Case BriefsSupreme Court

Supreme Court: A Division Bench comprising of R.F. Nariman and B.R. Gavai, JJ. held that an arbitral award which is based on no evidence and/or in ignorance of evidence would come under the realm of patent illegality. The Court also held that an arbitrator cannot rewrite the contract for the parties.

Facts and Appeal

In 1998, the respondent−Tuticorin Port Trust (“Trust”) awarded a tender to the appellant−Company for certain development and operation works at the Tuticorin Port for 30 years on a Build, Operate and Transfer basis. Shorn of details, commercial differences arose between the parties relating primarily to royalty/revenue sharing model. The Company requested the Trust to amend the License Agreement to incorporate revenue sharing model in place of royalty model. This was however rejected by the Trust.

In 2012, the Company invoked arbitration clause under the License Agreement. The Arbitral Tribunal passed an award in favour of the Company directing conversion of royalty model to revenue sharing model. Thereafter, the Trust presented a petition under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside an arbitral award. This petition was rejected by the District Judge, Tuticorin. Against this, the Trust filed an appeal before the Madras High Court. The appeal was allowed and the award made by the Arbitral Tribunal was set aside. Aggrieved, the Company approached the Supreme Court.

Analysis and Observations

Scope of interference with an arbitral award in India      

Relying on a catena of judgments including MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163 and SsangYong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131,  the Supreme Court noted it to be settled legal position that in an application for setting aside an arbitral award filed under Section 34 of the Arbitration Act, the court does not act as an appellate court and reappreciate the evidence. The scope of interference is limited to grounds provided under Section 34. Interference would be warranted when the award is in violation of public policy of India. A judicial intervention on account of interfering on the merits of the award would not be permissible.

Principles of natural justice as contained in Sections 18 and 34(2)(a)(iii) of the Arbitration Act continue to be grounds of the challenge of an award. Awards that shock the conscience of the court can be set aside for being in conflict with justice or morality. An award can be set aside on the ground of patent illegality appearing on the face of the award as such, which goes to the roots of the matter.

Merits of the case

Article 14 of the License Agreement

The bone of contention between the parties was Article 14 of the License Agreement which dealt with ‘Change in Law’. Article 14.3 provided that the Licensee (appellant−Company) may request for amendments in terms of the License Agreement if after the date of the License Agreement there is any change in law which substantially affects rights of the Licensee. The questions before the Court were:

(i) Whether the Arbitral Tribunal was justified in finding a change in law which entitled the Company to invoke Article 14.3 of the License Agreement; and

(ii) Whether the Arbitral Tribunal was justified in converting the contract from royalty model to revenue sharing model.

The Court said that for answering the questions, it will have to consider documents on record as well as the conduct of the parties and their intention as could be gathered from the material. For such propsition, reliance was placed on MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163.

Findings of the Arbitral Tribunal

It was noted by the Court that entire finding of the Arbitral Tribunal was based on a premise that when the parties entered into the contract in 1998, there was an existing policy which provided royalty to be factored into the cost while fixation of tariff. That, subsequently in 2003, Government of India changed the policy thereby providing that royalty will not be so factored while fixing tariff. In 2005, there was yet another change in policy vide which royalty was allowed to be factored in while fixing tariff, but subject to a maximum of the bid of second lowest bidder. According to the Arbitral Tribunal, this amounted to change in law which adversely affected the Company.

Examining the correctness of such finding, the Court found that when Letter of Intent was issued to the Company in January 1998, there was no policy/guidelines at all. The relevant guidelines were adopted by the authority concerned (Tariff Authority for Major Ports “TAMP”) only in February 1998. Even these 1998 Guidelines did not provide for factoring royalty in cost while determining tariff.

Notably, it was in the year 1999, that the Company presented a proposal before TAMP to revise tariff. The proposal was approved by TAMP, and royalty was allowed to be factored in cost while fixing tariff, however, this was only on account of the Trust’s conditional approval to the proposal submitted by the Company. The TAMP also made clear that its order should not be interpreted to amount to any implicit approval of royalty related issues which were left to be decided by the Trust and the Government of India.

Then came the first notification in 2003, where the Government of India decided to clarify, as a matter of policy, that royalty payment shall not be factored into account as cost for fixation of tariff.

Next came the second notification in 2005, superseding the 1998 Guidelines. The new guidelines provided that royalty payment will not be admissible cost for tariff computation. Further, in Build, Operate and Transfer cases such as that of the Company, it was allowed that tariff computation can factor in royalty payment as cost subject however only to a maximum of the amount quoted by next lowest bidder.

On a conjoint reading of all documents, the Court concluded that:

In this scenario, the finding of the Arbitral Tribunal, that there was a law when the Agreement was entered into between the parties, which provided royalty as a pass-through and that the said law has been changed for the first time in 2003 and subsequently again changed in 2005, in our view, is a finding based on ‘no evidence‘.

The Court was of the opinion that the Arbitral Tribunal totally failed to take into consideration relevant aspects of the matter as discussed above. Noting that the Arbitral Tribunal arrived at its decision based on ‘no evidence’ and in ‘ignorance of vital evidence’, the Court held that the findings of the Arbitral Tribunal would come in the realm of perversity as explained in Associated Builders v. DDA, (2015) 3 SCC 49.

Conversion of royalty payment model to revenue sharing model

The next issue was whether the Arbitral Tribunal was justified in substituting royalty payment model to revenue sharing model. While considering this, the Court opined that:

A contract duly entered into between the parties cannot be substituted unilaterally without the  consent of the parties.

Gathering the  intention of the parties from documents on record, the Court found that the Company wanted the License Agreement to be amended to change royalty payment method to revenue sharing method. Whereas, the Trust always opposed it and was not agreeable to any such amendment. Noting that the Arbitral Tribunal ignored the stand of the Trust to thrust upon a new term in the License Agreement, the Court observed:

It is thus clear that the Award has created a new contract for the parties by unilateral intention of [the Company] as against the intention of [the Trust].

Reiterating that a party to the Agreement cannot be made liable to perform something for which it has not entered into a contract, the Court concluded that:

In our view, rewriting a contract for the parties would be breach of fundamental principles of justice entitling a Court to interfere since such case would be one which shocks the conscience of the Court and as such, would fall in the exceptional category.

Decision

In such view of the matter, the Supreme Court was of the considered opinion that the impugned award passed by the Arbitral Tribunal would come under the realm of “patent illegality” and therefore it was rightly set aside by the High Court. [PSA SICAL Terminals (P) Ltd. v. V.O. Chidambranar Port Trust, Civil Appeal Nos. 3699-3700 of 2018, decided on 28-7-2021]


Tejaswi Pandit, Senior Editorial Assistant has reported this brief.

Case BriefsSupreme Court

Supreme Court: The Division Bench of R.F. Nariman and B.R. Gavai, JJ., while addressing a significant and interesting question of law expressed that,

“If one were to include the power to modify an award in Section 34, one would be crossing the Lakshman Rekha”

Interesting Question of Law

Whether the power of a Court under Section 34 of the Arbitration and Conciliation Act, 1996 to ‘set aside’ an award of an arbitrator would include the power to modify such an award?

Madras High Court decision 

A Division Bench of the Madras High Court had disposed of a large number of appeals filed under Section 37 of the said Act laying down as a matter of law that, at least insofar as arbitral awards made under the National Highways Act, 1956, Section 34 of the Arbitration Act must be so read as to permit modification of an arbitral award made under the National Highways Act so as to enhance compensation awarded by an Arbitrator.

Factual Matrix

The crux of the matter was that the above-stated appeals concerned notifications issued under the provisions of National Highways Act and awards passed. The said notifications were of the year 2009 onwards and the awards made were based on the ‘guideline value’ of the lands in question and not on the basis of sale deeds of similar lands.

It was stated that the competent authority had granted abysmally low amounts.

In Section 34 petitions that were filed before the District and Sessions Judge, the said amounts were enhanced to Rs 645 per sq. meter and the award of the Collector was therefore modified by the District Court in exercise of jurisdiction under Section 34 of the Arbitration Act.

