Common Commercial Dispute Queries – December, 2021 updates


By Gunjan Chhabra

Questions answered in this month’s updates:

  1. ๐‡๐จ๐ฐ ๐ฌ๐ก๐จ๐ฎ๐ฅ๐ ๐š ๐‚๐จ๐ฎ๐ซ๐ญ ๐๐ž๐š๐ฅ ๐ฐ๐ข๐ญ๐ก ๐ˆ๐ง๐ญ๐ž๐ซ๐ซ๐จ๐ ๐š๐ญ๐จ๐ซ๐ข๐ž๐ฌ?
  2. ๐–๐ก๐š๐ญ ๐ข๐ฌ ๐ญ๐ก๐ž ๐ฆ๐ž๐š๐ง๐ข๐ง๐  ๐จ๐Ÿ “๐Ÿ๐จ๐ฅ๐ฅ๐จ๐ฐ๐ข๐ง๐  ๐ฉ๐ซ๐ข๐ง๐œ๐ข๐ฉ๐ฅ๐ž๐ฌ ๐จ๐Ÿ ๐ง๐š๐ญ๐ฎ๐ซ๐š๐ฅ ๐ฃ๐ฎ๐ฌ๐ญ๐ข๐œ๐ž” ๐ข๐ง ๐š๐ง ๐š๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐ข๐จ๐ง?
  3. ๐’๐ฉ๐ž๐œ๐ข๐š๐ฅ ๐„๐ช๐ฎ๐ข๐ญ๐ข๐ž๐ฌ: ๐€ ๐๐ž๐ฐ ๐š๐ง๐ ๐’๐ž๐ฉ๐š๐ซ๐š๐ญ๐ž ๐†๐ซ๐จ๐ฎ๐ง๐ ๐Ÿ๐จ๐ซ ๐’๐ญ๐š๐ฒ๐ข๐ง๐  ๐ˆ๐ง๐ฏ๐จ๐œ๐š๐ญ๐ข๐จ๐ง ๐จ๐Ÿ ๐๐š๐ง๐ค ๐†๐ฎ๐š๐ซ๐š๐ง๐ญ๐ž๐ž๐ฌ?
  4. ๐”๐ง๐๐ž๐ซ ๐ญ๐ก๐ž ๐Œ๐’๐Œ๐„ ๐€๐œ๐ญ, ๐ข๐Ÿ ๐‚๐จ๐ง๐œ๐ข๐ฅ๐ข๐š๐ญ๐ข๐จ๐ง ๐Ÿ๐š๐ข๐ฅ๐ฌ, ๐ข๐ฌ ๐€๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐ข๐จ๐ง ๐ฆ๐š๐ง๐๐š๐ญ๐จ๐ซ๐ฒ?
  5. ๐‚๐š๐ง ๐‘๐ข๐ ๐ก๐ญ ๐จ๐Ÿ ๐‘๐ž๐Ÿ๐ž๐ซ๐ž๐ง๐œ๐ž ๐ญ๐จ ๐€๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐ข๐จ๐ง, ๐›๐ž ๐ซ๐ž๐ฌ๐ž๐ซ๐ฏ๐ž๐ ๐›๐ฒ ๐จ๐ง๐ฅ๐ฒ ๐จ๐ง๐ž ๐๐š๐ซ๐ญ๐ฒ?
  6. ๐‡๐จ๐ฐ ๐œ๐š๐ง ๐ฒ๐จ๐ฎ ๐ซ๐ž๐š๐ ๐š๐ง ๐ˆ๐ง๐ญ๐ž๐ซ๐ž๐ฌ๐ญ ๐๐ซ๐จ๐ก๐ข๐›๐ข๐ญ๐จ๐ซ๐ฒ ๐‚๐ฅ๐š๐ฎ๐ฌ๐ž ๐œ๐จ๐ง๐ญ๐š๐ข๐ง๐ž๐ ๐ข๐ง ๐ญ๐ก๐ž ๐‚๐จ๐ง๐ญ๐ซ๐š๐œ๐ญ ๐œ๐จ๐ซ๐ซ๐ž๐œ๐ญ๐ฅ๐ฒ?

