Himachal Pradesh High Court
Case BriefsHigh Courts

   

Himachal Pradesh High Court: In the case where it was argued before the Court that the Arbitration and Conciliation Act, 1996 (for short “1996 Act”) does not provide for any remedy to challenge an arbitral order and was hence, against the “public policy of India”, Satyen Vaidya J. observed that,

“The term “public policy of India” carries within it innumerable facets. It is altogether a different thing to say that there is no immediate remedy available to the petitioners than to say that they have no remedy at all.”

The observation came after the Court noted that a party to arbitration proceedings has a remedy to challenge the award passed in such proceedings under Section 34 of the 1996 Act. An application was filed by the petitioners under Order 11, Rules 1 & 2 read with Section 151 of the Code of Civil Procedure (for short “CPC) seeking reply of the respondents, who are claimants before the Arbitrator, to the interrogatories formulated on behalf of the non-claimants/petitioner which was thereby dismissed. The grounds for dismissal were firstly, that the application was not maintainable before filing of written statement and secondly, that without the written statement of the petitioners herein on record, the application was premature as the relevance of the interrogatories could not be adjudged. Aggrieved by this, an instant petition was filed.

The Court observed that Section 5 of Arbitration and Conciliation Act, 1996 (for short 1996 Act) starts with a non obstante clause, strictly prohibiting intervention by any judicial authority in matters governed by Part-I of 1996 Act except where so provided in such part. The intent of legislature is loud and clear. By making the 1996 Act a complete Code and incorporation of provision like Section 5 thereof arbitral proceedings were not only kept independent but free from any unnecessary delays also. Thus, though Section 5 of the 1996 Act cannot be a clog on powers of constitutional courts, nevertheless such powers may also not be readily available.

Reliance was placed on SBP & Co. v. Patel Engineering Ltd., (2005) 8 SCC 618, wherein it was observed

It is seen that some High Courts have proceeded on the basis that any order passed by an arbitral tribunal during arbitration would be capable of being challenged under Article 226 or 227 of the Constitution of India. We see no warrant for such an approach. Section 37 makes certain orders of the arbitral tribunal appealable. Under Section 34, the aggrieved party has an avenue for ventilating his grievances against the award including any in-between orders that might have been passed by the arbitral tribunal acting under Section 16 of the Act. The party aggrieved by any order of the arbitral tribunal, unless it has a right of appeal under Section 37 of the Act, has to wait until the award is passed by the Tribunal. This appears to be the scheme of the Act.

… We, therefore, disapprove of the stand adopted by some of the High Courts that any order passed by the arbitral tribunal is capable of being corrected by the High Court under Article 226 or 227 of the Constitution of India. Such an intervention by the High Courts is not permissible.”

The Court, hence, refrained from adjudicating on the merits of the impugned order as being not maintainable and held that“the arbitrator though having trappings of tribunal, yet the impugned order will not be amenable to challenge under Article 227 of the Constitution of India.”

[V. Kare Biotech v. Hemant Aggarwal, Civil Misc. Petition Main (Original) No. 130 of 2022, decided on 21-06-2022]


Advocates who appeared in this case :

Subhash Sharma, Advocate, for the petitioner;

Sanjeev Kuthiala, Sr. Advocate and Anaida Kuthiala, Advocate, for the respondent.

Uttarakhand High Court
Case BriefsHigh Courts

Uttaranchal High Court: Emphasizing on the purpose and object of Section 9 of the Arbitration and Conciliation Act, 1996, Division bench of Raghvendra Singh Chauhan, CJ and Alok Kumar Verma, J., held that,

A person not a party to an arbitration agreement cannot invoke jurisdiction of the Court for interim relief under Section 9 of the Act, 1996.

Instant appeal was filed under Section 37 of the Arbitration and Conciliation Act, 1996 against the decision of Additional District Judge, whereby the application under Section 9 of the Act, 1996 filed by the appellants was dismissed on the ground that the appellants neither made out a prima facie case nor was the balance of convenience in their favour nor they would suffer any irreparable loss in the event of being denied injunction because the appellants were not “partners” in the light of the arbitration clause.

Question for Consideration:

Whether the appellants have a right to claim the said reliefs under Section 9 of the Act, 1996?

Analysis, Law and Decision

High Court expressed that a partnership business is run in accordance with the terms of the contract of partners.

Whether a retired partner has right to affect the business of the partnership?

The relation between the partners is quasi fiduciary and is expressed in the maxim in societatis contractibus fides exuberet. The relation of the partners is based on mutual confidence, and it is the duty of the partners to one another and carry on the business of the firm to the greatest common advantage, to be just and faithful to each other and to render true accounts and full information of all things affecting the firm to any partner or his legal representative. Therefore, a retired partner has no right to affect the business of the partnership.

Further, the Bench did not accept the appellant’s contention that the “Partnership Deed-Retirement cum Admission Deed” is a void document and the said void document causes harm to the appellants, therefore, the appellants wanted to refer the matter, as a party to the said Deed, to the arbitration and for the interim measure, the appellants had filed the application under Section 9 of the Act, 1996.

Court gave the reasoning for the above that on one hand the said Deed was being called void by the appellants and on the other hand Clause 22 of the same Deed was being relied upon by them.

In Clause 22 of the said Deed, there was no provision to the effect that the retiring partners can invoke the said provision for the purpose of arbitration and, secondly, Section 31 of the Specific Relief Act, 1963 provides that only “court” has jurisdiction to cancel any void or voidable document.

Section 9 of the Act

Adding to the above analysis Court expressed that Section 9 of the Act, 1996 enables the parties to arbitral proceedings to obtain interim relief from a Court.

Section 9 entitles ‘any party’ to obtain interim relief from the court at three stages i.e.

(i) before the commencement of arbitral proceedings,

(ii) during the course of the arbitral proceedings, and

(iii) after the arbitral award is made but prior to its enforcement.

