Op EdsOP. ED.

In its recent judgment delivered in U.P. Power Transmission Corporation Ltd. v. CG Power and Industrial Solutions Ltd.[1], the Supreme Court made certain observations as to the scope of interference under Article 226[2] of the Constitution in contractual matters, more specifically, in the specific context of contracts containing an arbitration clause. These observations have, however, led to uncertainty, as will be demonstrated.

Uttar Pradesh Power Transmission Corporation Ltd. (UPPTCL) and CG Power and Industrial Solutions Ltd. (CG Power) entered into a “framework agreement” for the construction of sub-stations, pursuant to which four (4) contracts were executed. At the root of the present controversy is two (2) letters which UPPTCL had issued to CG Power, calling upon it to make payment of “labour cess” under Section 3[3] of the Building and Other Construction Workers Welfare Cess Act, 1996 r/w Section 2[4] of the Building and Other Construction Workers’ (Regulation of Employment and Condition of Service) Act, 1996. The combined effect of these legislations was to impose a “cess” on the total cost of construction, at such rate not exceeding 2% and not less than 1% thereof.

UPPTCL, however, sought to levy and collect such “cess” solely on the basis of an “audit report”, following an audit conducted under the instructions of the Senior Accountant General. CG Power had filed a writ petition in the Allahabad High Court, by which it assailed such demand of “cess” solely on the basis of an “audit report”.

Both the Allahabad High Court and the Supreme Court took the view that such “cess” could not have been levied solely on the basis of an “audit report”. Instead, such “cess” could have been levied and collected only in the manner as prescribed under the legislations as specified above, and not otherwise (i.e., not in the absence of an order of levy and assessment).

Views expressed as to the maintainability of the writ petition in view of the existence of an arbitration clause

In the instant case, the general conditions as applicable, contained an arbitration clause, the existence of which was not in dispute. Interestingly, UPPTCL did not even disclose the existence of such arbitration clause in its reply (to the writ petition), let alone oppose the maintainability of the said writ petition on this ground. As will be discussed shortly, the Allahabad High Court could have declined to exercise its jurisdiction under Article 226 of the Constitution in the event that the existence of such arbitration clause was brought to its attention.

The Supreme Court, however, observed that the existence of an arbitration clause will not debar the High Court from exercising its jurisdiction under Article 226 of the Constitution. It took the view that it is well settled that relief under Article 226 of the Constitution may be granted in contractual matters as well. Although this was not dispositive of the case at hand, the observations thus made by the Supreme Court have left open a window for confusion.

Discourse thus far

In its judgment in State of Gujarat v. Meghji Pethraj Shah Charitable Trust[5], the Supreme Court not only held that a writ petition is not maintainable in a contractual matter, but also held that no relief under Article 226 of the Constitution is “available” in case of contracts which are not “statutory” in nature. The Supreme Court has time and again thereafter, elucidated upon the concept of a “statutory” contract.

The Supreme Court had, in its judgment in State of U.P. v. Bridge & Roof Co. (India) Ltd.[6], held that a contract which is governed by the provisions of the Contract Act, 1872[7] will not be a “statutory contract”. This has, therefore, limited the concept of a “statutory” contract. However, it is only in its judgment in India Thermal Power Ltd. v. State of M.P.[8], did the Supreme Court hold that even a contract entered into in the exercise of an enabling power conferred by a statute would not, by itself, be a “statutory” contract. The Supreme Court further held that such a contract is a “statutory” one only to the extent to which a statute either prescribes certain terms and conditions to be contained in such contract, or has the effect of incorporating such terms and conditions by way of reference. In the facts of that case, the Supreme Court held that a power purchase agreement is a “statutory” contract only to the extent to which it contains certain provisions regarding determination of tariff and other statutory requirements, and not otherwise.

In its judgment in Kerala SEB v. Kurien E. Kalathil[9], the Supreme Court held that a dispute arising out of the terms of a contract entered into by a statutory body, would also have to be settled by the ordinary principles of contract law. It further held that the mere fact that one of the parties to such a contract is a statutory body will not, by itself, operate so as to exclude the ordinary principles of contract law.

In its judgment in Harbanslal Sahnia v. Indian Oil Corpn. Ltd.[10], the Supreme Court seems to have adopted a different interpretation. This is in spite of the fact that all of the aforesaid judgments, including that in the Harbanslal case[11], were delivered by two-Judge Benches. It was held that the rule of exclusion of writ jurisdiction by reason of availability of an alternative remedy, is a “rule of discretion” and not one of “compulsion”. The Supreme Court held that in spite of the availability of an “alternate remedy”, the High Court may still exercise its writ jurisdiction in the event that: (i) the writ petition seeks enforcement of fundamental rights; (ii) there is a failure of the principles of natural justice; and (iii) the orders or proceedings are wholly without jurisdiction or the vires of an Act is under challenge. In the facts of that case, the Supreme Court took the view that the High Court ought to have exercised its jurisdiction under Article 226 as above, as the dispute, which arose out of the termination of a dealership would attract the first two (2) contingencies.