๐‡๐จ๐ฐ ๐ฌ๐ก๐จ๐ฎ๐ฅ๐ ๐š ๐‚๐จ๐ฎ๐ซ๐ญ ๐๐ž๐š๐ฅ ๐ฐ๐ข๐ญ๐ก ๐ˆ๐ง๐ญ๐ž๐ซ๐ซ๐จ๐ ๐š๐ญ๐จ๐ซ๐ข๐ž๐ฌ?

In ๐“๐š๐ซ๐š ๐๐š๐ญ๐ซ๐š ๐ฏ. ๐๐ฎ๐ง๐š๐ฆ ๐€ ๐Š๐ฎ๐ฆ๐š๐ซ (Delhi High Court, Single Judge, decided on 10.09.2021), a party had filed application seeking leave of Court to deliver interrogatories under Order XI Rule 1 of the Code of Civil Procedure, 1908 (CPC). The lower Court had dismissed the application stating that the same questions could be put in cross-examination & the opposite party could not be asked to provide admissions in answers to interrogatories. 

Against the said order of the lower court, the party had filed a writ petition under Article 227 before the HC.

The Delhi HC made the following important observations regarding interrogatories:

1. Rules 1 to 10 of Order XI of the CPC provide a complete code with regard to interrogatories. 

2. At the preliminary stage of hearing on the application the court is required to decide whether the applicant should be allowed to interrogate the other side, but is not to determine what question should the opposite party be compelled to answer. Interrogatories may then be served on the other party for his answer to that on affidavit. The party, who has been served with Interrogatories, will then answer on affidavit or raise objections about relevancy or they being of scandalous nature, irrelevant, not bona fide, or not to be answered on the ground of privilege etc., in answer. The court then may consider and dispose of the Interrogatories. It will not for the court at this stage of granting leave to consider what particular questions the party interrogated should be compelled to answer. Proper time for considering that question is after the party interrogated has filed its affidavit in answer. (Reliance placed on Sharda Dhir v Ashok Kumar Makhija and Ors : 99 (2002)DLT 350).

3. Merely because the interrogatories could form questions which could be put in cross examination is no basis for denying the interrogatories. The actual test isโ€relevancyโ€ and โ€œexpediencyโ€ (Reliance placed on Canara Bank Vs. Rajiv Tyagi & Association & Anr. ILR (2010) III Delhi 270).

4. The Court is not, at this stage, to examine as to what would be the impact of the answer to interrogatories. At this stage, Court has to only consider whether the answer to the interrogatories would have some bearings on the issues involved in the case and as to whether they relate to any matter in question to the suit. The object is to obtain an admission from the opponent which will make the burden of proof easier than it otherwise would have been (Reliance placed on Transport Corporation of India vs. Reserve Bank of India)

On the basis of the above, the HC held that the answers sought in the interrogatories and the discovery and production of documents sought fulfilled all the above tests. Therefore, the lower Courtโ€™s orders were set aside, and the Respondents were directed to answer the interrogatories by filing affidavits. 

Interrogatories are an important tool even in #arbitration and can save time and costs of parties. It is indeed an acute weapon which ought to be used more often.

๐–๐ก๐š๐ญ ๐ข๐ฌ ๐ญ๐ก๐ž ๐ฆ๐ž๐š๐ง๐ข๐ง๐  ๐จ๐Ÿ “๐Ÿ๐จ๐ฅ๐ฅ๐จ๐ฐ๐ข๐ง๐  ๐ฉ๐ซ๐ข๐ง๐œ๐ข๐ฉ๐ฅ๐ž๐ฌ ๐จ๐Ÿ ๐ง๐š๐ญ๐ฎ๐ซ๐š๐ฅ ๐ฃ๐ฎ๐ฌ๐ญ๐ข๐œ๐ž” ๐ข๐ง ๐š๐ง ๐š๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐ข๐จ๐ง?

