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 BriefsHigh Courts

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

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

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

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

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

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

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

 Issue for consideration:

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

Decision

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

(Emphasis supplied )

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

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

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

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

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

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


Advocates for the parties:

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

Respondents: Bobby Anand, Advocate

Case BriefsHigh Courts

Delhi High Court: Jayant Nath, J., while addressing the matter stressed upon the essentiality of Novation and Arbitration Agreement.

Factual Matrix

The present application was filed under Section 8 of the Arbitration and Conciliation Act, 1996 read with Order 7 Rule 11 CPC for rejection of the plaint and referring the parties to the arbitration.

Plaintiff sought for the recovery of Rs 2,58,24,648 being refund of the available interest-free refundable security deposit. A decree of mandatory injunction was also sought to handover the movable of the plaintiff which has been stated to be illegally detained by the defendant.

Facts leading to the present matter

Vide a Lease Deed, the defendant leased to the plaintiff the office premises in Dehradun with 22 parking slots for 9 years. Simultaneously a maintenance agreement was also executed between the parties which was co-terminus with the lease deed for payment of fit out and maintenance charges for the said premises.

As per the deed, there was a lock-in period from 01-01-2017 to 31-12-2022.

Fresh Agreement

Further, as per the plaintiff, a fresh agreement was arrived at between the parties in respect of use and occupation of the said premises and maintenance.

Hence plaintiff’s case was that the Lease Deed and Maintenance Agreement stood substituted/novated on account of the said Fresh Agreement.

Later, plaintiff initiated negotiations with the defendant for a reduction of rentals and maintenance, however, the defendant did not budge. In fact, the defendant illegally disconnected the electricity connection of the rented premises as a means to coerce the plaintiff to make payments.

Termination of Fresh Agreement

In March 2020 the plaintiff sent out a legal notice to the defendant terminating the Fresh Agreement. The said legal notice also sought a grant of access to the authorised representative of the plaintiff to remove the movable and the server. Hence, the present suit was filed.

Analysis, Law and Decision

Bench noted that in the original lease deed and the maintenance agreement, the parties agreed to settle their disputes through arbitration.

Counsel for the plaintiff pointed out that the plaintiff and the defendant at the time of execution of the Lease Deed and the Maintenance Agreement were family-held companies. The family exited from the plaintiff company sometimes in September 2018 and new management took over charge of the plaintiff company. It was strongly urged that there was a novation of Agreement and the original Lease Deed and the Maintenance Agreement dated 21-02-2017 stood superseded and novated in view of the terms and conditions settled upon in the emails dated 26.09.2018 and 15.10.2018. In the novated contract, there was no arbitration agreement and hence, the present application is misplaced

Novation of Contract

Court observed that the correspondence exchanged between the parties on the basis of which it was pleaded by the plaintiff that there was a novation of a contract.

Now the question was, whether it could be said that on account of the exchange of the above-stated communication, the parties rescinded the old agreement being the registered Lease Deed and the Maintenance Agreement of the same and completely novated the contract.

In the above context, reference was made to Section 62 of the Contract Act:

“62. Effect of novation, rescission, and alteration of contract — If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.”

 Supreme Court’s decision in Lata Construction v. Dr Rameshchandra Ramnikalal Shah, (2000) 1 SCC 586 was also cited.

A Novation takes place only when there is a complete substitution of a new contract in place of the old.

 Bench further examined the scope of Section 8 of the Arbitration Act and referred to the Supreme Court decision in Vidya Drolia v. Durga Trading Corpn.,(2019) 20 SCC 406

 Bench noted that for rejection of a Section 8 application, a party has to make out a prima facie case of non-existence of valid arbitration agreement, by summarily portraying a strong case.  Court should refer the matter if the validity of the arbitration agreement cannot be determined on a prima facie basis.

Conclusion

High Court opined that in light of the facts and circumstances of the present case prima facie it could not be said that there was a completely new contract and the old registered lease deed read with Maintenance Agreement were novated and substituted by a completely new contract.

Defendant’s email did not specifically state that all the terms and conditions stood superseded or novated.

Hence, Court found that the present issue required deeper consideration and would be best left to the arbitral tribunal to adjudicate upon.

Court appointed Justice G.S. Sistani as the Sole Arbitrator to adjudicate the dispute between the parties. [Knowledge Podium Systems (P) Ltd. v. S.M. Professional Services (P) Ltd., 2021 SCC OnLine Del 136, decided on 25-01-2021]

Case BriefsSupreme Court

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

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

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

Background

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

Clause 38 – Arbitration

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

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

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

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

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

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

Observations and Decision

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

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

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

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

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

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

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


*Justice N.V. Ramana has penned this judgment

Case BriefsHigh Courts

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

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

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

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

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

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

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

Case BriefsHigh Courts

Karnataka High Court: S.R. Krishna Kumar, J., allowing the present petition for the appointment of a sole arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, held that, the decision made is restricted to the peculiar facts of the instant case and shall not be treated as a precedent whatsoever.