The Supreme Court had, in its judgment in Pimpri Chinchwad Municipal Corpn. v. Gayatri Construction Co.[12], held that the High Court ought not to have entertained a writ petition in a dispute which could have been settled by way of the “in-house” remedy as provided for. However, the Supreme Court expressed its unwillingness to adjudicate upon the merits of the controversy in that case, given the advanced stage of completion of work under the tender, which formed the subject-matter of that dispute.

In a recent judgment delivered as on 6-1-2021 in Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd.[13], the Supreme Court dealt with and answered the question of whether the arbitral process could be interfered with under Articles 226/227[14] of the Constitution. While doing so, the Supreme Court held that it is not prudent for the courts to exercise their discretion beyond the procedure prescribed under the Arbitration and Conciliation Act, 1996[15] (Arbitration Act). Instead, such discretion ought to be exercised in “exceptional rarity”, in the event that a party is left without a remedy under the statute, or clear “bad faith” is demonstrated. This, as the Supreme Court observed, is with a view to ensuring that the arbitral process is conducted in a fair and efficient manner, consistent with the legislative intention underlying the Arbitration Act. In the facts of that case, the Supreme Court saw no reason to interfere with the unilateral appointment of an arbitrator, as such appointment was made in accordance with the arbitration clause. It may be noted that the judgment in Bhaven Construction[16] was delivered by a three-Judge Bench of the Supreme Court, while the judgment under discussion, and all other judgments as cited, were delivered by two-Judge Benches thereof.

Concluding observations

Having regard to all the judgments as cited, it appears to be the case that the Supreme Court has, as a general principle, adopted restraint while exercising its jurisdiction under Article 226 of the Constitution in contractual matters. The concept of a “statutory” contract has only limited the exercise of such discretion, inasmuch as a contract entered into under a statute, or one to which a statutory body is a party, would not become a “statutory contract”. The judgment in the Bhaven Construction case[17] only operates so as to further limit the scope of such interference in the specific context of contracts containing an arbitration clause.

In the instant case, had the Supreme Court delved into the issue of scope of interference under Article 226 of the Constitution in contractual matters, it could have held that an objection as to the maintainability of a writ petition on the ground of existence of an arbitration clause would have to be taken at the earliest available opportunity. Having said that, the observations as made by the Supreme Court in the judgment under discussion are at variance with the view as taken by it in the Bhaven Construction case[18]. This is only likely to lead to uncertainty as to the scope of interference under Article 226 of the Constitution in contractual matters.

Advocate, Delhi High Court, e-mail: ashwinichawla.net.in.

†† Assistant Professor of Law at BML Munjal University, Gurgaon

[1] 2021 SCC OnLine SC 383.

[2]  <http://www.scconline.com/DocumentLink/22VRSLhE>

[3] <http://www.scconline.com/DocumentLink/Bri0ov7D>.

[4] <http://www.scconline.com/DocumentLink/RuDXsRPF>.

[5] (1994) 3 SCC 552.

[6] (1996) 6 SCC 22.

[7] <http://www.scconline.com/DocumentLink/xAi185p6>.

[8] (2000) 3 SCC 379.

[9] (2000) 6 SCC 293.

[10] (2003) 2 SCC 107.

[11] (2003) 2 SCC 107.

[12] (2008) 8 SCC 172.

[13] 2021 SCC OnLine SC 8.

[14] <http://www.scconline.com/DocumentLink/FQ8PHQWi>.

[15] <http://www.scconline.com/DocumentLink/QWdt5a4f>.

[16] 2021 SCC OnLine SC 8.

[17] 2021 SCC OnLine SC 8.

[18] 2021 SCC OnLine SC 8.

Case BriefsSupreme Court

Supreme Court: The bench of UU Lalit and Indira Banerjee, JJ has held that the existence of an arbitration clause does not debar the court from entertaining a writ petition.

Stating that the availability of an alternative remedy does not prohibit the High Court from entertaining a writ petition in an appropriate case, the Court highlighted that the High Court may entertain a writ petition, notwithstanding the availability of an alternative remedy, particularly

(i) where the writ petition seeks enforcement of a fundamental right;

(ii) where there is failure of principles of natural justice or

(iii) where the impugned orders or proceedings are wholly without jurisdiction or

(iv) the vires of an Act is under challenge.

The Court was hearing a dispute between Uttar Pradesh Power Transmission Corporation Ltd. (UPPTCL) and CG Power and Industrial Solutions Limited arising out of a Framework Agreement with UPPTCL for construction of 765/400 KV Substations, at Unnao, Uttar Pradesh. UPPTCL had directed CG Power to remit Labour Cess amounting to Rs.2,60,68,814/-, computed at 1% of the contract value, under Sections 3 sub-section (1) and (2) of the Building and Other 1 Construction Workers’ Welfare Cess Act, 1996, hereinafter referred to as the “Cess Act”, read with Rules 3 and Rule 4 (1), (2) (3) and (4) of the Building and Other Construction Workers Welfare Cess Rules, 1998, hereinafter referred to as the “Cess Rules” and also Section 2 (1)(d), (g) and (i) of the Building and Other Construction Workers (Regulation of Employment and Condition of Service) Act, 1996.

