By Gunjan Chhabra

Questions Answered in this Month’s CCDQ:

1. Is a High Court in India, the “Competent Court” for executing a money decree of a “Foreign Superior Court”?
2. Can a Summary Suit be filed on the basis of Unsigned Invoices?
3. Can Two Agreements Between the Same Parties, be dealt with in an Arbitration invoked under only one of them?
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Is a High Court in India, the “Competent Court” for executing a money decree of a “Foreign Superior Court”?

 

In Messers Griesheim GmBH vs. GOYAL MG GASES PRIVATE LIMITED (#SupremeCourtofIndia, decided on 28.01.2022), a very interesting question arose.

In this case, a judgment and decree was passed by the High Court of Justice, Queen’s  Bench  Division,  Commercial  Court,  United Kingdom (UKHC). 

The Decree was a money decree exceeding the erstwhile pecuniary jurisdiction of the District Courts in New Delhi (ie. INR 20 lakhs, now revised w.e.f 26.10.2015 to INR 2 Crores).

Section 44A of the Code of Civil Procedure, 1906 (CPC) provides for execution of a money decree of a “Superior Court of a reciprocating territory” by filing appropriate application with the “District Court”.

Here the simple question was, whether an execution petition for a foreign money decree should be filed before a District Court in New Delhi (as per Section 44A of CPC), or before the Delhi HC (due to the pecuniary jurisdiction).

The Court observed as follows:

1. The UKHC is a notified “superior court” of a “reciprocating territory” within the meaning of Section 44A of the CPC, as India has a notification for reciprocal arrangement for England vide notification.
2. Section 2(4) of the CPC defines “district” to mean the local limits of the jurisdiction of a principal civil court of original jurisdiction (“District Court”), and includes the local limits of the ordinary original civil jurisdiction of a HC. 
3. The principal civil jurisdiction of the Delhi High Court is based on pecuniary limits.
4. Therefore a combined reading of Section 44A with Section 2(4) would lead to the inevitable conclusion that the words “District Court” used in Section 44A where the pecuniary jurisdiction of INR 20 lakhs is exceeded, would mean the Delhi High Court and not the district court itself. This is because it is the Delhi High Court which is the original civil jurisdiction in this case, and not the district Court due to the pecuniary limit. 

In view of the same, the Court held that the Delhi High Court was the appropriate court for executing the money decree of the UKHC. 

 

Can a Summary Suit be filed on the basis of Unsigned Invoices?

In Flick Studios Private Limited v. Gravity Entertainment Private Limited (Delhi High Court, Single Judge, decided on 20.12.2021), a summary suit had been filed by Flick, under Order XXXVII of the Code of Civil Procedure before the District Court at Saket, New Delhi.

Summons were initially issued in the suit, which was taken as a suit under Order XXXVII. When the matter was taken up on the next date by the District Judge, the Respondent did not appear, but the judge unilaterally converted the Summary Suit to an Ordinary Suit on the basis that the invoices were not signed.

The Court, while setting aside the above order of the District Court, observed as follows:

1. The only reason given by the District Judge to unilaterally change the suit to an Ordinary suit is that the suit is based on unsigned invoices and the original of the invoice has not been placed on record. Whereas initially summons were already issued under Order XXXVII.
2. In modern day businesses, all communications are through emails, and unsigned invoices are routinely sent through email.
3. Receipt of the invoice sent by the Flick has been duly acknowledged by Gravity by way of email.
4. Petitioner has also filed application under Section 65B of the Evidence Act, 1872.
5. Once the details of Goods/Services, price and purchaser are clearly stated in the invoice and the invoice has been acted upon and accepted, it cannot be said that the suit based on such an invoice would not be maintainable under Order XXXVII of the CPC (Reliance placed on Flint Group India Private Limited vs. Good Morning India Media Private Limited 2017 SCC OnLine Del 7894).
6. Accordingly, the Court held that unsigned invoices can be a valid basis to file a suit under Order XXXVII of the CPC, and the Order of the District Judge suffers from material irregularities.

On the basis of the above, the order was set aside, and suit filed by Flick was directed to be treated as a summary suit under Order XXXVII of the CPC.

 

Can Two Agreements between the Same Parties, be dealt with, in an Arbitration invoked under only one of them?

The case of Indian Oil Corporation Limited v. Shree Ganesh Petroleum (#SupremeCourtofIndia , decided on 01.02.2022), was an SLP filed against Bombay High court’s Order rendered under Section 34 challenge against an #arbitration award.

Here, IOCL had taken certain premises on lease from the Respondent. IOCL also set up a retail outlet outside the said premises, and appointed Respondent as a dealer of the said retail ourself. Therefore two distinct agreements were entered into the parties:

• Lease Agreement (LA)
• Dealership Agreement(DA). 

