Delhi High Court
Case BriefsHigh Courts

Delhi High Court: In a case filed by Panasonic India Private Limited (petitioner) seeking appointment of an arbitrator to adjudicate disputes which have arisen between the parties under a Distribution Agreement, Prateek Jalan, J., refuting the contentions of the respondent that the clause referring to arbitration uses the word “can”, as opposed to “shall”, which signifies an option in the hands of a party as to whether to refer a dispute to arbitration or not and held that the interpretation of an arbitration clause, as indeed of all contractual provisions, must be predicated upon a construction of the contract as a whole, and no particular word or phrase should be unduly emphasized to negate the clause of its true meaning.

Panasonic’s claims arise out of alleged unpaid invoices which were raised by it for electronic goods sold to Shah Aircon. In the course of correspondence between the parties, claims were raised by both parties against each other. Panasonic finally invoked the arbitration clause by a letter dated 29-01-2021 and filed the present petition under Section 11 of Arbitration and Conciliation Act, 1996.

The contention by the respondent rests upon the use of the word “can” in Clause XXV of the Agreement, and the last part of the said clause which provides for recourse to civil proceedings in certain circumstances. The Court however noted that the requirements for existence of a valid arbitration clause are encapsulated in Section 7 of the Act, which inter alia states that the parties must contemplate a mandatory reference to arbitration.

The Court noted that, use of the word “can”, which normally signifies an option, as opposed to the word “shall”, which is mandatory in nature, is not determinative of the present case. This is because the word “can” is juxtaposed with the words “either party”, signifying the option of either Panasonic, or Shah Aircon, to refer disputes to arbitration. If either of the parties can exercise such an option by referring the disputes under the Agreement to arbitration, it is for all practical purposes, binding upon the other party as well.

The Court observed that the remainder of the clause, insofar as it refers to the venue of arbitration, the language of arbitration, the applicability of the Act, the requirement to give reasons, and the procedure for appointment of an arbitrator by reference to Court, also supports the view that the parties intended a mandatory reference to arbitration, and incorporated the ancillary provisions into the Agreement for this purpose only.

Thus, the Court concluded that no fresh consent for arbitration is contemplated, and the Agreement adequately demonstrates consensus between the parties, and on a proper interpretation of the arbitration clause in the present case, the parties, in fact, arrived at a mandatory understanding that their disputes under the Agreement would be referred to arbitration.

The Court appointed Mr. Vidit Gupta, Advocate as the Arbitrator to adjudicate the disputes between the parties under the Agreement and is requested to make a declaration in terms of Section 12 of the Act prior to entering upon the reference.

[Panasonic India Private Limited v. Shah Aircon, 2022 SCC OnLine Del 3288, decided on 11-10-2022]


Advocates who appeared in this case :

Mr. Kunal Kher, Advocate, for the Petitioner;

Mr. Zahid Hanief, Advocate, for the Respondent.


*Arunima Bose, Editorial Assistant has put this report together.

Calcutta High Court
Case BriefsHigh Courts

   

Calcutta High Court: In a petition challenging the appointment of sole Arbitrator by the respondent, Shekhar B. Saraf, J., held that merely because an arbitration clause provides for an illegal method of appointment of arbitrator, it does not come to an end and after removing the illegal portion of the arbitration clause, Courts can retain the remaining clause to give effect to the intention of the parties.Facts of the Case

Petitioner and respondent entered into a loan agreement amount of Rs. 5,50,00,000/- dated 29.08.2016. Due to alleged failure to repay the loan amount by the petitioner, respondent issued the notice of arbitration and unilaterally appointed the sole arbitrator.

The petitioner challenged the unilateral appointment of the sole arbitrator under S. 14 of the Arbitration and Conciliation Act, 1996 (‘the Act'). The arbitrator adjourned the arbitration sine die after learning the fact of the challenge of his appointment by the petitioner.

Petitioner's Contention

The petitioner contented that since the sole Arbitrator was unilaterally appointment by the respondent, he become de jure enabling him to perform his function under S. 14(1)(a) of the Act. The arbitration agreement itself becomes invalid as a portion of arbitration agreement provides for unilateral appointment of arbitrator making it ex-facie illegal and invalid. Moreover, the loan agreement itself involves the alleged matter of fraud and forgery, therefore substitution of arbitrator should not be allowed.

