Op EdsOP. ED.

India is fast emerging out of the shadow of its checkered history of being an interventionist jurisdiction in the international arbitration space. Numerous steps, judgments and amendments in law have aided in this remarkable journey which can be safely termed as renaissance of arbitration in India. If the legislature has been the Vinciof this revolution, Indian courts have been the Michelangelo. India is thus moving very fast towards achieving its almost “impossible” goal of becoming the hub of international arbitration, but the same has its own challenges and as Miguel de Cervantes said “in order to attain the impossible, one must attempt the absurd”.In the opinion of the authors, absurdity often lead to better clarity and court orders are no different. More on this is for later, for now back to the headlines.

The storied Amazon-Future dispute has reached yet another interesting point. A Division Bench of the Delhi High Court on 5-1-2022in Amazon.com NV Investment Holdings LLC v. Future Coupons (P) Ltd.[1],directed stay of further proceedings before the Arbitral Tribunal[2].

A brief recap of the Saga

Amazon.com NV Investment Holdings LLC (Amazon), a direct subsidiary of the global e-commerce giant, Amazon.com Inc., agreed to acquire 49% shareholding in Future Coupons Private Limited (FCPL). In this regard, three agreements were entered into between the parties:

(i) a shareholder agreement between Future Retail Limited (FRL), FCPL, Executive Chairman and Managing Director of FRL, the promoters and shareholders of FRL and group companies of FRL, namely, Future Corporate Resources Pvt. Ltd. and Akar Estate and Finance Pvt. Ltd.(collectively referred to as “the Biyani Group”) granting FCPL certain negative, protective, special and material rights with regard to FRL;

(ii) a shareholder agreement between Amazon, FCPL and the Biyani Group which inter alia listed “restricted persons” with whom FRL, FCPL and the Biyanis could not deal; and

(iii) a share subscription agreement, between Amazon, FCPL and the Biyani Group, which recorded Amazon’s agreement to invest INR 1431 crores in FCPL.

Amazon invested the aforesaid sum in FCPL which flowed down to FRL on the same day. Amazon applied to the Competition Commission of India (CCI) to obtain approval for acquisition of shares in FCPL. The CCI approved the combination on 28-11-2019[3].

A few months after the said investment, the Biyani Group entered into a transaction with the Mukesh Dhirubhai Ambani Group (MDAG)which envisages the amalgamation of FRL with the MDAG, the consequential cessation of FRL as an entity, and the complete disposal of its retail assets in favour of the said group.

Thus, Amazon initiated arbitration proceedings before the Singapore International Arbitration Centre (SIAC).

Amazon filed an application seeking emergency interim relief under the SIAC Rules against the aforesaid transaction between the Biyani Group and MDAG. The emergency arbitrator granted injunctions and passed directions vide order dated 25-10-2020. The award of the emergency arbitrator was held to be enforceable under Section 17(2) of the Arbitration and Conciliation Act, 1996[4] (the Act) by the Supreme Court vide judgment dated 6-8-2021[5].

FRL did not challenge the order of the emergency arbitrator but instead filed a civil suit before the Delhi High Court in which it sought an injunction restraining Amazon from unlawfully interfering with the performance of the transaction between FRL and Reliance/ MDAG, writing to statutory authorities by relying on the emergency arbitrator’s order. Vide judgment dated 21-12-2020[6], a Single Judge of the Delhi High Court declined to grant an interim injunction in favour of FRL and against Amazon.

In the interim FCPL filed an application dated 25-3-2021 before the CCIinter alia stating that Amazon has taken contradictory stands in relation to its investment in FCPL in representations and submissions before CCI, on the one hand and in arbitration proceedings and before courts, on the other.Vide order dated 17-12-2021[7], the CCI noted certain omissions, false statements and misrepresentations and considered it necessary to examine the combination afresh.

In view of the aforesaid, FCPL and FRL filed applications before the Arbitral Tribunal claiming that in view of the CCI order[8], the agreement between Amazon and FCPL which contains the arbitration clause would not survive and hence, the arbitration proceedings ought to be terminated (termination applications).

The current episode

FCPL and FRL urged that the hearing of expert witnesses scheduled for 5-1-2022 to 8-1-2022 be adjourned and instead the said dates be utilised for hearing the termination applications.

The Arbitral Tribunal, vide orders dated 29-12-2021, 30-12-2021 and 31-12-2021, declined to adjourn the hearings or to abandon the hearing scheduled for hearing the termination applications. The Tribunal offered to hear the termination applications by adding an extra day on 4-1-2022, but FRL refused on grounds of the non-availability of their counsel. Nonetheless, the Tribunal assured that it has not taken any decision on the implication of the CCI order9 on the arbitration proceedings and that reasonable opportunity would be given to all the parties to present their submissions on the said matter. Pertinently, the Tribunal also observed as under:

(a)The issue as to when to hear the termination applications is an issue of case management and therefore, the Arbitral Tribunal has the full discretion to decide when to hear the said applications.

(b) No prejudice would be caused to FRL and FCPL if the hearing on the termination applications would be conducted after the hearing on the parties’ expert witnesses on damages.

(c) If FRL and FCPL succeeded in their request for termination of arbitration, the option to claim costs would also be available for them.

Subsequently, the Arbitral Tribunal ordered that on the fourth day of the scheduled hearing, i.e. 8-1-2022, arguments on the termination applications shall be heard.

FCPL and FRL filed writ petitions under Article 227 of the Constitution of India10 before the Delhi High Court impugning the said orders dated 29-12-2021, 30-12-2021 and 31-12-2021, seeking a declaration that the continuation of the arbitration proceedings is contrary to law and a direction to the Arbitral Tribunal to decide the termination applications before continuing with the arbitration proceedings.

Arguments of the parties

Before the Single Judge, the Future group companies argued that (a) in view of CCI’s order11, the agreement between Amazon and FCPL no longer survives, which would invalidate the arbitral proceedings and thus must be terminated; (b) the termination applications must be given primacy and be decided before any further steps in the arbitration; (c) the Arbitral Tribunal has consistently violated the principles of fair and equal treatment enshrined in Section 18 of the Act12; (d) several lawyers representing FRL have tested positive for Covid-19 and therefore the Tribunal was requested to defer the expert witness hearings and instead take up the termination applications; and (e) one day fixed by the Tribunal for hearing the termination applications is not sufficient.

Per contra, Amazon submitted that (a) the writ petition, under Article 227 of the Constitution, was not maintainable; (b) the dates for expert witness hearings were fixed as far back as October 2021 and the experts and tribunal will join the proceedings from different parts of the world, rescheduling the hearings would cause unnecessary inconvenience; (c) the date fixed for hearing the termination applications gives sufficient time to the parties to prepare and file written arguments; and (d) the Tribunal has always provided equal opportunity to both parties to put their case.

The Single Judge’s decision

The Single Judge dismissed the writ petitions, vide judgment dated 4-1-202213, having found no grounds for interference.

