Case BriefsHigh Courts

Bombay High Court: N.J. Jamadar, J., while disposing of an interim application filed by the defendants in a commercial division summary suit, held that the salutary object of the Arbitration and Conciliation Act, 1996, cannot be defeated by adding a claim over and above the claim in respect of the matter which is squarely covered by arbitration agreement. 

The suit was filed by the plaintiffs for recovery of a sum of over Rs 1. 24 crores on the basis of a memorandum of understating (“MoU”) entered into with the defendants and multiple negotiable instruments issued by the defendants in favour of the plaintiffs. The defendants filed the instant interim application seeking the reference of the dispute to arbitration in view of an arbitration clause in the MoU. The plaintiffs resisted the application averring that there was a series of transactions between them and the defendants. Their claim consisted of two parts, the first part based on cheques issued by the defendants and the second part based on bills of exchange. It was submitted that the arbitration clause in the MoU covered only the first part, whereas the second part was out of its purview. 

Narayan Sahu, counsel for the plaintiffs, submitted that the subject-matter of the suit cannot be bifurcated and, therefore, the application under Section 8 of the Arbitration and Conciliation Act became untenable. While on the other hand, Saurab Oka, counsel for the defendants insisted on allowing their application under Section 8 and refer the dispute for arbitration. 

According to the High Court, the crucial question which wrenches to the fore was: whether the effect and force of the arbitration clause gets diluted on account of inclusion in the suit, of a claim in respect of a dispute which is not governed the arbitration clause?

The Court thought it fit to consider the question from the perspective of the legislative object contained in Section 8. Referring to Order 2 Rules 3 and 6 CPC and relying on the Supreme Court decisions in Sundaram Finance Ltd. v. T. Thankam, (2015) 14 SCC 444, it was held by the High Court that if the submission of plaintiff as aforementioned is readily accepted, it has the propensity to give a long leash to the plaintiff to circumvent the arbitration agreement by uniting a cause of action which is beyond the purview of the arbitration agreement. It would have the effect of denuding Section 8 of its force and vigour. Such an interpretation would also derogate from the object which the Arbitration and Conciliation Act, 1996 is intended to achieve: of minimum judicial intervention where parties have agreed to arbitrate the dispute.

In the peculiar facts of the case, the Court referred the dispute to arbitration in respect of the first transaction which was squarely covered by the arbitration clause and exercised its power under Order 2 Rule 6 CPC to direct the plaintiffs to institute a separate suit in respect of the second transaction not covered by the arbitration clause. [Taru Meghani v. Shree Tirupati Greenfield, 2020 SCC OnLine Bom 110, decided on 10-01-2020] 

Case BriefsHigh Courts

Bombay High Court: G.S.Patel, J., held that an arbitration agreement must be stamped in the state where the arbitration is to take place, even if the only “thing to be done” in the state is the arbitration of the dispute. In this particular case, the contract was executed outside the state and was concerned with work that was to be carried out in Visakhapatnam, however the arbitration clause specified that in case of any dispute, arbitration would take place in Mumbai. The main agreement had been stamped as per relevant laws in Visakhapatnam. When a dispute arose and the parties couldn’t decide upon an arbitrator by themselves, the matter was referred to the Bombay High Court under Section 11 of the Arbitration and Conciliation Act, 1996. Upon doing so, a further dispute arose as to whether the arbitration agreement would be recognised in Maharashtra as it was not stamped there.

The Court took into account the case of Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engineering Ltd., (2019) 9 SCC 209 where the Supreme Court had ruled that an arbitration agreement cannot be acted upon unless it is duly stamped. The Court relied upon the combined reading of Sections 3(b) and 19 of the Maharashtra Stamp Act, 1958 which specify that stamp duty has to be paid for instruments (1) executed out of State and (2) relating to any matter of “thing done or to be done” in the State and (3) is received in the State. In this backdrop, the Court proceeded to deal with whether arbitration would be a “thing to be done” under the abovementioned sections. In this regard, the judge observed that to insist that arbitration clauses alone are exempt from stamp duty under the Act would entail severing it from the rest of the agreement, which is not possible. It was clarified that arbitration is founded in the contract and Garware Wall Ropes Case also specifies that such a contract is one and indivisible at least to the extent of its arbitration agreement. 

The Court further stated that even on a literal appreciation of the provisions of the Maharashtra Stamp Act, 1958 they could not rule in favour of the applicant. The Court finally clarified that if any stamp duty has been paid in the other state then an adjustment will be done but the applicant will not be exempted from paying stamp duty in Maharashtra. [S. Satyanarayana Co. v. West Quay Multiport (P) Ltd., 2019 SCC OnLine Bom 4595, decided on 22-11-2019]

Case BriefsSupreme Court

Supreme Court: The bench of AM Khanwilkar and Ajay Rastogi, JJ has held that the Chief Justice or   his Designate, in exercise of power under Section 11(6) of the  Arbitration and Conciliation Act, 1996, cannot directly make an appointment of an independent arbitrator without, in the first instance, resorting to ensure that the remedies provided under the arbitration agreement are exhausted.

