rgnul
ADR Competition AnnouncementsLaw School News

   

The Centre for Alternative Dispute Resolution, RGNUL (CADR) is collaborating with Surana & Surana International Attorneys, headquartered in Chennai, India to organize the 3rd edition of the International Arbitral Award Writing Competition 2022.

About the Centre

Centre for Alternative Dispute Resolution (CADR) at the Rajiv Gandhi National University of Law, Punjab, has been established to promote students' and researchers' interest in Alternative Dispute Resolution constituting dispute resolution methods like Arbitration, Negotiation, Mediation and Conciliation. CADR endeavours to promote and develop ADR as a vehicle of socio-economic and political justice.

About Surana & Surana

Surana & Surana International Attorneys, Chennai, India has been dedicated to providing quick relief to clients and is described as the “first choice” and the “go-to” firm for legal advice by top clients from “MSME to MNC” in South India. Consistently ranked among the top law firms of India since 1998 by national and international publications and clients, their services include arbitration, mediation, litigation, corporate, commercial, criminal, cyber, defence, tax, regulatory investigations & compliance, real estate, infrastructure and IPR.

About the Competition

The CADR is collaborating with Surana & Surana International Attorneys, headquartered in Chennai, India to organise the 3rd edition of the Surana & Surana & RGNUL International Arbitral Award Writing Competition 2022. NO FEES will be charged at any stage of the competition.

Eligibility

  • The competition shall be open to the students who are pursuing their B.A.LL.B./LLM/PhD/MPhil or any other Undergraduate or Masters courses (other than Law) in any university across the world. 

  • If any student of Rajiv Gandhi National University of Law (RGNUL) is positioned amongst the top three, he/she will not be eligible for the top three prizes but will be felicitated with a special prize by the Surana & Surana International Attorneys, Chennai. 

Details of the event

  • Release of the competition problem: September 10, 2022

  • Last date to seek clarifications: October 10, 2022

  • Release of clarifications: October 20, 2022

  • Last date for submission of final draft: November 20, 2022 

  • Declaration of results: January 2023

Prizes 

  • First prize: INR 25,000/-

  • Second prize- INR 15,000/-

  • Third prize- INR 10,000/-

  • Consolation prize (next 5 best entries)- INR 1,000/- (each)

Important links

Click here for more details: Brochure

Delhi High Court
Case BriefsHigh Courts

   

Delhi High Court: In a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, (‘A&C Act') challenging an order passed wherein the arbitrator rejected an application filed by the petitioner for amendment of the statement of claim, Prateek Jalan, J. dismissed the petition as non-maintainable and held that Section 23(3) of the Arbitration & Conciliation Act, 1996 vests discretion in the Arbitrator to reject an amendment application made at a belated stage and such an order cannot be challenged under Section 34 of Arbitration and Conciliation Act, 1996.

The Court remarked that “Factors which cloth the orders of the Arbitral Tribunal with the characteristic of finality, render them susceptible to challenge as interim awards under Section 34 of Arbitration & Conciliation Act, 1996

The Court essentially ruled that characteristics of an interlocutory order passed by an Arbitral Tribunal, having trappings of finality are the key to determine maintainability of petitions under Section 34 of Arbitration and Conciliation Act, 1996.

A suit was originally filed by the petitioner against three defendants, of whom the respondent was the principal defendant, and the other two defendants were arrayed as proforma defendants. By an order dated 07.11.2016, the suit, along with five other suits pending before the Court, were referred to arbitration before a former Judge of this Court.

In the arbitral proceedings between the parties, six proceedings have been taken up together by the arbitrator. The Petitioner in one of the six cases had claimed a decree of declaration for the Sale Deed dated 28.07.2010 registered on 29.07.2010 obtained by the Respondent from the Petitioner to be declared as void and cancelled. Vide amendment application dated 21.07.2017, the Petitioner sought amendment of the statement of claim. The Petitioner pressed for amendment by way of additional prayers for a decree directing the Respondent to transfer title of the property under dispute to the Petitioner.

The Respondent resisted the amendment, and the application for amendment was subsequently dismissed vide impugned order dated 04.11.2019 by the arbitrator under Section 23(3) of the A&C Act. The Arbitrator rejected the application as the same was filed belatedly in 2017 and further not pressed upon till 04.11.2019. The arbitrator, however, was sure to record in the impugned order that “expression of any view herein will not be treated as expression on the merit of the case.”

The Counsel for the respondent raised a preliminary objection with respect to the maintainability of the petition under Section 34 of Arbitration and Conciliation Act, 1996, directed against an order of the arbitrator, rejecting an application of amendment. The Respondent submitted that an interim interlocutory order does not have the trappings of an interim award as prescribed under Section 2(1)(c) of Arbitration and Conciliation Act, 1996, and thus, cannot be entertained by the Court.

Placing reliance on Container Corporation of India Ltd. v. Texmaco Limited, 2009 SCC OnLine Del 1594, the Court observed that in the facts of the present case, the arbitrator has proceeded only on the ground that the amendment was sought belatedly and did not adjudicate on the merits of the case. Therefore, the impugned order dated 04.11.2019 under challenge was not an interim award.

Thus, the Court held that the impugned order in the present case does not constitute an interim award, susceptible to challenge under Section 34 of the Act.

[Punita Bhardwaj v. Rashmi Juneja, 2022 SCC OnLine Del 2691, decided on 31-08-2022]


Advocates who appeared in this case :

Mr. A.K. Singla, Senior Advocate, Mr. Rahul Shukla and Mr. Akshit Sachdeva, Advocates, Counsel for the Petitioner;

Mr. Siddharth Batra, AOR, Ms. Shivani Chawla, Mr. Siddharth Satija and Mr. Akash Sachan, Advocates, Counsel for the Respondent.


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

Punjab and Haryana High Court
Case BriefsHigh Courts

Punjab and Haryana High Court: While dismissing the appeal preferred by the appellant challenging the order dated 12-12-2018 passed by the Additional District Judge, Chandigarh and for setting aside Sole Arbitrator’s award dated 14-06-2016 , Lisa Gill, J., held that the appellant has failed to make out a case for setting aside the Award.

Facts:

The respondent participated in the tender process for construction, quoting the lowest rates, which were accepted by the appellant. The respondent expressed their inability to initiate and undertake the allotted work. Fresh tenders were called because of this, and the work was given to another at a rate higher than on which the respondent was supposed to work. Due to all this, the appellant suffered a loss as he paid an extra amount. Hence, the appellant invoked the Arbitration clause and a Sole Arbitrator was appointed.