This direction had come after, in the Audit Report, the Accountant General pointed out the lapse on the part of UPPTCL, in not deducting labour cess from the bills of the contractor, that is Respondent No.1, in respect inter alia of the First Conract, observing that every employer was required to levy and collect cess at a rate not exceeding 2% and not less than 1% of the cost of construction incurred by an employer and to deposit the same with the Building and Other Construction Workers Welfare Board.

When CG Power filed a writ petition before the Allahabad High Court challenging the same, UPPTCL did not oppose the writ petition on the ground of existence of an arbitration clause. Nor was there any whisper of any arbitration agreement in the Counter Affidavit filed by UPPTCL to the writ petition in the High Court.

In such circumstances, the Supreme Court held that the existence of an arbitration clause does not debar the court from entertaining a writ petition and that relief under Article 226 of the Constitution of India may be granted in a case arising out of contract. However, the writ jurisdiction under Article 226, being discretionary, the High Courts usually refrain from entertaining a writ petition which involves adjudication of disputed questions of fact which may require analysis of evidence of witnesses.

[Uttar Pradesh Power Transmission Corporation Ltd v. CG Power and Industrial Solutions Limited, 2021 SCC OnLine SC 383, decided on 12.05.2021]

Judgment by: Justice Indira Banerjee

Know Thy Judge| Justice Indira Banerjee

Case BriefsHigh Courts

Delhi High Court: Sanjeev Narula, J., issued notice to the respondent in a petition filed under Section 9 [interim measures, etc. by the court] of the Arbitration and Conciliation Act, 1996.

In the instant petition, it was stated that the disputes arose between the parties pertaining to arrears of rent and other charges arising under Memorandum of Understanding (MOU).

The said MOU was originally executed between the petitioner and Adlabs Films Limited.  Subsequently, Reliance Media Works Limited stepped into the shoes of Adlabs Films Limited and later transferred its business in favour of the respondents.

The Deed of Adherence recorded that the parties had entered into the MOU and the Addendum, further it was also mentioned in the deed that the respondent agreed and confirmed that it shall be bound by all the provisions of the agreement as entered into with the original party and also the agreement shall have the full force of binding effect on the party.

Since the respondent defaulted in making payments towards rent, conducting charges and CAM charges, due under the agreements, the petitioner was constrained to issue the legal notice making the demand of Rs 2.04 Crores.

But the respondent refuted the above compliance citing the COVID-19 pandemic situation.

Petitioner’s counsel further submitted that, though the arbitration clause has not yet been invoked, but the petitioner has all intention to invoke the same.

Adding to the above it was submitted that pending the appointment of Arbitral Tribunal, urgent interim direction were necessary.

Bench directed for the issue of notice to the respondent by all modes, upon the filing of process fee, returnable on 05-04-2021.[Dart Properties (P) Ltd. v. Cinema Ventures (P) Ltd., 2021 SCC OnLine Del 990, decided on 24-02-2021]

Advocates who appeared before the Court:

For the Petitioner: Swarnendu Chatterjee, Advocate

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): The Division Bench of Justice Bansi Lal Bhat (Acting Chairperson) and Dr Ashok Kumar Mishra (Technical Member) observed that:

“I&B Code would not permit the Adjudicating Authority to make a roving enquiry into the aspect of solvency or insolvency of the Corporate Debtor except to the extent of the Financial Creditors or the Operational Creditors, who sought triggering of Corporate Insolvency Resolution Process.”

Present appeal has been heard in ex-parte.

Bench notes that the application of appellant filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 has not been admitted or rejected by the Adjudicating Authority (NCLT, Bengaluru Bench).

Adjudicating Authority disposed of the application directing the respondent to make endeavours for resolution in respect of outstanding debt, failing which the appellant would be at liberty to invoke the arbitration clause contained in the Agreement.

The above finding of the Adjudicating Authority was found to be unique and not in conformity with the provisions embodied in Section 9 (5) of the I&B Code, hence cannot be supported.

Section 9(5) of the I&B Code, 2016:

“9(5) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), by an order—

(i) admit the application and communicate such decision to the operational creditor and the corporate debtor if,—

(a) the application made under sub-section (2) is complete;

(b) there is no repayment of the unpaid operational debt;

(c) the invoice or notice for payment to the corporate debtor has been delivered by the operational creditor;

(d) no notice of dispute has been received by the operational creditor or there is no record of dispute in the information utility; and

(e) there is no disciplinary proceeding pending against any resolution professional proposed under sub-section (4), if any.

  1. ii) reject the application and communicate such decision to the operational creditor and the corporate debtor, if—

(a) the application made under sub-section (2) is incomplete;

(b) there has been repayment of the unpaid operational debt;

(c) the creditor has not delivered the invoice or notice for payment to the corporate debtor;

(d) notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility; or

(e) any disciplinary proceeding is pending against any proposed resolution professional:

Provided that Adjudicating Authority, shall before rejecting an application under sub-clause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the adjudicating Authority.”

The above provision abundantly makes it clear that the Adjudicating Authority has only two options, either to admit Application or to reject the same. No third option or course is postulated by law.

Appellant’s counsel invited Tribunal’s attention to the fact that the Adjudicating Authority took note of the fact that the respondent did not respond to the Demand Notice, demanding the outstanding amount in respect of the four invoices noticed in the impugned order.