Further, the Court added that Section 9 of the Act, 1996 was enacted with the intention of preserving and protecting the subject matter of the arbitral proceedings, hence for invoking the jurisdiction of the Court under Section 9 of the Act, 1996 the person should be a party to an arbitration agreement.

Therefore, a person not a party to arbitration agreement cannot invoke jurisdiction of the Court for interim relief under Section 9 of the Act, 1996.

In the matter at present appellants were not “Partners” under the “Partnership Deed-Retirement cum Admission Deed”.

Hence the appellants were not parties to the arbitration agreement to invoke the arbitration clause leading to no prima facie case.

In view of the above, present appeal was dismissed. [Mohd Yusuf v. Ashish Aggarwal, 2021 SCC OnLine Utt 1274, decided on 10-11-2021]


Advocates before the Court:

For the Appellants:

Mr Arvind Vashisth, Senior Advocate assisted by Mr Kartikey Hari Gupta, learned counsel.

For respondent 1:

Mr Rakesh Thapliyal, Senior Advocate assisted by Mr Rajat Mittal, learned counsel.

Op EdsOP. ED.

One of the basic tenets of arbitration as a dispute resolution mechanism is the resolution of parties’ disputes by “independent” and “neutral” adjudicator(s). In line with this principle, the 2015 Amendment1 to India’s Arbitration and Conciliation Act, 19962 (the Act) introduced Section 12(5)3 and the Seventh Schedule4, which when read together rendered a person de jure ineligible to act as an arbitrator in specified circumstances.

To further enhance the integrity of the arbitral process, the Supreme Court of India through its decisions in TRF Ltd. v. Energo Engg. Projects Ltd.5 and Perkins Eastman Architects DPC v. HSCC (India) Ltd.6, expounded that the essence of the 2015 Amendment is that a person who is statutorily ineligible to act as an arbitrator by virtue of Section 12(5) read with Seventh Schedule to the Act must also be de jure ineligible to unilaterally and exclusively appoint anyone else as an arbitrator.

In light of the above, it is necessary to consider the stages at which a challenge can be mounted against the unilateral appointment of arbitrator by a de jure ineligible appointing authority (unilateral appointment). Should such a challenge be mandatorily raised during the pendency of arbitral proceedings or can it be raised for the first time in proceedings to set aside the award? Since there is no clarity on this issue, this article attempts to minimise the grey area in this regard.

Challenge to unilateral appointment during pendency of arbitral proceedings

It is open to a party to challenge the unilateral appointment of an arbitrator at any stage during the pendency of the arbitral proceedings itself. Further, mere participation in the arbitration proceedings i.e. filing of pleadings or leading of evidence, etc., would not come in the way of raising objections against unilateral appointment at any stage of the arbitral proceedings. In order to understand the mechanism for such challenge, it is necessary to first briefly examine the legal validity/effect of unilateral appointment.

 Effect of unilateral appointment

The de jure ineligibility to act as an arbitrator imposed by Section 12(5) read with Seventh Schedule to the Act goes to the “root of the appointment”. An arbitrator who is so ineligible would therefore “lack inherent jurisdiction” to proceed with the arbitration.7

In TRF8 and Perkins9, in light of the principles underlying Section 12(5) and the Seventh Schedule, the Supreme Court has interpreted these provisions as not only imposing de jure ineligibility to act as an arbitrator in certain specified cases, but as also imposing de jure ineligibility to act as an appointing authority, since a person cannot indirectly purport to do that which he cannot do directly.10 Consequently, in Bharat Broadband Network Ltd. v. United Telecoms Ltd.11, the Supreme Court observed that unilateral appointment in violation of Section 12(5) read with the Seventh Schedule to the Act would be void ab initio.12

To sum up, it can be said that unilateral appointment vitiates the very root of the appointment, rendering it void ab initio and therefore, an arbitrator so appointed would lack inherent jurisdiction to conduct the arbitration.

Mechanism for challenge

In view of the legal validity/effect of unilateral appointment explained above, an arbitrator who has entered into reference through unilateral appointment ought to withdraw from the arbitration, even without any application by a party to challenge the unilateral appointment, since the dejure ineligibility of the appointing authority would strike at the root of the appointment. In any event, under Section 14(1)13 of the Act, the mandate of such an arbitrator would terminate immediately if the parties agree to such termination. However, in case of any controversy in this regard, the party challenging such appointment may approach the court to decide on the termination of the arbitrator’s mandate and appointment of a substitute, under Section 14(2) of the Act.14

This avenue for challenge is available at any stage of the arbitral proceedings in any arbitration which has commenced and in which unilateral appointment of arbitrator was made on or after 23-10-2015 [the date on which Section 12(5) came into effect], as is evident fromBharat Broadband15as well as the decision of  the Delhi High Court in Proddatur Cable TV Digi Services v. Siti Cable Network Ltd.16.

Waiver of right to challenge unilateral appointment

The statutory requirements for waiver of the applicability of Section 12(5) of the Act are strict. Reference in this regard may be made to Bharat Broadband17 as well as the Delhi High Court’s decision in Reom Infrastructure and Construction Ltd. v. Air Force Naval Housing Board18.

Unlike Section 4 of the Act19 (a generic provision on the waiver of right to object to non-compliance with requirements under the arbitration agreement or non-mandatory provisions of the Act) which permits deemed waiver, the proviso to Section 12(5) is explicit that a waiver under Section 12(5) can happen only through an express agreement in writing i.e. an agreement made in words as opposed to an agreement which is to be inferred from conduct or an exchange of documents.

In JMC Projects (India) Ltd. v. Indure (P) Ltd.20, the Delhi High Court further expounded that any waiver in writing of the applicability of Section 12(5) must necessarily reflect the parties’ awareness of the applicability of the provision and the resultant invalidation of the arbitrator’s eligibility to arbitrate the dispute as well as a conscious intention to waive the applicability of the provision.

