By Gunjan Chhabra
Questions Answered in this Month’s CCDQ:
- 𝐖𝐨𝐮𝐥𝐝 𝐭𝐡𝐞 𝐔𝐧𝐢𝐥𝐚𝐭𝐞𝐫𝐚𝐥 𝐀𝐩𝐩𝐨𝐢𝐧𝐭𝐦𝐞𝐧𝐭 𝐨𝐟 𝐚𝐧 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐨𝐫 𝐡𝐢𝐧𝐝𝐞𝐫 𝐭𝐡𝐞 𝐄𝐱𝐞𝐜𝐮𝐭𝐢𝐨𝐧 𝐨𝐟 𝐚𝐧 𝐀𝐰𝐚𝐫𝐝?
- 𝐓𝐡𝐢𝐫𝐝 𝐏𝐚𝐫𝐭𝐲 𝐅𝐮𝐧𝐝𝐢𝐧𝐠 𝐭𝐡𝐞 𝐋𝐢𝐭𝐢𝐠𝐚𝐭𝐢𝐨𝐧 𝐟𝐨𝐫 𝐆𝐚𝐢𝐧: 𝐂𝐚𝐧 𝐢𝐭 𝐄𝐬𝐜𝐚𝐩𝐞 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐢𝐟 𝐭𝐡𝐞 𝐑𝐞𝐬𝐮𝐥𝐭 𝐢𝐬 𝐔𝐧𝐟𝐚𝐯𝐨𝐮𝐫𝐚𝐛𝐥𝐞?
- 𝐃𝐢𝐬𝐩𝐮𝐭𝐞𝐬 𝐮𝐧𝐝𝐞𝐫 𝐚 𝐇𝐲𝐩𝐨𝐭𝐡𝐞𝐜𝐚𝐭𝐢𝐨𝐧 𝐀𝐠𝐫𝐞𝐞𝐦𝐞𝐧𝐭 𝐰𝐢𝐭𝐡 𝐚 𝐁𝐚𝐧𝐤: 𝐂𝐚𝐧 𝐭𝐡𝐞𝐲 𝐛𝐞 𝐫𝐞𝐟𝐞𝐫𝐫𝐞𝐝 𝐭𝐨 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧?
- 𝐃𝐨𝐞𝐬 𝐭𝐡𝐞 𝐏𝐥𝐚𝐜𝐞 𝐨𝐟 𝐭𝐡𝐞 𝐌𝐒𝐌𝐄 𝐂𝐨𝐮𝐧𝐜𝐢𝐥 𝐰𝐡𝐢𝐜𝐡 𝐩𝐚𝐬𝐬𝐞𝐬 𝐭𝐡𝐞 𝐀𝐰𝐚𝐫𝐝, 𝐟𝐨𝐫𝐦 𝐭𝐡𝐞 ‘𝐕𝐞𝐧𝐮𝐞’ 𝐨𝐫 𝐭𝐡𝐞 ‘𝐒𝐞𝐚𝐭’? (𝐒𝐢𝐧𝐠𝐥𝐞 𝐉𝐮𝐝𝐠𝐞 𝐨𝐯𝐞𝐫𝐫𝐮𝐥𝐞𝐝)
- 𝐖𝐡𝐞𝐧 𝐢𝐬 𝐢𝐭 𝐅𝐢𝐭 𝐟𝐨𝐫 𝐂𝐨𝐮𝐫𝐭 𝐭𝐨 𝐑𝐞𝐟𝐮𝐬𝐞 𝐀𝐩𝐩𝐨𝐢𝐧𝐭𝐦𝐞𝐧𝐭 𝐨𝐟 𝐚𝐧 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐨𝐫 𝐮𝐧𝐝𝐞𝐫 𝐚 𝐒𝐞𝐜𝐭𝐢𝐨𝐧 11 𝐏𝐞𝐭𝐢𝐭𝐢𝐨𝐧?
- 𝐃𝐨𝐞𝐬 𝐚 𝐂𝐥𝐚𝐮𝐬𝐞 𝐢𝐧 𝐭𝐡𝐞 𝐀𝐠𝐫𝐞𝐞𝐦𝐞𝐧𝐭 𝐩𝐫𝐨𝐯𝐢𝐝𝐢𝐧𝐠 𝐟𝐨𝐫 𝐁𝐥𝐚𝐜𝐤𝐥𝐢𝐬𝐭𝐢𝐧𝐠 𝐏𝐞𝐫 𝐬𝐞 𝐈𝐦𝐩𝐥𝐲 𝐭𝐡𝐚𝐭 𝐂𝐨𝐫𝐩𝐨𝐫𝐚𝐭𝐢𝐨𝐧 𝐜𝐚𝐧 𝐁𝐥𝐚𝐜𝐤𝐥𝐢𝐬𝐭 𝐰𝐢𝐭𝐡𝐨𝐮𝐭 𝐏𝐫𝐨𝐩𝐞𝐫 𝐍𝐨𝐭𝐢𝐜𝐞?
