By Gunjan Chhabra
Questions Answered in this month’s CCDQ:
- 𝐂𝐚𝐧 𝐲𝐨𝐮 𝐫𝐞𝐬𝐭𝐫𝐢𝐜𝐭 𝐭𝐡𝐞 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐨𝐟 𝐚 𝐂𝐥𝐚𝐢𝐦, 𝐛𝐲 𝐫𝐞𝐬𝐭𝐫𝐢𝐜𝐭𝐢𝐧𝐠 𝐭𝐡𝐞 𝐩𝐞𝐫𝐢𝐨𝐝 𝐨𝐟 𝐢𝐧𝐯𝐨𝐤𝐢𝐧𝐠 𝐚𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧, 𝐛𝐲 𝐰𝐚𝐲 𝐨𝐟 𝐚 𝐜𝐥𝐚𝐮𝐬𝐞 𝐢𝐧 𝐲𝐨𝐮𝐫 𝐚𝐠𝐫𝐞𝐞𝐦𝐞𝐧𝐭?
- 𝐃𝐞𝐥𝐚𝐲𝐞𝐝 𝐢𝐧 𝐅𝐢𝐥𝐢𝐧𝐠 𝐂𝐨𝐮𝐭𝐞𝐫𝐜𝐥𝐚𝐢𝐦𝐬 𝐢𝐧 𝐲𝐨𝐮𝐫 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧? 𝐖𝐡𝐚𝐭 𝐜𝐚𝐧 𝐲𝐨𝐮 𝐝𝐨?
- 𝐃𝐨𝐞𝐬 𝐭𝐡𝐞 𝐂𝐨𝐮𝐫𝐭 𝐧𝐞𝐞𝐝 𝐭𝐨 𝐥𝐨𝐨𝐤 𝐢𝐧𝐭𝐨 𝐐𝐮𝐞𝐬𝐭𝐢𝐨𝐧𝐬 𝐨𝐟 𝐋𝐢𝐦𝐢𝐭𝐚𝐭𝐢𝐨𝐧 𝐨𝐟 𝐂𝐥𝐚𝐢𝐦𝐬 𝐚𝐭 𝐭𝐡𝐞 𝐭𝐢𝐦𝐞 𝐨𝐟 𝐀𝐩𝐩𝐨𝐢𝐧𝐭𝐢𝐧𝐠 𝐚𝐧 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐨𝐫?
- 𝐈𝐬 𝐭𝐡𝐞 𝐩𝐥𝐚𝐜𝐞 𝐨𝐟 𝐚𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐦𝐞𝐧𝐭𝐢𝐨𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐞 𝐂𝐨𝐧𝐭𝐫𝐚𝐜𝐭, 𝐭𝐡𝐞 ‘𝐯𝐞𝐧𝐮𝐞’ 𝐨𝐫 𝐭𝐡𝐞 ‘𝐬𝐞𝐚𝐭’?
- 𝐂𝐚𝐧 𝐲𝐨𝐮 𝐬𝐭𝐢𝐥 𝐀𝐩𝐩𝐨𝐢𝐧𝐭 𝐑𝐞𝐭𝐢𝐫𝐞𝐝 𝐄𝐦𝐥𝐨𝐲𝐞𝐞𝐬 𝐚𝐬 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐨𝐫𝐬?
- 𝐑𝐞𝐜𝐞𝐢𝐯𝐞𝐝 𝐚𝐧 𝐮𝐧𝐬𝐭𝐚𝐦𝐩𝐞𝐝 𝐚𝐰𝐚𝐫𝐝? 𝐖𝐡𝐞𝐧 𝐝𝐨𝐞𝐬 𝐭𝐡𝐞 𝐩𝐞𝐫𝐢𝐨𝐝 𝐨𝐟 𝐥𝐢𝐦𝐢𝐭𝐚𝐭𝐢𝐨𝐧 𝐛𝐞𝐠i𝐧 𝐭o 𝐫𝐮𝐧?
- 𝐂𝐚𝐧 𝐏𝐚𝐫𝐭𝐢𝐜𝐢𝐩𝐚𝐭𝐢𝐨𝐧 𝐢𝐧 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐏𝐫𝐨𝐜𝐞𝐞𝐝𝐢𝐧𝐠𝐬 𝐰𝐚𝐢𝐯𝐞 𝐦𝐚𝐧𝐝𝐚𝐭𝐨𝐫𝐲 𝐃𝐢𝐬𝐪𝐮𝐚𝐥𝐢𝐟𝐢𝐜𝐚𝐭𝐢𝐨𝐧𝐬 𝐨𝐟 𝐚𝐧 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐨𝐫?
- 𝐂𝐚𝐧 𝐲𝐨𝐮 𝐭𝐚𝐤𝐞 𝐧𝐞𝐰 𝐠𝐫𝐨𝐮𝐧𝐝𝐬 𝐢𝐧 𝐚 𝐒𝐞𝐜𝐢𝐨𝐧 37 𝐀𝐩𝐩𝐞𝐚𝐥?
- 𝐂𝐚n 𝐚 𝐖𝐫𝐢𝐭 𝐛𝐞 𝐅𝐢𝐥𝐞𝐝 𝐚𝐠𝐚𝐢𝐧𝐬𝐭 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐉𝐮𝐝𝐠𝐦𝐞𝐧𝐭𝐬 𝐨𝐟 𝐭𝐡𝐞 𝐂𝐨𝐮𝐫𝐭 𝐨𝐟 𝐅𝐢𝐫𝐬𝐭 𝐈𝐧𝐬𝐭𝐚𝐧𝐜e?