Thus, mere silent participation in the arbitral proceedings through filing of pleadings, filing of applications to the arbitrator for extension of time to file evidence, filing of applications for extension of time for continuance and completion of the arbitral proceedings, etc. can neither be construed as a party’s waiver of the applicability of Section 12(5) nor as an estoppel against the party’s right to challenge the unilateral appointment of arbitrator.

Challenge to unilateral appointment after issuance of final award

There is no bar under Section 34 of the Act21 to set aside an award rendered by an arbitrator who was appointed through unilateral appointment. In fact, in Bharat Broadband22, although the Supreme Court was dealing with an appeal from a decision of the High Court rendered in proceedings under Section 14(2) of the Act, it set aside the award which had been rendered by the arbitrator in the interim, upon reaching the conclusion that the challenge to unilateral appointment was maintainable and justified.

Based on the authors’ analysis, an award rendered by an arbitrator appointed through unilateral appointment can be set aside by the Court under Section 34(2)(b)(ii) of the Act, on the ground of violation of fundamental policy of Indian law, since as explained in TRF23 and Perkins24, unilateral appointment militates against the very essence of the 2015 Amendment to the Act.

The authors are not aware of any Supreme Court precedent involving a situation wherein unilateral appointment was considered as good ground for setting aside an arbitral award, despite the fact that no challenge to the unilateral appointment was raised by the party during the pendency of the arbitral proceedings. However, the Madras High Court when faced with such a situation in JV Engg. Associate v. CORE25, set aside the arbitral award since the case involved a scenario wherein both the appointing authority and the arbitrator were de jure ineligible under Section 12(5) read with the Seventh Schedule to the Act. However, the Madras High Court, beyond observing that the parties had never waived the applicability of Section 12(5), did not expound on the jurisprudential basis for the maintainability of a challenge against unilateral appointment for the first time in proceedings to set aside the award under Section 34 of the Act.

In this context, the authors argue that such a challenge is maintainable primarily because a unilateral appointment is void ab initio resulting in the arbitrator inherently lacking jurisdiction to enter into reference, as already explained in the preceding paragraphs. Since an award passed by an arbitrator without inherent jurisdiction would be a nullity in any event (principle of coram non judice), it is possible to agitate lack of jurisdiction for the first time even at the stage of Section 34 proceedings. This position of law has been settled by the Supreme Court in decisions such as Lion Engg. Consultants v. State of M.P.26 and Hindustan Zinc Ltd. v. Ajmer Vidyut Vitran Nigam Ltd.27.

Closing remarks

Where an arbitrator has entered into reference through unilateral appointment, the ideal and ethical route to proceed would be to ask the parties if they are willing to state that they have full confidence in the Tribunal despite the unilateral appointment and therefore, waive the applicability of Section 12(5) in writing. Should the parties be reluctant to do so, the arbitrator ought to withdraw from the arbitral proceedings since he or she is de jure ineligible to act as an arbitrator.

Further, it is advisable for the affected party to challenge a unilateral appointment at the inception of arbitral proceedings under Section 14 of the Act, to avoid wastage of time and resources. Doing so would also eliminate the necessity to wade into the question of whether such a challenge can be raised for the first time in Section 34 proceedings.

As a matter of caution, parties wishing to reserve the right to challenge unilateral appointment should be wary of any boilerplate language in procedural orders issued by the arbitrator which states that parties do not have any objection to the appointment of the arbitrator, since the same may be considered to be a waiver in writing of the applicability of Section 12(5).


*Senior Associate, AK Law Chambers.

**Associate, AK Law Chambers.

1Arbitration and Conciliation (Amendment) Act, 2015.

2http://www.scconline.com/DocumentLink/QWdt5a4f.

3http://www.scconline.com/DocumentLink/9ajA4z9b.

4http://www.scconline.com/DocumentLink/9ajA4z9b.

5(2017) 8 SCC 377.

62019 SCC OnLine SC 1517.

7See HRD Corpn. v. GAIL (India) Ltd., (2018) 12 SCC 471.

8(2017) 8 SCC 377.

92019 SCC OnLine SC 1517.

10See TRF Ltd. v.EnergoEngg. Projects Ltd., (2017) 8 SCC 377, paras 55-57.

11(2019) 5 SCC 755.

12See Bharat Broadband Network Ltd. v. United Telecoms Ltd., (2019) 5 SCC 755, para 18.

13http://www.scconline.com/DocumentLink/y0QTX63N.

14See Bharat Broadband, (2019) 5 SCC 755, paras 14-17.

15Bharat Broadband, (2019) 5 SCC 755, paras 18 and 20.

162020 SCC OnLine Del 350, paras 26-27.

17(2019) 5 SCC 755, para 20.

182021 SCC OnLine Del 2857, paras 8 and 9.

19http://www.scconline.com/DocumentLink/D8UZ7ger.

202020 SCC OnLine Del 1950, paras 35 and 38.

21http://www.scconline.com/DocumentLink/teuo89l3.

22(2019) 5 SCC 755.

23(2017) 8 SCC 377.

242019 SCC OnLine SC 1517.

252020 SCC OnLine Mad 4829.

26(2018) 16 SCC 758, para 6.

27(2019) 17 SCC 82, paras 9 and 10.

Advani LawExperts Corner

Introduction

Indian arbitration jurisprudence has undoubtedly witnessed many controversies with regard to the various facets of the Arbitration and Conciliation Act, 1996 (the Act). Notable controversies include the applicability of Part 1 of the Act to internationally seated arbitration agreements which began from Bhatia International v. Bulk Trading SA[1]  which was finally settled by the Supreme Court in 2012 in e Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.[2] (BALCO). Other notable controversies include subject-matter of arbitrability of disputes till the judgment of the Supreme Court in Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd.[3] and more particularly the arbitrability of fraud claims that lasted decades until it was finally settled by the Supreme Court in A. Ayyasamy v. A. Paramasivam[4] and more recently in the seminal judgment in Vidya Drolia v. Durga Trading Corpn.[5]. The latest controversy that has gained considerable importance in arbitral jurisprudence is the seat-venue conundrum or the uncertainty faced by courts in determining the seat of arbitration. Although the Supreme Court has on many occasions delivered seminal judgments onthese connotations (seat, venue, place of arbitration) there still appears to be room for uncertainty. This article will study the latest position of law propounded by the Supreme Court with regard to the determination of the seat of arbitration in relation to their duty to give effect to the sacrosanct principle of party autonomy.