- 𝐂𝐚𝐧 𝐚𝐧 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐨𝐫 𝐝𝐞𝐜𝐥𝐚𝐫𝐞 𝐚 𝐩𝐫𝐨𝐯𝐢𝐬𝐢𝐨𝐧 𝐨𝐟 𝐚 𝐂𝐨𝐧𝐭𝐫𝐚𝐜𝐭, 𝐮𝐧𝐜𝐨𝐧𝐬𝐭𝐢𝐭𝐮𝐭𝐢𝐨𝐧𝐚𝐥?
- 𝐓𝐰𝐢𝐧 𝐓𝐞𝐬𝐭𝐬 𝐟𝐨𝐫 𝐀𝐭𝐭𝐚𝐜𝐡𝐦𝐞𝐧𝐭 𝐛𝐞𝐟𝐨𝐫𝐞 𝐣𝐮𝐝𝐠𝐦𝐞𝐧𝐭, 𝐇𝐨𝐰 𝐟𝐚𝐫 𝐝𝐨 𝐭𝐡𝐞𝐲 𝐚𝐩𝐩𝐥𝐲 𝐭𝐨 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧?
- 𝐂𝐚𝐧 𝐭𝐡𝐞 𝐂𝐨𝐮𝐫𝐭 𝐚𝐩𝐩𝐨𝐢𝐧𝐭 𝐚𝐧𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐨𝐫 𝐮𝐧𝐝𝐞𝐫 𝐚𝐧 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐀𝐠𝐫𝐞𝐞𝐦𝐞𝐧𝐭 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐚𝐧 𝐮𝐧𝐬𝐭𝐚𝐦𝐩𝐞𝐝 𝐝𝐨𝐜𝐮𝐦𝐞𝐧𝐭?
𝐖𝐨𝐮𝐥𝐝 𝐭𝐡𝐞 𝐔𝐧𝐢𝐥𝐚𝐭𝐞𝐫𝐚𝐥 𝐀𝐩𝐩𝐨𝐢𝐧𝐭𝐦𝐞𝐧𝐭 𝐨𝐟 𝐚𝐧 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐨𝐫 𝐡𝐢𝐧𝐝𝐞𝐫 𝐭𝐡𝐞 𝐄𝐱𝐞𝐜𝐮𝐭𝐢𝐨𝐧 𝐨𝐟 𝐚𝐧 𝐀𝐰𝐚𝐫𝐝?
Cholamandalam Investment and Finance Company Ltd. V. Amrapali Enterprises and Anr. (Calculatta High Court, decided on 14.03.2023) was a petition under Section 36 of the #Arbitration & Conciliation Act, 1996 (“A&C Act”) for execution of an Arbitral Award.
A Section 34 petition had also been filed for challenging the award but the same was time barred.
One key issue which arose was what impact would the unilaterally appointed arbitrator have on the execution of the award.
The Court observed as follows:
- The position of law regarding unilateral appointment of #arbitrator is no longer res integra & is already settled. (Reliance placed on HRD Corporation Vs. GAIL (2018) 12 SCC 471; TRF Limited Vs. Energo Engineering Projects Limited  7 SCR 409; Perkins Eastman vs HSCC (India) Ltd.  17 S.C.R. 275; Bharat Broadband Network Limited vs United Telecoms Limited  6 S.C.R. 97; etc ).
- It can be said with unambiguous certainty that the unilateral appointment of the arbitrator by the award holder is illegal and void.
- Regarding the impact of the unilateral appointment on the execution, the Court observed that an arbitral award passed by a person ineligible to act as an arbitrator cannot be considered as an arbitral award under the provisions of the A&C Act. (Reliance placed on Ram Kumar v. Shriram Transport Finance Co. Limited, 05.02.2022, Delhi HC).
- In view of the above, the award was unsustainable and non-est in the eyes of law being in violation of Section 12(5) r/w schedule VII of the A&C Act. An arbitral reference which itself began with an illegal act vitiates the entire proceedings from its very inception making it void ab initio. It was equivalent to a decree passed without jurisdiction.
- Decrees passed by bodies lacking inherent jurisdiction are unenforceable. (Reliance placed on Sunder Dass vs. Ram Prakash 1977 AIR 1201).
In light of the above, the execution petition was dismissed, and after consent of parties, fresh arbitrator was appointed.
𝐓𝐡𝐢𝐫𝐝 𝐏𝐚𝐫𝐭𝐲 𝐅𝐮𝐧𝐝𝐢𝐧𝐠 𝐭𝐡𝐞 𝐋𝐢𝐭𝐢𝐠𝐚𝐭𝐢𝐨𝐧 𝐟𝐨𝐫 𝐆𝐚𝐢𝐧: 𝐂𝐚𝐧 𝐢𝐭 𝐄𝐬𝐜𝐚𝐩𝐞 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐢𝐟 𝐭𝐡𝐞 𝐑𝐞𝐬𝐮𝐥𝐭 𝐢𝐬 𝐔𝐧𝐟𝐚𝐯𝐨𝐮𝐫𝐚𝐛𝐥𝐞?
