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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]