 

The Significance of the Seat of the Arbitration

It is important to distinguish the term “seat” from “venue” and “place”. The term “seat” is of utmost importance as these terms determine many crucial aspects of the arbitration proceedings, the term “seat” connotes the situs of the arbitration or the center of gravity of the arbitration proceedings. The selection of a certain location as the seat of arbitration will come with consequences as such a selection of a geographical location as a seat will mean that the courts of that jurisdiction will have supervisory jurisdiction over the arbitral process and the procedural law or curial law of the arbitration proceedings will be law of that jurisdiction. Parties often select the seat in absence of a choice of governing law clause in the arbitration agreements and therefore often the law of the seat becomes the law governing the arbitration proceedings. Renowned scholars in the field of international arbitration often refer to the law of seat as the lex arbitri. Many leading arbitration jurisdictions often place emphasis on the seat of the arbitration to determine the lex arbitri and also propound a territorial link between the arbitration proceedings and the seat of the arbitration. The term “venue” may often be interlined with the term “seat”, but this may not necessarily be the correct approach. The term “place” often refers to a convenient location selected by the parties to carry out the arbitration proceedings and should not be confused with the seat or venue. It is without doubt that the term “seat” carries more weight than venue or place.

 

At this juncture it is also important to note that the Act does not define the term “seat” or “venue”. Section 20 of the Act merely defines the “place of arbitration” which is being used interchangeably with the terms “seat” and “venue”. It is also true that parties that often conclude arbitration agreements do not realise the repercussions of selecting a particular location as a seat and due to this there is often unnecessarily litigation between the parties. However, it appears that although Indian courts have laid extensive emphasis on the term “seat”, it has often associated seat with venue and used these terms interchangeably leading a controversy that is yet to be conclusively resolved by the Supreme Court.

 

The Seat-Venue Saga

To begin understanding the principle adopted by the Indian courts to divide the concepts of seat and venue in the context of international arbitration it is important to note the ratio laid down by the England and Wales High Court in Roger Shashoua v. Mukesh Sharma[6]commonly referred to as the Shashoua Principle by Indian courts. In this case the parties had selected London as the venue of arbitration but had not selected it as a seat. Cooke, J. employed a ratio that laid down that when parties had selected a venue of arbitration without designating a seat of arbitration, it is safe to conclude that the venue is the seat of arbitration provided that the parties have selected a supranational body of rules to govern the arbitration and there is no other indication to the contrary. It is pertinent to note here, that the Constitutional Bench in BALCO[7] had approved the Shashoua Principle[8]. The Shashoua Principle[9] was further followed in Enercon (India) Ltd. v. Enercon GmbH[10]. Therefore it appeared that this position in India is well settled.

 

However, in 2018, there appeared room for uncertainty as it was noticed that the Supreme Court had deviated from the Shashoua Principle[11] approved by the same court in BALCO[12]. In Union of India v. Hardy Exploration and Production (India) Inc.[13] (Hardy Exploration) the parties had selected that Kuala Lumpur was the venue of arbitration but were silent on the seat. After disputes arose, the arbitration proceedings commenced and the award was signed at Kuala Lumpur. Thereafter the appellant sought to challenge the award under the Act before the Delhi High Court contending that Delhi was the seat of arbitration. On appeal the Supreme Court delivered a judgment deviating from the Shashoua Principle[14]. The Court held that the parties had not chosen the seat of arbitration and noted that the Tribunal also had not made any findings with respect to the same. It was observed that Kuala Lumpur was designated by the parties as the venue of arbitration and thus it did not mean that Kuala Lumpur had become the seat of arbitration. The Court concluded that a venue could become a seat of arbitration only if something else is added to it as a concomitant. It is evident that the opinion of the Court is not in consonance with the Shashoua Principle[15] approved by the same court in BALCO[16].

 

Thereafter in 2019, the Supreme Court had another occasion to revisit this topic in BGS SGS Soma JV v. NHPC Ltd.[17] (Soma JV). It is interesting to note that in this case, the coordinate Bench (3 Judges) had reiterated the Shashoua Principle[18] contrary to the observations made in Hardy Exploration[19]. The Court propounded a test and laid down that when a particular place is designated as the venue of arbitration the same should be considered to be the seat of arbitration. It noted that this should be coupled with the fact that the parties have not made any other contrary indication that the venue is not the seat of arbitration. The Court observed that the decision in Hardy Exploration[20] is per incuriam as it did not follow ratio laid down by the Constitutional Bench in BALCO[21] that wholeheartedly adopted the Shashoua Principle[22] in Indian law. It appears that there is uncertainty whether the decision of the Court in Hardy Exploration[23] or Soma JV[24] holds the field, as a concurrent Bench could not have overruled the judgment in Hardy Exploration[25].

 

In March 2020, another conundrum had arisen before the Supreme Court in Mankastu Impex (P) Ltd. v. Airvisual Ltd.[26] In this case the arbitration agreement was unique as it did not use the words “seat” or “venue”. The arbitration agreement laid down that the arbitration would be administered in Hong Kong and the place of arbitration was Hong Kong. It also stated that the governing law was Indian law and that the courts of New Delhi shall have jurisdiction. Accordingly when disputes arose, Mankastu approached the Supreme Court of India for appointment of arbitrator contending that as Indian law was the governing law and the courts at New Delhi had jurisdiction therefore that New Delhi was the seat of arbitration. Mankastu relied on Hardy Exploration[27]. Airvisual contended as Hong Kong was designated as the place of arbitration, and therefore Hong Kong was also the seat of arbitration. Airvisual relied on Soma JV[28] for this purpose.

