL Wind Solutions Pvt. Ltd. V. GE Power Conversion India Pvt. Ltd. (2021)
In this case, a dispute arose between the parties regarding the agreement for the purchase of the convertors. The parties executed a settlement agreement providing for arbitration in Zurich as the seat of arbitration according to ICC rules. PASL referred to the disputes under the settlement agreement, and the award was passed in favour of GE power. Thus the GE filed for enforcement of the award before the Gujarat High Court. The HC held that the parties could choose the seat of arbitration outside India and further held that the remedies under Section 9 are not available to the parties as they choose a foreign seat of arbitration. Remedies are available to “international commercial arbitration”, and according to Section 2(1)(f) of the Arbitration and conciliation Act, it has not fulfilled the criteria of the definition of “international commercial arbitration” as at least one party must be a foreign entity.
Therefore an appeal was filed before the SC and it was held that Part I and II of the Act, 1960 is mutually exclusive and the definition of the “international commercial arbitration” would not apply to Section 44 of the Act, which falls under Part II. Section 44 is party neutral and seat-centric provision and thus, Indian parties could choose a foreign seat of arbitration. Further, the SC held that the definition of the “international commercial arbitration” in this context does not refer to the definition under Section 2 but is seat-centric terminology that relates to arbitrations taking place outside India. Therefore the relief under Section 9 is available to the parties whose international commercial arbitration is taking place outside the country. Therefore the Indian parties are free to choose a seat of arbitration outside India. The parties are free to choose foreign law, but if the law is found against India’s public policy, the law will not be enforced.
Government of India v. Vedanta Limited and Ors (2020)
In this case, the government of India entered into a production sharing agreement (“PSC”) with Cairn India Ltd. (later obtained by Vedanta) for exploring and developing petroleum resources in the Ravva Gas and Oil field. The dispute emanated from the provision mentioned under the PSC about the development cost to which the respondent was entitled. The provision was about the base development cost. The respondent incurred the base development cost, which was higher than the amount contractually capped. The respondent requested an increase in the cap to the government of India to recover the cost incurred by them under the PSC.
Thus, they referred the matter to the Malaysian Tribunal, and an award was passed stating that the base development cost was to be paid by the appellant for the cost incurred for the contract 2000-2009. After the progression of appeal, the matter finally arrived at the Delhi High Court. The respondent filed for the enforcement under Section 47, read with Section 49 of the Arbitration and Conciliation Act, 1996. An application was filed by the Government of India rejecting the enforcement of the award on the contention that the award was against the public policy of India and contained matters beyond the scope of the submission to arbitration. The Delhi HC rejected the government’s contentions and accepted the condonation of the delay application filed by the respondent. Further, the HC directed to enforce the award. Consequently, the order was challenged by the appellant before the SC.
The SC held that the enforcement of the petition was filed within the period of limitation as prescribed in Section 137 of the Limitation Act, 1963. Even if there is a delay, there are sufficient grounds to condone the delay.
The SC reiterated that the enforcement court would not correct the awards’ errors under Section 48 or review the merits of the award. Thus, the Court cannot exercise appellate jurisdiction over the foreign award. The court further stated that the appellant failed to prove that it was contrary to the basic notion of justice as, first, the appellant failed to prove the violation of procedural due process in the conduct of arbitral proceedings and failed to prove that it was in violation of the public policy of India. Therefore, the SC upheld the judgement of the Delhi HC.
Chintels India Ltd v Bhayana Builders Pvt Ltd (2020)
In this case, a challenge was filed before the Delhi High Court under Section 34 of the Arbitration and Conciliation Act after the prescribed period of three months. The HC refused to condone the delay and consequently dismissed the challenge. It was appealed before the Division Bench but being bound by the ratio of the judgement BGS SGS Soma (2019). Consequently, it was dismissed. Thus, the Division Bench granted leave to appeal to the Supreme Court. So the issue raised was Whether the order refusing to condone the delay in filing an application under Section 34 of Act 1996 is an appealable order under Section 37 of the Act, 1996.
The Supreme Court in this observed that the delay was condoned in BGS SGS Soma was not the final decision on the challenge; however, in the present matter, the refusal of condonation of delay would be finally resulting in dismissal of the challenge. Therefore the court held that one could appeal under Section 37, not just on the basis of merits but also for condonation of delay. Further, the Court also reaffirmed the position that Section 5 of the limitation act 1963 does not apply to Section 34 of the arbitration act challenges. Any delay of three months and thirty days could be condoned.
Arun Kumar Kamal Kumar and Ors v. Selected Marble and Ors. (2021)
In this case, the appellant entered into licence agreements with the respondent concerning the running of the restaurant cum sweet shops on the respondent’s premise. A dispute arose regarding the agreement where the appellant contended that the respondent violated the terms of the agreement. The appellant also contended that the respondent did not make adequate arrangements for the supply of electricity, due to which business could not continue. Thus, the shop premise remained closed for more than five years. Hence the respondent filed a suit before the Delhi HC, against the appellant for non-payment of the commission and refused to hand over the premise under Section 20 of the Arbitration Act. The business was reopened for a few months. The HC appointed an arbitrator, during the arbitral proceeding, the arbitrator ordered the appellant to file a statement of account by calculating the commission payable to the respondent; the appellant did as directed. On the basis of the statement of account, the damages were calculated by the arbitrator. Although the appellant contended that there existed an inadvertent error in the statement which was meant to be corrected, the arbitrator refused to accept the appellant submission and passed the award. After a series of appeals, the present matter was brought before the Supreme Court.
According to the licence agreement, the SC observed that the appellant needs to vacate the premises when any dispute arises. However, the appellant failed to do it until the arbitration proceeding commenced. Therefore the tribunal correctly held that the appellant needed to pay for the damages. The SC upheld the decision of the Division Bench of the HC that the matter was a case of tenancy and not of a licence. As per the division bench of the HC, the tenant was liable for rent and damages even after the destruction of the premises and the only way to stop the running of the rent is to surrender the premises.
Thus the SC upheld the decision that the appellant was not allowed to withdraw their own statement of account.
The Supreme Court has passed numerous judgments regarding arbitration. From the judgments mentioned above, one can say that the SC aims at reducing the intrusion of the courts in arbitration and matters and pave the way for arbitration-friendly jurisdiction.
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