Further, in the appeal filed to Division Bench, the above-stated modification was upheld, with there being a remand order to fix compensation for certain trees and crops.

Analysis, Law and Decision

Section 34 of the Arbitration Act

Bench noted that far from Section 34 being in the nature of an appellate provision, it provides only for setting aside awards on very limited grounds, such grounds being contained in sub-sections (2) and (3) of Section 34.

It is the opinion of the arbitral tribunal which counts in order to eliminate the grounds for setting aside the award, which may be indicated by the court hearing the Section 34 application.

Further, the Court stated that Section 34 is modelled on the UNCITRAL Model Law on International Commercial Arbitration, 1985 under which no power to modify an award is given to a court hearing a challenge to an award.

Old v. New

Elaborating more, Bench added that by way of contrast, under Sections 15 and 16 of the Arbitration Act, 1940, the court is given the power to modify or correct an award in the circumstances mentioned in Section 15, apart from a power to remit the award under Section 16.

Thus, under the scheme of the old Act, an award may be remitted, modified or otherwise set aside given the grounds contained in Section 30 of the 1940 Act, which are broader than the grounds contained in Section 34 of the 1996 Act.

In Supreme Court’s decision of MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163, it was decided that Section 34 proceeding does not contain any challenge on the merits of the award.

Adding to the above, Court stated that the point raised in the appeals stands concluded in McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181.

Delhi High Court’s decision in Cybernetics Network (P) Ltd. v. Bisquare Technologies (P) Ltd., 2012 SCC OnLine Del 1155 is also instructive.

Court’s opinion

Hence, in Court’s opinion, there cannot be a doubt that Section 24 of the Arbitration Act, 1996 cannot be held to include within it a power to modify an award.

McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181 was followed in Kinnari Mullick v. Ghanshyam Das Damani, (2018) 11 SCC 328. Also, in Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies Pvt. Ltd., 2021 SCC OnLine SC 157, a recent judgment of this Court also followed McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181 stating that there is no power to modify an arbitral award under Section 34 as:

(f) In law, where the Court sets aside the award passed by the majority members of the tribunal, the underlying disputes would require to be decided afresh in an appropriate proceeding.

Under Section 34 of the Arbitration Act, the Court may either dismiss the objections filed, and uphold the award, or set aside the award if the grounds contained in sub-sections (2) and (2A) are made out. There is no power to modify an arbitral award.

Judicial Trend

Therefore, in view of the above discussed, it can be stated that this question has now been settled finally by at least 3 decisions of the Supreme Court.

To state that the judicial trend appears to favour an interpretation that would read into Section 34 a power to modify, revise or vary the award would be to ignore the previous law contained in the 1940 Act; as also to ignore the fact that the 1996 Act was enacted based on the UNCITRAL Model Law on International Commercial Arbitration, 1985.

Coming to the submission in support of the impugned judgment that the fact that the Central Government appoints an arbitrator and the arbitration would therefore not be consensual, resulting in a government servant rubber-stamping an award which then cannot be challenged on its merits, cannot possibly lead to the conclusion that, therefore, a challenge on merits must be provided driving a coach and four through Section 34 of the Arbitration Act, 1996. The impugned judgment is also incorrect on this score.

Lastly, the Supreme Court stated that if one were to include the power to modify an award in Section 34, one would be crossing the Lakshman Rekha and doing what, according to the justice of a case, ought to be done.

Parliament very clearly intended that no power of modification of an award exists in Section 34 of the Arbitration Act, 1996.

In several cases, the NHAI has not filed appeals even in matters which are similar i.e., arising from the same Section 3A Notification, as a result of which certain landowners have got away with enhanced compensation given to them by the District Court. Also, we cannot shut our eyes to the fact the arbitrator has awarded compensation on a completely perverse basis i.e., by taking into account ‘guideline value’ which is relevant only for stamp duty purposes, and not taking into account sale deeds which would have reflected the proper market value of the land.

Differential Compensation

The Court noted that in several cases, the NHAI has not filed appeals even in matters which are similar i.e., arising from the same Section 3A Notification, as a result of which certain landowners have got away with enhanced compensation given to them by the District Court. Also, the arbitrator has awarded compensation on a completely perverse basis i.e., by taking into account ‘guideline value’ which is relevant only for stamp duty purposes, and not taking into account sale deeds that would have reflected the proper market value of the land.

The Court was of the opinion that the said differential compensation cannot be awarded on the ground that a different public purpose is sought to be achieved. Also, the legislature cannot say that, however laudable the public purpose and however important it is to expedite the process of land acquisition, differential compensation is to be paid depending upon the public purpose involved or the statute involved.

Illustration

Take the case of a single owner of land who has two parcels of land adjacent to each other. One parcel of land abuts the national highway, whereas the other parcel of land is at some distance from the national highway. Can it be said that the land which abuts the national highway, and which is acquired under the National Highways Act, will yield a compensation much lesser than the adjacent land which is acquired under the Land Acquisition Act only because in the former case, an award is by a government servant which cannot be challenged on merits, as opposed to an award made under Part III of the Land Acquisition Act by the reference Court with two appeals in which the merits of the award can be gone into? There can be no doubt that discrimination would be writ large in such cases.

However, since the NH Amendment Act, 1997 had not been challenged before the Court, it refrained from saying anything more. It was said that in the facts and circumstances of the case interference under Article 136 was not called for.[National Highways v. M. Hakeem,  2021 SCC OnLine SC 473, decided on 20-07-2021]

Alternate Dispute ResolutionCase BriefsHigh Courts

Delhi High Court: Jayant Nath, J., observed that the assignment of the trademark is by a contract and not by a statutory act. It does not involve any exercise of sovereign functions of the State.

Defendant filed an application under Section 8 of the Arbitration and Conciliation Act, 1996.

Master Long Term Supply Agreement 

Plaintiff submitted that the parties had entered into Master Long Term Supply Agreement by which the defendant on an exclusive basis had supplied to the plaintiff exclusive brands of the defendant “Golden’s Gold Flake, Golden Classic, Taj Chhap, Panama and Chancellor”.

The above-stated brands were being sold, supplied and distributed exclusively in the domestic and international market.

Trademark Agreement and Amendment Agreement

Later, plaintiff entered into a trademark agreement and amendment agreement and was granted exclusive non-assignable, non-transferable license to manufacture the defendant’s product to be manufactured exclusively at the plaintiff’s factory at Noida and were to be marketed and distributed.

Plaintiff submitted that despite huge capital and operational expenditure made by the plaintiff to increase the availability of defendant’s product, the defendant arbitrarily cancelled the trademark license agreement.

A termination notice by the defendant was issued. Since the commercial production had not started the agreement was terminated with immediate effect.

By another termination notice, the defendant company stated that timely payment was not made in terms of the agreement and hence plaintiff was to have no right to manufacture and sell the exclusive brands of the defendant in the market from that point onwards.

In view of the above-stated circumstances, the present suit was filed.

It was prayed that the disputes between the plaintiff and the defendant raised be referred to a sole Arbitrator.

Analysis, Law and Decision

Bench firstly noted the legal position by referring to Section 8 of Arbitration and Conciliation Act, further Supreme Court’s decision in Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1, was referred.

As per the above decision, actions in rem including grant and issue of patents and registration of trademarks are exclusive matters falling within the sovereign and government functions and have erga omnes effect. Such grants confer monopolistic rights, and they are non-arbitrable.

Further, reference to the decision of the co-ordinate Bench of this Court was made in Hero Electric Vehicles (P) Ltd. v. Lectro E-Mobility (P) Ltd., 2021 SCC OnLine Del 1058 as it applies on all fours to the facts of the present matter.

