Case BriefsSupreme Court

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

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

Below are the key points highlighted by the Court:

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

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

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

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

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

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

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

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

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

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

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


*Judgment by: Justice Indu Malhotra

Case BriefsHigh Courts

Delhi High Court: C. Hari Shankar, J., expressed while addressing a dispute that:

“Where a valid arbitration agreement exists, the decision also underscores the position that, ordinarily, the disputes between the parties ought to be referred to arbitration, and it is only where a clear “chalk and cheese” case of non- arbitrability is found to exist, that the court would refrain from permitting invocation of the arbitration clause.”

The present suit has sought a decree of permanent injunction, restraining the defendants from dealing in electric bikes having a throttle, using “Hero” or any mark deceptively similar as a trademark, brand name or tradename as it infringes the said mark, or result in passing off the defendant’s electric bikes having a throttle as those of the plaintiffs.

Defendants had filed IA 3381/2020 under Section 8 of the Arbitration and Conciliation Act, 1996, seeking reference of the disputes, forming the subject matter of the suit, to arbitration.

Controversy  

Plaintiff 2 claimed to have started its business of electric vehicles and to have launched battery fitted electric cycles and scooters under the well-known trademarks “Hero” and “Hero Electric”.

The said marks were registered under the Trade Marks Rules, 2002. Hero Exports used to be a partnership firm of all the members of the Munjal Group and vide a Family Settlement Agreement, the businesses of the group were divided among 4 family groups designated as – F-1, F-2, F-3 and F-4.

As per the plaintiff Hero Exports along with its business was transferred to F-1 group.

Plaintiffs belong to F-1 Group and defendants to F-4 Group.

Further, it has been submitted that parallelly with the Family Settlement Agreement, a “Trade Mark and Name Agreement” (TMNA), was executed, which assigned the right to use the trademark “Hero”, and its variants, among the Family Groups, in relation to the products and services to which the business of each group catered, to the exclusion of other groups. The plaintiff asserts that the TMNA conferred, on the F-1 group, the exclusive right to use the trademarks “Hero” and “Hero Electric”, and its variants, on all-electric vehicles, including electric bikes.

Partners of Hero Exports incorporated Hero Electric Vehicles (P) Ltd. –Plaintiff 1 to conduct the business of electric vehicles and further it was asserted that Hero Exports gave a license to HEVPL to use the trademarks of Hero Exports in respect of electric vehicles and further to proceed against third parties who sought to infringe the said trademark.

HEVPL has become the single source identifier of electric vehicles sold under the marks “Hero” and “Hero Electric”, and has exclusive statutory and common law rights over the “Hero” and “Hero Electric” trademarks in relation to electric vehicles, which include electric bikes.

Plaint alleged that Lectro was manufacturing and selling electric bikes through Hero Electric under the brand “Hero”.

The plaintiffs espied Lectro selling and promoting throttle assisted electric bikes under the brand name “Hero”. This, according to the plaint, was completely mala fide, as the defendants were aware that the exclusive right to use the trademark “Hero” and “Hero Electric”, for electric vehicles, vested in the plaintiffs, who had built up a reputation in that regard.

Defendants with the above act encroached upon the exclusive contractual statutory and common law rights of the plaintiffs in the trademarks “Hero” and “Hero Electric”.

Analysis

In the Supreme Court decision of Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1,  Court authoritatively expounded on the scope of the jurisdiction of a Court, examining and application under Section 8 of the 1996 Act.

Bench observed that the decision in Vidya Drolia has been followed by this Court as well as by other High Courts.

Further while discussing the principles that emerged from the above decision, Court stressed upon criterion (viii), which as follows:

(viii) The scope of examination by the Court exercising jurisdiction under Section 8 or under Section 11, is prima facie in nature. The Court is not to enter into the merits of the case between the parties. It is only to examine whether the dispute is prima facie arbitrable under a valid arbitration agreement. This prima facie examination is intended to weed out manifestly and ex facie non-existent or invalid arbitration agreements or non-arbitrable disputes, thereby cutting the deadwood and trimming off the side branches, in cases where the litigation cannot be permitted to proceed. The proceedings are preliminary and summary in nature and should not result in a mini-trial. Unless there is a clear case of non-existence of a valid arbitration agreement, or of the dispute being ex facie non-arbitrable, tested on the above parameters, the court should leave these aspects to be decided by a competently constituted arbitral tribunal. Relegation to arbitration should be regarded as a rule, and resolution by the civil court, where a valid arbitration agreement exists and is sought to be invoked by one of the parties, as an exception. The expression “chalk and cheese situation”, as used by this Court has, in this background, been approved by the Supreme Court. “When in doubt,” says Ramana, J., in his concurring opinion, “refer”. (Having said that, the “doubt”, in my view, has to be real and substantial, and not merely an escape route to avoid examining the issue in perspective.) 

Adding to the above, Bench stated that while examining the aspect of arbitrability of the dispute, or the existence of a valid arbitration agreement binding the parties, in exercise of Section 8, Court has to always remain alive to the fact that it is exercising the very same jurisdiction which the Arbitral Tribunal is empowered to exercise.

“…where the Court finds the case to be “chalk and cheese”, and where referring the matter to the arbitral process would be opposed to public interest or public policy, and a futility ex facie, that the Court should nip the request for referring the dispute to arbitration in the bud.”

Bench agreeing with Mr Akhil Sibal stated that the dispute between the plaintiffs and the defendants required a holistic appreciation of the FSA and the TMNA, their various covenants and the interplay, in order to adjudicate on the rights conferred on the various family groups.

Adding to the above, court stated that the disputes between parties are ex-facie arbitrable in nature, seen in the light of the provisions of the FSA and TMNA.

The controversy, in the present case, does not relate to grant, or registration, of trademarks. The trademarks already stood granted, and registered, prior to the FSA and TMNA.

The dispute is regarding the Family Group to which the rights to use the said trademarks, in connection with electric cycles and e-cycles had been assigned, by the FSA and TMNA.

Bench in view of the above stated that the dispute does not fall under any of the categories of disputes excepted by the Supreme Court, from the arbitral umbrella.

The right that the plaintiffs seek to assert, in the plaint, is clearly against the F-4 group, and the F-4 group alone, and not against the whole world.

The dispute is clearly inter-se amongst two Family Groups, pillowed on the rights emanating from the Family Settlement Agreement and Trade Mark and Name Agreement and essentially alleged infraction of the terms of the FSA and TMNA, not of the provisions of the Trade Marks Act.

The right asserted by the plaintiffs is not a right that emanates from the Trade Marks Act, but a right that emanates from the FSA and the TMNA, and is not asserted vis-à-vis the whole world, but is asserted specifically vis-à-vis the F-4 Family Group.

In view of the above discussion, Court decided that it would be more appropriate if the petitioner were to present the present plaint before the Arbitrator and seek any interim or interlocutory relief as it may choose under Section 17 of the 1996 Act.

Hence, the suit shall be referred to Arbitration, parties would be at liberty to appoint the arbitrator/arbitrators in accordance with the covenants of the FSA and TMNA and or approach the Court.[Hero Electric Vehicles (P) Ltd. v. Lectro E-Mobility (P) Ltd., CS (Comm) 98 of 2020, decided on 02-03-2021]


Advocates before the Court:

For the plaintiffs: Mr Sudhir Chandra, Sr. Adv. with Mr Ankur Sangal, Mr Sahil Narang, Ms. Pragya Mishra and Ms Richa Bhargava, Advs.

For the Defendants: Mr Akhil Sibal, Sr. Adv. with Mr Vikas Mishra, Ms Malini Sud, Mr Nikhil Chawla, Ms Shriya Mishra, Advs.

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of RF Nariman*, Navin Sinha and KM Joseph, JJ has held that an appeal under section 37(1)(c) of the Arbitration and Conciliation Act, 1996 would be maintainable against an order refusing to condone delay in filing an application under section 34 of the Arbitration Act, 1996 to set aside an award.

The Court was hearing an appeal arising out of a certificate issued under Article 133 read with Article 134A of the Constitution of India by the High Court of Delhi thereby giving rise to the question as to whether a learned single Judge’s order refusing to condone the Appellant’s delay in filing an application under section 34 of the Arbitration Act, 1996 is an appealable order under section 37(1)(c) of the said Act.

Interpreting Section 37(1)(c), the Court took note of the fact that the expression “setting aside or refusing to set aside an arbitral award” has to be read with the expression that follows – “under section 34”. Section 34 is not limited to grounds being made out under section 34(2).

As per section 34(1), an application made to set aside an award has to be in accordance with both sub-sections (2) and (3). Such application would not only have to be within the limitation period prescribed by sub-section (3), but would then have to set out grounds under sub-sections (2) and/or (2A) for setting aside such award. What follows from this is that the application itself must be within time, and if not within a period of three months, must be accompanied with an application for condonation of delay, provided it is within a further period of 30 days, this Court having made it clear that section 5 of the Limitation Act, 1963 does not apply and that any delay beyond 120 days cannot be condoned.

“Obviously, therefore, a literal reading of the provision would show that a refusal to set aside an arbitral award as delay has not been condoned under sub-section (3) of section 34 would certainly fall within section 37(1)(c). The aforesaid reasoning is strengthened by the fact that under section 37(2)(a), an appeal lies when a plea referred to in sub-section (2) or (3) of section 16 is accepted.”

The Court, hence, highlighted that the Legislature, when it wished to refer to part of a section, as opposed to the entire section, did so.

“Contrasted with the language of section 37(1)(c), where the expression “under section 34” refers to the entire section and not to section 34(2) only, the fact that an arbitral award can be refused to be set aside for refusal to condone delay under section 34(3) gets further strengthened.”

Further, so far as section 37(1)(a) is concerned, where a party is referred to arbitration under section 8, no appeal lies. This is for the reason that the effect of such order is that the parties must go to arbitration, it being left to the learned Arbitrator to decide preliminary points under section 16 of the Act, which then become the subject matter of appeal under section 37(2)(a) or the subject matter of grounds to set aside under section 34 an arbitral award ultimately made, depending upon whether the preliminary points are accepted or rejected by the arbitrator.

It is also important to note that an order refusing to refer parties to arbitration under section 8 may be made on a prima facie finding that no valid arbitration agreement exists, or on the ground that the original arbitration agreement, or a duly certified copy thereof is not annexed to the application under section 8.

“In either case, i.e. whether the preliminary ground for moving the court under section 8 is not made out either by not annexing the original arbitration agreement, or a duly certified copy, or on merits – the court finding that prima facie no valid agreement exists – an appeal lies under section 37(1)(a).”

Likewise, under section 37(2)(a), where a preliminary ground of the arbitrator not having the jurisdiction to continue with the proceedings is made out, an appeal lies under the said provision, as such determination is final in nature as it brings the arbitral proceedings to an end. However, if the converse is held by the learned arbitrator, then as the proceedings before the arbitrator are then to carry on, and the aforesaid decision on the preliminary ground is amenable to challenge under section 34 after the award is made, no appeal is provided.

The Court, hence, concluded,

“Undoubtedly, a limited right of appeal is given under section 37 of the Arbitration Act, 1996. But it is not the province or duty of this Court to further limit such right by excluding appeals which are in fact provided for, given the language of the provision as interpreted by us hereinabove.”

[Chintels India Ltd. v. Bhayana Builders Pvt. Ltd.,  2021 SCC OnLine SC 80, decided on 11.02.2021]


*Judgment by: Justice RF Nariman

Know Thy Judge| Justice Rohinton F. Nariman

Appearances before the Court by:

For Appellant: Advocate Rajshekhar Rao

For Respondent: Senior Advocate Mukul Rohatgi

Op EdsOP. ED.

Arbitration is considered as one of the most preferred modes of dispute resolution as it is expedient, it values party autonomy and ensures party equality and these features are also the pillars on which arbitration as a method of dispute resolution enjoys its standing.

Mr Fali S. Nariman in one of his lectures said “the development of arbitration in India is not attributable to the success in arbitration, rather to the failures of the Court”.

The above-quoted statement quite vehemently and rightly express the development of the law concerning arbitration in India. The Indian jurisprudence has seen a constant development in its understanding and applicability of the concepts and principles of arbitration and the major changes in its jurisprudence has to be attributed to the developing judicial understanding over the same.

However, this method of dispute resolution suffers from various limitation and this article will be dealing with the issue of arbitrability, which is one of the most important issues and limitations of arbitration and it discusses whether the scope of the Arbitration Tribunal extends to disputes of all nature or there exists disputes which the Tribunal is not capable of resolving and have to be mandatorily tried in the courts.

Arbitrability

Arbitrability refers to determining which type of disputes may be resolved by arbitration and what kind of disputes shall be exclusively dealt with by the courts.[1] As per Article V(2)(a) of the New York Convention, the arbitration award may be refused recognition or enforcement if the subject-matter of the difference is not capable of settlement by arbitration under the law of that country.[2] Further, Article 36(1)(b) of the UNCITRAL Model Law, a court can refuse enforcement if it finds that the subject-matter of the dispute is not capable of settlement under the law of the State.[3]

In Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd., the Supreme Court while propounding the three-prolonged test of determining arbitrability bifurcated the disputes into dealing with rights in rem and right in personam and held that the latter were arbitrable whereas the former was not arbitrable as they have the potential to affect the society at large.[4] The  Court also listed out certain types of disputes which were not arbitrable and there has been an evolving jurisprudence which has further added type of disputes to this list.

                  There are various categories of dispute like intellectual property rights, antitrust, insolvency, criminal matters, fraud, etc. which are considered to be non-arbitrable.[5] Fraud has been defined as concealing or making false representation by way of a statement or conduct which results into loss of the person relying on such representation.

Section 17 of the Contract Act, 1872[6] defines “fraud” to mean and include suggesting “a fact knowing it to be untrue, knowingly active concealment of a fact, making a promise without intending to fulfil it or any other act which is capable of deceiving and is committed by a party to a contract, or with his participation, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract”.

The Evolving Jurisprudence

The following judicial decisions highlight the evolving jurisprudence over the concept of arbitrability of fraud:

  1. Russel v. Russel.—The issue of arbitrability of fraud for the first time arose in this case, wherein it was held that if there exists prima facie evidence to support the existence of fraud the court can refuse to refer the matter to arbitration.[7]
  2. Thereafter, the Supreme Court in Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak  held that cases involving serious allegations of fraud were to be decided by the court and it was a valid ground for not referring the matter to arbitration.[8]
  • The  Supreme Court  again in N. Radhakrishnan v. Maestro Engineers  held that an issue of fraud is not arbitrable as the case involved serious allegations of fraud and such dispute were to be settled by the courts through detailed evidence led by both parties. In addition to this, the  Court also emphasised that the dispute would be non-arbitrable on public policy consideration if it was related to serious allegations of fraud.[9]
  1. A. Ayyasamy v. A. Paramasivam[10].—It was held that, cases where there exists serious allegation of fraud are to be treated as non-arbitrable and such matters have to be dealt with only by the civil courts. However in case, the allegations are in the nature of fraud simpliciter, such disputes can be dealt by the Arbitral Tribunal.[11] The Supreme Court further deliberated that issues in which there exists serious allegation of forgery/fabrication of documents or where fraud is capable of invalidating the entire contract or affects the validity of the arbitration clause will be dealt only by the courts and the Arbitration Tribunal will not have jurisdiction to decide the same.
  2. The concept of “complex fraud” may be found in the opinion of Lord Hoffman, in Fiona Trust & Holding Corpn. v. Privalov, where the Court dealt with the concept of “complex fraud” and held that it refers to a scenario where the very foundation of an arbitration agreement is challenged due to a fraudulent act.[12]
  3. Further in Rashid Raza v. Sadaf Akhtar, the  Supreme Court formulated a two-step test to determine what constitutes a complex fraud It held that firstly, it has to be seen that whether the plea perrmeates the entire contract and specifically the arbitration agreement, thus rendering it void and secondly, the courts have to see whether the allegations of fraud are related to the internal affairs of the parties and have no implication in the public domain and such case it would be arbitrable.[13]
  • The Supreme Court in Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd. observed that a dispute becomes non-arbitrable only when the court comes to the conclusion that the “serious allegations of fraud” which make arbitration agreement itself is inexistent and has been vitiated by fraud; or in cases where the allegations are levelled against the State or its instrumentalities, relating to arbitrary, fraudulent, or mala fide conduct, raising  the question of public law as opposed to questions limited to the contractual relationship between the parties and rest all the allegations of fraud are arbitrable.[14]

The Problematic Jurisprudence

The existing jurisprudence highlights the complexity with which the issue of arbitrability of fraud has been dealt with and more importantly it has been overfilled with various test making it more prone for judicial intervention. There exists no sound logic for differentiating between fraud simpliciter and fraud complex as the arbitrators also has the power to seek assistance for the recording of evidence under Section 27 of the Arbitration and Conciliation Act, 1996[15] (hereinafter referred to as “the Act”) and hence decide accordingly based on such evidence the issue of fraud like the courts would ordinarily do.

