Introduction
The landscape of arbitration in India has undergone significant developments in the past year. From the introduction of recent amendments vide the Arbitration and Conciliation (Amendment) Act, 2021 to the Arbitration and Conciliation Act, 1996 (the “IAAC”), to the landmark court decisions fortifying the principle of party autonomy, this dossier seeks to unfold and shed light on some of the crucial judgments that were passed in the last year, with specific emphasis on judgments rendered by the Supreme Court of India, and High Courts situated in major cities which act as an arbitration hub Bombay High Court, Delhi High Court, Madras High Court and Calcutta High Court. In addition to this, the dossier also briefly touches upon a few important judgments that were rendered in jurisdictions such as United Kingdom and Singapore, being the leading jurisdictions for international arbitrations.
Arbitration in the Indian Regime
I. The seat-venue tide settles
India has seen its fair share of divergent cases on the point of choice of seat and venue.
In the landmark judgment of Inox Renewables Ltd. v. Jayesh Electricals Ltd.1 delivered by the Supreme Court, the seat-venue debate was reignited.
However, this time around, the court, instead of creating new currents in already electric waters, decided to ride an existing wave.
The parties to this case had, vide an arbitration clause in a purchase order agreed to the following:
3. … The venue of the arbitration shall be Jaipur.
***
In the event of arbitrators’ award being not acceptable to either party, the parties shall be free to seek lawful remedies under the law of India and the jurisdiction for the same shall be courts in the State of Rajasthan.
A dispute having arisen, the respondent initiated arbitration by filing a Section 11 application in the High Court of Gujarat. The sole arbitrator appointed passed an award in favour of the respondent, directing the appellant to pay certain sum towards the principal, interest and costs. The arbitrator recorded in the award that parties had mutually agreed to change the “venue” of arbitration. The operative portion of the award read as follows:
10. As per arbitration agreement, the venue of the arbitration was to be Jaipur. However, the parties have mutually agreed, irrespective of a specific clause as to the (venue, that the place) of the arbitration would be at Ahmedabad and not at Jaipur. The proceedings, thus, have been conducted at Ahmedabad on constitution of the Tribunal by the learned nominee Judge of the High Court of Gujarat.
The point of law before the Supreme Court was whether this change in venue was, in effect a change in the “juridical seat” of arbitration.
If it were merely a change in the venue and not the seat, then exclusive jurisdiction would remain with the courts of Rajasthan by virtue of their arbitration clause.
However, if it were a change in the juridical seat, it would, by extension result in the courts of Ahmedabad having jurisdiction, as opposed to the Courts of Rajasthan. This follows directly from the court’s decision in BGS SGS Soma JV v. NHPC Ltd.2 (BGS Soma case), which held that choosing a seat is akin to choosing the court of exclusive jurisdiction.
The appellant argued for the latter while the respondent argued for the former.
The court acknowledged that it has already analysed the point of law in an exhaustive fashion in the BGS Soma3 case. It cited with approval certain relevant excerpts of the case which mentioned the instances where the reference to venue would be a reference to the juridical seat. Going by that, the court held that the parties intended to effectively change the “seat” of arbitration, thereby directing the parties to the courts of Ahmedabad.
While it seems that the court has applied an existing principle, an argument could be made that it was misapplied, and that the parties only intended to change the “venue” and not “seat” as there is no correspondence with respect to changing the exclusive jurisdiction clause that is present in the clause cited above. This could also be buttressed by the fact that the arbitrator specifically records the change as a change in “venue”, and states that “the venue of the arbitration would be at Ahmedabad and not at Jaipur”, which could also indicate that parties only wished to change the venue clause, and nothing else.
Subsequently the Supreme Court in BBR (India) (P) Ltd. v. S.P. Singla Constructions (P) Ltd.4relied on the decision in Inox Renewables5 to clear the stance that a change in seat of the arbitration owing to relocation of the venue could only be effected when parties mutually consent to such a change. Therefore, if the seat of the arbitration has been fixed by the first arbitrator, a party cannot unanimously claim a change of seat on grounds that by a subsequent appointment, the venue has been changed.
II. The tussle between constitutional rights and non-obstante clauses
Parties go into arbitration with the intent of resolving their disputes with little to no court intervention. The IAAC strives to achieve a balance between keeping this intent intact without encroaching on an individual’s judicial remedies. For this reason, there are adequate provisions of appeals to courts mentioned in the IAAC itself. Further, Section 5 of the IAAC states that “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”. This solidifies the intent of reducing court intervention and works towards making arbitration a speedy and efficacious dispute settlement mechanism.
However, non-obstante clauses also have their Achilles heel, namely, constitutional rights.
Most recently, the Supreme Court, in Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd.6., had the opportunity to re-evaluate whether the arbitral process could be interfered under Articles 226 and 227 of the Constitution of India.
In the instant case, the respondent preferred an application under Section 16 of the IAAC and disputed the jurisdiction of the arbitrator. The arbitrator held that he had jurisdiction. The respondent, aggrieved by this order, filed a special leave petition under Articles 226 and 227 of the Constitution of India before the Gujarat High Court. While the Single Bench held that such an application is not maintainable, the Division Bench reversed the order and allowed the appeal, which was then appealed by way of special leave petition before the Supreme Court.
It must be noted that the respondent has also challenged the final award of the arbitrator under Section 34 of the IAAC.
The court quoted with approval the case of Deep Industries Ltd. v. ONGC Ltd.7 which evaluated the interplay of Section 5 of the IAAC and Article 227 of the Constitution of India and held that “interference (under Article 227) is restricted to orders that are passed which are patently lacking in inherent jurisdiction”.
The Supreme Court held that a legislative enactment cannot curtail a constitutional right and thus remedy under Articles 226 and 227 would still be available despite the mandate of Section 5 of the IAAC but held that it is prudent for a Judge to not exercise discretion to allow judicial interference beyond the procedure established under the enactment.