The Arbitrator rejected the claim of the appellant. It was observed that arbitration proceedings were maintainable according to the tender. It was observed that the appellant was charge-sheeted for wrongly changing the scope of work without invoking the clause of risk and cost of the respondent. Only the forfeiture of the earnest money was found to be valid and justified.

The petitions preferred by the appellant in the Court of Additional District Judge (‘ADJ’) were dismissed finding no merits. Hence, this appeal was preferred by the appellant under Section 34 of Act 1996. The ADJ declined to interfere in the matter as an Award under Section 34 of the Arbitration and Conciliation Act, 1996 (‘Act’) can be set aside only on the basis of specific grounds contained therein. The appellant was unable to make out a case for setting aside the Award dated 14-06-2016.

Arguments:

The counsel for the appellant submitted that the appellant’s claim for recovery was incorrectly rejected by the Arbitrator. Although the counsel was unable to deny that the scope of work was changed by the appellant without invoking the clause of risk and cost of the respondent. The impugned award was passed after the inquiry against the appellant was completed.

Analysis and Observation:

The Court relied upon a judgment of theSupreme Court in NTPC Ltd. v. Deconar Services Pvt. Ltd., 2021 SCC OnLine SC 498 wherein it was held that to merely show the existence of another reasonable interpretation or view on the basis of material on the record is not sufficient to allow for interference even if a separate view is possible which in any case is not the scenario in the instant case.

In the view of the above, the Court opined that the ADJ correctly declined to interfere in the matter.

The Court observed that “Clearly, the appellant has failed to make out a case for setting aside the Award dated 14.06.2016.”

“This Court is not to sit as a Court of Appeal and in case plausible and reasonable view has been taken by the Arbitrator on the basis of the evidence on record, the same is not to be interfered, even if a separate view is possible which in any case is not the scenario in the instant case.”

[Punjab State Cooperative Supply and Marketing Federation Limited v. B.D.S. Décor & Prefab (P) Ltd., 2022 SCC OnLine P&H 1857, decided on 14-07-2022]


Advocates who appeared in this case :

Mr. Hardik Ahluwalia, Advocate, for the Appellant.

Rajasthan High Court
Case BriefsHigh Courts

   

Rajasthan High Court: Ashok Kumar Gaur, J. found that the writ petition by the petitioner lacks merit and dismissed it stating that no award can be remitted back to the arbitrator where there are no findings on the contentious issues of the award.

The petitioner filed a writ petition challenging the order passed by the commercial court wherein the application filed under Section 34(4) of the Arbitration and Conciliation Act, 1996 (‘Act of 1996') was dismissed. The arbitral award of an earlier case was challenged by the respondent under Section 34 of the Act of 1996 in the commercial court. The petitioner moved an application under Section 34(4) of the Act of 1996 to adjourn the proceedings in the application filed by the respondent and asked to give an opportunity to the Arbitral Tribunal to resume the arbitral proceedings or to take such other action as in the opinion of the Arbitral Tribunal was required to eliminate the grounds for setting aside the arbitral award.

The main grounds raised by the petitioner in the application filed are as under:

  • The award of the Arbitral Tribunal omitted the adjudication on every issue to give findings on the issue separately.

  • Omitted to explain the words where “bare minimum principles of natural justice” and in “hyper technical ground” while setting aside the impugned termination.

  • Omitted the reasons for providing INR Rs.4,80,00,000/- against loss of business, reputation & goodwill and omitted to assign explanation for setting aside the counter claim of the respondent-applicant in the appeal.

  • The Arbitral Tribunal was required to be given an opportunity to eliminate the grounds for setting aside the award.

  • The bare perusal of the award showed that findings do not discuss and give the reasoning as to why the principles of natural justice were not followed and why the termination of the order was termed as hyper technical ground.

  • All the conditions as per the law laid down by Supreme Court in I-Pay Clearing Services Private Limited v. ICICI Bank Limited (2022) 3 SCC 121, were fulfilled by the petitioner by moving an application and as such the court below could not have dismissed the application on the reasons assigned in the impugned order.

  • As per law laid down in ‘I-pay case', (2022) 3 SCC 121, the discretion vested with the Court for remitting the matter to the Arbitral Tribunal ought to have been exercised and on bare reading of the award if there is any inadequate reasoning or certain gaps in the reasoning are required to be filled, if such application is filed, then it needs to be allowed.

The points raised by the Respondent were as follows-

  • The Court does not need to interfere by allowing a writ petition under Article 227 of the Constitution. If there is an inherent lack of jurisdiction, then only the Court under Article 227 of the Constitution of India can exercise the jurisdiction.

  • The present writ petition filed by the petitioner is not maintainable and proper remedy for the petitioner was to either file an appeal under Section 37 of the Act of 1996 or to take recourse under Section 13 of the Commercial Courts Act, 2015.

  • In view of the judgment passed by the Supreme Court in ‘I-pay case' (supra), the writ petition filed by the petitioner is liable to be dismissed.

  • The reliance placed by counsel for the petitioner on the judgments have all been considered by the Supreme Court which has found that all these judgments were not of any assistance to explain the scope of Section 34 (4) of the Act of 1996.

  • The scope of Section 34 (4), Act of 1996 has come to the conclusion that on application being filed under Section 34 (4), Act of 1996, it is always not obligatory for the Court to remit the matter to the Arbitral Tribunal and discretionary power under Section 34 (4), Act of 1996 is to be exercised where there is inadequate reasoning or to fill up the gaps in the reasoning in support of findings, which are already recorded in the award.

  • Under the guise of additional reasons and filling up the gaps in the reasoning, no award can be remitted to the Arbitrator where there are no findings on the contentious issues in the award.

The Supreme Court considered the scope of Section 34 (4) of the Act of 1996 in the case of I-Pay Clearing Services Private Limited v. ICICI Bank Limited (2022) 3 SCC 121 wherein it was observed

“19. The quintessence for exercising power under Section 34(4) of the Act is to enable the Tribunal to take such measures which can eliminate the grounds for setting aside the arbitral award, by curing the defects in the award.”

“21. Further, Section 34(4) of the Act itself makes it clear that it is the discretion vested with the Court for remitting the matter to Arbitral Tribunal to give an opportunity to resume the proceedings or not. The words “where it is appropriate” itself indicate that it is the discretion to be exercised by the Court, to remit the matter when requested by a party.”