- 𝐖𝐡𝐢𝐜𝐡 𝐂𝐨𝐮𝐫𝐭 𝐡𝐚𝐬 𝐓𝐞𝐫𝐫𝐢𝐭𝐨𝐫𝐢𝐚𝐥 𝐉𝐮𝐫𝐢𝐬𝐝𝐢𝐜𝐭𝐢𝐨𝐧 𝐟𝐨𝐫 𝐭𝐡𝐞 𝐄𝐱𝐞𝐜𝐮𝐭𝐢𝐨𝐧 𝐏𝐞𝐭𝐢𝐭𝐢𝐨𝐧 𝐨𝐟 𝐚𝐧 𝐀𝐰𝐚𝐫𝐝?
- 𝐓𝐰𝐨 𝐑𝐨𝐚𝐝𝐬 𝐌𝐢𝐠𝐡𝐭 𝐃𝐢𝐯𝐞𝐫𝐠𝐞 𝐢𝐧 𝐚 𝐘𝐞𝐥𝐥𝐨𝐰 𝐖𝐨𝐨𝐝, 𝐁𝐮𝐭 𝐭𝐡𝐞 𝐃𝐞𝐥𝐡𝐢 𝐇𝐢𝐠𝐡 𝐂𝐨𝐮𝐫𝐭 𝐜𝐚𝐧 𝐭𝐫𝐚𝐯𝐞𝐥 𝐛𝐭𝐡?
- 𝐈𝐬 𝐭𝐡𝐞𝐫𝐞 𝐚 𝐝𝐢𝐟𝐟𝐞𝐫𝐞𝐧𝐜𝐞 𝐢𝐧 𝐭𝐡𝐞 𝐂𝐨𝐮𝐫𝐭’𝐬 𝐣𝐮𝐫𝐢𝐬𝐝𝐢𝐜𝐭𝐢𝐨𝐧 𝐢𝐧 𝐚𝐧 𝐀𝐩𝐩𝐞𝐚𝐥 𝐮𝐧𝐝𝐞𝐫 𝐒𝐞𝐜𝐭𝐢𝐨𝐧 37, 𝐚𝐧𝐝 𝐚 𝐅𝐢𝐫𝐬𝐭 𝐀𝐩𝐩𝐞𝐚 𝐚𝐫𝐢𝐬𝐢𝐧𝐠 𝐟𝐫𝐨𝐦 𝐚 𝐂𝐢𝐯𝐢𝐥 𝐃𝐞𝐜𝐫𝐞𝐞?
- 𝐂𝐨𝐧𝐭𝐫𝐚𝐜𝐭 𝐏𝐫𝐨𝐯𝐢𝐝𝐞𝐬 𝐟𝐨𝐫 𝐋𝐢𝐪𝐮𝐢𝐝𝐚𝐭𝐞𝐝 𝐃𝐚𝐦𝐚𝐠𝐞𝐬, 𝐜𝐚𝐧 𝐭𝐡𝐞 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐨𝐫 𝐃𝐢𝐬𝐚𝐩𝐩𝐥𝐲 𝐭𝐡𝐞 𝐂𝐥𝐚𝐮𝐬𝐞?
𝐂𝐚𝐧 𝐲𝐨𝐮 𝐫𝐞𝐬𝐭𝐫𝐢𝐜𝐭 𝐭𝐡𝐞 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐨𝐟 𝐚 𝐂𝐥𝐚𝐢𝐦, 𝐛𝐲 𝐫𝐞𝐬𝐭𝐫𝐢𝐜𝐭𝐢𝐧𝐠 𝐭𝐡𝐞 𝐩𝐞𝐫𝐢𝐨𝐝 𝐨𝐟 𝐢𝐧𝐯𝐨𝐤𝐢𝐧𝐠 𝐚𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧, 𝐛𝐲 𝐰𝐚𝐲 𝐨𝐟 𝐚 𝐜𝐥𝐚𝐮𝐬𝐞 𝐢𝐧 𝐲𝐨𝐮𝐫 𝐚𝐠𝐫𝐞𝐞𝐦𝐞𝐧𝐭?
This question had arisen before the Delhi High Court in the case of Sagar Constructions v. Govt of NCT (Single Judge, decided on 06.10.2021), which was an application under Section 11 seeking appointment of an arbitrator.
The Arbitration Clause in the contract was as follows:
“It is also a term of this contract that if the contractor does not make any demand for appointment of arbitrator in respect of any claims in writing as aforesaid within 120 days of receiving the intimation from the Engineer-in-charge that the final bill is ready for payment, the claim of the contractor shall be discharged and released of all liabilities under the contract in respect of these claims.”
It was contended by the GNCT that since the petitioner had failed to request for arbitration within the 120 day time limit as described in the clause, the Petitioner had lost its rights to seek the aforesaid remedy.
The Court observed as follows:
- The time period for determining whether the present section 11 Petition is within limitation is required to be reckoned from the date when the notice invoking arbitration is issued (this would be the cause of action for a Section 11 Petition). (Reliance placed on Bharat Sanchar Nigam Limited & Anr. v. Nortel Networks India Private Ltd. 2021 5 SCC 738). (For an application, the time period is three years from when right to apply accrues as per Article 137 of the Limitation Act).