Court's observation

Relying on TRF Ltd. v. Energo Engineering Projects Ltd., (2017) 8 SCC 377 and Perkins Eastman Architects DPC v. HSCC (India) Ltd, (2019) SCC Online SC 1517 where it was held that an individual who has an interest in the outcome of a dispute also cannot nominate a sole arbitrator, the Court observed that indeed the Arbitrator was unilaterally appointed therefore, he becomes de jure unable to perform his functions and his mandated stands automatically terminated under S. 14 of the Act. The Court stated that

“The guiding principle is transparency, fairness, neutrality and independence in the selection process and hence, appointment of a sole arbitrator can either be with mutual consent of parties or by an order of the competent court. There can be no third way.”

While deciding the issue of whether the mandate of such an arbitrator, whose appointment is impermissible and illegal is automatically terminated under S. 14(1)(a) of the Act on account of being de jure unable to perform his functions, the Court relied on HRD Corpn. v. GAIL (India) Ltd., (2018) 12 SCC 471 and Bharat Broadband Network Ltd. v. United Telecoms Ltd., (2019) 5 SCC 755 where it was held that “… a case which falls under Section 12(5), Section 14(1)(a) of the Act gets attracted inasmuch as the arbitrator becomes, as a matter of law (i.e., de jure), unable to perform his functions under Section 12(5), being ineligible to be appointed as an arbitrator. This being so, his mandate automatically terminates, and he shall then be substituted by another arbitrator under Section 14(1) itself”.Thus, the Court held that where due to lack of inherent jurisdiction, the arbitrator does not have the power to decide on the objection regarding his ineligibility under S. 14(2) of the Act and the same has to be dealt with only by this Court.

The Court relied on Vidya Droalia v. Durga Trading Corpn., (2021) 2 SCC 1 and A. Ayyasamy v. A Paramasivam, (2016) 10 SCC 386, where it was observed that mere allegation of fraud is not sufficient to detract parties from the obligation to submit their disputes to arbitration and negated the contention of petitioner i.e. since the agreement itself is forged and fabricated and in the absence of any loan agreement, there exists no arbitration agreement, therefore this Court cannot appoint a substitute arbitrator under the Act.

The Court also rejected the argument of the petitioner that the entire arbitration agreement becomes illegal or invalid when the procedure of appointment is illegal.

Conclusion

Appointing the sole arbitrator to resolve the disputes between the parties, the Court held that the Court while exercising powers under S. 14 of the Act for appointing a substitute arbitrator will be guided by the principles of S. 11 of the Act.

[Yashovardhan Sinha HUF v. Satyatej Vyapaar (P) Ltd., 2022 SCC OnLine Cal 2386, decided on 24-08-2022]


*Ritu Singh, Editorial Assistant has put this report together.

Case BriefsHigh Courts

Orissa High Court: S. Muralidhar, CJ. dismissed the petition, declined the appointment of arbitrator and left it open to the petitioners to avail other remedies as may be available to them in accordance with law.

The facts of the case are such that opposite parties 1 and 2 floated a tender having two components viz., technical and financial. According to the Petitioner, the technical bids were wrongly awarded to Opposite Party 4 in violation of the tender conditions.  According to the Petitioner i.e. L2 the tender ought to have been awarded to it as OSMC called for the Petitioner to give its consent to supply the item quoted as per the L-1 approved rate and, the petitioner expressed its willingness to supply the said item at L-1 rates “on the condition that it is awarded the entire quantity mentioned in item 39 for supply”. OSMC via email accepted the matching offer stating that the purchase order would be issued in its favour as per the terms and conditions of the tender. However, the said letter was silent on whether the Petitioner would be given a purchase order for the entire quantity. Thereafter, no purchase order was placed by OSMC with the Petitioner and there was no communication either. Thus, this gave rise to the disputes between the parties and a petition was filed invoking Clause-6.34 of the General Conditions of Contract (Section VI) seeking the appointment of an Arbitrator, under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (A and C Act).

Counsel for petitioner Mr. Kamal Bihari Panda submitted that the applicable procedure in the event of dispute between the parties arising out of the bid document was to be referred to the arbitration in terms of the A and C Act and therefore, this petition was maintainable.

Counsel for respondent OSMC Mr. P K Muduli submitted that as per Clause-6.34.1, the dispute or difference could arise only between the tender inviting authority (i.e. OSMC) and the “successful bidder in connection with/or relating to the contract”. Thus, Opposite Party 4 and not the Petitioner was the successful bidder, the Petitioner could not invoke the above clause. It was further submitted that the dispute that had arisen was not in relation to the contract but in relation to the bidding process.