Court held that the dispute did not pertain to infringement of a trademark on the ground that the defendants are using a deceptively similar trademark. The ground was that the right to use the trademark was conferred by a particular agreement on a particular group of the family. Even if the plaintiff in that case were to rely on any provisions of the Trademark Act the essential infraction as allegedly committed by the defendant was not the provisions of the Trademark Act but the provisions of the agreements in question. The dispute which emanates out of the agreement between the parties was held to be arbitrable. The court also clarified that the controversy in the said case did not relate to grant or registration of trademarks. The said trademarks stood granted and registered. It was also held that assignment of a trademark is by a contract and is not a statutory fiat. It does not involve any exercise of sovereign functions.

Primarily the crux of the issue was that the dispute was relating to interpretation of the terms of the Trademark Agreement and amendment agreement executed between parties and whether the termination of the said agreements by the defendant and cancellation of the assignment of the trademark in favour of the plaintiffs was legal and valid.

“right that is asserted by the plaintiff is not a right that emanates from the Trademark Act but a right that emanates from the Trademark Agreement and the amendment agreement.”

In the present matter, Bench held that it cannot be said that the disputes are not arbitrable.

In view of the above discussion, the application was allowed. [Golden Tobie (P) Ltd. v. Golden Tobacco Ltd., 2021 SCC OnLine Del 3029, decided on 4-06-2021]


Advocates before the Court:

For the plaintiff: Mr. Kailash Vasdev, Sr. Adv. with Ms. Priyadarshi Manish and Ms. Anjali J. Manish, Advs.

For the Defendant: Mr. Sumeet Verma, Mr. Vijay Kumar Wadhwa and Mr. Maninder Pratap Singh, Advocates.

Case BriefsHigh Courts

Delhi High Court: V. Kameswar Rao, J., refused to interfere with the award passed by the Arbitrator and dismissed a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996.

Instant petition was filed under Section 34 of the Arbitration and Conciliation Act.

Chronology of Events

Present petition was filed before the District Court and vide Order dated 3-01-2017 the Additional District Judge directed the parties to appear before the District and Sessions Judge.

Petitioner sought adjournment before the District and Sessions Judge on the ground that a Transfer Petition was pending adjudication before this Court. The Transfer Petition was disposed of as infructuous vide order December 5, 2017.

District Judge noted the respondent’s counsel that the petitioner has not conducted the matter with due diligence and good faith and noted that the question of due diligence not being within the jurisdiction of the said Court placed this matter before the Registrar General of this Court.

Factual Matrix

Petitioner and respondent entered into a non-exclusive Distributorship Agreement. Subsequently, parties entered into annual agreements for the years 2007, 2008 and 2009, and in terms of the said agreement, petitioner placed purchase orders on the respondent for the supply of goods, which in turn were sold by petitioner to its customers.

What led to the invocation of arbitration and adjudication of disputes?

Respondent stated that it had supplied goods to the petitioner against various purchase orders and raised invoices accordingly and further claimed that the petitioner had failed and neglected to make payments against invoices for sums aggregating Rs 54, 14, 934, which became due and payable.

Petitioner in view of the above, issued 9 cheques, however, the said cheques were dishonoured on presentation.

Cheques for security?

According to the petitioner the said cheques were issued at the instance of the respondent only as a security for any payment that may become due. In addition to the claim for unpaid invoices, the respondent also raised claims for non-supply of ‘C’ Forms and the consequent liability of sales tax before the Arbitrator.

Petitioner submitted that parties were having good business relations for the last 14-15 years, however, the petitioner started receiving complaints from its buyers regarding breakage of soft ferrite components. Even though the respondent assured to replace the broken goods with new ones, it failed to do so.

Petitioner’s stance on cheques being dishonoured

It was stated that the cheques were provided on the request of the General Manager (Marketing) of the respondent on June 26, 2009, for depicting the same in the books of Accounts for quarterly ending for security purposes as to cover the exposure limit as per Distributorship Agreement and on the assurance that they shall not be presented without consent of the petitioner. The cheques were not returned even after repeated requests of the petitioner, thereby forcing the petitioner to write a letter to its Bank, not to honor the said cheques.

Arbitrator concluded that a sum of ₹54,14,934/- was recoverable by the respondent/claimant from the petitioner against its outstanding dues.

The arbitrator held that a net amount of ₹36,92,423/- was recoverable by the respondent/claimant from the petitioner plus a sum of Rs.1,85,000/- towards the arbitration fee and actual expenses) along with interest @ 12.25% p.a. on Rs 1, 85, 000/-.

Analysis, Law and Decision

Firstly, the Court dealt with the contentions of petitioner’s Advocate Rohit Goel, that the award passed by the Arbitrator was liable to be set aside as it was in violation of Chapter XI of the CPC; it doesn’t bear signatures on each and every page and the award was typed in 3 different fonts on 3 different types of sheets.

Bench for the above submission stated that the reference made to Chapter XI was an error. Reference was intended to Part I of the CPC wherein Section 33 refers to a Judgment and a Decree. With regard to the award being typed in different fonts, the same shall not make the award invalid and the same was not supported by any rule/law.

Competency of Authorised representative of respondent – Laxmi Dutt Sharma (L.D. Sharma) sign, verify and file the claim petition in absence of any resolution was concerned, Bench referred to the reasons given by Arbitrator to determine the competency of the representative.

Petitioner’s counsel did not make any submission to contradict the arbitrator’s conclusion for the above-stated.

Arbitrator rightly relied upon the decision of Supreme Court in United Bank of India v. Naresh Kumar, (1996) 6 SCC 660, wherein it was held that on a reading of Order VI Rule 14 together with Order XXIX Rule 1 CPC, it would appear that even in the absence of any formal letter of authority or power of attorney having been executed a person referred to in Rule 1 of Order XXIX by virtue of the office which he holds, can sign and verify the pleadings on behalf of the corporation. Additionally, de hors Order XXIX Rule 1 of CPC, a company is a juristic entity, it can duly authorise any person to sign the plaint or the written statement on its behalf, which would be regarded as compliance with the provisions of Order VI Rule 14 CPC.

Supreme Court also held that there is a presumption of valid institution of a Suit once the same is prosecuted for a number of years.

Bench also found the Supreme Court’s decision laid above to be satisfying in the present case as the litigation between the parties had commenced in the year 2010 and already 6 years had already elapsed on the date of award.

High Court reiterated that Arbitrator was justified in his conclusion on the competency of L.D. Sharma to file the claim petition on behalf of the respondent company.

Absence of a complete, authenticated and duly stamped statement of account

Petitioner’s counsel as per the above-stated reason submitted that the arbitrator could not have granted the amount.

Bench stated that respondent had submitted that soft ferrite were supplied for which the amount was not paid by the petitioner. When the petitioner was informed that no supply would be made in the future if previous dues were not cleared, petitioner issued 9 cheques towards discharge of their part liability and the said cheques were dishonoured and returned.

Further, the Court noted that witness did not deny the purchase orders; invoices and cargo receipts. Arbitrator was right in relying upon Ex. R-66, which was a communication of the respondent as per which an amount of Rs 54,14,934 was payable and after adjustment of TOD, commission, the amount payable by the petitioner was Rs 40,95,221.

Arbitrator was justified in holding that the said amount was recoverable towards outstanding dues and after adjustment of certain amounts in favour of the petitioner, granted a sum of Rs.36,92,423/- to the respondent herein.

Whether respondent was justified in terminating the Distributorship Agreement?

Clause 8.1of the Distributorship Agreement also reads as under:

The Company reserves the right to terminate the agreement at any time at its discretion without assigning any reason therefor.”

Respondent had a justifiable reason for the respondent to terminate the Agreement in as such as that no payment of invoices worth Rs 54,14,934 was forthcoming from petitioner.

Petitioner, in an email, had itself expressed that it was not possible to continue to associate itself with the respondent.

Hence there was justification for the termination of the Distributorship Agreement by the respondent.

Further, L.D.  Sharma, CW-1 had stated during his cross-examination that the goods found defective were replaced, the defect in quality was of component T-10 due to reasons of saturation and variation in AL. Petitioner had suffered no loss.

Nothing on record was brought to show that the petitioner had to pay the amount claimed as damages to its customers.