The Court therefore held that the application under Section 34(4) of the Act of 1996 is required to be decided by the court by exercising its discretionary powers and same powers cannot be exercised under the guise of additional reasons and filling up the gaps in the reasoning and as such award cannot be remitted to the arbitrator or arbitral tribunal and particularly if there are no findings on the contentious issues in the award.

Thus, the Court held that the writ petition lacks merit and the same was dismissed accordingly.

[Eptisa Servicios De Ingenieria SL v. Ajmer Smart City Limited, S.B. Civil Writ Petition No.13488 of 2019, decided on 23-05-2022]


Advocates who appeared in this case :

Mr Ajatshatru Mina, Advocate, for the Petitioner(s);

Mr Rajendra Prasad, Senior Advocate, for the Respondent(s).


*Arunima Bose, Editorial Assistant has reported this brief.

Calcutta High Court
Case BriefsHigh Courts

   

Calcutta High Court: Shekhar B. Saraf, J. upheld the award granted by the Arbitral Tribunal holding that the award holder should be secured for the entirety of the amount along with interest and other costs.

The petitioner had filed this petition under Section 34 of the Arbitration and Conciliation Act, 1996 (“the 1996 Act”) along with an application under Section 36(2) of the 1996 Act praying for stay of the award passed by the arbitral tribunal on 27-12-2021 where the respondent was entitled to a refund of Rs. 84.24 crores along with interest which it had deposited with the petitioner on 27-12-2006. Tribunal had also awarded a sum of Rs. 25,00,000/- towards reimbursement of litigation and arbitral costs.

The dispute between the parties had arisen out of an agreement to carry out a new township project for which the petitioner invited financial bids through a tender process. The financial bid of the respondent was accepted and the petitioner via letter dated 21-12-2006 issued a Letter of Award. Possession of 90.19 acres of land was handed to the respondent on 10-08-2007, however no lease deed was entered between the parties at the time of handing over of the possession. Even after a lapse of one year, the lease agreement for execution of work and the development agreement for the same were still not executed between the parties. Finally, in order to govern the relations between the parties a formal development agreement mentioning the terms and conditions were reduced in writing on 25-04-2008. Due to non-execution of the lease between the parties, the new township project was not commenced meanwhile, the petitioner demanded the remaining sums required to be paid by the respondent claimant. The respondent did not pay the remaining amount due to non-execution of the lease document. Finally, the petitioner terminated the development agreement due to nonpayment of the balance instalments constituting event of default by the respondent. Resultantly, arbitration clause was invoked for settlement of the dispute wherein the abovementioned order was passed by the Tribunal.

Senior Advocate appearing for the petitioner argued that the court has the discretion to decide the mode of security to be furnished by the petitioner. He stated that the land in possession of the respondent can be accepted as a valid security for granting stay of the arbitral award under Section 36 of the 1996 Act.

Advocate appearing for the respondent highlighted the default committed by the petitioner as per the development contract entered between them.

The Court perused the relevant clauses and provisions of law cited by the advocates and opined that proviso to Section 36(3) of the 1996 Act makes it clear that the Court must, while considering the stay application in proceedings under Section 34 of the Arbitration Act, have due regard to the provision for grant of stay of a money decree under the provisions of the Civil Procedure Code, 1908 (“CPC”). Order XLI, Rule 5(1) of the CPC grants the court discretion to stay the execution of a decree for ‘sufficient cause'.

The Court reiterated what was held in the case of Pam Developments (P) Ltd. v. State of West Bengal, (2019) 8 SCC 112 that the mandate of the amended Section 36 of the 1996 Act is such that the Court while considering an application for stay filed along with filing of quashing petitioner under Section 34 of the Arbitration Act can grant the stay subject to conditions as it deems fit. Section 36 also mandates recording of reasons for such stay being granted. The Court at the initial stage of proceeding, was satisfied that there does not appear to be any illegality, perversity or violation of any law on the face of the arbitral award as Arbitrator has duly considered the pleadings on behalf of the parties, and thereafter, framed issues and dealt with specific claims and counterclaims of the parties with reasons — hence, the award is a speaking award.

The petitioner was directed to deposit 50% of the arbitral award (including interest calculated till June, 2022) by way of cash security or its equivalent and the Registrar Original Side was directed to make a fixed deposit of the said amount with any nationalised bank and keep the same renewed till the disposal of the application under Section 34 of the Act or until further orders of Court. The remaining 50% of the awarded amount was directed to be secured by way of bank guarantee(s) of a nationalised bank by the petitioner to the satisfaction of the Registrar Original Side, High Court.

[Siliguri Jalpaiguri Development Authority v. Bengal Unitech Universal Siliguri Projects Ltd., I.A. G.A. No. 1 of 2022, decided on 22-06-2022]


Advocates who appeared in this case :

Mr S.N. Mookherjee, Senior Advocate, Mr Anirban Ray, Mr Raja Saha, Mr Chayan Gupta, Mr Sandip Dasgupta, Mr Saaqib Siddiqui, Mr Aviroop Mitra, Advocates, for the Plaintiff/Respondent;

Mr Siddharth Batra, Mr Ashish Shah, Mr Chinmay Dubey, Ms Moumita Chakraborti, Advocates, for the Respondent/Claimant.


*Suchita Shukla, Editorial Assistant has reported this brief.

Kerala High Court
Case BriefsHigh Courts

Kerala High Court: The Division Bench of P.B. Suresh Kumar and C.S. Sudha, JJ., expressed that,

“…compensation payable under Sections 73, 74 as also under Section 75 is only for loss or damage caused by the breach and not account of the mere act of breach. If in any case the breach has not resulted in or caused any loss or damage to a party, person concerned cannot claim compensation.”

The words ‘loss or damage’ in the Sections 73 and 74 would necessarily indicate that the party who complains of breach must have really suffered some loss or damage apart from being faced with the mere act of breach of contract. That is because every breach of every contract need not necessarily result in actual loss or damage.

An appeal was filed under Section 37 of the Arbitration and Conciliation Act, 1996 against the District Court’s Order.

Appellant was the petitioner before the lower court and the claimant before the Arbitral Tribunal.