Due to certain irregularities, IOCL issued show cause notice, and then terminated the DA, whereafter the Respondent then invoked arbitration under DA.

In the award however, the #arbitrator dealt with disputes under both LA & DA, and held IOCL entitled to enhanced rent under the LA

The Court, observed as under:

1. LA & DA are two distinct Agreements, and since arbitration was invoked only under DA, LA disputes could not have been dealt by the arbitrator.
2. An arbitrator being a creature of contract is bound to act in terms of the contract under which it was constituted, I.e. the DA (Reliance placed on Associate Builders v. Delhi Development Authority (2015) 3 SCC 49)
3. The award, in so far as it pertains to lease rent and lease period is patently beyond scope of competence of the Arbitrator appointed in terms of the DA. 
4. The role of an arbitrator is to arbitrate within terms of the contract, he has no power apart from what the parties have given him under contract, so if we traveled beyond agreed terms, he is acting without jurisdiction. (Reliance placed on PSA SICAL Terminals Pvt. Ltd. v. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin 2021SCC OnLine SC 508 & Ssangyong Engineering and Construction Co. Limited v. National Highways Authority of India (NHAI) (2019) 15 SCC 131 .
5. Once a rate has been fixed in a contract, it is not open to arbitrator to rewrite terms of the Contract (Reliance placed on Satyanarayana Construction Co. v. Union of India and Ors. (2011) 15 SCC 101).

On the above grounds, the award was set aside to the extent the Arbitrator had increased the monthly rent. 

 

Is a Dispute Pertaining to the Election of Office Bearers of a Society, in terms of its By-Laws, Arbitrable?

Madras Sporting Youngsters Football Club vs. Tamil Nadu Football Association and Ors. (Madras High Court, decided on 31.01.2022), was a Petition under Section 11 of the #arbitration & conciliation Act, 1996 for appointment of and #arbitrator, where this question was raised.

Here Madras Sporting Youngsters Football Club (MSYFC) was challenging the appointment of the 4th Respondent (R4), as the secretary of the TN Football Association, and was relying on the arbitration clause contained in the by-laws of the TN Football Association.

The court observed as follows:

1. The dispute raised by MSYFC is an election dispute TN Football Association, in which R4 was elected as Secretary. R4 is not a member of the TN Football association as only Football clubs can be its members.
2. Therefore R4 is not a party to the by-laws of the TN Football association, which contain the arbitration clause. He has neither signed the by-laws nor agreed to the terms and conditions contained therein.
3. By-laws of a society are internal regulations of the said society applicable only to its members, and is a public document. It is not a person-centric or private documents. 
4. Therefore, several parties may be interested in the by-laws such as players, stage, members, etc. In view of the same, the election dispute raised by the Petitioner in terms of by-laws can be adjudicated only through public fora (Courts) & not through Arbitration, which is confidential in nature. 
5. Matters such as actions for enforcement of in-rem rights can only be adjudicated by public fora, and stand excluded from purview of private fora by necessary implication such disputes are incapable of being resolved in arbitration. (Reliance placed on Booz Allen & Hamilton Inc. V. SBI Home Finance Ltd., 2011 5 SCC 532)
6. If the subject matter of a dispute affects third party rights, it is not arbitrable. (Reliance placed on Vidya Drolia V. Durga Trading Corporation 2021 (2) SCC 1)
7. Disputes involving public interest or interests of numbers persons not parties before Court and disputes relating to election to public offices are non-arbitrable. (Reliance placed on Afcons Infrastructure Ltd. V. Cherian Varkey 2010 (8) SCC 24)

In view of the above observations, the Court dismissed the Petition under Section 11 for appointment of arbitrator. 

 

Proved your actual Damages: Can the Arbitrator Award LD over and above this?

Bhopal Dal Udyog v. Food Corporation Of India (Delhi High Court, Division Bench, decided on 04.01.2022), was a challenge to an arbitral award. 

The Arbitrator had awarded Liquidated Damages (LD) in favour of the Respondent, relying on clause of the Agreement between the parties, in addition to the actual loss suffered by the Respondent (which was proved), as a result of the breach of Contract by the Appellant. 

The Court observed as follows:-

1. Section 74 of the Indian Contract Act, 1872 provides that when a sum has been named in a contract, as the amount to be paid on breach, the party complaining of breach is entitled, whether or not actual damage or loss is proved to have been caused, to receive from the party in breach, reasonable compensation not exceeding the amount so named. (Commonly called LD)
2. Such a sum named in the contract, is payable only if it is a genuine pre-estimate of damages, fixed by both parties, and found to be such by Court/arbitrator.
3. The expression “whether or not actual damage or loss is proved to have been caused thereby” means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded.
4. In the Present case as the actual damages suffered by the respondent were proven and accepted by the #Arbitrator, LD over and above such actual damages could not have been awarded.