Further another point was brought in from the impugned order wherein it was observed that mere acceptance of the debt in question by the Respondent would not automatically entitle the Appellant to invoke the provisions of the Code, unless the debt and default is undisputed and proved to the satisfaction of the Adjudicating Authority.

Bench in view of the above expressed that the Adjudicating Authority should have, in absence of any dispute contemplated under Section 8(2) having been raised by the Respondent as a pre-existing dispute or that the claim of Appellant had been satisfied, proceeded to admit the Application, as no dispute had been raised before it, justifying its disinclination to admit the Application.

We cannot understand as to how the availability of alternate remedy would render the debt and default disputed.

Tribunal further added to its reasoning that

In absence of pre-existing dispute having been raised by the Corporate Debtor or it being demonstrated that a suit or arbitration was pending in respect of the operational debt, in respect whereof Corporate Debtor was alleged to have committed default, the Adjudicating Authority would not be justified in drawing a conclusion in respect of there being dispute as regards debt and default merely on the strength of an Agreement relied upon by the Appellant.

Adjudicating Authority clearly landed in error by observing that the course adopted by it was warranted on the principle of ease of doing business, ignoring the fact that such course was not available to it, ease of doing business only being an objective of the legislation.

Hence, while allowing the appeal and setting aside the impugned order, Tribunal directed the Adjudicating Authority to pass an order of admission. [Sodexo India Service (P) Ltd. v. Chemizol Additives (P) Ltd., 2021 SCC OnLine NCLAT 18, decided on 22-02-2021]

Case BriefsHigh Courts

Orissa High Court: K. R. Mohapatra J., dismissed the appeal being devoid of merits.

 The facts of the case are such that a ‘Request for Proposal’ (RFP) by the Respondent – Berhampur Development Authority (BDA) for development of Integrated Commercial – cum – Residential Complex in Berhampur, the Appellant had participated in the bid and became the highest bidder having quoted an amount of Rs 9.40 crore for a project based on the PPP model i.e. Public-private partnership. The Appellant Company deposited 25% of the bid amount and thereafter an LOI was issued in its favour for the remaining amount and execution of the project within 180 days, failing which the LOI was cancelled. Assailing the same, petition was filed wherein the Court directed the petitioners to pay the remaining bid amount within 2 weeks and in the meanwhile restricted the respondent company to not issue any work order to anybody in view of the said payment, failing which the order will stand vacated. The Appellant failed to make the payment subsequent to which filed a petition under Section 9 of Arbitration Act which was disposed off stating non-maintainability. Aggrieved by this order, the present appeal has been filed.

Counsel for the appellants submitted that there is an arbitration clause to resolve the dispute between the parties arising out of the contract in question. It was further submitted that W.P. (C) No.8653 of 2015 has been filed assailing the action of the Respondent in cancelling the LOI unilaterally. Thus, the pendency of the writ petition does not affect in anyway the maintainability of the petition under Section 9 of the Arbitration Act, as the cause of action for filing of both the petitions is completely different.

Counsel for the respondent submitted that neither any agreement could be executed between the parties nor could it be registered as required under Section 17 of the Registration Act, 1908 in order to make the draft agreement a concluded contract between the parties, hence Clause- 32.2 of the Part-II of the draft agreement cannot confer any right on the Appellant to invoke the arbitration clause.

The Court relied on National Highways and Infrastructure Development Corporation v. BSPL Infrastructure Limited, (2019) 15 SCC 25 and P.S.A. Mumbai Investments PTE. Limited v. Jawaharlal Nehru Port Trust, (2018) 10 SCC 525 wherein it was observed that the Appellant has not filed any written agreement and in absence of any concluded contract no right can be conferred on the parties to invoke the arbitral clause.

The relevant para is stated below:

14. Under Section 7 of the Indian Contract Act, 1872 in order to convert a proposal into a promise, the acceptance must be absolute and unqualified. It is clear on the facts of this case that there is no absolute and unqualified acceptance by the Letter of Award – two or three very important steps have to be undergone before there could be said to be an agreement which would be enforceable in law as a contract between the parties.”

The Court observed “The object of Section 9 is to make interim arrangement to protect the lis before or during arbitral proceeding or at any time after making of the arbitral award. Since an interim protection has already been granted by this Court on 11.05.2015 in W.P.(C) No.8653 of 2015, a proceeding under Section 9 of the Arbitration Act is not maintainable. It is a different issue that the Appellant did not respect the interim protection granted by this Court, by complying with the condition to make it operative. Even otherwise, the demeanor of the Appellant does not entitle it to a protection under Section 9 of the Arbitration Act.”

The Court thus held that in view of the ratio decided in the judgments relied, it is crystal clear that in order to invoke the arbitration clause and make it operational, there must be a concluded contract between the parties as envisaged under Section 7 of the Contract Act, 1872 which is conspicuously absent in the case at hand

In view of the above, appeal was dismissed.[Forum Projects Private Limited v. Berhampur Development Authority, 2020 SCC OnLine Ori 925, decided on 02-12-2020]

Arunima Bose, Editorial Assistant has put this story together

Case BriefsSupreme Court

Supreme Court: The bench of RF Nariman and Navin Sinha, JJ has held that “serious allegations of fraud” as a ground for exemption from arbitral proceedings arise only if either of the two tests laid down are satisfied, and not otherwise.