Respondent warded the work of ‘doubling of track between Shornur and Mangalore, Cannanore-Uppala section: collection and stacking of 50mm size machine crushed hard stone ballast alongside the alignment/station yards/on top of the new formation between Kottikulam and Kasaragod stations to the claimant for a value of Rs 1,19,39,274. The work had to be completed within a period of 9 months, alleging the breach by claimant, the contract was terminated by the respondent.

In view of the above, disputes arose between the parties and arbitration proceedings were initiated.

Aggrieved with the order of the arbitral tribunal, the claimant/contractor took up the matter before the District Court. The said application which was filed under Section 34 was dismissed by the impugned order.

Analysis, Law and Decision

Firstly, the High Court referred to Sections 73 and 74 of the Indian Contract Act, 1872.

Bench noted that for a case coming under Section 74, it is not necessary for the party claiming compensation under this Section to prove that actual damage or loss has been caused.

Whether even in the absence of legal injury, compensation is liable to be paid for breach simplicitor?

The Court stated that whether it is a case of liquidated damages or penalty, what the party faced with the breach gets is only reasonable compensation, subject to the limit of the amount stipulated in the contract itself. Section 74 dispenses with proof of the extent of real or actual or factual loss or damage, but provides for grant of reasonable compensation, subject to the condition that it shall not exceed the sum stipulated as penalty in the contract.

Adding to the above, Bench expressed that the proof of the extent of loss or damage suffered in fact, i.e., proof of the extent of actual damage or loss suffered is dispensed within Section 74. This would not mean that there need not be any loss or damage. What is meant is only that proof of actual damage or loss is not necessary.

In Court’s opinion, Section 74 could not be invoked in the present matter because the Award did not say that any sum had been named in the contract as the amount to be paid in case of breach.

“Parties had never made a genuine pre-estimate of the amount to be paid in the event of any damage or loss likely to be caused by the breach or that there is any clause relating to liquidated damages in the contract.”

Elaborating further, the Bench stated that compensation payable under Sections 73, 74 as also under Section 75 is only for loss or damage caused by the breach and not account of the mere act of breach. If in any case the breach has not resulted in or caused any loss or damage to a party, person concerned cannot claim compensation.

In the Supreme Court decision of Union of India v. Rampur Distillery and Chemical Co. Ltd., (1973) 1 SCC 649, it was held that a party to a contract taking security deposit from the other party to ensure due performance of the contract, is not entitled to forfeit the deposit on the ground of default when no loss was caused to him in consequence of such default.

If the party complaining is in a position to adduce evidence whereby the court can assess reasonable compensation, then without proof of actual loss, damages will not be awarded and amount mentioned by the contract will be penalty. In such circumstances, it has been held that the security amount is liable to be forfeited.

The Award in the present matter clearly did not say that any loss or damage had been caused to the respondent, hence neither the provisions of Sections 73,74 or 75 could have been invoked nor the said sections are applicable in the present case.

In view of the above discussion, Arbitral Tribunal was certainly wrong in rejecting the claim of the claimant for release of the amount of security deposit of Rs 3 lakhs.

Arbitral Tribunal’s finding of the provisions of Section 73 to 75 of the Contract Act, was certainly in contravention of the fundamental policy of Indian Law as contemplated in Section 34(2)(b)(ii) of the Act.

Concluding the matter, High Court allowed the appeal and set aside the impugned order. [Devchand Construction v. Union of India, 2022 SCC OnLine Ker 826, decided on 16-2-2022]


Advocates before the Court:

For the Appellant:

Santha Varghese, Ranjith Varghese and Rahul Varghese, Advocates

For the Respondent:

Sri. S. Ananthakrishnan, SC, Railways

Experts CornerTariq Khan

 The term “arbitral award” has been defined in Section 2(1)(c) of the Arbitration and Conciliation Act, 1996 (Act). However, nowhere in the Act, the term “minority award” has been used or defined. Section 29(1) of the Act clearly states that in arbitral proceedings where the number of arbitrators is more than one, any decision shall be made by majority of the Arbitral Tribunal members. Similarly, Section 31 of the Act deals with the forms and contents of arbitral award and states that an arbitral award shall be signed by the majority of all the members of the Arbitral Tribunal. A bare perusal of the foregoing provisions makes it clear that the Act recognises only those decisions which are made by the majority and a decision by the minority arbitrator does not satisfy the pre-requisites of Section 31 and hence, do not qualify to be an “arbitral award”.

 

Undoubtedly, each arbitrator is free to express his/her view in an arbitration but in an ideal situation, all the members of the Arbitral Tribunal should strive to pass a unanimous award. Unanimity in the decision strengthens the award and the dissenting opinion reflects starch disagreement between the members of the Arbitral Tribunal. This does not mean that the dissenting opinions must be discouraged or prohibited. Where the decision of the majority is not based on any evidence or is against the settled position of law, in such cases a dissenting opinion is necessary. The question that often arises is what weightage can be given to the decision of the minority member of the Arbitral Tribunal? Whether such a decision can be enforced?

 

In Axios Navigation Co. Ltd. v. Indian Oil Corpn. Ltd., the Bombay High Court in clear terms held that “the dissenting view, if any, cannot be treated as an award”[1]. Despite such clear observations, it is not uncommon to see that parties and stakeholders refer to the decision of the dissenting arbitrator as “minority award”. It then becomes essential to clarify whether the same can be considered as a minority award or is it even correct to refer to a dissenting opinion as a minority award?

In Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd[2] , it was noted that “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.”

 

Interestingly, various courts have set aside the award passed by the majority and upheld the so-called “minority award”. This begs the question that if it is not signed by the majority, does it even qualify to be termed as an award? Does the court under Section 34 have the power to uphold a dissenting opinion?


Minority Award or Dissenting Opinion


Much ambiguity surrounds the terminology that is often used interchangeably. In Ssangyong Engg. & Construction Co. Ltd. v. National Highways Authority of India[3], the minority award was upheld, and the majority award was set aside. The Court used the term “minority award” while also referring to a judgment that used the term “minority view” for the decision of the minority member of the Arbitral Tribunal.

 

On the other hand, in BSNL v. Acome[4] the Delhi High Court referred to the opinion of the third arbitrator as the “dissenting opinion” and supported a reference by a counsel that referred to the opinion of any member of the Tribunal who does not assent to an award as a “dissenting opinion”.


Cases in which Minority Opinion was upheld


Even though Section 31 states that in proceedings with more than one arbitrator, the signatures of the majority of all the members of the Arbitral Tribunal shall be sufficient to make an arbitral award, in some cases where an arbitration award was challenged, courts have set aside the majority award and upheld the dissenting opinion.