The court held that power under Articles 226 and 227 needs to be exercised in exceptional rarity, wherein one party is left remediless under the statute, or a clear “bad faith” is shown by one of the parties and held that this high standard set by this court is in terms of the legislative intention to make the arbitration fair and efficient. The court emphasised that parties should take the legal recourse that is provided for in the legislation.
Viewed in this perspective, the court did not find either of the two exceptional circumstances existing in the case at hand and set aside the order of the Division Bench of the High Court where the High Court had exercised jurisdiction under Article 226 to set aside the order of the arbitrator passed under Section 16 of the IAAC.
This case reiterates the importance of non-intervention by the courts, thereby making India a more lucrative seat for arbitration.
III. A pro-enforcement approach for emergency arbitrations
On 6-8-2021, the Supreme Court in Amazon.com NV Investment Holdings LLC v. Future Retail Ltd.8 (FRL) allowed an emergency award passed by an emergency arbitrator to be enforced under Section 17(2) of the IAAC. The Court’s decision puts to rest the heavily debated issue of enforceability of emergency award. The Supreme Court recognised that full party autonomy is given by the IAAC to have a dispute decided in accordance with the institutional rules which can include emergency arbitrators delivering interim orders, described as “awards”.
A dispute had arisen between Amazon.com NC Investment Holding LLC (Amazon) and Future Coupons Pvt. Ltd. and Amazon invoked the arbitration agreement which provided for institutional arbitration under Singapore International Arbitration Centre (SIAC) rules, Indian seat and Indian governing law. Before the Arbitral Tribunal could be formed, Amazon sought for emergency interim relief under Rule 30.2 of Arbitration Rules of the Singapore International Arbitration Centre (SIAC Rules) as protective measure to restrain FRL from alienating assets which was granted by the emergency arbitrator. Due to non-compliance of the order of the emergency arbitrator, Amazon initiated proceedings before Delhi High Court seeking enforcement of the emergency order, which the court granted. Against the order of the Single Bench, Future Group appealed before the Division Bench of the Delhi High Court. Against the order of stay by the Division Bench of the Delhi High Court, Amazon filed special leave petition (SLP) in the Supreme Court.
The main question to be decided by the Supreme Court was whether an “award” delivered by an emergency arbitrator under the SIAC Rules can be said to be an order under Section 17(1) of the IAAC.
Section 17(1) provides that a party may apply to the Arbitral Tribunal during the arbitral proceedings by an Arbitral Tribunal for interim measures. This shall be deemed to be an order of the court by virtue of Section 17(2) of the IAAC.
Emergency arbitrators appointed by the arbitral institutions under respective rules enable parties to seek interim measures before the constitution of the Tribunal which usually takes time. Further, such orders do not finally determine the issues between the parties and can be overruled by the subsequent main Arbitral Tribunal. The question then arises if the word “Arbitral Tribunal” and “arbitral proceedings” is wide enough to cover emergency order/award given by the emergency tribunal constituted before the appointment of arbitrators.
The word “Arbitral Tribunal” has been defined under Section 2(1)(d) of the IAAC as a sole arbitrator or a panel of arbitrators. Further, Section 21 of the IAAC provides that arbitral proceedings commence when the notice of arbitration has been received by the respondent. However, both Sections 2 and 21 of the IAAC begin with “unless the context otherwise requires” and “unless otherwise agreed by the parties” which provide scope for parties to derogate from the standard meaning of Arbitral Tribunal and decide when an arbitration proceeding commences.
This recognises that party autonomy has been tightly woven in the fabric of IAAC. Parties are free to choose their own procedure and also authorise any person including an institution to determine an issue that arises between the parties. In fact, arbitration rules referred to in an arbitration agreement are considered part of the arbitration agreement itself. If the institutional rules agreed by the parties provide for emergency arbitrator, then parties are bound by the ruling of the emergency arbitrator.
Pursuant to the 2015 amendment to the IAAC, Section 9 (dealing with interim orders of the court) and Section 17 when read together, suggest that once the arbitral proceedings begin, the court will decline to entertain application for grant of interim measures unless the remedy of interim measure before Arbitral Tribunal would not be efficacious. Effectively, a party can only apply for interim measure before the Arbitral Tribunal once arbitral proceedings have commenced. The legislative intent behind this is to obtain interim orders from an Arbitral Tribunal constituted to decongest courts and free them from the burdens of Section 9 applications/petitions being filed before them.
The court recognised this intent and held that emergency arbitrator’s “award” is a step in the right direction and would undoubtedly further the objectives of decongesting the court system and to give the parties urgent interim relief.
The court has cleared the way for parties to opt for additional expedited recourse under institutional rules and the aggrieved party from the emergency award can be appeal the award under Section 37 of the IAAC. The decision also throws a word of caution that if the parties wish not to be bound by the provisions of emergency arbitration under the institutional rules then the parties should expressly exclude applicability of provisions of emergency award.
Arbitration in the International regime
United Kingdom
1. Halliburton Co. v. Chubb Bermuda Insurance Ltd.
UK Supreme Court9–
The dispute arose out of the appointment of a sole arbitrator who was also subsequently appointed as arbitrator for a dispute with a common party. Since the arbitrator failed to disclose the same, Halliburton approached the court for removal of the arbitrator, which was dismissed. The Court of Appeal noted that the disclosure concerning appointment should have been made, but lack thereof does not necessarily imply that there was a “real possibility of bias”. Therefore, on appeal, two questions arose before the Supreme Court:
(a) Does an arbitrator have a duty to disclose information to parties in circumstances where there have been multiple appointments in related arbitrations?
(b) What test should be applied to issues of apparent bias once that information has been disclosed or, where that information has not been disclosed?
The UK Supreme Court held that disclosure is a legal duty under English law unless waived by the parties. On the issue of multiple arbitral appointments, It held that acceptance of arbitral appointments concerning the same or overlapping subject-matter with only one common party may give rise to an appearance of bias, as inequality of knowledge between the common party and the other party or parties may confer an unfair advantage. On the facts, the UK Supreme Court determined that the arbitrator had breached his obligation to the parties to make disclosure. The court reiterated that the test of bias laid down in Porter v. Magill10 would apply, which is as follows: “The question is whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the Tribunal was biased.”