  • The first test is satisfied only when it can be said that the arbitration clause or agreement itself cannot be said to exist in a clear case in which the court finds that the party against whom breach is alleged cannot be said to have entered into the agreement relating to arbitration at all.
  • The second test can be said to have been met in cases in which allegations are made against the State or its instrumentalities of arbitrary, fraudulent, or malafide conduct, thus necessitating the hearing of the case by a writ court in which questions are raised which are not predominantly questions arising from the contract itself or breach thereof, but questions arising in the public law domain.


The Court was hearing an appeal from the interlocutory judgment and order passed in the appeal under section 9 of the Arbitration and Conciliation Act, 1996 by the Bombay High Court in a dispute between HSBC and Avitel India.

HSBC made an investment in the equity capital of Avitel India for a consideration of USD 60 million in order to acquire 7.8% of its paid-up capital. This was done after Avitel India told HSBC that it was at a very advanced stage of finalising a contract with the British Broadcasting Corporation [BBC] to convert the BBC’s film library from 2D to 3D. This contract was expected to generate a revenue of USD 300 million in the first phase, and ultimately over USD 1 billion and hence, an investment of USD 60 million was required. HSBC, however, discovered that he purported BBC contract was non-existent and was set up by the Appellants to induce HSBC into investing the aforesaid money. Though Avitel Dubai received the entire investment proceeds of USD 60 million, it appeared that around USD 51 million were not used to purchase any equipment to service the BBC contract, but appeared to have been siphoned off to companies in which its promoters, the Jain family, had a stake.


Section 10 of the Contract Act states that all agreements are contracts if they are made with the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Section 14 states that consent is said to be free when it is not caused inter alia by fraud as defined in section 17. Importantly, the section goes on to say that consent is said to be so caused when it would not have been given but for the existence, inter alia, of such fraud. Where such fraud is proved, and consent to an agreement is caused by fraud, the contract is voidable at the option of the party whose consent was so caused.


If it is clear that a civil dispute involves questions of fraud, misrepresentation, etc. which can be the subject matter of such proceeding under section 17 of the Contract Act, and/or the tort of deceit, the mere fact that criminal proceedings can or have been instituted in respect of the same subject matter would not lead to the conclusion that a dispute which is otherwise arbitrable, ceases to be so.


Explaining the difference between a contract being obtained by fraud and performance of a contract (which is perfectly valid) being vitiated by fraud or cheating, the Court said that the latter would fall outside section 17 of the Contract Act, in which the remedy for damages would be available, but not the remedy for treating the contract itself as being void. This is for the reason that the words “with intent to deceive another party thereto or his agent” must be read with the words “or to induce him to enter into the contract”, both sets of expressions speaking in relation to the formation of the contract itself. This is further made clear by sections 10, 14 and 19, all of which deal with “fraud” at the stage of entering into the contract. Even section 17(5) which speaks of “any such act or omission as the law specially deals to be fraudulent” must mean such act or omission under such law at the stage of entering into the contract.

Thus, fraud that is practiced outside of section 17 of the Contract Act, i.e., in the performance of the contract, may be governed by the tort of deceit, which would lead to damages, but not rescission of the contract itself. Both kinds of fraud are subsumed within the expression “fraud” when it comes to arbitrability of an agreement which contains an arbitration clause.


After reading the issues and some of the material findings in the Foreign Final Award, the Court came to the conclusion that the issues raised and answered are the subject matter of civil as opposed to criminal proceedings. The Court said that the fact that a separate criminal proceeding was sought to be started and may have failed was of no consequence whatsoever.

The Court further held that a reading of the Foreign Final Award in this case would show that a strong prima facie case has indeed been made out as the Award holds the BBC transaction as a basis on which the contract was entered into and the USD 60 million paid by HSBC, which would clearly fall within fraudulent inducement to enter into a contract under section 17 of the Contract Act. Such a contract would be voidable at the instance of HSBC. Also, the findings on the siphoning off of monies that were meant to be allocated for the performance of the BBC contract would attract the tort of deceit.

It, hence, concluded:

  • That there is no such fraud as would vitiate the arbitration clause in the SSA entered into between the parties as it is clear that this clause has to be read as an independent clause. Further, any finding that the contract itself is either null and void or voidable as a result of fraud or misrepresentation does not entail the invalidity of the arbitration clause which is extremely wide
  • That the impersonation, false representations made, and diversion of funds are all inter parties, having no “public flavour” as explained in paragraph 14 so as to attract the “fraud exception”.

[Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., 2020 SCC OnLine SC 656, decided on 19.08.2020]

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] 

Hot Off The PressNews

Supreme Court: The bench of SA Bobde and SA Nazeer, JJ has issued notice to Pometon Spa, an Italian company involved in manufacturing, marketing of steel shot and steel grit, in a petition filed by Rotocast Industries, an Indian steel grit company, for appointment of arbitrator for resolution of dispute between the 2 companies.

