Case BriefsHigh Courts

Delhi High Court: Vibhu Bakhru, J., held that the scope of interference with an arbitral award under Section 34 of the Arbitration & Conciliation Act is limited.

Factual Matrix 

Steel Authority of India (SAIL) filed the instant petition under Section 34 of the Arbitration and Conciliation Act, 1996 impugning an Arbitral Award delivered by the Arbitral Tribunal.

Arbitration between the parties was an international commercial arbitration within the meaning of Section 2(1)(f) of the A&C Act and the same was conducted under the aegis of the Delhi International Arbitration Centre.

Respondent JOPL was the claimant and engaged in the business of maritime logistics including vessel operations and chartering.

Charter Party

Parties had executed a Charter Party whereby JOPL agreed to load, carry and discharge cargo of Bulk Coking Coal to ports in India.

Though there was no dispute between the parties as to the amount payable by SAIL under the Charter Party, there was also no dispute that JOPL had duly performed its obligations under the Charter Party.

Contract of Affreightment

However, it was stated that SAIL had withheld the admitted balance amount payable to JOPL for the reason that it had raised a claim of damages against JOPL in respect of another contract – Contract of Affreightment for shipping cargos of limestones.

What was the dispute?

OPL had not provided a vessel under the Contract of Affreightment for the 20th shipment and SAIL was compelled to make alternate arrangements for the same. SAIL claimed that JOPL had breached its obligations under the Contract of Affreightment and raised the claim for damages quantified at the additional expenses incurred by it to arrange for shipment of balance quantity of limestone.

But JOPL disputed the claim and stated that it was not obliged to provide a vessel as the shipment period under the Contract of Affreightment had come to an end.

Hence, disputes between the parties arising as a result of SAIL withholding the admitted amounts due under the Charter Party, were referred to arbitration.

Finding of the Arbitral Tribunal

The Arbitral Tribunal held in favour of JOPL and against SAIL and found that the Charter Party was unconnected with the Contract of Affreightment.

The Arbitral Tribunal found that there was no nexus between the two contracts. Whereas the Charter Party was a standalone contract for one shipment of Coking Coal, the Contract of Affreightment was a contract for multiple shipments of limestones over a period of twelve months.

In view of the above, the Arbitral Tribunal held that SAIL was not entitled to withhold any amount from the amounts as admittedly owed by it to JOPL under the Charter Party. It, accordingly, awarded a sum of USD 515,739.88.

Reasons and Conclusion

SAIL’s entitlement to any equitable set-off was contrary to public policy since Arbitral Tribunal failed to appreciate the same.

Fundamental premise that JOPL had breached the Contract of Affreightment was disputed

Bench added that SAIL had claimed that JOPL had breached the Contract of Affreightment and therefore, it was entitled to seek the performance of the balance obligations at its risk and cost. For the said claim SAIL was required to prove both its entitlement to damages and its measure.

 Whether set off could be claimed is a matter of discretion of the Court adjudicating the claim. SAIL could not claim it as a matter of right and in the given set of facts and circumstances, SAIL was not entitled to claim any set off as there was no ascertained debt owing by JOPL to SAIL.

Court while holding the position that impugned award is an award arising out of an international commercial arbitration and therefore, it cannot be assailed on the ground of patent illegality as contained in Section 34(2A) of the A&C Act.

Supreme Court in the decision of Ssagyong Engineering & Construction Ltd. v. National Highways Authority of India, (2019) 15 SCC 131, wherein it was held that an award arising from an international commercial arbitration can be assailed only on the limited grounds as specified under Section 34(2) of the A&C Act.

Hence, no grounds, whatsoever, to assert that the decision of the Arbitral Tribunal to reject SAIL’s contention falls foul of the fundamental policy of Indian Law.

The onus to prove that SAIL was entitled to withhold the admitted sums against any other claim, rested on SAIL. And it failed to discharge the said burden.

Whether the impugned award was liable to be set aside to the extent that it awards 12% interest compounded with quarterly rests, on the amount due to JOPL?

Court noted that the Statement of Claims filed by JOPL set outs the grounds for claiming the amount of USD 515,739.88.

It was also observed that JOPL had unequivocally stated that the only dispute between the parties was with regard to the payment of balance freight. SAIL did not traverse the said assertion. It was apparent that JOPL had premised its claim for interest and costs on the ground that SAIL had unjustifiably withheld the amounts admittedly payable by it. Thus, compelling JOPL to refer the disputes to arbitration. SAIL had contested the said Statement of Claims only on the ground that it was entitled to recover a sum of USD 1,187,847.318/- which, according to SAIL, was payable as damages by JOPL in respect of the Contract of Affreightment.

High Court opined that the SAIL cannot be permitted to contest the impugned award as contrary to fundamental policy of Indian Law.

Bench found considerable merit in the contention advanced by Mr Shankar that the rate of 12% p.a. interest compounded with 3 monthly rests cannot be held contrary to fundamental policy of Indian Law.

Supreme Court in its decisions noted that the recovery of compound interest would not contravene any fundamental policy of Indian Law, Mr Shankar also pointed that there are a number of legislation that provide for payment of compound interest.

It is also a norm of the banking industry to charge compound interest with either monthly or quarterly rests. Therefore, an arbitral award cannot be held to be contrary to the fundamental policy of Indian law only because one of the parties is awarded compound interest.

In view of the offering that, if SAIL was willing to pay the awarded amount with a lesser interest and put quietus to disputes, JOPL would accept the same and waive its right for receiving the balance interest.

Therefore, Bench adjourned the hearing to enable SAIL’s counsel to take instructions in the above regard. But the said offer was accepted by the Court.