High Court found Advocate Bharat Chugh’s reliance on Associate Builders  v. Delhi Development Authority, (2015) 3 SCC 49  justified.

Bench also stated that Supreme Court followed the test of judicial review as laid down in Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49, in a plethora of judgments and the recent one being Anglo American Metallurgical Coal Pty. Ltd v. MMTC Ltd.,  (2021) 3 SCC 308.

In view of the above discussion, the petition was dismissed.[Pragya Electronics (P) Ltd. v. Cosmo Ferrites Ltd., 2021 SCC OnLine Del 3428, decided on 23-06-2021]


Advocates before the Court:

For the petitioner: Mr. Rohit Goel Advocate

For the Respondents: Mr. Bharat Chugh & Mr. Sujoy Sur, Advocates

Alternate Dispute ResolutionCase BriefsHigh Courts

Delhi High Court: J.R. Midha, J., in view of serious doubts on the independence of sole arbitrator as named in the arbitration agreement, appointed another independent arbitrator.

Petitioner sought appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act.

Parties had agreed for reference of disputes to the sole arbitrator, Sachin Dev Sharma, Chartered Accountant as per the arbitration agreement between them.

Petitioners Counsel submitted that the sole arbitrator was not competent to act as an arbitrator in terms of Section 12(5) read with 7th Schedule of the Arbitration and Conciliation Act as the named arbitrator was a consultant/advisor to the respondent and a director and shareholder in PEB Steel Lloyd (India) Ltd.

This Court vide an Order in March had directed the arbitrator to file an affidavit with respect to his relationship between the parties in terms of the Seventh Schedule under Section 12(5) of the Arbitration and Conciliation Act, wherein he admitted that he was an independent director in PEB Steel Lloyd (India) Ltd. in which respondent 1 was also a director.

Further, respondent 1 submitted that the petitioner had agreed to the named arbitrator cannot wriggle out of the arbitration agreement.

High Court in view of the above submissions, held that it had serious doubt to the independence of named arbitrator and hence in the interest of justice it would be appropriate to appoint an independent arbitrator to adjudicate disputes between the parties.

Saurabh Kirpal, Senior Advocate was appointed as the sole arbitrator and was directed to ensure compliance with Section 12 of the Arbitration and Conciliation Act before commencing the arbitration. [Monica Khanna v. Mohit Khanna, 2021 SCC OnLine Del 3421, decided on 18-06-2021]


Advocates before the Court:

For the Petitioners: Abhay Mahajan, Advocate

For the Respondents: Amit Mishra, Advocate

Op EdsOP. ED.

The Delhi High Court recently in Oyo Hotels & Homes (P) Ltd. v. Rajan Tewari[1] (Oyo) has while deciding a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996[2] (the Act) held that a court under Section 11 of the Act has the power to set aside an appointment of an arbitrator, if the appointment is ex facie contrary to the arbitration clause, and thus is non est in law. The Court while setting aside the appointment of the sole arbitrator so appointed by one party, took recourse to Section 11(6) of the Act and appointed another arbitrator to adjudicate the disputes between the parties.

The aforesaid decision raises an important and interesting question of law as to the powers of the court to remove an already appointed arbitrator, without a party following the drill of Sections 12 to 15 of the Act[3]. This raises a further question as to whether the principle of kompetenz-kompetenz, as so often preached by courts, is violated by such a course being followed.

The Supreme Court in Antrix Corpn. Ltd. v. Devas Multimedia (P) Ltd.[4], had referred inter alia this very question to a larger Bench. It would be useful to extract the questions framed by the Supreme Court in the aforesaid case:

  1. Whether the jurisdiction of the Court under Section 11 extends to declaring as invalid the constitution of an Arbitral Tribunal purportedly under an arbitration agreement, especially, where the Tribunal has been constituted by an Institution purportedly acting under the arbitration agreement?
  2. Whether the jurisdiction of an Arbitral Tribunal constituted by an institution purportedly acting under an arbitration agreement can be assailed only before the Tribunal and in proceedings arising from the decision or award of such Tribunal and not before the Court under Section 11 of the Act?
  3. Whether, once an Arbitral Tribunal has been constituted, the Court has jurisdiction under Section 11 of the Act to interfere and constitute another Tribunal?

The aforesaid reference came to be decided on 10-5-2013 by the Supreme Court (2-Judge Bench) in Antrix Corpn. Ltd. v. Devas Multimedia (P) Ltd.[5] (Antrix). One of the arguments raised by the respondent in the case was that the principle of kompetenz-kompetenz would certainly apply and the Tribunal would have complete authority over the questions as to the validity of its constitution. The Supreme Court while answering the question so posed to it, clearly held that the appointment of an arbitrator can certainly be challenged by a party, but the same must be done taking recourse to Sections 12-15 of the Act, and the same cannot be done under Section 11 of the Act. In fact, the Supreme Court was categorical in holding that “In a proceeding under Section 11 of the 1996 Act, the Chief Justice cannot replace one arbitrator already appointed in exercise of the arbitration agreement.”

The view of the Bench was reinforced in another judgment titled Pricol Ltd. v. Johnson Controls Enterprise Ltd.[6]  (Pricol) where  Gogoi, J. dismissed the Section 11 petition on this very ground, leaving it open to the petitioners to avail other remedies available in law to challenge the appointment of the arbitrator.

Barely a month later, Gogoi, J. in Walter Bau AG v. Municipal Corpn. of Greater Mumbai[7]  (Walter Bau) took a completely different view and held:

10. Unless the appointment of the arbitrator is ex facie valid and such appointment satisfies the Court exercising jurisdiction under Section 11(6) of the Arbitration Act, acceptance of such appointment as a fait accompli to debar the jurisdiction under Section 11(6) cannot be countenanced in law….The option given to the respondent Corporation to go beyond the panel submitted by the International Centre for Alternative Dispute Resolution (ICADR) and to appoint any person of its choice was clearly not in the contemplation of the parties. If that be so, obviously, the appointment of Shri Justice A.D. Mane is non est in law. Such an appointment, therefore, will not inhibit the exercise of jurisdiction by this Court under Section 11(6) of the Arbitration Act. It cannot, therefore, be held that the present proceeding is not maintainable in law. The appointment of Shri Justice A.D. Mane made beyond 30 days of the receipt of notice by the petitioner, though may appear to be in conformity with the law laid down in Datar Switchgears Ltd. v. Tata Finance Ltd.[8], is clearly contrary to the agreed procedure which required the appointment made by the respondent Corporation to be from the panel submitted by the ICADR. The said appointment, therefore, is clearly invalid in law.

(emphasis supplied)

The aforesaid view appears to be in stark contrast to the views expressed by the Supreme Court (2-Judge Bench) in Antrix[9], and though an attempt was made to distinguish the said judgment on facts, the question remains whether a Single Judge ought to have followed the questions of law decided in Antrix[10].

Two further decisions of the Supreme Court in TRF Ltd. v. Energo Engg. Projects Ltd.[11] (TRF) and Perkins Eastman Architects DPC v. HSCC (India) Ltd.[12] (Perkins) clarified the position and reinforced the decision in Walter Bau[13]. In TRF[14] the Supreme Court (3-Judge Bench) distinguished Antrix[15] by stating that the said decision was on its facts and that the same does not lay down an absolute proposition of law that the courts cannot remove an arbitrator while exercising powers under Section 11 of the Act. The said decision found the view taken by the designate Judge in Walter Bau[16] to be in “consonance with the binding authorities” referred to in the said decision.

In Perkins[17], this question was once again raised before the Supreme Court (2-Judge Bench), which was deciding a petition under Section 11(6) of the Act. It may be noted that in the said case, an arbitrator already stood appointed, and the argument raised by the respondent was that no reliefs could be granted under Section 11(6) of the Act. While considering the authorities referred to above, the Supreme Court clearly held that there was no bar in entertaining such a petition, and finally appointed another arbitrator in place of the already appointed arbitrator.