According to the petition filed by Swarnendu Chatterji and Pallavi Pratap,

  • the 2 companies had entered into a Joint Venture wherein Pometon supplied special manufacturing equipment to Rotocast and would then sell the steel shot manufactured by Rotocast in regions around the world.
  • However, the machineries that were supplied were faulty which led to manufacture of defective product right from the beginning.
  • Several requests were made to the Respondents on various occasions, however, no help on the part of Respondents to solve the problems, which led to the total failure on the Joint Venture Project.
  • The petitioner has incurred losses to the tune of around Rs. 11 Cr.
  • The dispute relates to Supply of faulty and poor quality of machinery pursuant to Agreements dated 23.12.2018, which contains Arbitration Clause and any dispute arising out of Principal Agreement is to be delivered by way of arbitration which the petitioner has availed by invocation of the arbitration clause.

Since the Arbitration Clause is in the Main agreement and not in the other 2 agreements entered into by the parties i.e. Supply Agreement and Distribution Agreement, the question that arises for consideration is,

“Whether the Arbitration Clause in the Principal Agreement dated 23.12.2013, which refers to two other Agreements i.e. Supply Agreement and Distribution Agreement will also be read into the other two Agreements vide the theory of Incorporation?”

The petition reads,

“It is settled law that, Arbitration Clause in the principal contract can be imported into the subsequent contracts, notwithstanding the fact that arbitration clause is not specifically provided for in the subsequent Agreements or Agreements which are concurrent with the Principal Contract. Such incorporation of arbitration clause to a subsequent contract has been statutorily recognized [Section 7(5) Of the Arbitration and Conciliation Act, 1996]”

The petition not just calls for appointment of the arbitrator but also deals with the following important questions of law:

  1. Interpretation of Section 7(5) of the Arbitration and Conciliation Act, 1996.
  2. Whether the arbitration clause in the main agreement can be read into the subsequent agreements
  3. The arbitration clause in the agreement supersedes the dispute clause in the purchase order.
Case BriefsHigh Courts

Madhya Pradesh High Court: Petitioner had filed this petition before a Bench of Subodh Abhyankar, J., under Article 226 of the Constitution of India against the order passed by the respondent.

It was directed by the respondent that preference should be given to the warehouses of MP Warehousing and Logistic Corporation if allotment of warehouses occurs and after exhausting the same, other warehouses of private parties may be used, which were taken on rent. Petitioner submitted that he had taken a loan from SBI for construction of a warehouse and since the order of preference to the warehouses of MPWLC only was passed, petitioner could suffer undue loss despite entering into an agreement with the Warehousing Corporation. Thus, impugned order was not justified.

High Court found the arbitration clause in the agreement between petitioner and respondents according to which the validity of impugned order is a dispute and petitioner should have gone for arbitration. Accordingly, since there was an alternate remedy available, the present petition was dismissed as the Court could not invoke its jurisdiction under Article 226 of the Constitution of India. [Gupta Warehouse v. State of MP, 2019 SCC OnLine MP 98, dated 03-01-2019]

Case BriefsHigh Courts

Karnataka High Court: A Single judge bench comprising of Dinesh Maheshwari, J. while hearing a petition praying for the appointment of an arbitrator, ruled that if an agreement between parties provides for arbitration and a dispute arises therefrom then it must be settled through arbitration.

The petitioner company, involved in exporting of fruit products, approached the respondent to process mangoes for export purpose. On respondent’s assurance that it possessed the necessary machinery and expertise to process mangoes, an agreement was executed between the parties. However, respondent delayed in the process of unloading mangoes. Since the season was drawing to a close and there was a loss in business due to the delays caused by respondent, the petitioner gave it a concession for procuring mangoes on its own and a further concession for processing the rejections into mango pulp. But still the respondent did not take steps to procure mangoes and also failed to meet the quantity and quality of the finished product.

Despite these lapses, the respondent raised an invoice which the petitioner refused to clear. In turn, the petitioner sent it a legal notice demanding payment for loss caused due to respondent’s failure to meet its contractual obligations. Since respondent did not revert to the said notice, petitioner invoked arbitration clause of the agreement nominating an arbitrator and called upon respondent to do the same. Respondent’s failure to even nominate an arbitrator, constrained the petitioner to file the instant petition.

The limited aspect for the court’s consideration was whether there existed an arbitration agreement between the parties. On perusal of the agreement executed between parties, the court noted that clause 5 of the said agreement provided that in case of disputes between parties not being settled amicably, the same would be settled in arbitration.

It was held if a dispute between the parties cannot be resolved amicably and there is the failure to appoint an arbitrator, then in such a case, it is just and proper that an independent arbitrator be appointed to adjudicate upon and decide such dispute. Accordingly, the petition was disposed of by appointing a retired judge as an arbitrator.[Pellagic Food Ingredients (P) Ltd. v. Oceanic Edibles International Limited, Civil Miscellaneous Petition No. 300 of 2016, decided on 09-10-2018]

Case BriefsForeign Courts

Supreme Court of Singapore: A Single Judge Bench of Choo Han Teck, J., dismissed appeals filed against the order of the Assistant Registrar, whereby the application for stay filed by the appellants on account of an arbitration clause, was dismissed.