In SBS Holding INC v. Anant Kumar Choudhary & Ors. (Delhi High Court, decided on 07.03.2023), the Respondents no. 1 to 4 were being funded by Respondent no. 5 under a Funding Agreement.
As per the Funding Agreement, R-5 was to have exclusive prior rights on any damages that could have been awarded in favour of R-1 to 4 against the Petitioner.
The #arbitration award, however was in favour of the Petitioner against R- 1 to 4.
The Petitioner filed the present Petition under Section 9 of the Arbitration & Conciliation Act, 1996 (“A&C Act”) seeking interim measures of protection against all Respondents, stating that in another enforcement proceedings against R-1 to 4, they had encumbered all assets so as to negate the other award.
The issue was whether such an interim measure could be passed against R-5 especially considering:
- The award was only against R-1 to 4
- As per the Funding Agreement, R-5’s liability was restricted to the costs to be incurred by R-1 to 4 in the arbitration proceedings & not thereafter.
- The Funding Agreement was to terminate incase claim filed by R-1 to 4 was not a success.
The Court observed as follows:
- A party having funded litigation for a gain in the result thereof, cannot escape its liability in case the result is contrary to its expectation. (Arkin v. Borchand Line Ltd (2005) EWCA Civ 655 & Excalibur Ventures LLC v. Texas Keystone Inc & Ors.)
- A balance needs to be struck between the need to ensure access to justice through funding arrangements & the cost that the defendant would bear in case such litigation fails due to being found completely meritless, as in the present case. The Defendant cannot be left high & dry.
- In fact the costs levied by the award will become the cost to be paid by R-5 as if it were the costs of R 1 to 4 as per the Funding Agreement.
- Clause stating that the Funding Agreement would stand terminated incase claim is not successful would also not affect right of the Petitioner, as the award & costs are part of the arbitration proceedings, & the proceedings continue till passing of the award.
- The Petitioner by placing reliance on the Funding Agreement has at least prima facie, been able to show that R-5 had a vested interest in the outcome of the arbitral proceedings having funded R-1 to 4 for benefit of return therefrom.
- The Petitioner has also established prima facie case by showing past conduct of R-1 to 4 in the earlier enforcement proceedings.
In view of the above, R-1 to 5 were directed to make disclosures of assets & bank accounts with credit balance, & were also restrained from creating any third party interest in respect of unencumbered immoveable assets for the sum awarded in favour of the Petitioner.
𝐃𝐢𝐬𝐩𝐮𝐭𝐞𝐬 𝐮𝐧𝐝𝐞𝐫 𝐚 𝐇𝐲𝐩𝐨𝐭𝐡𝐞𝐜𝐚𝐭𝐢𝐨𝐧 𝐀𝐠𝐫𝐞𝐞𝐦𝐞𝐧𝐭 𝐰𝐢𝐭𝐡 𝐚 𝐁𝐚𝐧𝐤: 𝐂𝐚𝐧 𝐭𝐡𝐞𝐲 𝐛𝐞 𝐫𝐞𝐟𝐞𝐫𝐫𝐞𝐝 𝐭𝐨 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧?
Mantras Green Resources Ltd. & Ors. vs Canara Bank (Bombay High Court, decided on 03.03.2023) was a Petition under Section 11 of the #arbitration & Conciliation Act, 1996(“A&C Act”) seeking appointment of #Arbitrator.
In this case Mantras was a borrower under a Hypothecation Agreement entered into with the Respondent Bank.
Here Mantras was relying on the arbitration clause and the Bank was vehemently opposing it contending that the dispute was non-arbitrable since a special forum being the Debt Recovery Tribunal (“DRT”) had been established for recovery of debts due to banks and financial institutions.
The Court observed as follows:
- On a reading of Sections 17, 18 & 19 of the Recovery of Debts and Bankruptcy Act, 1993 (“RDB Act”), it is evident that there is no provision under by which the remedy of a civil suit by the defendant in a claim by the bank is ousted. It is only in applications by the Bank where the jurisdiction of Civil Court is barred. (Reliance placed on Bank of Rajasthan v. VCK Shares & Stock Broking 2022 SCC OnLine SC 1557).
- Therefore option is left to the borrower to file a civil suit or a counterclaim in the said proceeding before DRT or before civil Court. (Reliance placed on Vidya Drolia & Ors. Vs. Durga Trading Corporation (2021) 2 SCC 1).
- Once the borrower has an option to file a suit, section 8 of the A&C Act immediately comes into play since an arbitration clause already exists. The Court will relegate the parties to arbitration, being the forum chosen by the parties.
In view of the above, the arbitrator was appointed.