 

In ONGC v. Interocean Shipping (India) (P) Ltd.[5], the Bombay High Court upheld the “minority award” and the impugned award rendered by the majority arbitrators was set aside on the ground that the court under Section 34 has ample power to set aside the arbitral award if it is perverse and contrary to provisions of Section 34. Similarly, in Modi Entertainment (P) Ltd. v. Prasar Bharati[6], the Delhi High Court upheld the “minority award” and set aside the majority award on the grounds that it is opposed to the fundamental policy of India to some extent.

 


Relevance of Dissenting Opinion


In domestic and international courts, dissenting opinions may contribute immensely to the development of the law as these opinions are often an outcome of complex debate and different perspective of law. However, due to the confidential nature of arbitration, dissenting opinions are not of much significance in arbitrations. A party challenging an arbitral award under Section 34 of the Act often relies on the dissenting opinion of a minority arbitrator. In fact, in some cases, courts have given weightage to the dissenting opinion expressed by a minority arbitrator and as a result, the decision of the majority arbitrators was set aside, and the dissenting opinion was upheld.

 

While dealing with an application under Section 34 of the Act, there is no prohibition on the court to delve into the findings expressed in the dissenting opinion however, in cases where there is an element of bias and dissenting opinion is given by the minority arbitrator in favour of the appointing party, such dissenting opinion is disregarded by the court.

 

The Delhi High Court, in its judgment of BSNL[7], relied on the 176th Report of the Law Commission to state explicitly that a minority decision of an Arbitral Tribunal, because it is in the nature of an opinion, has no effect as an award and cannot be enforced. According to the Court, the minority member of an Arbitral Tribunal’s findings have no influence on the parties’ rights and responsibilities as defined by the majority of arbitrators. As a result, it is incapable of being contested or objected to as an award under Section 34 of the Act, and it is not obliged to be.

 

However, in ONGC[8] and Modi Entertainment (P) Ltd.[9], the courts unexpectedly upheld the findings of the minority member of the Arbitral Tribunal while deciding on application for setting aside arbitral award under Section 34 of the Act and while setting aside the respective arbitral awards under challenge.


International Perspective


The international stance on the matter seems to be favouring the use of the term dissenting opinion and not minority award. The term “minority award” seems to be limited to judgments delivered in India and internationally, terms like “partial arbitration award”, “separate opinion”, “dissenting opinion”, “minority”, and “minority arbitrator” are used[10]. Alan Redfern,[11] has also observed that “it is not an award, it is a minority opinion”. Therefore, the accepted position is that the decision passed by the majority of the Arbitral Tribunal is treated as an “arbitral award” and the decision of a minority member of the Arbitral Tribunal is merely a “dissenting opinion”.

 


Whether the Court under Section 34 can uphold the decision of the minority member of the Arbitral Tribunal


Section 34 of the 1996 Act specifically lays down the conditions under which a court can set aside an arbitral award. In National Highways Authority of India  v. M. Hakeem,[12] the Supreme Court held that the court under Section 34 must not cross the Lakshmana rekha and that modifying an award would be crossing that line, as the courts do not have the power to modify an arbitral award. In Ssangyong Engg.[13], the Supreme Court invoked Article 142 of the Constitution of India to uphold the minority award. Interestingly, in Vijay Karia v. Prysmian Cavi E Sistemi SRL[14] the Supreme Court observed that power under Article 142 ought not to be used to circumvent the legislative policy contained in Section 48 of the Arbitration Act.


Conclusion


Therefore, it is now clear that the court while dealing with an application under Section 34 of the Act can only set aside the award and not modify it. Upholding the dissenting opinion may result in modification of an award which is beyond the powers conferred under Section 34 of the Act.

Insofar the controversy surrounding the dissenting opinions is concerned, the author is of the view that well-reasoned and honest dissenting opinions must be encouraged and given weightage by the courts while dealing with an application under Section 34 of the Act. Interestingly, in some jurisdictions, dissenting opinions are either discouraged or not permitted. The reason for the same is that dissenting opinions have the tendency to cause turbulence in the enforcement of the award. On the other hand, it can be argued that dissenting opinion in fact improves the quality of the majority award as the majority would be compelled to address the issues carefully and give an in-depth analysis in the award. But this can happen only in cases where the dissenting opinion is provided to the majority arbitrators before the finalisation of the majority award.

On a separate note, while giving a dissenting opinion, the arbitrator must remember that a dissenting opinion can support or encourage a challenge to the award. Also, even if the disagreement is extreme, the language towards the majority arbitrators should not be disheartening as the impolite dissenting opinion can only harm the dissenter.


† Tariq Khan, Registrar, International Arbitration and Mediation Centre; Former Partner, Advani & Co.  He can be reached at advocate.tariqkhan@gmail.com.

He was assisted by Hemangi Gurjar, 2nd year student NMIMS Kirit P Mehta School of Law, Mumbai.

[1]2012 SCC OnLine Bom 4 : (2012) 114 (1) Bom LR 392.

[2](2021) 7 SCC 657

[3]2016 SCC OnLine Del 4536.

[4] 2007 SCC OnLine Del 226 : (2007) 95 DRJ 466.

[5]2017 SCC OnLine Bom 10032

[6] 2017 SCC OnLine Del 7509 : (2017) 163 DRJ 291.

[7] 2007 SCC OnLine Del 226 : (2007) 95 DRJ 466.

[8] 2017 SCC OnLine Bom 10032 : (2017) 5 Arb LR 402.

[9] 2017 SCC OnLine Del 7509 : (2017) 163 DRJ 291.

[10] Jan van den Berg, A. (2011), “Dissenting Opinions by Party-Appointed Arbitrators in Investment Arbitration” in Looking to the Future, Leiden, The Netherlands: Brill | Nijhoff. Available from: Brill HERE

[11] Alan Redfern, Dissenting Opinions in International Commercial Arbitration: The Good, the Bad and the Ugly, 20 Arb. Int’l 223, 242 (2004).

[12](2021) 9 SCC 1: 2021 SCC OnLine SC 473 : AIR 2021 SC 3471.

[13] (2019) 15 SCC 131.

[14](2020) 11 SCC 1.


DisclaimerThe content of this article is intended to provide a general guide to the subject matter. Further, the views in this article are the personal views of the author.