The main issue that arose before the Court was whether a stay should be granted in favour of three defendants (appellants) on the ground of effective case management, even though they were not parties to arbitration.

The Court observed that effective case management is not a legal principle, it is rather an administrative term used to denote the administrative functions of the courts such as placing cases in order of priority, fixing the dates for hearing, no. of days for hearing etc. Although there is a possibility of conflicting findings by the arbitrator and the Court that should not be the only ground to stop the plaintiff from proceeding against all the four defendants collectively especially when the plaintiff claims that all the four defendants had conspired to cause him harm. The order of stay was granted in favour of defendant no.1 because it was a party to the arbitration while the rest of the defendants were not.

The Court held that whatever might be the outcome of the arbitration, it will not bind the plaintiff or the three defendants in an action before the Court. Further, there was no good reason to grant a stay in favour of the three defendants, who were not even parties to the arbitration, so that they can take their seats as spectators to the arbitration proceedings. Hence, the assistant registrar had rightly rejected the application of all the other defendants apart from defendant no.1. Resultantly, the appeals filed by the appellants were dismissed by the Court. [Epoch Minerals Pte Ltd. v. Raffles Asset Management (S) Pte Ltd., [2018] SGHC 223, order dated 08-10-2018]

Case BriefsHigh Courts

Delhi High Court: A Single Judge Bench comprising of Navin Chawla, J., declined to exercise jurisdiction in entertaining a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 holding the seat Arbitration to be in London.

The petition was filed under Section 34 in a matter arising out of a Time Charter Party Agreement entered into between the parties. the respondent challenged the jurisdiction of the High Court contending that Part I of the Act was not applicable as the seat of arbitration in the present petition was at London. It was an undisputed fact that according to the Arbitration Clause contained in the Agreement, the seat of arbitration was to be at London though the hearings were being conducted in New Delhi. It was also undisputed that the petitioner had itself challenged the award impugned before the High Court of Justice, Business and Property Courts of England and Wales, Commercial Court (QBD) by way of a petition under Section 68 of the (English) Arbitration Act, 1996. In December 2010, the respondent, vide a letter, had sought change of seat of arbitration. Subsequently, vide its letter dated 23 March 2011, the petitioner informed the respondent that the venue of the arbitration could be New Delhi and it still be governed by the (English) Arbitration Act, 1996 and by the procedure as prescribed by the London Maritime Arbitrators Association Rules (LMAA Rules). This was confirmed too by the respondent. Thereafter, pursuant to the passage of the award impugned, the petitioner filed the instant petition which was challenged by the respondent as mentioned hereinabove.

The High Court perused the record and was of the view that a reading of the correspondence exchanged between the parties would clearly show that the parties did not arrive at a consensus for change of seat of arbitration from London to New Delhi. It was observed that the “venue cannot be construed as a seat of arbitration”. Reference was made to Union of India v. Hardy Exploration and Production (India) INC, 2018 SCC OnLine SC 1640 and it was held that not only the Arbitration clause contained in the Time Charter Party Agreement but also the conduct of the parties, gathered from the exchange of correspondence, their conduct before the Arbitral Tribunal as also the conduct subsequent to the passing of the award impugned, would lead to a conclusion that the parties agreed on the seat of arbitration to be at  London. Therefore, the Court held that it lacked jurisdiction under Section 34 of the Act. Resultantly, the petition was dismissed. [Dredging Corporation of India v. Mercator Ltd.,2018 SCC OnLine Del 11930, decided on 10-10-2018]

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

Karnataka High Court: A Single judge bench comprising of Dinesh Maheshwari, J. while hearing a civil writ petition for appointment of arbitrator noted that even after termination of an agreement entered into between the parties, the arbitration agreement survives.

Brief background of the case was that the respondent had entered into a MoU with one Sandip Foundation. After a certain period of time, Sandip Foundation passed a resolution under which all its activities under the said MoU were transferred to the petitioner institution which specialized in developments and distribution of course material for various technical and non-technical courses. Respondent – University issued a notification withdrawing certain courses from the academic collaborative institutions and despite assuring that the students already admitted would not be affected and could continue their courses, it failed to conduct examinations. This led to the petitioner issuing a notice calling upon the respondent to commence arbitration proceedings in terms of the MoU. The respondent replied by terminating the MoU and did not respond to petitioner’s multiple requests and notices for arbitrating their dispute. The sole contention raised on behalf of the respondent was that since the MoU had been terminated, the arbitration clause contained therein did not survive. Hence, the petitioner was constrained to file the instant petition for appointment of a sole arbitrator to adjudicate their disputes.

The sole question posed before the court was as to whether there was an arbitration agreement between the parties. The court went through clauses of the MoU entered into between the parties and noted that clause 14 of the MoU clearly stipulated that disputes between parties be referred to arbitration. It was observed that despite issuing a notice to the respondent, it did not take steps for appointment of an arbitrator. Further, the court rejected the argument that the termination of MoU had the effect of terminating arbitration clause as well.