𝐃𝐨𝐞𝐬 𝐭𝐡𝐞 𝐏𝐥𝐚𝐜𝐞 𝐨𝐟 𝐭𝐡𝐞 𝐌𝐒𝐌𝐄 𝐂𝐨𝐮𝐧𝐜𝐢𝐥 𝐰𝐡𝐢𝐜𝐡 𝐩𝐚𝐬𝐬𝐞𝐬 𝐭𝐡𝐞 𝐀𝐰𝐚𝐫𝐝, 𝐟𝐨𝐫𝐦 𝐭𝐡𝐞 ‘𝐕𝐞𝐧𝐮𝐞’ 𝐨𝐫 𝐭𝐡𝐞 ‘𝐒𝐞𝐚𝐭’? (𝐒𝐢𝐧𝐠𝐥𝐞 𝐉𝐮𝐝𝐠𝐞 𝐨𝐯𝐞𝐫𝐫𝐮𝐥𝐞𝐝)
IRCON International Ltd. v. Pioneer Fabricators (Delhi High Court, Division Bench, Decided on 27.03.2023), was an Appeal filed under Section 37 of the Arbitration & Conciliation Act, 1996 (“A&C Act”).
Here the Appellant had issued a Purchase Order to the Respondent for supply, erection & commissioning of certain underground LPG Storage Bullet & Pipeline for Rail Coach Factory in Rae Bareily, UP.
Since the Respondent was registered under Section 8 of the Micro, Small, and Medium Enterprises Development Act, 2006 (“MSMED Act”), when disputes arose between the parties, the matter was referred to Facilitation Council. Once conciliation failed, #arbitration was conducted, and an award was passed in favour of the Appellant by the Facilitation Council in Kanpur.
The Petitioner filed a petition under Section 34 of the A&C Act challenging the award, before District Judge, Karkardooma Courts, Delhi which petition was dismissed by the District Judge on the ground of lack of territorial jurisdiction. The reason was the award being passed by Facilitation Council at Kanpur
The Petitioner challenged the said order.
The Court observed as followed:
- The contract clause specifically provided a jurisdiction clause which stated the contract to be “subject to jurisdiction of Delhi Courts (India).
- The jurisdiction of #MSME Council, is decided on the basis of the location of the supplier. This determine only the ‘venue’ and not the ‘seat’ of Arbitration. (Reliance placed on Indian Oil Corporation Ltd. v. FEPL Engineering (P) Ltd. & Ors., MANU/DE/3140/2019)
- Therefore, for purpose of challenging the award, it is the place over which the Court has been conferred with exclusive jurisdiction, as agreed between the parties.
- MSMED Act despite being a special legislation does not eclipse or nullify the jurisdiction clause agreed between the parties. By operation of the provisions of the MSMED Act, only the procedure of constitution of the Arbitral Tribunal is obliterated and not the jurisdiction. (Reliance placed on Gujarat State Civil Supplies Corporation Ltd. vs. Mahakali Foods Pvt. Ltd.(Unit 2) and Another, 2022 SCC OnLine SC 1492)
- The Court disagreed with the Ld Single Judge in Ahluwalia Contracts (India) Ltd. vs. Ozone Research & Applications (I) Pvt. Ltd. and Ors., OMP(COMM) 343/2017 (decided on 30.01.2023) who had held that the place of facilitation council shall be ‘seat’ & not ‘venue’.
In view of the above, the District Judge’s Order dismissing the Section 34 Petition was set aside and the objection Petition was restored.
𝐖𝐡𝐞𝐧 𝐢𝐬 𝐢𝐭 𝐅𝐢𝐭 𝐟𝐨𝐫 𝐂𝐨𝐮𝐫𝐭 𝐭𝐨 𝐑𝐞𝐟𝐮𝐬𝐞 𝐀𝐩𝐩𝐨𝐢𝐧𝐭𝐦𝐞𝐧𝐭 𝐨𝐟 𝐚𝐧 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐨𝐫 𝐮𝐧𝐝𝐞𝐫 𝐚 𝐒𝐞𝐜𝐭𝐢𝐨𝐧 11 𝐏𝐞𝐭𝐢𝐭𝐢𝐨𝐧?
NTPC Ltd. v. M/s SPML Infra Ltd. (#SupremeCourtofIndia, decided on 10.04.2023), was an appeal against Delhi High Court’s order allowing the Respondent’s application for appointment of arbitration under Section 11(6) of the #arbitration & Conciliation Act, 1996 (“A&C Act”).
The parties had entered into a contract for Installation of a piping package for a Thermal Power Project in Vishakhapatnam.
The project had been completed in 2019. The Appellant had also obtained a No-Demand Certificate from the Respondent, as the payment under the contract was made conditional on the receipt of the same.
The contention raised by the Appellant was that there were no disputes subsisting between the parties, & therefore an #arbitrator should not have been appointed by the High Court.
