Case BriefsHigh Courts

Delhi High Court: The Division Bench of Rajiv Shakdher and Talwant Singh, JJ., while addressing a matter with regard to the arbitral award, held that,

“Mere erroneous application of the law, or appreciation of evidence, does not call for interference of the award on the ground of patent illegality. The Court cannot set aside the award by reappreciating the evidence, which is taken into consideration, by an Arbitral Tribunal”

Instant appeal was preferred under Section 37 of the Arbitration and Conciliation Act read with Section 13 of the Commercial Courts Act, 2015 against the decision of Single Judge.

Factual Matrix

Respondent was in the business of manufacturing and selling footwear and its components, on 20th March 2008 respondent obtained the Standard Fire and Special Perils Policy from the appellant.

Policy period spanned between 20-03-2008 and 19-03-2009. The total sum assured under the policy initially, was 24,25,00,000/-, which was enhanced to Rs 27,25,00,000/- w.e.f. 30-06-2008.

On 14-12-2008, fire broke out in one of the two units of the respondents which caused damage to the building, plant and machinery, stocks, furniture, fixtures and fittings etc.

Surveyor recommended the release of interim payment in favour of the respondent and accordingly, in March 2009 Rs 2,50,00,000 were paid to the respondent.

Later, in August the respondent scaled down its claim. Surveyor submitted its report to which the respondent consented.

Appellant was somehow not satisfied with the consent letter sent by the respondent and hence asked the respondent to send it again and draft for a fresh consent letter was sent by the appellant via email.

Respondent agreed that, if the balance amount was paid, it would constitute the full and final settlement in respect of its claim lodged with the appellant.

Since the appellant was still not satisfied with the consent letter, he asked the respondent to furnish a new consent letter with the exception that, it contained the averment, to the effect, that, the respondent undertook not to agitate its claim before any court, consumer forum, commission, or any other authority in future. A pre-receipt document was also attached which sought to affirm that respondent’s claim had been settled.

Respondent was unhappy and felt coerced into accepting a lesser amount in respect of the claim lodged by it. After which a notice was issued by the respondent, and this all led to arbitration proceedings.

On being dissatisfied with the award of the arbitral tribunal, the appellant approached the Court and Single Judge repelled the challenge.

Question for Consideration:

Whether the Arbitral Tribunal had committed patent illegality in assessing the loss which the respondent had suffered, qua the stock, which was available, at its factory on the day of the fire?

Analysis, Law and Decision

High Court noted that, because a fire had occurred, and given the fact that stock register and production register was not available (as is perhaps traditionally found with some concerns, if not all), the Arbitral Tribunal took recourse to the manufacturing and trading account, to ascertain the value of the stock that would have been available at the respondent’s factory had the incident of fire not occurred.

Arbitral Tribunal rejected the assessment, made of the loss concerning the closing stock, by the surveyor, for various reasons, including the arbitrary deductions made qua quantities of raw material and finished goods. The Arbitral Tribunal was particularly concerned with the gross profit rate adopted by the surveyor, which, was pegged that 50.81%. The gross profit rate, arrived at by the surveyor, was, undoubtedly, incorrectly calculated, as while calculating the same, depreciation on building, plant and machinery [i.e., Rs. 1,32,80,291/-] was not factored

Arbitral Tribunal picked up correctly from the audited balance sheet of the respondent, which had been submitted to its banker as well.

In Court’s opinion, Arbitral Tribunal was right in concluding that, although the manufacturing and trading account showed that the closing stock as on 14.12.2008, was Rs. 6,25,08,799/-, however, since the respondent while lodging its claim had pegged the value of the closing stock at Rs. 5,98,12,000/-, the value of the closing stock had to be scaled down to that figure i.e. Rs. 5,98,12,000/-. The respondent could not have been compensated, for more than, the claimed amount.

The total loss quantified by the Arbitral Tribunal was pegged at Rs. 4,42,36,337/-

As observed, at the very outset, since the adjusted loss of stock, arrived at by the surveyor, was pegged at Rs. 2,33,59,637/-, the Arbitral Tribunal directed the appellant to pay the balance amount, i.e., Rs. 2,08,76,700/-

High Court did not find anything wrong with the approach adopted by the Arbitral Tribunal.

While there can be no doubt that, weight ought to be given to the surveyor’s report, we are, however, unable to agree that the conclusion reached surveyor, cannot be put to test. As noted by the Arbitral Tribunal, the surveyor had committed, inter alia, serious errors in making arbitrary deductions qua quantities of raw material and finished goods and in ascertaining the rate of gross profit. The rate of gross profit arrived at, was an astronomical figure, of 50.81% only because the surveyor had, somehow, forgotten to factor in depreciation, while calculating the production cost.

Bench also added that the Arbitral Tribunal, in the instant case, has given enough and more reasons, as to why it chose to ignore the methodology adopted by the surveyor in calculating the loss claimed by the respondent on account of damage to its stock.

Therefore, while concluding, the Court expressed that,

“…domestic awards can be challenged on the ground of patent illegality only if it is one, which appears, on the face of the award, and is such, which goes to the root of the matter.”

Lastly, the Court stated that the objections raised by the appellant, to the award, do not meet the bar set, both by the 1996 Act and the law enunciated by the Supreme Court in Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 for bringing it within the ambit of the expression ‘patent illegality’.

In view of the above, the appeal was allowed. [Oriental Insurance Co. Ltd. v. Diamond Product Ltd., 2021 SCC OnLine Del 4319, decided on 9-9-2021]


Advocates before the Court:

Mr. Sanjeev Sindhwani, Senior Advocate with Mr. Abhishek K. Gola, Advocate.

Mr. Vineet Kumar, Advocate.

Case BriefsHigh Courts

Delhi High Court: On finding no ground for interference in the arbitral award, Anup Jairam Bhambhani, J., upheld the decision of Single Judge Bench.

Instant appeal was filed under Section 13 of the Commercial Courts Act 2015 read with Section 10 of the Delhi High Court Act 1966 and Section 37 of the Arbitration and Conciliation Act 1996 impugning the decision of Single Judge of this Court. In the said decision arbitral award made by the sole arbitrator was upheld.

Background

Railways had filed a petition under Section 32 of the Arbitration and Conciliation Act challenging the arbitral award in which Railways was directed to refund to Annavaram the sum of Rs 1,22,38,125 which had been deducted/withheld by the Railways as ‘liquidated damages’ imposed upon Annavaram for alleged breach of the terms and conditions of a tender, pursuant to which a Letter of Acceptance was issued by the Railways to Annavaram for supply of 10000 Pre-Stressed Concrete Sleepers.

Non-Performance & Non-Compliance

The reason for the dispute was the non-performance and non-compliance with the terms of Letter of Acceptance. As Annavaram did not supply even a single sleeper within the stipulated time, nor did they obtain any extension of time for making such supply.

In view of the above background, penalty was imposed and then the contract was terminated.

Mr R.K. Sanghi, Senior counsel appearing for Annavaram contended that by inserting clause 1.2, a new condition came into effect whereby the parties agreed that the quantity of sleepers ordered under the original tender stood “… reduced to the number of sleepers manufactured till the date of issue of LoA for the new contract …”; and it was contended, that as a result there was no obligation on Annavaram to supply 10000 sleepers by 14-07-2009.

Consequently, it was argued that, the Railways were not justified in imposing any liquidated damages upon Annavaram.

Analysis, Law and Decision

Firstly, the High Court stated that there is limited scope and ambit of a challenge under Sections 34 and 37 of the A&C Act, which are pithily set out inter alia in the Supreme Court decision of PSA SICAL Terminals (P) Ltd. v. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin, 2021 SCC OnLine SC 508, in which the Supreme Court reiterated its view on MMTC Limited v. Vendanta Limited, (2019) 4 SCC 163 wherein it was observed that:

“As far as Section 34 is concerned, the position is well-settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii) …”

“It is only if one of these conditions is met that the Court may interfere with an arbitral award in terms of Section 34(2)(b)(ii), but such interference does not entail a review of the merits of the dispute, and is limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts.”

“…the court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the court under Section 34 has not exceeded the scope of the provision.”

Therefore, Bench held that so long as the view taken by an arbitrator, is a possible view based on facts, it is irrelevant whether this Court would or would not have taken the same view on the merits of the matter, hence arbitral award was required to be upheld.

Hence, impugned judgment was upheld.

Conclusion

Annavaram entitled to receive from the Railways the amount directed to be refunded in the arbitral award along with simple interest at 6% per annum till the date of payment as per the impugned judgment. [Union of India v. Annavaram Concrete Pvt. Ltd., 2021 SCC OnLine Del 4211, decided on 31-8-2021]


Advocates before the Court:

Ms Geetanjali Mohan, Advocate.

Mr R.K. Sanghi, Senior Advocate with Mr Satjendar Kumar, Advocate and Mr Ishan Sanghi, Advocate.


Additional Reading:

“There is a disturbing tendency of courts setting aside arbitral awards …”: SC upholds arbitration award of Rs 2728 crore plus interest in favour of Delhi Airport Metro Express (P) Ltd.

Foreign arbitral award enforceable against non-signatories to agreement; ‘perversity’ no longer a ground to challenge foreign award; tort claims arising in connection with agreement are arbitrable: SC expounds law on foreign awards

Arbitrator cannot rewrite contract for parties; Arbitral award based on no evidence or in ignorance of vital evidence comes in realm of patent illegality: SC   

Can Courts modify Arbitral Awards under S. 34 of Arbitration Act or is power limited? SC decides

Del HC | Ambiguity in contractually stipulated obligations favours whom? Court discusses while refusing interference in arbitral award

Del HC adverts to scope of judicial review of an arbitral award; Wades through bunch of pleas including violation of Part 1, CPC and insurance against breakage during transit, etc.

 

Advani & Co.Experts 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.

Op EdsOP. ED.

The Calcutta High Court (HC) in Sirpur Paper Mills Ltd. v. IK Merchants (P) Ltd.1 recently ruled a crucial judgment in which it determined the fate of an arbitral award after the approval of a resolution plan. The court followed the path of fresh slate theory and held that the award claim which was not filed during the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP) is extinguished as the resolution plan is approved. This post analyses Sirpur Paper Mills case2 while supporting the reasoning given by the court.

Factual matrix and issues of the case

The present case arose from a petition under Section 343 of the Arbitration and Conciliation Act, 1996 (ACA) to set aside an award passed by a sole arbitrator. Meanwhile, during the pendency of Section 34 petition, the CIRP of the petitioner (Sirpur Mills) was initiated by its other operational creditors and soon after the resolution plan of Sirpur Mills4 was approved by the adjudicating authority (AA), it filed an additional application contending that the present petition under Section 34 is to be rendered infructuous and dismissed as the resolution plan for corporate debtor (CD) is already passed. It is to be noted that the respondent (IK Merchants) did not lodge its claim concerning the award before the resolution professional (RP).  Resultantly, the question of the status of this award after approval of the resolution plan by the AA.

The two issues raised in this case were: firstly, whether the award claim is extinguished after the approval of the resolution plan or not; secondly, whether the Section 34 petition has become infructuous after the resolution plan is passed or not.