๐๐š๐ซ๐ข๐ง๐๐ž๐ซ ๐’๐ข๐ง๐ ๐ก ๐ฏ. ๐”๐ง๐ข๐จ๐ง ๐จ๐Ÿ ๐ˆ๐ง๐๐ข๐š (Division Bench, Delhi High Court, decided on 18.11.2021), was a section 37 appeal. 

The sequence of events went as follows:

1. 03.05.2010: Claimant/Appellant (C) filed SOC. 

2. 10.07.2010: Respondent (R) filed SOC. 

3. 05.08.2010: C filed rejoinder along with evidence affidavit. When the matter was heard before the #Arbitrator on the said date, he closed Cโ€™s evidence, while declining the request of R to cross-examine Cโ€™s witness. R was then directed to file affidavit and produce his witness for cross-examination on the next date of hearing.

4. 28.09.2010: R prayed for further time to file affidavits of evidence. The arbitrator adjourned the hearing to the next date subject to payment of costs by R to C.

5. 21.10.2010: R filed evidence affidavit, along with an application for recall of costs. This application for recall of costs was opposed and rejected. Since the cost was not paid, the affidavit by way of evidence was not taken on record.

6. 09.11.2010: Matter was heard on final arguments, without R’s evidence being on record. 

7. 27.11.2010: Ex-parte award was passed in favour of the C. 

The Court observed as follows:

1. In this case there was unnecessary haste and hurry by the arbitrator, especially when R had filed evidence on 21.10.2021. As such from the timely filing of the SOD, it could be seen R had not delayed previously, & this was the first time. 

2. R was also deprived of opportunity to cross-examine Cโ€™s witness, & Rโ€™s evidence was not on record in any case. Their contentions and evidence were not considered & debilitated R from stating their case properly. 

4. The above facts pointed to violation of principles of natural justice and lack of opportunity as envisaged by Section 18 of A&C Act impeding a fair and just decision. 

5. This very much forms a strong ground for challenge under Section 34(2)(a)(ii) and (iii) of the A&C Act, (โ€œpublic policyโ€ and โ€œunable to present his caseโ€ )

On the basis of the above, the arbitral award was set aside, & new arbitrator was appointed consensually to adjudicate disputes afresh.

The Court opened the judgment with the statement โ€œDespite rounds of litigation, the disputes that arose in 1996 will, unfortunately, continue even post this judgment.โ€

Another notable excerpt: โ€œIdioms carping โ€˜delayโ€™ & โ€˜hurryโ€™ in adjudication highlight the importance of both speedy disposal & reasonable opportunity, as both are essential for an even-handed and correct decision. Neither should be sacrificed nor inflated, as to prolong or trample a just & fair adjudication. A pragmatic & common-sense approach would invariably check any discord between the desire for expeditious disposal & adequacy of opportunity to establish oneโ€™s case.โ€

๐’๐ฉ๐ž๐œ๐ข๐š๐ฅ ๐„๐ช๐ฎ๐ข๐ญ๐ข๐ž๐ฌ: ๐€ ๐๐ž๐ฐ ๐š๐ง๐ ๐’๐ž๐ฉ๐š๐ซ๐š๐ญ๐ž ๐†๐ซ๐จ๐ฎ๐ง๐ ๐Ÿ๐จ๐ซ ๐’๐ญ๐š๐ฒ๐ข๐ง๐  ๐ˆ๐ง๐ฏ๐จ๐œ๐š๐ญ๐ข๐จ๐ง ๐จ๐Ÿ ๐๐š๐ง๐ค ๐†๐ฎ๐š๐ซ๐š๐ง๐ญ๐ž๐ž๐ฌ?

Zee Entertainment & Margo Networks v. Railtel Corporation of India (Delhi HC, Single Judge, 16.11.2021)

This was a contract for Digital Entertainment Services & delivering Content on Demand for Indian Railways, awarded to Margo by Railtel. As per terms of letter of award (LOA), Margo, through Zee, had also submitted a Performance Bank Guarantee(PBG) to the tune of 37.17 Crores. (Zee is the holding company of Margo).