The Supreme Court observed as follows:
- The case concerns pre-referral jurisdiction. Of the High Court under Section 11, & the limited scope of scrutiny available to a High Court.
- The jurisdiction of a Court under Section 11(6) is limited to examining whether an arbitration agreement exists between the parties – “nothing more, nothing less”. (Reliance placed on Duro Felguera, S.A. v. Gangavaram Port Ltd. (2017) 9 SCC 729.)
- Court has to undertake a restricted & limited review, only to protect parties from being forced to arbitrate, when the matter is demonstrably “non-arbitrable” & to cut off dead wood. At this stage the court should not get los in thickets & decide debatable questions of facts. Referral proceedings are preliminary & not a mini trial.
- If it appears that prima facie review would be inconclusive, as it would require detailed examination, the matter should be left for final determination by Arbitral Tribunal. (Reliance placed on Vidya Drolia & Ors. v. Durga Trading Corporation (2021) 2 SCC 1)
- An Inquiry as to the parties to the arbitration agreement & the applicant’s privity to the said agreement, need to be thoroughly reviewed by court in a referrall matter. However, on secondary aspect of non-arbitrability a limited interference is warranted.
- Limited scrutiny through the eye of the needle is necessary & compelling at this stage. However, this needs to be balanced with the need to not force parties to go for arbitration if the matter is ex-facie barred by arbitration. In such a case the Court is right to refuse referral.
- No-Demand Certificate was issued by Respondent in April 2019 & in the same month, the final payment was released. There was nothing on record to show any pending claims of the Respondent.
- It was on the non-release of Bank Guarantees (“BGs”) by the Appellant, that the Respondent in May 2019 raised a claim. Thereafter a settlement agreement was arrived between the parties, when the BGs were released in June 2020.
- In July 2020, the Respondent sent a letter repudiating the settlement agreement after reaping its benefits of return of the BGs, & in October 2020 the Respondent then filed a section 11 application for appointment of arbitrator alleging coercion & economic duress in the execution of the settlement agreement.
- The perusal of events, led the Court to come to the conclusion that the allegations of coercion & economic duress were not made out.
In view of the above, the Court concluded that the Respondent was now conducting an ex-facie meritless & dishonest litigation, & the parties should not be forced to litigate. The Order of the High Court was set aside & the Appeal was allowed.
𝐃𝐨𝐞𝐬 𝐚 𝐂𝐥𝐚𝐮𝐬𝐞 𝐢𝐧 𝐭𝐡𝐞 𝐀𝐠𝐫𝐞𝐞𝐦𝐞𝐧𝐭 𝐩𝐫𝐨𝐯𝐢𝐝𝐢𝐧𝐠 𝐟𝐨𝐫 𝐁𝐥𝐚𝐜𝐤𝐥𝐢𝐬𝐭𝐢𝐧𝐠 𝐏𝐞𝐫 𝐬𝐞 𝐈𝐦𝐩𝐥𝐲 𝐭𝐡𝐚𝐭 𝐂𝐨𝐫𝐩𝐨𝐫𝐚𝐭𝐢𝐨𝐧 𝐜𝐚𝐧 𝐁𝐥𝐚𝐜𝐤𝐥𝐢𝐬𝐭 𝐰𝐢𝐭𝐡𝐨𝐮𝐭 𝐏𝐫𝐨𝐩𝐞𝐫 𝐍𝐨𝐭𝐢𝐜𝐞?
M/s Coromandel Roller Flour Mills v. Andhra Pradesh State Civil Supplies (Andhra Pradesh High Court, decided on 04.04.2023), was a writ petition filed challenging a notice by the Respondent imposing penalty on, and blacklisting the Petitioner for a period of one year.
the parties had entered into a contract whereby the Petitioner was to supply the product of “wheat atta” to the Respondent. The dispute between the parties related to the wheat atta alleged to be non-conforming to specifications.
The Respondent had, after accepting the wheat atta consignment, got a third party analysis of the same done. However, without providing the report to the Petitioner, it had sent a show cause notice to the Petitioner to impose penalty.
Despite the Petitioner thereafter responding to the show cause notice, the Respondent simply high handedly replied that the explanation was not satisfactory and sent the Impugned Notice imposing penalty and blacklisting.
The Court observed as follows:
- The basic principle of natural justice is that before adjudication starts, the authority concerned should give to the affected party a notice of the case against him so that he can defend himself.
- It is essential for the notice to specify the particular grounds on the basis of which an action is proposed to be taken. (Reliance placed on UMC Technologies (P) Ltd. Food Corpn. of India (2021) 2 SCC 551).
- Though the Agreement contained the provision for blacklisting of the supplier/petitioner, such power had to be exercised in consonance with the principles of natural justice of affording the Petitioner the opportunity of hearing, specifying the reasons on which action was to be taken.
- On the contrary even the proposed action of blacklisting was not stated in the show cause notice.