Contentions of the parties

Sirpur Mills5 contended that: firstly, as per Section 316 of the Insolvency and Bankruptcy Code, 2016 (IBC), a resolution plan is binding on all the stakeholders involved. Therefore, the claim of IK Merchants7 should not be entertained after approval of the same. If a creditor fails to submit his claim in accordance with Section 15(1)(c)8 of the IBC and Regulation 6(2)(c) of the CIRP Regulations9 he forfeits his right of payment. Secondly, the 2015 Amendment to Section 3610 of the ACA did away with the provision of the automatic stay of an award when Section 34 petition is filed. This development has been held to be applied retrospectively in the BCCI v. Kochi Cricket (P) Ltd.11 Therefore, IK Merchants12 were not restrained due to the automatic stay for filing a claim during CIRP.

While IK Merchants13 contended that default could be said to occur only when it becomes due and payable14 and the award was automatically stayed at the moment when Section 34 petition was filed in the court. Hence, the filing of a claim in NCLT could not be done by them due to this automatic stay.

Judgment of Calcutta High Court

In a nutshell, Justice Maushami Bhattacharya declared the petition infructuous rendering its dismissal. Majorly relying upon Essar Steel judgment15, the Court held that the award-holder’s claim is extinguished after the approval of the resolution plan.

Essar Steel case

In Essar Steel case16, the two-Judge Bench while deciding the fate of personal guarantors’ right of subrogation after the approval of resolution plan, observed that the approval of a resolution plan binds all the stakeholders. It states that: a successful resolution applicant cannot suddenly be faced with “undecided” claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who would successfully take over the business of the corporate debtor. The Court emphasised on the need of certainties and to bring clarity to ascertain the exact amount payable by the future owner of a business. He must start running the business on a “fresh slate”.

Provisions of IBC

The Calcutta HC also relied upon the provisions of IBC, namely, Sections 2517, 2918, 3019, and 31 to infer the fate of undecided or pending claims such as the one of the respondents before this Court. At the time of making a resolution plan, the applicant relies on an information memorandum containing relevant information. The collective reading of the judgments of Essar20 and Ghanashyam Mishra and Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd.21 makes it quite evident that only the claims which are featured in the information memorandum can be considered by RP and further by the resolution applicant. This information memorandum is relied upon by the resolution applicant to decide its future endeavours concerning CD.

The court stated that the operational creditor was given notice of initiation of the CIRP against the CD at various stages. The purpose of the provision of these notices under the insolvency regime is not only to make all the creditors aware of the ongoing CIRP but also to invite their claims for the preparation of a list of claims by the RP. The court held that IK Merchants22, in this case, had ample opportunity to approach the NCLT for suitable relief.

Automatic stay

Regarding the argument of the automatic stay, the Court relied on the BCCI judgment23 wherein the Supreme Court observed that for the enforcement of an award under Section 36, the amended provisions would be applicable retrospectively to those proceedings for claims as well, which were commenced before the arrival of the Amendment Act. The IK Merchants24 was under a false impression that the provisions of Section 34 of the ACA prior to the amendment would be applicable to his claim. However, the Court was of the opinion that the amended Section 36 requires the award debtor to make a separate application to get a stay on the award, departing from the earlier provision of the automatic stay on the application of the award. Therefore, an award under Section 34 is enforceable unless it is stayed by a court order by an application made under Section 36(3).

Case analysis

The first question that may come up while reading the case is whether the Calcutta HC was right to consider the award as a claim. Courts in earlier cases25 have considered an award as a valid claim under IBC. Even the unenforced foreign awards have also been considered as a claim under IBC. Also, it is clear from the definition of a claim under Section 326 of the IBC that it aims to include all the possible claims which could affect the financial condition of a CD. Although the claim was valid even in this case also, its non-filing to the RP at the right time i.e. during CIRP, resulted in its extinguishment. The rationale behind this was that no new management should have to deal with the claims from before CIRP especially when the whole systematic process has been followed under IBC to get the corporate debtor on its feet again.

A question could also pop up about the status of an award as a pre-existing dispute. A Section 34 petition made the award claim disputed which takes it outside the purview of IBC.27 But it is to be noted that the cases, which state that the pre-existing dispute is to be outside the purview of IBC, were related to the “initiation” of CIRP by the operational creditor, and not the “filing” of claim after CIRP is started. In this case, the issue was not concerning an operational creditor’s ability to initiate the CIRP due to a pre-existing dispute. Rather, the question was with respect to the need for filing a claim by the award holder. Therefore, although the award holder could not have initiated the CIRP of the corporate debtor due to the claim being disputed, he could have filed the claim when the CIRP was initiated by other operational creditors.

It is clear from the facts of the case that IK Merchants28 had time to submit the claim, as per Regulation 12(2), within 90 days from the insolvency commencement date. But the time-limit to submit the claim is directory in nature rather than being a compulsion.29 Therefore, even after the BCCI judgment30 which established the applicability of amended provisions of the ACA, IK Merchants31 had enough time of around two months in their hands to submit their claim.

Conclusion

The authors opine that for India to become an investor-friendly country, its insolvency regime must stay robust while giving due regard to creditors’ rights of payment. Keeping the objective of IBC in mind, the Calcutta HC in the present case rightly followed the fresh slate theory which goes in favour of resolution applicants. This certainty in law will go a long way in solving issues of extinguishment of claim particularly after passing of resolution plan. IBC being a special legislation should get a priority over general legislations such as ACA, in the present case.  The approach of Calcutta HC shows strict compliance of procedural aspects of IBC, which is crucial in keeping the IBC strong and effective, unlike its predecessors.


4th year student, BA LLB (Hons.), Hidayatullah National Law University, Raipur.

†† 4th year student, BA LLB (Hons.), Hidayatullah National Law University, Raipur.

1 2021 SCC OnLine Cal 1601

2 2021 SCC OnLine Cal 1601

3 <http://www.scconline.com/DocumentLink/teuo89l3>.

4 2021 SCC OnLine Cal 1601

5 2021 SCC OnLine Cal 1601

6 <http://www.scconline.com/DocumentLink/gvPKCciX>.

7 2021 SCC OnLine Cal 1601

8 <http://www.scconline.com/DocumentLink/DOWNB8ex>.

9 Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, available at <https://ibbi.gov.in/uploads/legalframwork/da571b238fd759552d3782100f410323.pdf>, last accessed on 22-5-2021.

10The Arbitration and Conciliation (Amendment) Act, 2015, available at <http://www.scconline.com/DocumentLink/9ajA4z9b>, last accessed on 22-5-2021.

11 (2018) 6 SCC 287

12 2021 SCC OnLine Cal 1601

13 2021 SCC OnLine Cal 1601

14 Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17

15 Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531

16 (2020) 8 SCC 531

17 <http://www.scconline.com/DocumentLink/42lD46RO>.

18 <http://www.scconline.com/DocumentLink/PlJRsynl>.

19 <http://www.scconline.com/DocumentLink/zB7sr53j>.

20 (2020) 8 SCC 531

21 2021 SCC Online SC 313

22 2021 SCC OnLine Cal 1601

23 (2018) 6 SCC 287

24 2021 SCC OnLine Cal 1601

25 Annapurna Infrastructure (P) Ltd. v. Soril Infra Resources Ltd., 2017 SCC OnLine NCLT 82

26 <http://www.scconline.com/DocumentLink/rOllWgj8>.

27 Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353

28 2021 SCC OnLine Cal 1601

29 Edelweiss Asset Reconstruction Co. Ltd. v. Sachet Infrastructure (P) Ltd., 2019 SCC OnLine NCLAT 592

30 (2018) 6 SCC 287

31 2021 SCC OnLine Cal 1601

Case BriefsSupreme Court

Supreme Court: The Division Bench of R.F. Nariman and B.R. Gavai, JJ., while addressing a significant and interesting question of law expressed that,

“If one were to include the power to modify an award in Section 34, one would be crossing the Lakshman Rekha”

Interesting Question of Law

Whether the power of a Court under Section 34 of the Arbitration and Conciliation Act, 1996 to ‘set aside’ an award of an arbitrator would include the power to modify such an award?

Madras High Court decision 

A Division Bench of the Madras High Court had disposed of a large number of appeals filed under Section 37 of the said Act laying down as a matter of law that, at least insofar as arbitral awards made under the National Highways Act, 1956, Section 34 of the Arbitration Act must be so read as to permit modification of an arbitral award made under the National Highways Act so as to enhance compensation awarded by an Arbitrator.

Factual Matrix

The crux of the matter was that the above-stated appeals concerned notifications issued under the provisions of National Highways Act and awards passed. The said notifications were of the year 2009 onwards and the awards made were based on the ‘guideline value’ of the lands in question and not on the basis of sale deeds of similar lands.

It was stated that the competent authority had granted abysmally low amounts.

In Section 34 petitions that were filed before the District and Sessions Judge, the said amounts were enhanced to Rs 645 per sq. meter and the award of the Collector was therefore modified by the District Court in exercise of jurisdiction under Section 34 of the Arbitration Act.

Further, in the appeal filed to Division Bench, the above-stated modification was upheld, with there being a remand order to fix compensation for certain trees and crops.

Analysis, Law and Decision

Section 34 of the Arbitration Act

Bench noted that far from Section 34 being in the nature of an appellate provision, it provides only for setting aside awards on very limited grounds, such grounds being contained in sub-sections (2) and (3) of Section 34.

It is the opinion of the arbitral tribunal which counts in order to eliminate the grounds for setting aside the award, which may be indicated by the court hearing the Section 34 application.

Further, the Court stated that Section 34 is modelled on the UNCITRAL Model Law on International Commercial Arbitration, 1985 under which no power to modify an award is given to a court hearing a challenge to an award.

Old v. New

Elaborating more, Bench added that by way of contrast, under Sections 15 and 16 of the Arbitration Act, 1940, the court is given the power to modify or correct an award in the circumstances mentioned in Section 15, apart from a power to remit the award under Section 16.

Thus, under the scheme of the old Act, an award may be remitted, modified or otherwise set aside given the grounds contained in Section 30 of the 1940 Act, which are broader than the grounds contained in Section 34 of the 1996 Act.

In Supreme Court’s decision of MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163, it was decided that Section 34 proceeding does not contain any challenge on the merits of the award.

Adding to the above, Court stated that the point raised in the appeals stands concluded in McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181.

Delhi High Court’s decision in Cybernetics Network (P) Ltd. v. Bisquare Technologies (P) Ltd., 2012 SCC OnLine Del 1155 is also instructive.

Court’s opinion

Hence, in Court’s opinion, there cannot be a doubt that Section 24 of the Arbitration Act, 1996 cannot be held to include within it a power to modify an award.

McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181 was followed in Kinnari Mullick v. Ghanshyam Das Damani, (2018) 11 SCC 328. Also, in Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies Pvt. Ltd., 2021 SCC OnLine SC 157, a recent judgment of this Court also followed McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181 stating that there is no power to modify an arbitral award under Section 34 as:

(f) In law, where the Court sets aside the award passed by the majority members of the tribunal, the underlying disputes would require to be decided afresh in an appropriate proceeding.