 

It is interesting to note the method of inquiry adopted by the Supreme Court in arriving at its conclusion that Hong Kong was the seat of arbitration. The Court instead of applying the ratio in Hardy Exploration[29] or Soma JV[30], employed a different method of inquiry altogether. Although, the Court did not expressly follow Hardy Exploration[31] it appears to have arrived at a similar conclusion on a different line of reasoning. The Court held that it would not be safe to conclude that the place of arbitration would automatically become the seat of arbitration without examining other pertinent indications in the contract to discern the true intention of the parties. The Court observed since it was agreed that the arbitration proceedings should be administered in Hong Kong that the seat of arbitration was Hong Kong.

 

Conclusion

From the above analysis, it appears that the Indian Supreme Court has shown a reluctance to affirm Hardy Exploration[32] or Soma JV[33], although it is pertinent to note that the Court has come to the conclusion that it would have come to had it applied the ratio laid down in Hardy Exploration[34]. This has definitely led to uncertainty regarding the precedential value of Soma JV[35] and the Shashoua Principle[36] adopted by the Constitutional Bench in BALCO[37]. It is needless to say, that this controversy should be settled by a larger |Bench of the Supreme Court at the next opportunity. It is undoubted that the seat of arbitration is of much higher significance than the place or venue of the arbitration and it is also true that the uncertainty in this regard could be used by recalcitrant parties to derail the arbitral process by adopting dilatory tactics, thereby trying to oust the jurisdiction of the courts of the seat.

 

† Hiroo Advani, Senior Managing Partner at Advani & Co.

†† Sheikh Yusuf Ali,  Partner at Advani & Co.

††† Manav Nagpal, Associate at Advani & Co.

 

[1] (2002) 4 SCC 105.

[2] (2012) 9 SCC 552.

[3] (2011) 5 SCC 532.

[4] (2016) 10 SCC 386.

[5] (2021) 2 SCC 1.

[6] 2009 EWHC 957 (Comm) : (2009) 2 Lloyd’s Rep 376.

[7] (2012) 9 SCC 552.

[8] 2009 EWHC 957 (Comm) : (2009) 2 Lloyd’s Rep 376.

[9] Ibid.

[10] (2014) 5 SCC 1.

[11] 2009 EWHC 957 (Comm) : (2009) 2 Lloyd’s Rep 376.

[12] (2012) 9 SCC 552.

[13] (2019) 13 SCC 472.

[14] 2009 EWHC 957 (Comm) : (2009) 2 Lloyd’s Rep 376.

[15] Ibid.

[16] (2012) 9 SCC 552.

[17] (2020) 4 SCC 234.

[18] 2009 EWHC 957 (Comm) : (2009) 2 Lloyd’s Rep 376.

[19] (2019) 13 SCC 472.

[20] Ibid

[21] (2012) 9 SCC 552.

[22] 2009 EWHC 957 (Comm) : (2009) 2 Lloyd’s Rep 376.

[23] (2019) 13 SCC 472.

[24] (2020) 4 SCC 234.

[25] (2019) 13 SCC 472.

[26] (2020) 5 SCC 399.

[27] (2019) 13 SCC 472.

[28] (2020) 4 SCC 234.

[29] (2019) 13 SCC 472.

[30] (2020) 4 SCC 234.

[31] (2019) 13 SCC 472.

[32] (2019) 13 SCC 472.

[33] (2020) 4 SCC 234.

[34] (2019) 13 SCC 472.

[35] (2020) 4 SCC 234.

[36] 2009 EWHC 957 (Comm) : (2009) 2 Lloyd’s Rep 376.

[37] (2012) 9 SCC 552.

Case BriefsSupreme Court

Supreme Court: Answering the “hotly debated” question as to in what circumstances and categories of cases, a criminal proceeding may be quashed either in exercise of the extraordinary powers of the High Court under Article 226 of the Constitution, or in the exercise of the inherent powers of the High Court under Section 482 CrPC, the bench of Indu Malhotra* and Ajay Rastogi, JJ has held that in the matter of exercise of inherent power by the High Court, the only requirement is to see whether continuance of the proceedings would be a total abuse of the process of the Court

“… the exercise of inherent power of the High Court is an extraordinary power which has to be exercised with great care and circumspection before embarking to scrutinise the complaint/FIR/charge-sheet in deciding whether the case is the rarest of rare case, to scuttle the prosecution at its inception.”

The Court observed that in order to exercise powers under Section 482 CrPC, the complaint in its entirety shall have to be examined on the basis of the allegation made in the complaint/FIR/charge-sheet and the High Court at that stage was not under an obligation to go into the matter or examine its correctness. Whatever appears on the face of the complaint/FIR/charge-sheet shall be taken into consideration without any critical examination of the same. The offence ought to appear ex facie on the complaint/FIR/charge-sheet and other documentary evidence, if any, on record.

“The Criminal Procedure Code contains a detailed procedure for investigation, framing of charge and trial, and in the event when the High Court is desirous of putting a halt to the known procedure of law, it must use proper circumspection with great care and caution to interfere in the complaint/FIR/charge-sheet in exercise of its inherent jurisdiction.”

The Court was dealing with a case where a property, belonging to 2nd Respondent was mortgaged with State Bank of Patiala and the total legal liability payable to the Bank was Rs. 18 crores. In order to clear the said dues, 2nd respondent hatched a conspiracy with a broker so as to cheat and defraud the appellants/complainants and to further misappropriate the amounts paid by the complainants as part of the deal, the 2nd respondent breached the trust of the appellants/complainants deliberately and falsely stating to the appellants/complainants that the 2nd respondent would be liable to pay a sum of Rs. 25.50 crores to the complainant if the deal is not carried forward by the 2nd respondent.