Clause (c) of sub­section (6) of Section 11 relates to failure to perform any function entrusted to a person including an institution and also failure to act under the procedure agreed upon by the parties. Noticing the intent behind the said clause, the Court explained the scheme of Section 11(6) and said,

“clause(a) refers to the party failing to act as required under that procedure; clause(b) refers to the agreement where the parties fails to reach to an agreement expected of them under that procedure and clause (c ) relates to a person which may not be a party to the agreement but has given his consent to the agreement and what further transpires is that before any other alternative is resorted to, agreed procedure has to be given its precedence and the terms of the agreement has to be given its due effect as agreed by the parties to the extent possible.“

The Court hence held that corrective measures have to be taken first and the Court is the last resort.

The Court also noticed that by appointing an arbitrator in terms of sub­section (8) of Section 11 of Act, 1996, due regard has to be given to the qualification required for the arbitrator by the agreement of the parties and also the other considerations such as to secure an independent and impartial arbitrator.

The Court, hence, held,

“To fulfil the object with terms and conditions which are cumulative in nature, it is advisable for the Court to ensure that the remedy provided as agreed between the parties in terms of the contract is first exhausted.”

[Union of India v. Parmar Construction Company, 2019 SCC OnLine SC 442, decided on 29.03.2019]

Case BriefsHigh Courts

Delhi High Court: A Single Judge Bench comprising of Pratibha M. Singh, J. allowed an appeal filed by the Government of NCT of Delhi which challenged the award passed by a sole arbitrator.

The brief facts were that the Government called a tender for providing sanitation and scavenger services inside and outside the building including reception services from designated places for the Delhi Sachivalaya/Secretariat, IP Estate, New Delhi. The tender proforma contained various terms and conditions. One Yasikan Enterprises – a sole proprietary concern of Jagdish Kumar submitted his offer.  The contract for sanitation services was entered into with Yasikan Enterprises. The contractor started raising bills. It was the Government’s case that the contractor was entitled to only a sum of Rs 73,652 per month as per the calculation submitted, based on measurements provided by Public Works Department. The contractor claimed that he was entitled to Rs 2,63,982 per month. The disputes between the parties were referred to arbitration in terms of the arbitration clause. However, it is pertinent to note that the arbitration clause was invoked by Yasikan Enterprises (P) Ltd. which was a company registered under the Companies Act, 1956. A representation was made to the Lieutenant Governor invoking arbitration and vide letter dated 24th September 2004, the Arbitrator was appointed. The appellant submitted that there was no arbitration clause with the company Yasikan Enterprises (P) Ltd. The contract was awarded to the firm Yasikan Enterprises, which was a sole proprietary concern.

The High Court perused the record and observed that as per Section 7 of the Arbitration and Conciliation Act, every arbitration agreement has to be in writing between the parties. It also has to be signed by the parties. In the present case, there was no arbitration agreement signed between the appellant and Yasikan Enterprises (P) Ltd. The company was not awarded the contract. The offer was submitted by Yasikan Enterprises as a sole proprietary firm. It was signed by Jagdish Kumar as the sole proprietor. The company being a distinct legal entity from the sole proprietorship, the arbitration clause, in the Court’s opinion, did not devolve upon the company. Moreover, the arbitration clause is an independent clause which is not assignable. The Court held the reference to arbitration was contrary to law. Furthermore, on merits as well, the order impugned was found liable to be set aside. Orders were made accordingly. The appeal was, thus, allowed. [Govt. (NCT of Delhi) v. Yasikan Enterprises (P) Ltd.,2018 SCC OnLine Del 11918, dated 16-10-2018]

Case BriefsHigh Courts

Delhi High Court: A Single Judge Bench comprising of Navin Chawla, J., dismissed a petition filed under Section 11(6) of Arbitration and Conciliation Act, 1996 seeking appointment of a sole arbitrator for adjudication of the dispute between the parties.

The dispute arose in relation to a contract executed between the petitioner and the respondents for construction of EWS houses. Arbitration Agreement between the parties was contained in Clause 25 of the said contract, which not only provided for hierarchical manner of adjudication of claims raised by the contractor but also gave a specific timeline for the decision of each authority. The primary contention raised on behalf of the respondents was that the petition was not maintainable in as much as the petitioner did not follow the procedure prescribed in the Agreement before filing of the present petition.

In order to appreciate the submissions of the respondents, the High Court perused the Arbitration Agreement. On reading the sequence of events, the Court noted that the procedure as prescribed in Clause 25 was not followed by the petitioner. It was observed that Section 11(6) comes into play only where the other party fails to act as required under the procedure. The High Court was of the view that the petitioner, itself, having not followed the procedure as prescribed in the Arbitration Agreement, cannot make a complaint against respondents’ alleged failure to act in accordance with the same. In the facts and circumstances of the present case, it was held that the petition was liable to be dismissed as the petitioner itself failed to follow the procedure defined in the Arbitration Agreement. The order was made accordingly. [Ved Prakash Mithal and Sons v. DDA,  2018 SCC OnLine Del 9884, dated 10-07-2018]

Case BriefsHigh Courts

Calcutta High Court: A Single Judge Bench comprising of Ashis Kumar Chakraborty. J. decided an arbitration petition, wherein the arbitrator was appointed by the Court in light of disagreement between the parties on appointment of the arbitrator.