Under Section 34 of the Arbitration Act, the Court may either dismiss the objections filed, and uphold the award, or set aside the award if the grounds contained in sub-sections (2) and (2A) are made out. There is no power to modify an arbitral award.

Judicial Trend

Therefore, in view of the above discussed, it can be stated that this question has now been settled finally by at least 3 decisions of the Supreme Court.

To state that the judicial trend appears to favour an interpretation that would read into Section 34 a power to modify, revise or vary the award would be to ignore the previous law contained in the 1940 Act; as also to ignore the fact that the 1996 Act was enacted based on the UNCITRAL Model Law on International Commercial Arbitration, 1985.

Coming to the submission in support of the impugned judgment that the fact that the Central Government appoints an arbitrator and the arbitration would therefore not be consensual, resulting in a government servant rubber-stamping an award which then cannot be challenged on its merits, cannot possibly lead to the conclusion that, therefore, a challenge on merits must be provided driving a coach and four through Section 34 of the Arbitration Act, 1996. The impugned judgment is also incorrect on this score.

Lastly, the Supreme Court stated that if one were to include the power to modify an award in Section 34, one would be crossing the Lakshman Rekha and doing what, according to the justice of a case, ought to be done.

Parliament very clearly intended that no power of modification of an award exists in Section 34 of the Arbitration Act, 1996.

In several cases, the NHAI has not filed appeals even in matters which are similar i.e., arising from the same Section 3A Notification, as a result of which certain landowners have got away with enhanced compensation given to them by the District Court. Also, we cannot shut our eyes to the fact the arbitrator has awarded compensation on a completely perverse basis i.e., by taking into account ‘guideline value’ which is relevant only for stamp duty purposes, and not taking into account sale deeds which would have reflected the proper market value of the land.

Differential Compensation

The Court noted that in several cases, the NHAI has not filed appeals even in matters which are similar i.e., arising from the same Section 3A Notification, as a result of which certain landowners have got away with enhanced compensation given to them by the District Court. Also, the arbitrator has awarded compensation on a completely perverse basis i.e., by taking into account ‘guideline value’ which is relevant only for stamp duty purposes, and not taking into account sale deeds that would have reflected the proper market value of the land.

The Court was of the opinion that the said differential compensation cannot be awarded on the ground that a different public purpose is sought to be achieved. Also, the legislature cannot say that, however laudable the public purpose and however important it is to expedite the process of land acquisition, differential compensation is to be paid depending upon the public purpose involved or the statute involved.

Illustration

Take the case of a single owner of land who has two parcels of land adjacent to each other. One parcel of land abuts the national highway, whereas the other parcel of land is at some distance from the national highway. Can it be said that the land which abuts the national highway, and which is acquired under the National Highways Act, will yield a compensation much lesser than the adjacent land which is acquired under the Land Acquisition Act only because in the former case, an award is by a government servant which cannot be challenged on merits, as opposed to an award made under Part III of the Land Acquisition Act by the reference Court with two appeals in which the merits of the award can be gone into? There can be no doubt that discrimination would be writ large in such cases.

However, since the NH Amendment Act, 1997 had not been challenged before the Court, it refrained from saying anything more. It was said that in the facts and circumstances of the case interference under Article 136 was not called for.[National Highways v. M. Hakeem,  2021 SCC OnLine SC 473, decided on 20-07-2021]

Case BriefsHigh Courts

Delhi High Court: Sanjeev Narula, J., refused to interfere in the interim arbitral award whereby the sole arbitrator had allowed certain claims of the respondent in arbitration proceedings against the appellant-IRCTC.

IRCTC sought the setting aside of the interim arbitral award, whereby Sole Arbitrator had allowed certain claims of the Respondent in arbitration proceedings.

Summary of Facts

Respondent, a private railway catering service provider empanelled with IRCTC and entitled to be considered for allotment of temporary licenses on category ‘A’ trains. on 07th September, 2016, IRCTC published a limited tender inviting bids from empanelled parties for providing on-board catering services in respect of Train No. 12951- 52/12953-54 (Rajdhani/August Kranti Express) for six months.

On being the highest bidder, respondent was awarded a temporary license.

What was the dispute?

Welcome drink served to the passengers was provided by IRCTC. Later, IRCTC decided that:

  • service provider to provide welcome drink to passengers at no extra-charge receivable by it, and if unwilling to do so, it could opt to exit the temporary license;
  • where service provider was providing meals to passengers on account of short supply by IRCTC, it would be reimbursed production charges @ Rs. 84/- (inclusive of taxes) per passenger for lunch/dinner for 2nd and 3rd A.C. passengers.
  • where additional meals were being served due to late running of train for more than 2 hours, service provider would be reimbursed @ Rs. 26.40 + service tax, per passenger.

For the above-stated policy decision, DC raised the following concerns:

  • DC reasoned that welcome drink was not included in the tender document;
  • expressed reservation with regard to reimbursement of charges on account of late running of trains for more than 2 hours.
  • emphasised that having made a substantial investment in setting up a base kitchen and infrastructure, it was unwilling to exit from the contract.

Later, on 13-2-2017, respondent intimated that it would provide the welcome drink in case the same would not be provided by IRCTC, but it would be charging for services as well as production charges for the same. In the event of train being late, charge of Rs 30 would be applied along with service tax for additional meal.

From 5-03-2017, the above-said service commenced. Further, in the month of April, IRCTC sought an unconditional acceptance of the policy decision from respondent and unless unconditional acceptance would be tendered, it would be presumed that respondent are not interested in extension of the license.

Further, it was added that, for a certain period when respondent did not provide the welcome drink and IRCTC had to provide the same, the charges in that respect would be adjusted against the bills raised by respondent.

Respondent raised an issue with regard to the above-stated, asserting that it was not liable for the charges. It further raised the issue of non-payment of service tax on service charge for food and drink for the period from 19th December 2016 to 04th March 2017, as well as other charges allegedly payable to it.

Respondent unconditionally accepted the policy decision and a 6-month extension of license was granted.

Respondent invoked arbitration with regard to deductions made on account of welcome drink as well as other issues. Hence, a petition was filed under Section 11 of the Arbitration and Conciliation Act.

What all were the claims?

  • Claim towards non-payment for a welcome drink: DC contended that the welcome drink did not form part of the tender document. It should not be liable to serve the same or reimburse the expenses incurred by IRCTC for serving the same from 19th December, 2016 to 04th March, 2017.
  • Reimbursement of GST on production charges/supply of meals with effect from 1st July 2017.
  • Claim towards wastage of food due to cancellation/non-turning- up of passengers.

Two claims of respondent were allowed: (i) payment with respect to welcome drink; and (ii) reimbursement of GST on production charges.

IRCTC filed an objection against the impugned award before District Judge at Patiala House Court Complex, Delhi, however, the claim calculated by IRCTC exceeded its pecuniary jurisdiction as per the provision of Section 12(2) of the Commercial Courts Acts, 2015.

Analysis, Law and Decision

Whether welcome drink formed a part of initial period of contract?

As per the tender document which refers to CC No. 32 of 14 states the Clause 2.1 requires the service provider to deliver free of cost catering to passengers.

Arbitrator meticulously examined the tender conditions, circulars issued by Railway Board, IRCTC’s policy, contractual provisions and testimonies of the witnesses and went on to answer the question in negative.

CC No. 32 of 14 dated 6-08-2014 laid down rates of composite contract for the service provider and noting the admitted position that catering services under the tender were invited through the mode of partial unbundling of services, the learned Arbitrator noted that respondent was required to provide quotations for the sector-wise services mentioned in Annexures, which had no direct or specific reference to the condition of providing a welcome drink. In the said circumstances, it was concluded that the bid was not invited for the service of provision of welcome drink, and thus no charge was quoted towards the same.

Arbitrator gave a finding that there was no contractual stipulation in the tender document that specifically put the obligation on respondent to provide welcome drink and the said finding was held to be sound, credible and comprehensive by the High Court.

 Binding Effect of Respondent’s ‘unconditional acceptance’

the policy decision dated 07-02-2017 became a part of the contract between the parties has rightly been disallowed by the learned Arbitrator, by holding the same to be a fresh policy decision brought in by IRCTC post entering into the licensing agreement with DC. IRCTC could not give any justification for bearing the burden for the initial period between 19-12-2016 to 4-03-2017, despite it’s alleged understanding to the contrary. Its continued supply of welcome drink without expressly affirming that the contractual obligation for the job lay on DC, reaffirms the uncertainty of contractual obligations.

On the basis of the conduct and the testimony of witnesses, the Arbitrator rightly held that the actions of IRCTC exhibit ambiguity about DC’s contractually stipulated obligations, which were then redressed by way of the ex post facto policy decision.

GST

The GST laws has replaced the erstwhile indirect taxation regime.

Respondent had explained that since the trains were moving through several states and each state had a different rate of tax under State VAT laws, it was not feasible to account for the same, therefore production charges were paid inclusive of taxes.

Besides, no Input Tax Credit was available to IRCTC for VAT.

However, the position underwent a change with the introduction of GST laws.

GST is available as Input Tax Credit for paying the outgoing tax liability. With restructuring of indirect tax system, railways introduced CC No. 44/17 which specifically provides for GST on catering services in the subject trains. The bifurcation of production charges was done under the afore-noted circular and it was advised that GST is to be reimbursed to the service provider on submission of proof of deposit.

the said circular specifies the revised catering apportionment charges for the trains in question where catering charges are built-in to the ticket fare. The table thereunder shows ‘catering charges disbursed to the service provider’ both with and without 18% GST in separate columns.

 Hence, IRCTC’s contention that claim of service tax on production charges was identical and since the same had been given up, the claim of GST would not survive.

Further, it was added that,

Applicability of service tax on production charges is a different plea intertwined with determination of factual position of whether there is an incidence of service in the activity of production or if the nature of service could be held as a composite supply.

GST is clearly attracted on supply of food. 

The claim of service tax over and above the amounts agreed to, was premised on a different footing and cannot be read at par with the claim of GST.

Arbitrator has given a finding that GST has been deposited by DC and proof thereof had been furnished to IRCTC. Court found no fault in interpretation of terms of contract.

Hence no ground for interference was made out. [Indian Railway Catering & Tourism Corporation Ltd. v. Deepak & Co., 2021 SCC OnLine Del 3609, decided on 5-07-2021]


Advocates before the Court:

For the Petitioner: Mr Nikhil Majithia and Mr Piyush Gautam, Advocates

For the Respondent: Mr Naresh Thanai and Ms Khushboo Singh, Advocates


About Justice Sanjeev Narula

Born on 24th August, 1970. Studied at St. Mary’s Presentation Convent School, Jammu. Graduated in B.Sc.(Computer Science) from Kirorimal College, University of Delhi. He acquired Degree in Law in 1994 from Law Faculty, University of Jammu and got enrolled with Bar Council of Delhi in 1995.

Practiced primarily before the Delhi High Court and also before the Supreme Court of India, District Courts of Delhi and various judicial forums in Delhi. Advised and represented clients in litigation relating to Civil, Commercial, Corporate, Criminal, Customs, Indirect taxes, Service, Banking & Finance, Land &Property, Arbitration, Indirect Taxes, GST, Intellectual Property, Constitutional, Cyber, E-Commerce, Consumer and Family Laws.