What is interesting in the above two decisions, is that they concern primarily the eligibility of a person to be appointed as an arbitrator. The two decisions referred above, firstly find that the person so appointed as an arbitrator is/was actually disqualified by virtue of the amendments in the Act and introduction of the Fifth Schedule[18], and only then go on to appoint an arbitrator in place of the said ineligible person.

The fact situation is completely different in Oyo[19], and it was not the case of the petitioner therein that the arbitrator so appointed was ineligible. On the contrary, the case set up by the petitioner was that the manner of appointment of the sole arbitrator unilaterally by the respondent was directly contrary to the arbitration clause and as such was non est in law. The Delhi High Court in Naveen Kandhari v. Jai Mahal Hotels (P) Ltd.[20] and in Manish Chibber v. Anil Sharma[21]  has taken a similar view.

The approach of the courts in the judgments referred above, appear to be a more practical, sensible and justice-friendly approach. After all courts are constituted to impart justice to litigants who knock on their doors. This is a far cry from the traditional “touch me not” approach that courts have especially in matters relating to arbitration.

The principle of kompetenz-kompetenz, if applied in the present case strictly, would have required the parties to complete the rigmarole of arbitration proceedings and wait for the eventual award before a challenge could be laid to the constitution of the tribunal under Section 34 of the Act. It is true that Section 16 of the Act provides a remedy, but the practical and sad reality is that Section 16 applications are seldom allowed, and often they are decided along with the main matter.

In my limited experience, I have found courts always struggling with technicalities in arbitration matters, be it questions as to seat, venue, jurisdiction, limitation et al. The courts often forget that arbitration is only an alternate forum of adjudication of disputes and the idea at the end of the day is to impart justice. Justice, however, seems lost in the whole process and often precious judicial time is spent only on deciding technical pleas raised by parties.

In the aforesaid context, the view of the Delhi High Court comes as a positive change, and it is hoped that the courts unshackle themselves from the technicalities and start imparting substantial justice, whether in arbitration or other matters. This decision (and others referred) is certainly a welcome step.


* Advocate, Delhi High Court. Author can be reached at mail@saurabhseth.com.

[1] 2021 SCC OnLine Del 446

[2] Arbitration & and Conciliation Act, 1996.

[3] http://www.scconline.com/DocumentLink/QWdt5a4f.

[4] (2014) 11 SCC 574, 575.

[5] (2014) 11 SCC 560. .

[6] (2015) 4 SCC 177.

[7] (2015) 3 SCC 800, 806.

[8] (2000) 8 SCC 151.

[9] Supra Note 5.

[10] Ibid.

[11] (2017) 8 SCC 377.

[12] 2019 SCC OnLine SC 1517.

[13] Supra Note 7.

[14] Supra Note 11.

[15] Supra Note 5.

[16] Supra Note 7.

[17] Supra Note 12.

[18] http://www.scconline.com/DocumentLink/asRNct2u.

[19] Supra Note 1.

[20] 2018 SCC OnLine Del 9180.

[21] Arbitration Petition No. 249/2020, decided on 7-8-2020.

Case BriefsHigh Courts

Delhi High Court: Vibhu Bakhru, J., while addressing the matter in respect to the invocation of an arbitration clause expressed that:

“…the legislative policy is to encourage arbitration, thus, any interpretation that would nullify an arbitration clause must be avoided.”

What led to the filing of the present petition?

Petitioner (TKE) is a company that has filed the present petition under Section 11 of the Arbitration and Conciliation Act, 1996, inter alia, praying for an arbitral tribunal to be constituted for the purpose of adjudicating the disputes that arose between the parties in relation to the Contract Agreement.

RITES Ltd. had issued a Notice Inviting Tender for “Development of Integrated Check Post at Dawki (Meghalaya) along Indo-Bangladesh Border” for which TKE was awarded the contract.

Further, TKE submitted that the execution of the work was hampered by RITES due to which TKE suffered losses to the extent of ₹2,37,23,39,473. The work was stopped by the Border Guards of Bangladesh as it objected to any activity within 40 metres of the International Border. Along with the Border Guards, even the forest department objected to setting up campsites.

RITES issued a notice calling upon TKE to expedite the work failing which it would terminate the agreement and in response to that TKE stated the reasons for delay.

Later, RITES terminated the agreement and the same was challenged by TKE before the Meghalaya High Court, which was dismissed and on being aggrieved with the same, TKE filed a Special Leave Petition. Supreme Court had observed that: 

“it would be appropriate for the petitioner to avail of the alternative remedy by filing arbitration petition or civil suit, as it may be advised”.

TKE requested the Engineer-In-Charge (EIC) to review the decision of terminating the Agreement and permit it to finish the work or in the alternative, compensate TKE for the damages incurred by it. The EIC rejected the said application, after which TKE invoked the arbitration clause in the agreement.

Analysis, Law and Decision

Bench stated that TKE’s contention that it did not invoke the arbitration clause was unmerited since the notice dated 06-03-2020 clearly indicated that the same was a “Notice of Intention to commence Arbitration under Clause 25(1) of the General Conditions of Contract”.

TKE sent another notice seeking to correct an error that had crept in the said notice inasmuch as, TKE had wrongly calculated the total amount of its claims as ₹237,23,39,473.14/- instead of ₹57,11,47,927.91.

RITES did not respond to TKE’s notice, hence TKE cannot be faulted for preferring the present application under Section 11 of the A&C Act.

Whether the parties can be referred to arbitration in view of TKE’s stand that the Appointing Authority, cannot appoint an arbitrator? 

Controversy in the instant matter revolves around the appointment of the arbitrator under Clause 25 of the GCC, which provides that the matters would be referred to a Sole Arbitrator appointed by the Appointing Authority. And, the same would be from a list of three serving officers of RITES of appropriate status, as may be provided by the Appointing Authority and as selected by TKE.

As per Section 12(5) of the A&C Act, the above-said is no longer permissible.

A serving employee of RITES would be disqualified as RITES is an interested party in the disputes that have arisen and thus, its employee cannot be appointed as an arbitrator. 

Whether the disability of the appointing authority to appoint an arbitrator would frustrate the arbitration agreement? 

After the amendment of A&C Act, 2015 certain persons were declared ineligible to act as arbitrators as per the 7th Schedule of the A&C Act. Although parties can waive the said objection after disputes arise.

Bench stated that it is not impossible for such persons to act as arbitrators. They can do so if objections to their independence and impartiality are waived in writing, in terms of the proviso to Section 12(5) of the A&C Act.

In view of the Supreme Court decisions of TRF Ltd. v. Energo Engineering Projects Ltd.: (2017) 8 SCC 377 and Perkins Eastman Architects DPC  v. HSCC (India) Ltd.  2019 SCC OnLine SC 1517, the appointing authority i.e. the Executive Director of RITES cannot appoint an arbitrator, without the written consent of TKE after disputes arise. However, this would not mean that the arbitration clause stands nullified.

Section 12(1) of the A&C Act was substituted and Section 12(5) of the A&C Act was introduced.

In Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Ltd.: (2017) 4 SCC 665, the Supreme Court had noted the recommendations made by the Law Commission of India in its 246th Report and had explained the legislative intent of introducing the statutory amendments in Section 12 of the A&C Act. The said decision encapsulates the Court’s view regarding the importance of independence and impartiality of the arbitrators.

In TRF Ltd. v. Energo Engineering Projects Ltd.: (2017) 8 SCC 377 Supreme Court had decided that a person who is ineligible by the operation of law to act as an arbitrator would also be ineligible to nominate another person to act as an arbitrator. The said decision was founded on the express language and legislative intent of Section 12(5) of the A&C Act.

In Perkins Eastman Architects DPC v. HSCC (India) Ltd. 2019 SCC OnLine SC 1517 Supreme Court interpreted the provisions of Section 12(5) of the A&C Act, in an expansive manner and held that even in cases where the power to appoint an arbitrator was vested with the person who was otherwise ineligible to be appointed as an arbitrator, it would be impermissible for him to exercise the same in view of the ineligibility referred to in TRF Ltd. Thus, a person who is ineligible to act as an arbitrator, would also not be eligible to appoint anyone else as an arbitrator.