Due to the 1st & 2nd waves of COVID, the contract was severely delayed, & consequently, after 2nd wave, Railtel put Margo to notice that in case of non-compliance with LOA, Railtel would take action of forfeiture of PBG.

It was against this threat, that Petitioners had a filed a petition under Section 9 of A&C Act, 1996 seeking injunction against invocation of the unconditional PBG.

Petitioners submitted that COVID-19 pandemic fell squarely within Force Majeure clause of the main contract (not the PBG) & created โ€œspecial equitiesโ€ in favour of the Petitioners, as there was negligible revenue being earned by the Petitioner, due to which the PBG invocation should be stayed. 

The Court, while refusing to stay the encashment of the PBG, held as follows:

1. For interdicting an unconditional BG, mere irretrievable injustice without a prima facie case of established fraud would be of no consequence(Reliance placed on Svenska Handelsbanken v. M/s Indian Charge Chrome and Ors. & Larsen & Tourbo Limited v. Maharashtra State Electricity Board and Others: (1995) 6 SCC 68)

2. There is no separate third exception of a “special equity” justifying grant of injunction, as special equity has to be of a kind akin to irretrievable injustice. (Reliance placed on Consortium of Deepak Cable India Limited & Abir Infrastructure Private Limited (Dcil-Aipl) Thr Abir v. Teestavalley Power Transmission Limited: 2014 SCC Online Del 4741).

3. Dispute relating to performance of #contract does not relate to special equities or irretrievable injury. Existence of disputes between parties relating to termination of contract cannot make invocation of the #BankGuarantee fraudulent. (Reliance placed on UP State Sugar Corporation v. Sumac International Ltd.: 1997 (1) SCC 568).

4. Loss of revenue is not a ground for refusing the invocation of a BG.

5. Ad interim orders passed in other cases, are not final judgments, and cannot help the case of the Petitioners. (Distinguished ISGEC Heavy Engineering Ltd. v. Indian Oil Corporation Ltd.: OMP (I) (Comm) 442/2020 & M/s Halliburton Offshore Services Inc. v. Vedanta Limited; OMP (I) (COMM) 88/2020).

6. Hindustan Construction Co. Ltd. v. National Hydro Electric Power Corporation Ltd 2020 SCC OnLine Del 1214 did not expand the scope of special equities to include consideration as to which party was in breach.

๐”๐ง๐๐ž๐ซ ๐ญ๐ก๐ž ๐Œ๐’๐Œ๐„ ๐€๐œ๐ญ, ๐ข๐Ÿ ๐‚๐จ๐ง๐œ๐ข๐ฅ๐ข๐š๐ญ๐ข๐จ๐ง ๐Ÿ๐š๐ข๐ฅ๐ฌ, ๐ข๐ฌ ๐€๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐ข๐จ๐ง ๐ฆ๐š๐ง๐๐š๐ญ๐จ๐ซ๐ฒ?

In Jharkhand Urja Vikas Nigam Limited vs. The State of Rajasthan and Ors. (#SupremeCourtofIndia, decided on 15.12.2021), the Respondent No. 3 was a Small Enterprise, who had approached the MSEFC for conciliation of its claims towards principal and interest. 

During the conciliation proceedings, the Appellant did not appear before the MSEFC despite repeated notices, as a result of which the MSEFC, unilaterally passed an Order directing the Appellant to pay the entire claim within a period of 30 days from the date of the Order.

After the Appellant had filed a series of writs, it had approached the Supreme Court by way of this SLP against the said order of the MSEFC.

The Court while setting aside the order of the MSEFC held as follows:

1. Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act) provides if conciliation is not successful, the said proceedings stand terminated and thereafter Council is empowered to take up the dispute for arbitration on its own or refer to any other institution.

2. There is a fundamental difference between conciliation and arbitration. In conciliation the conciliator assists the parties to arrive at an amicable settlement, in an impartial and independent manner. In arbitration, the Arbitral Tribunal/arbitrator adjudicates the disputes between the parties. The claim has to be proved before the arbitrator, if necessary, by adducing evidence, even though the Rules of the Code of Civil Procedure or the Indian Evidence Act may not apply. Unless otherwise agreed, oral hearings are to be held.