He was appointed as Central Government Standing Counsel; Senior Standing Counsel (Customs and Indirect Taxes) and Standing Counsel for Central Information Commission (CIC) for the Delhi High Court, positions he retained until he was appointed as a Judge.

Appointed as Permanent Judge of Delhi High Court on 22nd October 2018.


Source: Delhi High Court Website

Case BriefsHigh Courts

Jharkhand High Court: The Division Bench comprising of Aparesh Kumar Singh and  Anubha Rawat Choudhary, JJ., heard the instant Commercial Appeal challenging the judgments passed by the Commercial Court whereby the appellant’s plea for setting aside the arbitral award was rejected.

Background

 The Government of Bihar, Orissa and West Bengal had conceived a plan to make Galudih right bank main canal to be the main link for supply of irrigation water to then State of Bihar (now State of Jharkhand), State of Orissa and State of West Bengal parallel to Swarnrekha Multi-purpose project. State of Bihar had invited tenders for excavation of Galudih right bank main canal in which the appellant participated and was allocated the work; vide letter no. 272 dated 06-03-1986. The work order was followed by two separate agreements between the parties for KM 43.05 to KM 50.25 and KM 50.25 to KM 56.04 respectively with identical terms and conditions numbered as LCB – 03 of 1985-86 and LCB – 04 of 1985-86 both dated 12-03-1986.

Findings of the Arbitrator  

It was in the abovementioned background that a sole arbitrator was appointed by the Supreme Court to resolve the controversy regarding the said project. Pursuant to which the Arbitrator had ruled out in controversies arising in Commercial Appeal No.6 of 2020 and Commercial Appeal No.7 of 2020 that the appellant had completed 67% of the work allotted under the agreement within a period of twenty-four months. Also some extra work over and above the terms of the agreement was done by the appellant on being directed by the executive engineer. The Arbitrator held that the reason for non – completion of the project were entirely and wholly attributable to the respondent. Identical findings had been recorded in Commercial Appeal No.7 of 2020 except that the claimant completed 82% of the work allotted under the agreement within a period of twenty-four months.

Award regarding Payment

In the matter of Commercial Appeal No.6 of 2020, the Arbitrator held that the appellant would be entitled of payment for execution of 67% of the contracted work plus the extra work executed by the appellant, and towards the unfinished work the appellant was held to be entitled of total Rs.3,77,86,645/-. Further, observing that sum of Rs.3,18,17,831/- had already been paid, the Arbitrator adjusted the sum and held that the appellant instead of Rs.3,77,86,645/- would be entitled to Rs.59,68,814 with 9% interest and Rs.50,00,000/- with interest at 9% was also awarded in favour of appellant from 02-10-2018, i.e., date of award till the date of payment.

Whereas, in the other matter, i.e., Commercial Appeal No.7 of 2020, the Arbitrator said that the appellant would have get Rs.1,88,41,196 for 82% of the contracted work as completed by him and Rs.38,72,458 towards damages for the unfinished work, i.e., Rs.2,27,13,654. However, the award was adjusted against the payment of Rs.2,67,59,598 which was already paid by the respondent to the appellant. Thereby, the appellant was directed to refund Rs.40,45,994 to the respondent with 6% interest.

Contentions of the Appellant

The appellant contended that since the claim was filed before the Arbitrator post-2015 amendment, therefore the same was to be governed by the amended provisions of the 2015 amendment in the Arbitration and Conciliation Act, 1996 in view of the pronouncement by the Supreme Court in Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131. It was argued that the Arbitrator had miscalculated the amount payable to the appellant by adjusting certain sums allegedly payable to the respondents even when there was no counter-claim or claim of set-off filed before the Arbitrator. It was further submitted regarding the work already executed, but not measured, that the claim could not be rejected merely because the appellant did not participate at the time of measurement. He submitted that upon a comparison of the two records, it was apparent that the Arbitrator had committed an error of record.

Findings of the Court

In ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263, it was held that Section 34, as amended, would apply only to applications that had been made to the Court on or after 23-10-2015, irrespective of the fact that the arbitration proceedings may had commenced prior to that date. Thus, the Bench said since the awards, as well as the petitions challenging the awards, were filed after 23-10-2015, section 34, as amended in 2015 would apply to the instant case

Distinction amongst, Counter-claim, Set-off, Payment and Adjustments

 In order to draw distinction amongst, counter-claim, set-off, payment and adjustments, the Bench relied on the judgment of Patna High Court in Jayanti Lal v. Abdul Aziz, 1955 SCC OnLine Pat 83, wherein, it had been held that a payment refers to a satisfaction, or extinguishment of a debt effected prior to the raising of the defence of payment, while a plea of set-off prays for satisfaction or extinguishment thereof commencing in the future after the date of the plea. A question of set off, therefore, can arise only in respect of dues which are outstanding, and which have not already been adjusted.

In Cofex Exports Ltd. v. Canara Bank, 1997 SCC OnLine Del 515, it was held that, “a payment is the satisfaction or extinguishment of a debt prior to filing of the written statement and adjustment contemplates existence of mutual demands between the same parties in the same capacity.” Further, A plea of adjustment was distinguished from a plea of a set off or counter claim, “Adjustment like payment is relatable to a period anterior to the date of such plea being set out before the court. A plea was in the nature of payment, adjustment and the like can be raised in defence as of right. The plea if upheld has an effect of mitigating or wiping out the plaintiff’s claim on the date of the suit itself. A counter claim or a plea of a set off is a claim made by the defendant. It does not extinguish the plaintiff’s claim; it exonerates the defendant from honouring plaintiff’s claim though upheld.”

Verdict

The Bench opined that essentially the plea raised by the respondent before the Arbitrator was a plea of payment/adjustment. While citing Mcdermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181, wherein, it had been held that Ss. 55 and 73 of the Indian Contract Act did not lay down mode and manner as to how and in what manner the computation of damages or compensation had to be made, the Bench said that the mode and manner of calculation of damages having not been specifically prescribed under Indian law, the formula as suggested by the appellant before Arbitrator i.e., Hudson formula was not binding on the Arbitrator nor non-consideration of the formula could have been a ground for challenge under section 34 of the aforesaid Act of 1996 as amended in the year 2015.

Further, noticing that the respondents had invited the appellant for final measurement, but the appellant’s representative was not present at the time of measurement, the Court opined that in absence of final measurement, the Arbitrator had rightly passed a reasoned order rejecting Part II of the claim A of Statement A and accordingly, the same also did not call for any interference. So far as the adjustment was concerned, the Bench said the same was a matter of interpretation of contract. Hence, the adjustments neither being ex facie illegal nor shocking the conscience of the court did not fall within the grounds enumerated under Section 34 of Arbitration and Conciliation Act, 1996 as amended in 2015.

Lastly, the Court observed that, the Court below had failed to examine the case in the light of 2015 amendment read with the law interpreted by the Supreme Court in Ssangyong Engg. case while passing the award against the appellant when it di directed the appellant to pay an amount of Rs.40,45,994 with an interest @ 6% to the respondents till the date of adjustment, even though the respondent had neither made any counter claim nor any set off. Holding that such direction certainly shocks the conscience of the Court and suffer from patent illegality calling for interference under Section 34 (2-A), the Court set aside the award passed by the Arbitrator in Commercial Appeal No.7 of 2020 to that extent.[R.K. Construction (P) Ltd. v. State of Jharkhand, 2021 SCC OnLine Jhar 286, decided on 13-01-2021]


Appearance before the Court by:

For the Appellant: Adv. Salona Mittal

For the Respondents: A.A.G. II Sachin Kumar, and Adv. Deepak Kumar Dubey


Kamini Sharma, Editorial Assistant has reported this brief.

Case BriefsSupreme Court

Supreme Court: The bench of Indu Malhotra* and Ajay Rastogi, JJ was posed with the question as to whether the period of limitation for filing the Petition under Section 34 of the Arbitration and Conciliation Act, 1996 would commence from the date on which the draft award is circulated to the parties, or the date on which the signed copy of the award is provided. Going with the latter, the Court held that the period of limitation for filing objections would have to be reckoned from the date on which the signed copy of the award was made available to the parties.

“There is only one date recognised by law i.e. the date on which a signed copy of the final award is received by the parties, from which the period of limitation for filing objections would start ticking. There can be no finality in the award, except after it is signed, because signing of the award gives legal effect and finality to the award.”

Below are the key points highlighted by the Court:

  • Section 31 (1) is couched in mandatory terms, and provides that an arbitral award shall be made in writing and signed by all the members of the arbitral tribunal.

“If the arbitral tribunal comprises of more than one arbitrator, the award is made when the arbitrators acting together finally express their decision in writing, and is authenticated by their signatures.”

  • An award takes legal effect only after it is signed by the arbitrators, which gives it authentication. There can be no finality of the award, except after it is signed, since signing of the award gives legal effect and validity to it.
  • The making and delivery of the award are different stages of an arbitration proceeding. An award is made when it is authenticated by the person who makes it. The statute makes it obligatory for each of the members of the tribunal to sign the award, to make it a valid award. The usage of the term “shall” makes it a mandatory requirement. It is not merely a ministerial act, or an empty formality which can be dispensed with.
  • The legal requirement under sub-section (5) of Section 31 is the delivery of a copy of the award signed by the members of the arbitral tribunal / arbitrator, and not any copy of the award. On a harmonious construction of Section 31(5) read with Section 34(3), the period of limitation prescribed for filing objections would commence only from the date when the signed copy of the award is delivered to the party making the application for setting aside the award.

“If the law prescribes that a copy of the award is to be communicated, delivered, dispatched, forwarded, rendered, or sent to the parties concerned in a particular way, and since the law sets a period of limitation for challenging the award in question by the aggrieved party, then the period of limitation can only commence from the date on which the award was received by the concerned party in the manner prescribed by law.”

  • In an arbitral tribunal comprising of a panel of three members, if one of the members gives a dissenting opinion, it must be delivered contemporaneously on the same date as the final award, and not on a subsequent date, as the tribunal becomes functus officio upon the passing of the final award. The period for rendering the award and dissenting opinion must be within the period prescribed by Section 29A of the Act.
    • The dissenting opinion of a minority arbitrator can be relied upon by the party seeking to set aside the award to buttress its submissions in the proceedings under Section 34.
    • At the stage of judicial scrutiny by the Court under Section 34, the Court is not precluded from considering the findings and conclusions of the dissenting opinion of the minority member of the tribunal
  • The date on which the signed award is provided to the parties is a crucial date in arbitration proceedings under the Arbitration and Conciliation Act, 1996. It is from this date that:

(a) the period of 30 days’ for filing an application under Section 33 for correction and interpretation of the award, or additional award may be filed;

(b) the arbitral proceedings would terminate as provided by Section 32(1) of the Act;

(c) the period of limitation for filing objections to the award under Section 34 commences.