- Blacklisting action has civil consequences. These are instruments of coercion, which created a disability on the affected party. In such case fundamentals of fair play are required to be followed. (Reliance placed on Erusian Equipment and Chemicals v. State of W.B 1975 (2) SCR 674)
In view of the above, and after discussing the issue of maintainability, the Court held that the Impugned Order of penalty and #blacklisting was passed in violation of principles of natural justice of affording opportunity of hearing to the Petitioner. Resultantly the Writ Petition was allowed and the Impugned Order was quashed, with a direction for the entire exercise of fresh notice and opportunity etc. being followed and completed within six months.
𝐂𝐚𝐧 𝐚𝐧 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐨𝐫 𝐝𝐞𝐜𝐥𝐚𝐫𝐞 𝐚 𝐩𝐫𝐨𝐯𝐢𝐬𝐢𝐨𝐧 𝐨𝐟 𝐚 𝐂𝐨𝐧𝐭𝐫𝐚𝐜𝐭, 𝐮𝐧𝐜𝐨𝐧𝐬𝐭𝐢𝐭𝐮𝐭𝐢𝐨𝐧𝐚𝐥?
Bharat Sanchar Nigam Ltd. (“BSNL”) Vs. M/s Maverick Mobile Solution (Delhi High Court, decided on 18.04.2023) was an objection Petition filed by BSNL under Section 34 of the Arbitration & Conciliation Act, 1996(“A&C Act”) challenging an award.
The Department of Post (“DOP”) entered into an Agreement with BSNL for BSNL to provide its SMS services to launch an Electronic Money Order Services for DOP’s customers.
BSNL in turn entered into a back to back agreement with the Respondent, positioning the Respondent as its tech partner in the aforementioned agreement, on a revenue sharing basis. BSNL on the other hand would be the conduit between the DOP & the Respondent. (“Contract”)
Disputes arose between the parties owing to non-payment of dues of the Respondent by BSNL, owing to which #Arbitration was invoked. The #Arbitrator passed an award in favour of the Respondent, directing BSNL to pay certain amounts an interest.
It was against this award that BSNL filed the present petition. One of the main contentions was that the Arbitrator had incorrectly held Clause 19 relating to “Liability & Disclaimer of Warranties” in the Contract to be violative of Article 12 of the Constitution of India. BSNL alleged that the arbitrator could not have done so as he was neither a constitutional court nor a telecom regulator.
Another ground was regarding whether the Arbitrator had correctly interpreted the marketing clause against BSNL.
On these grounds among others, BSNL alleged that the award was against public policy of India, patently illegal & was violative of Section 28(3) of the A&C Act.
The Court observed as follows:
- Public policy of India is now constricted to mean:
a. Firstly, that a domestic award is contrary to the fundamental policy of Indian law; OR
b. Secondly, that such award is against basic notions of justice or morality as understood
(Interpretation of changes brought about by the Arbitration & Conciliation (Amendment) Act, 2015, relying on Associate Builders v. DDA,(2015) 3 SCC 49 & distinguishing restriction as compared to ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263).
- For domestic awards an additional ground is available for patent illegality.
- After analysing these grounds, the Court observed that the decisive test is that:
a. First, the learned arbitrator had to adopt a judicial approach;
b. Second, the principles of natural justice had to be upheld;
c. Third, the decision must not have been egregious, or rather, perverse.
- As regards the interpretation of the Contract, the principle is that if the Arbitrators use the contract itself to determine a dispute, clauses should, in principle, be construed “contra proferentem”, meaning that they should be interpreted against the party that drafted it. The Contract was drafted by BSNL and signed but the Respondent, so the Arbitrator has done no wrong in applying the said principle and construing the marketing clause against BSNL in case of ambiguity.
- In the instant case, Clause 19 stipulates that neither party can claim for loss/profit, which is clearly contrary to principles of justice & equity. Being a State under Article 12 of the Constitution of India, it was completely unlawful for BSNL to create a contract that excluded them from any liability. So the Arbitrator’s finding was not flawed.
The Court therefore held that no grounds were made out to interfere in the Award under Section 34, as a result of which the present Petition was dismissed.
𝐓𝐰𝐢𝐧 𝐓𝐞𝐬𝐭𝐬 𝐟𝐨𝐫 𝐀𝐭𝐭𝐚𝐜𝐡𝐦𝐞𝐧𝐭 𝐛𝐞𝐟𝐨𝐫𝐞 𝐣𝐮𝐝𝐠𝐦𝐞𝐧𝐭, 𝐇𝐨𝐰 𝐟𝐚𝐫 𝐝𝐨 𝐭𝐡𝐞𝐲 𝐚𝐩𝐩𝐥𝐲 𝐭𝐨 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧?
Tahal Consulting Engineers India Pvt. Ltd. (“Tahal”) v. Promax Power Ltd. (“Promax”) (Delhi High Court, decided on 11.04.2023), was an appeal under Section 37 of the Arbitration & conciliation Act, 1996 against a Section 17 order (interim order passed by the #Arbitrator).