Case BriefsSupreme Court

Supreme Court: Explaining the provision of remission under Section 34 (4) of the Arbitration and Conciliation Act, 1996, the bench of R. Subhash Reddy* and Hrishikesh Roy, JJ has held that under guise of additional reasons and filling up the gaps in the reasoning, no award can be remitted to the Arbitrator, where there are no findings on the contentious issues in the award.

Factual Background

I-Pay Clearing Services Private Limited, the appellant, entered into an agreement with ICICI Bank Limited, the respondent, to provide technology and manage the operations and processing of the Smart Card based loyalty programs for HPCL. It was for HPCL, which was to improve fuel sales at their retail outlets. The appellant was required to develop various software application packages for management of Smart Card based loyalty programs. The said agreement was followed by another agreement, as per which, the appellant was to develop a software for postpaid Smart Card Loyalty Program akin to a Credit Card under the name “Drive Smart Software”. To further expand their customer base, the respondent requested the appellant to also develop a “Drive Track Fleet Card” management solution for the fleet industry. However, in view of sudden move by the Respondent in abruptly terminating the Service Provider Agreement dated 04.11.2002, it was alleged by the appellant that all its operations were paralyzed and that it has suffered losses of over Rs.50 crores, on account of loss of jobs of its employees, losses on account of employee retrenchment compensation, etc. The appellant made a total claim of Rs.95 crores against the respondent.

Justice R.G.Sindhakar (Retd.), who was appointed as Sole Arbitrator, passed award dated 13.11.2017, directing the respondent to pay to the appellant Rs. 50 Crores, together with interest @18% per annum from the date of award till payment and further directed to pay an amount of Rs.50,000/- towards the costs.

Aggrieved by the award of learned Sole Arbitrator, the respondent filed application under Section 34(1) of the Act for setting aside the award claiming that there was accord and satisfaction between the parties and the contractual obligations between the parties was closed mutually and amicably.

The award of the learned Arbitrator was mainly questioned on the ground that it suffers from patent illegality, inasmuch as there is no finding recorded in the award to show that the respondent-ICICI Bank has illegally and abruptly terminated the contract. It was argued that without addressing the vital issue viz. whether there was an illegal and abrupt termination of the contract or not, as pleaded, the Arbitrator has allowed the claim to the extent of Rs.50 crores, as such, the same is patently illegal and erroneous. Thus, it is pleaded that in view of settled legal position that lack of reasons or gaps in the reasoning, is a curable defect under Section 34(4) of the Act, award can be remitted to the arbitrator to give reasons.

The Bombay High Court, however, was of the view that the defect in the award is not curable, as such, there is no merit in the application filed by the appellant under Section 34(4) of the Act and dismissed the same.

Analysis

  • Section 31 of the Act deals with ‘form and contents of arbitral award’. As per the same, an arbitral award shall be made in writing and shall be signed by the members of the Arbitral Tribunal. The arbitral award shall state the reasons, upon which it is based, unless parties agree that no reasons are to be given, or the award is an arbitral award on agreed terms under Section 30 of the Act.
  • The recourse to a Court against an arbitral award is to be in terms of Section 34(1) of the Act. As per Section 34(2A) of the Act, if the arbitral award arising out of arbitrations other than international commercial arbitrations, is vitiated by patent illegality, same is a ground for setting aside the award.
  • As per Section 34(4) of the Act, on receipt of an application under subsection (1), in appropriate cases on a request by a party, Court may adjourn the proceedings for a period determined by it in the order to give the Arbitral Tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of Arbitral Tribunal, will eliminate the grounds for setting aside the arbitral award.

Considering the abovementioned provisions, the Court held that when it is the specific case of the respondent that there is no finding at all, on the question as to “whether the contract was illegally and abruptly terminated by the respondent?”, remission under Section 34(4) of the Act, is not permissible.

It was explained that Section 34(4) of the Act, can be resorted to record reasons on the finding already given in the award or to fill up the gaps in the reasoning of the award.

Explaining the difference between ‘finding’ and ‘reasons’, the Court noticed that ‘finding is a decision on an issue’[1] and ‘reasons are the links between the materials on which certain conclusions are based and the actual conclusions’[2].

Hence, in absence of any finding on the question as to “whether the contract was illegally and abruptly terminated by the respondent?”, it cannot be said that it is a case where additional reasons are to be given or gaps in the reasoning.

Further, Section 34(4) of the Act itself makes it clear that it is the discretion vested with the Court for remitting the matter to Arbitral Tribunal to give an opportunity to resume the proceedings or not. The words “where it is appropriate” itself indicate that it is the discretion to be exercised by the Court, to remit the matter when requested by a party.

When application is filed under Section 34(4) of the Act, the same is to be considered keeping in mind the grounds raised in the application under Section 34(1) of the Act by the party, who has questioned the award of the Arbitral Tribunal and the grounds raised in the application filed under Section 34(4) of the Act and the reply thereto. Merely because an application is filed under Section 34(4) of the Act by a party, it is not always obligatory on the part of the Court to remit the matter to Arbitral Tribunal.

It was explained that the discretionary power conferred under Section 34(4) of the Act, is to be exercised where there is inadequate reasoning or to fill up the gaps in the reasoning, in support of the findings which are already recorded in the award.

“Under guise of additional reasons and filling up the gaps in the reasoning, no award can be remitted to the Arbitrator, where there are no findings on the contentious issues in the award. If there are no findings on the contentious issues in the award or if any findings are recorded ignoring the material evidence on record, the same are acceptable grounds for setting aside the award itself. Under guise of either additional reasons or filling up the gaps in the reasoning, the power conferred on the Court cannot be relegated to the Arbitrator. In absence of any finding on contentious issue, no amount of reasons can cure the defect in the award. “

[I-Pay Clearing Services Private Limited v. ICICI Bank Limited, 2022 SCC OnLine SC 4, decided on 03.01.2021]


*Judgment by: Justice R. Subhash Reddy


Counsels

For Appellant: Senior Advocates Dr. Abhishek Manu Singhvi and Nakul Dewan,

For Respondent: Senior Advocate K.V.Vishwanathan


[1] Income Tax Officer, A Ward, Sitapur v. Murlidhar Bhagwan Das, AIR 1965 SC 342

[2] J. Ashoka v. University of Agricultural Sciences, (2017) 2 SCC 609

Akaant MittalExperts Corner

In this three – part series, I shall be discussing the if a decree or an arbitral award or a settlement deed can form the basis of a financial or operational debt under the IB Code.