But, considering that public funds are involved, this Court considered it apposite to grant SAIL another opportunity to reflect on the offer made on behalf of JOPL.

High Court held that the present petition was speculative and has been filed by SAIL to only protract litigation. Rs 50,000 costs were imposed.[SAIL v. Jaldhi Overseas PTE Ltd., 2021 SCC OnLine Del 2642, decided on 28-05-2021]

Advocates before the Court:

For the Petitioner: Mr Joy Basu, Senior Advocate with Mr Ashish Rana, Mr Kanak Bose, Advocates.

For the Respondent: Mr Ashwin Shankar and Mr Rishi Murarka, Ms Shweta Sadanandan, Mr Aditya Raj, Mr George Rebello,


Case BriefsSupreme Court

Supreme Court: In an important ruling on Arbitration, the 3-judge bench of RF Nariman, BR Gavai and Hrishikesh Roy, JJ has held that a Section 11 court under the Arbitration and Conciliation Act, 1996 cannot decide the questions of fact and law relating to novation of a contract containing arbitration clause and must refer them to an arbitral tribunal.

The Court held that such “complex” questions cannot possibly be decided in exercise of a limited prima facie review as to whether an arbitration agreement exists between the parties.

What’s the controversy?

A private company was incorporated on 09.12.1971 under the name and style of Asian Films Laboratories Private Limited (now ANI Media Private Limited) by Prem Prakash, the entire amount of the paid-up capital being paid for by him from his personal funds. He then distributed shares to his family members without receiving any consideration for the same.

Reuters Television Mauritius Limited (now Thomson Reuters Corporation), approached Sanjiv Prakash, son of Prem Prakash, for a longterm equity investment and collaboration with the company on the condition that he would play an active role in the management of the company. Hence, a MoU was entered into sometime in 1996 between the four members of the Prakash Family. A Shareholders’ Agreement dated 12.04.1996 [SHA] was then executed between the Prakash Family and Reuters.

The reason for entering into the SHA was as follows:


(A) Pursuant to a share purchase agreement dated today between the Prakash Family Shareholders and Reuters (the Share Purchase Agreement), Reuters has agreed to purchase 4,900 Shares (as defined below) representing 49% of the issued share capital of Asian Films Laboratories (Pvt.) Ltd. (the Company). Following completion of the Share Purchase Agreement, each of the Prakash Family Shareholders will hold the numbers of Shares set opposite his or her name in schedule 3 hereto, with the aggregate number of Shares so held by the Prakash Family Shareholders representing 51% of the issued share capital of the Company.

(B) The Shareholders (as defined below) are entering into the Agreement to set out the terms governing their relationship as shareholders in the Company.”

Disputes between the parties arose when Prem Prakash decided to transfer his shareholding to be held jointly between Sanjiv Prakash and himself, and Daya Prakash did likewise to transfer her shareholding to be held jointly between Seema Kukreja and herself. A notice invoking the arbitration clause contained in the MoU was then served by Sanjiv Prakash on 23.11.2019 upon the three Respondents, alleging that his pre-emptive right to purchase Daya Prakash’s shares, as was set out in clause 8 of the MoU, had been breached, as a result of which disputes had arisen between the parties and Justice Deepak Verma (retired Judge of this Court), was nominated to be the sole arbitrator.

However, the reply filed by Seema Kukreja and Daya Prakash, dated 20.12.2019, pointed out that the MoU ceased to exist on and from the date of the SHA, i.e. 12.04.1996, which superseded the aforesaid MoU and novated the same in view of clause 28.2 thereof. Therefore, they denied that there was any arbitration clause between the parties as the MoU itself had been superseded and did not exist after 12.04.1996.

Delhi High Court’s Verdict

After Sanjiv Prakash moved the Delhi High Court under Section 11 of the 1996 Act, the High Court, had, in it’s judgment held that,

“… the law relating to the effect of novation of contract containing an arbitration agreement/clause is well-settled. An arbitration agreement being a creation of an agreement may be destroyed by agreement. That is to say, if the contract is superseded by another, the arbitration clause, being a component/part of the earlier contract, falls with it or if the original contract in entirety is put to an end, the arbitration clause, which is a part of it, also perishes along with it.”

Supreme Court’s Verdict

The Court extensively discussed the law laid down in the recent judgment in Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1 wherein it was held that Section 11 Court is not empowered to determine whether an arbitration agreement is in existence or not. In the said judgment it was held that for Section 11 court to decide any matter, the “existence of an arbitration agreement” is mandatory. Whether or not an arbitration agreement exists, is a question to be decided by the Arbitral Tribunal.

“Existence of an arbitration agreement presupposes a valid agreement which would be enforced by the court by relegating the parties to arbitration. Legalistic and plain meaning interpretation would be contrary to the contextual background including the definition clause and would result in unpalatable consequences. A reasonable and just interpretation of “existence” requires understanding the context, the purpose and the relevant legal norms applicable for a binding and enforceable arbitration agreement. An agreement evidenced in writing has no meaning unless the parties can be compelled to adhere and abide by the terms. A party cannot sue and claim rights based on an unenforceable document. Thus, there are good reasons to hold that an arbitration agreement exists only when it is valid and legal. A void and unenforceable understanding is no agreement to do anything. Existence of an arbitration agreement means an arbitration agreement that meets and satisfies the statutory requirements of both the Arbitration Act and the Contract Act and when it is enforceable in law.

Section 11 does not prescribe any standard of judicial review by the court for determining whether an arbitration agreement is in existence. Section 8 states that the judicial review at the stage of reference is prima facie and not final. Prima facie standard equally applies when the power of judicial review is exercised by the court under Section 11 of the Arbitration Act. Therefore, we can read the mandate of valid arbitration agreement in Section 8 into mandate of Section 11, that is, “existence of an arbitration agreement”.”

