Common Commercial Disputes Queries – November, 2022


-By Gunjan Chhabra

Questions Answered in this Month’s CCDQ:

1.    𝐇𝐨𝐰 𝐈𝐦𝐩𝐨𝐫𝐭𝐚𝐧𝐭 𝐢𝐬 𝐭𝐡𝐞 𝐖𝐞𝐢𝐠𝐡𝐭 𝐨𝐟 𝐚𝐧 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐀𝐰𝐚𝐫𝐝?

2.    𝐃𝐨𝐞𝐬 𝐭𝐡𝐞 𝐌𝐒𝐌𝐄 𝐀𝐜𝐭, 2006 𝐨𝐯𝐞𝐫𝐫𝐢𝐝𝐞 𝐭𝐡𝐞 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧 & 𝐂𝐨𝐧𝐜𝐢𝐥𝐢𝐚𝐭𝐢𝐨𝐧 𝐀𝐜𝐭, 1996?

3.    𝐂𝐚𝐧 𝐚 𝐕𝐚𝐥𝐢𝐝 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐂𝐥𝐚𝐮𝐬𝐞 𝐄𝐱𝐢𝐬𝐭 𝐢𝐧 𝐭𝐡𝐞 𝐆𝐮𝐢𝐬𝐞 𝐨𝐟 𝐚 “𝐌𝐞𝐝𝐢𝐚𝐭𝐢𝐨𝐧 𝐂𝐥𝐚𝐮𝐬𝐞”?

4.    𝐂𝐚𝐧 𝐭𝐡𝐞 𝐏𝐞𝐧𝐝𝐞𝐧𝐜𝐲 𝐨𝐟 𝐚𝐧 𝐎𝐩𝐩𝐫𝐞𝐬𝐬𝐢𝐨𝐧 & 𝐌𝐢𝐬𝐦𝐚𝐧𝐚𝐠𝐞𝐦𝐞𝐧𝐭 𝐚𝐜𝐭𝐢𝐨𝐧 𝐚𝐭 𝐭𝐡𝐞 𝐍𝐂𝐋𝐓 𝐚𝐟𝐟𝐞𝐜𝐭 𝐭𝐡𝐞 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐨𝐟 𝐚 𝐝𝐢𝐬𝐩𝐮𝐭𝐞?

5.    𝐃𝐨𝐞𝐬 𝐟𝐢𝐥𝐢𝐧𝐠 𝐚𝐧 𝐀𝐩𝐩𝐥𝐢𝐜𝐚𝐭𝐢𝐨𝐧 𝐟𝐨𝐫 𝐜𝐨𝐫𝐫𝐞𝐜𝐭𝐢𝐨𝐧 𝐨𝐟 𝐭𝐡𝐞 𝐀𝐰𝐚𝐫𝐝 𝐞𝐱𝐭𝐞𝐧𝐝 𝐭𝐡𝐞 𝐏𝐞𝐫𝐢𝐨𝐝 𝐨𝐟 𝐋𝐢𝐦𝐢𝐭𝐚𝐭𝐢𝐨𝐧 𝐟𝐨𝐫 𝐜𝐡𝐚𝐥𝐥𝐞𝐧𝐠𝐢𝐧𝐠 𝐭𝐡𝐞 𝐀𝐰𝐚𝐫𝐝?

6.    𝐃𝐨𝐞𝐬 𝐚𝐧 𝐈𝐧𝐯𝐚𝐥𝐢𝐝 𝐀𝐩𝐩𝐨𝐢𝐧𝐭𝐦𝐞𝐧𝐭 (𝐨𝐟 𝐚𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐨𝐫) 𝐏𝐫𝐨𝐜𝐞𝐝𝐮𝐫𝐞 𝐕𝐢𝐭𝐢𝐚𝐭𝐞 𝐚𝐧 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐂𝐥𝐚𝐮𝐬𝐞?

 

𝐇𝐨𝐰 𝐈𝐦𝐩𝐨𝐫𝐭𝐚𝐧𝐭 𝐢𝐬 𝐭𝐡𝐞 “𝐖𝐞𝐢𝐠𝐡𝐭” 𝐨𝐟 𝐚𝐧 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐀𝐰𝐚𝐫𝐝?

In the case of Common Order v. Ajmer Vidyut Vitaran (Andhra Pradesh High Court, decided on 05.08.2022), the Respondent had filed a petition challenging the arbitration award in December 2018. The Petition was opposed by the Claimant (in the #arbitration proceedings) on the ground that since the award was dated August 2017, the Section 34 Petition was hopelessly barred by limitation.