A. The Judge, relying on Deep Industries Ltd. v. ONGC14 and on Surender Kumar Singhal Arum Kumar Bhalotia15 held that there cannot be a complete bar to the petitions being filed under Article 227, which is a constitutional remedy. However, interference under Articles 226/227 can only be in “exceptional circumstances”. There is “only a very small window” for interference with orders passed by the Arbitral Tribunal, that window becomes even narrower where the orders passed by the Arbitral Tribunal are procedural in nature and that window cannot be used for impugning case management orders passed by the Arbitral Tribunal which are in the nature of procedural orders.

B. The Judge held that case management orders are completely in the domain and discretion of the Arbitral Tribunal. It is in the sole discretion of the Arbitral Tribunal to decide whether the termination applications should be heard before or after the hearings of the expert witnesses. Although, on perusal of records, the Judge found that the Tribunal had given cogent reasons for its decision, the Judge clarified that it is not for the Court to interfere with the scheduling of the arbitration proceedings or the manner and the procedure of carrying out the arbitration proceedings. (Reliance on Telecommunication Consultants India Ltd. B.R. Sukale Construction16.)

The Judge emphasised the need for minimum interference by courts with arbitration proceedings in order to ensure that disputes are expeditiously disposed and the whole purpose of arbitration is not frustrated.

Prima facie, the Judge found that there is nothing to suggest that the Arbitral Tribunal has denied equal opportunity to the parties or that the Arbitral Tribunal has not been accommodating towards requests of FRL and FCPL. The Judge did not find any exceptional circumstances or perversity to have been demonstrated.

Stay order in LPAs

FRL and FCPL challenged the said judgment by filing letters patent appeals (LPAs) before the Delhi High Court. Vide order dated 5-1-202217, the Division Bench not only issued notice to the respondents in the LPAs but also directed stay of further proceedings before the Arbitral Tribunal until the next date of hearing. The reasons stated for grant of such stay is as under:

Having perused the order of CCI, the impugned orders passed by the Arbitral Tribunal and the judgment of the Single Judge dated 4-1-202218, in our view, appellants have made out a prima facie case for grant of interim relief and the balance of convenience also lies in favour of the appellants. If the interim relief prayed for is not granted, it would cause irreparable loss to the appellants.

The Division Bench noted the objections regarding the maintainability of the appeals but did not decide or express any view regarding the said objections prior to granting stay.

More questions than answers

The relationship between national courts and Arbitral Tribunals is dynamic and ever-evolving arbitration thrives on positive support from national courts as they alone can rescue the system when one party seeks to sabotage it19. Lord Mustill puts it succinctly in S.A. Coppée Lavalin NV v. Ken-Ren Chemicals and Fertilisers Ltd.20 stating that: … there is plainly a tension here. On the one hand the concept of arbitration as a consensual process reinforced by the idea of transnationalism leans against the involvement of the mechanisms of State through the medium of a municipal court. On the other side there is the plain fact, palatable or not,that it is only a court possessing coercive powers which could rescue the arbitration if it is in danger of foundering….

The order of the Division Bench raises several questions.

Firstly, Indian courts and legislature have, over the last few decades, made a conscious move towards a pro-arbitration approach minimising interference by civil courts in arbitration proceedings. The legislative changes as well as the development of the Indian jurisprudence is reflective of the appreciation of the principles of kompetenz-kompetenz and autonomy of arbitrators. In this regard, it is also relevant to note that the Arbitration and Conciliation (Amendment) Act, 201921 was aimed at not only further restricting interference of civil courts in arbitration proceedings but also encouraging institutional arbitrations.

The need to discourage judicial interference in the arbitral process is the central theme of order of the Single Judge. Given the objectives and intent of the Act, the pro-arbitration approach adopted by Indian courts and the basic principles of kompetenz-kompetenz and autonomy of arbitrators, should the Division Bench have interfered with the arbitration proceeding, particularly at the stage of issuing notice and without considering the question of maintainability.

Secondly, the Division Bench simply applied the three basic principles for grant of interim injunction i.e. prima facie case, balance of convenience and irreparable injury. Aside from the fact that the order does not elaborate on the reasons for the said three principles having been satisfied, did the Division Bench fall into error by applying the said principles while considering the question of grant of stay of arbitral proceedings.

In contrast to the aforesaid approach of the Division Bench, the Single Judge held that interference with arbitral proceedings under Articles 226/227 can only be in “exceptional circumstances” or where the impugned order is perverse and is patently lacking in inherent jurisdiction. The said standards are consistent with the standard of interference in anti-arbitration injunction suits.

(i) In Bharti Televentures Ltd. v. DSS Enterprises (P) Ltd.22, the Court held that “Unless it is indubitably clear that the substratum of the arbitration agreement has disintegrated, and if the only conclusion that can be drawn is that the foreign arbitration is motivated to harass and thereby coerce the other parties into a settlement, courts should not interference in the commencement, conduct and continuance of proceedings, before the arbitrators.”

(ii) In McDonald’s India (P) Ltd.v. Vikram Bakshi23 the Delhi High Court held that the power to grant anti-arbitration injunctions must be exercised rarely and only on principles analogous to those found in Sections 824 and 4525 of the Act.

(iii) In Surender Kumar Singhal26, the Court clarified that it is not prudent to exercise jurisdiction under Articles 226/227 and that efficiency of the arbitral process ought not to be allowed to diminish and hence, interdicting the arbitral process should be completely avoided.

Thirdly, the proceedings in question emanate from procedural orders whereby the Tribunal merely determined the schedule of proceedings. The Arbitral Tribunal did not dismiss the termination applications or decline to adjudicate the same but merely scheduled them for hearing on a date after the hearing of the expert witnesses. Does such an order warrant interference under Article 227, particularly when Section 19 of the Act27 expressly grants the Arbitral Tribunal to determine its own procedure.

Fourthly, Section 37 of the Act28 makes certain orders of the Arbitral Tribunal appealable. An order of the Tribunal declining FRL’s request to adjourn/abandon the scheduled hearings for expert witness, for hearing its termination applications, is not an appealable order under Section 37. The Delhi High Court in SAIL v. Indian Council of Arbitration29 following the ratio of SBP & Co. v. Patel Engg. Ltd.30 has held that a writ petition under Articles 226/227 does not lie against non-appealable orders passed by the arbitrator during arbitral proceedings.

Pertinently, it was also observed that:

  1. In any case, even if it is held that a writ petition against a non-appealable order of the arbitrator is maintainable, considering the legislative intent, as expressed in Section 5 of the Act31, which provides that no judicial authority shall intervene in matters governed by PartI except to the extent provided in the said Part and acknowledging that interference with the arbitral proceedings, in exercise of writ jurisdiction of the court, is bound to delay the conclusion of such proceedings, thereby defeating one of the main objectives behind preferring arbitration over litigation, the Court would be well advised in not interfering with such an order in exercise of its writ jurisdiction.32

Therefore, Division Bench’s reluctance to have given a finding on maintainability before passing any other effective order raises more questions.