- Section 28(b) of the Contract Act provides that an agreement which extinguished the right of a party on expiry of specified period would be void. Therefore even if a restricted period for raising an arbitral dispute has actually been provided for, the same would be treated as void (Reliance placed on Grasim Industries Limited v. State of Kerala (2018) 14 SCC 265 and National Highways Authority India v. Mecon – Get Energy Systems India Ltd. JV (2013) DLT 397).
- Therefore since the present petition was commenced within three years from date of invocation of arbitration, the petition was within time.
In view of the above, The Court held that the period of invoking the arbitration cannot be restricted to a period less than that provided under the Limitation Act, 1963.
The Court allowed the Section 11 application, and #arbitrator was appointed.
𝐃𝐞𝐥𝐚𝐲𝐞𝐝 𝐢𝐧 𝐅𝐢𝐥𝐢𝐧𝐠 𝐂𝐨𝐮𝐧𝐭𝐞𝐫𝐜𝐥𝐚𝐢𝐦𝐬 𝐢𝐧 𝐲𝐨𝐮𝐫 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧? 𝐖𝐡𝐚𝐭 𝐜𝐚𝐧 𝐲𝐨𝐮 𝐝𝐨?
In the case of AIRONE CHARTERS PRIVATE LIMITED v. Jetsetgo Aviation Services Private Limited (Delhi High Court, single judge, decided on 12.10.2021, the Petitioner’s counterclaims were struck off before the Arbitral Tribunal (AT) on the ground of being filed at an extremely belated stage.
Thereafter, after attempting several different courses of actions to agitate its counterclaims, the Petitioner finally filed the present Petition under Section 11 for referring its counterclaims to arbitration by the already constituted AT (presumably because they already knew the disputes very well).
The Court observed as follows:
- The Claims of the Petitioner were prima facie appearing to be within limitation. In any case issues of limitation and res-judicata which were raised by the Respondent would be looked into by the #Arbitrator once it was in seisin of the dispute.
- The right to legal redress is a fundamental right and cannot be obliterated altogether. Therefore the right of the Petitioner to raise its counterclaim could not be destroyed altogether, even though initially it had been dismissed by AT being delayed, and as the time period of the arbitration was almost about to expire.
- The Petitioner has the choice of either raising its disputes as a counterclaim or by serving fresh notice of dispute (Reliance placed on State of Goa v. Praveen Enterprises (2012) 12 SCC 581).
- Simply because the counterclaims were alive at the inception of the first arbitral proceedings and were required to be raised then, it cannot be said that they could not be permitted to be raised later, unless the arbitration clause was specifically worded in that manner. (Distinguished Dolphin Drilling v. O.N.G.C. – 2010 (3) SCC 267, and explained Gammon India Ltd. v. N.H.A.I AIR 2020 DELHI 132).
Based on the above, although the Court did not refer the disputes to the same AT, the Court appointed one of the arbitrator’s as the Petitioner’s nominee, directed the Respondent to appoint its nominee and thereafter the two learned arbitrators to proceed to appoint the presiding arbitrator.
The Court disposed off the petition with an observation that needless to say, if the parties would be agreeable to the claims being decided by the existing AT, that would be the eminently advisable court to pursue which would aid in expeditious disposal of arbitral proceedings.
𝐃𝐨𝐞𝐬 𝐭𝐡𝐞 𝐂𝐨𝐮𝐫𝐭 𝐧𝐞𝐞𝐝 𝐭𝐨 𝐥𝐨𝐨𝐤 𝐢𝐧𝐭𝐨 𝐐𝐮𝐞𝐬𝐭𝐢𝐨𝐧𝐬 𝐨𝐟 𝐋𝐢𝐦𝐢𝐭𝐚𝐭𝐢𝐨𝐧 𝐨𝐟 𝐂𝐥𝐚𝐢𝐦𝐬 𝐚𝐭 𝐭𝐡𝐞 𝐭𝐢𝐦𝐞 𝐨𝐟 𝐀𝐩𝐩𝐨𝐢𝐧𝐭𝐢𝐧𝐠 𝐚𝐧 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐨𝐫?
In the case of M/S Pooja Infotech Pvt. Ltd v. M/S PRABHUPREM INFOTECH PRIVATE LIMITED (Delhi High Court, Single Judge, decided on 21.10.2021), a Petition under Section 11 of the #Arbitration & Conciliation Act, 1996 had been filed for appointment of an arbitrator under the arbitration clause contained in a settlement agreement.
While allowing the Petition under Section 11, the Court made the following observations:
- Questions of arbitrability of claims, need to be agitated before the #arbitrator. Prima Facie it appeared that the disputes were arbitrable under the Settlement Agreement.
- Limitation is a mixed question of fact and law, and as such the issue of limitation being a jurisdictional issue, should be left to be decided by the Arbitral Tribunal under Section 16 of the Act (Principle of “Kompetenz Kompetenz, reliance placed on ITW Signod India Ltd. v. Collector of Central Excise (2004) 3 SCC 48 and n M/s Indian Farmers Fertilizers Cooperative Ltd. v. Bhadra Products (2018) 2 SCC 534).
- Only in very limited category of cases, where there is not even a vestige of doubt that the claim is ex facie time barred, or that the dispute is non-arbitrable, should a Court decline to make reference to an Arbitrator. (Reliance placed on BSNL v. Nortel Networks (2021) 5 SCC 738).