2. Republic of Sierra Leone v. SL Mining Ltd.
UK High Court11 –
The arbitration clause that was part of the mining licence agreement between the parties contained a clause requiring parties to “endeavour to reach an amicable settlement”. Further, it stated that “in the event that the parties shall be unable to reach an amicable settlement within a period of 3 (three) months from a written notice by one party to the other specifying the nature of the dispute and seeking an amicable settlement, either party may submit the matter.…” Since the request for arbitration was filed before the expiry of the three-month period, Sierra Leone challenged the jurisdiction of the Tribunal on the grounds that the arbitration cannot commence before such expiry. This challenge was rejected by the Tribunal stating that the multi-tier dispute resolution clause had been complied with and rendered a partial award. This award was challenged by Sierra Leone in the English Commercial Court which had to decide on the following:
(a) Whether the Arbitral Tribunal lacked jurisdiction when the parties failed to follow the multi-tier dispute resolution clause which provided for parties to make “good faith endeavours to reach amicable settlement”?
(b) Whether question of pre-jurisdictional issues was a jurisdictional question or question of admissibility?
The UK High Court concluded that the question as to compliance with a multi-tier dispute resolution clause is a question of admissibility. The Court held that the question was not whether the claim is arbitrable or whether there is another forum in which it should be decided (which would be jurisdictional matters), but whether the arbitration has been presented too early. Burton, J. agreed with the Tribunal’s reasoning in its jurisdiction award that if reaching the end of the settlement period provided in the arbitration agreement is to be treated as a condition precedent at all, it could only be a matter of procedure (i.e. admissibility of the claim) and not a matter of jurisdiction. Pre-arbitration procedural issues are capable of being resolved by the Tribunal and indeed required to be submitted to the Tribunal for determination.
Singapore
Westbridge Ventures II Investment Holdings v. Anupam Mittal
Singapore High Court12–
Despite the existence of an arbitration agreement between parties, the defendant, Anupam Mittal, instituted proceedings against the plaintiff before the National Company Law Tribunal (NCLT). His contention was that as per the laws of India (the law of the seat), the subject-matter of the dispute before the NCLT is non-arbitrable. Therefore, while determining the relevance of the anti-suit injunction filed by the plaintiff, the Singapore High Court had to determine the following:
What is the law that applies (at a pre-award stage) to determine whether a claim is arbitrable? Is it (a) the law of the seat; or (b) the law of the arbitration agreement?
The Singapore High Court held that the question of law applicable to arbitrability of the dispute is governed by the law of the seat. The following justifications were given:
(1) subject-matter arbitrability is a function of the State’s public policy;
(2) in setting aside or resisting enforcement proceedings, the seat or enforcing court applies its own laws in deciding whether non-arbitrability as a ground of challenge is made out; and(3) applying the law of the seat promotes arbitration.
Thus, the law of the arbitration agreement, being a law that is essentially expressly or impliedly agreed between the parties, cannot determine whether the parties have the power to confer on the Tribunal absolute jurisdiction over the disputed subject-matter. Only the law of the seat can give the answer.
Snapshot of important Supreme Court and High Court judgments
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Sr. No. |
Case details |
Issue(s) |
Summary |
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Supreme Court |
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1. |
Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd.13 |
When can High Courts exercise jurisdiction under Articles 226 and 227 to interfere with arbitral award? (Article 226, Constitution of India) |
The Supreme Court (the “Court”) held that a legislative enactment cannot curtail a constitutional right and thus remedy under Articles 226 and 227 would still be available despite the mandate of Section 5 of the IAAC but held that it is prudent for a Judge to not exercise discretion to allow judicial interference beyond the procedure established under the enactment. The Court held that power under Articles 226 and 227 needs to be exercised in exceptional rarity, wherein one party is left remediless under the statute or a clear “bad faith” is shown by one of the parties and held that this high standard set by this Court is in terms of the legislative intention to make the arbitration fair and efficient. Viewed in this perspective, the Court did not find either of the two exceptional circumstances existing in the case at hand and set aside the order of the High Court where the High Court had exercised jurisdiction under Article 226 to set aside the order of the arbitrator passed under Section 16 of the IAAC. |
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2. |
Sanjiv Prakash v. Seema Kukreja14 |
Whether detailed examination of plea of novation of contract cannot be done by court at Section 11 stage? (Section 11, IAAC) |
The Supreme Court held that the issue of novation of a contract requires detailed consideration of the clauses of the memorandum of understanding and the shareholders agreement, together with the surrounding circumstances in which these agreements were entered into, and a full consideration of the law on the subject. It held that such exercise cannot be done given the limited jurisdiction of a court under Section 11 of the IAAC. It is further stated that detailed arguments on whether an agreement which contains an arbitration clause has or has not been novated cannot possibly be decided in exercise of a limited prima facie review as to whether an arbitration agreement exists between the parties. It held that the court cannot, at this stage, enter into a mini trial or elaborate review of the facts and law which would usurp the jurisdiction of the Arbitral Tribunal. |
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3. |
BNSL v. Nortel Networks India (P) Ltd.15 |
Whether period of limitation for filing application under Section 11 of the IAAC would be covered by Article 137 of the Limitation Act, 1963 and would begin to run from date of failure to appoint? (Section 11, IAAC and Article 137, Limitation Act, 1963) |
The Supreme Court held that period of limitation for filing an application under Section 11 of the IAAC would be governed by Article 137 of the First Schedule of the Limitation Act, 1963. The Court held period of limitation will begin to run from the date when there is failure to appoint the arbitrator. The court made a distinction between jurisdictional issues (such as issues with respect to the existence, scope and validity of the arbitration agreement) and admissibility issues which relate to procedural requirements (such as a breach of pre-arbitration requirements, for instance, a mandatory requirement for mediation before the commencement of arbitration, or a challenge to a claim or a part of the claim being either time-barred, or prohibited, until some precondition has been fulfilled). It further held that limitation is an admissibility issue and in rare and exceptional cases, where the claims are ex facie time-barred, and it is manifest that there is no subsisting dispute, the court may refuse to make the reference under Section 11 of the IAAC. |
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4. |
Pravin Electricals (P) Ltd. v. Galaxy Infra and Engg. (P) Ltd.16 |
Whether orders under Sections 8 and 11 are brought on par qua appealability as well after the judgment of Vidya Drolia v. Durga Trading Corpn.17, [Sections 11(6), 11(7) and 37 of the IAAC] |