Hence, the court by default would refer the matter when contentions relating to nonarbitrability are plainly arguable; when consideration in summary proceedings would be insufficient and inconclusive; when facts are contested; when the party opposing arbitration adopts delaying tactics or impairs conduct of arbitration proceedings.

“This is not the stage for the court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the Arbitral Tribunal but to affirm and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism.”

Applying the aforesaid test, the Court said that it was obvious that

“whether the MoU has been novated by the SHA dated 12.04.1996 requires a detailed consideration of the clauses of the two Agreements, together with the surrounding circumstances in which these Agreements were entered into, and a full consideration of the law on the subject. None of this can be done given the limited jurisdiction of a court under Section 11 of the 1996 Act.”

The Court said that the detailed arguments on whether an agreement which contains an arbitration clause has or has not been novated cannot possibly be decided in exercise of a limited prima facie review as to whether an arbitration agreement exists between the parties.

Also, this case does not fall within the category of cases which ousts arbitration altogether, such as matters which are in rem proceedings or cases which, without doubt, concern minors, lunatics or other persons incompetent to contract.

“A Section 11 court would refer the matter when contentions relating to non-arbitrability are plainly arguable, or when facts are contested. The court cannot, at this stage, enter into a mini trial or elaborate review of the facts and law which would usurp the jurisdiction of the arbitral tribunal.”

[Sanjiv Prakash v. Seema Kukreja, 2021 SCC OnLine SC 282, decided on 06.04.2021]

*Judgment by Justice RF Nariman 

Know Thy Judge| Justice Rohinton F. Nariman

Appearances before the Court by:

For Appellant: Senior Advocate K.V. Viswanathan

For Respondents: Senior Advocate Mukul Rohatgi and Advocates Avishkar Singhvi and Manik Dogra

Also read the detailed report on the Vidya Drolia judgment 

‘Landlord-tenant disputes under Transfer of Property Act are arbitrable’. SC lays down test for determining non-arbitrability of disputes

Case BriefsHigh Courts

Himachal Pradesh High Court: L. Narayana Swamy CJ., while exercising its powers under Section 11(6) of the Arbitration and Conciliation Act, 1996, appointed an Arbitrator and further allowed to either determine its own procedure for settling the dispute or run itself as per Section 23 and Section 29A of the Act.


The present petition is moved under Section 11(6) of the Arbitration and Conciliation Act, 1996, by a Company who was awarded the work for widening and strengthening the existing single/inter-mediate lane carriage way with geometric improvement of two-lane carriage way in KM 58/100 to 105/0 of National Highway 70 by the respondents, seeking a direction for appointment of arbitrator for resolving the dispute between the petitioner and the respondents.

Respondents have filed reply in which objection regarding claim being barred by limitation has been taken. Senior counsel for the petitioner relies on the judgment of Supreme Court in, Uttrakhand Porv Sanik Kalyan Nigam v. Northern Coal Field, SLP (C) No. 11476 of 2018, wherein it was categorically stated that, “delay itself is a question of law and facts and has to be decided by the Arbitral Tribunal or the Arbitrator appointed by the Court.”


Recognizing the contention forwarded by the counsel for the petitioner and reiterating the Supreme Court finding in the aforementioned case, the Court, in exercise of its powers under Section 11(6) of the Arbitration and Conciliation Act, 1996, appointed A.K. Goel, retired judge of the Himachal Pradesh High Court as the sole Arbitrator and further said, “It shall be open for the learned Arbitrator to determine his own procedure with the consent of the parties. Otherwise, also, entire procedure with regard to fixing of time limit for filing pleadings or passing of Award stands prescribed under Sections 23 and 29A of the Act. Liberty is also reserved to the respondent to raise objections, if any, by way of filing counterclaim before the Arbitrator.”


While allowing the present petition, the Court clarified the practice and procedure related to the exercise of Court’s power under Section 11(6) of the Arbitration and Conciliation Act, 1996 and instances which may fall under the direct determination of the Arbitral Tribunal.[Shivalaya Construction (P) Ltd. v. State of H.P., 2020 SCC OnLine HP 2801, decided on 27-11-2020]

Counsel for the Petitioner: Bimal Gupta, Senior Advocate with Kusum Chaudhary, Advocate.

Counsel for the Respondents: Ritta Goswami, Additional Advocate General.

Sakshi Shukla, Editorial Assistant has put this story together

Case BriefsHigh Courts

Karnataka High Court: S.R. Krishna Kumar, J., allowing the present petition for the appointment of a sole arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, held that, the decision made is restricted to the peculiar facts of the instant case and shall not be treated as a precedent whatsoever.

Brief Facts

The present petition is instituted under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’), praying to appoint a sole arbitrator in terms of the Arbitration clause contained in clause 6 of the Agreement dated 13-06-2014, and in compliance with Section 11(6) of the Act, to enter into adjudication of disputes between the parties at the Arbitration and Conciliation Centre, Bengaluru.


The Counsel for the respondents argued that the sale agreement, dated 13-06-2014, which contains the Arbitration clause, is insufficiently stamped and as such, the same cannot be acted upon for any purpose whatsoever including seeking appointment of an Arbitrator. In support of the argument, reliance was placed on the decision of Supreme Court in SMS Tea Estates (P) Ltd. v. Chand Mari Tea Co. (P) Ltd., 2011 (14) SCC 66 which was further followed in the case of Garvare Wall Ropes Ltd. v. Coastal Marine Constructions, 2019 (9) SCC 209.

The Counsel for the petitioners submitted that the responsibility of paying the deficit stamp duty and penalty on the said sale agreement, on or before the first date of hearing before the Arbitral Tribunal is hereby undertaken by them and that they have no objection with respect to the same.