- Where there is even the slightest doubt, the rule is to refer the disputes to arbitration, otherwise it would encroach upon what is to be determined by the Arbitral Tribunal.
Prima Facie, the Court could conclude that the present matter did not fall into the exceptional circumstances, which is why the arbitrator was appointed.
𝐈𝐬 𝐭𝐡𝐞 𝐩𝐥𝐚𝐜𝐞 𝐨𝐟 𝐚𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐦𝐞𝐧𝐭𝐢𝐨𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐞 𝐂𝐨𝐧𝐭𝐫𝐚𝐜𝐭, 𝐭𝐡𝐞 ‘𝐯𝐞𝐧𝐮𝐞’ 𝐨𝐫 𝐭𝐡𝐞 ‘𝐬𝐞𝐚𝐭’?
In the case of Isgec Heavy Engineering Ltd. v. Indian Oil Corporation Limited (Delhi High Court, single judge, decided on 21.10.2021), the jurisdiction clause, and the arbitration clause, indicated two different places.
Arbitration clause 126.96.36.199 stated:
“The venue of arbitration shall be New Delhi, provided that the Arbitrators may with the consent of the OWNER and the CONTRACTOR agree upon any other venue.”
Jurisdiction clause Article 4 stated:
4.1 Notwithstanding any other court or courts having jurisdiction to decide the question(s) forming the subject-matter of the reference if the same had been the subject-matter of a suit, any and all actions and proceedings arising out of or relative to the contract (including any arbitration in terms thereof) shall lie only in the Court of Competent Civil Jurisdiction in this behalf at GUWAHATI.
The question raised here was, that in light of the above clauses, would Delhi High Court have jurisdiction to entertain the Petition under Section 11 for appointment of arbitrator?
The Court observed as follows:
- The arbitration clause provides a general stipulation that the ‘venue’ designated can be changed by the #Arbitrator, with the consent of the parties.
- The above provision suggested that ‘venue’ specified is not really the ‘seat’, as it can be changed, and this interpretation is also in sync with Section 20(3) of the #arbitration& conciliation Act, 1996, that the AT can meet at any place it considers appropriate.
- The jurisdiction clause on the other hand, is clearly worded and unambiguous that all actions and proceedings, including arbitration, shall have to necessarily be tried at Guwahati exclusively. There is no room for interpreting that Delhi Courts would have jurisdiction.
In view of the above, the Court held that Delhi Courts did not have territorial jurisdiction to entertain the Section 11 petition.
𝐂𝐚𝐧 𝐲𝐨𝐮 𝐬𝐭𝐢𝐥𝐥 𝐀𝐩𝐩𝐨𝐢𝐧𝐭 𝐑𝐞𝐭𝐢𝐫𝐞𝐝 𝐄𝐦𝐩𝐥𝐨𝐲𝐞𝐞𝐬 𝐚𝐬 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐨𝐫𝐬?
In the case of BCC Developers & Promoters LTd. v. Delhi metro Rail Corporation, (Single Judge, Delhi High Court, decided on 28.10.2021), the Arbitration Clause agreed between the parties was as follows:
“Matters to be arbitrated upon shall be referred to a sole Arbitrator if the total value of the claim is upto Rs. 5 million and to a panel of three Arbitrators if total value of claims is more than Rs.5 million. The Employer shall provide a panel of three arbitrators which may also include DMRC officers for the claims upto Rs.5 million and a panel of five Arbitrators which may also include DMRC officers for claims of more than Rs.5 million. The Contractor shall have to choose the sole Arbitrator from the panel of three and/or one Arbitrator from the panel of five in case three Arbitrators are to be appointed. The Employer shall also choose one Arbitrator from this panel of five and the two so chosen will choose the third arbitrator from the panel only. The Arbitrator(s) shall be appointed within a period of 30 days from the date of receipt of written notice/ demand of appointment of Arbitrator from either party.”
When disputes arose between the parties, DMRC asked BCC to appoint an arbitrator from the panel of 5 ex employees as stated in the letter. However, BCC, instead of appointing the #arbitrator, approached the Court for appointment of an independent arbitrator under Section 11 of the #arbitration & conciliation Act, 1996, stating that the panel of Arbitrators provided by DMRC was disqualified under Section 12 of the Act.
Here, the Court relief on Central Organisation for Railway Electrification v. M/S ECI-SPICSMO-MCML (JV) 2019 SCC Online SC 1635, where the Supreme Court had observed as follows:
“…. When the agreement specifically provides for appointment of the Arbitral Tribunal consisting of three arbitrators from out of the panel of serving or retired railway officers, the appointment of the arbitrators should be in terms of the agreement as agreed by the parties. That being the conditions in the agreement between the parties and the General Conditions of the Contract, the High Court was not justified in appointing an independent sole arbitrator ignoring Clauses 64(3)(a)(ii) and 64(3)(b) of the General Conditions of Contract and the impugned orders cannot be sustained.”
In light of the above, the High Court dismissed the Petition, and directed BCC to appoint arbitrators as per the arbitration clause in the contract.
It may be interesting to note that the Supreme Court’s decision in Central Organisation for Railway Electrification v. M/S ECI-SPICSMO-MCML (JV) 2019 SCC Online SC 1635 has been referred to a larger bench for consideration, which is still pending decision.