The fact that this distinction is superfluous and impractical is evident by the fact that the Supreme Court itself after suggesting this distinction in Ayyaswamy[16] has suggested new and complex factor to the same and thus making it unpredictable and wavering.

Even the Law Commission in its 246th Report proposed addition of sub-section (6) to Section 16 of the Act and empowering the Tribunal to pass an award even if there were allegations of fraud  which would still leave the parties with the option of raising the issue of arbitrability before the arbitrator at the pre-award stage and thus adhering to the principle of Kompetenz-Kompetenz and if rejected by the Tribunal, it would be available at the post-award stage as the award can be challenged on the ground of conflicting with the public policy of India under Section 34(2)(b)(ii) of the 1996 Act.[17]

Further, the  Supreme Court in  World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pte. Ltd. while dealing with a foreign seated arbitration held that every kind of fraud is arbitrable, there exists no reasonable differentia for this different approach for foreign and domestic arbitration.[18]

Solving the Problem

Recently, the  Supreme Court in Vidya Drolia v. Durga Trading Corpn. held that allegations of fraud are arbitrable when it relates to a civil dispute and exclude only those claims which vitiates and render the arbitration clause invalid.[19] The Court analysed the fact that arbitration is a private dispute resolution mechanism which aims at securing just, fair and effective resolution of disputes in an expedient manner. The Court focused on the distinction between matters which deal with right in rem and right in personam.

Previously, in N Radhakrishnan case[20], the Supreme Court had held that a dispute would be non-arbitrable on public policy constraints if it is related to serious allegations of fraud. However, the Supreme Court in Vijay Drolia[21] held that if the reasoning propounded in N. Radhakrishnan[22] has to be accepted, it would be similar to agreeing that the arbitration mechanism of the country is flawed and compromised one which can be set aside on grounds that public policy or public interest demands that such dispute should be decided in the court and it would be abrupt to second this opinion. In addition to this, the  Court also highlighted the fact that an  arbitrator is also an expert and decides a case on basis of facts, evidence and law. Further simplicity, informality and expedition are hallmarks of arbitration. Also the principle of party autonomy which finds its place in Sections 8[23] and 11[24] of the Act and also Section 89 of the Civil Procedure Code, 1908[25] of respecting the autonomy of parties and their decision to arbitrate the matter by simply referring the matter to arbitration and not try it themselves.

The  Court further highlighted that the general rule and principle, given the legislative mandate clear from Act 3 of 2016 and Act 33 of 2019[26], and the principle of severability and Kompetence Kompetence, is that the Arbitral Tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. The Court has been conferred the power of “second look” on aspects of the non-arbitrability post the award in terms of sub-clauses (i), (ii) or sub-clause (iv) of Section 34(2)(a) or sub-clause (i) of Section 34(2)(b) of the Arbitration Act[27].

The Court propounded the fourfold test for determining the arbitrability of the subject-matter:

  1. When the cause of action and subject-matter of the dispute relates to actions in rem, that do not pertain to subordinate rights in personam that arise from rights in rem;
  2. When the cause of action and subject matter of the dispute affects third-party rights; have erga omnes effect; require centralised adjudication, and mutual adjudication would not be appropriate and enforceable;
  3. When the cause of action and subject-matter of the dispute relates to the inalienable sovereign and public interest functions of the State and hence mutual adjudication would be unenforceable; and
  4. When the subject-matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statute(s).

It held that only when the answer is affirmative, the subject-matter would be considered as non-arbitrable and accordingly it overruled the ratio in N. Radhakrishnan judgment[28]  and held that allegations of fraud can be arbitrable when it relates to a civil dispute. However, the only caveat being that fraud which vitiates or rends the arbitration clause invalid would be non-arbitrable. It further held that matters which are to be adjudicated by the Debts Recovery Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 will not be arbitrable.

Conclusion

This recent judgment of the Supreme Court has cleared its stance over the issue of arbitrability of disputes concerning serious allegation of fraud and its relation to the public policy of India and is definitely a step towards the agenda of a pro-arbitration regime, however in the author’s view the Supreme Court has left the matter half done by holding that “those frauds which vitiate or renders the arbitration clause invalid would still be non-arbitrable”, as this still leaves the scope for judicial intervention in arbitration matters where the courts can delve into the question of validity of the arbitration clause and thus can still intervene in arbitration matters which is against the basic principle of arbitration i.e. Kompetenz-Kompetenz.

In Henry Schein Inc. v. Archer and White Sales Co.,  the US Supreme Court held that the issue of arbitrability must be decided by the arbitrator in all cases and not by the civil courts.[29] It further emphasised that even where any party pleads that the reference to arbitration is baseless or has no grounds, even that plea should be decided by the arbitrator because of the principle of Kompetenz-Kompetenz.

This approach adopted by the US Supreme Court is in consonance with the basic principles of arbitration and hence acts as a benchmark towards establishing and functioning a pro-arbitration regime and is a favourable approach than the one propounded by the Indian Supreme Court. Thus it can be concluded that though the Indian jurisprudence on arbitraibility is moving towards a pro-arbitration regime, it cannot be said to be settled notion and in full consonance with the established principles of arbitration like Kompetenz-Kompetenz.


* Principal Associate, Hammurabi and Solomon Partners.

** IVth year student, BA LLB (Hons.), National Law University, Nagpur.

[1]Nigel Blackaby, Constantine Partasides et al., Redfern and Hunter on International Arbitration, 110, (5th Edn. 2014).

[2]Article V(2) NYC, United Nations Commission on International Trade Law, UNCITRAL Model Law on

 International Commercial Arbitration 1985: With amendments as adopted in 2006 (Vienna: United Nations,

2008), available from www.uncitral.org/pdf/english/texts/arbitration/ml-arb/07-86998_Ebook.pdf.

[3] Article 36, United Nations Commission on International Trade Law, UNCITRAL Model Law on International

 Commercial Arbitration 1985: With Amendments as adopted in 2006 (Vienna: United Nations, 2008)

[4] (2011) 5 SCC 532 

[5]See O.P. Malhotra on The Law and Practice of Arbitration and Conciliation, Third Edn. authored by Indu Malhotra.

[6]http://www.scconline.com/DocumentLink/4JVnT6aM

[7](1880) 14 Ch D 471

[8](1962) 3 SCR 702

[9] (2010) 1 SCC 72

[10] (2016) 10 SCC 386

[11]Shubham Jain and Prakshal Jain, Arbitrability of Fraud in India – Is Ayyasamy only about “Seriousness”?, IndiaCorpLaw (31-10-2019), available at https://indiacorplaw.in/2017/12/arbitrability-fraud-india-ayyasamy-seriousness.html.

[12]Fiona Trust & Holding Corpn. v. Privalov, 2007 UKHL 40.

[13] (2019) 8 SCC 710 

[14]2020 SCC OnLine SC 656

[15] Arbitration and Concialiation Act, 1996 

[16] Supra Note 10.

[17] Law Commission of  India, Report No. 246 on Amendments to the  Arbitration and Conciliation Act, 1996 (2014).

[18](2014) 11 SCC 639

[19]2020 SCC OnLine SC 1018

[20] Supra Note 9.

[21] Supra Note 18.

[22] Supra Note 9.

[23] http://www.scconline.com/DocumentLink/0P4pSy8x.

[24] http://www.scconline.com/DocumentLink/02bfnuC4.

[25] http://www.scconline.com/DocumentLink/3iU0MzIU.

[26] http://www.scconline.com/DocumentLink/L7728DGv.

[27] http://www.scconline.com/DocumentLink/teuo89l3.

[28] Supra Note 9.

[29] 2019 SCC OnLine US SC 1 : 202 L Ed 2d 480 :  139 S Ct 524 : 549 US           (2019)

Case BriefsSupreme Court

Supreme Court: The bench of MM Shantanagoudar* and Vineet Saran, JJ has held that Section 89 of CPC and Section 69-A of Tamil Nadu Court Fees and Suit Valuation Act, 1955 contemplate the refund of court fees in all methods of out-of-court dispute settlement between parties that the Court subsequently finds to have been legally arrived at and not just to those cases where the Court itself refers the parties to any of the alternative dispute settlement mechanisms listed in Section 89 of the CPC.

Issue before the Court

Madras High Court had, on8.01.2020, held that, given their beneficial intent, Section 89 of CPC and Section 69-A of Tamil Nadu Court Fees and Suit Valuation Act, 1955 must be interpreted liberally, in a manner that would serve their object and purpose.

“Construing them narrowly would lead to a situation wherein parties who settle their dispute through a Mediation Centre or other centres of alternative judicial settlement under Section 89, CPC would be entitled to claim refund of their court fee, whilst parties who settle the disputes privately by themselves will be left without any means to seek a refund.”

The High Court was of the opinion that as such differential treatment between two similarly situated persons, would constitute a violation of Article 14 of the Constitution, a constitutional interpretation of Section 89 of the CPC, and resultantly Section 69-A of the 1955 Act, would require that these provisions cover all methods of out-of-court dispute settlement between parties that the Court subsequently finds to have been legally arrived at.

Challenging the said decision, the Madras High Court’s Registry had approached the Supreme Court with the contention that Section 69-A of the 1955 Act only contemplates refund of court fees in those cases where the Court itself refers the parties to any of the alternative dispute settlement mechanisms listed in Section 89 of the CPC. Hence, it does not apply to circumstances such as in the present case, where the parties, without any reference by the Court, privately agreed to settle their dispute outside the modes contemplated under Section 89 of the CPC.

Analysis

Understanding the object of the provisions in question

The object and purpose of Section 89 crystal clear is to facilitate private settlements, and enable lightening of the overcrowded docket of the Indian judiciary.

“This purpose, being sacrosanct and imperative for the effecting of timely justice in Indian courts, also informs Section 69-A of the 1955 Act, which further encourages settlements by providing for refund of court fee.”

The purpose of Section 69-A of the 1955 Act is to reward parties who have chosen to withdraw their litigations in favour of more conciliatory dispute settlement mechanisms, thus saving the time and resources of the Court, by enabling them to claim refund of the court fees deposited by them. Such refund of court fee, though it may not be connected to the substance of the dispute between the parties, is certainly an ancillary economic incentive for pushing them towards exploring alternative methods of dispute settlement.

Why a narrow interpretation would lead to absurd and unjust outcome

The narrow interpretation of Section 89 of CPC and Section 69¬A of the 1955 Act sought to be imposed by the Petitioner would lead to an outcome wherein parties who are referred to a Mediation Centre or other centres by the Court will be entitled to a full refund of their court fee; whilst parties who similarly save the Court’s time and  resources by privately settling their dispute themselves will be deprived of the same benefit, simply because they did not require the Court’s interference to seek a settlement. Such an interpretation would lead to an absurd and unjust outcome, where two classes of parties who are equally facilitating the object and purpose of the aforesaid provisions are treated differentially, with one class being deprived of the benefit of Section 69-A of the 1955 Act.

“A literal or technical interpretation, in this background, would only lead to injustice and render the purpose of the provisions nugatory – and thus, needs to be departed from, in favour of a purposive interpretation of the provisions.”

Further, parties who have agreed to settle their disputes without requiring judicial intervention under Section 89, CPC are even more deserving of this benefit. This is because by choosing to resolve their claims themselves, they have saved the State of the logistical hassle of arranging for a third¬party institution to settle the dispute.

“Though arbitration and mediation are certainly salutary dispute resolution mechanisms, we also find that the importance of private amicable negotiation between the parties cannot be understated. In our view, there is no justifiable reason why Section 69-A should only incentivize the methods of out-of-court settlement stated in Section 89, CPC and afford step brotherly treatment to other methods availed of by the parties.” 

Noticing that there may be situations wherein the parties have after the course of a long-drawn trial, or multiple frivolous litigations, approached the Court seeking refund of court fees in the guise of having settled their disputes, the Court said that in such cases, the Court may, having regard to the previous conduct of the parties and the principles of equity, refuse to grant relief under the relevant rules pertaining to court fees.

How the Registry and State Government would benefit in long run 

Finding it puzzling that the High Court’s Registry should be so vehemently opposed to granting such benefit, the Court said that

“Though the Registry/State Government will be losing a one-time court fee in the short term, they will be saved the expense and opportunity cost of managing an endless cycle of litigation in the long term.”

[High Court of Judicature at Madras  Rep. by its Registrar General v. MC Subramaniam, 2021 SCC OnLine SC 109, decided on 17.02.2021]


*Judgment by: Justice MM Shantanagoudar 

Case BriefsSupreme Court

Supreme Court: The bench of Dr. DY Chandrachud* and MR Shah, JJ has held that the presence of an arbitration clause within a contract between a state instrumentality and a private party does not act as an absolute bar to availing remedies under Article 226.

“If the state instrumentality violates its constitutional mandate under Article 14 to act fairly and reasonably, relief under the plenary powers of the Article 226 of the Constitution would lie.”

In the case where it was argued that a remedy for the recovery of moneys arising out a contractual matter cannot be availed of under Article 226 of the Constitution, the Court clarified that the recourse to the jurisdiction under Article 226 of the Constitution is not excluded altogether in a contractual matter. A public law remedy is available for enforcing legal rights subject to well-settled parameters.

“The jurisdiction under Article 226 is a valuable constitutional safeguard against an arbitrary exercise of state power or a misuse of authority. In determining as to whether the jurisdiction should be exercised in a contractual dispute, the Court must, undoubtedly eschew, disputed questions of fact which would depend upon an evidentiary determination requiring a trial. But equally, it is well-settled that the jurisdiction under Article 226 cannot be ousted only on the basis that the dispute pertains to the contractual arena.”

The Court, however, made clear that though the presence of an arbitration clause does not oust the jurisdiction under Article 226 in all cases, it still needs to be decided from case to case as to whether recourse to a public law remedy can justifiably be invoked.

[Unitech Ltd. v. Telangana State Industrial Infrastructure Corporation, 2021 SCC OnLine SC 99, decided on 17.02.2021]


*Judgment by: Justice Dr. DY chandrachud 

Know Thy Judge| Justice Dr. DY Chandrachud

Experts CornerTariq Ahmad Khan

Government has no business being in businessPrime Minister Narendra Modi 

One of the fastest growing nations in the world is facing problems in becoming a hub of international arbitration. India has often been considered as a jurisdiction that sends mixed signals to the global investor community insofar as investments are concerned. Investors are often confused whether to invest in India or not. The efforts of the Government and the Judiciary in making India a hub of arbitration are praiseworthy however, somewhere we have lost the plot. Interestingly, India started early and was one of the first few countries to adopt the New York Convention in 1960 as compared to Singapore which adopted the same in 1986. Despite that, Singapore stands out as one of the leading centres for International Commercial Arbitration as parties prefer choosing it as a neutral venue for Arbitration. In a short span, Singapore has emerged as a hub of international arbitration alongside popular Arbitration hubs such as Paris, London and Geneva. The credit goes to the Supreme Court of Singapore that has upheld arbitration agreements, enforced foreign awards and construed public policy narrowly and the Government of Singapore that has ensured world class infrastructure and is known for its competence and integrity.

Every country aspires to become the centre of arbitration owing to various benefits that it entails. Also, every country wants to get more and more investment, but the investors take a note of various factors before investing in a country i.e. whether the country has a robust arbitration mechanism, whether the Courts and Government of that country are arbitration friendly or whether there is ease of doing business and stable environment, etc.

In India, most of the arbitrations are ad hoc and we are slowly moving towards Institutional Arbitrations. The Government has taken certain steps to make India a hub of arbitration. The Arbitration and Conciliation (Amendment) Act, 2019 , which was based on the recommendations of B.N. Srikrishna Committee Report, aimed to institutionalise Arbitration in India. It also provides for establishment of an Arbitration Council of India under Sections 43-A to 43-M. However, these steps are not sufficient. India can achieve its dream of becoming a hub of arbitration if the following issues are addressed.

Full-time Arbitration Lawyers

One of the major problems is that we do not have full-time arbitration lawyers. Lawyers often give second preference to arbitration matters and choose the time slot after the court hours for conducting arbitrations. After spending the entire day in court, they are already exhausted and thus, the proceedings do not go on for long. Also, sometimes they seek adjournments if they are in a court hearing and fix dates in arbitrations when they do not have hearings before the court. Similarly, some of the arbitrators, who are also practising in the courts, are unable to give sufficient time to the arbitration proceedings. Therefore, there is a need for full-time Arbitration Lawyers and Arbitrators who can devote sufficient time to arbitration so that there are no delays in the arbitration process.