Brief Facts

The present petition is instituted under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’), praying to appoint a sole arbitrator in terms of the Arbitration clause contained in clause 6 of the Agreement dated 13-06-2014, and in compliance with Section 11(6) of the Act, to enter into adjudication of disputes between the parties at the Arbitration and Conciliation Centre, Bengaluru.

Contentions

The Counsel for the respondents argued that the sale agreement, dated 13-06-2014, which contains the Arbitration clause, is insufficiently stamped and as such, the same cannot be acted upon for any purpose whatsoever including seeking appointment of an Arbitrator. In support of the argument, reliance was placed on the decision of Supreme Court in SMS Tea Estates (P) Ltd. v. Chand Mari Tea Co. (P) Ltd., 2011 (14) SCC 66 which was further followed in the case of Garvare Wall Ropes Ltd. v. Coastal Marine Constructions, 2019 (9) SCC 209.

The Counsel for the petitioners submitted that the responsibility of paying the deficit stamp duty and penalty on the said sale agreement, on or before the first date of hearing before the Arbitral Tribunal is hereby undertaken by them and that they have no objection with respect to the same.

Issue

  1. Whether an insufficiently stamped sale agreement, containing arbitration clause for the appointment of sole arbitrator enforceable under Section 11(6) of the Act? 

Decision

While considering the peculiar facts and circumstances of the present case, in addition to the position clarified in SMS Tea Estate and Garvare Wall Ropes, the Court appointed a sole arbitrator imposing necessary conditions with regard to payment of stamp duty and penalty on the sale agreement. It was further said that the procedure adopted in the present case is restricted and limited to the instant case as it is rendered with the consent of both the parties and without prejudice to any of their rights.[Malchira C. Nanaiah v. Pathak Developers (P) Ltd.,  2020 SCC OnLine Kar 1630, decided on 5-10-2020]


Sakshi Shukla, Editorial Assistant has put this story together

Case BriefsHigh Courts

Karnataka High Court: John Michael Cunha, J. disposed of the petition by appointing a sole arbitrator to adjudicate the said matter in accordance with law.

In the present case, the respondent firm failed to complete the construction work within the stipulated time as per the Joint Development and Supplemental Agreement. Due to the undue delay of over four years and to avoid the development project from going to waste the petitioner sent the firm a legal notice in 2017 demanding the fulfillment of the legal obligations. Since the petitioner was in an urgency to proceed with the construction work, he wrote emails to the respondent regarding the same and went on to proceed with the work on his own. Since the agreement had fallen flat, the petitioner claimed that the respondent was liable to refund him a huge amount out of which a very meagre percentage was actually given back.

According to the said Agreement, a clause categorically made out that in event of a dispute, the matter would be referred for arbitration. The respondent despite repeated notices did not exercise his right to appoint an arbitrator.

S.R Kamalachapan, counsel on behalf of the petitioner submitted that since the respondent had not responded to the notices or even shown a sliver of interest in appointing an arbitrator, a sole arbitrator of the petitioner’s choice should be appointed to resolve the said matter.

Taking note of the submissions, the Court stood by the arbitration clause in the said Agreement and directed the sole arbitrator suggested by the petitioner to take charge of the said issue as the respondent by his conduct had shown clear disinclination towards appointing one.[Mohammed Gafoorur Rahman v. JM Associates, CMP No. 12 of 2019, decided on 27-08-2020]

Case BriefsHigh Courts

Delhi High Court: C. Hari Shankar, J., addressed three different petitions between the same parties arising out of the award passed by Arbitral Tribunal, out of which, first petition was rejected, the second was passed and third stayed.

GMR and NHAI were under a concession agreement to build a six-lane, 555 km Kishangarh-Udaipur-Ahmedabad Highway, which was terminated by GMR on the ground that there had been a “change in law”, during the period of the agreement.

GMR claimed that it was entitled to compensation, under Clauses 41.1 and 41.3 of the Concession Agreement. The learned Arbitral Tribunal held that there was a “change in law” and that, GMR was entitled to compensation under Clauses 41.1 and 41.3. The majority award, however, permitted NHAI to take a fresh decision, on the claims of GMR, and assess the compensation to which it would be entitled. While the majority Award directed GMR to establish, before NHAI, its entitlement to compensation, under Clause 41.1 and 41.3 of the Concession Agreement, the dissenting Award(minority) opined that, instead of allowing NHAI to adjudicate thereon, the exercise ought to be delegated to an independent authority, such as a reputed firm of Chartered Accountants, or the like. The petitions, O.M.P. (COMM.) 426/2020, and O.M.P. (COMM.) 425/2020, were filed by NHAI and  GMR respectively and were preferred under Section 34 of the Arbitration and Conciliation Act, 1996, to set aside the award by the Tribunal. O.M.P. (I) (COMM.) 92/2020, was filed by GMR under Section 9 of Arbitration and Conciliation Act, 1996 essentially for the interim stay of operation of a letter demanding premium and, further, restraining GMR from taking any coercive steps, under the Concession Agreement.