Here, the Respondent (Respondent in the arbitration proceedings) had claimed that it became aware of the award only when their office received a show case notice in November 2018. Thereafter they wrote to the arbitrator who supplied the award in December 2018, which was dated August 2017. (Gap of more than a year).

The Appellant on the other hand claimed that the award had been sent to the Respondent in August, 2017 itself and also furnished the postal receipts for the award being dispatched by the Claimant to the Respondent.

The Court observed as follows:

  1. The #Arbitrator produced two covers under two receipts addressed to the Respondent, which contained no address, but only the pincode of the Respondent.
  2. The weight of the covers was 55 grams each. The covers sent by the arbitrator could not contain the award passed as any cover containing an Award would weigh more than 14 grams.
  3. Further the covers sent by the Claimant & the arbitrator were shown to be sent from the same post office on the same day and the same time, which again does not inspire any confidence.

In view of the above, the Respondent’s claim regarding having received the award later was accepted and the Petition under Section 34 was held to be well within limitation.

𝐃𝐨𝐞𝐬 𝐭𝐡𝐞 𝐌𝐒𝐌𝐄 𝐀𝐜𝐭, 2006 𝐨𝐯𝐞𝐫𝐫𝐢𝐝𝐞 𝐭𝐡𝐞 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧 & 𝐂𝐨𝐧𝐜𝐢𝐥𝐢𝐚𝐭𝐢𝐨𝐧 𝐀𝐜𝐭, 1996?

This was one of the Questions raised before the #SupremeCourtofIndia in Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Private Ltd. (Decided on 31.10.2022)

Regarding the intersection & interaction between the Ministry of Small and Medium Enterprises Act, 2006 (“MSME Act”) & the #Arbitration & Conciliation Act, 1996 (“A&C Act”), the Supreme Court of India observed as followed:

  1. The very object of enacting MSME Act was to facilitate the promotion and development, and enhance the competitiveness of micro, small and medium enterprises. Section 18 starts with non-obstante clause, ‘notwithstanding anything contained in any other law for the time being in force’.
  2. As a contradistinction, the A&C Act governs the law of arbitration & conciliation generally.
  3. It is therefore clear that where the MSME Act is a specific law the A&C Act is a general law. The A&C Act being a general law, the MSME Act, 2006 being specific law, the MSME Act would prevail.
  4. As regards the effect of having a private arbitration agreement between the parties, the court observed that a private agreement between the parties cannot obliterate statutory provisions. Once section 18 of the MSME Act is triggered it would override any other agreement in view of the non-obstante clause.
  5. Therefore no party would be precluded from making a reference to the Facilitation Council under the MSME Act, merely because there is an arbitration agreement existing between the parties.
  6. The MSEFC can itself act as an arbitrator despite first being the conciliator. This provision of the MSME Act again would override the bar of a conciliator acting as an #arbitrator provided under Section 80 of the A&C Act.

𝐂𝐚𝐧 𝐚 𝐕𝐚𝐥𝐢𝐝 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐂𝐥𝐚𝐮𝐬𝐞 𝐄𝐱𝐢𝐬𝐭 𝐢𝐧 𝐭𝐡𝐞 𝐆𝐮𝐢𝐬𝐞 𝐨𝐟 𝐚 “𝐌𝐞𝐝𝐢𝐚𝐭𝐢𝐨𝐧 𝐂𝐥𝐚𝐮𝐬𝐞”?

In Consolidated Construction Consortium Ltd v. South Delhi Municipal Coroporation – SDMC (Delhi High Court, decided on 02.11.2022), the Petitioner was awarded a concession agreement for development of multi level automated parking cum commercial complex at South Extension Part-I & II in New Delhi.

When disputes arose between the parties & the Respondent failed to appoint the arbitrator, the Petitioner approached the Delhi High Court under Section 11 of the #Arbitration & Conciliation Act, 1996 for appointment of an #arbitrator.

The main question here was whether the dispute resolution clause between the parties was a valid arbitration clause or not as it used the word “mediation”.