 

The Insolvency and Bankruptcy Code, 2016 took effect on 1-12-2016, and the Government of India has since enforced most of the sections of the Code pertaining to corporate insolvency through numerous notifications. The Code has resulted in a paradigm shift in India’s insolvency and bankruptcy law, both for corporate entities and for individuals.

 

The IB Code differentiates between financial creditors and operational creditors. Financial creditors are those having a relationship with the corporate debtor that is purely a financial contract, such as a loan or a debt security. Whereas, operational creditors are those who have due from the debtor on account of transactions made for the operational working of the debtor.[1] In order to seeking a resolution process against a corporate debtor, therefore, a creditor must either have a claim of a financial debt or an operational debt against such debtor.

 

Now issues have arisen when such creditors have sought to base their claims on

(i) a decree by a court; or an arbitral award; or

(ii) settlement agreement between the creditor(s) and the corporate debtor.

The first part of the series shall deal with whether a decree constitutes a financial debt.

 

The jurisprudence on this issue generally has held that it is essential that the claim of a financial creditor must be based on the transaction between the debtor and creditor and not on the decree issued by a court or tribunal in any other case between the debtor and creditor.

 

A decree-holder cannot initiate a corporate insolvency resolution process by using the decree or recovery certificate issued by the Debts Recovery Tribunal or Real Estate Regulatory Authority (RERA) or any other authority under any other law.[2] The rationale is that an “amount claimed under the decree is an adjudicated amount and not a debt disbursed against the consideration for the time value of money”[3]. Resultantly, the same cannot be termed to fall within the ambit of any of the clauses enumerated under Section 5(8), IB Code.[4]

 

The NCLAT has maintained that the proceedings under the IB Code are not recovery proceedings. Therefore, when a creditor seeks indirect execution of such decrees or recovery certificates by filing an application under Section 7, IB Code, the same can tantamount to “fraudulent or malicious initiation of insolvency proceedings for a purpose other than for the resolution of insolvency” and hence, actionable under Section 65, IB Code.[5]

 

In other words, the underlying idea is that the adjudicating authority does not become an executing court wherein any petitioner who obtains a decree instead of getting the same executed before the appropriate civil courts, circumvents and seeks such execution indirectly through the proceedings under Section 7 of the IB Code.

 

Similar opinion was maintained in the matter of Akram Khan v. Bank of India Ltd.,[6] wherein the NCLAT opined that the application under Section 7 of the IB Code seems to be made for the purposes of execution of a decree passed by the Debts Recovery Tribunal in favour of the “financial creditor”. Hence, the creditor approached the adjudicating authority, for the purpose other than for the resolution of insolvency, or liquidation and resultantly falls foul of Section 65 of the IB Code. Similar view was taken in C. Shivakumar Reddy v. Dena Bank.[7]

 

One query that could certainly be posed is that why does a creditor rely on a decree or an arbitral award to establish a financial or an operational debt. One particular reason for that could be to prevent the claim being hit by the law of limitation. According to Section 238-A of the IB Code, the Limitation Act, 1963 applies to the IB Code and therefore, an application under Sections 7 or 9 or Section 10 of the IB Code has to be filed within 3 years of the date of default. Therefore, when the date of default predated the year 2013 but the creditor filed the application under Section 7 of the IB Code on 7-1-2019; the creditor sought to place reliance on the decree by the Debts Recovery Tribunal which was passed on 22-10-2016 to argue that their claim was within limitation.[8] However, the same was still rejected by the NCLAT holding that the limitation will start from the date of default and not the date when the recovery certificate was issued by the Debts Recovery Tribunal.[9]

 

However, a diverging stance was taken in Ugro Capital Ltd. v. Bangalore Dehydration and Drying Equipment Co. (P) Ltd.,[10] where specific argument was taken that the creditor had not prosecuted the judgment and decree obtained in 2015 before a civil court and instead has come before the adjudicating authority by filing an application under Section 7 of the IB Code. The NCLAT setting aside the order of the adjudicating authority, had directed the latter to admit the application under Section 7 of the IB Code. The NCLAT referring to the definition of the term “creditor” in the IB Code, in categorical terms, stated:

 

“[i]t is important to point out that the definition of creditor provided in Section 5(10) of the IB Code provides that “creditor means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder.

 

Based on the decree of the court this petition was filed under Section 7 of the Code. Since the definition of word creditor in IB Code includes decree-holder, therefore if a petition is filed for the realisation of decretal amount, then it cannot be dismissed on the ground that applicant should have taken steps for filing execution case in civil court.”

 

In fact, in the above-mentioned case, the NCLAT calculated the limitation for filing the application under Section 7 from the date of the decree.

 

In conclusion, it can be said that majorly the courts had taken an adverse view when an application seeking initiation of a resolution process is supported by a decree or an arbitral award[11]. The impression that the same seems to be communicated to the courts is that the creditor has approached it with a mala fide motive, which is why the provision of Section 65 IB Code[12] is referred to it.[13]

 

However, the same must now be revisited on account of the ruling of the Supreme Court in Dena Bank v. C. Shivakumar Reddy[14]. One of the issues in this case was the financial creditor had relied on the recovery certificate issued by the Debts Recovery Tribunal to establish the claim of a financial debt and to contend that the application under Section 7 was filed in the period of limitation. Setting aside the ruling of the NCLAT, the Supreme Court accepted the submission of the financial creditor, holding:

126… In this case, the appellant financial creditor had, amongst other documents, also relied upon the final judgment and order dated 27-3-2017 passed by the Debts Recovery Tribunal and the subsequent recovery certificate dated 25-5-2017 which constituted cause of action for initiation of proceedings under Section 7 of the IB Code.

Clearly, therefore, a decree can now constitute a financial debt.

Conclusion

From the foregoing discussion, it is clear that the jurisprudence of the NCLAT wherein claim based on a decree was look with skepticism as to whether the same amounts to misuse of the provision of the IB Code, needs revisiting. In light of the ruling of the Supreme Court in Dena Bank[15], a claim can most certainly be based on a decree. However, it must be mentioned here that the claim upon which a decree is rendered must satisfy the fundamental ingredients of a financial debt, since in Dena Bank[16], it was a financial creditor that had secured the decree.