Tahal was awarded a contract for improvement of water supply distribution system in Bangalore. Tahal in turn sub-contracted Promax for a portion of aforesaid works in 2021.
When disputes arose between the parties due to non-payment of sums due to Promax From Tahal, Promax initially filed a section 9 petition where Tahal agreed to deposit some amount in Court.
After this the matter was taken before the Arbitral (“AT”) Tribunal, Tahal filed an application under Section 17 seeking release of amounts deposited by it before court. On the other hand, Promax also filed a section 17 application similar to the section 9 petition it had filed before Court.
The AT passed a combined order on both applications that interests of both parties would be preserved if the amounts deposited by Tahal stay deposited, and nothing more was granted in favour of either party.
This order was challenged by Tahal in the present appeal that once the AT held that Promax had failed to establish tests underlying Order 38 Rule 5 of the CPC (Attachment before judgment), then there was no justification for refusing release of amounts deposited by Tahal before Court.
The Court observed as follows:
- Powers of AT under section 17 are discretionary. The settled perspective is to use powers of Section 37(2)(b) sparingly in exceptional circumstances & only where the AT’s decision is seen to be arbitrary, capricious, irrational or perverse.
- An order for securing the amount claimed prior to an arbitral award is essentially in the nature of attachment before judgement and thus, the principles as applicable for grant of such orders in proceedings before the Court – that is, as applicable under Order XXXVIII Rule 5 of CPC would be equally applicable for grant of relief under Sections 9(1)(ii)(b) or 17(1)(ii)(b) of the A&C Act prior to the publishing of the arbitral award. (Reliance placed on Natrip Implementation Society vs. IVRCL Limited 2016 SCC OnLine Del 5023 & Manish Aggarwal v. RCI Industries & Technologies Ltd. 2022 SCC OnLine Del 1285).
- In order for the court to exercise its powers under Order XXXVIII Rule 5 of the CPC, it is necessary that twin conditions be satisfied.
- First, that the plaintiff establishes a reasonably strong prima facie case for succeeding in the suit; and
- second, that the court is prima facie satisfied that the defendant is acting in a manner so as to defeat the realisation of the decree that ultimately may be passed.
- Further, the object of the order would be to prevent the party against whom the claim has been made from dispersing its assets or from acting in a manner to so as to frustrate the award that may be passed.
- Having said that, for a party seeking an interim measure for securing amount in #arbitration it is not incumbent to establish an actual attempt to dispose off properties, even a strong possibility of “diminution of assets” may be sufficient and justify an order of attachment before judgment being passed in a Section 9 or Section 17 application. (Reliance placed on Essar House Private Limited vs. Arcellor Mittal Nippon Steel India Limited 2022 SCC OnLine SC 1219)
Since no arbitrariness was found in the AT’s order, the appeal was dismissed.
𝐂𝐚𝐧 𝐭𝐡𝐞 𝐂𝐨𝐮𝐫𝐭 𝐚𝐩𝐩𝐨𝐢𝐧𝐭 𝐚𝐧 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐨𝐫 𝐮𝐧𝐝𝐞𝐫 𝐚𝐧 𝐀𝐫𝐛𝐢𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐀𝐠𝐫𝐞𝐞𝐦𝐞𝐧𝐭 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐚𝐧 𝐮𝐧𝐬𝐭𝐚𝐦𝐩𝐞𝐝 𝐝𝐨𝐜𝐮𝐦𝐞𝐧𝐭?
N.N. Global Mercantile Pvt. Ltd. V. Indo unique flame Ltd. & Ors. (#SupremeCourtofIndia #ConstitutionBench , decided on 25.03.2023) was the decision of a larger bench. A 3 judge bench, on 11.01.2021 had made this reference in a case of the same title with citation (2021) 4 SCC 379. The 3 judge bench case was a petition for appointment of #arbitrator under section 11 of the #Arbitration & Conciliation Act. The reference made was in the following terms:
“whether the statutory bar contained in section 35 of the Stamp Act, 1899 applicable to instruments chargeable to stamp duty under Section 3 read with Schedule to the act would also render the arbitration agreement contained in such an instrument which is not chargeable to payment of stamp duty, as being non-existent, unenforceable, or invalid, pending payment of stamp duty on the substantive contract/instrument?”
In the above reference, the Constitution Bench first paid heed to the submissions of the Ld. Amicus, who stated:
- It was incorrect for the 3 judge bench to have proceeded on the basis that, an Arbitration Agreement was not required to be stamped in view of Article 5 Schedule I of the Maharashtra Stamp Act, 1958, where every agreement needs to be stamped even if not specifically provided for.
- He also submitted that non-payment of stamp duty does not invalidate the instrument as it is a curable defect. When the defect is cured, the instrument becomes effective. Unstamping merely makes the document inadmissible in evidence(Reliance placed on Hindustan Steel Ltd. v. Dilip Construction Company (1969) 1 SCC 597 etc.).