The Court observed as follows:

  1. Article 20 possesses all attributes of an arbitration agreement, despite the use of the word “mediation”. The important features are as follows:

a. The Agreement was in writing.

b. The jurisdiction of the designated authority derived from the consent of the parties.

c. The reference of disputes, controversies, or claims to the Commissioner, MCD could be made by any party.

d. The reference was mandatory, inasmuch as the opening clause of Article 20 used the words “shall refer”.

e. The reference was of existing disputes.

f. The decision-making authority was obliged to take evidence from both sides & to interview such persons as it deemed necessary in order to reach a decision. Both sides were to be given an opportunity to adduce evidence & put forth their contentions. Parties were thus been given equal opportunity to put forth their case before the authority. (Distinguished Karnataka Power Transmission Corpn. Ltd. & Anr. vs. Deepak Cables (India) Ltd (2014) 11 SCC 148).

g. The substantive rights of the parties were to be determined by the concerned officer.

h. Sections 20.1 (c) & (d) assert that the decision would be final & binding. (distinguished State of Orissa & Ors. vs. Bhagyadhar Dash (2011) 7 SCC 406).

i. There was nothing to suggest that the decision of the authority was not intended to be enforceable in law.

j. Article 20 did not contain any elements which may detract from its character as an arbitration agreement.

2. This clause here was distinguishable from the clauses in SMS Ltd. vs. South Delhi Municipal Corporation 2017 SCC OnLine Del 7414 & South Delhi Municipal Corporation vs. SMS AAMW Tollways Pvt. Ltd. (2019) 11 SCC 776 because here, the clause is not an appellate close, it could be invoked by both parties (not just by contractor), and also because the commissioner was enjoined to act judicially, which were all missing in the aforementioned cases.

In view of the above, arbitrator was appointed and the Petition was disposed off accordingly.

𝐂𝐚𝐧 𝐭𝐡𝐞 𝐏𝐞𝐧𝐝𝐞𝐧𝐜𝐲 𝐨𝐟 𝐚𝐧 𝐎𝐩𝐩𝐫𝐞𝐬𝐬𝐢𝐨𝐧 & 𝐌𝐢𝐬𝐦𝐚𝐧𝐚𝐠𝐞𝐦𝐞𝐧𝐭 𝐚𝐜𝐭𝐢𝐨𝐧 𝐚𝐭 𝐭𝐡𝐞 𝐍𝐂𝐋𝐓 𝐚𝐟𝐟𝐞𝐜𝐭 𝐭𝐡𝐞 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐨𝐟 𝐚 𝐝𝐢𝐬𝐩𝐮𝐭𝐞?

In VGP Marine Kingdom Private Limited v. Kay Ellen Arnold (#SupremeCourtofindia, decided on 04.11.2022), The Appellants had approached the High Court under Section 11 of the #Arbitration & Conciliation Act, 1996 to appoint an #arbitrator so that the Arbitral Tribunal (AT) could be constituted.

Here the arbitration clause was contained in the Share Subscription and Shareholders Agreement entered into between the parties.

The High Court had refused to appoint an arbitrator on the ground that at the time when the application was filed there were already arbitral proceedings pending between the parties and the award was passed and also on the ground that proceedings were pending before the NCLT (National Company Law Tribunal) by the Respondent on allegations of oppression & Mismanagement.

Subsequently the Appellant filed an appeal against the High Court’s order before the Supreme Court of India.

The Supreme Court observed as follows:

  1. It was the Appellant’s assertion that it was not a party to the arbitration proceedings initiated earlier, as that had arisen out of a different and separate share subscription and shareholders agreement. The Respondent on the other hand submitted that the different agreements were interlinked. This was a case where the decision on arbitrability would require further/deeper consideration, and as such should be left to the arbitrator. (Reliance placed on Vidya Drolia and Ors. Vs. Durga Trading Corporation; (2021) 2 SCC 1).
  2. Merely on the basis of proceedings of oppression & mismanagement being pending before the NCLT, the application under Section 11 could not be dismissed. The current dispute was with respect to the Share subscription and shareholders agreement which was altogether different from allegations of mismanagement and oppression at the instance of minority shareholder, being the Respondent.

In view of the above, the High Court’s order was set aside, and the Supreme Court appointed an arbitrator leaving the issue of arbitrability to be decided by the Arbitrator.

𝐃𝐨𝐞𝐬 𝐟𝐢𝐥𝐢𝐧𝐠 𝐚𝐧 𝐀𝐩𝐩𝐥𝐢𝐜𝐚𝐭𝐢𝐨𝐧 𝐟𝐨𝐫 𝐜𝐨𝐫𝐫𝐞𝐜𝐭𝐢𝐨𝐧 𝐨𝐟 𝐭𝐡𝐞 𝐀𝐰𝐚𝐫𝐝 𝐞𝐱𝐭𝐞𝐧𝐝 𝐭𝐡𝐞 𝐏𝐞𝐫𝐢𝐨𝐝 𝐨𝐟 𝐋𝐢𝐦𝐢𝐭𝐚𝐭𝐢𝐨𝐧 𝐟𝐨𝐫 𝐜𝐡𝐚𝐥𝐥𝐞𝐧𝐠𝐢𝐧𝐠 𝐭𝐡𝐞 𝐀𝐰𝐚𝐫𝐝?