3. If the Appellant had not submitted its reply at the conciliation stage, and failed to appear, the Facilitation Council could, at best, have recorded the failure of conciliation and proceeded to initiate arbitration proceedings in accordance with the relevant provisions of the #Arbitration and Conciliation Act, 1996, to adjudicate the dispute and make an award. Proceedings for conciliation and arbitration cannot be clubbed.

๐‚๐š๐ง ๐‘๐ข๐ ๐ก๐ญ ๐จ๐Ÿ ๐‘๐ž๐Ÿ๐ž๐ซ๐ž๐ง๐œ๐ž ๐ญ๐จ ๐€๐ซ๐›๐ข๐ญ๐ซ๐š๐ญ๐ข๐จ๐ง, ๐›๐ž ๐ซ๐ž๐ฌ๐ž๐ซ๐ฏ๐ž๐ ๐›๐ฒ ๐จ๐ง๐ฅ๐ฒ ๐จ๐ง๐ž ๐๐š๐ซ๐ญ๐ฒ? 
 
In TATA CAPITAL HOUSING FINANCE LIMITED v. SHRI CHAND CONSTRUCTION AND APARTMENTS PVT LTD (Delhi High Court, Division Bench, decided on 24.11.2021), 

The Arbitration Clause in the contract is reproduced below:

โ€œ12.18 DISPUTE RESOLUTION

If any dispute, difference or claim arises between the parties hereto in connection with this Agreement or the security hereof or the validity, interpretation, implementation or alleged breach of this Agreement or anything done or omitted to be done pursuant to this Agreement or otherwise in relation to the security hereof, the parties shall attempt in the first instance to resolve the same through negotiation / conciliation. If the dispute is not resolved through negotiations / conciliation within thirty days after commencement of discussions or such longer period as the parties agree to in writing then the same shall be settled by arbitration to be held in Chennai / Delhi / Mumbai in accordance with the Arbitration and Conciliation Act, 1996 or any statutory amendments thereof and shall be referred to a person to be appointed by TCHFL. In the event of death, refusal, neglect, inability, or incapability of the person so appointed to act as an Arbitrator, TCHFL may appoint a new arbitrator. The award of the arbitrator shall be final and binding on all parties concerned. 

Notwithstanding anything contained hereinabove, in the event due to any change in the legal status of TCHFL or due to any change or amendment in law or notification being issued by the Central Government or otherwise, TCHFL comes under the purview of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) or the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (the “DRT Act”), which enables TCHFL to enforce the security under the SARFAESI Act or proceed to recover dues from the Borrower under the SARFAESI Act and / or the DRT Act, the Arbitration provisions hereinbefore contained shall, at the option of TCHFL, cease to have any effect and if arbitration proceedings are commenced but no award is made, then at the option of TCHFL such proceedings shall stand terminated and the mandate of the arbitrator shall come to an end from the date when such law or its change / amendment or the notification, becomes effective or the date when TCHFL exercises its option of terminating the mandate or arbitrator, as the case may be. Provided that neither a change in the legal status of TCHFL nor a change / amendment in law or issuance of notification as referred to in this sub paragraph above, will result in invalidating an existing award passed by an Arbitrator pursuant to the provisions of this Agreement. The Borrowerโ€Ÿs liability hereunder shall not be affected, terminated or prejudiced by the death, insolvency or any incapacity of the Borrower, but such liability shall continue in full force and effect and shall be binding on the Borrowerโ€Ÿs successors provided in the title and as the case may be.   
 
The issue which arose in this case was whether the above Arbitration Clause was valid or not. 

The Court, while dismissing the Application under Section 8 of the #Arbitration & Conciliation Act, 1996, held as hereunder:   

1. The Arbitration Clause was such that the arbitration could be abandoned at the will of one party only. The Respondent did not have the same right.   