  • Section 34(3) provides a specific time limit of three months from the date of “receipt” of the award, and a further period of thirty days, if the Court is satisfied that the party was prevented by sufficient cause from making the application within the said period, but not thereafter

“If the objections are not filed within the period prescribed by Section 34, the award holder is entitled to move for enforcement of the arbitral award as a deemed decree of the Court u/S. 36 of the Act.”

[DAKSHIN HARYANA BIJLI VITRAN NIGAM LTD. v. NAVIGANT TECHNOLOGIES PVT. LTD., 2021 SCC OnLine SC 157 , decided on 02.03.2021]


*Judgment by: Justice Indu Malhotra

Case BriefsHigh Courts

Kerala High Court: The Division Bench of C. T. Ravikumar and K. Haripal, JJ., partly allowed the instant petition filed under Section 37 of Arbitration and Conciliation Act, 1996.

The grievances of the appellant were that, 0.0336 hectares of land owned and possessed by him was acquired by the Nation Highway Authority (NHA) for the purpose of developing National Highway-47. The Special Land Acquisition Officer had fixed the compensation at the rate of Rs 2,14,000 per Are, thereby the appellant was awarded total compensation of Rs 7,19,040. Aggrieved by the same, the appellant filed an arbitration petition under Section 3(c) (5) of the National Highways Act seeking enhancement of compensation.

The District Collector being the Arbitrator, enhanced the land value to Rs 5,88,000 per Are, i.e. at Rs 2,38,057 per cent. The Arbitrator, after considering the report of the District level Arbitral Committee appointed under Section 27(1)(a) of the Act, enhanced the compensation and fixed it at Rs 12,56,640.

The appellant again challenged the award before the District Court. The Court, while observing the constraints under Section 34 of the Act, stated that,

An award of the Arbitrator could be challenged only on the grounds enumerated in Section 34 of the Act and it could not be set aside merely on the ground that compensation awarded was insufficient.

The Bench though concurred with the findings of lower Court, observed that in arbitral award no amount was paid towards solatium or interest thereon. Reliance was placed by the Court on the judgment of Supreme Court in Union of India v. Tarsem Singh, (2019) 9 SCC 304, wherein, the Court had declared that the provisions of the Land Acquisition Act relating to solatium and interest contained in Section 23(1A) and (2) and interest payable in terms of proviso to Section 28 would apply to acquisitions made under the National Highways Act and had held Section 3J of the National Highways Act violative of Article 14 of the Constitution and declared it unconstitutional.

Thus, the Court while relying on Tarsem Singh case said that the verdict of Supreme Court in the said case had become the law of the land under Article 141 of the Constitution. Therefore, even in the absence of specific plea or proof, the appellant would be entitled to get solatium and interest on solatium as provided in Section 23(1A) and (2) and interest in terms of proviso to Section 28 of the Land Acquisition Act. [V.M. Mathew v. National Highway Authority of India,  2021 SCC OnLine Ker 387, decided on 25-01-2021]


Kamini Sharma, Editorial Assistant has put this story together

Case BriefsHigh Courts

Kerala High Court: The Division Bench of C.T. Ravikumar and K. Haripal, JJ., partially allowed the instant appeal challenging the correctness of the orders of the District Judge whereby the District Judge had declined to interfere with the arbitral award.

Properties of the appellants were acquired by the National Highway Authority for the purpose of widening the Valayar-Vadakkanchery sector of NH 47 under a common notification and compensation was awarded by the Special Land Acquisition Officer. Special Land Acquisition Officer had granted a total compensation of Rs 2,65,252 to appellant 1 on the basis of comparable sales method while compensation of Rs 3,37,337 was awarded to the appellant 2. Being dissatisfied with quantum of compensation, the appellants invoked the arbitration clause. The arbitrator granted an additional compensation of Rs 1,04,449 as an enhancement, besides 9% interest on the enhanced amount from the date of dispossession to appellant 1 and an enhancement of Rs 1,67,215 and 9% interest on the additional compensation was granted to appellant 2. On being aggrieved by the order of the arbitrator, the appellants moved the District Court under Section 34 of the Arbitration Act. Later on, the instant appeal was filed against the order of District Judge.

The appellants contended that, the claims made were not properly considered by the Special Land Acquisition Officer and the Arbitrator, therefore, in order to prove the prevailing market value of the land and for quantifying the other damage suffered by them, they might be afforded one more opportunity and the matters might be remanded, enabling them to adduce further evidence.  The appellants argued that they had not been granted solatium and interest on solatium, which they were entitled to as per the decision in Paul Mani v. Special Deputy Collector and Competent Authority, 2019 SCC OnLine Ker 2700.

The Court observed, the argument of appellants that the claims were not considered by the authorities properly was factually incorrect as it was obvious from the orders passed by the Arbitrator, that even in the absence of the appellants producing supporting documents or proof, the Arbitrator had taken into consideration post-notification developments while granting enhancement in land value as well as the value of structures. As mentioned earlier, the Arbitrator had granted enhancement in compensation under all possible heads, making good the loss sustained by the appellants. The Court said, “It is the settled proposition of law that matters cannot be remanded back to the authority below in order to decide any question of fact which was not properly pleaded and no evidence was let in by the parties in support of the claim.” While reiterating settled proposition of law the Court said, having regard to the scope and ambit of Section 34 of the Arbitration Act that Court’s power is merely supervisory in nature and the Court cannot act as though exercising the appellate jurisdiction. The Court also expressed that, no power had been invested by the Parliament in the Court to remand the matter to the arbitral tribunal. Therefore, the demand for remitting the case back to the arbitrator was denied. On the contention of non-payment of solatium, the court relied on Union of India and Another v. Tarsem Singh, (2019) 9 SCC 304, wherein the Supreme Court had held, the provisions of the Land Acquisition Act 1894, relating to solatium and interest contained in Section 23(1A) and (2) and interest payable in terms of the proviso to Section 28 will apply to acquisitions made under the National Highways Act.

In view of the above, it was held that even in the absence of specific plea or proof, the appellants were entitled to claim solatium and interest on solatium under Section 23(1A) and (2) and interest in terms of the proviso to Section 28 of the Land Acquisition Act and the respondents were directed to quantify the amounts of solatium accordingly. [Eliyamma v. Deputy Collector, 2021 SCC OnLine Ker 80, decided on 07-01-2021]

Op EdsOP. ED.

A. INTRODUCTION

1. Part II of the Arbitration and Conciliation Act, 1996[1] (“the Act”) defines a foreign award and provides the manner/mode for the execution of a foreign award. Depending on the Convention and the framework agreed upon, foreign awards are separately defined under  Section 44 and Section 53, both of which are dealt with under Chapter I and Chapter II of Part II of the Act.

2. As per Section 44, (which is governed under the New York Convention[2]) foreign award is defined as follows:

“44. Definition.– In this Chapter, unless the context otherwise requires, “foreign award” means an award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law force in India, made on or after the 11th day of October, 1960 –

(a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and

(b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies.”

3. As per Section 53, (which is governed under the Geneva Convention) foreign award is defined as follows:

53. Interpretation.— In this Chapter “foreign award” means an arbitral award on differences relating to matters considered as commercial under the law in force in India made after the 28th day of July, 1924,—

(a) in pursuance of an agreement for arbitration to which the Protocol set forth in the Second Schedule applies, and

(b) between persons of whom one is subject to the jurisdiction of some one of such powers as the Central Government, being satisfied that reciprocal provisions have been made, may, by notification in the Official Gazette, declare to be parties to the Convention set forth in the Third Schedule, and of whom the other is subject to the jurisdiction of some other of the Powers aforesaid, and

(c) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made, may, by like notification, declare to be territories to which the said Convention applies, and for the purposes of this Chapter an award shall not be deemed to be final if any proceedings for the purpose of contesting the validity of the award are pending in the country in which it was made….”

4. According to Section 44 of Chapter I of the Act, a foreign award means an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after 11th October, 1960 in pursuance of an agreement in writing for arbitration. The award has to be passed in one such territory with which India has a reciprocal treaty. Similar conditions are specified under Section 53 for the Geneva Convention Awards. The said Awards can be executed as if it was a decree passed by the civil court of original jurisdiction in India as envisaged under Section 36 of the Act. For execution of the award the format laid down in Order 21 Rule 11 (2) of the Code of Civil Procedure, 1908 for execution of decree is required to be followed.

5. Section 48 of the Act lays down conditions for the enforcement of foreign award. Section 48 of the Act reads as follows:

48. Conditions for enforcement of foreign awards.—(1) Enforcement of a foreign award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the court proof that—

(a) the parties to the agreement referred to in section 44 were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or

(b) the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(c) the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be enforced; or

(d) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or

(e) the award has not yet become binding on the parties or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

(2) Enforcement of an arbitral award may also be refused if the court finds that—

(a) the subject-matter of the difference is not capable of settlement by arbitration under the law of India; or

(b) the enforcement of the award would be contrary to the public policy of India.

Explanation 1.– For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,–

(i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or

(ii) it is in contravention with the fundamental policy of Indian law; or

(iii) it is in conflict with the most basic notions of morality or justice.

Explanation 2. — For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.

(3) If an application for the setting aside or suspension of the award has been made to a competent authority referred to in clause (e) of sub-section (1) the Court may, if it considers it proper, adjourn the decision on the enforcement of the award and may also , on the application of the party claiming enforcement of the award, order the other party to give suitable security.”

6. The grounds mentioned in Section 48 are watertight i.e. no grounds outside Section 48 can be looked at. The enforcement of a foreign award under Section 48 of the Act may be refused only if the party resisting enforcement furnishes to the Court proof that any of the stated grounds has been made out to resist enforcement. The grounds for resisting enforcement of foreign award under Section 48 may be classified into three grounds – (i) grounds which affect the jurisdiction of the arbitration proceedings; (ii) grounds which affect party interest alone; and (iii) grounds which go to the public policy of India, as explained by Explanation to Section 48(2).

7. Through the present article, the author has analysed/discussed the ruling of the Supreme Court in  Vijay Karia  v. Prysmain Cavi E Sistemi SRL[3] , wherein the Court has discussed/dealt with the enforcement of foreign award under Section 48 of the Act.

B. BRIEF FACTS

8. The brief facts of this case are as follows:

8.1 Appellant 1 i.e. Vijay Karia and Appellants 2 to 39 (who are represented by Appellant 1) (collectively referred to as “the appellants”) were non-cooperative shareholders of Ravin Cables Ltd. (“Ravin”). On January 19, 2010, the appellants and Ravin entered into a Joint Venture Agreement with Respondent 1 i.e. Prysmian Cavi E Sistermi SRL (“Respondent 1) (a company registered under the laws of Italy). By virtue of the JVA, Respondent 1 acquired a majority shareholding of Ravin’s share capital. Clause 27 of the JVA provided for dispute resolution, under which any dispute arising under the agreement, would be settled exclusively under the Rules of Arbitration of the London Court of International Arbitration (“LCIA”) and the seat of the Arbitration shall be London, United Kingdom.