Sloppy drafting of the law

Before the amendment of 2015, Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter “the 1996 Act”) was an invitation to file objections as it would automatically stay the operation of the arbitral award as soon as the petition under Section 34 was filed. This was a major hurdle in the execution of the arbitral awards. In 2015, this issue was addressed through the amendments made to the 1996 Act. However, the language of the Amendment Act was such that it took three years to understand whether the Amendment Act applied to pending Section 34 petitions or not. Even when the judgment of BCCI[1] was passed, another Section 87 was introduced by the legislature which was later struck down in Hindustan Construction Co. Ltd. v. Union of India [2] . A lot of judicial time got wasted to give clarity to these amendments.

Lack of proper law

The Arbitration and Conciliation (Amendment) Bill of 2021 seeks to amend Section 36 of the 1996 Act and raises several concerns as it provides for an unconditional stay on the operation of the award in case fraud or corruption is involved. This will take us back to the era of the automatic stay of arbitral awards as it would make it convenient for the judgment-debtors to avoid their obligations under the award. There is an ambiguity as to what constitutes fraud or corruption as it has not been defined under the 1996 Act. Thus, in every case a judgment-debtor may allege fraud and corruption for getting an unconditional stay on the operation of the award. As a result, the enforcement of awards will get more difficult and the ease of doing business will be adversely affected.

The Government has recently brought in amendments after amendments which shows that issues were not properly addressed, and the amendments were not properly drafted. In spite of a number of amendments, the seat versus venue conundrum has not been addressed in any of the Amendment Acts. Another example is Section 29-A which is contrary to the idea of minimum judicial interference as enshrined in Section 5 of the Act and an application under Section 29-A may itself take more than a year to decide whether an extension of six months should be granted.

Lack of institutional arbitration

In spite of a few good centres like Delhi International Arbitration Centre (DIAC), Nani Palkhivala Arbitration Centre (NPAC), Mumbai Centre for International Arbitration (MCIA), etc. India still does not have any institution that can be considered in the same league as Singapore International Arbitration Centre (SIAC), International Criminal Court  (ICC), London Court of International Arbitration (LCIA), etc. Most of the Arbitrations in India are ad hoc which is a major reason why arbitration mechanism in India is not robust. A world class arbitral institution would also need a renowned arbitration expert, e.g.  SIAC was led by Gary Born. Owing to the busy schedule of litigation lawyers in India, it is unlikely that any leading lawyer would thoroughly engage with an arbitration centre.

Judicial intervention

Another issue is inadequate support from the Courts. We have seen that there are judicial delays because the courts are overburdened. Once an arbitration matter gets entangled in the Court, then it gets delayed and it cannot be ascertained as to how much time the matter will take. For instance, if we take the example of a Section 34 petition, which deals with challenge to an arbitral award, the same may take forever to decide. The petition is also heard as an appeal by various courts in spite of clear directions from the Supreme Court that the Court under Section 34 does not sit over as an appeal and cannot go into the merits. In many cases, the courts have re-appreciated the evidence and have permitted the counsels to argue the merits of the case at length.

The other problem is that some of the judgments delivered by the High Courts have turned out to be bad jurisprudence. This is because it is not possible for all the courts in India to be on the same page. In fact, we have seen some regressive judgments even by the Supreme Court e.g. ONGC v. Saw Pipes Ltd.[3] We must remember that it takes years to undo the harm which such judgments cause. This forms a perception of India as a jurisdiction which is not arbitration friendly and where investments are not safe.

Practice of Appointment of Retired Judges as Arbitrators

It is surprising to see that the best arbitrators are overburdened with arbitrations because there are not many options to choose from. The reason is that we do not let young arbitration lawyers be appointed as arbitrators and as a result, mostly the retired Judges are appointed. This practice must be done away with and young lawyers must be appointed as arbitrators in disputes. This will make the arbitration mechanism more robust as a whole and the quality of awards will also not suffer. Usually, it gets impossible to maintain the quality of awards while having a huge quantity of arbitration matters. No other country is thus fond of appointing only retired Judges as arbitrators like ours.

Moreover, the appointment of young lawyers as arbitrators is also in line with the disclosure prescribed by Schedule 6. According to the Schedule, the arbitrator is bound to disclose how many ongoing arbitrations he is handling and whether he will be able to finish the arbitration within one year or not.  Also, in highly technical matters, we need skilled arbitrators from a particular field such as maritime arbitration.

Inadequate Representation of the Arbitration Issues: Need for an Arbitration Bar

The leaders of the Bar Associations do not speak about the arbitration issues as they are too busy dealing with the problems of the Court. This is one of the major reasons why the issues relating to arbitration mechanism are not highlighted or addressed. Thus, there is a pressing need to have a Bar to address the prevailing issues and the concerns of the arbitration practitioners.

Rigid Approach of the Arbitrators

Another reason why the arbitration mechanism has failed is because of the rigid approach adopted by the arbitrators. If in a tribunal there is an arbitrator who is strictly going by Civil Procedure Code, 1908 (CPC) and evidence, as opposed to Section 19 which categorically states that strict rules of evidence and CPC will not apply to arbitration, then the whole purpose is defeated. This is because the arbitration proceedings in such cases become just like a civil suit.

In addition to this, Arbitrators generally do not control the cross-examination. We have seen lawyers asking unnecessary and repeated questions, which eventually delays the arbitration proceeding immensely. Thus, the arbitrators must not sit as spectators when the cross-examination is taking place instead, they must control the cross-examination and should not permit questions that are based on contents and interpretation of documents.

Other issues faced during Arbitration Proceedings

The arbitration proceedings in India suffer from other difficulties such as absence of professionalism and mannerism. Arbitrators do not have dates for proceedings for months. This, in turn, leads to unnecessary delays. There is also a dire need to emphasise on the ethics and duties of Arbitrators as well as counsels.

Problems posed by the Public Sector Undertakings (PSUs)

We must focus on PSUs as most of the cases are filed by them. PSUs have a tradition of not settling and contesting till the end. The Government must direct the ministries concerned to analyse which cases should be contested and which should not be contested. For instance, if the award is a reasoned one then the same should not be challenged.

Government Interference

None of the institutions of the world including ICC, SIAC, LCIA, are Government controlled. On the other hand, the New Delhi International Arbitration Centre and Arbitration Council of India have members from the Government. Therefore, a lot will depend on the functioning of Arbitration Council of India and Government’s interference should be least in arbitration matters.

Suggestions and concluding remarks

Arbitration in India is like an unruly horse that moves forward, backward and sometimes even sideways. Undoubtedly, in the past few years, there has been a significant growth of arbitration in India. The situation has improved and now various arbitration centres have come up. These institutions are playing a significant role in strengthening arbitration in the country through their operations and are also imparting knowledge to the general public by organising number of conferences. However, we must remember that hubs are not made by getting a five-star property or by creating the infrastructure only. Making a building is not the only thing required as Delhi already has a lot of buildings. A lot will depend on the honest implementation as bringing amendments is not enough. Also, arbitration culture is required in other cities such as Kanpur, Ludhiana, Kolkata, Lucknow, etc. which are also hub of businesses. Focus should not only be on Delhi and Mumbai.

Ease of doing business, enforcement of contracts, and execution of arbitral awards are some key factors that will help in making any jurisdiction attractive for investment. Former Chief Justice of India Ranjan Gogoi, while speaking at an event organised by India Today, has highlighted the need of having a robust system to deal with commercial disputes. It is pertinent for India to adopt a pro-enforcement approach in order to increase the confidence of the foreign investors.

In cases where well-reasoned awards are passed by the Tribunal, the same should not be challenged by the parties. As officers of the court, lawyers should not resist arbitration or file frivolous challenges to the award to resist enforcement. Effective enforcement of awards would help in making arbitration more robust in India. This, in turn, will help in attracting more investment, which will prove to be beneficial for the economy as a whole. Indian economy is largely dependent on agriculture. It is important to get more investments in other sectors as well such as exports, infrastructure, etc.

There is lack of awareness in the general public about choosing arbitration over litigation. The reason is that institutions in India do not proactively hold conferences like SIAC and ICC. Thus, more awareness campaigns should be introduced to educate the society at large. Additionally, the students, practitioners and other members of the legal fraternity should be trained and encouraged to step in as full-time arbitration lawyers. Apart from this, less judicial interference is required. We should also look at the possibility of welcoming foreign lawyers to come and do arbitrations in India.

* Principal Associate at Advani & Co.

[1] Board of Control for Cricket in India v. Kochi Cricket (P) Ltd., (2018) 6 SCC 287.

[2] 2019 SCC OnLine SC 1520.

[3] (2003) 5 SCC 705.

Interviews

Thomas P. Valenti is an Attorney, Mediator, Arbitrator Facilitator and Trainer. He has been extensively trained and trains others in all aspects of Dispute Resolution.  He has judged numerous International Legal, Negotiation, Arbitration, and Mediation Competitions. He has travelled to UK, Dubai, India and Europe to train and teach courses in Negotiation, Mediation and Arbitration. 

1. Since, you have been in the field of mediation and arbitration for quite some time, so according to you what are the skill sets required to be successful in this field?

For each, I believe in a dedicated training, and advocacy experience in advance of taking on the responsibility that comes with sitting as a neutral in either capacity. The specific skills that one may include when describing a mediator are : listening, patience, ability to withhold judgment, empathy, critical thinking, ability to communicate clearly, specifically in a way that helps people assess and identify their real interests relative to the matter at hand. For an arbitrator they are: listening, patience, critical thinking, ability to communicate clearly both orally and in writing, ability to assess and insure procedural fairness, and finally the ability to decide matters based on evidence and law, and not just enter compromise awards to avoid true decision making.

2. So, at the first place what made you choose a career in mediation and arbitration?

I was sitting as an arbitrator for some time even while practising as an advocate. At some time, attorneys who were adverse to me in matters in the past, came to me and asked me to mediate current cases they had with others. I took to it, and eventually decided to take some formal training. At some point, I found it to me more satisfying than litigating. So, it was my decision to forgo advocacy entirely and sit only as a neutral.

3. Since you are a member of various global arbitration and mediation associations, in your opinion how different is their individual working scenario and is the required level of expertise different at different organisations?

I really do not think that I can give this answer in a short format that would be useful to your readers. Each stands on their own, have their own requirements, qualifications and commitments. What is universally true is that from each, there are opportunities to learn, network and contribute to the profession.

4. So, in your opinion, in this very field how much does “exhaustion of research” really have an impact?

In arbitration, we have the luxury of asking the parties for submissions on topics that are relative to the dispute, so research becomes a bit easier. In mediation, many do not think of research, but in certain disputes: we are asked to consider matters of complexity, sometimes involving quantum issues; at other times involving intricate societal or cultural backgrounds that impact the dispute; and even we may be addressing environmental issues. So mediators must not look at mediation as such a soft profession that we do not “research” these varied issues that make us better at what we do.

5. How important is doing proper legal research and how should law students equip themselves with legal research skills.

For students, legal research is the number one skill you can bring to a place of employment. Research task will occupy a very high percentage of your time in the beginning of your career. Your senior, your opponent, and ultimately the court will ascribe a reputation to you based in great part on your thoroughness in research, attention to detail, critical thinking, and analytical skills.

6. Now, since you are also an executive committee member at the Indian Bar Association, with your professional insight into the current legal scenario of India, how much do you think arbitration and mediation will flourish in India in the next couple of years?

For India, we have been waiting for some time for mediation to flourish. Arbitration has had a foothold. Recent amendments to the law have given hope that mediation will flourish, and that some recognised drawbacks in the arbitration field will be remedied. But only time will tell.

7. What in your opinion is the biggest challenge that Indian legal system incorporates that impediments the growth of the mediation and arbitration culture in the nation, and what do you feel will be the most effective way to tackle that problem?

In the Indian arbitration scheme, there needs to be the recognition that arbitration can function quite well without interference by the courts. This cannot happen, however, without a robust administrative body who manages the cases, appointments, process and entire scheme, much like you see with International Criminal Court  (ICC), London Court of International Arbitration (LCIA), Vienna International Arbitral Centre (VIAC), Singapore International Arbitration Centre (SIAC), or Hong Kong International Arbitration Centre (HKIAC). The credibility provided by institutional arbitration is needed, as are arbitrators who can efficiently manage complex cases in an expeditious manner. This will enhance domestic cases, and will ultimately have the potential of bringing back to India the many international disputes that are lost to other jurisdictions.

For mediation, once the legal community does not see mediation as an economic threat, things may change. Also, for some reason, there is a concern about enforceability of a settlement. In fact, given its voluntary nature, we rarely see enforceability as an issue. So once the Bar gets behind mediation, it can flourish. I come from a country where somewhere near 95% of all cases settle, so there is a mindset at play as well. India sees nothing like this. We need to look at dispute resolution first as a problem solving exercise, not as a litigation.

8. So, what are your set of do’s and don’ts to any student who wants to pursue a career in alternative dispute resolution (ADR)?

Do: realise that dispute resolution at a firm includes all available mechanisms.

Do: learn all of the available mechanisms.

Do: volunteer in community mediation centre to gain experience.

Do: take as many courses to add mediation and arbitration skills to your toolkit.

Don’t: think you are going to be able to make a career as a mediator when you graduate.

Don’t: think you are going to be able to make a career as an arbitrator when you graduate.

Don’t: miss opportunities to improve your skills.

Don’t: forget to make time for your personal well-being.

9. There are a lot of ADR competitions organised in law schools throughout the globe, so in your opinion how much do these competitions really help the students who want to pursue ADR as a career?

Competitions are used primarily as a resume builder.  Looking at this with this myopic view is not useful. Competitions are a great opportunity to learn, practise skills, get feedback and to network. In light of my earlier answer relating to careers, a student should not look at successful or numerous competitions which are going to help secure employment. Rather, they should be prepared to demonstrate to the recruiting firm, what specific skills and learnings were achieved in the competition(s), and what those added value items may make the student a viable candidate for employment at the firm.

10. So outside work, what keeps you occupied and what are the activities that you undertake in your leisure time?

For me reading, continued learning, mentoring, volunteering, travel and cooking keep me very busy.

11. Any parting message to our readers?

I encourage everyone to find what motivates you, your passion and pursue that. I know the stress that families put on children to pursue certain careers. Reject that, and fight for doing what will make you happy and will be of service to others.

Case BriefsForeign Courts

Federal Court of Australia: While deciding the instant appeal dealing with interpretational technicalities associated with international arbitration, the Court clarified the principles and distinctions between recognition and enforcement of arbitral awards vis-à-vis the ICSID Convention. The Court also clarified the legal position over the question that whether the ICSID Convention excludes any claim for foreign state immunity in proceedings for the recognition and enforcement of an award.

Facts: The dispute between the parties is related to the investment by the Respondents of EUR139,500,000 into solar power generation projects within the territory of Spain. The respondents were encouraged to do so by a subsidy program put in place by Spain, which was subsequently withdrawn. The Respondents alleged that the withdrawal of the subsidy program was a contravention of the Energy Charter Treaty (ECT). Pursuant to Article 26(3)(a) of the ECT, Spain agreed that it gave its unconditional consent to the submission of the dispute to international arbitration and, by the virtue of Article 26(4)(a) it agreed to an international arbitration under the auspices of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). The arbitrators eventually awarded the Respondents EUR101,000,000 with interest. The respondents applied to the Federal Court at first instance for an order that Spain pay it that amount with interest. Spain filed a notice contesting the jurisdiction of the Federal Court of Australia on the basis that it was immune from suit as a foreign state under S. 9 of the Foreign States Immunities Act 1985.

Issues: The following key issues were involved in the dispute-

  • Whether the ICSID Convention excludes any claim for foreign state immunity in proceedings for the recognition and enforcement of an award.
  • Meaning of recognition and enforcement in Art 54 and execution in Art 55 of ICSID Convention.
  • Whether Spain’s accession to the ICSID Convention constitutes submission to the jurisdiction of the Federal Court.

Contentions: Spain put forth the following arguments-

  • The word ‘execution’ in Article 55 must be understood as including a proceeding to ‘enforce’ an award (the reasons for this are, to an extent, complex and discussion of this issue may be postponed for now).
  • Even if ‘execution’ in Articles 54(3) and  55 does not mean ‘enforcement’, nevertheless, the question of the proper construction of Art 55 can only be definitively resolved by the International Court of Justice. Until then it is arguable Spain’s accession to Articles 54 and 55 cannot represent its clear agreement to submit to jurisdiction of Federal Court.

Relevant statutes: The case revolves around the interpretation of Articles 54 and 55 of the ICSID Convention. Article 54 deals with the recognition and enforcement of the pecuniary obligations imposed by the award. Execution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought. Article 55 states that –“Nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution”.