The Court relied on judgment BSNL v. Telephone Cables Limited, (2010) 5 SCC 213 wherein it was observed

“29. Therefore, only when a purchase order was placed, a ‘contract’ would be entered; and only when a contract was entered into, the General Conditions of Contract including the arbitration clause would become a part of the contract. If a purchase order was not placed, and consequently the general conditions of contract (Section III) did not become a part of the contract, the conditions in Section III which included the arbitration agreement, would not at all come into existence or operation. In other words, the arbitration clause in Section III was not an arbitration agreement in praesenti, during the bidding process, but a provision that was to come into existence in future, if a purchase order was placed.”

The court thus observed that since no purchase order was in fact placed with the Petitioner, there was no concluded contract and therefore the question of any dispute arising therefrom being referred to arbitration did not arise.

The Court thus held “the Court declines the prayer of the Petitioner for the appointment of an Arbitrator” [Emcure Pharmaceuticals v. OSMC, 2022 SCC OnLine Ori 1368, decided on 13-05-2022]


Arunima Bose, Editorial Assistant has reported this brief.

Case BriefsHigh Courts

Delhi High Court: Suresh Kumar Kait, J., reiterated that no party could be permitted to unilaterally appoint an Arbitrator, as the same would defeat the purpose of unbiased adjudication of the dispute between the parties.

Crux of the petitions is to seek the appointment of Arbitrators for adjudication of disputes between the parties.

According to the petitioner firm, a license agreement along with a supplementary agreement was entered between the petitioner and respondent of shops in question, which was renewable every five years at the option of the petitioner.

Petitioner submitted that after the change of name of petitioner/firm from M/S Virender Kumar & Co. to M/S Sital Dass Sons, an additional space adjacent to shop in the same shopping arcade was granted by the respondent to M/S Sital Dass Sons vide supplementary agreement and the terms of the original license agreement were to be read with the other agreement. M/S Sital Dass Sons through its partners informed the respondent that they shall be operating under two different names.

According to the petitioners in the petitions, on the ground that the internal fittings of shopping arcade were nearly 40 years old and were in urgent need of repair and it was no longer financially profitable to continue with shopping arcade, respondent vide a notice revoked the license in respect of the shops.

Petitioners contended that they were in exclusive possession of shops in question and the said notice did not mention any violation of the terms and conditions of the license/lease agreement by petitioners. Further submitted that petitioners had the right to carry on business at the hours suited to them and the license/lease could not have been terminated at the will of respondent.

It had been also brought to the notice of this Court that against illegal eviction of petitioners, they had preferred a civil suit CS(Comm)) 237/2020 before this Court for declaration and permanent injunction against the respondents, which was disposed of vide order dated 21.07.2020 as not maintainable in view of Arbitration clause between the parties.

Bench stated that the arbitration agreement between the parties and invocation of arbitration was not disputed by the respondents. Hence the said petitions deserved to be allowed.

However, contention of petitioners to appoint Arbitrator of their choice was rejected, as no party could be permitted to unilaterally appoint an Arbitrator, as the same would defeat the purpose of unbiased adjudication of dispute between the parties.

Court relied on the decision of the Supreme Court in Perkins Eastman Architects DPS v. HSCC (India) Ltd., 2019 SCC OnLine SC 1517 wherein it had been categorically stated that “in cases where one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator.”

The above-stated decision was followed by the Coordinate Benches of this Court in Proddatur Cable Tv Digi Services v. Siti Cable Network Limited 2020 SCC OnLine Del 350 and VSK Technologies Private Ltd. v. Delhi Jal Board, 2021 SCC OnLine Del 3525 in unequivocal terms.

Concurring the above decisions, present petition was allowed.

Hence, the High Court appointed the sole arbitrator to adjudicate the dispute between the parties.

Adding to the above, Court stated that the fee of the arbitrator shall be governed by the fourth schedule of the Arbitration and Conciliation Act, 1996 and the Arbitrator shall ensure compliance with Section 12 of Arbitration and Conciliation Act, 1996 before commencing the arbitration. [Sital Dass Jewellers v. Asian Hotels (North) Ltd., 2021 SCC OnLine Del 3914, decided on 6-08-2021]


Advocates before the Court:

For the Petitioners: Mr P.K. Agrawal, Mr Rishabh Tomar & Ms Sukriti Sinha, Advocates

For the Respondent: Mr Sidhant Kumar & Ms Manyaa Chandok, Advocates

Hot Off The PressNews

Supreme Court: The bench of SA Bobde and SA Nazeer, JJ has issued notice to Pometon Spa, an Italian company involved in manufacturing, marketing of steel shot and steel grit, in a petition filed by Rotocast Industries, an Indian steel grit company, for appointment of arbitrator for resolution of dispute between the 2 companies.