From a perusal of the order, it appears that the order of the CCI weighed considerably with the Division Bench. In our opinion, not only is it within the jurisdiction of the Arbitral Tribunal to determine when to decide to the termination applications, it is also within the Tribunal’s jurisdiction to determine the implication of the CCI order on the proceedings before it. In such a scenario, was the Division Bench justified in granting stay of the arbitral proceedings, without even expressing a prima facie view on the maintainability of the LPAs before it. A Single Judge of the Delhi High Court referred to the reluctance of Court to“denude itself of jurisdiction”33. The order of the Division Bench may be an example of such reluctance and use of coercive powers not vested in it. However, this may be just another episode of this new season of Amazon -FRL series where the season finale may come from the  Supreme Court deciding whether the view of the Division Bench is a possible view and whether the view of the Single Judge is a plausible view.


*Counsel, specialising in commercial dispute resolution.

**Advocate, Delhi High Court.

[1]2022 SCC OnLine Del 67

[2]SIAC Arbitration No. 960 of 2020

[3]Amazon.com NV Investment Holdings LLC v. Future Coupons (P) Ltd., 2019 SCC OnLine CCI 43

[4] Arbitration and Conciliation Act, 1996, S. 17(2).

[5] Amazon.com NV Investment Holdings LLC v. Future Retail Ltd., 2021 SCC OnLine SC 557.

[6] Future Retail Ltd. v. Amazon.com NV Investment Holdings LLC, 2020 SCC OnLine Del 1636.

[7] Amazon.com NV Investment Holdings LLC v. Future Coupons (P) Ltd., 2021 SCC OnLine CCI 63

[8] Amazon.com NV Investment Holdings LLC v. Future Coupons (P) Ltd., 2021 SCC OnLine CCI 63

9 Amazon.com NV Investment Holdings LLC v. Future Coupons (P) Ltd., 2021 SCC OnLine CCI 63

10 Constitution of India, Art. 227.

11 Amazon.com NV Investment Holdings LLC v. Future Coupons (P) Ltd., 2021 SCC OnLine CCI 63

12 Arbitration and Conciliation Act, 1996, S. 18.

13 Future Retail Ltd. v. Amazon. Com NV Investment Holdings LLC, 2022 SCC OnLine Del 13.

14 (2020) 15 SCC 706.

15 2021 SCC OnLine Del 3708.

16 2021 SCC OnLine Del 4863.

17 Amazon.com NV Investment Holdings LLC v. Future Coupons (P) Ltd.,SIAC Arbitration No. 960 of 2020.

18 Future Retail Ltd. v. Amazon. Com NV Investment Holdings LLC, 2022 SCC OnLine Del 13.

19 Redfern and Hunter, International Arbitration,(6thEdn., Oxford University Press).

20 (1995) 1 AC 38 :(1994) 2 WLR 631 :(1994) 2 Lloyd’s Rep 109 , HL(E).

21 Arbitration and Conciliation (Amendment) Act, 2019.

22 2005 SCC OnLine Del 862, para 24.

23 2016 SCC OnLine Del 3949.

24 Arbitration and Conciliation Act, 1996, S. 8.

25 Arbitration and Conciliation Act, 1996, S. 45

26 2021 SCC OnLine Del 3708.

27 Arbitration and Conciliation Act, 1996, S. 19.

28 Arbitration and Conciliation Act, 1996, S. 37.

29 2013 SCC OnLine Del 4490.

30 (2005) 8 SCC 618.

31 Arbitration and Conciliation Act, 1996, S. 5.

32 SAIL v. Indian Council of Arbitration, 2013 SCC OnLine Del 4490.

33 Bina Modi v. Lalit Modi, 2020 SCC OnLine Del 901.

Case BriefsHigh Courts

Delhi High Court: The Division Bench of D.N. Patel, CJ and Jyoti Singh, J., stayed the arbitration proceeding in Amazon v. Future Group before the Singapore Tribunal.

High Court prima facie found merit in the appellant’s contention that the agreement between Amazon and FCPL was unenforceable and consequently, the Arbitration Agreement and in view, thereof the Arbitral Tribunal should have taken up the application filed under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996 seeking termination of the arbitration proceedings, on priority and before recording the evidence. For reaching such prima facie finding, the Bench inter alia considered and laid emphasis on the order of CCI [Proceedings against Amazon.com NV Investment Holdings LLC under Sections 43A, 44 and 45 of the Competition Act, 2002, In re.,]:

“48. In view of the above, the Commission notes that the Internal Correspondence discussed above clearly demonstrates that Amazon had failed to disclose true and complete details of the purpose of the Combination, which is required to be given under Item 5.3 of Form I. Further, Amazon had misrepresented that its decision to pursue the Combination was based on the unique business model of FCPL, and that FRL, a company with strong financials and futuristic outlook, is relevant to the Combination only from the perspective of financial strength to FCPL. As brought out earlier, Amazon also failed to disclose and clarify the real purpose of the Combination in the Notice and continued with its false/misleading assertions even in its response to the queries posed vide letters dated 9th October, 2019 and 24th October, 2019 of the Commission. Amazon has also suppressed relevant and material documents required to be furnished in terms of Item 8.8 of Form I. Considering these, the Commission has no hesitation to hold that such conducts of Amazon amount to suppression and misrepresentation of the purpose of the Combination, which is a material particular. This is in contravention of the provisions contained in clauses (a) and (b) of Section 44 and clause (a) of sub-section (1) of Section 45 of the Act. The conduct of Amazon in suppressing relevant and material documents against the disclosure requirement under Item 8.8 of Form I is a contravention of clause (c) of sub-section (1) of Section 45 of the Act. Similarly, the rights over FRL that were considered as strategic in the Internal Correspondence of Amazon, were represented as mere investor protection rights. Such repeated assertions, contrary to their actual purport, amount to statements that are false in material particular, in contravention of the provisions contained in clauses (a) and (b) of Section 44 and clause (a) of subsection (1) of Section 45 of the Act.”

(emphasis supplied)

In the Court’s opinion appellants made out a prima facie case for grant of interim relief and the balance of convenience also lies in favour of the appellants.

Hence, the Bench stayed the further proceedings before the Arbitral Tribunal in Amazon.com NV Investment Holdings LLC v. Future Coupons Private Limited, SIAC Arbitration no. 960 of 2020 as well as the impugned judgment passed by the Single Judge [Future Retail Ltd. v. Amazon.Com NV Investment Holdings LLC, 2022 SCC OnLine Del 13, decided on 4-1-2022], till the next date of hearing.[Future Retail Ltd. v. Amazon. Com NC Investments Holdings LLC, 2022 SCC OnLine Del 78, decided on 5-1-2022]


Advocates before the Court:

For the Appellant: Mr. Harish Salve & Mr. Sandeep Sethi, Senior Advocates with Mr. Raghav Shankar, Mr. Harshvardhan Jha, Ms. Ritika Sinha, Ms. Arshiya Sharda & Mr. Aman Pathak, Advocates