8.2 On the same day, under a separate ‘Control Premium Agreement’ Respondent 1 (claimant in the arbitration) paid substantial consideration to the appellant (respondent in the arbitration) as ‘control premium’ towards the acquisition of the share capital of Ravin. As per the terms of the JVA, until the expiry of the integration period, Ravin was to be jointly managed by the CEO & Managing Director and after the efflux of the integration period, Managing Director was solely responsible for managing Ravin. However, during the integration period the existing CEO (earlier appointed by Respondent 1) was removed and replaced by the Board of Directors (at the instance of the appellants). Thereafter, the appellants’ directors opposed the appointment of a CFO whose appointment was assented to by Respondent 1. The interference in the management and control of Ravin led to disputes between the parties.

8.3 As a result, in February 2012, Respondent 1  invoked arbitration proceedings against the appellants, alleging that there have been material breaches committed under the JVA. As a result, the LCIA appointed a sole arbitrator to adjudicate the disputes between the parties. The parties filed their respective claims/counter-claims before the  sole arbitrator.

8.4 Considering the various issues were raised by the respective parties at different stages, the  sole arbitrator passed three (3) Interim arbitral awards and one (1) final arbitral award. After considering the facts and the pleadings, the  sole arbitrator passed the final arbitral award in favour of  Respondent 1 (claimant in the arbitration) and rejected the counter-claims of the appellants. The Arbitral Tribunal allowed all the reliefs sought by Respondent 1 and directed the appellants to transfer 10,252,275 shares held by them to  Respondent 1. The appellants were further directed to reimburse the legal costs of the arbitration as determined by the LCIA Court.

8.5 The final award was never assailed by the appellants before the English Courts and only when the award-holder brought the arbitral award to India for the purpose of its enforcement, the appellants raised certain objections under Section 48 of the Act. The  Single Judge of the  Bombay High Court after dealing with the objections raised by the appellants, stated that the final arbitral award must be recognised and enforced, and the objections raised by the appellants do not fall under the pigeonholes contained in Section 48 of the Act. Since Section 50 of the Act, does not provide an appeal when a foreign award is recognised and enforced by a judgment of a  Single Judge of a High Court, the appellants filed an appeal before the Supreme Court under Section 136 of the Constitution of India.

C. ISSUES RAISED

9. The appellants’ contentions can be categorised broadly into the three ‘pigeonhole’ grounds (para 25) viz. 

(i) that the party was unable to present its case before the Tribunal,

(ii) that the Tribunal failed to deal with the contentions raised by the appellants [under Section 48(1)(b)],

(iii) that the foreign award is against the public policy of India [under Section 48(2)(b)] in two respects viz. (a) that it would be in contravention to the fundamental policy of Indian law; and (b) that it would violate the most basic notions of justice.

10. The issues raised by the appellants were dealt/answered by the Supreme Court as follows –

I. Exercise of power under Article 136 while dealing with an order enforcing the foreign award (para 24):

i Section 37 of the Arbitration Act, which is contained in Part I of the said Act, provides an appeal against either setting aside or refusing to set aside a ‘domestic’ arbitration award. The legislative policy so far as recognition and enforcement of ‘foreign’ arbitration awards is that an appeal is provided against a judgment refusing to recognise and enforce a foreign award. The Act does not provide for an appeal against an order recognising and enforcing an award.

ii This is because the policy of the legislature is that there ought to be only one bite at the cherry in a case where objections are made to the foreign award on the extremely narrow grounds contained in Section 48 of the Act and which have been rejected. This is in consonance with the fact that India is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“the New York Convention”) and intends – through this legislation – to ensure that a person who belongs to a Convention country, and who, in most cases, has gone through a challenge procedure to the said award in the country of its origin, must then be able to get such award recognised and enforced in India as soon as possible.

iii Bearing this in mind, it is important to remember that the Supreme Court’s jurisdiction under Article 136 should not be used to circumvent the legislative policy so contained. The Court should be very slow in interfering with such judgments, and should entertain an appeal only with a view to settle the law if some new or unique point is raised which has not been answered by the Supreme Court before, so that the Supreme Court judgment may then be used to guide the course of future litigation in this regard. Also, it would only be in a very exceptional case of a blatant disregard of Section 48 of the Arbitration Act that the Supreme Court would interfere with a judgment which recognises and enforces a foreign award however, inelegantly drafted the judgment may be.

II. Public policy post 2015 Amendment (paras 37- 40):

i. By the 2015 Amendment Act[4], Section 48 was amended to delete the ground of “contrary to the interest of India”. Also, what was important was to reiterate Renusagar Power Co. Ltd. v. General Electric Co.[5] position, that the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute [vide Explanation 2 to Section 48(2)].

ii. It will be noticed that in the context of challenge to domestic awards, Section 34 of the Arbitration Act differentiates between international commercial arbitrations held in India and other arbitrations held in India. So far as “the public policy of India” ground is concerned, both Sections 34 and 48 are now identical, so that in an international commercial arbitration conducted in India, the ground of challenge relating to “public policy of India” would be the same as the ground of resisting enforcement of a foreign award in India.

iii. Why it is important to advert to this feature of the 2015 Amendment Act is that all grounds relating to patent illegality appearing on the face of the award are outside the scope of interference with international commercial arbitration awards made in India and foreign awards whose enforcement is resisted in India[6]. This statement of the law applies equally to Section 48 of the Arbitration Act.

iv. Indeed, this approach has commended itself in other jurisdictions as well. Thus, in Sui Southern Gas Co. Ltd. v. Habibullah Coastal Power Co.[7], the Singapore High Court, after setting out the legislative policy of the Model Law that the ‘public policy’ exception is to be narrowly viewed and that an arbitral award that shocks the conscience alone would be set aside.

III. Pro-enforcement Bias (para 47):

i.  US cases show that given the “pro-enforcement bias” of the New York Convention, which has been adopted in Section 48 of the Arbitration Act, 1996 – the burden of proof on parties seeking enforcement has now been placed on parties objecting to enforcement. In the guise of public policy of the country involved, foreign awards cannot be set aside by second guessing the arbitrator’s interpretation of the agreement of the parties; the challenge procedure in the primary jurisdiction gives more leeway to the Courts to interfere with an award than the narrow restrictive grounds contained in the New York Convention when a foreign award’s enforcement is resisted.

IV. Discretion of the Court to enforce foreign awards (paras 48, 49, 50, 52, 55, 56):

i. Enforcement of a foreign award under Section 48 of the Arbitration Act may be refused only if the party resisting enforcement furnishes to the Court proof that any of the stated grounds has been made out to resist enforcement. The said grounds are watertight – no ground outside Section 48 can be looked at. Also, the expression used in Section 48 is “may”.

ii. When the grounds for resisting enforcement of a foreign award under Section 48 are seen, they may be classified into three groups – (i) grounds which affect the jurisdiction of the arbitration proceedings; (ii) grounds which affect party interest alone; and (iii) grounds which go to the public policy of India, as explained by Explanation 1 to Section 48(2).

iii. Where a ground to resist enforcement is made out, by which the very jurisdiction of the tribunal is questioned – such as the arbitration agreement itself not being valid under the law to which the parties have subjected it, or where the subject-matter of difference is not capable of settlement by arbitration under the law of India, it is obvious that there can be no discretion in these matters. Enforcement of a foreign award made without jurisdiction cannot possibly be weighed in the scales for a discretion to be exercised to enforce such award if the scales are tilted in its favour. In simpler words, if an objection made to the jurisdiction of the Arbitral Tribunal, and the parties are able to satisfy that the award was made without the Arbitral Tribunal having jurisdiction, then the Courts have said that they will not exercise its discretion to enforce an award.

iv. On the other hand, where the grounds taken to resist enforcement can be said to be linked to party interest alone, for example, that a party has been unable to present its case before the arbitrator, and which ground is capable of waiver or abandonment, or, the ground being made out, no prejudice has been caused to the party on such ground being made out, a Court may well enforce a foreign award, even if such ground is made out.

v. When it comes to the “public policy of India” ground, again, there would be no discretion in enforcing an award which is induced by fraud or corruption, or which violates the fundamental policy of Indian Law, or is in conflict with the most basic notions of morality or justice.

vi. The expression “may” in Section 48 can, depending upon the context, mean “shall” or as connoting that a residual discretion remains in the Court to enforce a foreign award, despite grounds for its resistance having been made out. What is clear is that the width of this discretion is limited to the circumstances pointed out herein above, in which case a balancing act may be performed by the Court while enforcing a foreign award “or was otherwise unable to present his case”, natural justice under Section 48 and failure to determine a material issue would fall under public policy (para 84).

vii. The expression “was otherwise unable to present his case” occurring in Section 48(1)(b) cannot be given an expansive meaning and would have to be read in the context and colour of the words preceding the said phrase. In short, this expression would be a facet of natural justice, which would be breached only if a fair hearing was not given by the arbitrator to the parties. Read along with the first part of Section 48(1)(b), it is clear that this expression would apply at the hearing stage and not after the award has been delivered, as has been held in Ssangyong[8] (supra).

viii. A good working test for determining whether a party has been unable to present his case is to see whether the factors outside the party’s control have combined to deny the party a fair hearing. Thus, where no opportunity was given to deal with an argument which goes to the root of the case or findings based on evidence which go behind the back of the party and which results in a denial of justice to the prejudice of the party; or additional or new evidence is taken which forms the basis of the award on which a party has been given no opportunity of rebuttal, would, on the facts of a given case, render a foreign award liable to be set aside on the ground that a party has been unable to present his case. This must, of course, be with the caveat that such breach be clearly made out on the facts of a given case, and that awards must always be read supportively with an inclination to uphold rather than destroy, given the minimal interference possible with foreign awards under Section 48.

ix. If a foreign award fails to determine a material issue which goes to the root of the matter or fails to decide a claim or counter-claim in its entirety, the award may shock the conscience of the Court and may be set aside, as was done by the Delhi High Court in Campos Brothers Farm v. Matru Bhumi Supply Chain Pvt. Ltd.[9] on the ground of violation of the public policy of India, in that it would then offend a most basic notion of justice in this country.

x. It must always be remembered that poor reasoning, by which a material issue or claim is rejected, can never fall in this class of cases. Also, issues that the tribunal considered essential and has addressed must be given their due weight – it often happens that the tribunal considers a particular issue as essential and answers it, which by implication would mean that the other issue or issues raised have been implicitly rejected.

xi. For example, two parties may both allege that the other is in breach. A finding that one party is in breach, without expressly stating that the other party is not in breach, would amount to a decision on both a claim and a counterclaim, as to which party is in breach. Similarly, after hearing the parties, a certain sum may be awarded as damages and an issue as to interest may not be answered at all. This again may, on the facts of a given case, amount to an implied rejection of the claim for interest.

xii. The most important point to be considered is that the foreign award must be read as a whole, fairly, and without nit-picking. If read as a whole, the said award has addressed the basic issues raised by the parties and has, in substance, decided the claims and counterclaims of the parties, enforcement must follow.