𝐑𝐞𝐜𝐞𝐢𝐯𝐞𝐝 𝐚𝐧 𝐮𝐧𝐬𝐭𝐚𝐦𝐩𝐞𝐝 𝐚𝐰𝐚𝐫𝐝? 𝐖𝐡𝐞𝐧 𝐝𝐨𝐞𝐬 𝐭𝐡𝐞 𝐩𝐞𝐫𝐢𝐨𝐝 𝐨𝐟 𝐥𝐢𝐦𝐢𝐭𝐚𝐭𝐢𝐨𝐧 𝐛𝐞𝐠𝐢𝐧 𝐭𝐨 𝐫𝐮𝐧?
In the case of NCS SUGARS LIMITED v. P.E.C. (Delhi High Court, single judge, Decided on 22.10.2021), It was the Petitioner’s case that the period of limitation under Section 34(3) of the #Arbitration &Conciliation Act, 1996 (for challenging the award) would not run till the award is stamped.
In this case the signed award was delivered to the petitioner by DIAC in the month of May 2018 and there was no dispute that the petitioner had received a duly signed award.
The Court observed as follows:
- Section 34(3) provides that an application for setting aside an arbitral award may not be made after three months have elapsed from the date on which the party making the application had received the arbitral award.
- The Court observed that an arbitral award cannot be considered as “non est” (non-existent) until stamped, as was contended by the Petitioner. This is because as per Section 2(12) of the Stamp Act ‘execution’, with reference to documents mean “signed”. Therefore, an arbitral award insufficiently stamped, is an arbitral award nonetheless.
- The question as to whether the award has been adequately stamped would be relevant only when the parties would file the award for its enforcement under Section 36 of the Arbitration & Conciliation Act. It is only at that stage that the parties can raise objections of non-stamping under the Registration Act. The question of stamping is not covered under Section 34 of the Arbitration & Conciliation Act, 1996 (Reliance placed on M. Anasuya Devi and Anr. v. M. Manik Reddy and Ors. 2003 8 SCC 565).
In view of the above, since the present Petition had been filed beyond the period of limitation (120 days) from the date of receipt of the signed award (not the fully stamped award), the same were dismissed.
𝐂𝐚𝐧 𝐏𝐚𝐫𝐭𝐢𝐜𝐢𝐩𝐚𝐭𝐢𝐨𝐧 𝐢𝐧 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐏𝐫𝐨𝐜𝐞𝐞𝐝𝐢𝐧𝐠𝐬 𝐰𝐚𝐢𝐯𝐞 𝐦𝐚𝐧𝐝𝐚𝐭𝐨𝐫𝐲 𝐃𝐢𝐬𝐪𝐮𝐚𝐥𝐢𝐟𝐢𝐜𝐚𝐭𝐢𝐨𝐧𝐬 𝐨𝐟 𝐚𝐧 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐨𝐫?
In DELHI BUILDTECH PRIVATE LIMITED v SATYA INFRA DEVELOPERS PRIVATE LIMITED (Single Judge, Delhi High Court, decided on (21.10.2021), the Managing Director of the Respondent had appointed an Advocate as the Sole Arbitrator to adjudicate disputes between the parties in line with the arbitration clause in the contract.
After entering into reference, the Respondent filed its Statement of Claims (SOC), and the Petitioner files its Statement of Defence (SOD) and Counterclaims (CC). (No challenge to the arbitrator’s jurisdiction was raised before this stage).
Thereafter, the Petitioner filed an application seeking recusal of the #arbitrator on the ground that he was ineligible, which was rejected by the arbitrator.
Therefore, this Petition under Sections 14 and 15 of the #Arbitration & Conciliation Act, 1996 was filed before the Delhi High Court, praying that the mandate of the Arbitral Tribunal may be terminated and an independent arbitrator be appointed in substitution of the current arbitrator.
The Court observed as follows:
- Unilateral appointment of an arbitrator is no longer permitted, and the Managing Director of the Respondent could not appoint the arbitrator (Reliance Placed on TRF Ltd. v. Energo Engineering Projects Ltd.: (2017) 8 SCC 377 and Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd.: 2019 SCC OnLine SC 1517).
- The contention that the Petitioner had acquiesced in the appointment of the Arbitrator by participating in the arbitral proceedings had waived its right to object to the appointment of the learned arbitrator is unmerited. The proviso to Section 12(5) of the Arbitration & Conciliation Act provides that the ineligibility under Section 12(5) may be waived only by “an express agreement in writing”.
- Such a waiver cannot be inferred by conduct, but must be expressly and in writing, as the provision provides. (Reliance placed on Bharat Broadband Network LTd. v. United Telecoms Ltd. Bharat Broadband Network Limited v. United Telecoms Limited: (2019) 5 SCC 755).
- In cases which fall within the scope of Section 12(5), parties are at liberty to approach the Court directly under Section 14 of the Act (no need to first file an application before the AT). (Reliance placed on HRD Corporation (Marcus Oil and Chemical Division) v. GAIL (India) Limited 2018 12 SCC 471).
In view of the above, the Court allowed the present petition and appointed an independent sole arbitrator, and clarified that the arbitral proceedings would proceed from the stage as currently obtaining.
𝐂𝐚𝐧 𝐲𝐨𝐮 𝐭𝐚𝐤𝐞 𝐧𝐞𝐰 𝐠𝐫𝐨𝐮𝐧𝐝𝐬 𝐢𝐧 𝐚 𝐒𝐞𝐜𝐭𝐢𝐨𝐧 37 𝐀𝐩𝐩𝐞𝐚𝐥?