For the Respondents: Mr. Gopal Subramanium, Mr. Rajiv Nayar, Mr. Gourab Banerji, Mr. Amit Sibal & Mr.Nakul Dewan, Senior Advocates with Mr. Anand S. Pathak, Mr. Amit K. Mishra, Mr. Shashank Gautam, Ms. Sreemoyee Deb, Mr.Vijay Purohit, Mr. Mohit Singh, Mr. Promit Chatterjee, Ms. Anubhuti Mishra, Mr. Shivam Pandey, Ms. Samridhi Hota, Ms. Nikita Bangera, Mr. Pratik Jhaveri, Mr. Faizan Mithaiwala, Ms. Didon Misri, Mr. Chetan Chawla, Mr.Vijayendra Pratap Singh, Mr. Rachit Bahl, Ms.Roopali Singh, Mr. Abhijan Jha, Mr. Priyank Ladoia, Mr. Tanmay Sharma, Ms. Vanya Chhabra, Mr. Arnab Ray, Mr. Vedant, Kapur, Mr. Shaurya Mittal, Mr. Abhisar Vidyarthi, Mr. Kartik Nayar, Mr. Pawan Bhushan, Ms. Hima Lawrence, Ms. Ujwala Uppaluri, Mr. S.P. Mukherjee, Mr.T.S. Sundaram, Mr. Vinay Tripathi, Mr. Aishvary Vikram, Mr. Kaustubh Prakash, Ms. Anushka Shah, Ms. Neelu Mohan, Ms. Smriti Kalra & Ms. Manjira Dasgupta, Advocates for R-1

Mr. Mukul Rohatgi & Mr. Dayan Krishnan, Senior Advocates with Mr. Mahesh Agarwal, Mr. Rishi Agrawala, Mr. Karan Luthra, Mr. Pranjit Bhattacharya, Mr. Sanjeevi Seshadri & Mr. Ankit Banati, Advocates for R-2

Case BriefsSupreme Court

Supreme Court: The Division Bench of M. R. Shah* and B.V. Nagarathna, JJ., held that where the Arbitrator appointed by the High Court had already declared the award, it is not open for parties to file a reference before M.P. Arbitration Tribunal with respect to the very claim/claims which were subject matter of arbitration. Noticing that the award had attained finality, the Bench while rejecting the respondent’s claim of award being void, stated that,

“Even the award or a nullity order has to be challenged before the appropriate forum/higher forum.”

Factual Matrix

An agreement was executed between the appellants and the respondent for construction of houses, with regard to which some disputes arose between the parties. The appellants contended that the respondent was supposed to complete the work within 18 months but,  despite granting repeated extensions, the contractor failed to complete the work, on account of which, appellants rescinded the contract.

Aggrieved by the order rescinding the contract, the respondent-contractor filed a writ petition before the High Court seeking direction to permit him to complete the work; which was disposed of on a joint consensus of the parties that the dispute shall be decided by the arbitrator i.e., Housing Commissioner, M.P. Housing Board.

Forum Shopping

The Arbitrator rejected the claim of the respondent-contractor and granted relief in favour of the appellants. Instead of challenging the said award by way of an application under Section 34 of the Arbitration and Conciliation Act, 1996, the respondent filed a fresh Reference Petition before the M.P. Arbitration Tribunal under Section 7 of the M.P. Madhyastham Adhikaran, Vindhyachal, Bhopal, Act, 1983.

The Tribunal dismissed the reference as not maintainable since claim made by the respondent had already been decided by the Arbitrator and the award had achieved finality. Later on, as an afterthought, the respondent-contractor filed a review petition before the High Court seeking clarification of the earlier order to the extent that by directing the adjudication of the dispute by the Housing Commissioner, it did not take away the jurisdiction of Arbitral Tribunal, which was dismissed by the Court.

Once again, the contractor approached the High Court with revision petition under Section 19 of the 1983 Act challenging the order passed by the learned Tribunal, by the impugned judgment the High Court allowed the said revision and quashed the order passed by the Tribunal while directing it to decide the reference/claim on merits and in accordance with law.

Findings

The Bench rejected the argument of the respondent–contractor that the earlier order passed by the High Court referring the dispute between the parties for adjudication to the Arbitrator and thereafter the award declared by the Arbitrator were non-est and void as Section 7B of the 1983 Act provides that no dispute can be referred to the Arbitration Tribunal unless the dispute is first referred for decision of the final authority under the scope of the term ‘works contract, on the basis of following findings:

(i) It was the respondent–contractor who approached the High Court submitting that he has invoked the arbitration clause;

(ii) The order of the High Court referring the dispute to the Arbitrator was a consent order; hence the claim was binding on the parties on the ground of ‘issue estoppel’.

(iii) The award of the Arbitrator had attained finality;

(iv) The review petition filed by the respondent-contractor for clarification of the earlier High Court order was rejected and the same also attained finality;

(v) The claims submitted before the Arbitrator; before the High Court and the claim submitted in Reference Petition before the Arbitral Tribunal under the 1983 Act were the same without any change;

(vi) In the subsequent reference petition before the Arbitral Tribunal there was no reference to the earlier order passed by the High Court referring the dispute to Arbitrator and the award passed by the Arbitrator. Thus, there was suppression of facts on the part of the respondent–contractor;

Decision

Holding that the award of the Arbitrator had attained finality and was binding on the parties, the Bench stated that there could not be any subsequent fresh proceeding with respect to the same claims. As no objections were raised by the respondent–contractor at the appropriate stage, the award could not be annulled subsequently.

Hence, the appeal was allowed. The impugned judgment and order of the High Court quashing and setting aside the order passed by the Arbitral Tribunal was quashed and set aside and the order of the Tribunal was restored.

[M.P. Housing and Infrastructure Development Board v. K.P. Dwivedi, 2021 SCC OnLine SC 1171, decided on 03-12-2021]


Kamini Sharma, Editorial Assistant has put this report together 


Appearance by:

For the Appellants: Bharat Singh, AAG

For Respondent: Kavin Gulati, Senior Advocate


*Judgment by: Justice M. R. Shah

Advani LawExperts Corner


Introduction


 

The Arbitration and Conciliation Act, 1996 (the A&C Act) is based on the 1985 UNCITRAL Model Law on International Commercial Arbitration, the enactment of the A&C Act signified the inception of the effort being made by the Indian legislature to bring India closer to the modern and pro-arbitral renaissance that was being spearheaded by the western world. Section 16 of the A&C Act embodies the sacrosanct doctrine of kompetenz-kompetenz which gives primacy to the Arbitral Tribunal to rule on its own jurisdiction including objections pertaining to the existence or validity of the arbitration agreement.

Although, Section 16 gives the express power to the Arbitral Tribunal to decide all issues pertaining to its own jurisdiction comprising an array of preliminary issues, it is silent as to what these preliminary issues include. The pertinent question that has warranted tremendous scholarly discourse by prominent practitioners in the global arbitral fraternity is whether the issue of limitation is one of jurisdiction or an adjudication on merits of the claim and whether this decision could be made by the Arbitral Tribunal under Section 16 of the A&C Act.