  1. Whether an insufficiently stamped sale agreement, containing arbitration clause for the appointment of sole arbitrator enforceable under Section 11(6) of the Act? 


While considering the peculiar facts and circumstances of the present case, in addition to the position clarified in SMS Tea Estate and Garvare Wall Ropes, the Court appointed a sole arbitrator imposing necessary conditions with regard to payment of stamp duty and penalty on the sale agreement. It was further said that the procedure adopted in the present case is restricted and limited to the instant case as it is rendered with the consent of both the parties and without prejudice to any of their rights.[Malchira C. Nanaiah v. Pathak Developers (P) Ltd.,  2020 SCC OnLine Kar 1630, decided on 5-10-2020]

Sakshi Shukla, Editorial Assistant has put this story together

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].

Case BriefsInternational Courts

Permanent Court of Arbitration: In an unanimous decision by the Arbitral Tribunal concerning the “Enrica Lexie Incident”, it was held that Italy has breached Article 87, Paragraph 1, sub-paragraph (a) and Article 90 of the United Nations Convention for the Law of the Sea (UNCLOS) thereby constituting adequate satisfaction for the injury to India’s non-material interests. It was further held that as a result of the breach, India is entitled to payment of compensation in connection with loss of life, physical harm, material damage to property (including to the ‘St. Antony’) and moral harm suffered by the captain and other crew members of the ‘St. Antony’, which by its nature cannot be made good through restitution.

As per the facts, on 15-02-2012, two Indian fishermen were killed off the coast of Kerala, aboard the St. Antony. India alleged that the two Italian marines aboard the Italian-flagged commercial oil tanker MV Enrica Lexie killed the fishermen. The Indian Navy then intercepted MV Enrica Lexie and detained the two Italian marines, therefore giving rise to the instant dispute between India and Italy.

Italy contended before the Tribunal that by directing and inducing the Enrica Lexie to change course and proceed into India’s territorial sea through a ruse, as well as by interdicting the Enrica Lexie and escorting her to Kochi, India violated Italy’s freedom of navigation, in breach of UNCLOS Article 87(1)(a), and Italy’s exclusive jurisdiction over the Enrica Lexie, in breach of Article 92 of UNCLOS and abused its right to seek Italy’s cooperation in the repression of piracy, in breach of Article 300 read in conjunction with Article 100 of UNCLOS. It was further contended that by initiating criminal proceedings against the Italian marines, India violated Italy’s exclusive right to institute penal or disciplinary proceedings against the Marines, in breach of Article 97(1) of UNCLOS. The Indian side however contended that by firing at St. Anthony and killing the fishermen aboard that vessel, Italy violated India’s sovereign rights under Article 56 of UNCLOS and India’s freedom and right of navigation under Articles 87 and 90 of UNCLOS.     

The Tribunal comprising of Vladimir Golitsyn, J. (President), Jin-Hyun Paik, Patrick Robinson, JJ., Prof. Francesco Francioni and Dr  Pemmaraju Sreenivasa Rao (Arbitrators) perused the facts and the contentions put forth by the Countries. It was observed that the instant dispute involved the interpretation/ application of the UNCLOS. Determining that the Arbitral Tribunal has jurisdiction over the dispute, it was unanimously held that India’s counter-claims are admissible and that Italy has violated aforementioned provisions of the UNCLOS. However with a ratio of 3:2, the Tribunal also held that the Marines- Chief Master Sergeant Massimiliano Latorre and Sergeant Salvatore Girone, are entitled to immunity in relation to the acts that they committed during the incident, and that India is precluded from exercising its criminal jurisdiction over the Marines. Taking note of Italy’s commitment to resume criminal investigations into the St. Anthony firing incident, the Tribunal directed India to take the necessary steps in order to cease the exercise its criminal jurisdiction over the Marines. [Italian Republic v.  Republic of India, PCA Case No. 2015-28, decided on 02-07-2020] 

Op EdsOP. ED.

In South East Asia Marine Engineering and Constructions Ltd. (SEAMEC Ltd.) v. Oil India Limited[1] [‘SEAMEC judgment’], the Supreme Court recently adjudicated on a question of perversity of an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996[2] [‘the Arbitration Act’], pertaining to a dispute that had arisen in 1999 i.e. in a pre-2015 Arbitration Amendment Act era, and the petition for setting aside of the arbitral award had also been filed in a pre-2015 Arbitration Amendment Act era.

The Supreme Court in the instant case dismissed the appeal from an impugned order[3] passed by the Gauhati High Court setting aside an award passed by an Arbitral Tribunal on the ground of it being against the public policy of India.


The appellant was awarded a work order dated 20th July, 1995 pursuant to a tender floated by the respondent. The contract agreement between the appellant and the respondent was for the purpose of well drilling and other auxiliary operations in Assam.

During the subsistence of the contract, the parties witnessed a price rise in an essential commodity [High Speed Diesel ‘HSD’] for carrying out the drilling operations. Consequently, the appellant raised a claim under Clause 23 of the contract agreement (set out herein below) on the ground that an increase in the price of an essential material for carrying out the contract agreement had triggered the “change in law” clause under the contract and the respondent became liable to reimburse the appellant for the same. As the respondent kept rejecting the claim, the appellant eventually invoked the arbitration clause.

Clause 23 of the contract agreement between the appellant and the respondent stated:

Subsequent Enacted Laws: Subsequent to the date of price of Bid Opening if there is a change in or enactment of any law or interpretation of existing law, which results in additional cost/reduction in cost to Contractor on account of the operation under the Contract, the Company/Contractor shall reimburse/pay Contractor/Company for such additional/reduced cost actually incurred.”