While an FIR was lodged in the case at hand for offence of cheating, arbitral proceedings were also initiated at the instance of the appellants/complainants.

On a careful reading of the complaint/FIR/charge-sheet, the Court noticed that the ingredients of the offences under Sections 406 and 420 IPC cannot be said to be absent on the basis of the allegations in the complaint/FIR/charge-sheet.

“… whether the allegations in the complaint are otherwise correct or not, has to be decided on the basis of the evidence to be led during the course of trial. Simply because there is a remedy provided for breach of contract or arbitral proceedings initiated at the instance of the appellants, that does not by itself clothe the court to come to a conclusion that civil remedy is the only remedy, and the initiation of criminal proceedings, in any manner, will be an abuse of the process of the court for exercising inherent powers of the High Court under Section 482 CrPC for quashing such proceedings.”

The Court noticed that the facts narrated in the present complaint/FIR/charge-sheet indeed reveal the commercial transaction but that is hardly a reason for holding that the offence of cheating would elude from such transaction. In fact, many a times, offence of cheating is committed in the course of commercial transactions and the illustrations have been set out under Sections 415, 418 and 420 IPC. So far as initiation of arbitral proceedings is concerned, there is no correlation with the criminal proceedings.

The Court, hence, held that the issue involved in the matter under consideration is not a case in which the criminal trial should have been short-circuited. The High Court was not justified in quashing the criminal proceedings in exercise of its inherent jurisdiction. The High Court has primarily adverted on two circumstances,

(i) that it was a case of termination of agreement to sell on account of an alleged breach of the contract and

(ii) the fact that the arbitral proceedings have been initiated at the instance of the appellants.

The Court held that both the alleged circumstances noticed by the High Court are unsustainable in law.

[Priti Saraf v. State of NCT of Delhi, 2021 SCC OnLine SC 206, decided on 10.03.2021]


*Judgment by: Justice Indu Malhotra

Appearances before the Court by:

For appellants: Senior Advocate Mukul Rohatgi,

For Second Respondent: Senior Advocate P. Chidambaram,

For State: Additional Solicitor General  Aishwarya Bhati

Case BriefsHigh Courts

Delhi High Court: C. Hari Shankar, J., addressed three different petitions between the same parties arising out of the award passed by Arbitral Tribunal, out of which, first petition was rejected, the second was passed and third stayed.

GMR and NHAI were under a concession agreement to build a six-lane, 555 km Kishangarh-Udaipur-Ahmedabad Highway, which was terminated by GMR on the ground that there had been a “change in law”, during the period of the agreement.

GMR claimed that it was entitled to compensation, under Clauses 41.1 and 41.3 of the Concession Agreement. The learned Arbitral Tribunal held that there was a “change in law” and that, GMR was entitled to compensation under Clauses 41.1 and 41.3. The majority award, however, permitted NHAI to take a fresh decision, on the claims of GMR, and assess the compensation to which it would be entitled. While the majority Award directed GMR to establish, before NHAI, its entitlement to compensation, under Clause 41.1 and 41.3 of the Concession Agreement, the dissenting Award(minority) opined that, instead of allowing NHAI to adjudicate thereon, the exercise ought to be delegated to an independent authority, such as a reputed firm of Chartered Accountants, or the like. The petitions, O.M.P. (COMM.) 426/2020, and O.M.P. (COMM.) 425/2020, were filed by NHAI and  GMR respectively and were preferred under Section 34 of the Arbitration and Conciliation Act, 1996, to set aside the award by the Tribunal. O.M.P. (I) (COMM.) 92/2020, was filed by GMR under Section 9 of Arbitration and Conciliation Act, 1996 essentially for the interim stay of operation of a letter demanding premium and, further, restraining GMR from taking any coercive steps, under the Concession Agreement.

NHAI claimed to be aggrieved by the decision, of the Arbitral Tribunal, holding GMR to be entitled to compensation, and contended, in its petition [O.M.P. (COMM.) 426/2020] that GMR was not entitled to any compensation on the ground of “change in law”. GMR challenged [in O.M.P. (COMM.) 425/2020] the majority Award, to the extent, it delegated the decision-making power, qua the claim, of GMR, to compensation, to NHAI. In other words, GMR sought to contend that the minority Award of Nayar, J., ought to be accepted.

The Court first decided the petition,O.M.P. (COMM.) 426/2020, and found the Arbitral Tribunal’s Judgment to be in order. Court found that the tribunal’s decision that change of circumstance did result in “change of law” under Clause 48 of the Concession Agreement, the claim of GMR had to be assessed under Clauses 48.1 and 48.3 and GMR had to establish the “financial burden” to claim this compensation.

Therefore, Court disposed of this petition. In O.M.P. (COMM.) 426/2020, the court sided with the minority judgment of the Arbitral tribunal and assigned a new arbitrator who would be taking up the task from where the learned Arbitral Tribunal passed its Award. The Court decided that the Sole Arbitrator would have a time of six months from the date of presentation GMR’s claims for compensation. Therefore, the petition was accepted. The remaining petition, O.M.P. (I) (COMM) 92/2020, was on the issue of the premium to be paid to NHAI, which was stayed by the court in the “the interests of justice”.  Therefore, the third petition stayed.[GMR Hyderabad Vijayawada Expressways (P) Ltd. v. NHAI, 2020 SCC OnLine Del 923, decided on 4-08-2020].

Op EdsOP. ED.

Introduction:

One of the most sought after remedies under the Arbitration and Conciliation Act, 1996[1] (the Act) is the grant of interim relief under Section 9 of the Act which allows the parties to apply to the court for interim relief before or during the arbitral proceedings, or after an award is passed but before it is enforced. The law of interim reliefs took a great stride under the Act as neither the Arbitration Act of 1940 nor the UNICTRAL Model Law had envisaged granting interim reliefs to a party in a post award scenario. The Act accordingly allows the parties, before executing the award, to apply to the court for securing the proceeds of the arbitral award to protect the decretal amount, so that the award debtor cannot evade the obligations under the award and make the realisation of the award illusory.