 

The present article will analyse two recent decisions of the Supreme Court of India where the Court has delivered conflicting opinions as to whether limitation constitutes a jurisdictional issue. The authors will conclude by suggesting a way forward until the controversy is conclusively settled by the judgment of a larger Bench of the Supreme Court.

 


The Controversy


The pertinent question of whether the decision of an Arbitral Tribunal on whether the claim of the claimant is barred under the law of limitation is an interim order or an interim award came up before the Division Bench of the Supreme Court comprising Nariman and Sinha, JJ. in Indian Farmers Fertilizer Coop. Ltd. v. Bhadra Products[1] (Indian Farmers). The Court was confronted with a case where the respondent had invoked arbitration and the Tribunal considered it appropriate to decide whether the claimant’s claim was barred by the law of limitation at first as a preliminary issue before traversing into the merits of the dispute. The arbitrator held that the claimant’s claim was not barred by the law of limitation. Aggrieved by the aforesaid interim decision of the arbitrator, the petitioner preferred an application filed under Section 34 of the A&C Act before the trial court styling it as the “first partial award”. The trial Judge held that the arbitrator’s decision did not constitute an award and dismissed the petition. Aggrieved by this judgment, the petitioner preferred an appeal to the High Court of Orissa wherein the High Court concurred with the findings of the trial court thereby dismissing the appeal proceedings. When the matter reached the Supreme Court, the Court at the outset had to decide whether the petition filed under Section 34 was maintainable. The Court realised that this could be determined by ascertaining whether the decision of the arbitrator on the issue of limitation constituted an interim award under Section 2(1)(c) r/w Section 31(6) and therefore assailable before the Court under Section 34 or whether the issue of limitation was one of jurisdiction and fell within the ambit of Sections 16(2) and (3) and therefore assailable before the Court only under the recourse envisaged under Section 37(2)(a) of the A&C Act. In the light of the aforesaid conundrum, the Court in Indian Farmers[2] framed the following issues:

 

(i) Whether an award on the issue of limitation can first be said to be an interim award?

(ii) Whether a decision on a point of limitation would go to jurisdiction and therefore be covered by Section 16?

 

The Court in Indian Farmers[3] began its reasoning with a conjoint reading of Sections 2(1)(c) and 31(6) observing that an arbitral award includes an interim award while noting that the A&C Act does not define an interim award. The Court was then constrained to rely on the wordings of Section 31(6) wherein it observed that the legislature had given the express power to the Arbitral Tribunal to make an interim award with respect to any matter on which it may make a final arbitral award. The Court relied on Section 32(1) to hold that there can be more than one interim award prior to the final award which could conclusively determine some issues between the parties.

 

The Court in Indian Farmers[4] relied on the wordings embodied in Section 47 of the English Arbitration Act, 1996 (English Arbitration Act) as it throws some light on what constitutes an interim award under English law. Relying on Section 47 of the English Arbitration Act, it was observed that a preliminary issue that affected the whole claim would expressly be the subject-matter of an interim award under the English Arbitration Act. It is pertinent to note that the Court stressed on the fact that the English Arbitration Act advisedly does not use the expression interim or partial so as to make it clear that the award covered by Section 47 of the English Arbitration Act would be a final determination of the particular issue arising from the dispute between the parties.

 

The Court in Indian Farmers[5] in order to augment its ratio went on to rely on an earlier decision of the Supreme Court that laid emphasis on what characteristics were required to constitute an interim award under the Indian arbitral regime. The Court relied on the decision in Satwant Singh Sodhi v. State of Punjab[6] (Satwant Singh) wherein an interim award in respect of one particular item was made by the arbitrator and the Court was confronted with whether such an award could be made a rule of the court. In Satwant Singh[7] it was held that an interim award which finally determines the rights of the parties with respect a certain claim and one which could not be readjudicated again could validly be made a rule of the court. Applying the dictum in Satwant Singh[8], the Court in Indian Farmers[9] held that as the issue of limitation was a final determination with respect to a part of the claim and was one which could not be readjudicated again it therefore validly constituted an interim award under Section 31(6) of the A&C Act. The Court in Indian Farmers[10] also relied on the dictum of the Supreme Court in the famous case of McDermott International Inc. v. Burn Standard Co. Ltd.[11] (McDermott International) wherein the Court has held that a partial award or an interim award is a final award on matters covered therein made at an intermediate stage of the arbitral proceedings. Relying on the above authorities, the Court in Indian Farmers[12] has held that a final decision of the arbitrator on the issue of limitation is an interim award within meaning of Section 2(1)(c) r/w with Section 31(6) and by virtue of being an award, it was capable of being challenged under Section 34 of the A&C Act.

 

Moving on to the second issue, as to whether the issue of limitation would fall within the ambit of Section 16 warranted a lengthy consideration by the Court. While answering this question in the negative, the Court after discussing the rationale of the doctrine of kompetenz-kompetenz relied on the corresponding provisions in Sections 30 and 31 of the English Arbitration Act. After carefully examining the wordings of the said provisions, it held that the doctrine of kompetenz-kompetenz connoted that the term “jurisdiction” under Section 16 only encompassed reference to three particular determinations:

(i) As to whether there is the existence of a valid arbitration agreement.

(ii) Whether the Arbitral Tribunal is properly constituted.

(iii) Matters submitted to arbitration should be in accordance with the arbitration agreement.

To further inquire whether limitation converged with jurisdiction, the Court relied on the decision of the Constitution Bench in Ittyavira Mathai v. Varkey Varkey[13] (Varkey Varkey) where the Constitution Bench interpreted the connotation jurisdiction wherein it laid down that a court has jurisdiction over the subject-matter pertaining to the case and the parties. It further held that it is true that courts are bound to rule while correctly applying the law, it is true that courts have been susceptible to making errors. The Court in Varkey Varkey[14] concluded that in spite of the fact that a court might have erred in coming to its conclusion it does not tantamount that the court has acted outside its jurisdiction.

 

More importantly, the Court in Indian Farmers[15] vehemently concurred with the findings of the Supreme Court in NTPC Ltd. v. Siemens Atkeingesellchaft[16] (NTPC) wherein it was held that when no question of jurisdiction has been addressed by the arbitrator in its findings, a party cannot disguise it to be one of jurisdiction falling within the ambit of Sections 16(2) and (3) so as to enable it to file an appeal under the recourse contemplated by Section 37(2). The Court in NTPC[17] observed that the appropriate recourse is for the aggrieved to prefer an application under Section 34 against the partial award and thereafter it could prefer an appeal under Section 37. Supplementing the opinion of the Court delivered at first by Mathur, J. in NTPC[18], Balasubramanyan, J. when discussing the ambit of jurisdiction under Section 16 laid down that when an Arbitral Tribunal finds that the claim was not maintainable for other valid reasons or that the claim was barred by the law of limitation it tantamounted to an adjudication by the Arbitral Tribunal on the merits of the claim and therefore would be assailable under Section 34 of the A&C Act.

 

Ultimately, the Court in Indian Farmers[19] relying on the above authorities held that the award passed by the arbitrator was an interim award, which being an arbitral award could be challenged by preferring an application under Section 34 and not Section 37. The Court held that the issue of limitation does not fall within the ambit of the Arbitral Tribunal’s jurisdiction under Section 16 and therefore the drill of Sections 16(5) and (6) need not be followed.