The Award passed by the Arbitral Tribunal

Upon having adjudicated the disputes between the appellant and the respondent, the majority of the Arbitral Tribunal held that “while an increase in the price of an essential material through a circular issued under the authority of State or Union is not a “law” in the literal sense, but has the “force of law” and thus falls within the ambit of Clause 23 of the contract agreement[4]. Whereas the minority of the Arbitral Tribunal held that the change in price of the said essential material being an executive order, does not come within the ambit of Clause 23 of the contract agreement.

Decision of the District Judge and the Gauhati High Court

Aggrieved by the award passed by the Arbitral Tribunal, the respondent challenged the award under Section 34 of the Arbitration Act before the District Judge. The District Judge upheld the award and decided that “the findings of the tribunal were not without bias or against the public policy of India or patently illegal and did not warrant judicial interference.[5]

The order of the District Judge was challenged by the respondent before the High Court under Section 37 of the Arbitration Act. The High Court held that “the interpretation of the terms of the contract by the Arbitral Tribunal is erroneous and is against the public policy of India[6] and thereby allowed the appeal and set aside the award passed by the Arbitral Tribunal.

Decision of the Supreme Court

Aggrieved by the setting aside of the award passed by the Arbitral Tribunal, the appellant filed an appeal in the Supreme Court. The Supreme Court noted that the Arbitral Tribunal had held that the subsequent enactment clause must be construed in a liberal manner and any circular of the Government of India would amount to a change in law. Further, the Supreme Court noted that the High Court in its reasoning suggested that the subsequent enactment clause is akin to a force majeure clause and therefore, under the said clause, the rights and obligations of both the parties would be saved on account of any change in the existing law or enactment of a new law or on the ground of new interpretation of the existing law.

The question addressed by the Supreme Court in SEAMEC judgment is: whether the interpretation provided to the contract in the award passed by the Arbitral Tribunal was reasonable and fair, so that the same passes the muster under Section 34 of the Arbitration Act? The Supreme Court concluded that the interpretation of the clause, as suggested by the Arbitral Tribunal, is perverse, resulting in the appeal being allowed and the award being set aside.


It is important to understand the manner and the reasons for which the Supreme Court in the SEAMEC judgment concluded that the award passed by the Arbitral Tribunal was perverse and therefore had to be set aside.

In  ONGC Ltd. v. Saw Pipes Ltd.[7] the Supreme Court held that an award could be set aside on the ground of violating the “public policy of India” if it is contrary to: (i) fundamental policy of Indian Law; or (ii) the interest of India; or (iii) justice and morality; or (iv) in addition, if it is patently illegal[8]. Thereafter, in ONGC v. Western Geco International Ltd.[9] (which is no longer considered as good law) the Supreme Court was of the opinion that what constitutes “fundamental policy of Indian law” has not been elaborated, and therefore took on the task of determining the same. In doing so, the Supreme Court defined three principles that would constitute “fundamental policy of Indian law”. One of the said three principles was ‘the duty to adopt a judicial approach[10] which meant   “…that the authority acts bona fide and deals with the subject in a fair, reasonable and objective manner and that its decision is not actuated by any extraneous consideration.” [11]

When we look at the manner in which the question addressed by the Supreme Court has been framed in SEAMEC judgment, one sees a clear resemblance in the Court having adopted the judicial approach and language of ONGC v. Western Geco International Ltd.[12]

In Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd.[13]  as well as the 246th Law Commission Report[14], it has been stated that the Amendment Act, 2015 would apply to Section 34 petitions that are made after 23.10.2015 (i.e. the day on which the Amendment Act came into force). In Ssangyong Engg. & Construction Co. Ltd. v. NHAI[15], the Supreme Court held that “a decision which is perverse, as understood in paras 31 and 32 of Associate Builders[16], while no longer being a ground for challenge under “public policy of India”, would certainly amount to a patent illegality appearing on the face of the award.[17] The test for a decision being ‘perverse’ as laid down under the Associate Builders[18] case remains a valid test. The difference between the applicability of the test pre-2015 and post 2015 Arbitration Amendment Act era is that in case of the former, the case for a decision being perverse will still have to be made out on the ground of “public policy” whereas in the latter, the case for a decision being perverse will have to be made out on the ground of “patent illegality” as the same was introduced as a ground for setting aside an award under Section 34 of the Arbitration Act, vide the 2015 Arbitration Amendment Act.

Considering that SEAMEC judgment pertains to a dispute and its adjudication in a pre- 2015 Arbitration Amendment Act era, the Supreme Court whilst reaching its conclusion that the award passed by the Arbitral Tribunal was ‘perverse’, would have had to apply the test for perversity which was laid down under para 31 of Associate Builders[19]: (SCC para 31)

31.The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where:

(i) a finding is based on no evidence, or

(ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; or

(iii) ignores vital evidence in arriving at its decision,

such decision would necessarily be perverse.”[20]

The SEAMEC judgment does not seem to have applied the test of a decision being ‘perverse’ as has been elaborated hereinabove. However, it does come to the conclusion that the decision of the Arbitral Tribunal was perverse. This is one of the fundamental flaws in  SEAMEC judgment.