In State of Chhatisgarh v. M/s SAL UDYOG PVT LTD (#SupremeCourtofIndia, 2 Judge Bench, 08.11.2021)
Here, the #arbitrator awarded a claim for “supervision charges” in contravention of the terms of the Contract between the parties.
The award was challenged by two cross Petitions under S. 34 by both parties before District Judge, Raipur. The District Judge did not interfere with the award except to modify the interest.
Thereafter, both parties again filed cross-Appeals under S. 37 of the Act, against the District Judge’s Order disposing off the Petitions under Section 34.
It was against this Order that leave to appeal to the Supreme Court was granted in the Present Petition, limited to the issue of disallowance of supervision charges under the Award, which as per the State, Sal Udyog was liable to pay under the #contract between the parties.
The above issue had been taken as a ground for “patent illegality” under S. 37 Appeal by the State, but not under S. 34 objection petition. Per Contra, Sal Udyog argued that the State, having failed to raise this objection in its petition under S. 34, it must be assumed that it had waived its right to take such a plea in S. 37 Appeal.
The Court, after analysing the matter observed the following:
- The objection regarding supervision charges was not taken in the S. 34 Petition, but was taken before Arbitrator, as well as in the S. 37 Appeal.
- The award of Supervision Charges to Sal Udyog was indeed patently illegal as it was in direct contravention of terms of the Agreement between the parties, making it violative of Section 28(2) of the A&C Act, 1996.
- The plea of waiver taken against the State did not stand. The expression used in Section 34(2A) is that an arbitral award may be set aside, “if the Court finds that”, the award is vitiated by patent illegality. The SC interpreted this so as to enable the Court to act suo Moto, and could not stand in the way of Court finding patent illegality, even if the party had not raised the plea. (Clarified State of Maharashtra v.Hindustan Construction Company Limited  4 SCC 51, which dealt with a parties ability to raise additional grounds in a Section 34 Petition by way of an amendment)
- It does not stand to reason that a provision that enables a Court acting on its own in deciding a petition under S. 34 for setting aside an Award, would not be available in an appeal preferred under S. 37 of A&C Act.
In view of the above SC held that said ‘patent illegality’ was not only apparent on the face of the Award, it went to the very root of the matter and deserves interference. Accordingly, the present appeal was partly allowed and the impugned award, insofar as it had permitted deduction of “supervision charges” recovered from Sal Udyog, was quashed.
𝐂𝐚𝐧 𝐚 𝐖𝐫𝐢𝐭 𝐛𝐞 𝐅𝐢𝐥𝐞𝐝 𝐚𝐠𝐚𝐢𝐧𝐬𝐭 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐉𝐮𝐝𝐠𝐦𝐞𝐧𝐭𝐬 𝐨𝐟 𝐭𝐡𝐞 𝐂𝐨𝐮𝐫𝐭 𝐨𝐟 𝐅𝐢𝐫𝐬𝐭 𝐈𝐧𝐬𝐭𝐚𝐧𝐜𝐞?
In Arun Srivastava v. M/s Larsen & Toubro Ltd (Delhi High Court, Single Judge, decided on 09.11.2021)the Respondent had initially filed an application under Section 8 of the #Arbitration & Conciliation Act, 1996 in a suit before District Judge, Saket Courts, New Delhi, seeking reference of disputes to arbitration. The said Application was allowed.
Under Section 37 of the A&C Act, while an appeal lies against refusing an application under Section 8 of the act, no remedy of appeal has been provided for allowing an application under Section 8. This is why the Petitioner contended that it had approached the High Court by way of the present Writ Petition (Article 227) against the District Judge’s Order allowing the Section 8 Application.
The Court observed:
- Though petitions can be filed under Article 227 against judgments allowing or dismissing first appeals under Arbitration Act, yet the High Court would be extremely circumspect in interfering with the same, taking into account the statutory policy so that interference is restricted to orders which are patently lacking in inherent jurisdiction. If petitions under Articles 226 and 227 of the Constitution of India against orders passed in appeals under Arbitration Act were entertained, the entire arbitral process would be derailed and would not come to fruition for many years. (Reliance placed on Deep Industries Ltd. v. Oil and Natural Gas Corporation Limited (2020) 15 SCC 706).
- The above reasoning would be equally applicable in the case of orders passed by courts allowing applications under Section 8.
- Jurisdiction under Article 227 of the Constitution of India has to be sparingly exercised in respect of orders passed by the commercial court so that the legislative intent and purpose behind the Commercial Courts Act of expeditious disposal of commercial suits is not defeated. (Reliance placed on Black Dimond Track Parts Private Limited vs. Black Diamond Motors Parts Private Limited 2021 SCC Online Del 2630, DB, Delhi High Court).
In view of the above, the Court observed that the present Writ Petition under Article 227 of the Constitution of India against the Order allowing Section 8 application would not be maintainable and that all grounds in respect of existence and validity of the arbitration clause can be raised by the petitioner before the Arbitral Tribunal.