V. Violation of FEMA Rules and fundamental policy of Indian Law (paras 91, 93):

i. Based on the Non-Debt Instrument Rules[10], it was argued that that the transfer of shares from the Karias (appellants), who are persons resident in India, to  Respondent 1, who is a person resident outside India, cannot be less than the valuation of such shares as done by a duly certified Chartered Accountant, Merchant Banker or Cost Accountant, and, as the sale of such shares at a discount of 10% would violate Rule 21(2)(b)(iii), the fundamental policy of Indian Law contained in the aforesaid Rules would be breached; as a result of which the award cannot be enforced.

ii. The Supreme Court upheld the Delhi High Court judgment in Cruz City Mauritius Holdings v. Unitech Limited[11], wherein the Delhi High Court held that a contravention of a provision of law is insufficient to invoke the defence of public policy when it comes to enforcement of a foreign award. Contravention of any provision of an enactment is not synonymous to contravention of fundamental policy of Indian Law. The expression fundamental policy of Indian Law refers to the principles and the legislative policy on which Indian statutes and laws are founded. The expression “fundamental policy” connotes the basic and substratal rationale, values and principles which form the bedrock of laws in our country. The objections to enforcement on the ground of public policy must be such that offend the core values of a member State’s national policy and which it cannot be expected to compromise. The expression “fundamental policy of law” must be interpreted in that perspective and must mean only the fundamental and substratal legislative policy, not a provision of any enactment. The contention that enforcement of the award against Unitech must be refused on the ground that it violates any one or the other provision of FEMA, cannot be accepted; but, any remittance of the money recovered from Unitech in enforcement of the award would necessarily require compliance of regulatory provisions and/or permissions.

iii. The Supreme Court held (paras 91 and 93) that first and foremost, FEMA – unlike FERA – refers to the nation’s policy of managing foreign exchange instead of policing foreign exchange, the policeman being  Reserve Bank of India under FERA. It is important to remember that Section 47 of FERA no longer exists in FEMA, so that transactions that violate FEMA cannot be held to be void. Also, if a particular act violates any provision of FEMA or the Rules framed thereunder, permission of Reserve Bank of India may be obtained post-facto if such violation can be condoned.

iv. Neither the award, nor the agreement being enforced by the award, can, therefore, be held to be of no effect in law. This being the case, a rectifiable breach under FEMA can never be held to be a violation of the fundamental policy of Indian Law. Even assuming that Rule 21 of the Non-Debt Instrument Rules requires that the shares be sold by a resident of India to a non-resident at a sum which shall not be less than the market value of the shares, and a foreign award directs that such shares be sold at a sum less than the market value,  Reserve Bank of India may choose to step in and direct that the aforesaid shares be sold only at the market value and not at the discounted value, or may choose to condone such breach.

v. Further, even if Reserve Bank of India were to take action under FEMA, the non-enforcement of a foreign award on the ground of violation of   FEMA Regulations or Rules would not arise as the award does not become void on that count.

vi. The fundamental policy of Indian Law, as has been held in Renusagar [12](supra), must amount to a breach of some legal principle or legislation which is so basic to Indian Law that it is not susceptible of being compromised. “Fundamental Policy” refers to the core values of India’s public policy as a nation, which may find expression not only in statutes but also time-honoured, hallowed principles which are followed by the Courts. Judged from this point of view, it is clear that resistance to the enforcement of a foreign award cannot be made on this ground.

D. CONCLUSION

11. After considering the facts and pleading, the Supreme Court confirmed the ruling of the sole arbitrator and dismissed the appeals with heavy costs. The Court stated that their jurisdiction under Article 136 of the Constitution is very limited.

12. On a conjoint reading of the objective of Article V of the New York Convention along with the objectives of the Act, the Supreme Court through the present judgment, has ironed the wrinkles under Section 48 of the Act. The Supreme Court took a holistic view by not just limiting its scope of enquiry to the Indian judgments but has also relied on judgments of various other jurisdictions to arrive at a global consensus on various issues involved in challenging the enforcement of a foreign award. The Supreme Court has adopted a balanced approach while dealing with the scope of judicial interference at the time of enforcement of foreign award and exercising its jurisdiction under Article 136 of the Constitution.


*Alumni (2012-2017) of Government Law College, Mumbai, practicing Advocate at High Court at Mumbai and maybe reached out vatsalapant94@gmail.com. The views expressed herein are personal and do not represent views of any organisation. 

[1] Arbitration and Conciliation Act, 1996 

[2] Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)

[3] 2020 SCC OnLine SC 177  

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

[5] 1994 Supp (1) SCC 644

[6] Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India, (2019) 15 SCC 131 (paras 30 & 43)

[7] [2010] 3 SLR 1 : (2010) SGHC 62

[8] (2019) 15 SCC 131

[9] 2019 SCC OnLine Del 8350

[10] Foreign Exchange Management (Non-debt Instruments) Rules, 2019 

[11] 2017 SCC OnLine Del 7810  

[12] 1994 Supp (1) SCC 644

COVID 19Op EdsOP. ED.

COVID-19 pandemic has disrupted the entire working of the country be it the government sector, private sector, businesses, educational institutions including judicial work (except matters of extreme urgency).  In fact, the catastrophic ramifications resulting from this virus has made the Prime Minister declare complete lockdown of the country. This would definitely impact the performance of obligations of various parties in all sectors and can be said to make most of the obligations as impossible to perform. Though, impossibility of performance is a totally different arena governed by Section 56 of the Contract Act, 1872 but surely the same would also definitely impact the timelines within which the arbitral proceedings are to be completed by making the arbitral award.

Section 29-A of the Arbitration & Conciliation Act, 1996, was introduced by virtue of the Arbitration and Conciliation (Amendment) Act, 2015 w.e.f. 23-10-2015 providing for the ‘Time-limit for arbitral award’. This section has been further modified by virtue of the 2019 Amendment Act w.e.f. 9-08-2019. Under the 2015 Amendment, Section 29-B was also introduced which provides for conducting an arbitration under ‘fast-track procedure’.  The said provisions are as under:

 “29-A. Time-limit for arbitral award.— [1](1) The award in matters other than international commercial arbitration shall be made by the arbitral tribunal within a period of twelve months from the date of completion of pleadings under sub-section (4) of Section 23:

Provided that the award in the matter of international commercial arbitration may be made as expeditiously as possible and endeavour may be made to dispose of the matter within a period of twelve months from the date of completion of pleadings under sub-section (4) of Section 23.]

(2) If the award is made within a period of six months from the date the arbitral tribunal enters upon the reference, the arbitral tribunal shall be entitled to receive such amount of additional fees as the parties may agree.

(3) The parties may, by consent, extend the period specified in sub-section (1) for making award for a further period not exceeding six months.

 (4) If the award is not made within the period specified in sub-section (1) or the extended period specified under sub-section (3), the mandate of the arbitrator(s) shall terminate unless the court has, either prior to or after the expiry of the period so specified, extended the period:

Provided that while extending the period under this sub-section, if the court finds that the proceedings have been delayed for the reasons attributable to the arbitral tribunal, then, it may order reduction of fees of arbitrator(s) by not exceeding five percent for each month of such delay:

 [2][Provided further that where an application under sub-section (5) is pending, the mandate of the arbitrator shall continue till the disposal of the said application:

Provided also that the arbitrator shall be given an opportunity of being heard before the fees is reduced.]

(5) The extension of period referred to in sub-section (4) may be on the application of any of the parties and may be granted only for sufficient cause and on such terms and conditions as may be imposed by the court.

(6) While extending the period referred to in sub-section (4), it shall be open to the court to substitute one or all of the arbitrators and if one or all of the arbitrators are substituted, the arbitral proceedings shall continue from the stage already reached and on the basis of the evidence and material already on record, and the arbitrator(s) appointed under this section shall be deemed to have received the said evidence and material.

(7) In the event of arbitrator(s) being appointed under this section, the arbitral tribunal thus reconstituted shall be deemed to be in continuation of the previously appointed arbitral tribunal.

(8) It shall be open to the court to impose actual or exemplary costs upon any of the parties under this section.

(9) An application filed under sub-section (5) shall be disposed of by the court as expeditiously as possible and endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party.

 29-B. Fast track procedure.—(1) Notwithstanding anything contained in this Act, the parties to an arbitration agreement, may, at any stage either before or at the time of appointment of the arbitral tribunal, agree in writing to have their dispute resolved by fast track procedure specified in sub-section (3).

(2) The parties to the arbitration agreement, while agreeing for resolution of dispute by fast track procedure, may agree that the arbitral tribunal shall consist of a sole arbitrator who shall be chosen by the parties.

(3) The arbitral tribunal shall follow the following procedure while conducting arbitration proceedings under sub-section (1):

(a) The arbitral tribunal shall decide the dispute on the basis of written pleadings, documents and submissions filed by the parties without any oral hearing;

(b) The arbitral tribunal shall have power to call for any further information or clarification from the parties in addition to the pleadings and documents filed by them;

(c) An oral hearing may be held only, if, all the parties make a request or if the arbitral tribunal considers it necessary to have oral hearing for clarifying certain issues;

(d) The arbitral tribunal may dispense with any technical formalities, if an oral hearing is held, and adopt such procedure as deemed appropriate for expeditious disposal of the case.

 (4) The award under this section shall be made within a period of six months from the date the arbitral tribunal enters upon the reference.(5) If the award is not made within the period specified in sub-section (4), the provisions of sub-sections (3) to (9) of Section 29-A shall apply to the proceedings.

(6) The fees payable to the arbitrator and the manner of payment of the fees shall be such as may be agreed between the arbitrator and the parties.”

The purpose behind the introduction of the aforesaid provisions was to make the arbitrators hear and decide matters expeditiously, and within a reasonable period of time. The scheme of Section 29-A is that the arbitrator is bound to render an award within 12 months, which can be extended by 6 months i.e. up to 18 months with the consent of the parties. However, if the award is not delivered even in the extended time, the mandate of the tribunal stands terminated. However, the courts are empowered to extend the time-limit either prior to or after the expiry of the extended period. But the courts are to be given justification and proof of sufficient cause for such delay. In case, the court finds that the proceedings have been delayed for the reasons attributable to the arbitrator, it may order for a reduction of fees of the arbitrators and may also substitute arbitrator(s) by terminating the mandate of the previous arbitrator(s). Thus, it has become imperative for all that the arbitration proceedings are culminated in a time-bound manner.

However, COVID-19 pandemic has definitely dis-arrayed all the timelines and schedules in each and every arbitration all across the globe, especially the domestic arbitrations on account of the lockdown. None of the parties or the arbitrators could have foreseen this situation and it has led to an event of impossibility of conductance of arbitration proceedings. Keeping in view the number of arbitrations taking place all over the country, all the arbitrations where the arbitrators have entered the reference, the time period as specified under Section 29-A has commenced and need to be finished by the end of the specified time.

But taking a pragmatic and holistic view of the matter, this period lost in the lockdown on account of  COVID-19 virus is liable to be excluded being a period of impossibility of continuation of arbitration proceedings. In fact, taking note of this horrifying situation, wherein the parties and their lawyers would be incapacitated in taking legal steps for prosecuting their petitions/applications/appeals/suits/other proceedings,  the Supreme Court suo motu took up the issue of extension of limitation vide order dated 23-03-2020[3] directing as under:

       This Court has taken suo motu cognizance of the situation arising out of the challenge faced by the country on account of COVID-19 virus and resultant difficulties that may be faced by litigants across the country in filing their petitions/applications/suits/appeals/all other proceedings within the period of limitation prescribed under the general law of limitation or under special laws (both Central and/or State).