Having considered the view of the Arbitral Tribunal and the High Court, the Supreme Court concluded that it does not subscribe to either of the two views. The Supreme Court disagreed with the view of the Arbitral Tribunal as it failed to interpret Clause 23 by taking into consideration all the clauses of the contract agreement. Further, the Supreme Court did not find the High Court’s reasoning that Clause 23 was inserted in furtherance of the doctrine of frustration was not completely valid, as sustainable. Moreover, the Supreme Court stated that “the evidence on record does not suggest that the parties had agreed to a broad interpretation to the clause in question”[21] and that the wide interpretation of Clause 23 provided by the Arbitral Tribunal cannot be accepted as the thumb rule of interpretation is that the document forming a written contract should be read as a whole and so far as possible as mutually explanatory, which was ignored by the Arbitral Tribunal in the instant case. However, in doing so, the Supreme Court completely overlooks the findings of the Arbitral Tribunal that it has itself quoted at para 17 of the SEAMEC judgment and the evidence provided by a witness of the  respondent.

The Supreme Court has adopted its own view on the interpretation of the contract agreement and stated that it was based on a fixed rate. The parties, before entering the tender process, entered the contract after mitigating the risk of such an increase. Further, the Supreme Court stated that “if the purpose of the tender was to limit the risks of price variations, then the interpretation placed by the Arbitral Tribunal cannot be said to be possible one, as it would completely defeat the explicit workings and purpose of the contract”[22]. It is pertinent to note that in adopting this interpretation the Supreme Court has completely undermined the protection warranted to a contractor under Clause 23 of the contract agreement.

Clause 23 not only protects the contractor from additional cost, in case of a change or an enactment of the law, but also from ‘interpretation of existing law’. The wording of the said clause itself has a wide connotation which was not considered by the Supreme Court. Considering that Clause 23 of the contract agreement itself has been worded in a wide manner in order to include not only a change or enactment of any law but also an interpretation of an existing law in order to reimburse additional cost to the contractor, the reasoning given by the Supreme Court to conclude that the interpretation of the clause, as suggested by the Arbitral Tribunal is perverse may not necessarily be acceptable. 

In a recent judgment delivered by the Supreme Court in  Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd.[23], it was held that “We need to be cognizant of the fact that arbitral awards should not be interfered with in a casual and cavalier manner, unless the Court comes to a conclusion that the perversity of the award goes to the root of the matter without there being a possibility of alternative interpretation which may sustain the arbitral award”[24]. In  SEAMEC judgment, the Supreme Court despite having referred to this particular ratio of Dyna Technologies[25], has failed to apply it as it had failed to show that the perversity of the arbitral award in  SEAMEC dispute goes to the root of the matter and that the interpretation adopted by the Arbitral Tribunal is not a sustainable interpretation.

The Court in Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd[26]., has also stated that “The mandate under Section 34 is to respect the finality of the arbitral award and the party autonomy to get their dispute adjudicated by an alternative forum as provided under the law. If the Courts were to interfere with the arbitral award in the usual course on factual aspects, then the commercial wisdom behind opting for alternate dispute resolution would stand frustrated.”[27] However, despite having referred to this jurisprudence, the Court has failed to apply the same to  SEAMEC judgment.

In Navodaya Mass Entertainment Ltd. v. J.M. Combines[28], the Supreme Court had held that “Once the arbitrator has applied his mind to the matter before him, the court cannot reappraise the matter as if it were an appeal and even if two views are possible, the view taken by the arbitrator would prevail.”[29] Despite the jurisprudence laid down in Navodaya Mass Entertainment Ltd. v. J.M. Combines[30], in  SEAMEC judgment, both the High Court and the Supreme Court failed to appreciate the interpretation of Clause 23 that was adopted by the Arbitral Tribunal and instead provided its own interpretation of the said clause to conclude that the award passed by the Arbitral Tribunal was perverse, erroneous and against the public policy of India.

While the Supreme Court in most cases now has adopted a progressive stance in maintaining a minimum interference in adjudication of arbitration matters,  SEAMEC judgment is the one-off instance where the Supreme Court crossed the self-drawn boundaries of interference in arbitration matters.

*Practising Lawyer at Bombay High Court.

*Law Researcher at Punjab and Haryana High Court.

[1] 2020 SCC OnLine SC 451  

[2] Arbitration and Conciliation Act, 1996

[3] Arbitration Appeal No. 11 of 2006, judgment dated 24.07.2007

[4] 2020 SCC OnLine SC 451 para 4 

[5] Ibid, para 5;

[6] Ibid, para 7

[7] (2003) 5 SCC 705 

[8] Ibid, para 31

[9] (2014) 9 SCC 263, paras 34 &35; 

[10] Ibid. paras  34 & 35

[11] Ibid. paras 34 & 35

[12] Ibid. paras 34 & 35

[13] Ibid. para 78

[14] 246th Law Commission Report on Amendments to the Arbitration and Conciliation Act, 1996

[15] (2019) 15 SCC 131

[16] Associate Builders v. DDA, (2015) 3 SCC 49  

[17] Ssangyong Engg. & Construction Co. Ltd. v. NHAI,(2019) 15 SCC 131, paras 41 

[18] Associate Builders v. DDA, (2015) 3 SCC 49  

[19] Ibid.

[20] Ibid. para 31 

[21] 2020 SCC OnLine SC 451, para 27

[22] Ibid. para 30

[23] 2019 SCC OnLine SC 1656  

[24] Ibid. para 26

[25] 2019 SCC OnLine SC 1656

[26] Ibid.

[27] Ibid. para 26

[28] (2015) 5 SCC 698 

[29] Ibid. para 8

[30](2015) 5 SCC 698 

Op EdsOP. ED.

The Rajasthan High Court passed a judgment titled Doshion (P) Ltd. v. Hindustan Zinc Ltd.[1], wherein there was a challenge to fixation of arbitrator’s fee at INR 75,00,000. The petitioner based its challenge on two-fold grounds. First, that Schedule IV must apply. Second, the Notification dated 23.03.2017 by the Rajasthan High Court to follow Schedule IV. The arbitrator granted discount of INR 20,00,000 and fixed the fees at INR 55,00,000, conducted proceedings ex parte posting the matter for final arguments.  The Court opined that the arbitrator had been rendered de jure/de facto unable to perform his functions and terminated his mandate under Section 14(1)(a) of the Arbitration and Conciliation Act, 1996.