The parties entered into a Contract for certain works. Clause 10.1 of the General Conditions of Agreement provided that any dispute arising under and out of the said contract was to be decided by arbitration process conducted by the arbitrator appointed by mutual consent of both the parties. Eventually a dispute arose between the parties under the Contract. The petitioner suggested that the matter be decided by SCOPE, Delhi. However, the respondent refused the suggestion. Therefore, the application under Section 11(6) of the Arbitration and Conciliation Act, 1996 was filed before the Court for appointing the arbitrator.

The Court perused the agreement and found that there was no dispute as to the fact that there was an arbitration clause in the contract in terms of Clause 10.1 of the General Conditions of Contract. The Court held that in view of the insertion of sub-section (6A) of Section 11, an application under Section 11(6) has to succeed if there is no dispute among the parties as to the existence of an arbitration clause. Accordingly, the petition was allowed and retired Justice Tapan Kumar Dutt was appointed as the sole arbitrator to decide upon the matter. [F. Harley and Co. (P) Ltd. v. SAIL, 2018 SCC OnLine Cal 2054, dated 07.05.2018]

Case Briefs

High Court of Chhattisgarh: In a recent judgment, a Single Bench of Prashant Kumar Mishra, J. reiterated the principle that when an “exclusive jurisdiction clause is available in a contract/agreement, the jurisdiction of Courts and Tribunals at other places have been excluded and the places mentioned in the agreement/contract will only have the jurisdiction over the matter.”

The dispute revolved around the timely completion of work in a turn key contract entered between the parties. The petitioner filed a case with Respondent No. 2 seeking refund of performance security. The respondent objected the jurisdiction on the ground that as per the exclusive jurisdiction clause the valid forum was Jaipur however the case was filed and decided in Raipur.

The High Court followed the judgment in Swastik Gases Private Limited v. Indian Oil Corporation Limited, (2013) 9 SCC 32 wherein the Supreme Court noted that for the construction of jurisdiction clause, the maxim expressio unius est exclusio alterius comes into play as there is nothing to indicate to the contrary. This maxim means that expression of one is the exclusion of another.

The High Court allowed the writ petition and quashed the order pronounced by Respondent No. 2. [Zuberi Engineering Company v. M/s M P Tar Products,  2017 SCC OnLine Chh 578, order pronounced on 17.05.2017]

Case BriefsSupreme Court

Supreme Court: Explaining the scope of Section 8 of the Arbitration and Conciliation Act, 1996, the Bench of Dr. A.K. Sikri and D.Y. Chandrachud, JJ held that mere allegation of fraud simplicitor may not be a ground to nullify the effect of arbitration agreement between the parties. Where there are simple allegations of fraud touching upon the internal affairs of the party inter se and it has no implication in the public domain, the arbitration clause need not be avoided and the parties can be relegated to arbitration.

The Court further explained that it is only in those cases where the Court finds that there are very serious allegations of fraud which make a virtual case of criminal offence or where allegations of fraud are so complicated that it becomes absolutely essential that such complex issues can be decided only by civil court on the appreciation of the voluminous evidence that needs to be produced, the Court can sidetrack the agreement by dismissing application under Section 8 and proceed with the suit on merits. It can be so done also in those cases where there are serious allegations of forgery/fabrication of documents in support of the plea of fraud or where fraud is alleged against the arbitration provision itself or is of such a nature that permeates the entire contract, including the agreement to arbitrate, meaning thereby in those cases where fraud goes to the validity of the contract itself of the entire contract which contains the arbitration clause or the validity of the arbitration clause itself.

It was, hence, said that while dealing with an application under Section 8 of the Act, the focus of the Court has to be on the question as to whether jurisdiction of the Court has been ousted instead of focusing on the issue as to whether the Court has jurisdiction or not. It has to be kept in mind that insofar as the statutory scheme of the Act is concerned, it does not specifically exclude any category of cases as non-arbitrable. Such categories of non-arbitrable subjects such as disputes relating to rights and liabilities which give rise to or arise out of criminal offences; matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights and child custody; Insolvency and winding up; etc., are carved out by the Courts, keeping in mind the principle of common law that certain disputes which are of public nature, etc. are not capable of adjudication and settlement by arbitration and for resolution of such disputes, Courts are better suited than a private forum of arbitration.

D.Y. Chandrachud, J added that the Arbitration and Conciliation Act, 1996, should be interpreted so as to bring in line the principles underlying its interpretation in a manner that is consistent with prevailing approaches in the common law world. Jurisprudence in India must evolve towards strengthening the institutional efficacy of arbitration. Deference to a forum chosen by parties as a complete remedy for resolving all their claims is but part of that evolution. Minimising the intervention of courts is again a recognition of the same principle. [A. Ayyasamy v. A. Paramasivam, 2016 SCC OnLine SC 1110, decided on 04.10.2016]