The importance of a post award Section 9:

The grant of interim reliefs under Section 9 of the Act, especially in a scenario where the award has been delivered, assumes significance primarily because the Act provides for a statutory period of three months for the award debtor to file a challenge to the award. This created a unique hurdle in the enforcement of the award by the successful award-holder since the mere filing of a Section 34 application would automatically stay the execution of the award, pending the adjudication of the setting aside application.

To remedy such an incongruity in law, the Act, as amended in 2015 removed the concept of an automatic stay on the execution of awards, pending the adjudication of a setting aside application, and allowed award- holders to forthwith move for the execution of the award, even if a Section 34 application was pending before the court. This was deemed essential to ensure that the decree obtained in favour of the award- holder did not remain unsatisfied and be rendered a mere paper decree amidst the rigmarole of the award debtor’s attempts to stall execution of the award. Under the amended Act, an award debtor has to now necessarily apply for a stay of the execution of the arbitral award by the successful award-holder, through a separate application. Therefore, the amendment to the Act created two distinct scenarios where firstly, what was available on a platter under the Act has to be now asked for and secondly, a grant of it can be conditional upon an adjudication of the grounds made out in the stay application [See Rendezvous Sports World v. Board of Cricket Control in India[2], BCCI v. Kochi Cricket Ltd.[3] and Hindustan Construction Company Ltd. v. Union of India[4]]

Accordingly, a post award Section 9 application attains renewed significance because while the amended Act allows for the execution of the award as a money decree pending a Section 34 challenge, it does not cover situations where the 90 day period provided to award debtors to challenge an arbitral award is utilised to alienate its assets with the sole intent of resisting execution of the award. In such a circumstance, even if the successful award-holder moves for the execution of the award upon expiry of the statutory period, he would be prevented from enjoying the fruits of his decree on account of the award debtor’s mala fide conduct. The only remedy available to a successful award-holder to seek interim protection of the award amount in such circumstances therefore remains a post award Section 9 application.

The scope of a post award Section 9: Applying principles of Order 39 strictu sensu?

When it comes to the principles guiding grant of interim relief, there prima facie appears to be a consensus among the courts on applicability of procedural law principles enunciated under the Civil Procedure Code, 1908 (CPC) and the Specific Relief Act, 1963 (SRA) supervising the operation of Section 9, which includes inter alia, prima facie test, balance of convenience and irreparable harm. [See Adhunik Steels Ltd. v. Orissa Manganese and Minerals (P) Ltd.[5]] However, there appears to be a divergence on the issue of the degree to which such principles from the CPC and SRA can be imported in the adjudication of a post award Section 9 application. In any event, it is essential to note that the nature of reliefs in a post award Section 9 application can only be to a limited extent of preservation of the subject-matter of the arbitration agreement or securing the amount in dispute and not for the execution of the award pending the objections against the award. [See Afcons Infrastructure Ltd. v. Board of Trustees of Port of Mumbai.[6]]

In reference to the guidelines that the courts are supposed to follow while granting a post award interim relief, there have been various judgments which have held that a Section 9 court is not duty bound to observe the provisions of CPC strict sensu but have to merely refer to the CPC for guidance on principles governing injunctions on the alienation of assets and deposit of the award amount. The Bombay High Court in Delta Construction Systems Ltd., Hyderabad v. Narmada Cement Company Ltd., Mumbai,[7] held that in case of securing the amount in dispute, all that is required to be established is a case that if interim relief is not granted, the award in favour of a party will become nugatory. Similarly, the Kerala High Court in M. Ashraf v. Kasim V.K.[8], held that a Section 9 court has to necessarily take a liberal approach while granting interim reliefs post award and not be stymied by the application of the CPC in its most rigid sense.

However, the recent judicial trends seem to suggest that depending on the facts and circumstances of each case, the courts are inclined to apply the three–fold test of prima facie case, balance of convenience and irreparable harm and injury enshrined under Order 39 the CPC for grant of temporary injunctions while adjudicating a post award Section 9 application. Reference in this regard may be drawn to two Bombay High Court decisions in Felguera Gruas India Pvt. Ltd v. Tuticorin Coal Terminal Pvt Ltd.[9] (Felguera) and Mahyco Monsanto Biotech (India) Pvt. Ltd. v. Nuziveedu Seeds Ltd.[10], (Monsanto) wherein the Bombay High Court applied the principles of Order 39 CPC in securing the award amount by way of a post award interim relief. In the cases as above, the court merely established the existence of a prima facie case for grant of interim relief (based on the financial position of the award debtor and its conduct with regard to alienation of its assets) and proceeded to grant deposit of the entire arbitral award pending the execution of the award.

Accordingly, evidence of the declining financial position of the award debtor coupled with mala fide conduct in dealing with its assets is essential to make out a case for a post award Section 9. It is important to remember that owing to the limited period for challenge under the Act upon expiry of which an award becomes enforceable, the courts are generally hesitant to grant a post award relief and that too in a circumstance where the challenge to the arbitral award has not been filed yet. However, if a prima facie case can be made out to the court’s satisfaction, and in compliance with the principles governing Order 39 CPC – establishing that the declining financial position of the award debtor and its surreptitious conduct in disposing of its assets would amount to the award being rendered a mere paper decree, the chances of obtaining a deposit or injunction order from the courts would increase manifold.

Recent judicial trends:

Recent pronouncements on the issue can be looked at from two different perspectives:

(a) The grant of post award interim reliefs in situations where a Section 34 challenge has been filed; and

(b) The grant of post award interim reliefs in situations apprehending the filing of a Section 34 challenge by the award debtor.