𝐖𝐡𝐢𝐜𝐡 𝐂𝐨𝐮𝐫𝐭 𝐡𝐚𝐬 𝐓𝐞𝐫𝐫𝐢𝐭𝐨𝐫𝐢𝐚𝐥 𝐉𝐮𝐫𝐢𝐬𝐝𝐢𝐜𝐭𝐢𝐨𝐧 𝐟𝐨𝐫 𝐭𝐡𝐞 𝐄𝐱𝐞𝐜𝐮𝐭𝐢𝐨𝐧 𝐏𝐞𝐭𝐢𝐭𝐢𝐨𝐧 𝐨𝐟 𝐚𝐧 𝐀𝐰𝐚𝐫𝐝?
Matrix Partners India Investment Holdings v. Shailendra Bhadauria
(Delhi High Court, Single Judge, decided on 09.11.2021), was an execution petition filed for the purpose of execution of an arbitral award.
The award was a consent award, which stated that if the award debtor was unable to pay the moneys as per the settlement stipulated, then all properties listed in Annexure C of the Consent award would be sold by the award debtor for making the payments. The other properties of the award debtors were listed in Annexure A & B.
At the time of the Consent award several cross petitions pending before Bombay High Court were withdrawn in terms of the Award.
Subsequently, payments as per the Consent Award were not made & award creditors, filed the present execution petition.
While Annexure A&B properties of the award debtors were located within the territorial jurisdiction of the Delhi High Court, the Annexure C Properties were exclusively outside the territorial jurisdiction.
The question was whether the Delhi High Court would have jurisdiction to entertain the present Execution Petition.
The Court observed as follows:
- Reference to the Annexure C Properties, in Consent terms was meant to indicate the source of the funds using which the Respondents were to liquidate their liability to the Petitioners under the Consent Award. As such there was no creation of a security against the Annexure C Properties. Creation of security would mean that the petitioner (award creditor) would have an independent right to sell the property (independent of the debtor), but no such independent right was discernible from the Consent terms.
- The Consent terms basically enforced a right to payment in favour of the creditor, not a right to proceed against the properties. Clearly the award was a money award.
- In any case, even if it was presumed that a charge was created against Annexure C Properties, the job of the Court was the enforce the award, and not to enforce some charge.
- The Petitioners seek “payment” from the Respondent, and not enforcing some “security interest” either against Annexure C Properties or any other properties. The executing court is therefore, least concerned regarding the source of moneys to be paid by the Respondents.
- Section 42 of the #Arbitration& Conciliation Act, 1996 does not apply to execution proceedings (therefore, irrelevant that previous petitions were filed in Bombay High Court)(Reliance placed on Sundaram Finance Ltd v. Abdul Samad 1 (2018) 3 SCC 622).
- Execution of an arbitral award could be sought before any Court within whose territorial jurisdiction the assets of the judgement debtor are located. (Reliance placed on Sundaram Finance Ltd v. Abdul Samad 1 (2018) 3 SCC 622 and Daelim Industrial Co. Ltd v. Numaligarh Refinery Ltd 159 (2009) DLT 579).
Since the Schedule A & Schedule B Properties of the Respondent (Award debtor) were admittedly located within the jurisdiction of the Delhi High Court, the Court held it had the territorial jurisdiction to entertain the execution petition.
𝐓𝐰𝐨 𝐑𝐨𝐚𝐝𝐬 𝐌𝐢𝐠𝐡𝐭 𝐃𝐢𝐯𝐞𝐫𝐠𝐞 𝐢𝐧 𝐚 𝐘𝐞𝐥𝐥𝐨𝐰 𝐖𝐨𝐨𝐝, 𝐁𝐮𝐭 𝐭𝐡𝐞 𝐃𝐞𝐥𝐡𝐢 𝐇𝐢𝐠𝐡 𝐂𝐨𝐮𝐫𝐭 𝐜𝐚𝐧 𝐭𝐫𝐚𝐯𝐞𝐥 𝐛𝐨𝐭𝐡?
In October, 2021, the Delhi High Court had held that mere participation in Arbitration Proceedings cannot waive mandatory disqualifications of an arbitrator. (Delhi Buildtech Private Limited v. Satya Infra Developers Private Limited, decided on 21.10.2021).
Recently, on 08.11.2021, the Court has now held that a party who has failed to object to the Arbitrator’s jurisdiction, and thereafter “actively participated” in the arbitration, is precluded from raising such an objection at the stage of a Section 34 Petition.
This was the decision in Kanodia Infratech Limited v. Dalmia Cement (Bharat) Ltd. (Single Judge, Delhi High Court, decided on 08.11.2021).
The differences between the two are drawn out as below:
- Satya Infra was a petition under Section 14 & 15, which although filed belatedly (after pleadings were complete), was filed during the pendency of the arbitration, whereas in Kanodia, the objection was raised for the first time at the section 34 stage.
- The disqualification sought by in Satya Infra was under Section 12(5), and the challenge in Kanodia was placing reliance on TRF Ltd. v. Energo Engineering Projects Ltd.: (2017) 8 SCC 377 and Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd.: 2019 SCC OnLine SC 1517). (The Court in Kanodia had noted this, my observation varies).
- In Satya Infra, “active participation” may be argued to be absent, as during the pendency the arbitrator was challenged. In Kanodia however, the active participation was interpreted through the following circumstances:
- After the arbitrator had entered reference, (Retd. Judge), the Respondent voluntarily withdrew its Section 9 Petition, with liberty to convert it into a Section 17 before the appointed arbitrator.
- Respondent had filed an application challenging the jurisdiction of the arbitrator under Section 16, but even in that there was no challenge on bias (the challenge was regarding composite reference under different agreements).