The other statutory provisions that were highlighted in the case were Sections 3, 9 and 10 of the Foreign States Immunity Act, 1985. The provisions respectively deal with interpretation of an agreement (including international treaties and agreement); immunity of a foreign state from the jurisdiction of the courts of Australia; and, instances wherein a foreign state has to submit to the jurisdiction of the Australian law and courts.

Observations: The Court noted that, “The principal difficulty at the centre of the debate is linguistic or semantic” – (Allsop, CJ.,). With the parties to the dispute seeking lucidity on the aforementioned provisions, the Court examined them and made the following observations, with Perram, J., elucidating the key aspects of the provisions in question-

Regarding Articles 54 and 55

  • It was noted that ‘recognition’, ‘enforcement’ and ‘execution’ are concepts predating and existing outside of the ICSID Convention. Broadly “recognition refers to the formal confirmation by a municipal court that an arbitral award is authentic and has legal consequences under municipal law. Enforcement refers to the process by which a successful party seeks the municipal court’s assistance in ensuring compliance with the award (as recognised) and obtaining the redress to which it is entitled. Execution refers to the formal process by which enforcement is carried out”.
  • Since the issue at hand orbits around ICSID provisions, therefore the concepts must be interpreted accordingly. Perram, J., noted that under Art. 54 the Contracting States are required to recognise an award. It also permits a party having the benefit of an award to apply to a competent court for its recognition. It also permits a party to apply for the enforcement of the award by application to a competent court. “As such the Article explicitly contemplates two distinct applications to the competent court (or other authority). If enforcement in Art 54(2) were synonymous with recognition this distinction would appear to be pointless. The Article therefore recognises the distinction between the two applications and requires applications for both to be made to the ‘competent court’”.
  • The Judge further pointed out that Article 54(1) imposes two obligations on a Contracting State, first, recognition of the award as binding; and, secondly, (implicitly in relation to an award which has been recognised), enforcement of the pecuniary obligations imposed by the award ‘as if’ it were a final judgment of a domestic court. Article 54 does not contemplate the enforcement of awards which have not been recognised.
  •  “Article 55 does not refer to recognition and there can be no warrant for reading it as if it did”. Interpreting the Article along with the preceding provision (Article 54), the Court stated that the combined effect of Article 54 is that a Contracting State is required to recognise an award when a certified copy of the award is furnished to the competent court (or other authority).
  • If ‘execution’ were construed to include ‘recognition’ in Article 55 there could be no circumstance in which the recognition application expressly contemplated by Art 54(2) could ever be made against a Contracting State. This would render the recognition procedure in Art 54(2) perpetually unavailable against a Contracting State and would have the consequence that the obligation to recognise an award in Art 54(1) as binding could never be engaged. “It may be noted that the fact that recognition is wholly distinct from enforcement (including, if necessary, execution) is also reflected in the heading to Section 6: ‘Recognition and Enforcement of the Award’ where Art 54 and Art 55 are contained. For those reasons, Art 55 does not apply to recognition proceedings and is unavailable to modify the meaning of Art 54(1) and (2) in relation to such proceedings”.

Regarding Spain’s submission to Federal Court’s Jurisdiction: Deliberating upon the question that whether Article 54(1) and (2) constitute Spain’s agreement to submit to the jurisdiction of the Federal Court in a recognition proceeding, the Court answered in affirmative. Article 54(2) is in terms Spain’s agreement with Australia that the Respondents may apply to a competent court for recognition and the Federal Court has been designated as a competent court for the purposes of Article 54. Spain has therefore agreed to submit to the jurisdiction of this Court in relation to a recognition proceeding. Article 55 can have no impact on that conclusion because it has no application to recognition proceedings.

Making an interesting observation, the Court pointed out that the ICSID Convention had been done in English, Spanish and French. Article 33 of the Vienna Convention provides that where ‘a treaty has been authenticated in two or more languages, the text is equally authoritative in each language’; where a difference in meaning emerges which cannot otherwise be resolved by ordinary principles of interpretation ‘the meaning which best reconciles the texts, having regard to the object and purpose of the treaty, shall be adopted.’ Allsop, C.J., noted that the relationship between recognition and enforcement can be seen by the wording of the ICSID Convention itself. “Whether the French and Spanish languages have a penumbra or range of meaning in the words exécution and ejecutar to encompass a non-execution procedure of enforcement would be a matter of evidence. I am unconvinced that the question of resolution of the meaning of the English, French and Spanish texts can be done in ignorance of the content by way of evidence of two of the three languages”.[Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. [2021] FCAFC 3, decided on 01-02-2021]


Sucheta Sarkar, Editorial Assistant has put this story together.

Case BriefsHigh Courts

Delhi High Court: Kameswar Rao, J., decided a petition wherein on the invocation of the arbitration clause, one of the parties appointed the sole arbitrator on its own.

The instant petition was filed under Section 11(6) of the Arbitration and Conciliation Act, 1996. Petitioner and the respondents entered into a lease deed in respect of the premises.

It has been stated that pursuant to the execution of the lease deed, petitioner started fulfilling the obligations on the assumption that the respondents will also do the same and disbursed an amount of Rs 3,32,000 to the respondents in order to expedite the refurbishment and up-gradation of the premises to make it at par with the petitioner’s benchmark.

Due to the pandemic, petitioner sought to invoke the force majeure clause in the Lease Deed.

Even after repeated communications and grant of time as sought by the respondents, the respondents failed to furnish the complete set of documents as mandated under Clause 11.2.1 of the Lease Deed.

While the above-stated breach was being cured, respondents suddenly and to complete shock and dismay of the petitioner issued a letter demanding a sum of money by misrepresenting the clauses of the Lease Deed.

Respondents invoked arbitration clause citing the existence of disputes under the lease deed and nominated a Retired Judge of this Court as the Sole Arbitrator.

 Issue for consideration:

Whether the appointment of the arbitrator was at variance with the stipulation in the contract and as such non-est for this Court to grant the relief to the petitioner by appointing a new arbitrator?

Decision

  1. DISPUTE RESOLUTION- Any dispute or controversy arising out of or in connection with the Deed or its performance, including the validity, interpretation or application hereof, shall to the extent possible be settled amicably by negotiation and discussion among the Parties within 30 (thirty) days as of the date requested by either Party. Failing which, either Party shall be at liberty to refer the matter to arbitration in accordance with the Indian Arbitration and Conciliation Act, 1996. The arbitral panel shall consist of a sole arbitrator appointed mutually by the Parties. Any arbitral award issued by such sole arbitrator shall be final and binding on the Parties. The language of the arbitration shall be English and seat of arbitration shall be Delhi.”

(Emphasis supplied )

As per the arbitration clause contained in the deed, the arbitrator has to be appointed mutually by both the parties. In the present case, sole arbitrator was appointed by the respondent but was not confirmed by the petitioner.

Respondents should have approached the Court under Section 11 of the Act seeking an appointment of an Arbitrator when the same has not been confirmed.

Hence, the appointment is declared to be non-est.

Bench relied upon the Supreme Court decision in Walter Bau Ag. v. MCGM (2015) 3 SCC 800 and Naveen Kandhai v. Jai Mahal Hotels (P) Ltd., Arb. P. 53 of 2017.

With regard to the significance of adherence to the procedure agreed upon by the parties to an arbitration agreement with regard mutual/common consent in appointing an arbitrator, Court relied upon the decision of Manish Chibber

 While allowing the petition, Justice S.P. Garg, a retired Judge of this Court was appointed as the sole arbitrator to adjudicate the disputes and differences between the parties arising out of the lease deed. [Oyo Hotels and Homes (P) Ltd. v. Rajan Tewari,  2021 SCC OnLine Del 446, decided on 09-02-2021]


Advocates for the parties:

Petitioner: Jeevan Ballav Panda, Adv. with Satakshi Sood & Satish Padhi, Advs.

Respondents: Bobby Anand, Advocate

Experts CornerTariq Ahmad Khan

“If you reveal your secrets to the wind, you should not blame the wind for revealing them to the trees.” ~Kahlil Gilbran

Confidentiality is considered as one of the key reasons why parties choose to go for arbitration for settlement of their disputes as they do not want their disputes to be a topic of public discussion. Considering the detailed documents and information that parties exchange in an arbitration, the idea is to protect the sensitive information, trade secrets, intellectual property which may be subject-matter of an arbitration as its disclosure may result in irreparable loss. For the foregoing reason, arbitration proceedings are kept confidential. But is confidentiality practically possible? What is the legal basis of confidentiality? What is its scope and what are the implications if it is breached by a party? In this article the author will shed light on Section 42-A which was introduced by the amendment of 2019 to the Arbitration and Conciliation Act, 1996.

Background

Section 75 of the Arbitration and Conciliation Act, 1996 states that the parties shall keep confidential all matters relating to the conciliation. However, the said provision is not applicable to arbitration proceedings and applies only to conciliation proceedings. Even though there was no statutory mandate in the 1996 Act, there was an implied duty of confidentiality for various reasons including protection of sensitive information or intellectual property, etc., reputation of parties in public, protection from potential claims in similar matters, no intervention of unrelated parties, etc.

In 2019, for the first time, a provision relating to confidentiality was incorporated in the Act based on the recommendation of Justice B.N. Srikrishna Committee submitted a report and gave certain suggestions for making arbitration more robust in India. The said recommendation was accepted and a provision has now been introduced by Arbitration and Conciliation (Amendment) Act, 2019  that expressly mentions the duty of confidentiality and reads as follows:

42-A. Confidentiality of information.— Notwithstanding anything contained in any other law for the time being in force, the arbitrator, the arbitral institution and the parties to the arbitration agreement shall maintain confidentiality of all arbitral proceedings except award where its disclosure is necessary for the purpose of implementation and enforcement of award.

It is noteworthy that Section 42-A is a non obstante clause which means that it deprives the parties of their autonomy and this provision supersedes any other law. As per the language of the section, the only exception to confidentiality is when the disclosure of the arbitral record is done for the limited purpose of implementation and enforcement of award.

Section 42-A: Myth or reality?

As per the language of Section 42-A, only the award can be disclosed for the limited purpose of its implementation and enforcement. Surprisingly, the language of the section does not talk about disclosure of the award for the purpose of challenge to the arbitral award under Section 34 of the Act. It is not uncommon for parties to approach the court under Section 29-A for extension of time period for passing of an award. In that case, the relevant record of arbitration is often filed along with the application for extension. Thus, there seems to be a practical problem in implementation of Section 42-A considering the fact that it is a non obstante clause and only permits disclosure of award that too for implementation and enforcement of award. Let us take some other scenarios, where a party is seeking interim measures under Section 9 from the court, a party files an application for termination or substitution of the arbitrator under Sections 14 and 15 or files an appeal under Section 37 against an order of the tribunal, even in these cases the arbitral record is filed before the court, that makes Section 42-A impractical and otiose.

Confidentiality v. Transparency

Often this issue has been a topic of discussion as to whether transparency is more important or confidentiality. It can be argued that the general public has more faith in the court proceedings as there is transparency involved in the process and the court proceedings are accessible to the general public whereas arbitral proceedings are private and are not accessible to third parties. Neither the proceedings nor the award passed by the arbitrator is accessible to any third party. Whereas the judgment of the court is pronounced in open court and available for public. Moreover, transparency ensures fairness and builds the trust of stakeholders in arbitration. Parties often complain that there is no accountability on part of the arbitrator as the proceedings take place in a closed room and as a result, the credibility of arbitrators is often challenged in court. For the said reasons, many people opine that arbitral awards be published as it will cement the faith of the parties in arbitration and at the same time there will be a development of jurisprudence in arbitration. Arbitrators will be careful while passing awards as they would be concerned about their public image and quality of arbitral awards will be maintained. Publication of awards will make it easier for parties to nominate an arbitrator based on his reputation. However exciting the idea of transparency may sound but it cannot be ignored that confidentiality is one of the key features which makes arbitration attractive to parties as a mode of dispute resolution thereby, making it difficult to implement the idea of publication of awards.

Privacy and Confidentiality

Sometimes privacy and confidentiality are used interchangeably when in fact these two concepts are different. Privacy in arbitral proceedings would mean that no third party can enter the arbitration proceedings and cannot witness the same as these proceedings take place in a private set-up in a closed room. In other words, privacy only means that arbitration proceedings cannot be attended by a third party who is not a party to the dispute except the counsels, witnesses and the arbitrator. Confidentiality on the other hand means that the content, documents, information which is adduced during the proceeding and the award are to be kept confidential and cannot be published or disclosed by any party.

Outsiders in the Arbitration Proceedings

Apart from the parties to the arbitration proceedings, there are outsiders who are strangers to the agreement but still sit in the arbitration proceedings e.g. counsels of the parties, witnesses, stenographers/transcribers, tribunal secretary, translators, etc. They are not governed by the arbitration agreement and have access to confidential information produced in the arbitration. Section 42-A fails to address this concern as it remains silent on the duty of these third parties to keep the arbitral record confidential. The language of the section only imposes confidentiality on the parties, arbitrator and the arbitral institution.

International Perspective

The UNCITRAL Model Law is silent on confidentiality. In the absence of any international rules prescribing confidentiality in arbitral proceedings, there has been a difference of opinion between various jurisdictions on the issue whether arbitral proceedings are confidential? Courts in Australia and USA have rejected the idea of an implied duty of confidentiality in arbitration and held that there cannot be a presumption of confidentiality in arbitration. Norway is another jurisdiction which has an express statutory provision which states that there is no duty of confidentiality in arbitration proceedings unless the parties otherwise agree. On the other hand countries like UK and France have recognised the concept of implied confidentiality as there is no express statutory provision regarding confidentiality.

Conclusion

The language of Section 42-A fails to take into consideration the concept of party autonomy which permits parties to decide whether they wish to keep the arbitral proceedings confidential or not. It can be argued that no statutory provision can impose confidentiality on the parties in an arbitration. Further, Section 42-A has been worded in such a way that it does not leave scope for parties to voluntarily consent for disclosure of certain documents and the exceptions in the provision fail to take note of the mandatory legal disclosures. The provision also does not provide the consequences of breach of this provision. The fine print of Section 42-A will render it otiose and as a result, the precious time of the court will be lost in interpreting this loosely-worded provision.

* by Tariq Khan, Principal Associate (Advani & Co.).

Op EdsOP. ED.

This article attempts to analyse and examine the applicability of the law of limitation to proceedings under the Arbitration and Conciliation Act, 1996, vis-à-vis two aspects in particular. The first of these aspects being the limitation as applicable to the initiation of arbitration, be it by reference to arbitration by the court or by filing an application of appointment of an arbitrator in court, and the second being the limitation as applicable to the substantive claims in arbitration.

The law of limitation and the statutory regime for applicability of limitation to arbitration

The law of limitation is essentially a statute in the civil law system, which prescribes a maximum period, after the happening of an event, in which legal action can be commenced. The happening of this event, is often called the cause of action, which means the bundle of facts which constitute to establish the infringement of right. In India, the law of limitation is governed by the Limitation Act, 1963 (hereinafter referred to as “the Limitation Act”), and Section 3 of the Limitation Act of bars the remedy of filing of suits, appeals and applications, after prescribed period of time.1 Thus, an action cannot be initiated by a party if the prescribed time has passed after accrual of cause of action on the basis of which the action has been initiated.

The law of limitation is based on the following maxim[1], vigilantibus non dormientibus jura subveniunt which means “laws serve the vigilant, not those who sleep.” Additionally, Halsbury’s Laws of England[2], states the objectives of the law of limitation as follows:

“The Courts have expressed at least three different reasons supporting the existence of statutes of limitation i.e.―

(a) that long dormant claims have more of cruelty than justice in them;

(b) that a defendant might have lost the evidence to dispute the State claim; and

(c) that persons with good causes of actions should pursue them with.”

Similarly, the Delhi High Court in Satender Kumar v. MCD[3] (Satender Kumar), while highlighting the objectives of law of limitation stated that due to long passage of time vital evidence which would be the defence of the opposite party is bound to get lost or misplaced. Therefore, seeking adjudication of claims preferred after long lapse of time would cause more injustice than justice.

Arbitration is not an exception to this principle, and the law of limitation also applies to it. Section 43(1) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Arbitration Act”)[4] states that “the Limitation Act, 1963 (36 of 1963), shall apply to arbitrations as it applies to proceedings in court”.

Applicability of the Limitation Act for initiation of arbitration

The question now arises as to when does the cause of action to initiate arbitration arise, and when does it stop. In this part, we go on to see the application of the law of limitation vis-à-vis initiation of arbitration. Broadly speaking arbitration can be initiated by means of three methods:

(i) By sending a notice of invocation to the other party within the meaning of Section 21 of the Arbitration Act. This is also the point of commencement of an arbitration proceeding.