According to the petition filed by Swarnendu Chatterji and Pallavi Pratap,

  • the 2 companies had entered into a Joint Venture wherein Pometon supplied special manufacturing equipment to Rotocast and would then sell the steel shot manufactured by Rotocast in regions around the world.
  • However, the machineries that were supplied were faulty which led to manufacture of defective product right from the beginning.
  • Several requests were made to the Respondents on various occasions, however, no help on the part of Respondents to solve the problems, which led to the total failure on the Joint Venture Project.
  • The petitioner has incurred losses to the tune of around Rs. 11 Cr.
  • The dispute relates to Supply of faulty and poor quality of machinery pursuant to Agreements dated 23.12.2018, which contains Arbitration Clause and any dispute arising out of Principal Agreement is to be delivered by way of arbitration which the petitioner has availed by invocation of the arbitration clause.

Since the Arbitration Clause is in the Main agreement and not in the other 2 agreements entered into by the parties i.e. Supply Agreement and Distribution Agreement, the question that arises for consideration is,

“Whether the Arbitration Clause in the Principal Agreement dated 23.12.2013, which refers to two other Agreements i.e. Supply Agreement and Distribution Agreement will also be read into the other two Agreements vide the theory of Incorporation?”

The petition reads,

“It is settled law that, Arbitration Clause in the principal contract can be imported into the subsequent contracts, notwithstanding the fact that arbitration clause is not specifically provided for in the subsequent Agreements or Agreements which are concurrent with the Principal Contract. Such incorporation of arbitration clause to a subsequent contract has been statutorily recognized [Section 7(5) Of the Arbitration and Conciliation Act, 1996]”

The petition not just calls for appointment of the arbitrator but also deals with the following important questions of law:

  1. Interpretation of Section 7(5) of the Arbitration and Conciliation Act, 1996.
  2. Whether the arbitration clause in the main agreement can be read into the subsequent agreements
  3. The arbitration clause in the agreement supersedes the dispute clause in the purchase order.
Case BriefsSupreme Court

Supreme Court: The bench of AM Khanwilkar and Ajay Rastogi, JJ has held that the Chief Justice or   his Designate, in exercise of power under Section 11(6) of the  Arbitration and Conciliation Act, 1996, cannot directly make an appointment of an independent arbitrator without, in the first instance, resorting to ensure that the remedies provided under the arbitration agreement are exhausted.

Clause (c) of sub­section (6) of Section 11 relates to failure to perform any function entrusted to a person including an institution and also failure to act under the procedure agreed upon by the parties. Noticing the intent behind the said clause, the Court explained the scheme of Section 11(6) and said,

“clause(a) refers to the party failing to act as required under that procedure; clause(b) refers to the agreement where the parties fails to reach to an agreement expected of them under that procedure and clause (c ) relates to a person which may not be a party to the agreement but has given his consent to the agreement and what further transpires is that before any other alternative is resorted to, agreed procedure has to be given its precedence and the terms of the agreement has to be given its due effect as agreed by the parties to the extent possible.“

The Court hence held that corrective measures have to be taken first and the Court is the last resort.

The Court also noticed that by appointing an arbitrator in terms of sub­section (8) of Section 11 of Act, 1996, due regard has to be given to the qualification required for the arbitrator by the agreement of the parties and also the other considerations such as to secure an independent and impartial arbitrator.

The Court, hence, held,

“To fulfil the object with terms and conditions which are cumulative in nature, it is advisable for the Court to ensure that the remedy provided as agreed between the parties in terms of the contract is first exhausted.”

[Union of India v. Parmar Construction Company, 2019 SCC OnLine SC 442, decided on 29.03.2019]

Case BriefsHigh Courts

Karnataka High Court: A Single judge bench comprising of Dinesh Maheshwari, J. while hearing a civil writ petition for appointment of arbitrator noted that even after termination of an agreement entered into between the parties, the arbitration agreement survives.

Brief background of the case was that the respondent had entered into a MoU with one Sandip Foundation. After a certain period of time, Sandip Foundation passed a resolution under which all its activities under the said MoU were transferred to the petitioner institution which specialized in developments and distribution of course material for various technical and non-technical courses. Respondent – University issued a notification withdrawing certain courses from the academic collaborative institutions and despite assuring that the students already admitted would not be affected and could continue their courses, it failed to conduct examinations. This led to the petitioner issuing a notice calling upon the respondent to commence arbitration proceedings in terms of the MoU. The respondent replied by terminating the MoU and did not respond to petitioner’s multiple requests and notices for arbitrating their dispute. The sole contention raised on behalf of the respondent was that since the MoU had been terminated, the arbitration clause contained therein did not survive. Hence, the petitioner was constrained to file the instant petition for appointment of a sole arbitrator to adjudicate their disputes.