NHAI claimed to be aggrieved by the decision, of the Arbitral Tribunal, holding GMR to be entitled to compensation, and contended, in its petition [O.M.P. (COMM.) 426/2020] that GMR was not entitled to any compensation on the ground of “change in law”. GMR challenged [in O.M.P. (COMM.) 425/2020] the majority Award, to the extent, it delegated the decision-making power, qua the claim, of GMR, to compensation, to NHAI. In other words, GMR sought to contend that the minority Award of Nayar, J., ought to be accepted.

The Court first decided the petition,O.M.P. (COMM.) 426/2020, and found the Arbitral Tribunal’s Judgment to be in order. Court found that the tribunal’s decision that change of circumstance did result in “change of law” under Clause 48 of the Concession Agreement, the claim of GMR had to be assessed under Clauses 48.1 and 48.3 and GMR had to establish the “financial burden” to claim this compensation.

Therefore, Court disposed of this petition. In O.M.P. (COMM.) 426/2020, the court sided with the minority judgment of the Arbitral tribunal and assigned a new arbitrator who would be taking up the task from where the learned Arbitral Tribunal passed its Award. The Court decided that the Sole Arbitrator would have a time of six months from the date of presentation GMR’s claims for compensation. Therefore, the petition was accepted. The remaining petition, O.M.P. (I) (COMM) 92/2020, was on the issue of the premium to be paid to NHAI, which was stayed by the court in the “the interests of justice”.  Therefore, the third petition stayed.[GMR Hyderabad Vijayawada Expressways (P) Ltd. v. NHAI, 2020 SCC OnLine Del 923, decided on 4-08-2020].

Case BriefsHigh Courts

Bombay High Court: The Bench of S.C. Gupte, J. while addressing an arbitration petition challenging the award passed by a sole arbitrator, noted the points of evidence asserted by the sole arbitrator and dismissed the petition.

In the present petition, the crux of the issue involved an agreement for manufacturing of the petitioner’s liquor products. The particular agreement was between the petitioner (who was the respondent to the reference) and the respondent (who was the claimant before the arbitral forum) inter alia engaging services of respondent for manufacture, on a priority basis of various liquor products of the petitioner in the State of Maharashtra.

Respondent stated in his points of contentions that in a meeting held between the representatives of the parties, it was agreed that bottling charges would be increased by Rs 10 per case. Claimant had sent out an e-mail with a letter requesting the petitioner to confirm the minutes of the meeting held for which no response from the petitioner was received. Further, it was stated that though respondent did not receive any written communication from the petitioner, respondent, with consent from the petitioner, went on adjusting from jointly operated account payments towards bottling charges at the rate of Rs 40 per case.

Petitioner in his behalf placed that, a sum of Rs 40,46,165.87 was due and payable by the petitioner to the respondent after the payments adjusted. Further, for the said amount, it was agreed between the petitioner and the respondent that the petitioner would pay the same in four installments which never got fulfilled.

A legal notice was sent to the petitioner regarding the above stated and thereafter present reference was filed.

Learned sole arbitrator while giving its award held that the petitioner had failed to pay the agreed amount and as a result, awarded a sum of Rs 64,08,685.82, comprising of the principal amount as stated above along with interest. The said award has been challenged under Section 34 of the Arbitration and Conciliation Act, 1996.

While concluding the decision, the bench stated that the oral agreement was consistently acted upon by the parties for a long period of time. “Whatever view the Court may take of an oral modification clause generally or in the particular case we are concerned with, the mandate of challenge to the court under Section 34 of the Act is to see whether the view taken by the arbitrator, even if it be on a question of law or its application to the facts of the case, is a possible view or view which a fair and judiciously minded person could well take.” Therefore, the view taken by the arbitrator could well be said to be a possible view and supported by evidence. The view must pass muster under Section 34 of the Act.

Thus, the challenge to the impugned award had no merit and the petition was accordingly dismissed. [John Distilleries (P) Ltd. v. Brihan Maharashtra Sugar Syndicate Ltd., 2019 SCC OnLine Bom 67, dated 14-01-2019]

Case BriefsHigh Courts

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

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

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

Case BriefsHigh Courts

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

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

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