(ii) By filing an application under Section 11 of the Arbitration Act. This section provides that a party can approach the Court for appointment of arbitrator, if both parties fail to appoint an arbitrator, either under an agreed procedure as per the agreement between the parties, or upon notice of invocation of arbitration.

(iii) By filing an application under Section 8 of the Arbitration Act. Section 8 empowers a party to apply, to a Court before which an action may have been brought in a case where an arbitration agreement exists, to refer the parties to arbitration. Therefore, in a case where an arbitration agreement exists between the parties, and one party has still brought a civil action before the court or judicial authority, the opposing party can approach the court by filing an application under Section 8 praying for the matter to be referred to arbitration.

The question now to be analysed is what the time period for initiation of arbitration is, and when does the limitation for this begin. One of the early judgments which sets the law in this regard is the judgment of Inder Singh Rekhi v. DDA[5] (“Inder Singh Rekhi”), the Court observed that:

“… in order to be entitled to an order of reference under Section 20 (Section 11 of the Arbitration Act, which was previously Section 20 of the Arbitration and Conciliation Act, 1940) it is necessary that there should be an arbitration agreement and secondly, difference must arise to which this agreement applies. The existence of a dispute is, therefore, essential for appointment of an arbitrator under Section 8 or a reference under Section 20 of the Act.”

The Court’s reading was in respect of Section 20 of the Arbitration and Conciliation Act, 1940 (hereinafter referred to as “the old Act”) which is essentially Section 11 of the Arbitration Act, and the element of dispute is contained in Section 21 of the Arbitration Act. Therefore, even under the Arbitration Act, in order to get a dispute referred under Section 11 of the Arbitration Act, the necessary ingredients are the existence of a dispute, and the second ingredient being the existence of an arbitration agreement.

The Court also went on to define that “A dispute arises where there is a claim and a denial and repudiation of the claim.”

Further, even R.S. Bachawat’s Law of Arbitration[6] defines the word dispute in following terms:

“…there can only be a dispute when a claim is asserted by one party and denied by the other on whatever grounds. Mere failure or inaction to pay does not lead to the inference of the existence of dispute. Dispute entails a positive element and assertion in denying, not merely inaction to accede to a claim or a request. Whether in a particular case a dispute has arisen or not has to be found out from the facts and circumstances of the case.”

The Court then went on to hold that the starting point for the cause of action for determining the limitation for a Section 20 petition or a Section 8 application would be the point from when the dispute arose, by observing that:

“4. In order to be entitled to ask for a reference under Section 20 of the Act there must not only be an entitlement to money but there must be a difference or dispute must arise. … when the assertion of the claim was made on 28-2-1983, and there was non-payment, the cause of action arose from that date.”

 The observation of the Supreme Court was in view of the applicability of Article 137 of the Limitation Act to a petition under Section 11 (Section 20) or a petition under Section 8. Article 137 is the article which applies to any petition which is filed in court, which reads “Three years from when the right to apply accrues”. Therefore clearly, the “right to apply” for a petition under Section 8 or Section 11 would accrue only once the dispute has accrued, and therefore the starting point for limitation of an application under Section 8 or Section 11 would be the accrual of the dispute.

Even before the judgment of Inder Singh Rekhi8, the Supreme Court of India had clarified that Article 137 (erstwhile Article 181) of the Limitation Act, 1963, would be applicable to petitions moved before the Court, even if they are moved under the Arbitration Act. This was the observation in Wazir Chand Mahajan v. Union of India9, which laid down that Article 181 of the old Limitation Act, 1908 would be applicable to applications filed under Section 20 of the old Act.

There could also be other instances where a dispute could arise. A dispute could also arise when one party gives a notice of invocation/appointment of arbitrator to the other party, and the other party either fails to do so, or fails to agree on an appointment10. The limitation would then start from that date, for the purpose of filing a petition under Section 11 or Section 8.

In view of the above discourse, it is evident, that the starting point of limitation for initiation of arbitration, is from the date when the dispute arose, and the stopping point is the giving of the notice of invocation, or the filing of the Section 11 or Section 8 petition.

Applicability of the Limitation Act to substantive claims in arbitration

The next question which arises is how to judge when the limitation for the substantive claim starts, and when does it stop. While in the previous section we discussed what is the right time period to initiate arbitration, we contrast this section by analysing the prescriptive time period for a substantive claim within the arbitration. Therefore, this section deals with the cause of action for a claim, and not the cause of action for an arbitration.

One such question arose for consideration in Panchu Gopal Bose v. Board of Trustees for Port of Calcutta11 (“Panchu Gopal”). In this case, the petitioner had made its claim for the first time in the year 1979. Thereafter no payment was forthcoming towards this claim. However, the petitioner thereafter failed to take any follow-up action, up until November 1989, that means well over 10 years. In November 1989 the petitioner sent a notice of invocation for appointment of arbitrator to the respondent, where after the respondent immediately refuted it.  In this case, the Court held that the cause of arbitration arises when the claimant becomes entitled to raise the question, that is, when the claimant acquires the right to require arbitration. The Court therefore observed that “the limitation would run from date when the cause of arbitration would have accrued, but for the agreement”. Therefore, the Court found that in this case the cause of arbitration had accrued back in 1979, when it became entitled to payment, and not in 1989 when the dispute arose. Therefore, the claim of payment was held to be hopelessly barred by limitation.

Similarly, even in J.C. Budhraja v. Orissa Mining Corpn. Ltd.12 (“J.C. Budhraja”), where it was the petitioner’s contention that the limitation for the claims would begin to run from the date on which the difference arose between the parties, the Court refuted the contention and observed to the contrary. In this case the Court took notice that the notice for invocation of arbitration was served on 4-06-1980, and it had to be seen whether on that date, the claims were barred. The Court then went on to observe that that claim arose on 14-4-1977 when the final bill was prepared, and not on 4-6-1980, when the notice invoking arbitration was sent.

The Delhi High Court, in Satender Kumar13 observed that limitation for filing a petition for appointment of an arbitrator would be different from the limitation for a claim and the accrual/arising of cause of action for a claim would vary as per the facts and circumstances of each case, and the nature of jural relationship between the parties. In this particular case, the Court held that Article 18 of the Limitation Act would be applicable, and the cause of action arose in that particular case upon completion of work. Similarly, in MCD v. Gurbachan Singh and Sons14 (“Gurbachan Singh”) it was observed that a claim pertaining to work completed in 1994 for which the claim was filed only in the year 2000, was barred by limitation, as the cause of action arose in the year 1994.

Therefore, what becomes apparent from this discourse is, that as far as the starting of limitation period for a substantive claim is concerned, the instance where the cause of action arises, depends on the facts and circumstances of each case, and is not merely the point where the dispute arises.

As far as the stopping of the period of limitation of a claim or a counterclaim is concerned, the Supreme Court’s judgment in State of Goa v. Praveen Enterprises15 makes the law very clear. In respect of claims in arbitration, the Court clarifies by a combined reading of Section 21 of the Arbitration Act, and Section 3 of the Limitation Act, 1963, the following aspects:

  1. A claim for which a notice invoking arbitration is given, the date of stopping of limitation, is the date when a notice invoking arbitration is given.
  2. In case of the claims, where there is no notice of invocation given, and they are added directly in the statement of claim, then the date of filing of the statement would be the relevant date when the limitation stops to run.
  3. In the case of a claim, for which neither a notice of invocation is given, nor they were contained in the original statement of claims, the relevant date for stopping of the limitation period would be, the date on which the amendment in the original statement of claims, incorporating this new claim is filed.
  4. In the case of a claim in the nature of a set-off, the same above rules being Rules 1, 2 and 3 would apply. That means the date of stopping of limitation would be the date when either the main claim is invoked, or filed in the statement of claims, or incorporated by way of an amendment, respectively.
  5. In the case of a counterclaim, ordinarily, the date when the counterclaim is filed would be the date relevant for determining the date of stopping of limitation period.
  6. However, in the case of a counterclaim, where before filing the counterclaim, the counter claimant has, by way of a separate notice of invocation, invoked the counterclaim, then that would be the date relevant for the stopping of the limitation period.

Court’s view on the difference between the period of limitation for a claim and for filing of a petition

The Courts in India have time and again reiterated that there is a marked difference between the limitation period for filing a petition under Section 11 or Section 8, and the limitation period for a claim to be raised in arbitration.

The Supreme Court has in J.C. Budhraja16 cautioned that “the period of limitation for filing a petition under Section 8(2) seeking appointment of an arbitrator cannot be confused with the period of limitation for making a claim”. In this case the Court had highlighted the error made by the arbitrator while confusing both issues.

In Union of India v. L.K. Ahuja and Co.17, an application was made to the Court for the appointment of arbitrator in year 1976 after the denial of the request by respondent in the same year. However, the claim which anticipated to be referred to the arbitration was pertaining to the work completed in the year 1972. The Supreme Court observed that:

“8. In view of the well-settled principles we are of the view that it will be entirely a wrong to mix up the two aspects, namely, whether there was any valid claim for reference under Section 20 of the Act and, secondly, whether the claim to be adjudicated by the arbitrator, was barred by lapse of time. The second is a matter which the arbitrator would decide unless, however, if on admitted facts a claim is found at the time of making an order under Section 20 of the Arbitration Act, to be barred by limitation.”

Apart from the key difference of the limitation period itself, the difference also exists in the stage when the limitation aspect of both issues can be looked into by a Court or an arbitrator. While the limitation period for filing a petition for appointment of an arbitrator or reference of disputes to arbitration is to be seen by the Court, the limitation aspect of the substantive claims is looked into by the Arbitral Tribunal and not the Court. The only exception to this rule is if the claims to be referred to arbitration are hopelessly barred by limitation, which is apparent from admitted facts and documents.

The Delhi High Court explained this distinction in Satender Kumar18, by observing:

 “The limitation for filing a petition, seeking reference of disputes to arbitration, is different than the period of limitation for the subject claims as such. Meaning thereby, that the petition may be within limitation because, it may be filed within three years of arising of disputes, however the main claims are time barred or not is an issue on merits to be decided in arbitration proceedings The second aspect, and which is in fact is the more important aspect, is that, if on admitted facts, the claims are clearly barred by limitation at the time of passing of the order under Section 20 of the Arbitration Act, 1940, then there need not be reference of the disputes to arbitration because there is no entitlement to money, and therefore a dispute or difference with respect to the same, once the same are clearly time barred.

Another instance where the Court refused to refer dead claims to arbitration is in Progressive Constructions Ltd. v. National Hydroelectric Power Corpn. Ltd.19, wherein it was been held that claims which are ex facie barred by limitation need not be referred for decision in the arbitration proceedings. Further, even in National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd.20, it has been held that dead claims (long barred) need not be referred to arbitration.

Since these judgments, there has been a slight evolution in law, in terms of the amendment brought in Section 1121, where the Court, while considering an application for appointment, now needs to confine itself to the question whether the arbitration agreement exists or not, and need not go into any other aspects. However, despite this marked change in law, it can still be argued, that in the case of dead claims, which are hopelessly barred by limitation, there is nothing to be referred to arbitration, and thus the Court may still refuse an appointment on this ground.

Conclusion

Applicability of the law of limitation to arbitration proceedings is much more similar to its applicability to a suit initiated under the Code of Civil Procedure, 1908. However, the difference arises with respect to the date on which the dispute arises and the date on which request for arbitration has been made to the respondent. As these dates decide the validity of application made to the court, with respect to the law of limitation.

Ultimately, the Courts are empowered to dismiss the application even if it is within time, in case where substantive claim is time barred on admitted facts. As, it would save the party from the cost of arbitration, especially in case where the arbitrator could erroneously hold the time-barred claim as claim within time, ultimately leading to a failure in being able to enforce such a claim.


Working with Adwitya Legal LLP as Partner, Arbitration and Dispute Resolution, e-mail: gunjan@adwlegal.co.in.

Author is grateful to Mr. Akash Kishore, who is currently interning with Adwitya Legal LLP, for his research inputs.

1 Provided under First Schedule to the Limitation Act, 1963.

[1] Vanka Radhamanohari v. Vanka Venkata Reddy, (1993) 3 SCC 4.

[2] Fifth Edn. (2008).

[3] 2010 SCC OnLine Del 424.

[4] S. 37 of the Arbitration Act, 1940.

[5] (1988) 2 SCC 338.

[6] Wadhwa and Co. (2005).

[8] (1988) 2 SCC 338.

[9] (1967) 1 SCR 303.

[10] State of Orissa  v. Damodar Das, (1996) 2 SCC 216.

[11] (1993) 4 SCC 338.

[12] (2008) 2 SCC 444.

[13] 2010 SCC OnLine Del 424.

[14] 2014 SCC OnLine Del 19.

[15] (2012) 12 SCC 581.

[16] (2008) 2 SCC 444.

[17] (1988) 3 SCC 76.

[18] 2010 SCC OnLine Del 424.

[19] 2009 SCC OnLine Del 2199.

[20] (2009) 1 SCC 267.

[21] By way of the Arbitration and Conciliation (Amendment) Act, 2015, S. 11(6-A) was inserted which reads, “The Supreme Court or, as the case may be, the High Court, while considering any application under sub-s. (4) or sub-s. (5) or sub-s. (6), shall, notwithstanding any judgment, decree or order of any court, confine to the examination of the existence of an arbitration agreement.”

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of Surya Kant, N.V. Ramana* and Hrishikesh Roy, JJ., addressed an important question of law regarding arbitration law in India and special State enactments concerning public works contract.

Setting aside the impugned order of High Court of Judicature at Gujrat the Court opined that the High Court has erred in utilizing its discretionary power available under Articles 226 and 227 of the Constitution.

The High Court did not appreciate the limitations under Articles 226 and 227 of the Constitution.

Background

 On 13-02-1991, the respondent had entered into a contract with the Appellant to manufacture and supply bricks. The aforesaid contract had an arbitration clause. As some dispute arose regarding payment in furtherance of manufacturing and supplying of bricks, the appellant issued a notice dated 13-11-1998, seeking appointment of sole arbitrator in terms of the agreement. Clause 38 of the agreement provide for arbitration as under:

Clause 38 – Arbitration

All disputes or differences, in respect of which the decision has not been settled, shall be referred for arbitration to a sole arbitrator appointed as follows:

 Within thirty days of receipt of notice from the Contractor of his intention to refer the dispute to arbitration the Chief Engineer shall send to the Contractor a list of three officers from the list of arbitrator appointment by the Government. The Contractor shall within fifteen days of receipt of this list select and communicate to the Chief Engineer the name of the person from the list who shall then be appointed as the sole arbitrator. If Contractor fails to communicate his selection of name, within the stipulated period, the Chief Engineer, shall without delay select one officer from the list and appoint him as the sole arbitrator. If the Chief Engineer fails to send such a list within thirty days, as stipulated, the contractor shall send a similar list to the Chief Engineer within fifteen days. The Chief Engineer shall then select one officer form the list and appoint him as the sole arbitrator within fifteen days. If the Chief Engineer fails to do so the contractor shall communicate to the Chief Engineer the name of one Officer from the list, who shall then be the sole arbitrator.

The arbitration shall be conducted in accordance with the provision of the Indian Arbitration Act, 1940 or any statutory modification thereof. The decision of the sole arbitrator shall be final and binding on the parties thereto

 Neither party is entitled to bring a claim to arbitration if the Arbitrator has not been appointed before the expiration of thirty days after defect liability period.

 The appellant appointed a sole arbitrator to which an application was preferred by the respondent under Section 16 of the Act, disputing the jurisdiction of the sole arbitrator which was rejected by the arbitrator holding that the sole arbitrator had jurisdiction to adjudicate the dispute. Consequently, the respondent filed an application under Articles 226/227 before the High Court challenging appointment of the sole arbitrator on the grounds that according to Clause 38 of the agreement, the disputes between the parties were to be adjudicated in accordance with Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992 (“Gujrat Act”) and also that the arbitration was time-barred, as the arbitrator had not been appointed before the expiration of thirty days after the defect liability period.

The High Court held that ‘the contract’ between parties was a “works contract” and the same shall be governed by the Gujrat Act, hence, the appointment of sole arbitrator was erroneous.

Observations and Decision

 Observing that the non-obstante clause is provided to uphold the intention of the legislature as provided in the Preamble to adopt UNCITRAL Model Law and Rules, to reduce excessive judicial interference the Court, the Court expressed that, the Arbitration Act is a code in itself. This phrase is not merely perfunctory, but has definite legal consequences. One such consequence is spelled out under Section 5 of the Arbitration Act, which reads as under,

Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.