- Respondent had then gone on to file SOD and counterclaims, and had also consensually helped with the framing of issues, as many as 45 orders were passed before the Award.
𝐈𝐬 𝐭𝐡𝐞𝐫𝐞 𝐚 𝐝𝐢𝐟𝐟𝐞𝐫𝐞𝐧𝐜𝐞 𝐢𝐧 𝐭𝐡𝐞 𝐂𝐨𝐮𝐫𝐭’𝐬 𝐣𝐮𝐫𝐢𝐬𝐝𝐢𝐜𝐭𝐢𝐨𝐧 𝐢𝐧 𝐚𝐧 𝐀𝐩𝐩𝐞𝐚𝐥 𝐮𝐧𝐝𝐞𝐫 𝐒𝐞𝐜𝐭𝐢𝐨𝐧 37, 𝐚𝐧𝐝 𝐚 𝐅𝐢𝐫𝐬𝐭 𝐀𝐩𝐩𝐞𝐚𝐥 𝐚𝐫𝐢𝐬𝐢𝐧𝐠 𝐟𝐫𝐨𝐦 𝐚 𝐂𝐢𝐯𝐢𝐥 𝐃𝐞𝐜𝐫𝐞𝐞?
In the case of PUNJAB STATE CIVIL SUPPLIES CORPORATION LIMITED v. M/s Ramesh Kumar (#SupremeCourtofIndia, decided on 15.11.2021), the High Court had set aside the judgment of the District Judge rejecting the Petition under Section 34 of the #Arbitration &Conciliation Act, 1996 and went one step ahead to award the claim of the Respondents together with interest.
The Court, while setting aside the judgment of the High Court observed as follows:
- The jurisdiction in a first appeal arising out of a decree in a civil suit is distinct from the jurisdiction of the High Court under Section 37 of the 1996 Act arising from the disposal of a petition challenging an arbitral award under Section 34 of the 1996 Act.
- The High Court in a Section 37 Appeal was required to determine as to whether the District Judge had acted contrary to the provisions of Section 34 of the 1996 Act in rejecting the challenge to the arbitral award, but it failed to do so.
- Further, the High Court’s exercise in going a step further by decreeing a claim in favour of the Respondent, while reversing the judgment of the District Court (as well as the #arbitrator), was completely impermissible.
On the above grounds, the Appeal before the Supreme Court was allowed and High Court’s judgment was set aside, while upholding the award.
𝐂𝐨𝐧𝐭𝐫𝐚𝐜𝐭 𝐏𝐫𝐨𝐯𝐢𝐝𝐞𝐬 𝐟𝐨𝐫 𝐋𝐢𝐪𝐮𝐢𝐝𝐚𝐭𝐞𝐝 𝐃𝐚𝐦𝐚𝐠𝐞𝐬, 𝐜𝐚𝐧 𝐭𝐡𝐞 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐨𝐫 𝐃𝐢𝐬𝐚𝐩𝐩𝐥𝐲 𝐭𝐡𝐞 𝐂𝐥𝐚𝐮𝐬𝐞?
In Welspun Specialty Solutions Ltd. v. ONGC (CJI, #SupremeCourtofIndia, decided on 13.11.2021), Purchase Orders (PO) between parties mentioned that Welspun was to complete deliveries within 40 weeks from date of POs.
During execution, there were delays owing to which various Extensions of Time (EOTs) were granted to Welspun by ONGC. Owing to this, ONGC had deducted various amounts as Liquidated Damages(LD) from the bills submitted by Welspun.
These amounts along with other claims were raised before the #Arbitrator by Welspun.
Although the Contract contained a “time is essence” clause, Arbitral Tribunal (AT) arrived at the conclusion that time was not the essence, as the provisions of EOTs and LD in the contract diluted the time is essence clause.
After having held this, the AT held that LD could not have been imposed as delay in itself was not a breach of contract, as EOTs were granted without imposition of LD, and time was not the essence in any case. After this the AT went on to assess the actual damages based on evidence.
ONGC challenged the award in a Petition under S. 34 which failed (barring reduction of costs). This Order was then challenged in an Appeal under S. 37, where the Court set aside the S. 34 judgment & observed that AT was wrong in refusing LD & requiring ONGC to prove damages, since the clause specifically provided for imposition of LD.
It was against this S. 37 Appeal order, that a review Petition was filed before the Supreme Court of India.
SC observed as follows:
- Challenge to the award by ONGC was based on “public policy” ground as per Section 34, stating that the non-imposition of the contractually agreed pre-estimated damages (LD) by the arbitrator was against public policy.
- Merely having an explicit clause regarding time being essence of contract may not be sufficient to make time the essence. ‘whether time is of essence in a contract’, has to be culled out from the reading of the entire contract as well as the surrounding circumstances. The AT was therefore entitled to the interpretation made regarding time not being essence.
- When time is not essence, section 55 of the #contract Act provides that the promisee is entitled to compensation from the promisor for any “loss” occasioned to him by such failure. The AT had construed loss to mean actual tangible loss provable by evidence instead of pre-estimated LD. This was also a reasonable interpretation by the AT, as while giving EOTs ONGC had not reserved its right to impose LD, and had in fact waived it. (Distinguished ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705).
- The lower courts had strayed beyond their limitation under Sections 34 and 37 of the Act.
On these grounds the SC set aside the HC & District Court’s judgment & upheld the award.