2. Such a clause destroys an essential feature of an Arbitration Agreement, that is of MUTUALITY. (Reliance Placed on Union of India v. Bharat Engineering Corporation, 1977 SCC OnLine Del 45, Bhartia Cutler Hammer Ltd. v. AVN Tubes Ltd., 1991 SCC OnLine Del 322).

3. Parties are also not at the liberty to split the claims which arise out of the same defined legal relationship i.e. there cannot be a valid arbitration clause providing for arbitration of claims of one party and providing for the remedy of the Court or any other fora for the claim of the other party. This will not only cause multiplicity of proceedings but also possibility of conflicting judgments on the same issues.

๐‡๐จ๐ฐ ๐œ๐š๐ง ๐ฒ๐จ๐ฎ ๐ซ๐ž๐š๐ ๐š๐ง ๐ˆ๐ง๐ญ๐ž๐ซ๐ž๐ฌ๐ญ ๐๐ซ๐จ๐ก๐ข๐›๐ข๐ญ๐จ๐ซ๐ฒ ๐‚๐ฅ๐š๐ฎ๐ฌ๐ž ๐œ๐จ๐ง๐ญ๐š๐ข๐ง๐ž๐ ๐ข๐ง ๐ญ๐ก๐ž ๐‚๐จ๐ง๐ญ๐ซ๐š๐œ๐ญ ๐œ๐จ๐ซ๐ซ๐ž๐œ๐ญ๐ฅ๐ฒ?
 
In ๐”๐ง๐ข๐จ๐ง ๐จ๐Ÿ ๐ˆ๐ง๐๐ข๐š ๐ฏ. ๐Œ๐š๐ง๐ซ๐š๐ฃ ๐„๐ง๐ญ๐ž๐ซ๐ฉ๐ซ๐ข๐ฌ๐ž๐ฌ (#SupremeCourtofIndia, decided on  18.11.2021), the Interest prohibitory clause contained in the Agreement read as follows:
 
โ€œNo interest will be payable upon the earnest money or the security deposit or amounts payable to the Contractor under the Contract, but Government Securities deposited in terms of Sub-clause (1) of this Clause will be repayable with interest accrued thereon.โ€
 
However, the Arbitrator had awarded interest on the amounts awarded. This was done by observing that the bar was on Earnest Money (EMD) and Security Deposit (SD) and the expression โ€œor any other amounts payable under the Contractโ€ had to be interpreted by the principle of ejusdem generis, and as such could not be a prohibition of interest on the amounts awarded by the arbitrator.         

The Court observed as follows:          

1. Where the contract contains a specific clause which expressly bars payment of interest, then it is not open for the arbitrator to grant pendente lite interest. In the case of Garg Builders v. Bharat Heavy Electricals Limited, 2021 SCC OnLine SC 855 = 2021 (11) SCALE 693 the expression used was โ€œany moneys due to the contractorโ€ by the employer , which was held to include the amount awarded by the arbitrator.       

2. The expression โ€œamounts payable to the contractor under the contractโ€ is wide enough to cover every payment of amount payable under the contract. (Reliance placed on Union of India v. Bright Power Projects (India) (P) Ltd., (2015) 9 SCC 695).         

3. The contention that the Clause pertains specifically to EMD and SD and that the same can in no way be read in a manner to imply a bar on pendente lite interest, cannot hold water. This is because the expression โ€œamounts payable to the contractor under the contractโ€ cannot be read in conjunction with โ€œearnest money depositโ€ or โ€œsecurity depositโ€ by applying the principle of ejusdem generis because the words used is OR and not AND. Thus amounts payable under the contract have to be disjunctively and independently from EMD and SD. (Reliance placed on Jaiprakash Associates Ltd. v. Tehri Hydro Development Corporation (India) Ltd., (2019) 17 SCC 786 and Union of India v. M/s Pradeep Vinod Construction Co., Civil Appeal No. 2099 of 2007 decided on 03.08.2017, held Per incurious).

4. Any concession given by counsel, contrary to law laid down, cannot be subject of an estoppel, because there can be no estoppel against law.            
 
Accordingly the present SLP against the Section 37 Appeal succeeded, and the award passed by the AT was set aside. 

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