The Court cited Deep Industries Limited v. Oil and Natural Gas Corporation Limited, (2019) SCC Online SC 1602, wherein interplay of Section 5 of the Arbitration Act and Article 227 of the Constitution was analyzed as under:

“we cannot forget that Article 227 is a constitutional provision which remains untouched by the non-obstante clause of Section 5 of the Act. What is important to note is that though petitions can be filed under Article 227 against judgments allowing or dismissing first appeals under Section 37 of the Act, yet the High Court would be extremely circumspect in interfering with the same, taking into account the statutory policy as adumbrated by us herein above so that interference is restricted to orders that are passed which are patently lacking in inherent jurisdiction.

Noticing that the contract between parties was for both manufacturing as well as supply of bricks and, a contract for manufacture simpliciter is not a works contract under the definition provided under Section 2(k) of Gujrat Act, the Court expressed that, mere fact that the Gujarat Act might apply may not be sufficient for the writ Courts to entertain the plea of the respondent to challenge the ruling of the arbitrator under Section 16 of the Arbitration Act.

 The Court opined that the High Court had erred in utilizing its discretionary power available under Articles 226 and 227 of the Constitution. The respondent did not take legal recourse against the appointment of the sole arbitrator, and rather submitted itself before the tribunal to adjudicate on the jurisdiction issue as well as on the merits the Court held that, the respondent has to endure the natural consequences of submitting itself to the jurisdiction of the sole arbitrator, which can only be challenged, through an application under Section 34.

In view of the above, the impugned judgment of the High Court was set aside. [Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd., 2021 SCC OnLine SC 8, decided on 06-01-2021]


*Justice N.V. Ramana has penned this judgment

Case BriefsHigh Courts

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

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

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

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

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

Supreme Court

Supreme Court: The three-judge bench comprising DY Chandrachud, Indira Banerjee and Indu Malhotra, JJ. has observed that non-payment of stamp duty in a commercial contract does not invalidate the arbitration clause mentioned in the contract. The bench decided to refer the matter to a constitutional bench after it realized that it differed from the earlier Supreme Court judgments of SMS Tea Estates Pvt. Ltd. v. Chandmari Tea Co. Pvt. Ltd (2011) 14 SCC 66, Garware Wall Ropes Limited v. Coastal Marine Constructions and Engineering Limited (2019) 9 SCC 209 and the three judge bench of Vidya Drolia v. Durga Trading Corporation (2019) 20 SCC 406.

The judgment authored by Indu Malhotra, J. framed the following question to be authoritatively settled by a Constitution bench of five judges:

Whether the statutory bar contained in Section 35 of the Indian Stamp Act, 1899 applicable to instruments chargeable to Stamp Duty under Section 3 read with the Schedule to the Act, would also render the arbitration agreement contained in such an instrument, which is not chargeable to payment of stamp duty, as being non-existent, unenforceable, or invalid, pending payment of stamp duty on the substantive contract / instrument? ”

The Court was of the view that there was no legal impediment to the enforceability of the arbitration agreement, pending payment of stamp duty on the substantive contract. It observed that since the arbitration agreement is an independent agreement between the parties, and is not chargeable to payment of stamp duty, the non-payment of stamp duty on the commercial contract, would not invalidate the arbitration clause, or render it unenforceable, since it has an independent existence of its own. However this view of the Court was different from  earlier judgments of the Court in SMS Tea Estates (two-judge Bench), Garware Wall Ropes (two-judge Bench) and Vidya Drolia (three-judge Bench) and therefore they decided to refer the issue to a larger bench.

The Court was not satisfied with the judgment in SMS Tea Estates on the following two issues:

(i) that an arbitration agreement in an unstamped commercial contract cannot be acted upon, or is rendered unenforceable in law; and 

(ii) that an arbitration agreement would be invalid where the contract or instrument is voidable at the option of a party, such as u/S. 19 of the Indian Contract Act, 1872

The judgment in SMS Tea Estate Case was followed by Garware Case which relied on Paragraph 22 of the SMS Tea Estate Case. This in turn was approved by the 3 judge bench case of Vidya Drolia in Paragraph 92 where they approved the findings in Para 22 to 29 in the Garware case.  The Court was of the opinion that the finding in SMS Tea Estates and Garware case that the non-payment of stamp duty on the commercial contract would invalidate even the arbitration agreement, and render it non-existent in law and unenforceable, was not the correct position in law. In view of the finding in paragraph 92 of the judgment in Vidya Drolia by a co-ordinate bench, which has affirmed the judgment in Garware, the aforesaid issue was required to be authoritatively settled by a Constitution bench of the Supreme Court, the Court held.

[NN Global Mercantile Pvt Ltd v. Indo Unique Flame Ltd.,  2021 SCC OnLine SC 13, decided on January 11, 2021]

Case BriefsHigh Courts

Calcutta High Court: Ashis Kumar Chakraborty, J., while allowing the present petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 appointed former judge of the present High Court, Sahidullah Munshi as the sole arbitrator in the present matter.

In the present application under Section 11(6) of the Arbitration and Conciliation Act, 1996, petitioner made a prayer for appointment of a sole Arbitrator to adjudicate the disputes arisen between the parties relating to the agreement dated 16-05-2013 (hereinafter referred as “the said contract”) entered into between the parties herein. By the said contract the respondent inducted the petitioner as the contractor to carry out development work of surrounding areas of Platinum Jubilee Building, terms and conditions of which were specified in the contract. Clause 8 of the said contract contemplated that all disputes arising between the parties shall be referred to the sole arbitrator appointed by the Director, Indian Statistical Institute.

It is the case of the petitioner that since the respondent wrongfully reclaimed its various claims, disputes have arisen which are required to be adjudicated through arbitration. Accordingly, by a dated 9-06-2017, the petitioner invoked the arbitration agreement and requested the respondent to refer the dispute to arbitration by considering provisions contained in Section 12(5), read with fifth and seventh schedule to the Act of 1996. The respondent, however, by their letter dated 12-07-2017, sought to refer certain disputes which had arisen between the parties relating to another contract for construction of the said building. The petitioner by further letter dated 16-07-2018 addressed to the respondent for appointment of an Arbitrator to adjudicate the disputes between the parties relating to the contract with no response from the respondents. Thus, the petitioner has filed the present application praying for relief mentioned above.

Court observed, “In view of the incorporation of the provisions of sub section (5) of Section 12 and the fifth and seventh schedule to the Act of 1996 and the decisions of the Supreme Court in the case of Voestalpine Schienen Gmbh v. Delhi Metro Rail Corporation Limited, (2017)4 SCC 665 and TRF Limited v. Energo Engineering, (2017)8 SCC 377, the Director of the respondent cannot appoint an Arbitrator.” Further, allowing the present petition, Court-appointed former judge, Mr Sahidullah Munshi as the sole arbitrator in the present matter.[Paul Builders Pvt. Ltd. v. Indian Statistical Institute, 2021 SCC OnLine Cal 21, decided on 11-01-2021]


Sakshi Shukla, Editorial Assistant has put this story together

Op EdsOP. ED.

The doctrine of the ‘corporate veil’ is the legal assumption that the acts of a corporation are not the actions of its shareholders, so that the shareholders are exempt from liability for the corporation’s actions. However, Courts sometimes apply common law principles to ‘pierce the corporate veil’ and hold promoters/shareholders personally responsible for the corporation’s wrongful acts. This article examines whether these common law principles extend themselves to the arbitration of disputes.

INTRODUCTION

Company laws of all economically advanced countries make available corporate vehicles through which businesses can be carried on with the benefit of limited liability. For most shareholders this means that once they have paid for their shares the worst fate that can befall them in the event the company becomes insolvent is that they will lose the value of their investment. Their other assets remain unaffected. In the event of the success of the company, its shareholders are entitled to receive all residual benefits in the form of dividend and/or share price appreciation. The irony from the perspective of its trade and financial creditors is apparent, companies require credit to work, yet creditors do not partake in the potentially unlimited returns of the company in the event of its success. They are at all times limited to the fixed returns agreed between themselves and the company .

Otto Kahn-Freund in his seminal piece, Some Reflections on Company Law Reform analysed modern company law issues such as the abuse of the corporate entity and allocation of shares in return for overvalued assets from the perspective of a creditor. Kahn-Freund noted with amusement how the position of law recognised a ‘metaphysical’ distinction between one man in his individual capacity as a shareholder and his capacity as a company when it came to recovering the dues of trade creditors. Describing the judgment in Solomon v. Solomon as catastrophic, Kahn-Freund had suggested two remedies (a) requiring higher capital inputs by shareholders at the time of forming private companies to protect the interest of its creditors; and (b) fixing liability upon shareholders based on their controlling interest in the company. Neither of these suggestions were ever implemented in the United Kingdom as they were perceived as a barrier to the organic growth of small companies.

In India, we are seeing a push towards encouraging free enterprise through the STARTUP INDIA initiative and the MAKE IN INDIA initiative. Companies can now be set up in just one day. The environment is apt to revisit Kahn-Freund’s concerns and examine the doctrine of piercing the corporate veil. Given the vastness of the subject the authors are limiting their inquiry only to an analysis of the doctrine of piercing the corporate veil in relation to the arbitration of disputes.

THE STATUTORY FRAMEWORK IN INDIA

The authors Gower and Davies state that the doctrine of lifting the veil plays but a small role in British Company Law. They assert that instances in which ‘the veil has been lifted’ usually turn on the provisions of a particular statute or on the contracts executed between the parties .

Does the legislative environment in India lend itself to piercing of the corporate veil in aide of arbitration? Chapter I of Part I of the Arbitration and Conciliation Act, 1996 (“the 1996 Act”) contains the general provisions of the 1996 Act. Section 2(1) defines various terms appearing in the 1996 Act with the qualification “unless the context otherwise requires”. Section 2(1)(h) defines the term party to mean ‘a party to an arbitration agreement ’.

In the year 2014, the 246th Law Commission submitted its Report on ‘Amendments to the Arbitration and Conciliation Act, 1996’. While the Law Commission suggested changes to Section 7 of the 1996 Act, none of the Law Commission’s recommendations were directed to the language of sub-section (1) and sub-section (4)(a) of Section 7 and in particular to the referential terms: ‘parties’ and ‘document signed by the parties’ therein. Ultimately, the only amendment included in the statute book was an amendment to sub-section 4(b) of Section 7 whereby the words ‘including communication through electronic means’ was inserted.

The Commission recommended the need to amend Section 2(h) and Section 8(1) to bring them in line with the wording of Section 45 and Section 54 of the 1996 Act . The recommendations were suggested with the view to extend the ratio of the judgment of the Supreme Court of India in Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc to arbitrations conducted under Part I of the 1996 Act.

Following the recommendations of the Law Commission, Section 8(1) of Chapter II of Part I of the 1996 Act dealing with the Power of a Judicial Authority to refer parties to arbitration where there is an arbitration agreement was amended to bring it in line with Section 45 of Chapter I of Part II of the 1996 Act. Post amendment Section 8(1) reads:

(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.

However, in spite of the recommendations of the Law Commission there was no amendment made to Section 2(1)(h) of the 1996 Act i.e. the provision which defines the term a party to an arbitration agreement. Without the amendment to Section 2(1)(h) the amendment to Section 8(1) is indeed an anomaly.

At first glance the use of the phrase ‘any person claiming through or under him’ with reference to a ‘party to the arbitration agreement’ is suggestive of a legislative policy allowing for ‘non-signatories’ to an arbitration agreement to seek the reference of a matter filed before a judicial authority to arbitration. But the manner in which the provision is drafted presents limited practical application. The term ‘any person claiming through or under him’ is suggestive of two circumstances: (a) the person (making the application for reference) has acquired the interest of a party to a matter, and/or (b) the person is an heir or a subsidiary/holding/associate company of a party to a matter. In both instances, one fails to understand how the provision has benefited by the addition. The acquisition of a company does not affect the right of the transferee company to seek reference of a matter to arbitration . An heir was by virtue of Section 40 of the 1996 Act entitled to commence and/or continue and/or enforce and/or was bound by an award passed in an arbitration. Where such acquisition of a company being a party to a matter before a judicial authority is sanctioned by the Tribunal, the provisions of Section 232 of the Companies Act, 2013 ensure that the rights, liabilities of the transferor company become those of the transferee company. The relevant provisions of the Companies Act, 2013 also contain the stipulation that proceedings initiated by the transferor company may be continued by the transferee company .

One could also argue that the amendment to Section 8(1) far from furthering the intentions of the judgment in Chloro Controls actually is a step in the wrong direction. The following illustration would demonstrate this point: Company A1 is the holding company of Company A2. Company B enters into an agreement with Company A2, which contains an agreement to arbitrate disputes. Disputes arise and Company B initiates a matter before a judicial authority against Company A1 realising as is commonly the case that A2 has no assets of its own and seeking the lifting of the corporate veil of Company A2 on the ground that Companies A1 & A2 are a single economic unit, or Company A2 is a façade or sham, or that Company A2 is an agency for the business of Company A1. The provision as drafted would allow Company A2 to interrupt such proceedings before a judicial authority and seek to enforce the agreement to arbitrate disputes between Company B and Company A2.

Another oddity observed is that the provision specifies a special period of limitation within which the application would have to be made by a person claiming under or through a party to a matter. Section 8(1) requires the application by a person seeking a reference of the matter to arbitration to be made before the submission of a party’s first statement on the substance of the dispute. In Jadavji Narsidas Sha & Co. v. Hirachand Chaturbhai a Division Bench of the Bombay High Court regarded the filing of an affidavit-in-reply setting out a party’s defence in a summary suit as being the submission of its first statement on the substance of the dispute. But there appears no logical reason for the imposition of this time limit for an application when made by a person claiming through or under a party in a matter before a judicial authority as such person is under no obligation under the Code of Civil Procedure, 1908 to ‘submit a first statement on the substance of the dispute’ not being a party to the proceeding.

That said, the amendments aforementioned have received wide spread acknowledgement for encouraging one to look beyond the identity of the ‘party’ or ‘signatory’ to the arbitration agreement and consider an application for reference to arbitration by ‘non-signatories’ or including ‘non-signatories’ to an arbitration agreement.

In the next part of this article the authors shall evaluate the approach adopted by Courts with the view of assessing whether a norm for lifting the veil can be identified with reference to the arbitration of disputes.

THE VEIL AND COMMON LAW

A leading case on the doctrine of piercing the corporate veil in the United Kingdom was the case of Adams v. Cape Industries Plc. . This case raised almost every known reason for piercing the corporate veil known to modern company law including that the corporate structure was a sham or façade that the companies were a group of companies forming a single economic unit and even the principle of the interest of justice in order to make the parent company liable for the obligations of a subsidiary towards involuntary tort victims. The question ultimately boiled down to whether the holding company was bound by judgments passed in the United States of America against its subsidiary and a company it was associated with. The Court rejected the argument that Cape the holding company was doing business or was present in the United States through its wholly owned subsidiaries or through a company (CPC) with which it was observed to have close business links.

A leading authority on the doctrine of piercing the corporate veil in India is the judgment of the Supreme Court of India in Life Insurance Corporation of India v. Escorts Ltd. . In this case the Supreme Court was called upon to consider whether a portfolio investment scheme framed under Section 73(3) of the Foreign Exchange Regulation Act, 1973 for the purpose of encouraging investment in Indian companies by non-resident Indians read with the other provisions of the Act permitted authorities to look beyond the corporate identity of the investor and identify the ‘real’ owners of the portfolio. The examination by the authorities was undertaken in order to ascertain whether there had been a transgression of the maximum of 1% investment by an individual non-resident Indian. The allegation of the Revenue was that a single individual Mr Swraj Paul had made investments in the scheme far in excess of the 1% limit through his family trust and through thirteen companies forming the Caparo group of companies which it was alleged were controlled by him. The Court ruled that the statutory framework read with the scheme of the portfolio concerned only permitted a limited lifting of the corporate veil for the purpose of inquiring into identifying the nationality of the shareholders but did not permit or allow any further scrutiny to determine the individual identity of each shareholder.

In the context of arbitration, the inquiry into this issue eventually leads one to the case of Indowind Energy Ltd. v. Wescare (India) Ltd. where the Supreme Court of India was called upon to consider an agreement for sale dated 24th February, 2006 between Wescare and Subuti. The agreement defined Wescare and its subsidiary RCI Power India as the sellers and defined Subuti and its nominee as the buyers and promoters of Indowind. The agreement contemplated the transfer of business assets by the seller to the buyer in return for part payment in cash and part payment via the issuance of shares. Disputes arose between the parties and Wescare filed 3 separate applications under Section 9 of the 1996 Act seeking various reliefs against Subuti and Indowind. All of these applications came to be rejected with a prima facie observation that Indowind had not signed the agreement for sale. Wescare thereafter filed an application under Section 11 of the 1996 Act seeking the appointment of an arbitrator to determine the disputes between the parties. Subuti resisted the application on the ground that ‘the agreement did not contemplate any transaction between itself and Wescare’ and hence the application did not indicate any cause of action against it. Indowind asserted that it was not a party to the agreement for sale. The learned Chief Justice of the Madras High Court allowed the application and observed that by lifting the corporate veil one would see that Subuti and Indowind were ne and the same person. Interestingly, only Indowind challenged the judgment of the Chief Justice. The Supreme Court of India upheld Indowind’s challenge and held that there was no arbitration agreement between Indowind and Wescare that met the requirements of Section 7 of the 1996 Act. The Court observed that the fact that Subuti and Indowind had common directors/shareholders made no difference for the purpose of seeking a reference to arbitration and actually observed negligence on the part of Wescare in not insisting that Indowind also sign the agreement.