Now, proceeding further in light of the above discussion, Bench while considering that RITES had agreed that the subject disputed are required to be referred to arbitration, could not be heard to contend that the said arbitration would either be conducted in a manner which may compromise the fundamental requirement of an independent and an impartial process or not at all.

Hence, in the instant matter, by virtue of Section 12(5) of the A&C Act, though appointing authority is ineligible to act as an arbitrator but this would not mean that the entire arbitration agreement would be frustrated.

In North Eastern Railway v. Tripple Engineering Works: (2014) 9 SCC 288, the Supreme Court observed that the principle that the court must appoint an arbitrator as per the contract between the parties had seen a significant erosion.

Power of the Court to appoint Arbitrator

Supreme Court in Indian Oil Corporation Ltd. v. Raja Transport (P) Ltd.: (2009) 8 SCC 520 was also referred wherein the decision was rendered in an appeal against an order passed by the Chief Justice of the Uttaranchal High Court in an application filed under Section 11(6) of the A&C Act appointing a former Judge of that Court as the Sole Arbitrator to adjudicate the disputes between the parties.

In the above-mentioned decision, Supreme Court held that a Court could appoint an independent arbitrator in cases where it found that the arbitrator named in the agreement or to be appointed as per the procedure as agreed under the agreement, would not be impartial or independent.

The above principle of the Supreme Court would hold good in the present context as well.

As held in Indian Oil Corporation Ltd. v. Raja Transport (P) Ltd.: (2009) 8 SCC 520 even in cases where the arbitration agreement provides for a procedure for appointment of an arbitrator, a court could appoint an independent arbitrator if there were reasonable grounds to doubt the independence and impartiality of the named arbitrator to be appointed in accordance with the procedure as stipulated under the arbitration agreement.

Hence no dispute was found as to the existence of the arbitration agreement. As TKE had invoked the arbitration clause but the parties were unable to concur on the appointment of an arbitrator, High Court proposed that Justice (Retd.) Pradeep Nandrajog, former Chief Justice of the High Courts of Rajasthan and Maharashtra be appointed as a Sole Arbitrator.

Matter to be listed on 19-03-2021.[T.K. Engineering Consortium (P) Ltd. v. Director (Projects) RITES Ltd., 2021 SCC OnLine Del 1188, decided on 08-03-2021]


Advocates who appeared in this case:

For the Petitioner:

: Mr Rituraj Biswas, Ms Sujaya

: Bardhan, Mr Rituraj Choudhary and: Mr Mayan Prasad, Advocates.

: Mr G. S. Chaturvedi and

For the Respondents:

: Mr Shrinkar Chaturvedi, Advocates: for RITES Ltd.

: Mr Ripu Daman Bhardwaj, CGSC

: for R-3

Case BriefsSupreme Court

Supreme Court: The Division Bench of R.F. Nariman* and B.R. Gavai, JJ., addressed an important case regarding nature of arbitration under Arbitration and Conciliation Act, 1996. The Bench ruled,

“If at least one of the parties was either a foreign national, or habitually resident in any country other than India; or by a body corporate which was incorporated in any country other than India; or by the Government of a foreign country, the arbitration would become an international commercial arbitration notwithstanding the fact that the individual, body corporate, or government of a foreign country carry on business in India through a business office in India.”

In the instant case the respondents were appointed as Distributor for the appellant, Amway India Enterprises (P) Ltd. for undertaking sale, distribution and marketing of its products in India with the name, “Sindhia Enterprises”. As a dispute arose between the parties, the respondents, after making repeated attempts to resolve the dispute amicably, invoked arbitration clause on 28-07-2020. Since the parties could not reach to finality regarding appointment of the Arbitrator, the respondents approached Delhi High for appointment of a sole arbitrator under Section 11(6) of the Act, 1996.

The main plea taken by the appellant was that a petition before the High Court was not maintainable as the dispute relates to international commercial arbitration, being covered by Section 2(1)(f)(i) of the Arbitration Act inasmuch as the respondents were husband and wife who were both nationals of and habitually resident in the United States of America. This plea was turned down by the High Court. The High Court, while relying on Larsen & Toubro Ltd. – SCOMI Engineering Bhd v. MMRDA, (2019) 2 SCC 271, wherein the Supreme Court was concerned with a consortium consisting of an Indian company and a foreign company and the Court took note of the fact that the office of an unincorporated entity, i.e. the consortium, being in Mumbai, as one of the factors for arriving at the conclusion that the arbitration proceedings would not be international commercial arbitration, the High Court held that the matter would fall within the purview of domestic arbitration and appointed Justice Brijesh Sethi, a retired Judge of the Delhi High Court as the sole arbitrator.

Whether the distributorship of husband and wife was a separate entity?  

The High Court opined that since the central management and control of the proprietorship was exercised only in India, the dispute was not an international commercial arbitration as the Code of Ethics and Rules of Conduct issued by the appellant under Clause 3.17.1 had contemplated and recognised that a husband and wife shall operate their Distributorship as single entity.

Contrary to that, the Supreme Court observed that under “authorised signature”, the entity’s name was filled in as Sindhia Enterprises and the proprietor was filled in as Ravindranath Rao Sindhia.  Noticing the application form, together with the Code of Ethics, the Bench said that a husband and wife were entitled not to two, but a single distributorship, as it had been made clear under clause 3.17 of the Code of Ethics that they were to operate only as a single entity. The form that was filled in made it clear further that the respondents applied to become a distributor as a sole proprietorship, where the husband, Ravindranath Rao Sindhia, was the sole proprietor / “primary applicant” and the wife, Indumathi Sindhia, was a “co-applicant”. The Bench Said,

“A sole proprietary concern is equated with the proprietor of the business, while a proprietary concern is only the business name in which the proprietor of the business carries on the business. In the event of the death of the proprietor of a proprietary concern, it is the legal representatives of the proprietor who alone can sue or be sued in respect of the dealings of the proprietary business.”

The provisions of Order XXX, enabled the proprietor of a proprietary business to be sued in the business names of his proprietary concern. The real party who was being sued was the proprietor of the said business. The said provision did not have the effect of converting the proprietary business into a partnership firm. Consequently, the Bench reached to the conclusion that a suit by or against a proprietary concern was by or against the proprietor of the business.

Conclusion

The Bench opined that the argument that there was no international flavour to the transaction between the parties had no legs to stand on. As, an analysis of Section 2(1)(f) would show that whatever be the transaction between the parties, if it happen to be entered into between persons, at least one of whom was either a foreign national, or habitually resident in, any country other than India; or by a body corporate which was incorporated in any country other than India; or by the Government of a foreign country, the arbitration become an international commercial arbitration notwithstanding the fact that the individual, body corporate, or government of a foreign country referred to in Section 2(1)(f) carry on business in India through a business office in India.

In the light of above, the Bench opined that the High Court had no jurisdiction to appoint an arbitrator; therefore, the impugned judgment was set aside.

[Amway India Enterprises (P) Ltd. v. Ravindranath Rao Sindhia, 2021 SCC OnLine SC 171, decided on 04-03-2021]


Kamini Sharma, Editorial Assistant has put this report together 

*Judgment by: Justice R.F. Nariman

Know Thy Judge| Justice Rohinton F. Nariman

Appearance before the Court by:

For Appellant: Sr. Adv. Parag Tripathi,

For Respondent/s: Adv. Manmeet Arora

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

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 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]

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]


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Case BriefsHigh Courts

Himachal Pradesh High Court: L. Narayana Swamy, CJ., while allowing the present petition under Section 11 of the Arbitration and Conciliation Act, 1996, appointed Arun Kumar Goel, Former Judge of Himachal Pradesh High Court, as a sole arbitrator in the instant matter.