 

At this juncture it is important to study the controversy that has arisen in contemporary arbitral jurisprudence with regard to whether the issue of limitation falls within the Arbitral Tribunal’s power to rule on its own jurisdiction. A Coordinate Bench of the Supreme Court comprising Malhotra and Rastogi, JJ. in Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd.[20] (Uttarakhand Purv Sainik) had to consider the ambit and scope of the newly inserted Section 11(6-A) in the light of the 2015 Amendment of the A&C Act. The Court in Uttarakhand Purv Sainik[21] observed that insertion of Section 11(6-A) marked a significant departure from the opinion of the 7-Judge Constitution Bench in SBP & Co. v. Patel Engg. Ltd.[22] (SBP & Co.) where many threshold issues could be decided by the Court. The Court observed that in view of the non obstante clause in Section 11(6-A), the decision in SBP & Co.[23] stood legislatively overruled on that point. Moreover, the Court in Uttarakhand Purv Sainik[24] laid down its opinion on the scope and ambit of Section 16 as to what constitutes an issue of jurisdiction wherein it relied on the decision in ITW Signode (India) Ltd. v. CCE[25] (ITW Signode). In ITW Signode[26] a Bench of three Judges held that the issue of whether a claim was time barred under law of limitation is a jurisdictional issue.

 

It is interesting to note what the Court in Uttarakhand Purv Sainik[27] has discerned from the dictums in Indian Farmers[28] and NTPC[29], as the Court relied on the same in coming to the conclusion that the issue of limitation is one of jurisdiction and falls within the ambit of the doctrine of kompetenz-kompetenz under Section 16. It is needless to say that Court has wrongly imported and applied the dictums in Indian Farmers[30] and NTPC[31] to the question that had arisen before it under Section 11(6-A) and has arrived at such an anomalous outcome.

 

Adding to the controversy, in a recent judgment of the Bombay High Court in C. Shamsuddin v. Now Realty Ventures LLP[32] (C. Shamsuddin), G.S. Patel, J. was confronted with opining on the scope of jurisdiction of the Court at the pre-reference stage in an application filed under Section 11. The Bombay High Court in C. Shamsuddin[33] considered the interplay between Sections 11 and 16 and while relying on the decisions of the Supreme Court in Indian Farmers[34] and Uttarakhand Purv Sainik[35] held that the issue of limitation should be decided by the Arbitral Tribunal under Section 16. It is our opinion that the Court in C. Shamsuddin[36] appears to have been left astray by following the ruling in Uttarakhand Purv Sainik[37] which erred in applying the decision in Indian Farmers[38].


Conclusion


It is evident that the decisions in Uttarakhand Purv Sainik[39] and C. Shamsuddin[40] suffer from the infirmity of incorrectly construing and applying the decision in Indian Farmers[41]. It is our opinion that the decision in Indian Farmers[42] was cogent, succinct and in consonance with contemporary pro-arbitral jurisprudence. It is also without doubt that the clarity brought about by the decision in Indian Farmers[43] was long awaited by the arbitral fraternity. The decision also gave sufficient clarity to litigants that the appropriate remedy is to file an application under Section 34 before the appropriate court in the event that one of them is aggrieved by the decision of the arbitrator on the issue of limitation. It is our opinion that the laudable effort of Nariman, J. in Indian Farmers[44] to settle ambiguity has been obscured by the ruling in Uttarakhand Purv Sainik[45] and has left the scope and ambit of the doctrine of kompetenz-kompetenz in dubiety. It is in our opinion that the present conundrum warrants cognizance by a larger Bench of the Supreme Court at the earliest possible opportunity, in order to prevent another series of conflicting judgments and also to bring about consonance between decisions of the leading High Courts.

 

It is a settled canon of law in India that where there are conflicting decisions of concurrent Benches of the Supreme Court, it is for the subordinate courts to follow the judgments which appears to have laid down the law more emphatically and accurately in the correct scenario having regard to the issue being dealt with by the court together with proper consideration of the factual matrix. In light of the above, it is our opinion that the decision in Indian Farmers[46] appears to have accurately and with adequate reasoning answered the questions with respect to the issues framed and is in the context of Section 16 rather than the decision in Uttarakhand Purv Sainik[47] that appears to have wrongly imported the decision in Indian Farmers[48] to the context of Section 11.

 

The decision in Uttarakhand Purv Sainik[49] has evidently obscured the essence of the underlying rationale in Indian Farmers[50] whilst erring by disregarding the nuanced difference between limitation and jurisdiction. It is our opinion that decision in Indian Farmers[51] correctly distinguished limitation as being a defect pertaining to the claim or right of a party to approach the court for reliefs whereas jurisdiction is a defect pertaining the power of the adjudicating authority to take cognizance of a claim based on other statutory considerations. Therefore, we suggest that the decision in Indian Farmers[52] be considered as the correct position of law in this regard. It is also recommended that the High Courts follow the decision in Indian Farmers[53] rather than Uttarakhand Purv Sainik[54] in order to prevent another series of conflicting decisions and to provide certainty to the arbitral fraternity thereby fostering the landscape for arbitration in India.

 


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

†† Manav Nagpal, Associate at Advani & Co.

[1] (2018) 2 SCC 534.

[2] (2018) 2 SCC 534.

[3] (2018) 2 SCC 534.

[4] (2018) 2 SCC 534.

[5] (2018) 2 SCC 534.

[6] (1999) 3 SCC 487.

[7] (1999) 3 SCC 487.

[8] (1999) 3 SCC 487.

[9] (2018) 2 SCC 534.

[10] (2018) 2 SCC 534.

[11] (2006) 11 SCC 181.

[12] (2018) 2 SCC 534.

[13] (1964) 1 SCR 495 : AIR 1964 SC 907.

[14] (1964) 1 SCR 495 : AIR 1964 SC 907.

[15] (2018) 2 SCC 534.

[16] (2007) 4 SCC 451.

[17] (2007) 4 SCC 451.

[18] (2007) 4 SCC 451.

[19] (2018) 2 SCC 534.

[20] (2020) 2 SCC 455.

[21] (2020) 2 SCC 455.

[22] (2005) 8 SCC 618.

[23] (2005) 8 SCC 618.

[24] (2020) 2 SCC 455.

[25] (2004) 3 SCC 48.

[26] (2004) 3 SCC 48.

[27] (2020) 2 SCC 455.

[28] (2018) 2 SCC 534.

[29] (2007) 4 SCC 451.

[30] (2018) 2 SCC 534.

[31] (2007) 4 SCC 451.

[32] 2020 SCC OnLine Bom 100 : (2020) 6 Mah LJ 108.

[33] 2020 SCC OnLine Bom 100 : (2020) 6 Mah LJ 108.

[34] (2018) 2 SCC 534.

[35] (2020) 2 SCC 455.

[36] 2020 SCC OnLine Bom 100 : (2020) 6 Mah LJ 108.