The court while dealing with an appeal from a petition under Section 11(6) of the IAAC observed that by a process of judicial interpretation, this Court in Vidya Drolia v. Durga Trading Corpn.18,(Vidya Drolia)has now read the “prima facie test” into Section 11(6-A) so as to bring the provisions of Sections 8(1) and 11(6) read with Section 11(6-A) of the IAAC on par, whereas in cases decided under Section 8, a refusal to refer parties to arbitration is appealable under Section 37(1)(a), a similar refusal to refer parties to arbitration under Section 11(6) read with Sections 6(A) and 7 is not appealable. The Court, thus, observed that in the light of what has been decided in Vidya Drolia19, Parliament may need to have a relook at Sections 11(7) and 37 so that orders made under Sections 8 and 11 are brought on par qua appealability as well. On facts of the case, the court held that there were enough facts which cast a doubt on the existence of arbitration agreement and would require further examination by an arbitrator upon leading of evidence and thus upheld the order appointing arbitrator but set aside the findings of the High Court upholding existence of arbitration agreement. |
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5. |
N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd.20 |
Whether insufficient payment of stamp duty will invalidate the arbitration agreement? (Section 33 of the IAAC) |
The Court held that the arbitration agreement is an independent agreement between the parties, and is not chargeable to payment of stamp duty. The non-payment of stamp duty on the commercial contract would not invalidate the arbitration clause since it has an independent existence. However, the court also held that adjudication of the rights and obligations under the substantive commercial contract would however not proceed before complying with the mandatory provisions of the Stamp Act. Further, the Court observed that the finding in SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd.21, and Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd.22 that the non-payment of stamp duty on the commercial contract would invalidate even the arbitration agreement, is not the correct position in law, and referred the issue to a larger Bench. Recently, in the decision of Intercontinental Hotels Group (India) (P) Ltd. v. Waterline Hotels (P) Ltd.23, the Supreme Court relied on the decision of N.N. Global Mercantile24 while holding that pending adjudication on this issue before the constitutional bench, courts should ensure that arbitrations are carried on, unless the issue clearly indicates existence of deadwood i.e. when the matter is non-arbitrable. |
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6. |
Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd.25 |
Relevance of dissenting opinion given by Arbitral Tribunal (Section 34 of IAAC) |
The Court held that 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 29-A of the IAAC. The Court held that 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. On the facts of the case, Court held that award was pronounced on 27-4-2018 but only a copy of the award was provided to the parties to point out any computation error, any clerical or typographical error. The signed copy of the award was provided to the parties only on 19-5-2018 and Court held time under Section 34(3) would be reckoned from 19-5-2018 and not 27-4-2018. |
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7. |
Oriental Structural Engineers (P) Ltd. v. State of Kerala26 |
Whether omission to fill blank providing rate of interest in agreement is not active exclusion of payment of interest? (Section 34 of the IAAC) |
The Court upheld the award passed by the arbitrator and set aside the judgments of the District Court and High Court which had set aside the award. The Court held that once there was a specific term of the agreement executed between the parties which provided for payment of interest on delayed payment, the mere fact that rate of interest was not specified or that blank space has been left where rate was to be provided cannot be construed as cancellation of the clause providing for payment of interest of delayed release of funds. The Court held that that to come to such an inference, active exclusion of payment of interest under that head was necessary to have been incorporated in the agreement. The Court upheld the award granting interest on delayed payments but reduced the rate of interest awarded by the arbitrator. |
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8. |
NHAI v. M. Hakeem27 |
Whether power of a court under Section 34 of the Act to “set aside” an award of an arbitrator would include the power to modify such an award. (Section 34 of the IAAC) |
The Court held that Section 34 of the IAAC cannot be held to include within it a power to modify an award. It held that position under the Arbitration Act, 1940 was different but the IAAC was enacted based on the UNCITRAL Model Law on International Commercial Arbitration, 1985 and it makes it clear that, given the limited judicial interference on extremely limited grounds not dealing with the merits of an award, the “limited remedy” under Section 34 is coterminus with the “limited right”, namely, either to set aside an award or remand the matter under the circumstances mentioned in Section 34 of the IAAC. However, while the court set aside the High Court judgment on law, it did not interfere with the judgment on facts, as it found the justice of the case does not require interference under Article 136 of the Constitution of India. |
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9. |
P. Mohanraj v. Shah Bros. Ispat (P) Ltd.28 |
Whether moratorium would be imposed on proceedings under Section 34 of the ACA? (Section 34 of the IAAC and Section 14 of the IBC) |
The Supreme Court held that moratorium under Section 14 of the IBC would be imposed on proceedings under Section 34 of the IAAC. It reasoned that Section 34 proceeding is a proceeding against the corporate debtor in a court of law pertaining to a challenge to an arbitral award and would be covered just as an appellate proceeding in a decree from a suit and such a proceeding which may result in an arbitral award against the corporate debtor being upheld, as a result of which, monies would then be payable by the corporate debtor. The Supreme Court, inter alia, held that judgment in Power Grid Corpn. of India Ltd. v. Jyoti Structures Ltd.29, which held that a Section 34 application will not be covered by Section 14 of the IBC, does not state the law correctly. |
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10. |
State of Maharashtra v. Borse Bros. Engineers & Contractors (P) Ltd.30 |
What is the limitation period for appeals under Section 37 of the IAAC? (Section 37 of the IAAC and Section 13 of the Commercial Courts Act, 2015) |
The Supreme Court stated that the Commercial Courts Act, 2015 which establishes a stipulated value for application, would only apply to appeals under Section 37 of the IAAC if the specified value exceeded three lakh rupees. The limitation period would be 60 days in such situations when an appeal under Section 37 of the IAAC was directed by Section 13 of the Commercial Courts Act, 2015. Where the Commercial Courts Act does not cover an appeal under Section 37 of the IAAC because the stated value is less than three lakhs, the provisions of Articles 116 and 117 of the Limitation Act, 1963 apply. According to Article 116 of the Limitation Act, if an appeal was brought to the High Court from an order of a subordinate court, the term of limitation was set at 90 (ninety) days from the day the order was passed by the subordinate court. Similarly, if an appeal is brought from a High Court order to the same court or a court other than the High Court, the term of limitation is 30 (thirty) days under Article 117 of the Limitation Act. However, any delay beyond such period is to be condoned by way of exception and not by way of rule. |
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11. |
Gemini Bay Transcription (P)Ltd. v. Integrated Sales Service Ltd.31 |
Whether foreign arbitral awards can bind non-signatories to an arbitration agreement and can be enforced against them? (Section 44 of the IAAC) |
The Supreme Court held that a reading of Section 44 of the IAAC would show that there are six ingredients to a foreign award.