The sole question posed before the court was as to whether there was an arbitration agreement between the parties. The court went through clauses of the MoU entered into between the parties and noted that clause 14 of the MoU clearly stipulated that disputes between parties be referred to arbitration. It was observed that despite issuing a notice to the respondent, it did not take steps for appointment of an arbitrator. Further, the court rejected the argument that the termination of MoU had the effect of terminating arbitration clause as well.

On the aforesaid holding and observations, the writ petition was disposed of by giving directions for appointment of an arbitrator. [SCOPE v Karnataka State Open University,2018 SCC OnLine Kar 1568, decided on 03-10-2018]

Case BriefsSupreme Court

Supreme Court: Deciding the question relating to the entertainability of an application by this Court for making an award passed by the arbitral tribunal, when it retains seisin over arbitral proceeding, as Rule of the Court, the 5-judge bench of Dipak Misra, CJ and Dr. AK Sikri, AM Khanwilkar, Dr. DY Chandrachud and Ashok Bhushan, JJ overruled the rulings in State of Madhya Pradesh v. Saith and Skelton (P) Ltd., (1972) 1 SCC 702 and Guru Nanak Foundation v. Rattan Singh and Sons, (1981) 4 SCC 634, wherein it was held:

“when an arbitrator is appointed by this Court and further directions are issued, it retains seisin over the arbitration proceedings and in such circumstances, the Supreme Court is the only court for the purposes of Section 2(c) of the Arbitration Act, 1940.”

Stating that the jurisdiction of a Court conferred under a statute cannot be allowed to shift or become flexible because of a superior court’s interference in the matter in a different manner, the bench explained:

“When arbitrator is not appointed under the Act and the matter is challenged before the High Court or, for that matter, the Supreme Court and, eventually, an arbitrator is appointed and some directions are issued, it will be inappropriate and inapposite to say that the superior court has the jurisdiction to deal with the objections filed under Sections 30 and 33 of the Act.”

The Bench further explained that the Section 39 of the Act provides for an appeal and solely because a superior court appoints the arbitrator or issues directions or has retained some control over the arbitrator by requiring him to file the award in this Court, it cannot be regarded as a court of first instance as that would go contrary to the definition of the term ‘court’ as used in the dictionary clause as well as in Section 31(4) of the Act. The bench said that the Supreme Court:

“may make a reference to an arbitrator on consent but to hold it as a legal principle that it can also entertain objections as the original court will invite a fundamental fallacy pertaining to jurisdiction.”

The Court, hence, overruled the above-mentioned verdicts and all the other verdicts of this Court that state the law on the basis of the said verdicts. [State of Jharkhand v. Hindustan Construction Co. Ltd, 2017 SCC OnLine SC 1458, decided on 14.12.2017]

Case BriefsHigh Courts

Karnataka High Court: While deciding a civil petition under Section 11(6) and (8) read with Section 15(2) of the Arbitration and Conciliation Act, 1996, a Single Judge Bench comprising of Vineet Kothari, J. dismissed the petition holding that the essentials required for exercise of Court’s power under S. 11(6) of the Act were not fulfilled.

The petitioner filed the petition against the respondent, praying before the Court to appoint an arbitrator. Learned counsel for the petitioner submitted that the Arbitral Tribunal constituted in terms of the contract between the parties was re-constituted at the request of the respondent. The said Tribunal was directed by the High Court to conclude the proceedings within a period of six-months. It was submitted that the said Tribunal had failed to conclude the proceedings even after a long time. And being aggrieved by non admission of his claim before the Tribunal, the petitioner preferred a writ petition before the High Court which was pending. Hence, he prayed that a fresh arbitrator may be appointed in the present case.

The Court perused the record as well as submissions made on behalf of the parties and opined that Section 11(6) of the Act envisages intervention and appointment of an arbitrator by the Court, only if the parities to the agreement fail to act as required under the procedure agreed between them or the arbitrator fails to perform the functions entrusted to him. Therefore, it is only on the failure of the parties or the arbitrator that such a petition under Section 11(6) can be preferred and not where the arbitral tribunal was already seized of the arbitration proceedings under the agreed procedure.

In the instant case, the Court found that the Arbitral Tribunal was already constituted and it was seized of the dispute. It was not a case where the Tribunal failed to perform its functions. In fact, the petitioner was himself responsible for the delay in proceedings by filing unnecessary writ petition which was still pending before the Court. Accordingly, the petition was found to be sans merits and dismissed. [Hindustan Steel Works Construction Ltd. v. Union of India, CMP No. 102 of 2015, order dated  02.11.2017]