[37] (2020) 2 SCC 455.

[38] (2018) 2 SCC 534.

[39] (2020) 2 SCC 455.

[40] 2020 SCC OnLine Bom 100 : (2020) 6 Mah LJ 108.

[41] (2018) 2 SCC 534.

[42] (2018) 2 SCC 534.

[43] (2018) 2 SCC 534.

[44] (2018) 2 SCC 534.

[45] (2020) 2 SCC 455.

[46] (2018) 2 SCC 534.

[47] (2020) 2 SCC 455.

[48] (2018) 2 SCC 534.

[49] (2020) 2 SCC 455.

[50] (2018) 2 SCC 534.

[51] (2018) 2 SCC 534.

[52] (2018) 2 SCC 534.

[53] (2018) 2 SCC 534.

[54] (2020) 2 SCC 455.

Case BriefsSupreme Court

Supreme Court: A Division Bench comprising of Indira Banerjee and J.K. Maheshwari, JJ. held that once an Arbitral Tribunal is constituted, the court would not take up for consideration and apply its mind to an application for an interim measure, unless the remedy of applying to the arbitral tribunal for interim relief is inefficacious. However, this bar does not operate where already the application has been taken up for consideration and the court has applied its mind.

Questions of Law

The Supreme Court was deciding two questions of law:

(i) Whether the court has the power to entertain an application under Section 9(1) of the Arbitration and Conciliation Act, 1996, once an Arbitral Tribunal has been constituted and if so, what is the true meaning and purport of the expression “entertain” in Section 9(3) of the Arbitration Act?

(ii) Whether the court is obliged to examine the efficacy of the remedy under Section 17, before passing an order under Section 9(1) of the Arbitration Act, once an Arbitral Tribunal is constituted?

Section 9(1) of the Arbitration Act enables a party to an arbitration agreement to apply to a court for interim measures of protection before or during the arbitral proceedings, or at any time after an award is made and published, but before the award is enforced in accordance with Section 36 of the Arbitration Act. Further, Section 9(3) provides that once an Arbitral Tribunal has been constituted, the court shall not entertain an application under sub-section (1), unless the court finds that circumstances exist which may not render the remedy provided under Section 17 efficacious. Under Section 17, an Arbitral Tribunal has the same power to grant interim relief as the court.

Factual Matrix and Appeal

A commercial dispute arose out of a Cargo Handling Agreement entered into between ArcelorMittal Nippon Steel (India) Ltd. and Essar Bulk Terminal Ltd. ArcelorMittal invoked the arbitration clause. Essar did not respond. Thereafter, ArcelorMittal approached Gujarat High Court under Section 11 of Arbitration Act for appointment of Arbitral Tribunal. Subsequently, both parties filed applications under Section 9(1) in Commercial Court seeking interim measures. The Commercial Court heard both the applications and reserved the orders. Meanwhile, the High Court appointed an Arbitral Tribunal. Pursuant to this, ArcelorMittal requested the Commercial Court to refer both the applications filed under Section 9 to the now-constituted Arbitral Tribunal. This prayer was however rejected by the Commercial Court.

ArcelorMittal challenged the order of the Commercial Court before the High Court, which was dismissed. Aggrieved, ArcelorMittal approached the Supreme Court.

Analysis and Observations

Determining the answer to the questions of law (mentioned above), the Supreme Court noted that Section 9(3) of Arbitration Act has two limbs. The first limb prohibits an application under Section 9(1) from being entertained once an Arbitral Tribunal has been constituted. The second limb carves out an exception to that prohibition, if the court finds that circumstances exist which may not render the remedy provided under Section 17 efficacious.

Further, to discourage the filing of applications for interim measures in courts under Section 9(1) of the Arbitration Act, Section 17 clothes the Arbitral Tribunal with the same powers to grant interim measures, as the court under Section 9(1). In fact, an order passed by the Arbitral Tribunal under Section 17 is deemed to be an order of court for all purposes and is enforceable as an order of court. The Court opined:

“With the law as it stands today, the Arbitral Tribunal has the same power to grant interim relief as the Court and the remedy under Section 17 is as efficacious as the remedy under Section 9(1). There is, therefore, no reason why the Court should continue to take up applications for interim relief, once the Arbitral Tribunal is constituted and is in seisin of the dispute between the parties, unless there is some impediment in approaching the Arbitral Tribunal, or the interim relief sought cannot expeditiously be obtained from the Arbitral Tribunal.”

Considering the true meaning and purport of “entertain” in Section 9(3), the Court summarised a catena of judicial precedents and noted that it is now well settled that the expression “entertain” means to consider the issues raised by application of mind. The court entertains a case when it takes up a matter for consideration. The process of consideration can continue till the pronouncement of judgment. That, however, makes no difference. The question is whether the process of consideration has commenced, and/or whether the court has applied its mind to some extent before the constitution of the Arbitral Tribunal. If so, the application can be said to have been entertained before the constitution of the Arbitral Tribunal.

Opining that the intent behind Section 9(3) was not to turn back the clock and require a matter already reserved for orders to be considered in entirety by the Arbitral Tribunal under Section 17 of the Arbitration Act, the Court observed:

“On a combined reading of Section 9 with Section 17 of the Arbitration Act, once an Arbitral Tribunal is constituted, the court would not entertain and/or in other words take up for consideration and apply its mind to an application for interim measure, unless the remedy under Section 17 is inefficacious, even though the application may have been filed before the constitution of the Arbitral Tribunal. The bar of Section 9(3) would not operate, once an application has been entertained and taken up for consideration, as in the instant case, where hearing has been concluded and judgment has been reserved.”

The Court noted that even after an Arbitral Tribunal is constituted, there may be myriads of reasons why the Arbitral Tribunal may not be an efficacious alternative to Section 9(1). This could even be by reason of temporary unavailability of any one of the arbitrators by reason of illness, travel etc. Further, unless applications for interim measures are decided expeditiously, irreparable injury or prejudice may be caused to the party seeking interim relief. Therefore, it could never have been the legislative intent that even after an application under Section 9 is finally heard, relief would have to be declined and the parties be remitted to the remedy under Section 17. Elaborating, the Court explained:

“When an application has already been taken up for consideration and is in the process of consideration or has already been considered, the question of examining whether remedy under Section 17 is efficacious or not would not arise. The requirement to conduct the exercise arises only when the application is being entertained and/or taken up for consideration.”

Lastly, but importantly, the Supreme Court clarified that even if an application under Section 9 had been entertained before the constitution of the Arbitral Tribunal, the court always has the discretion to direct the parties to approach the Arbitral Tribunal, if necessary, by passing a limited order of interim protection.

Decision

In such view of the matter, the Supreme Court held that the High Court rightly directed the Commercial Court to proceed to complete the adjudication. It was however clarified that it shall not be necessary for the Commercial Court to consider the efficacy of relief under Section 17, since the application under Section 9 has already been entertained and considered by the Commercial Court.  [ArcelorMittal Nippon Steel (India) Ltd. v. Essar Bulk Terminal Ltd., 2021 SCC OnLine SC 718, decided on 14-9-2021]


Tejaswi Pandit, Senior Editorial Assistant has reported this brief.