 


† Akaant Kumar Mittal is an advocate at the Constitutional Courts, and National Company Law Tribunal, Delhi and Chandigarh. He is the author of the commentary “Insolvency and Bankruptcy Code – Law and Practice”.

The author gratefully acknowledges the research and assistance of Sh. Mahesh Kumar, 4th Year, B.A.LLB. (Hons.), student at Sharda University, Greater Noida, Uttar Pradesh, in writing this series.

[1] The Report of the Bankruptcy Law Reforms Committee, Volume 1: Rationale and Design (Nov. 2015), Ch. 5.2.1

[2] See, Sushil Ansal v. Ashok Tripathi, 2020 SCC OnLine NCLAT 680.

[3] 2020 SCC OnLine NCLAT 680, para 20.

[4] 2020 SCC OnLine NCLAT 680.

[5] See, G. Eswara Rao v. Stressed Assets Stabilisation Fund, 2020 SCC OnLine NCLAT 416; Sushil Ansal v. Ashok Tripathi, 2020 SCC OnLine NCLAT 680.

[6] 2019 SCC OnLine NCLAT 1427.

[7] 2019 SCC OnLine NCLAT 907.

[8] Digamber Bhondwe v. JM Financial Asset Reconstruction Co. Ltd., 2020 SCC OnLine NCLAT 399.

[9] Digamber Bhondwe v. JM Financial Asset Reconstruction Co. Ltd., 2020 SCC OnLine NCLAT 399, para 18.

[10] 2020 SCC OnLine NCLAT 149.

[11] See HDFC Bank Ltd. v. Bhagwan Das Auto Finance Ltd., 2019 SCC OnLine NCLAT 1338.

[12] IB Code, S. 65(1) states:

“65. Fraudulent or malicious initiation of proceedings.— (1) If, any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, as the case may be, the adjudicating authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees.”

[13] See HDFC Bank Ltd. v. Bhagwan Das Auto Finance Ltd., 2019 SCC OnLine NCLAT 1338; G. Eswara Rao v. Stressed Assets Stabilisation Fund, 2020 SCC OnLine NCLAT 416.

[14] 2021 SCC OnLine SC 330.

[15] (2021) 10 SCC 330.

[16] (2021) 10 SCC 330.

Case BriefsHigh Courts

Allahabad High Court: Dr Yogendra Kumar Srivastava, J., held that,

Section 36 of the 1996 Act makes the arbitral award capable of being enforced in a like manner as a decree without any further judicial intervention.

Instant petition was filed under Section 226 of the Constitution of India principally seeking a writ of certiorari for quashing of the order passed by the Special Judge, SC/ST Act arising out of Execution Case.

Question for Consideration

Whether an order passed by the executing court during the course of enforcement of an arbitral award would be amenable to a writ of certiorari under Article 226 of the Constitution of India?

Analysis, Law and Decision

The A&C Act, 1996 was enacted to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation.

In terms of Section 36 (1) where the time for making an application to set aside the arbitral award under Section 34 has expired, then, subject to the provisions of sub-section (2), such award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908, in the same manner as if it were a decree of the court.

When the time for making an application to set aside the arbitral award under Section 34 has expired, then, subject to the provisions of sub-section (2), the award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908, in the same manner as if it were a decree of the Court.

Therefore, the enforcement of an arbitral award under the 1996 Act, is to be made as per the terms of Section 36 and, unlike the 1940 Act, there was no requirement of filing an application to make the award a rule of the Court. Under the said Act, it would not be possible to resist the enforcement of an award by contending that the award has not been converted into a decree for the reason that the award has now to be enforced as per the procedure under the CPC in the same manner as if it were a court decree.

Question as to whether the award of the arbitrator under the 1996 Act tantamount to a decree or not was considered in Leela Hotels Ltd. v. Housing and Urban Development Corporation Ltd., (2012) 1 SCC 302, wherein it was held that the language used in Section 36 makes it clear that such an award has to be enforced under the CPC, in the same manner as if it were a decree of the Court. “…the language of the section leaves no room for doubt as to the manner in which the award of the arbitrator was to be accepted.”

“…provision for enforcement of an award, as per terms of Section 36, having been provided for in the same manner as if it were a decree of the court, it would follow that the court enforcing the award would exercise powers under the CPC which are available to a court executing a decree. This power would not be limited or trammelled by any other provision of the Act, 1996.”

Court added that execution is the enforcement of decree by a judicial process which enables the decree-holder to realise the fruits of the decree in his favour. The court enforcing the award would be a civil court exercising judicial powers and the orders to be passed in these proceedings would be judicial orders.

Whether judicial orders of a civil court would be amenable to writ jurisdiction under Article 226 came up for consideration in the case of Radhey Shyam v. Chhabi Nath, (2015) 5 SCC 423.

The law laid down in the nine-Judge Constitution Bench in the case of Naresh Shridhar Mirajkar v. State of Maharashtra, AIR 1967 SC 1 was also referred, wherein after considering the history of writ of certiorari and various English and Indian decisions, a conclusion was drawn that “certiorari does not lie to quash the judgements of inferior courts of civil jurisdiction”.

3-Judge Bench in the case of Radhey Shyam v. Chhabi Nath, (2015) 5 SCC 423 extensively referring to the legal position on the scope of writ of certiorari concluded that orders of civil court stand on different footing from the orders of authorities or tribunals or courts other than judicial/civil courts.

In the above decision, expression “inferior court” is not referable to judicial courts and accordingly judicial orders of civil courts are not amenable to a writ of certiorari under Article 226 and a writ of mandamus does not lie against a private person not discharging any public duty. It was also held that the scope of Article 227 is different from Article 226.

In view of the above, the legal position that emerged was that,

Judicial orders of civil court would not be amenable to writ jurisdiction under Article 226 and that challenge thereagainst can be raised under Article 227.

 High Court held that an order passed by the executing court in proceedings for enforcement of an arbitral award under Section 36 of the Act 1996, being a judicial order passed by a civil court of plenary jurisdiction, the same would not be amenable to a writ of certiorari under Article 226 of the Constitution of India. [Magma Leasing Ltd. v. Badri Vishal,  2021 SCC OnLine All 806, decided on 18-11-2021]


Advocates before the Court:

Counsel for Petitioner: C.K. Parekh

Counsel for Respondent: S.C., Shri Prakash Dwivedi

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.

 

Op EdsOP. ED.


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

Jharkhand High Court
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

Kerala High Court
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

Kerala High Court
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]