After accepting these contentions, the Constitution Bench reformulated the question without the aforementioned underlined words. The reformulated question was then:
“whether the statutory bar contained in section 35 of the Stamp Act, 1899 applicable to instruments chargeable to stamp duty under Section 3 read with Schedule to the act would also render the arbitration agreement contained in such an instrument, as being non-existent, pending payment of stamp duty on the substantive contract/instrument?”
The Court then made the following observations:
- In view of the above discussion already made, it is, at the outset settled, that even an arbitration agreement in itself is liable to stamp duty. Therefore the observation of the referring 3 judge bench arbitration agreement being an independent contract is not liable to stamp duty, is incorrect.
- An unregistered document may be used for proving a collateral transaction, but even this is impermissible, If the document is not stamped or is insufficiently stamped in terms of Section 35 of the Stamp Act.
- Section 2(h) of Indian #Contract Act, 1872 provides that an agreement which is enforceable in law is a contract, whereas Section 3(g) provides that agreement not enforceable in law is void.
- This means that if a party was to enforce the document in a court of law, or before a public authority, it would not only be inadmissible in evidence, but also civil courts and public authorities are tabooed from giving effect to an unstamped instrument. Section 33 of the Indian Stamp Act is not optional, and the authority has to impound the unstamped/ insufficiently stamped document.
- Therefore the Agreement would not be enforceable till it is ‘validated’ in the manner provided in the Stamp Act, that is after payment of penalty & stamp duty and till then it does not exist in law. (Section 2(j) of the Contract Act).
- Section 11(6A) is not to be understood for the mere existence of an #arbitration agreement literally. Where the arbitration agreement clearly required to be stamped but was unstamped, then it cannot be said to be a case where the arbitration agreement “exists” because this would be no existence in law.
- Regarding an arbitration agreement being formed through correspondence as contemplated in terms of Section 7(3)(b) of A&C Act, the Stamp Act also contemplates for such an eventuality. In such a case as per Section 35(v) of the Stamp Act, if two or more letters form an agreement, then if one of them is signed, then such a contract is said to be “executed”. Since any document executed is exigible to stamp duty (Section 3 of the Stamp Act), then even such an agreement also needs to be stamped
- It also cannot be accepted that a party may have filed a certified copy of the Arbitration Agreement in terms of A&C Act and not the original, and so Section 33 of the Stamp Act may not apply to this as it would not be an “instrument”. This is because, in terms of sc. 74, 76 and 63 of the Indian Evidence Act, “Certified Copies” can be issued only in respect of public documents. Public documents are only those documents which are registered in terms of Registration Act, 1908 and registration can only take place for instruments which are duly stamped (otherwise even the registration authority needs to impound it). The conclusion being that a certified copy of a document, could only be that which discloses the fact of payment of stamp duty.
- Ideally it is for the Court to impound the document if no stamp duty is paid. The examination certainly has to be carried out by Court. However, if some stamp duty is paid and the sufficiency becomes an issue of dispute where such an objection appears to be wholly without foundation, then such a dispute can be left open to the #Arbitrator to exercise power of impounding, if necessary.
- As regards the #Arbitration Agreement being a separate agreement, the Court observed that the reason for treating it as such is to create a mechanism so that the rescission of the main agreement does not result in the death of the Arbitration Clause. However, using this principle to say that the arbitration agreement would be separate where the main agreement is unstamped would encourage parties to contravene the mandate of the stamp act, and therefore it would be to no avail.
Conclusions were as follows:
I. An Arbitration Clause not stamped, or an Arbitration Clause contained in an Agreement which is not stamped, cannot be said to be a contract, which is enforceable in law as per the Indian Contract Act Sections 2(h) and 2(g). Such an unstamped instrument does not exist in law.
II. The Court is permitted under Section 11, to act on an original or certified copy of the agreement. However, both must clearly indicate stamp duty paid on it. If not paid, then Court cannot act on such a certified copy.
III.If original is produced before Court, Court must impound it under Section 33 of the Stamp Act. After duty and penalty is paid culminating in the certificate under Section 42 of the stamp Act, then Court is free to process the application as per law.
IV. An arbitration agreement contained in an unstamped instrument is non-existent in law until it is validated under the Stamp Act.
HELD: The 3 judge bench had wrongly overruled SMS Tea Estates.
Approved: SMS Tea Estates Private Limited v. Chandmari Tea Company Private Limited (2011) 14 SCC 66, Garware Wall Ropes Limited v. Coastal Marine Constructions & Engineering Limited (2019) 9 SCC 209 as to the affect of an unstamped contract containing an Arbitration Agreement & the steps to be taken by the Court were correct. Similarly Vidya Drolia and Others v. Durga Trading Corporation (2021) 2 SCC 1. as regards this issue was also approved.