Case BriefsSupreme Court

Supreme Court: A Division Bench comprising of R.F. Nariman and B.R. Gavai, JJ. held that an arbitral award which is based on no evidence and/or in ignorance of evidence would come under the realm of patent illegality. The Court also held that an arbitrator cannot rewrite the contract for the parties.

Facts and Appeal

In 1998, the respondent−Tuticorin Port Trust (“Trust”) awarded a tender to the appellant−Company for certain development and operation works at the Tuticorin Port for 30 years on a Build, Operate and Transfer basis. Shorn of details, commercial differences arose between the parties relating primarily to royalty/revenue sharing model. The Company requested the Trust to amend the License Agreement to incorporate revenue sharing model in place of royalty model. This was however rejected by the Trust.

In 2012, the Company invoked arbitration clause under the License Agreement. The Arbitral Tribunal passed an award in favour of the Company directing conversion of royalty model to revenue sharing model. Thereafter, the Trust presented a petition under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside an arbitral award. This petition was rejected by the District Judge, Tuticorin. Against this, the Trust filed an appeal before the Madras High Court. The appeal was allowed and the award made by the Arbitral Tribunal was set aside. Aggrieved, the Company approached the Supreme Court.

Analysis and Observations

Scope of interference with an arbitral award in India      

Relying on a catena of judgments including MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163 and SsangYong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131,  the Supreme Court noted it to be settled legal position that in an application for setting aside an arbitral award filed under Section 34 of the Arbitration Act, the court does not act as an appellate court and reappreciate the evidence. The scope of interference is limited to grounds provided under Section 34. Interference would be warranted when the award is in violation of public policy of India. A judicial intervention on account of interfering on the merits of the award would not be permissible.

Principles of natural justice as contained in Sections 18 and 34(2)(a)(iii) of the Arbitration Act continue to be grounds of the challenge of an award. Awards that shock the conscience of the court can be set aside for being in conflict with justice or morality. An award can be set aside on the ground of patent illegality appearing on the face of the award as such, which goes to the roots of the matter.

Merits of the case

Article 14 of the License Agreement

The bone of contention between the parties was Article 14 of the License Agreement which dealt with ‘Change in Law’. Article 14.3 provided that the Licensee (appellant−Company) may request for amendments in terms of the License Agreement if after the date of the License Agreement there is any change in law which substantially affects rights of the Licensee. The questions before the Court were:

(i) Whether the Arbitral Tribunal was justified in finding a change in law which entitled the Company to invoke Article 14.3 of the License Agreement; and

(ii) Whether the Arbitral Tribunal was justified in converting the contract from royalty model to revenue sharing model.

The Court said that for answering the questions, it will have to consider documents on record as well as the conduct of the parties and their intention as could be gathered from the material. For such propsition, reliance was placed on MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163.

Findings of the Arbitral Tribunal

It was noted by the Court that entire finding of the Arbitral Tribunal was based on a premise that when the parties entered into the contract in 1998, there was an existing policy which provided royalty to be factored into the cost while fixation of tariff. That, subsequently in 2003, Government of India changed the policy thereby providing that royalty will not be so factored while fixing tariff. In 2005, there was yet another change in policy vide which royalty was allowed to be factored in while fixing tariff, but subject to a maximum of the bid of second lowest bidder. According to the Arbitral Tribunal, this amounted to change in law which adversely affected the Company.

Examining the correctness of such finding, the Court found that when Letter of Intent was issued to the Company in January 1998, there was no policy/guidelines at all. The relevant guidelines were adopted by the authority concerned (Tariff Authority for Major Ports “TAMP”) only in February 1998. Even these 1998 Guidelines did not provide for factoring royalty in cost while determining tariff.

Notably, it was in the year 1999, that the Company presented a proposal before TAMP to revise tariff. The proposal was approved by TAMP, and royalty was allowed to be factored in cost while fixing tariff, however, this was only on account of the Trust’s conditional approval to the proposal submitted by the Company. The TAMP also made clear that its order should not be interpreted to amount to any implicit approval of royalty related issues which were left to be decided by the Trust and the Government of India.

Then came the first notification in 2003, where the Government of India decided to clarify, as a matter of policy, that royalty payment shall not be factored into account as cost for fixation of tariff.

Next came the second notification in 2005, superseding the 1998 Guidelines. The new guidelines provided that royalty payment will not be admissible cost for tariff computation. Further, in Build, Operate and Transfer cases such as that of the Company, it was allowed that tariff computation can factor in royalty payment as cost subject however only to a maximum of the amount quoted by next lowest bidder.

On a conjoint reading of all documents, the Court concluded that:

In this scenario, the finding of the Arbitral Tribunal, that there was a law when the Agreement was entered into between the parties, which provided royalty as a pass-through and that the said law has been changed for the first time in 2003 and subsequently again changed in 2005, in our view, is a finding based on ‘no evidence‘.

The Court was of the opinion that the Arbitral Tribunal totally failed to take into consideration relevant aspects of the matter as discussed above. Noting that the Arbitral Tribunal arrived at its decision based on ‘no evidence’ and in ‘ignorance of vital evidence’, the Court held that the findings of the Arbitral Tribunal would come in the realm of perversity as explained in Associated Builders v. DDA, (2015) 3 SCC 49.

Conversion of royalty payment model to revenue sharing model

The next issue was whether the Arbitral Tribunal was justified in substituting royalty payment model to revenue sharing model. While considering this, the Court opined that:

A contract duly entered into between the parties cannot be substituted unilaterally without the  consent of the parties.

Gathering the  intention of the parties from documents on record, the Court found that the Company wanted the License Agreement to be amended to change royalty payment method to revenue sharing method. Whereas, the Trust always opposed it and was not agreeable to any such amendment. Noting that the Arbitral Tribunal ignored the stand of the Trust to thrust upon a new term in the License Agreement, the Court observed:

It is thus clear that the Award has created a new contract for the parties by unilateral intention of [the Company] as against the intention of [the Trust].

Reiterating that a party to the Agreement cannot be made liable to perform something for which it has not entered into a contract, the Court concluded that:

In our view, rewriting a contract for the parties would be breach of fundamental principles of justice entitling a Court to interfere since such case would be one which shocks the conscience of the Court and as such, would fall in the exceptional category.

Decision

In such view of the matter, the Supreme Court was of the considered opinion that the impugned award passed by the Arbitral Tribunal would come under the realm of “patent illegality” and therefore it was rightly set aside by the High Court. [PSA SICAL Terminals (P) Ltd. v. V.O. Chidambranar Port Trust, 2021 SCC OnLine SC 508, decided on 28-7-2021]


Tejaswi Pandit, Senior Editorial Assistant has reported this brief.

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,

Advocate.

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:

“WHEREAS

(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.

Background

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.”

 Observations

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.”

 Decision

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.

Contentions

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.

Issue

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

Decision

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.

Facts

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.

Opinion

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.

Conclusion

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]