On the aforesaid holding and observations, the writ petition was disposed of by giving directions for appointment of an arbitrator. [SCOPE v Karnataka State Open University,2018 SCC OnLine Kar 1568, decided on 03-10-2018]

Case BriefsHigh Courts

Bombay High Court: A Single Judge Bench comprising of Mridula Bhatkar, J. directed the trial court to refer the matter before it to the Arbitrator holding that it had no jurisdiction to try the suit.

The respondent – original plaintiff – had filed a suit based on an agreement entered into between the parties herein in July 2012. Pursuant to the agreement, the respondent was allowed to use the premises concerned on a leave and licence basis. As per the agreement, any dispute in respect of the transaction was to be referred to  Arbitrator under the Arbitration and Conciliation Act, 1996. Subsequently, the said agreement was mutually terminated by the parties in October 2012. Thereafter, the respondent filed a suit for recovery of security deposit and other claims based on the contents of the said agreement. A Notice of Motion was taken out by the appellant seeking that the civil court had no jurisdiction to try the suit in light of the arbitration clause (Clause 11) as contained on the agreement. However, the trial court dismissed the Notice of Motion and held that the civil court had jurisdiction to try the issue. Aggrieved thus, the appellant filed the instant appeal.

The question before the High Court was whether an arbitration clause survives even after bilateral termination of the agreement? The High Court referred to SMS Tea Estate (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66 and Magma Leasing and Finance Ltd. v. Potluri Madhavilata, (2009) 10 SCC 103. It was held that once the parties have intended to refer their dispute to the Arbitrator, then any dispute relating to such agreement must necessarily go to Arbitrator, even if the agreement containing such a clause gets terminated by mutual consent. Consequently, it was held that the trial court had no jurisdiction to try the suit. [Ashok Thapar v. Tarang Exports (P) Ltd.,2018 SCC OnLine Bom 1489, dated 13-07-2018]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal: In the judgment delivered by S.J. Mukhopadhaya (Chairperson), A.I.S. Cheema (Judicial Member) and Balvinder Singh (Technical Member) dismissed all the appeals arising out of the Corporate Insolvency Resolution Process initiated against the appellants (corporate debtors).

National Company Law Tribunal had admitted the application against the appellants under Section 7 of the Insolvency and Bankruptcy Code, 2016 and passed an order of moratorium and had further appointed an ‘Interim Resolution Professional’ with certain directions.

The corporate debtor thereafter filed a writ before the Rajasthan High Court, but the High Court refused to look into the merits, so he then moved before the Supreme Court challenging the order passed by the Adjudicating Authority, but the Apex Court also dismissed it, and then further moved before the Appellate Tribunal which was withdrawn later. In the end, the Corporate Debtor, moved before the Arbitral Tribunal and against this action the Insolvency Resolution Professional moved NCLT which decided the matter against the corporate debtor. The Financial Creditor moved before the Supreme Court which allowed the appeal and stated that the arbitration clause cannot be invoked during the period of moratorium.

This Tribunal held the judgment of the Supreme Court to be final and imposed a cost of Rs 25,000 each on the appellants in the present case, to be paid by bank draft in favour of the Registrar, National Company Law Appellate Tribunal within thirty days of the receipt of this order. [M/s. Hotel Gaudavan Pvt. Ltd. v. Alchemist Asset Reconstruction Co. Ltd., 2017 SCC OnLine NCLAT 439, decided on 30- 11-2017]

Case BriefsHigh Courts

Karnataka High Court: While passing the order in a petition filed under S. 11(5) of the Arbitration and Conciliation Act, 1996 praying to appoint an Arbitral Tribunal, a Single Judge Bench of A.S. Bopanna, J. held that since the process of constitution of Arbitral Tribunal as decided by the parties became unworkable, the Court was empowered to act under S. 11(6) of the Act to constitute the Tribunal.

The petitioner and the respondent entered into a trade agreement which provided for an arbitration clause where under it was agreed that in case of a dispute, the parties will resolve it through arbitration. The clause provided that from the panel of 5 arbitrators enlisted by the respondent, both the parties are to chose 1 arbitrator each who will further choose the third arbitrator. But in the facts of the situation, three out of five arbitrators on the enlisted panel declined to act as an arbitrator. In such circumstances, the petitioner claimed that the arbitration clause became unworkable and this petition was filed.

The respondent opposed the petition contending that the Tribunal had to be re-constituted by the respondent themselves in terms of the general conditions of the contract and the instant petition filed under S. 11 of the Act was not maintainable.

The Court was faced with the question that whether in the facts of the present case, it should decline to entertain the petition and permit the constitution of the Tribunal only from the panel of Arbitrators as re-constituted by the respondent.

The Court perused the arbitration clause and held that it did not provide for the contingency where 3 out of 5 Arbitrators on the panel decline to act. In such a situation the constitution of the Arbitral Tribunal under the contract failed but the arbitration clause subsisted. The situation was such that the parties concerned had to approach the Court by invoking S. 11(5) of the Act and the Court was empowered to constitute an Arbitral Tribunal under S. 11(6) of the Act. Accordingly, the Court appointed three members to constitute the Arbitral Tribunal as prayed for by the petitioner. [JMC Projects (India) Ltd. v. Bangalore Metro Rail Corporation Ltd., C.M.P. No. 97/2016, decided on 06.09.2017]