Analysing the jurisprudential development on the subject, it is crucial to note that the courts generally grant deposit of the entire award amount as and by way of a post award relief under Section 9, and the grant of such relief is usually predicated upon the contumacious conduct of the award debtor and/or its brazen attempts to renege from its payment obligations under the award. The Delhi High Court in Power Mech Projects v. Sepco Electric Power Construction Corporation (Sepco)[11], granted a 100% deposit of the principal amount in the award before hearing the objections to the award filed by the award debtor. This was because in the facts and circumstances of the case, the award debtor had no immoveable assets in India and sought to furnish security for the award amount on the strength of its ongoing projects in India. The Court in Sepco, while negating the award debtor’s arguments held that revenue generated from the ongoing projects cannot be accepted as security against the enforcement of the award and further observed that valuations of machinery and other assets at the project site also cannot be taken as solvent security since the award is to be enforced as a money decree and cannot be secured by moveable assets such as machinery.

In Sampson Maritime Limited v. Hardy Exploration & Production (India) Inc.,[12] (Samson Maritime) even though a Section 34 application was pending in the case, the Madras High Court proceeded to hear the Section 9 application and granted full deposit of the awarded amount. In doing so, the Court observed that an action under Section 9 of the Act, post award, in no manner qualified as enforcing the award in itself and sought to distinguish a post award Section 9 application from an application made under Order 38 Rule 5  CPC. The remedy under Order 38 Rule 5 squarely applies in situations where the attachment of the judgment debtor’s assets is sought before judgment and the rights of the award-holder have not crystallised. Hence, an application under Order 38 Rule 5 needs to necessarily be supported by material averments to establish how the award-holder expects his rights to be defeated by the conduct of the judgment debtor. However, in a post award Section 9 application, the rights of the award-holder have crystallised since he has a decree in his favour. In such a scenario, the Court need not go into the question of the intention of the judgment debtor to delay the execution of the award and the making of a positive case by the award- holder establishing the mala fide intent of the judgment debtor. The Madras High Court held that pending the adjudication of a Section 34 application, the successful award-holder can seek protection under Section 9 post the delivery of the award – not on any apprehended action of the respondent but as a matter of right.

In Candor Gurgaon Two Developers & Projects Pvt. Ltd. v. Srei Infrastructure Finance Ltd.,[13] (Candor) the Calcutta High Court was dealing with a question of a post award Section 9 application by the award- holder, apprehending the filing of a Section 34 application by the judgment debtor. In Candor, the award directed the judgment debtor to make payment of Rs 25 crores within 30 days of the making of the award. However, since no such payments were furnished by the judgment debtor, the Section 9 application was filed seeking protection of the award amount. The Court held that since the judgment debtor had not made any effort to repay the amounts due to the successful award- holder, notwithstanding the fact that the judgment debtor still had time to file its challenge to the award, the award-holder was entitled to the protection of the award amount. Highlighting the scope of a post award Section 9, the Court observed that the protection under Section 9 can be exercised to the extent of protecting the arbitral amount if there exists a real likelihood that the award amount will be disposed of or is at general risk of being rendered nugatory.

Conclusion: Post award Section 9 reliefs – jumping the gun?

At the outset, it is crucial to note that the threshold of maintaining a case for post award relief is extremely high, even when proof of the financial weakness of the award debtor is furnished. The Gujarat High Court in Essar Oil Limited v. United India Insurance Company Limited,[14] has categorically observed that mere proof of financial instability would not in itself be sufficient to maintain a case for post award reliefs. It held that if there are extenuating circumstances showing that the conduct of the award debtor is such that it leads to the inescapable conclusion that they are likely to dispose of the property with a view to defeat the decree/awards, the Court may in the exercise of powers under Section 9(ii)(b) of the Act, pass an order of protecting the award amount. Similarly, since the statute provides a 90-day period for the award debtor to lodge his challenge to the award, the enforcement mechanism kicks in immediately after the expiry of the 90 days. Therefore, the burden on the award-holder is very high to satisfy to the court that pending the filing of the challenge to the award (and even in cases where such challenge is filed) and before the execution of the award, the circumstances are such that warrant grant of interim protection to prevent the award from becoming a paper decree.

However, should a situation arise which makes it evident that the award debtor is encumbering its assets to defeat the award, Monsanto and Felguera may be used as a guide to understanding the factors that contribute towards demonstrating the commercial insolvency of the award debtor[15]. Since the Act, as amended in 2015 does away with the concept of the automatic stay, it would be prudent to initiate execution proceedings upon the expiry of the 90 day period lest there exist prima facie exigencies which make it evident that there exists a likelihood of the award being defeated.

***


*Final year student of Government Law College, Mumbai

** Associate (Dispute Resolution) Vashi and Vashi, Advocates and Solicitors, Mumbai

[1] Arbitration and Conciliation Act, 1996 

[2] 2016 SCC OnLine Bom 6064  

[3] (2018) 6 SCC 287  

[4] 2019 SCC OnLine SC 1520 

[5] (2007) 7 SCC 125

[6] 2013 SCC OnLine Bom 1946 

[7] 2001 SCC OnLine Bom 630 

[8] 2018 SCC OnLine Ker 4913 

[9] Felguera Gruas India Pvt. Ltd. v. Tuticorin Coal Terminal Pvt. Ltd., Commercial Arbitration Petition No. 1403 of 2019,  order dated  20-11- 2019.

[10]. Mahyco Monsanto Biotech v. Nuziveedu Seeds Ltd.,Commercial Arbitration Petition No. 312 of 2019, judgment dated  6-3- 2019.

[11] Power Mech Projects v. Sepco Electric Power Construction Corporation, Judgment dated F 17-2- 2020, in O.M.P. (I.) (COMM.) 523/2017

[12] 2016 SCC OnLine Mad 9122 

[13] 2018 SCC OnLine Cal 2430

[14] 2014 SCC OnLine Guj 6737 

[15] Supra Note 10, at para 19