The contractual terms between Subuti and Wescare are discussed in great detail in the judgment of the High Court of Judicature at Madras. The Madras High Court had observed that under the agreement for sale Indowind was described as the nominee of Subuti and agreed to ‘give’ consideration by issuing share capital to Wescare . Under Clauses 4.4 to 4.6 of the agreement for sale Indowind agreed to pay Wescare for the purchase of certain machinery. Thereafter, pursuant to the agreement for sale, Indowind passed two crucial resolutions to give effect to the terms of the agreement. An Extraordinary General Body Resolution was passed by the shareholders of Indowind on 15.04.2006 whereby the allotment of shares to Wescare was approved. The Board of Directors of Indowind passed a resolution approving the part purchase of machinery under the agreement for sale on 17.04.2006. The authors would submit that the analysis of the Madras High Court of the contractual terms are well informed and correctly exposit the true intention of the parties from the agreement between the parties, namely, that Indowind would be covered by the agreement for sale. The authors would submit that in addition to the analysis of the contractual terms between the parties if one were to apply the statutory scheme contained in the Specific Relief Act, 1963 and in particular the provisions of Section 15(h) and Section 19(e) of the Specific Relief Act, 1963 dealing with circumstances when a company can seek specific performance of an agreement entered into by its promoters one would necessarily conclude that Indowind was bound by the agreement for sale. The conduct of Indowind in passing the aforementioned resolutions clearly indicates that it had accepted the contract and had communicated such acceptance to the other party to the contract . It is submitted that if Indowind could seek the specific performance of the agreement for sale it would most certainly have to be willing to abide by it and hence it’s terms could also be enforced against it . The authors would therefore respectfully submit that both the terms of the contract between the parties as well as the statutory framework supported a conclusion that disputes between the parties were arbitrable.

In Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. the Supreme Court was called upon to consider whether the arbitration agreements contained in some of the agreements between the parties governed all the joint venture agreements. The Court analysed the corporate structure of the several parties to the dispute before it and came to the conclusion that the disputes essentially arose between two groups, namely: (a) the Chloro Control or Kocha Group, and (b) the Severn Trent Group.

These groups had entered into seven separate agreements with the intention of carrying on business by joint venture in the form of the appellant and Severn Trent De Nora LLC. In its analysis the Supreme Court determined that the shareholders agreement dated 16.11.1995 was the principle agreement between the parties. Under this agreement the Severn Trent Group appointed the appellant as its distributor in India for the products manufactured by it . In furtherance of this principle agreement the parties entered into an International Distributors Agreement, a Managing Director’s Agreement, an Export Sales Agreement, a trademark licence and technical know-how agreement and a Supplemental Agreement.

Disputes between the parties commenced following the allegation by the Severn Trent Group that the Chloro Control Group had failed to remedy certain issues and grievances raised by them whereupon they took the decision to terminate the joint venture. The appellant then filed a derivative suit before the High Court of Judicature at Bombay whereupon the Severn Trent Group made an application under Sections 8 and 5 of the 1996 Act seeking a reference of the dispute to arbitration. The Supreme Court concluded that in the present case the fact that one or some of the parties were not signatories to all the agreement would not be of much significance since all the agreements flow from one principle agreement. The Court opined that all the sub-agreements were executed in order to attain the object of the principle agreement. The intention of the parties being to attain one common goal it was necessary to construe that the disputes under one or more or all the agreements must be sent to a common arbitration . It would thus appear that the Court concluded from the terms of the agreements between the parties that there was an intention to refer all disputes between all the parties to arbitration. From the reported version of the judgment available with the authors it would appear that the decision in Indowind was not placed before the Supreme Court for its consideration.

In Rakesh Kathotia v. Milton Global , a Division Bench of the High Court of Judicature at Bombay was hearing an appeal from the dismissal of an application under Section 9 of the 1996 Act. The learned Single Judge had rejected the application on the ground that there was no identity between the parties to the arbitration agreement and the application. It was the contention of the appellant that a Joint Venture Agreement (JVA) dated 14.07.2001 entered into between two groups, namely, the Vaghani Group and the Subhkam Group required the transfer of the entire manufacturing and distribution business of the Vaghani Group to be transferred to a Joint Venture Company (JVC) incorporated between the groups. The appellant argued that the Vaghani Group had formed an entity Respondent 2 and were carrying on business in competition with the JVC. From the contractual documents before it the Court held that Respondent 2 would be covered by the terms of the JVA between the parties and hence the application under Section 9 could not have been dismissed on the ground that Respondent 2 was not a party to the arbitration agreement.

The judgment in Chloro Controls was followed by the Supreme Court of India in Purple Medical Solutions (P) Ltd. v. MIV Therapeutics Inc. The judgment is significant as the ratio in Chloro Controls was sought to be applied to an application filed under Section 11 of the 1996 Act. Differences between the parties had their genesis in a Share Purchase Agreement (SPA) entered into on 11.07.2011 and a License Royalty Agreement entered on the same date. Under the SPA, the first respondent was required to transfer 99.96% of its share capital to the petitioner. The transfer of shares was restrained by an order and Injunction passed by the District Court of Massachusetts in a claim filed by a third party. The petitioner came to learn of this order on 12.07.2011 just one day after the execution of the SPA. The petitioner was assured by the respondents that the dispute before the Court of Massachusetts would be settled and was thereby induced to make payment towards the purchase price of the shares. The respondents however did not discharge the claim before the District Court of Massachusetts and on 23.07.2013, coercive proceedings were commenced against the petitioner and Respondent 1 a company in which it had by now acquired a substantial stake. The Supreme Court applying the ratio of the judgment in Chloro Control held that the consent of Respondent 2 to arbitrate disputes under the agreements between the parties could be inferred from the nature of the transaction between the parties .

The judgment in Chloro Control was sought to be applied in a challenge to an arbitral award in a petition under Section 34 of the 1996 Act in ONGC v. Jindal Drilling and Industries Ltd. before the High Court of Judicature at Bombay. The arbitral tribunal had dismissed a claim filed before it on the grounds of lack of jurisdiction. It was the case of the petitioner that it had awarded a contract to a company by the name DEPL basis the representation that this entity was a sister concern of the respondent. The Court found no contractual or circumstantial evidence in support of these allegations and hence agreed with the Tribunal’s findings that there was no material produced in support of the aforesaid allegations. It was in such circumstances that the Court refused to apply the ratio of the judgment in Chloro Control .

GMR Energy Limited v. Doosan Power Systems India (P) Ltd. was an interesting case for it was a suit filed before the Delhi High Court seeking an injunction restraining the defendants from initiating or continuing an arbitration before the Singapore International Arbitration Centre (SIAC). The suit sought an injunction on the ground that the plaintiff was not a party to the arbitration agreements. The defendants filed an application seeking reference of the suit to arbitration under Section 45 of the 1996 Act. The defendants contended that the plaintiff had by virtue of two MOU’s guaranteed the liability of GCEL. These contentions were accepted by the Court and also noted that the GMR group of companies operated as a single group concern and the plaintiff had in fact made part-payment of the obligations of GCEL.

In Cheran Properties Ltd. v. Kasturi and Sons Ltd. , the Supreme Court of India was hearing appeals from a judgment of the National Company Law Appellate Tribunal. The third respondent, KSL, SPIL and Hindcorp entered into a share purchase agreement on 19.07.2004. Under this agreement SPIL would allot 240 lakh equity shares to KSL at a price fixed under the agreement in order to discharge the book debts of SPIL. KSL was to sell 243 lakh equity shares to KCP. The object being to take over the business, shares and liabilities of SPIL. Since the transaction was not completed by KCP disputes broke out between the parties, which were referred to arbitration. An award was passed against KCP. KCP challenged the award unsuccessfully losing at every stage right up to the Supreme Court. The award having attained finality, KSL initiated proceedings under Section 111 of the Companies Act, 1956 seeking a rectification of the register. The NCLT allowed the application and KCP’s appeal against this order was dismissed. In passing its order, the NCLT had concluded that the appellant was a nominee of KCP. These conclusions were based on an evaluation of the proceedings during the course of the arbitration and the provisions of the share purchase agreement, which allowed KCP to nominate any person for the purpose of acquiring the shares of SPIL provided they agreed to abide by the terms of the agreement between the parties. It was the appellant’s principal contention that the award could not be enforced against it, as it was not a party to the arbitration. The Court however, opined that in modern business transactions where parties enter into multiple layers of transactions through groups of companies. The Court held that the intention of the parties ought to be gathered from the transactional documents and the intention of the parties ought to be given effect including if necessary, by binding non-signatory parties by the outcome of the arbitration proceedings. Accordingly, the Court derived a contractual intent to bind the appellant and upheld the decision of the NCLT and the NCLAT and dismissed the appeal.

Before parting with this decision, it would be necessary to bring the attention of the reader to a distinction sought to be created by the Court between seeking to apply ‘the group of companies principle’ in a Section 11 situation as in Indowind and in a post arbitration case as in the case at hand. The Court concluded that the statutory framework, namely, Section 35 of the 1996 Act allowed it to execute an Award against persons claiming under or through a party to an arbitration but the scheme of the 1996 Act did not authorise such considerations in the context of an application under Section 11 of the 1996 Act . The authors respectfully differ with these observations of the Supreme Court . In proceedings under Section 8 as well as in proceedings under Section 11 of the 1996 Act, the judicial authority or court is required to give a finding on the existence of an arbitration agreement’ . There was additionally no distinction between the language of Section 8 and Section 35 at the time of the judgment since Section 8 of the 1996 Act had already been amended by Act 3 of 2016. The authors would state that once an intent can be seen or derived from the transaction between the parties or observed in their conduct there is nothing in the language of the 1996 Act that prevents a judicial authority or court from giving effect to that intention and appointing an arbitrator in a dispute covering signatory parties as well as non-signatory parties. It is also pertinent to note that the decision of the Supreme Court in this case did not benefit from having the opportunity to consider the judgment of the Supreme Court in Purple Medical Solutions which itself did not have the opportunity of considering Indowind .

In Ameet Lalchand Shah v. Rishabh Enterprises , the Supreme Court of India was called upon to consider the validity of an order dismissing an application under Section 8 of the 1996 Act. Rishabh had entered into two contracts with Juwi India, namely, an equipment and material supply contract and an engineering, installation and commissioning contract, both of which contained an arbitration agreement. Rishabh then entered into a sale and purchase agreement with Astonfield for purchasing CIS Photovoltaic products and an equipment lease agreement whereby Dante Energy agreed to lease the solar power plant of Rishabh at Jhansi. These two agreements did not contain arbitration agreements. Owing to disputes between the parties, Dante Energy invoked arbitration and nominated an arbitrator. In response Rishabh filed a suit before the High Court of Judicature at Delhi alleging fraud and seeking a declaration that the aforementioned agreements were void. The Supreme Court considered the terms of the various agreements as well as the pleadings in the plaint filed by Rishabh and concluded that clearly the four agreements were inter-connected. The Court opined that while there were several agreements covering several different parties these were all executed for the same commercial object of commissioning a solar power project in Jhansi. The Court therefore referred disputes under all four agreements to an arbitrator to be appointed by the parties.

The Courts have also had an opportunity of considering intervention by third parties in arbitration proceedings as was the case in Nirmala Jain v. Jasbir Singh as well as impleadment of third parties to arbitration agreements as was the case in Starlog Enterprises Ltd. v. Board of Trustees of Kandla Port . In Nirmala Jain a Division Bench of the Delhi High Court was deciding an appeal where the principle ground for challenge to an order under Section 9 of the 1996 Act was that it allowed a third party to the arbitration proceedings to intervene in the arbitral proceedings. Dismissing the appeal, the Court held that there was no absolute proposition of law that third parties/non-signatories could not be made parties to an arbitration. The Court observed that given the commonality of the subject-matter and the composite nature of the transaction between the parties there was nothing wrong with the order under challenge. In Starlog an arbitral tribunal passed an order in July 2019 impleading a third party in an arbitration that had commenced in the year 2014. The impleaded party sought to challenge the order of the Tribunal by filing a writ petition before the High Court of Judicature of Gujarat at Ahmedabad. This proceeding was dismissed as not maintainable and the Gujarat High Court left the parties to raise all the contentions on merits before an appropriate forum at the appropriate time.

In MTNL v. Canara Bank , MTNL sought to oppose the inclusion of CANFINA as Respondent 2 in arbitral proceedings contending that there was no arbitration agreement between MTNL and CANFINA. The Supreme Court referred to several documents to ascertain the intention of the parties including: the contractual documents between MTNL and Canara Bank, Minutes of Meetings between Cabinet Secretaries with respect to the arbitration of disputes and to earlier proceedings between the parties. The Court observed that arbitration agreements are to be construed according to the general principles of construction of statutes, statutory instruments, and other contractual documents. The intention of the parties must be inferred from the terms of the contract, conduct of the parties, and correspondence exchanged, to ascertain the existence of a binding contract between the parties. If the documents on record show that the parties were ad idem, and had actually reached an agreement upon all material terms, then it would be construed to be a binding contract . The meaning of a contract must be gathered by adopting a common sense approach and must not be allowed to be thwarted by a pedantic and legalistic approach. A commercial document has to be interpreted in such a manner so as to give effect to the agreement, rather than to invalidate it. An arbitration agreement is a commercial document inter parties, and must be interpreted so as to give effect to the intention of the parties, rather than to invalidate it on technicalities. The Supreme Court stated that a non-signatory can be bound by an arbitration agreement on the basis of the ‘group of companies’ doctrine, where the conduct of the parties evidences a clear intention of the parties to bind both the signatory as well as the non-signatory parties. The Courts and Tribunals have invoked this doctrine to join a non-signatory member of the group, if they are satisfied that the non-signatory company/ party was by reference to the common intention of the parties, a necessary party to the contract. The Court held that a non-signatory entity of a group of companies could be bound by an arbitration agreement if it was found that it had been engaged in the negotiation or performance of the transaction or made statements indicating its intention to be bound by the contract. Non-signatory parties could also be bound if they were found to be bound and/or benefitted from the relevant contract. The Court also observed the need to have a common arbitration where a ‘composite transaction’ required several different agreements to be performed in order to attain a common objective. Ultimately, the Court concluded that from the material before it no gainful arbitral proceedings could be conducted in the absence of CANFINA and thus referred the parties to the arbitration.

CONCLUSION

Like a consummated romance arbitration rests on consent. The analysis above clearly articulates consent as the cornerstone of arbitration. However, consent need not always be express and it may be implied from the transactional documents and the conduct of the parties as well as by the conduct of non-parties/non-signatories. The authors, therefore, propose that terminology such as ‘group of companies’, ‘vessel of fraud’, ‘sham or bogus’ etc commonly used in proceedings where parties seek to question or challenge the separate corporate identity of a company whilst applicable to civil proceedings where such questions arise, do not have a natural home in the sphere of arbitration. In the sphere of arbitration, the enquiry must exclusively concentrate on whether or not consent to arbitrate can be observed whether expressly or by necessary implication from the nature of the transaction, the contract, the correspondence and conduct of the parties.


*Advocate, Bombay High Court (mikhailbehl@gmail.com)

**Advocate, Bombay High Court and former Visiting Professor at Government Law College, Mumbai (anupamsurve@gmail.com).

[1] Definition of ‘corporate veil’: Black’s Law Dictionary (11th Edn.).

[2] Definition of ‘piercing the corporate veil’: Black’s Law Dictionary (11th Edn.).

[3] Gower and Davies: Principles of Modern Company Law (8th Edn.) (Ch. 8, pp. 193–209).

[4] (1944) 7 Modern Law Review 54.

[5] 1896 AC 22.

[6] UK Company Law Review: Strategic Framework, Ch. 5.2.

[7] Gower and Davies: Principles of Modern Company Law (8th Edn. ) (Ch. 8 at p. 195).

[8] https://www.startupindia.gov.in (viewed on 26.08.2020).

[9] https://www.makeinindia.com/policy/new-initiatives (viewed on 26.08.2020).

[10] Gower and Davies: Principles of Modern Company Law (8th Edn.) (Ch. 8 at pp 208-209).