Rajesh K. Sharma, Assistant Solicitor General of India, raised an objection that since a technical issue is involved in the present dispute, therefore, the same is required to be considered and adjudicated by a technical person only and not by a retired Judge of the High Court. In support of his objection, reliance was placed on General Condition No. 70 of the Arbitration Clause of Contract which said;

“Arbitration – All disputes, between the parties to the Contract (other than those for which the decision of the Commander Contract or any other person is by the Contract expressed to be final and binding) shall, after written notice by either party to the Contract to the other of them, be referred to the sole arbitration of an [Serving Officer having degree in Engineering or equivalent or having passed final/direct final Examination of sub-Division II of Institution of Surveyor (India) recognised by the Govt. of India.] to be …”

 Rejecting the aforementioned contention, Court acknowledged that the arbitral issue involved between the parties can be adjudicated by a retired judge and must not be awaited for the want of technical expertise.[S.P. Singla Constructions v. Chief Engineer, 2021 SCC OnLine HP 1, decided on 01-01-2021]


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Case BriefsHigh Courts

Himachal Pradesh High Court: L. Narayana Swamy CJ., while exercising its powers under Section 11(6) of the Arbitration and Conciliation Act, 1996, appointed an Arbitrator and further allowed to either determine its own procedure for settling the dispute or run itself as per Section 23 and Section 29A of the Act.

Background

The present petition is moved under Section 11(6) of the Arbitration and Conciliation Act, 1996, by a Company who was awarded the work for widening and strengthening the existing single/inter-mediate lane carriage way with geometric improvement of two-lane carriage way in KM 58/100 to 105/0 of National Highway 70 by the respondents, seeking a direction for appointment of arbitrator for resolving the dispute between the petitioner and the respondents.

Respondents have filed reply in which objection regarding claim being barred by limitation has been taken. Senior counsel for the petitioner relies on the judgment of Supreme Court in, Uttrakhand Porv Sanik Kalyan Nigam v. Northern Coal Field, SLP (C) No. 11476 of 2018, wherein it was categorically stated that, “delay itself is a question of law and facts and has to be decided by the Arbitral Tribunal or the Arbitrator appointed by the Court.”

 Observations

Recognizing the contention forwarded by the counsel for the petitioner and reiterating the Supreme Court finding in the aforementioned case, the Court, in exercise of its powers under Section 11(6) of the Arbitration and Conciliation Act, 1996, appointed A.K. Goel, retired judge of the Himachal Pradesh High Court as the sole Arbitrator and further said, “It shall be open for the learned Arbitrator to determine his own procedure with the consent of the parties. Otherwise, also, entire procedure with regard to fixing of time limit for filing pleadings or passing of Award stands prescribed under Sections 23 and 29A of the Act. Liberty is also reserved to the respondent to raise objections, if any, by way of filing counterclaim before the Arbitrator.”

 Decision

While allowing the present petition, the Court clarified the practice and procedure related to the exercise of Court’s power under Section 11(6) of the Arbitration and Conciliation Act, 1996 and instances which may fall under the direct determination of the Arbitral Tribunal.[Shivalaya Construction (P) Ltd. v. State of H.P., 2020 SCC OnLine HP 2801, decided on 27-11-2020]

Counsel for the Petitioner: Bimal Gupta, Senior Advocate with Kusum Chaudhary, Advocate.

Counsel for the Respondents: Ritta Goswami, Additional Advocate General.


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Legislation UpdatesStatutes/Bills/Ordinances

President promulgates Arbitration and Conciliation (Amendment) Ordinance, 2020

Amendment of Section 36

In Section 36 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the principal Act), in sub-section (3), after the proviso, the following shall be inserted and shall be deemed to have been inserted with effect from 23rd day of October, 2015, namely:—

“Provided further that where the Court is satisfied that a prima facie case is made out,-—

(a) that the arbitration agreement or contract which is the basis of the award; or

(b) the making of the award,

was induced or effected by fraud or corruption, it shall stay the award unconditionally pending disposal of the challenge under section 34 to the award.”.

Explanation.— For the removal of doubts, it is hereby clarified that the above proviso shall apply to all court cases arising out of or in relation to arbitral proceedings, irrespective of whether the arbitral or court proceedings were commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015.

Substitution of new Section for Section 43J

For section 43J of the principal Act, the following section shall be substituted, namely:-—

Norms for accreditation of arbitrators

“43J. The qualifications, experience and norms for accreditation of arbitrators shall be such as may be specified by the regulations.”

Omission of Eighth Schedule

The Eighth Schedule to the principal Act shall be omitted.

Read the Ordinance here: ORDINANCE


Ministry of Law and Justice

[Dt. 04-11-2020]

Case BriefsHigh Courts

Allahabad High Court: In a case revolving around the appointment of the arbitrator, Sangeeta Chandra, J., disposed of the application in respondent’s favour.

Counsel for the respondent, Puneet Chandra expressed his wish of not filing a response as the respondent party has no objection if this Court appoints an arbitrator. It is further submitted that the counsel has spoken with Justice Anil Kumar (Retd.) who has agreed to act as an arbitrator.

Counsel for the applicant, Gantavya Chandra argues that in an earlier arbitration application between the same parties which was disposed in February 2020, Justice Anurag Kumar (Retd.) was appointed as the arbitrator. He is currently dealing with a similar dispute, having considerable experience in the field and he is acquainted with all the facts which would make it easier for the applicant to be heard before him. This in turn will result in expeditious disposal of the case.

The respondent’s counsel retorted to this by referring to Schedule V Rule 24 of the Arbitration and Conciliation Act, 1986. He further submits that if the arbitrator is currently serving or has served within the past three years as an arbitrator in another arbitration on a related issue involving between the parties or a dispute between the parties, then it might raise justified doubts as to his independence and impartiality. He also refers to Section 12(1)(a) of the Act, 1996.

Further, counsel for the applicant refers to the explanation 1 of Section 12(1)(a)(b), which says that the grounds stated in 5th Schedule shall only serve as a guide in determining whether the circumstances exist which can give rise to a justified doubt as to the independence or impartiality of an arbitrator. He also has contended that Schedule-V does not talk of grounds of ineligibility of the Arbitrator but talks of ground which might raise justifiable doubts as to the independence and impartiality. He has further submitted that in all cases, Rule 24 would not be a complete bar. He relies on the judgment of the Supreme Court in HRD Corpn. v. GAIL (India) Ltd., (2018) 12 SCC 471.

After careful consideration of the facts, circumstance and arguments this Court observed that the Arbitration and Conciliation Act, 1996 has been framed with the avowed object of expeditious disposal of the disputes arising out between the parties under an agreement which has an arbitration clause in it and in case, the opposite party herein wish to challenge any finding of the proposed Arbitrator of the applicant, namely, Justice Anurag Kumar (Retd.), they may raise valid ground of Rule 24 of the Schedule-V even on the termination of the Arbitration and the passing of the Arbitral Award.

In view of the above, the Court disposed the application with the direction that Justice Anil Kumar (Retd.) be appointed as the arbitrator.[Trading Engineers International Ltd. v. U.P. Power Transmission Corporation Ltd., 2020 SCC OnLine All 1272, decided on 22-10-2020]


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Case BriefsHigh Courts

Uttaranchal High Court: Manoj K. Tiwari, J. decided the Appeal filed against the order of the District Judge in an Arbitration case.

The facts giving rise to the instant appeal are that, the appellant raised an objection under Section 34 of the Arbitration and Conciliation Act, 1996, which was duly rejected by the District Judge hence, the appeal is filed under Section 37 of the said Act.

The factual matrix of the case was that the appellant contracted with the respondent (contractor) for the construction of a pump house building. The tenure specified for the said construction was for 11 months, but due to some delay the in handing over the construction site to the said respondent; subsequently, the construction had to be stopped due to various reasons. But consequently, the work was allegedly completed.

Since dispute arose between the parties regarding payment for the work done by the respondent, therefore, the matter was referred for arbitration in terms of the contract executed between the parties. The Arbitrator passed an award where he partially allowed the claims made by the respondent. Therefore aggrieved by the award of the Arbitrator the respondent filed an appeal on the ground that misconduct was caused by the Arbitrator.