The Supreme Court held that all requirements posed under Section 44(1) were procedural in nature and the object of which was to satisfy that an award was indeed a foreign award. The Supreme Court observed that Section 47(1)(c) being procedural in nature did not go to the extent of requiring substantive evidence to “prove” that a non-signatory to an arbitration agreement can be bound by a foreign award. In fact, Section 47(1)(c) only spoke of evidence as may be necessary to prove that an award is a foreign award. The Supreme Court, while stating the difference between Sections 44 and 48 of the IAAC observed that, since Section 44 refers to “persons” and not “parties”, a foreign award could be binding on the “persons” not being signatories to such an arbitration agreement. |
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12. |
PASL Wind Solutions (P) Ltd. v. GE Power Conversion India (P)Ltd.32 |
Whether two Indian parties can choose a foreign seat? (Sections 47 and 49 of the IAAC) |
The Supreme Court held that the following four ingredients are essential for an award to be designated as a foreign award under Section 44 of the IAAC: (i) The dispute must be considered to be a commercial dispute under the law in force in India. (ii) The award must be made in pursuance of an agreement in writing for arbitration. (iii) There must be a dispute that arises between “persons” (without regard to their nationality, residence, or domicile). (iv) The arbitration must conclude in a country that is a signatory to the New York Convention. In the facts of the instant matter, the Supreme Court held that all of the ingredients mentioned above were fulfilled. Therefore, the impugned award was a foreign award in terms of Section 44 of the IAAC. Based on definition of foreign award, the court arrived at a conclusion that two Indian parties can select foreign seat. |
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13. |
Indus Biotech (P) Ltd. v. Kotak India Venture (Offshore) Fund33 |
Whether the adjudicating authority under IBC refer the dispute to arbitration upon a valid arbitration agreement? (Section 8 of the IAAC and Section 7 of the IBC] |
The Supreme Court held that a dispute will be non-arbitrable when a proceeding is in rem and a IB Code proceeding is to be considered in rem only after it is admitted. The Court held that to consider a proceeding in rem, it is necessary that the adjudicating authority ought to have applied its mind, recorded a finding of default and admitted the petition and it is on admission, that third party right is created in all the creditors of the corporate debtors and will have erga omnes effect. Mere filing of the petition and its pendency before admission, therefore, cannot be construed as the triggering of a proceeding in rem. The Court further held that even if an application u/Section 8 is filed, the adjudicating authority has a duty to advert to contentions put forth on the application filed u/Section 7 of IB Code and examine the material placed before it by the financial creditor and record a satisfaction as to whether there is default or not and while doing so the contention put forth by the corporate debtor shall also be noted to determine as to whether there is substance in the defence and to arrive at the conclusion whether there is default. It held that if the irresistible conclusion by the adjudicating authority is that there is default and the debt is payable, the bogey of arbitration to delay the process would not arise despite the position that the agreement between the parties indisputably contains an arbitration clause. Ultimately, once the NCLT is satisfied that the there is a financial debt and a default within the meaning of Section 7 of the IBC, any subsequent application under Section 8 of the ACA is not maintainable. Only when the application under Section 7 of the IBC fails, the NCLT may refer the dispute to arbitration. |
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14. |
Arcelor Mittal Nippon Steel (India) Ltd. v. Essar Bulk Terminal Ltd.34 |
Whether a court has the power to entertain an application under Section 9(1) of the IAAC once the Arbitral Tribunal had been constituted, and if so, what is the true meaning and purport of the expression “entertain” in Section 9(3) of the IAAC? Whether the court is obliged to examine the efficacy of the remedy under Section 17 before passing an order under Section 9(1) of the IAAC, once an Arbitral Tribunal is constituted? (Sections 9 and 11 of the IAAC) |
The Supreme Court held that even after the constitution of an Arbitral Tribunal, the court was not denuded of the power to grant interim relief under Section 9(1) of the IAAC. The Supreme Court clarified that once an Arbitral Tribunal is constituted, the court cannot take up an application under Section 9 for consideration, unless the remedy under Section 17 is inefficacious. However, once an application is taken up for consideration and the court has applied its mind, the court can certainly proceed to adjudicate the application. The Supreme Court accepted the respondent’s submission that the intent behind Section 9(3) was not to turn the clock back and require a matter already reserved for orders to be considered in entirety by the Arbitral Tribunal under Section 17 of the IAAC. Even after an Arbitral Tribunal is constituted, there could be myriads of reasons why the Arbitral Tribunal may not provide an efficacious alternative to Section 9(1). |
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15. |
Amazon.com NV Investment Holdings LLC v. Future Retail Ltd.35 |
Whether an emergency arbitration award passed under Rules of the Singapore International Arbitration Centre valid and recognised under Indian law? (Section 17 of the IAAC) |
The Supreme Court held that for Indian-seated arbitrations, interim orders passed in an emergency arbitration are enforceable as equivalent to an order under Section 17 passed by the Arbitration Tribunal. No appeal lies under Section 37 of the IAAC against an order of enforcement of an emergency arbitrator’s order made under Section 17(2) of the Act. |
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16. |
State of Chhattisgarh v. SAL Udyog (P) Ltd.36 |
Whether the ground of patent illegality for setting aside an award under Section 34(2-A) of the IAAC also apply to an appealable order under Section 37? (Sections 34 and 37 of the IAAC) |
The Supreme Court observed that having regard to the language used in Section 34(2-A) which uses the term “the court finds that”, enables a court to test an appealable order under Section 37 on the ground of patent illegality. A failure on part of the arbitrator to decide in accordance with the terms of the contract governing the parties would constitute patent illegality. Additionally, the Supreme Court in NHAI v. P. Nagaraju37 recently held that the Court cannot modify the award but only set aside the award and remand the matter back to the Tribunal in such cases. |