The 246th Law Commission Report[2] had addressed the issue of fee of arbitrators in 2014 and suggested a model schedule of fees as a mechanism to rationalize the fee structure. It placed reliance on Union of India v. Singh Builders Syndicate[3], which discussed the absence of ceiling in the fee and the apprehension that refusal to pay an exorbitant fee may prejudice such party’s case.

The Supreme Court in Singh Builders Syndicate (supra) highlighted the problems arising out of the exorbitant amount of fee of the Arbitral Tribunal and gave suggestions to save arbitration from the arbitration cost. The suggestive measures were reiterated in Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust[4] where the Court recognised that sometimes arbitration proceedings become disproportionately expensive for the parties and suggested as under,

  1. Reasonableness and certainty about costs.
  2. Disclosure of the fees structure before the appointment.
  3. Institutional arbitration where the arbitrator’s fee is pre-fixed.
  4. Each High Court to have a scale of arbitrator’s fee calibrated with reference to the amount involved in the dispute to avoid different designates prescribing different fee structures.

The Arbitration and Conciliation (Amendment) Act, 2015[5] was passed to make the process cost effective. This amending Act inserted Schedule IV to the Act to provide a model Fee Schedule for domestic arbitration on the basis of which the High Courts may frame rules for the purpose of determination of fees of Arbitral Tribunal, where a High Court appoints an arbitrator under Section 11 of the Act. Subsequently, the Arbitration and Conciliation (Amendment) Act, 2019[6] was passed to establish arbitral institutions designated by the Supreme Court or the High Courts of States under Section 11. Schedule IV is now mandatory in such arbitrations.

Determination of the Fee of Arbitrator

1. Arbitrator appointed by the Court

The Delhi High Court in DSIIDC Ltd. v. Bawana Infra Development (P) Ltd.[7], held that even under the amended Act post 2015, the arbitrator is free to fix its fee schedule in an arbitration which is conducted without court intervention. It observed that even if the arbitrator is appointed by the court under Section 11 of the Act, in absence of rules framed by the High Court under Section 11(4), the Fourth Schedule is merely directory in nature.

In contrast, while appointing the arbitrator, the Court in Kumar & Kumar Associates v. Union of India[8], an explicit direction was made that the arbitrator shall abide by Schedule IV.

2. Arbitrator Appointed by the Parties

The Delhi High Court in NHAI v. Gayatri Jhansi Roadways Limited[9] where the arbitrator was appointed by the parties, it was unequivocally held that Schedule IV is not mandatory in determining the fee structure where the fee structure has been agreed to in the agreement between the parties.

In Paschimanchal Vidyut Vitran Nigam Limited v. IL & FS Engineering and Construction Company Limited[10], the arbitrator was appointed by the parties. In this background, the  Delhi High Court held that the Court would have no role to play in fixing the fees of an Arbitral Tribunal as no such power is vested in the Court at present. Schedule IV was held to be suggestive in view of sub-section (1) of Section 11 which provides that the High Courts concerned should frame rules as may be necessary for determination of fees and the manner of its payment, albeit, after taking into account the rates specified in Schedule IV.

Fee of Sole Arbitrator – An Analysis

Distinct from the fee of the Arbitral Tribunal, a Note has been appended to Schedule-IV which provides that the fee of a sole arbitrator is decided keeping in mind the fee payable plus additional 25% under the ceiling of INR 30,00,000.

The Note has stirred up a controversy on the calculation of fee of the sole arbitrator. In practice, the following readings have developed.

The first interpretation construes INR 30,00,000 cap as the upper ceiling for the entirety of the fee payable to the sole arbitrator.

The second interpretation construes that the fee payable is calculated according to the base/model fee plus 0.5% of the claim in the ‘sum in dispute’ slab which is subjected to the upper-cap, and it is separately subjected to 25% over and above the sum total of fee amount separately subjected to the ceiling. In other words, INR 30,00,000 is the upper ceiling for the entirety of the fee payable in case the base amount plus the percentage of claim amount exceeds it. The sole arbitrator is entitled to further 25% of the fee payable. Thus, if the base amount plus clam amount reached the ceiling, the fees would be 30,00,000 + 25% of 30,00,000 (7,50,000) = 37,50,000.

Another interpretation entails that Schedule IV states that merely the component of 0.5% of the total claim is limited to 30,00,000 i.e. the ceiling and the calculation of fee of the sole arbitrator shall be the base amount plus upper ceiling on 0.5% of total claim amount plus additional 25%. For the sum in dispute above INR 20,00,00,000, the fee will be INR 19,87,500 + INR 30,00,000 (restricted to the ceiling amount) + additional 25%. 

This multiplicity of interpretations has given rise to lack of uniformity and credited the Arbitral Tribunal with an arbitrary discretion; the evil that was sought to be cured by the amendment of 2015. It is the case of the author that the restriction is applicable to the total fee payable, which shall include the model fee of INR 19,87,500 plus 0.5% of the claim and subject to additional 25%.

In this regard, a reference must be made to Bawana Infra Development[11] (supra) wherein the  Delhi High Court adjudicated on the issue of “sum in dispute” and whether the term includes both claim and counterclaim amounts. The Court appreciated the contention that in view of the general practice across countries and the object behind the amendment to the Act in 2015, Schedule IV has to be read as prescribing a cumulative value of the “sum in dispute” rather than separate values thereby allowing a separate fee to be charged exceeding the ceiling limit on the basis of claim and counterclaim individually.