[11] Arbitration and Conciliation Act, 1996

[12] What constitutes an arbitration agreement being defined in Section 7 of the 1996 Act.

[13] Report No. 246 of the Law Commission of India: Amendments to the Arbitration and Conciliation Act, 1996 [at p. 42].

[14] Act 3 of 2016.

[15] Pertaining to New York Convention Awards.

[16] Pertaining to Geneva Convention Awards.

[17] See paras 61 to 64 of the 246th Report of the Law Commission on Amendments to the Arbitration and Conciliation Act, 1996 (August,2014).

[18] (2013) 1 SCC 641.

[19] Order 22 Rule 10 of the Code of Civil Procedure, 1908.

[20] See also Order 22 Rule 1 of the Code of Civil Procedure, 1908.

[21] Section 232 (4) of the Companies Act, 2013.

[22] Section 232(3)(c) of the Companies Act, 2013.

[23] (2013) 1 SCC 641.

[24] 1953 SCC OnLine Bom 65.

[25] Malhotra: Commentary on the Law of Arbitration (Fourth EdN.) (pp. 152-154).

[26] [1990] Ch 433: [1990] 2 WLR 657 (HL).

[27] (1986) 1 SCC 264.

[28] (2010) 5 SCC 306.

[29] Wescare (I) Ltd. v. Subuthi Finance Ltd., 2008 SCC OnLine Mad 539 at para 12.

[30] Clause 4.2 of the Agreement for Sale dated 24.02.2006.

[31] Wescare was seeking enforcement of its agreement with Subuti.

[32]See proviso to Section 15(h) of the Specific Relief Act, 1963.

[33] See Section 16(b) and (c) of the Specific Relief Act, 1963.

[34] See Section 19(e) of the Specific Relief Act, 1963.

[35] (2013) 1 SCC 641.

[36] Clause 7 of the Shareholders Agreement.

[37] (2013) 1 SCC 641 at paras 73 to 76.

[38] (2010) 5 SCC 306.

[39] 2014 SCC Online Bom 1119.

[40] (2013) 1 SCC 641.

[41] (2015) 15 SCC 622.

[42] (2013) 1 SCC 641.

[43] The judgment however does not consider Indowind, (2010) 5 SCC 306.

[44] (2013) 1 SCC 641.

[45] 2015 SCC Online Bom 1707.

[46] (2013) 1 SCC 641.

[47] 2017 SCC Online Del 11625.

[48] (2018) 16 SCC 413.

[49] (2010) 5 SCC 306

[50] (2018) 16 SCC 413  para 29.

[51] It is necessary to note that these observations were made prior to the enactment of Act 33 of 2019 whereby Section 11(6-A) of the 1996 Act came to be deleted from the statute book.

[52] Malhotra: Commentary on the Law of Arbitration (Fourth Edn, at. page 317).

[53] Malhotra: Commentary on the Law of Arbitration (Fourth Edn., at page 449).

[54] See Sections 4 & 6 of Act 3 of 2016. The authors would state that irrespective of the deleting of Section 11(6-A) by virtue of Act 33 of 2019 since the High Court or the Supreme Court is required to evaluate the mechanism contained in the arbitration agreement the Courts would have to come to a prima facie finding that there was an arbitration agreement in existence.

[55] Garware Wall Ropes Ltd.  v. Coastal Marine Construction and Engineering Ltd., (2019) 9 SCC 209.

[56] (2015) 15 SCC 622.

[57] (2010) 5 SCC 306.

[58] 2018 SCC Online SC 487.

[59] (2019) SCC Online Del 11342.

[60] R/Special Civil Application No. 14146 of 2019 decided by the  High Court of Judicature of Gujarat at Ahmedabad on 18.05.2020.

[61] (2019) SCC Online Del 11342.

[62] R/Special Civil Application No. 14146 of 2019 decided by High Court of Judicature of Gujarat at Ahmedabad on 18.05.2020.

[63] 2019 SCC Online SC 995.

[64] Ibid at para 9.4.

[65] The Court subsequently on the constitution of the Administrative Mechanism for the Resolution of CPSE’s Disputes (AMRCD) referred the three government bodies to the AMRCD with the understanding that if disputes were not settled by 15.01.2020 there would be an arbitration of these disputes. See (2019) 10 SCC 32.

Case BriefsSupreme Court

Supreme Court: While settling the dispute between Anglo American Metallurgical Coal (AAMC) and MMTC Ltd, the bench of RF Nariman* and KM Joseph, JJ had the occasion to explain the concept of “patent” and “latent” ambiguity and held,

“… a “patent ambiguity” provision, as contained in section 94 of the Evidence Act, is only applicable when a document applies accurately to existing facts, which includes how a particular word is used in a particular sense.”

In the said case, the bench has set aside the decision of the division bench of Delhi High Court and has restored the Majority Award dated 12.05.2014 and the Single Judge’s judgment dated 10.07.2015 dismissing the application made under section 34 of the Arbitration Act by MMTC.

The Court had called the entire approach of the Division Bench was flawed and had said,

“To cherry-pick three emails out of the entire correspondence and to rest a judgment on those three emails alone, without having regard to the context of the LTA and the correspondence, both before and after those three emails, would render the judgment of the Division Bench fundamentally flawed.”

The Court explained that Section 92 of the Evidence Act, 1872 refers to the terms of a “contract, grant or other disposition of property or any matter required by law to be reduced to the form of a document”. Under proviso (6) read with illustration (f), any fact may be proven which shows in what manner the language of a document is related to existing facts. Illustration (f) of section 92 of the Evidence Act indicates that facts, which may on the face of it, be ambiguous and vague, can be made certain in the contextual setting of the contract, grant or other disposition of property.

Section 94 of the Evidence Act, then speaks of language being used in a document being “plain in itself”. It is only when such document “applies accurately to existing facts”, that evidence may not be given to show that it was not meant to apply to such facts.

As per section 95 of the Evidence Act, when the language used in a document is plain in itself, but is “unmeaning in reference to existing facts”, only then may evidence be given to show that it was used in a peculiar sense.

“When sections 92, 94 and 95 of the Evidence Act are applied to a string of correspondence between parties, it is important to remember that each document must be taken to be part of a coherent whole, which happens only when the “plain” language of the document is first applied accurately to existing facts.”

When proviso (6) and illustration (f) to section 92, section 94 and section 95 of the Evidence Act are read together, the picture that emerges is that when there are a number of documents exchanged between the parties in the performance of a contract, all of them must be read as a connected whole, relating each particular document to “existing facts”, which include how particular words are used in a particular sense, given the entirety of correspondence between the parties.

“Thus, after the application of proviso (6) to section 92 of the Evidence Act, the adjudicating authority must be very careful when it applies provisions dealing with patent ambiguity, as it must first ascertain whether the plain language of a particular document applies accurately to existing facts. If, however, it is ambiguous or unmeaning in reference to existing facts, evidence may then be given to show that the words used in a particular document were used in a sense that would make the aforesaid words meaningful in the context of the entirety of the correspondence between the parties.”

In the case at hand, there was no mention of the price at which coal was to be supplied in the three “crucial” emails, these emails must be read as part of the entirety of the correspondence between the parties, which would then make the so-called “admissions” in the aforementioned emails apply to existing facts. Hence, there was no scope for application of the “patent ambiguity” principle contained in section 94 of the Evidence Act, to the facts of the present case.

However, it was stated that section 95 of the Evidence Act, dealing with latent ambiguity, when read with proviso (6) and illustration (f) to section 92 of the Evidence Act, could applied to the facts of the case, as when the plain language of a document is otherwise unmeaning in reference to how particular words are used in a particular sense, given the entirety of the correspondence, evidence may be led to show the peculiar sense of such language. Thus, if this provision is applied, the Majority Award cannot be faulted for accepting the evidence AAMC’s Marketing Manager’s wherein he had explained that the three emails would only be meaningful if they were taken to refer to “mixed” supplies of coal, and not supplies of coal at the contractual price.

Anglo American Metallurgical Coal versus MMTC| Supreme Court finds Delhi HC’s division bench verdict “flawed”; Restores Arbitral Tribunal’s majority award

[Anglo American Metallurgical Coal Pty Ltd v. MMTC Ltd, CIVIL APPEAL NO.__4083__ OF 2020, decided on 17.12.2020]


Advocates who appeared in the matter

For Appellant: Senior Advocates Kapil Sibal and Neeraj Kishan Kaul

For Respondent: Senior Advocate Mukul Rohatgi

*Justice RF Nariman has penned this judgment. 

Know Thy Judge| Justice Rohinton F. Nariman

 

 

 

Case BriefsSupreme Court

Supreme Court: In the dispute between Anglo American Metallurgical Coal (AAMC) and MMTC Ltd, the bench of RF Nariman* and KM Joseph, JJ has set aside the decision of the division bench of Delhi High Court and has restored the Majority Award dated 12.05.2014 and the Single Judge’s judgment dated 10.07.2015 dismissing the application made under section 34 of the Arbitration Act by MMTC.

Background of the case

  • AAMC, an Australian company and MMTC entered into a Long-Term Agreement (LTA) dated 03.2007 for supply of certain quantities of freshly mined and washed “German Creek”, “Isaac” (Blend of 65% Moranbah North and 35% German Creek coking coals) and “Moranbah North” coking coal to MMTC.
  • Disputes arose between the parties as to shipments or “stems” that were to be covered by the Fifth Delivery Period, which ranged from 01.07.2008 to 30.06.2009, the parties mutually extending this period to 30.09.2009.
  • A number of emails and letters were exchanged between the parties from August 2008 to December 2009, which were examined in detail by a panel of 4 arbitrators who sat at New Delhi and delivered their international arbitral award in New Delhi on 12.05.2014. The award was a majority award in favour of AAMC. The majority award held that AAMC was able to supply the contracted quantity of coal for the Fifth Delivery Period, at the contractual price, and that it was MMTC who was unwilling to lift the coal, owing to a slump in the market, MMTC being conscious of the fact that mere commercial difficulty in performing a contract would not amount to frustration of the contract.
  • The Majority Award was challenged under section 34 of the Arbitration and Conciliation Act, 1996 before a learned Single Judge of the High Court of Delhi, who upheld the Majority Award by a judgment dated 10.07.2015.
  • By the impugned judgment dated 02.03.2020, a Division Bench of the High Court of Delhi set aside the judgment of the Single Judge and allowed an appeal filed under section 37 of the Arbitration Act by MMTC, setting aside the Majority Award.

Analysis

The Court noticed that its was a finding of fact by the majority which held that AAMC was able to supply the contracted quantity of coal for the Fifth Delivery Period, at the contractual price, and that it was MMTC who was unwilling to lift the coal, owing to a slump in the market, MMTC being conscious of the fact that mere commercial difficulty in performing a contract would not amount to frustration of the contract. It was for this reason that MMTC decided, as an afterthought, in reply to AAMC’s legal notice dated 04.03.2010, to attack AAMC on the ground that it was AAMC that was unable to supply the contracted quantity in the Fifth Delivery Period.

“Once this becomes clear, it is obvious that the Majority Award, after reading the entire correspondence between the parties and examining the oral evidence, has come to a possible view, both on the Respondent being in breach, and on the quantum of damages.”

The Court further stated that the entire approach of the Division Bench was flawed.

“To cherry-pick three emails out of the entire correspondence and to rest a judgment on those three emails alone, without having regard to the context of the LTA and the correspondence, both before and after those three emails, would render the judgment of the Division Bench fundamentally flawed.”

The Court also found the following findings by the division bench to be flawed:

  • the finding that there was “no evidence” that the Respondent demanded stems of coal at a reduced rate vis-à-vis the contractual rate, ignored at least three different exchanges between the parties, being MMTC’s letters dated 20.11.2008, 27.11.2009 and 03.12.2009.
  • the finding that no evidence had been led to show that the Appellant had availability of the balance quantity of 454,034 metric tonnes of coal to supply to the Respondent during the Fifth Delivery Period, completely failed to appreciate AAMC’s Marketing Manager’s evidence given by way of an Additional Affidavit dated 03.09.2013 and in response to questions in cross-examination before the Arbitral Tribunal on 23.09.2013, together with two letters exchanged between the parties on 21.09.2009 and 25.09.2009.
  • the finding that there is “no evidence” to prove market price of coal at the time of breach, and that therefore, quantum of damages could not be fixed, again completely ignored AAMC’s Marketing Manager’s evidence in chief and cross examination; MMTC’s letters dated 25.09.2009, 27.11.2009 and 03.12.2009; as also AAMC’s re-negotiated contracts with SAIL/RINL.

The Court noticed that all of these aspects were considered in the Majority Award of the Arbitral Tribunal in great detail.

Further, the Court explained the concept of “patent ambiguity” and concluded that ibthe case at hand, there was no mention of the price at which coal was to be supplied in the three “crucial” emails, these emails must be read as part of the entirety of the correspondence between the parties, which would then make the so-called “admissions” in the aforementioned emails apply to existing facts. Hence, there was no scope for application of the “patent ambiguity” principle contained in section 94 of the Evidence Act, to the facts of the present case.

However, it was stated that section 95 of the Evidence Act, dealing with latent ambiguity, when read with proviso (6) and illustration (f) to section 92 of the Evidence Act, could applied to the facts of the case, as when the plain language of a document is otherwise unmeaning in reference to how particular words are used in a particular sense, given the entirety of the correspondence, evidence may be led to show the peculiar sense of such language. Thus, if this provision is applied, the Majority Award cannot be faulted for accepting the evidence AAMC’s Marketing Manager’s wherein he had explained that the three emails would only be meaningful if they were taken to refer to “mixed” supplies of coal, and not supplies of coal at the contractual price.

The Court, hence, remined the Courts that

“… when there are a number of documents exchanged between the parties in the performance of a contract, all of them must be read as a connected whole, relating each particular document to “existing facts”, which include how particular words are used in a particular sense, given the entirety of correspondence between the parties.”

[Anglo American Metallurgical Coal Pty Ltd v. MMTC Ltd,  2020 SCC OnLine SC 1030, decided on 17.12.2020]


Advocates who appeared in the matter

For Appellant: Senior Advocates Kapil Sibal and Neeraj Kishan Kaul

For Respondent: Senior Advocate Mukul Rohatgi

*Justice RF Nariman has penned this judgment. 

Know Thy Judge| Justice Rohinton F. Nariman

Case BriefsHigh Courts

Kerala High Court: T.V. Anilkumar, J., dismissed the present Appeal against the impugned order of Additional District Court whereby the Court refused to order attachment of disputed land and machineries.

In the instant case, the appellant purchased some scrap and machineries from the respondent company under Memorandum of Understanding (MoU) dated 31-01-2017. Although the appellant paid a substantial amount, some amount was still outstanding towards the purchase price. The appellant claimed that, some of the goods kept in the disputed land were yet to be removed. The appellant contended that, the respondent had withheld the goods and proposed to sell them along with the disputed land. It was stated that the appellant had suffered a huge loss due to the alleged breach of contract committed by the respondent.

Stand taken by the respondent was that all the goods purchased by the appellant were already removed from the premises and some amount towards value of goods was outstanding due. The respondent set up a rival claim of loss and sought damages from the appellant.

The contention of the appellant was that until the claim for damages is determined by the Arbitral Tribunal, the disputed land, machineries etc. had to be kept intact or else, the appellant might not be in a position to recover the loss from the respondent. The appellant submitted that the court below refused to grant reliefs in respect of the scrap and machineries only for the reason that they were not scheduled in the petition. Therefore, the matter may be remitted back to the Court below and appellant may be given an opportunity to incorporate the property in the original petition.

The respondent argued that the appellant had not made out any prima facie case also the Court below had dismissed the Original Petition (Arb) on the ground that the material facts were suppressed by the appellant. Regarding physical possession of the land, the respondent had already approached another Bench of this Court seeking liberty to be reserved with it for sale of the property for settling its liabilities. The respondent opposed prayer for remittance of the case to the Court below and contended that, sole Arbitrator had already been appointed after the impugned order was passed, there is a legal bar under Section 9(3) of the Arbitration and Conciliation Act, 1996 (“the Act”) which precludes the court below from granting any interim measure of protection.

The Court opined that attachment of land as sought by the appellant could not be granted as the said land had already become the secured asset of Edelweiss Asset Reconstruction Company, Mumbai. Under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2016 (“SARFAESI Act”), the physical possession of the property was already taken over by Chief Judicial Magistrate.  In view of the appointment of sole Arbitrator, the Court said that, it is up to the learned Arbitrator to consider the question as to whether the appellant would be entitled to claim any interim measure of protection under Section 17 of the Act.

The Court dismissed the appeal, holding that there was no reason to interfere with the impugned order passed by the court below. [K.K. Ibrahim v. Cochin Kagaz Ltd, 2020 SCC OnLine Ker 7755, decided on 01-12-2020]