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17. |
DLF Home Developers Ltd. v. Rajapura Homes (P) Ltd.38 |
What is the scope of review to be exercised by courts while adjudicating an application under Section 11(6-A)? (Section 11 of the IAAC) |
The Supreme Court while adjudicating on the scope of review to be exercised by the courts for an application under Section 11(6-A) observed that, while appointing an arbitrator, the court must not act mechanically. If upon examination, it is found that the arbitration agreement does not correlate to the dispute at hand, the court can decline the reference. The Supreme Court observed as follows: 17. There is no gainsaying that by virtue of the Arbitration and Conciliation (Amendment) Act, 2015, by which Section 11(6-A) was introduced, the earlier position of law as to the scope of interference by this Court at the stage of referral has been substantially restricted. It is also no more res integra that despite the subsequent omission of Section 11(6-A) by the Arbitration and Conciliation (Amendment) Act, 2019, the legislative intent behind thereto continues to be a guiding force for the courts while examining an application under Section 11 of the Act. 18. The jurisdiction of this Court under Section 11 is primarily to find out whether there exists a written agreement between the parties for resolution of disputes through arbitration and whether the aggrieved party has made out a prima facie arbitrable case. The limited jurisdiction, however, does not denude this Court of its judicial function to look beyond the bare existence of an arbitration clause to cut the deadwood. A three-Judge Bench in Vidya Drolia39, has eloquently clarified that this Court, with a view to prevent wastage of public and private resources, may conduct “prima facie review” at the stage of reference to weed out any frivolous or vexatious claims. *** 20. To say it differently, this Court or a High Court, as the case may be, are not expected to act mechanically merely to deliver a purported dispute raised by an applicant at the doors of the chosen arbitrator. On the contrary, the court(s) are obliged to apply their mind to the core preliminary issues, albeit, within the framework of Section 11(6-A) of the Act. Such a review, as already clarified by this Court, is not intended to usurp the jurisdiction of the Arbitral Tribunal but is aimed at streamlining the process of arbitration. Therefore, even when an arbitration agreement exists, it would not prevent the court to decline a prayer for reference if the dispute in question does not correlate to the said agreement. |
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18. |
Haryana Space Application Centre v. Pan India Consultants (P) Ltd.40 |
Whether appointment of the Principal Secretary to a State Government as the nominee arbitrator in an arbitration where nodal agency of that Government is a party be valid under Section 12(5) of the IAAC read with the Seventh Schedule? [Section 12(5) read with Seventh Schedule of the IAAC] |
The Supreme Court held that Section 12(5) of the IAAC (as amended by the 2015 Amendment Act) provides that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties, or counsel, falls within any of the categories specified in the Seventh Schedule, shall be ineligible to be appointed as an arbitrator. Section 12(5) read with the Seventh Schedule is a mandatory and non-derogable provision of the Act. In the facts of the present case, the Principal Secretary to the Government of Haryana was held to be ineligible to be appointed as an arbitrator, since he would have a controlling influence on the appellant Company being a nodal agency of the State. |
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19. |
Chintels (India) Ltd. v. Bhayana Builders (P) Ltd.41 |
Whether an order refusing to condone the delay in filing an application under Section 34, an appealable order under Section 37(1)(c) of the Act? [Sections 34 and 37(1)(c) of the IAAC] |
The Supreme Court held that an appeal under Section 37(1)(c) of the IAAC would be maintainable against an order refusing to condone delay in filing an application under Section 34 of the IAAC to set aside an award. It was emphasised by the court that an order refusing to condone delay in filing an application under Section 34 has the effect of finally disposing of the original petition. Such an order can, therefore, be treated as an award, and hence is appealable. |
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20. |
Amway (India) Enterprises (P) Ltd. v. Ravindranath Rao Sindhia42 |
Whether a sole proprietorship which carries on business through an office in India, falls under the scope of international commercial arbitration, if the proprietor is a habitual foreign resident? [Section 2(1)(f) of the IAAC] |
The Supreme Court held that an analysis of Section 2(1)(f) would show that whatever be the transaction between the parties, if it happens to be entered into between persons, at least one of whom is either a foreign national, or habitually resident in, any country other than India; or by a body corporate which is incorporated in any country other than India; or by the Government of a foreign country, the arbitration becomes 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. |
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21. |
Ellora Paper Mills Ltd. v. State of M.P.43 |
If the neutrality of the arbitrator is questionable, does it empower the court to appoint an arbitrator and restrict the parties from insisting upon the appointment of the arbitrator in terms of the arbitration agreement? [Section 12(5) of the IAAC] |
The Supreme Court held that the principles of impartiality and independence cannot be discarded at any stage of the proceedings, specifically at the stage of constitution of the Arbitral Tribunal. The court noted that it would be incongruous to say that party autonomy can be exercised in complete disregard of these principles, even if the same has been agreed prior to the disputes having arisen between the parties. The concept of party autonomy cannot be stretched to a point where it negates the very basis of having impartial and independent adjudicators for resolution of disputes. In fact, when the party appointing an adjudicator is the State, the duty to appoint an impartial and independent adjudicator on the courts is that much more onerous and the right to natural justice cannot be said to have been waived only on the basis of a prior agreement between the parties at the time of the contract and before arising of the disputes. |
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22. |
Cox & Kings Ltd. v. SAP India (P) Ltd.44 |
Whether arbitration be invoked against a non-signatory or non-party to an arbitration agreement? (Sections 8 and 11 of the IAAC) |