The Court held that the proviso to Section 38(1) of the Act which empowers the Arbitral Tribunal to fix separate amount of deposit for the claim and counterclaim can only apply where the Arbitral Tribunal is not required to fix its fee in terms of Schedule IV. It was held by the Court that,

“‘Sum in dispute’ shall include both claim and counterclaim amounts. If the legislature intended to have the Arbitral Tribunal exceed the ceiling limit by charging separate fee for claim and counterclaim amounts, it would have provided so in Schedule IV.”

Accordingly, the sole arbitrator was requested to withdraw his order claiming separate fee for the statement of claim and the counterclaim amounts.

Transferring the principle to the issue at hand of fee of the sole arbitrator, the intention of the legislature was to provide an upper-cap to the fee of the arbitrator in order to make arbitral process cost-effective. If the legislature intended to have each arbitrator in the Arbitral Tribunal exceed the ceiling amount by charging a base amount and a percentage of claim amounts which will be subject to the ceiling separately, it would have provided so in Schedule IV.

Schedule IV

Sum in Dispute

Model Fee

…Above Rs. 20,00,00,000

Rs. 19,87,500 plus 0.5% of the claim amount over and above Rs. 20,00,00,000 with a ceiling of Rs. 30,00,000”

The phrase “with a ceiling of Rs. 30,00,000”, cannot be considered as a modifying phrase at the end, which would only refer to ceiling being applicable to “plus 0.5% of the claim amount over and above Rs. 20,00,00,000”. The provision cannot be read disjunctively as doing so would defeat the intention of legislature, resulting in excess amount of fee payable.

Therefore, a sound interpretation of Schedule IV would be on the lines of the second interpretation provided in this article. The ceiling of INR 30,00,000 would be applied to the base amount and the percentage of claim added together. Keeping in mind that the maximum fee payable to each arbitrator is INR 30,00,000, and in case where the Arbitral Tribunal consists of a sole arbitrator, he will be entitled to an additional amount of 25% of the maximum amount i.e. INR 7,50,000 making the total fee payable to the sole arbitrator INR 37,50,000.


While the controversy at hand is yet to be put to bed, the Punjab and Haryana High Court in a recent judgment titled Punjab State Power Corporation Limited v. Union of India[12] stirred up the issue whether the fee payable to a three-member Arbitral Tribunal would be paid individually to each of the three arbitrators or collectively. Contradicting the general norm adopted by the partakers in the arbitral process, the  Division Bench was of the opinion that the fee payable to each individual arbitrator in a three-member Arbitral Tribunal under Schedule IV would be calculated by a 1/3rd pro rata distribution of the composite fee determined under the Schedule. Accordingly, each arbitrator in a three-member Arbitral Tribunal would be entitled to INR 10,00,000 individually and separately, as opposed to INR 30,00,000. However, this decision appears to be contrary to the legislative intent as will lead to very illogical situations viz. if a claim of more than 50,00,00,000 is adjudicated by a three-member Arbitral Tribunal each member will be entitled to INR 10,00,000 whereas if the same is decided by sole arbitrator, he will get INR 37,50,000. 

* IVth Year student, Amity Law School, Delhi (Affiliated to GGSIPU)

[1] 2019 SCC OnLine Raj 6 

[2] 246th Report on Amendments to the Arbitration and Conciliation Act, 1996 (August, 2014)

[3] (2009) 4 SCC 523 

[4] (2012) 1 SCC 455

[5] Arbitration and Conciliation (Amendment) Act, 2015 

[6] Arbitration and Conciliation (Amendment) Act, 2019  

[7] 2018 SCC OnLine Del 9241 

[8] 2016 SCC OnLine Pat 9476

[9] ARB A No. 1/2017, IAs Nos.8086/2017  & 9441/2017, judgment dated 11-9-2017

[10] 2018 SCC OnLine Del 10831 

[11] 2018 SCC OnLine Del 9241

[12] Civil Writ Petition No. 3962 of 2017, judgment dated 21-07-2017

Case BriefsHigh Courts

Orissa High Court: A petition was filed before Dr A.K. Rath, J., challenging the order passed in an Arbitration Proceeding, whereby the application filed by the petitioner-respondent under Section 27 of the Arbitration and Conciliation Act, 1996 to accord approval to the respondent to apply to the court for assistance in taking evidence was rejected.

The facts of the case were that the petitioner had issued notice inviting tender for electrical works for an Alumina Refinery. The bid of the opposite party was accepted. An agreement was entered into between the parties, in furtherance of which the petitioner filed an application under Section 27 of the Act to accord approval of the Tribunal to apply to the Court for assistance in taking evidence of the then Manager (material), who had lodged the claim before the Insurance Company for loss of property by theft. He had expressed his inability to examine in the proceeding unless he received notice from the Tribunal. The Tribunal rejected the petition holding that at an earlier occasion, the examination and non-availability of the concerned witness was not indicated. Despite the opportunity, the affidavit evidence was not filed. Himanshu Sekhar Mishra, Advocate for the opposite party submitted that the petitioner had not assigned any reason as to how the examination of the concerned witness was essential for adjudication of the case and thus the petition should be dismissed.

The Court held that merely because, the petitioner had filed the list of witnesses, the same did not preclude the Arbitral Tribunal to accord approval for taking evidence under Section 27 of the Act if the party assigned sufficient reasons. In the application under Section 27 of the Act, the petitioner had clearly mentioned the reasons for according approval of the Tribunal to apply to the Court for assistance in taking evidence of the concerned witness. The petition was thus allowed. [National Aluminium Company Ltd. v. Indo Power Projects Ltd., 2019 SCC OnLine Ori 197, decided on 01-05-2019]