In Vidhur Bhardwaj v. Horizon Crest (Delhi High Court, decided on 16.11.2022), disputes between parties had arisen from a settlement agreement. The award passed in the matter had been challenged before High Court in an Objection Petition under S.34 of the #Arbitration & Conciliation Act, 1996 (“A&C Act”).

There was a preliminary question regarding whether the objection Petition was barred by limitation.

The issue here was that although the award had been passed in July 2019, the Respondent filed an application under S.33 of the A&C Act for correction of errors in the award in August 2019, & the Petitioner had also filed a similar application in October 2019. The question was whether these applications would extend the limitation for filing the Section 34 objection Petition.

The Delhi High Court observed as follows:

  1. It is clear from a plain reading of S.34(3) of A&C Act that an application for setting aside an arbitral award has to be made within a period of 3 months either from receipt of arbitral award or, within a period of 3 months from the date on which request under S.33 is disposed off.
  2. This extension of limitation period for S. 34 Petition, incase of a S. 33 application filed within time, would be available to both parties, & not just the party who moved the S. 33 application.
  3. S. 33(1) of the A&C Act, provides a time period of 30 days from date of receipt of award, for filing an application for correction under S. 33. The award was received by the Petitioner in July 2019 so the application under s. 33 filed in October was itself beyond the time period of 30 days as stipulated in the A&C Act.
  4. Since the application itself was itself incompetent on account of being beyond the period of limitation, it would not automatically result in extending the period of limitation for filing the Petition under S. 34 of the A&C Act.
  5. However, the Respondent’s application did in fact extend the period of limitation for filing S. 34 objection petition.
  6. It was irrelevant that the Arbitral Tribunal had rejected the application filed by the Respondent, holding that it did not come within the purview of S.33. Prima facie it did appear that the Respondent had filed the application due to what it considered to be an “accidental slip” which brought the application in purview of S. 33.
  7. The present petition was filed in March, 2020. However, since the Respondent’s application was already disposed by the Arbitral Tribunal in November 2019, the period of three months for filing the s. 34 Petition would expire in February 2020.

In view of the above, due to a delay of about 13 days in filing the S. 34 Petition, the Petition was disposed off as being barred by #limitation.

𝐃𝐨𝐞𝐬 𝐚𝐧 𝐈𝐧𝐯𝐚𝐥𝐢𝐝 𝐀𝐩𝐩𝐨𝐢𝐧𝐭𝐦𝐞𝐧𝐭 (𝐨𝐟 𝐚𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐨𝐫) 𝐏𝐫𝐨𝐜𝐞𝐝𝐮𝐫𝐞 𝐕𝐢𝐭𝐢𝐚𝐭𝐞 𝐚𝐧 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐂𝐥𝐚𝐮𝐬𝐞?

Ram Kripal Singh Construction Private Limited v. NTPC (Delhi High Court, decided on 9.11.2022), was a Petition under Section 11 of the Arbitration & Conciliation Act, 1996 (“A&C” Act) for appointment of arbitrator in relation to disputes which had arisen in the Project of setting up of a township at NTPC’s Super Thermal Power Project.

The arbitration clause in the contract provided that only the General Manager of NTPC, or other person appointed by him could act as an #arbitrator. The issue therefore was whether this provision being violative of Section 12(5) of the A&C Act (inserted vide the 2015 amendment) would render the arbitration clause inoperative and vitiated.

The Court observed as follows:

  1. An “Arbitration agreement” may include several aspects such as procedure for appointment of arbitrator, seat, substantive and procedural law governing arbitral proceedings, ‘excepted matters’, liability of costs etc. Even if embedded in the same arbitration clause, these aspects relate to different strands of the agreed arbitral mechanism and are distinct and separable from the core arbitration agreement itself, that is the primary consent of parties to refer disputes to arbitration.
  2. The procedure for appointment of an arbitrator is therefore distinct and separable from the agreement to refer disputes to #arbitration. The appointment procedure is clearly invalid (Reliance placed on TRF Ltd. vs. EnergoEngg Projects Ltd (2017) 8 SCC 377 & Perkins Eastman DPC &Anr. vs. HCC (India) Ltd (2019) SCC Online SC 1517), but that does not mean that the entire clause is invalid or void.
  3. In view of the above, the clause was a valid and subsisting arbitration clause and the invalid appointment procedure needed to be severed from the remaining clause.

Accordingly, the Petition was allowed, and Arbitrator was appointed.

 

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