The Supreme Court, while making observations on the group of companies doctrine, noted that: 17. Doctrine of group of companies is one such area which is utilised to bind third parties to an arbitration agreement. Theoretically, the policy consideration of efficiency is argued to allow such joinders. However, until a legal basis for the same is provided, efficiency cannot itself be the sole ground to bind a party to arbitration. Justice Surya Kant, in his concurring opinion, framed the following additional questions for deliberation by a larger Bench: 104. (A) Whether the group of companies doctrine should be read into Section 8 of the Act or whether it can exist in indian jurisprudence independent of any statutory provision? (B) Whether the group of companies doctrine should continue to be invoked on the basis of the principle of “single economic reality”? (C) Whether the group of companies doctrine should be construed as a means of interpreting the implied consent or intent to arbitrate between the parties? (D) Whether the principles of alter ego and/or piercing the corporate veil can alone justify pressing the group of companies doctrine into operation even in the absence of implied consent? |
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23. |
Morgan Securities & Credits (P) Ltd. v. Videocon Industries Ltd.45 |
Whether the arbitrator has the discretion to grant post-award interest only on the principal sum due under Section 31(7)(b) of the Act. [Section 31(7)(b) of the IAAC] |
The Supreme Court held that the phrase “unless the award otherwise directs” in Section 31(7)(b) of the IAAC only qualifies the rate of interest and if no post-award interest is granted by the arbitrator, the award holder would be entitled to post-award interest at 18 % (eighteen per cent). The Supreme Court further held that the arbitrator enjoys the discretion to award post-award interest on a part of the sum. However, such discretionary power of granting post-award must be exercised reasonably and in good faith. The Supreme Court further noted that the arbitrator’s discretion may only be limited by an express clause to this effect. |
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24. |
ONGC Ltd. v. Afcons Gunanusa JV46 |
(a) whether the arbitrator(s) are entitled to unilaterally determine their own fees; (b) whether the term “sum in dispute” in the Fourth Schedule means the cumulative total of the amounts of under the “claim” and “counterclaim”; (c) whether the ceiling of Rs 30,00,000 in the entry at Serial No. 6 of the “Fourth Schedule” of the Act is applicable only to the variable amount of the fee or the entire fee amount; and (d) whether the ceiling of Rs 30,00,000 applies as a cumulative fee payable to the Arbitral Tribunal or it represents the fee payable to each arbitrator. (Sections 31, 31-A, and Schedule IV of the IAAC) |
Supreme Court held the following in this case: (i) Arbitrators are not entitled to unilaterally determine their own fees as it would be violative of the principle of party autonomy and the doctrine of the prohibition of in rem suam decisions, meaning, arbitrators cannot be a judge of their own cause. (ii) Further, the Court held that the term “sum in dispute” shall be considered septely for the amount in dispute in the claim and counterclaim. As a result, arbitrators would be entitled to charge septe fees for the claim and counterclaim. (iii) On the INR 30,00,000 ceiling, the Court held that the ceiling is applicable to the cumulative amount of the base and variable amount, and in the case of a sole arbitrator it would be INR 37,50,000 (including the additional component prescribed in the Act). This would mean that the highest fee to be charged by an Arbitral Tribunal (except in the case of a sole arbitrator) shall be INR 30,00,000, which is in line with the legislative intent, which was also indicated in the commission report. (iv) The Court held that the ceiling is applicable to each individual arbitrator, and any other interpretation would lead to absurd consequences. |
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Delhi High Court |
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1. |
KLA Const. Technologies (P) Ltd. v. Embassy of Islamic Republic of Afghanistan47 |
1. Whether the prior consent of Central Government is necessary under Section 86(3) of the Code of Civil Procedure to enforce an arbitral award against a Foreign State? 2. Whether a foreign State can claim sovereign immunity against enforcement of arbitral award arising out of a commercial transaction? (Sections 36 of the IAAC and Section 86 of the Civil Procedure Code, 1908) |
The Delhi High Court, answering in the negative, summarised the position of law as follows: 44. The prior consent of Central Government is not necessary under Section 86(3) of the Code of Civil Procedure to enforce an arbitral award against a foreign State. 45. A foreign State cannot claim a sovereign immunity against enforcement of an arbitral award arising out of a commercial transaction. 46. Section 36 of the Arbitration and Conciliation Act treats an arbitral award as a ‘decree’ of a court for the limited purpose of enforcement of an award under the Code of Civil Procedure which cannot be read in a manner which would defeat the very underlying rationale of the Arbitration and Conciliation Act, namely, speedy, binding and legally enforceable resolution of disputes between the parties. 47. Section 86 of the Code of Civil Procedure is of limited applicability and the protection thereunder would not apply to cases of implied waiver. An arbitration agreement in a commercial contract between a party and a foreign State is an implied waiver by the foreign State so as to preclude it from raising a defence against an enforcement action premised upon the principle of sovereign immunity. 48. In a contract arising out of a commercial transaction, such as the transactions which are subject-matter of the present petitions, a foreign State cannot seek sovereign immunity for the purpose of stalling execution of an arbitral award rendered against it. Once a foreign State opts to wear the hat of a commercial entity, it would be bound by the rules of the commercial legal ecosystem and cannot be permitted to seek any immunity, which is otherwise available to it only when it is acting in its sovereign capacity. It is the purpose and nature of the transaction of the foreign State which would determine whether the transaction, and the contract governing the same, represents a purely commercial activity or whether the same is a manifestation of an exercise of sovereign authority. 