To obviate such difficulties and to ensure that lawyers/litigants do not have to come physically to file such proceedings in respective courts/Tribunals across the country including this Court, it is hereby ordered that a period of limitation in all such proceedings, irrespective of the limitation prescribed under the general law or special laws whether condonable or not shall stand extended w.e.f. 15-3-2020 till further order/s to be passed by this Court in present proceedings.

We are exercising this power under Article 142 read with Article 141 of the Constitution of India and declare that this order is a binding order within the meaning of Article 141 on all Courts/Tribunals and authorities.

This order may be brought to the notice of all High Courts for being communicated to all subordinate Courts/Tribunals within their respective jurisdiction.

Issue notice to all the Registrars General of the High Courts, returnable in four weeks.”

Thus, the Apex Court taking note of this unprecedented situation has stopped the limitation to run w.e.f. 15-3-2020 till further orders. Taking support of the said order passed by the Court in the interest of justice, the period lost on account of corona virus pandemic i.e. at least from 15-03-2020 till further orders of the Apex Court re-starting the period of limitation, must be excluded for the purpose of Sections 29-A and 29-B of the Arbitration & Conciliation Act, 1996, as well.

No doubt, discussion regarding Online Dispute Resolution, have initiated all over the world in this difficult time of lockdown and there are avenues of videoconferencing/teleconferencing already available which are being resorted to, in some of the ongoing arbitrations but the same are being done only for a particular purpose like recording of witnesses, but to implement the same as a rule for conducting the entire arbitration proceedings, suitable orders would be required to be issued under Section 19 at the initial stage of commencement of arbitration proceedings.

Therefore, till the online system for conducting the arbitration system is evolved and adopted by all concerned, an order for suspension of arbitration proceedings akin to an order passed by the Supreme Court is required to be passed by the respective arbitrators.


*Puneet Taneja, Advocate on Record, Supreme Court of India, is a litigation lawyer practicing before Supreme Court of India, Delhi High Court and is also an arbitration lawyer.

[1] Substituted by Act 33 of 2019, S. 6(a), w.e.f. 30-8-2019.

[2] Inserted by Act 33 of 2019, S. 6(b), w.e.f. 30-8-2019.

[3] In re, Cognizance for Extension of Limitation, 2020 SCC OnLine SC 343.

Case BriefsHigh Courts

Gauhati High Court: The appellant company invited tenders for transportation of gas cylinders to which the respondent company replied and was accepted to transport cylinders at the rate of Rs 65 per cylinder, excluding toll and ferry charges, as the respondent indicated on their price bid. Their bid was accepted and against production of appropriate government-issued receipts for toll and ferry charges, the respondent was reimbursed accordingly by the appellant from February 2001 to November 2001 over and above the amount agreed upon (i.e. Rs 65) but their bills for December 2001 to May 2004 were not cleared because another transporter on contract with the appellant had been charging considerably less for the transportation, to which the respondent replied saying that the transporter in question had been ferrying the cylinders on regular ferries with other goods and people while they had been hiring exclusive ferries in compliance with Explosive Rules and Regulation .

The appellant company contended that nowhere does the terms for the tender specify that toll and ferry charges will be paid over and above the charge agreed upon per cylinder, i.e. Rs 65. This was despite the fact that in the tender preceding this, i.e. the one in force till January 2001 and even for a few months of the contract with the respondent, these charges were ordinarily reimbursed over and above the price agreed in the tender documents. Hence the arbitrator allowed the respondent’s claim. This was challenged under Section 34 of the Arbitration and Conciliation At, 1996 (“Act”) but the challenge was dismissed by the District Judge and hence the appellant company approached the High Court under Section 37 of the Act.

The appellant’s grievance was that the arbitrator had not confined himself to the contract between the parties while passing his award. The tender document laid out Rs 65 as the all-inclusive charge of transportation and the contract contained no mention of toll and ferry

charges. The payment made for the first few months was the result of a mistake on part of the appellant and further, only because these charges were reimbursed separately historically is no ground for them to be reimbursed in the current contract as well. The arbitrator, according to the appellant, thus, went beyond the contract agreement and the District Judge also failed to take notice of this. Hence the arbitral award was hit by Section 34 of the Act, relying on Delhi Development Authority v. R.S. Sharma and Company, (2008) 13 SCC 80 and State of Rajasthan v. Nav Bharat Construction Co., (2006) 1 SCC 86.

The respondent-transportation company argued that though the original tender document made no provision for reimbursing toll and ferry charges, the same had been agreed upon during the finalization of the tender process by the appellant which is shown by the written statements filed by the appellant. These charges were also paid to the other transporter currently engaged by the appellant and also to previous such transporters. The arbitrator had taken all this into consideration while passing the award and though he did not stick to the four walls of the contract, his award was based on substantial evidence which was in no manner perverse and hit by Section 34. The respondent relied on the case of Oil and Natural Gas Corporation Ltd. v. Astra Construction (P.) Ltd., 2012 SCC OnLine Gau 515.

The Court held that as the claim for toll and ferry charges was allowed during the finalization of the tender proceedings, the appellant company could not refute the same payment only because the tender document did not provide for it. It also found that Rule D(2)(k) of the tender document which deals with ‘Safety’ mandates that the cylinders should not be transported with other goods and persons except the driver and cleaner of the truck. Also, evidence was produced to show that since no standard rate existed for the transfer of cylinders, the respondent was not wrong in resorting to hiring exclusive ferries.

The Court relied on McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181 to reiterate the supervisory role of the court in the arbitration proceeding, where intervention should happen only in cases of fraud or bias. The appellants raised objections to the authenticity of certain documents produced by the respondent in front of the arbitrator but subsequently failed to ask for court assistance in taking evidence, therefore waiving off that right.

Hence the Court held that the arbitrator passed his award well within the terms of the contract, keeping in view the safety guidelines prescribed for the transportation of gas cylinders and no interference was called for. The appeal was accordingly dismissed. [Indian Oil Corporation Ltd. v. Moni Madhav Dutta, 2018 SCC OnLine Gau 465, decided on 14-05-2018]

Case BriefsSupreme Court

Supreme Court: Deciding the question as to whether an award delivered by an Arbitrator, which decides the issue of limitation, can be said to be an interim award, and whether such interim award can then be set aside under Section 34 of the Arbitration and Conciliation Act, 1996, the bench of R.F. Nariman and Navin Sinha, JJ observed that Parliament may consider amending Section 34 of the Act so as to consolidate all interim awards together with the final arbitral award, so that one challenge under Section 34 can be made after delivery of the final arbitral award.

They said:

“Piecemeal challenges like piecemeal awards lead to unnecessary delay and additional expense.”

Explaining the scheme of Section 32(1) of the Act, the bench said that as per the said provision, the arbitral proceedings would be terminated only by the final arbitral award, as opposed to an interim award, thus making it clear that there can be one or more interim awards, prior to a final award, which conclusively determine some of the issues between the parties, culminating in a final arbitral award which ultimately decides all remaining issues between the parties.

Though it was held that any point of dispute between the parties which has to be answered by the arbitral tribunal can be the subject matter of an interim arbitral award, the Court, however, added a note of caution and said:

“In an appropriate case, the issue of more than one award may be necessitated on the facts of that case. However, by dealing with the matter in a piecemeal fashion, what must be borne in mind is that the resolution of the dispute as a whole will be delayed and parties will be put to additional expense. The arbitral tribunal should, therefore, consider whether there is any real advantage in delivering interim awards or in proceeding with the matter as a whole and delivering one final award, bearing in mind the avoidance of delay and additional expense. Ultimately, a fair means for resolution of all disputes should be uppermost in the mind of the arbitral tribunal.”

The Court, hence, held that such an award, which does not relate to the arbitral tribunal’s own jurisdiction under Section 16, does not have to follow the drill of Section 16(5) and (6) of the Act but the Parliament may consider amending the relevant provision to consolidate all interim awards together with the final arbitral award. [Indian Farmers Fertilizer Co-Operative Limited v. Bhadra Products,  2018 SCC OnLine SC 38, decided on 23.01.2018]

Case BriefsHigh Courts

Delhi High Court: The Court elaborated on Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 while dismissing an appeal before it for setting aside of an award.

The matter before the arbitrator was in relation to a contract for extraordinary repair (EOR) at Defense Colony in New Delhi. The contract dated back to 1999. The findings of the arbitrator was that the appellant had started the work near the deadline provided by the contract and had continued work with sub-standard material. The appellant also continued working despite direction by the respondent to halt the work.

The Court found no reasonable reason to interfere in the arbitral award. It is well settled that such an award can only be interfered with if it is against the contract between the parties or is against the law of the land or is so completely perverse that the court feels obliged to interfere with the award on grounds of public policy. In the present case, the Court found no infirmity in the arbitral award. Hence, the petition was dismissed with costs of Rs 20,000 to be recovered by the respondent. [M/s. Brij Lal & Sons v. Union of India, 2017 SCC OnLine Del 9931, decided on 17.08.2017]

Supreme Court

Supreme Court: In the present appeal against the decision of a Division Bench of High Court of Delhi, setting aside award of an arbitration panel, the Court set aside the said order and upheld the findings of the Arbitrator, and observed that while interfering with an Arbitral Award on the grounds of public policy, the test is to decide that whether the Award shocks the conscience of the Court. The Court cannot substitute Arbitrators finding with what according to the it is just and it cannot interfere with error of facts like a Court of First Appellate.

In the present case the appellants were awarded a tender by DDA (Delhi Development Authority) for construction of middle and low income houses which was to be completed in 9 months. This was completed instead in 25 months allegedly due to delay on part of DDA for which the contractor sued the DDA for escalated costs resulting from such delay. The Arbitrator appointed by Delhi HC accepted claims of the appellant to the tune of 23.39 lakhs out of total claim for 37.28 lakhs.

The counsel for appellants M.L Verma claimed that the Division Bench of HC had surpassed its jurisdiction in going into findings of fact and evidence of the Arbitrator and taking into account evidence which was not pleaded in front of him and in doing so it has completely disregarded law laid down by the Court in relation to the limitations of a judge hearing objections to an Arbitral Award under Section 34 of the Arbitration and Conciliation Act, 1996. The DDA was represented by Amrendra Sharan 

R.F. Nariman, J., delivering judgment of the Court held that the Award as laid down by an Arbitrator is subject to judicial intervention in case it is against public policy in India. Elaborating on the factors affecting public policy through a chronological development of law by the judgments of the Court on the issue, the Court laid emphasis on the findings in ONGC v. Saw Pipes, 2003 (5) SCC 705. After a clear analysis and explanation of these factors in the dictum, the Court found that the Division Bench of  the HC had wrongly interfered with findings of the Arbitrator on several counts, and in total disregard of the principle that Arbitrator is the sole judge of quality and quantity of evidence before him. Associate Builders v. Delhi Development Authority2014 SCC OnLine SC 937, decided on 25.11.2014