Eventually, the District Judge rejected the said application filed under Section 34 of the Act. The only ground raised in the instant Appeal was that learned Arbitrator overlooked the condition contained in Clause 11(C) of the contract, while passing the award. The said Clause (C) was that “no claim in respect of the compensation, howsoever arising as a result of the extension granted shall be admitted.”

Counsel for the appellant Virndra Kapurwan, submitted that the Arbitrator erred in allowing the claim made by the respondent, without appreciating the real controversy involved in the matter. He further submitted that the District Judge erred in rejecting the challenge thrown by the appellant by making an application under Section 34 of the Act.

The Court found that the Arbitrator had considered the alleged clause and then passed the award. A perusal of the award revealed that Arbitrator had held that appellant was equally responsible for the delay in completion of work. It was further held that the appellant could not the shelter behind the Clause for a long delay.

The Court observed that the District Judge had rightly held that the ground was not available under Section 34 of the Act of 1996. “Misconduct by the Arbitrator was no more a ground of challenge to an arbitration award.”

The Court relied on the judgment of Navodaya Mass Entertainment v. J.M. Combines, (2015) 5 SCC 698, where the Supreme Court had held that “Once the Arbitrator has applied his mind to the matter before him, the Court cannot reappraise the matter as if it were an appeal and even if two views are possible, the view taken by the Arbitrator would prevail.”

In view of the aforesaid legal position, the Court held that the learned District Judge was justified in holding that he cannot go into the question of the reasonableness of the reasons given by Arbitrator. Learned District Judge has rightly held that an award given by the Arbitrator cannot be challenged on the ground of misconduct on the part of the Arbitrator. Hence, the appeal was dismissed.[Union of India v. Allied Traders, 2019 SCC OnLine Utt 671, decided on 03-07-2019]

Case BriefsHigh Courts

Himachal Pradesh High Court: The instant petition was related to Section 29-A of Arbitration and Conciliation Act, 1996 entertained by Jyotsna Rewal Dua, J. where the petitioner sought an extension of time.

Factual matrix of the case was that when the dispute arose between the parties the matter was referred to a sole arbitrator who was Superintending Engineer. The Tribunal was unable to conclude the proceedings within the stipulated time of one year. Therefore the period of the passing of award was delayed by six months, but the extension was not fruitful as the period expired and yet the case was undecided. It was further suggested by the Arbitrator to apply to a Competent Authority for further extension of time.

Hence both the parties requested the Authority for extension of time for a further period of six months. The Authority further directed the parties to take steps in accordance with the amended provisions of the Act, 1996.

Anil Jaiswal and Rameeta Rahi, counsels for the respondents submitted a letter dated 10-07-2019, addressed to the respondents by the Executive Engineer, to the effect that their office had no objection in case the mandate of learned Arbitrator if was extended by six months.

The Court observed that, Section 29-A (4) and (5) which provided that, if the award was not made within the period specified or within the extended period, the mandate of the arbitrator was to be terminated unless the Court, either prior to or after the expiry of the period so specified, extended the said period. It was further observed that the proceedings were at a final stage, hence, the Court allowed the petition. The parties, through learned counsel representing them, were directed to co-operate in the arbitral proceedings and not to seek unnecessary adjournments before the Arbitrator and an endeavor was made to complete the arbitral proceedings well before the time granted.[Devki Nand Thakur v. State of H.P., 2019 SCC OnLine HP 988, decided on 12-07-2019]

Case BriefsHigh Courts

Bombay High Court: C.V. Bhadang, J. allowed an appeal filed against the decision of the District Judge whereby he had dismissed appellant’s petition under Section 34 of the Arbitration and Conciliation Act, 1996.

The appellant had filed the said petition under Section 34 against the award of the Arbitrator made in the subject arbitration proceedings between the appellant and the respondent. The Arbitrator had rejected the counter claim filed by the appellant. The District Magistrate refused to consider some of the aspects challenged by the appellant on the ground that those were only findings of facts recorded by the Arbitrator and in the result dismissed his petition. Aggrieved thereby, the appellant filed the present appeal under Section 37.

S.D. Padiyar, Advocate representing for the appellant contended that the findings recorded by the Arbitrator were perverse and liable to set aside. Per contra, A.D. Bhobe, representing the respondent supported the impugned decision.

Relying on Mahendra Kumar v. State of M.P., (1987) 3 SCC 265, the High Court observed that Order 8 Rule 6-A CPC does not bar the filing of the counter claim by the defendants after filing of the written statement and the counter claim can be filed after delivery of defence provided that the cause of action for the same has accrued prior to such delivery of defence. Therefore, the Court held that it could not be disputed that the cause of action for the counter claim by the appellant seeking compensation in respect of the LPG cylinders and the pressure regulators which were found missing had arisen prior to the delivery of defence and, thus, on this ground, the counter claim could not have been dismissed.

Regarding the issue of consideration of finding of facts, the Judge relied on Associates Builders v. DDA, (2015) 3 SCC 49, observed: “I am conscious of the legal position that a finding of fact properly recorded by the Arbitrator is not open to challenge in the limited supervisory role attributed to the Court under Section 34 of the Act and much less in a further appeal under Section 37 of the Act. However, if the finding recorded is patently illegal and perverse where the Arbitrator has refused to acknowledge the material on record, the same, in my considered view, would be open to challenge as held by the Supreme Court in the case of Associate Builders.”

In the present case, it was found that one of the issues, the Arbitrator failed to take note of the documents produced even though he had acted upon the same in the earlier part of the award. Relying further on Mc Dermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181 for the proposition that the Court in the exercise of the jurisdiction under Section 34 cannot substitute or modify the award, the High Court quashed the award passed by the arbitrator while allowing the appeal. [Bharat Petroleum Corporation Ltd. v. Anuradha Ajit Malgaonkar, 2019 SCC OnLine Bom 1244, decided on 04-07-2019]

Case BriefsHigh Courts

Orissa High Court: Biswanath Rath, J. dismissed an arbitration appeal filed under Section 37(1) of the Arbitration and Conciliation Act, 1996.

The appellant in his appeal, challenged the judgment of the District Judge, Sambalpur in Arbitration Petition No. 2 of 2004 dated 27-11-2006 where the District Judge while dismissing the Arbitration Petition confirmed the award passed by the learned Arbitrator involving Arbitration Case No. 2 of 2001

Learned counsel for the appellant, S. Mohanty, restricted his submission to the extent that for the receipt of the payment on the final bill without protest and having no claim any further involving the contract, whether the Arbitrator, as well as the District Judge, arrived in right conclusion involving the award and judgment therein? In filing the written note of argument, the learned counsel extended his claim to the interest part also.

The Court upheld the Arbitrator’s findings that the appellant has got the work executed through the claimant unnecessarily delayed the payment of final bill and that sole object behind the same was to ensure that in future the claimant would not make any claim against the respondent as in course of the execution of the work, the respondent had committed breach of contract and caused undue harassment to the claimant. In the contract, there was no provision for obtaining any such no claim undertaking from the contractor before payment of the final bill.

Relying on Asian Techs Ltd. v. Union of India, (2009) 10 SCC 354, the Court found that the final protest was received by the respondent under protest and therefore, the contract was not concluded. In view thereof, the Court found no scope for interfering on this aspect particularly exercising power under Section 37 of the Act.

On the issue of payment of interest, the Court relied upon Jiprakash Associates Ltd. (Jal) v. Tehri Hydro Development Corporation India Ltd., 2019 SCC Online SC 143 and Sree Kamatchi Amman Constructions v. Divisional Railway Manager (Works), (2010) 8 SCC 767 and held that unless and until there was an agreement, a party was not entitled to pre and pendente lite interest.

In view of the above, the Court found no scope for interfering in the aspect pertaining to payment of interest and dismissed the arbitration appeal.[Mahanadi Coal Fields Ltd. v. Kishorilal Loomba and Sons, 2019 SCC OnLine Ori 188, decided on 13-05-2019]