49. Arbitration being a consensual and binding mechanism of dispute settlement, it cannot be contended by a foreign State that its consent must be sought once again at the stage of enforcement of an arbitral award against it, while ignoring the fact that the arbitral award is the culmination of the very process of arbitration which the foreign State has admittedly consented to. 50. This proposition is in consonance with the growing international law principle of restrictive immunity, juxtaposed with the emergence of arbitration as the favoured mechanism of international dispute resolution in the past few decades. It needs no gainsaying that international commercial arbitration has witnessed increasing adoption across the world over the past few decades on account of it being a flexible yet stable, efficient, and legally binding mechanism of dispute resolution for entities engaging in global and cross-border transactions while eschewing the particularistic difficulties and complexities encountered in domestic legal systems. However, if foreign States are permitted to stymie the enforcement of arbitral awards, which are the ultimate fruits of the above consensual process, on the specious ground that they are entitled to special treatment purely on account of being foreign States, then the very edifice of international commercial arbitration would collapse. Foreign States cannot be permitted to act with impunity in this regard to the grave detriment of the counterparty in the arbitration proceedings. The Embassy of Islamic Republic of Afghanistan filed a special leave to appeal before the Supreme Court against the impugned final judgment and order dated 18-6-2021 passed by the High Court. However, this SLP was withdrawn on grounds of compromise. |
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2. |
Golden Tobie (P) Ltd. v. Golden Tobacco Ltd.48 |
Whether disputes involving assignment of trademark arbitrable? (Section 8 of the IAAC) |
The High Court of Delhi held that while grant/issue of patents and registration of trade marks are exclusive matters falling within the sovereign and government function and are non-arbitrable but disputes arising from trade mark licence or assignment agreements are disputes under contract and do not involve exercise of any sovereign function and are thus arbitrable. The court thus allowed the application u/Section 8 and referred the disputes pertaining cancellation of assignment to arbitration. |
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3. |
Tantia Construction Ltd. v. Ircon International Ltd.49 |
Whether delay in preferring the application under S. 33(1) would not be condonable (Section 33 of the IAAC) |
The High Court of Delhi held that unlike Section 34, Section 33(1) does not contain any provision permitting condonation of the period of limitation stipulated therein. The Court held that it cannot read into Section 33(1), a power of condonation of delay, where none exists. Further held, the fact that delay cannot be automatically condoned by the Arbitral Tribunal, in the case of application under Section 33(1), also stands underscored by the stipulation contained by the words “unless another period of time has been agreed upon by the parties” in Section 33(1). It held the intent of the legislature is that the period of 30 days, stipulation in Section 33(1), is relaxable only if the parties agree to another period for filing the application thereunder. In absence of any such mutual agreement between the parties, the period of 30 days in Section 33(1) is sacrosanct and is not relaxable. |
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Madras High Court |
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1. |
ADM International Sarl v. Sunraja Oil (P) Ltd.50 |
What are the grounds on which anti-arbitration injunction be granted? (Section 45 of the IAAC) |
The Madras High Court observed as follows: “22. … The principles relating to the grant of anti-suit injunctions were examined and formulated in p 24 of Modi Entertainment, wherein the Supreme Court held, inter alia, that an anti-suit injunction would not be granted to forbear the exercise of jurisdiction by the forum chosen by the parties. Likewise, the law on anti-arbitration injunctions was considered in McDonald’s India (P) Ltd. v. Vikram Bakshi51 (McDonalds) by a Division Bench of the Delhi High Court, wherein the Court underscored the fact that the threshold tests for an anti-arbitration injunction are more exacting than that applicable for an anti-suit injunction and concluded that the principal considerations would be those underpinning Section 45 of the Arbitration Act i.e. whether there is an arbitration agreement; and whether such agreement is null and void, inoperative or incapable of being performed. I respectfully concur with the principles set out therein. Therefore, these tests should be applied to the case at hand.” |
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Calcutta High Court |
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1. |
Sirpur Paper Mills Ltd. v. I.K. Merchants (P) Ltd.52 |
Does an application for setting aside of award under Section 34 become infructuous if the management of the award debtor is taken over by a new entity following the procedure under IBC? [Section 34 and Insolvency and Bankruptcy Code, 2016 (IBC)] |
The High Court held that it was the obligation of the award holder to take active steps under the IBC instead of waiting for the adjudication of the application under Section 34 of the IAAC. Merely because a Section 34 petition was filed, does not imply that award holder was stayed from filing claim as an operational creditor under IBC. The court noted that an operational creditor who fails to lodge a claim in the CIRP literally missed boarding the claims bus for chasing the fruits of an award even where a challenge to the award is pending in a civil court. Therefore, the petition was dismissed as infructuous. |
Concluding remarks
The IAAC has been shaped by various amendments and judicial pronouncements. The 2019 amendments to the IAAC rectified several lacunae in both, parts I and II of the IAAC thereby making India a more arbitration-friendly jurisdiction. The 2021 amendments that are currently underway also attempt to further that objective, although their practical implications remain to be seen.
The above judgments indicate that India has taken many steps towards becoming a pro-arbitration jurisdiction, thereby making it a viable seat for international commercial arbitrations. However, it is important that the courts remain consistent in their stance in order to make India a global arbitration hub.
†Partner, Khaitan & Co.
††Senior Associate, Khaitan & Co.
††† Associate, Khaitan & Co.
9. (2020) 3 WLR 1474 : 2020 UKSC 48.
11. 2021 Bus LR 704 : 2021 EWHC 286.
12. 2021 SGHC 244.
29. 2017 SCC OnLine Del 12189 : (2018) 246 DLT 485
44. (2022) 8 SCC 1, 14 and 41.
50. (2021) 4 Mad LJ 147 (Mad).
*DISCLAIMER: The views of the authors in this article are personal and do not constitute legal/professional advice of Khaitan & Co. For any further queries or follow up please contact us at ergo@khaitanandco.com