 

(Reliance placed on Kailash Nath Associates v. DDA & Anr., (2015) 4 SCC 136)

On the basis of above, the Arbitral Award was set aside to the limited extent of the Liquidated Damages being awarded over and above the actual damages.

 

Can there be Specific Performance of a Construction Contract?

In Grovy India Ltd v. Balbir Singh 286(2022)DLT144, Balbir Singh (BS), the owner of a property had contracted with Grovy, a developer to construct his property through a Property Development Agreement (PDA). 

As per the PDA, Grovy was to not only develop the entire property at its own cost, but was to also pay additional moneys to BS, in exchange for acquiring the third floor, terrace, etc in the property. 

Out of the said moneys agreed to be paid by Grovy, it had already paid about 9% of the entire payment, and after payment, BS informed Grovy that the property was actually mortgaged with a Bank, and therefore the recital in the PDA regarding the property being unencumbered was false. 

It was on gaining this knowledge, that Grovy approached the Court for a suit as well as an interim application, seeking the specific performance of the PDA, particularly an order directing BS to seek a discharge over the mortgage on the said premises, and an injunction restraining BS from creating third party rights in the premises.

ad interim injunction had already been granted in favour of Grovy restraining Balbir Singh (BS) from creating any third party rights in respect of the suit property, and currently an application had been filed by BS for vacating the said order.

While dismissing BS’s application, the Court observed as follows:

1. Three considerations which govern each plea for grant of an interim injunction under Order 39 CPC, ie. Prima facie case, balance of convenience & irreparable injury, were fulfilled by Grovy.
2. The fact of the PDA being unregistered was immaterial because the PDA was not a “contract for sale” (within the meaning of S. 54 of the TPA), and therefore did not require registration under S. 17 of Registration Act. 
3. The PDA being unstamped was also irrelevant because it was not a “conveyance” as per S. 23A of Stamp Act. It was at best an agreement to sell, and not a sale agreement conveying an interest in the property. (Reliance placed on Omprakash v. Laxminarayan, (2014) 1 SCC 618).
4. After the amendment of the Specific Relief Act, under section 14, the requirement of a contract being precise, and not being enforceable on ground of vagueness has been done away with. (Therefore a #construction contract can be enforced)(Distinguished Pre-amendment case of Vinod Seth v. Devinder Bajaj(2010) 8 SCC 1)
5. Where, the agreement is not merely for development or construction on the property, but also envisages valuable rights enuring, in favour of the developer, in the constructed edifice, it would be difficult to treat the agreement as incapable of specific performance (Reliance placed on Sushil Kumar Agarwal v. Meenakshi Sadhu, (2019) 2 SCC 241).

 

Can a Consent Decree be Challenged?

This issue has been discussed in detail in the case of Sree Surya Developers & Promoters Vs. N. Sailesh Prasad & Ors. (#SupremeCourtofIndia , decided on 09.02.2022).

In this case, as a consequence of the parties arriving at a compromise deed, a #Consent Decree was passed by the Trial Court under Order XXIII Rule 3, of the Code of Civil Procedure, 1906 (CPC)

At the time the decree was passed, the Respondent no. 1 was a minor. On attaining majority, the Respondent no. 1 filed a suit seeking a declaration that the compromise deed was null & void. 

The Appellant then filed an Order VII Rule 11 (rejection of Plaint) application, which was allowed by the Trial Court on the ground that a suit for setting aside the compromise/consent decree would be barred under Order XXIII Rule 3A of the CPC. On appeal, the High Court had set aside the said Order of the trial court & remanded the matter back to it.

Therefore the present appeal to the Supreme Court had been filed by the Appellant.

The Supreme Court observed as follows:

1. At the stage of deciding an Order VII Rule 11 application, the only thing which the Court had to consider was whether the suit would be maintainable in view of Order XXIII Rule 3A CPC. However, the High Court failed to see the effect of the provision & instead considered the merits of the compromise decree.
2. On a plain reading of Order XXIII Rule 3A CPC, read with the Explanation, it is evident no suit shall lie to set aside a decree on the ground that the compromise on which the decree is based was void/vodable. (Reliance placed on R. Janakiammal Vs. S.K. Kumarasamy, (2021) 9 SCC 114).
3. No appeal is maintainable against a consent decree having regard to the specific bar contained in Section 96(3) CPC.
4. No appeal is maintainable against the order of the court recording the compromise (or refusing to record a compromise) in view of the deletion of clause (m) of Rule 1 Order 43.
5. No independent suit can be filed for setting aside a compromise decree on the ground that the compromise was not lawful in view of the bar contained in Rule 3-A.
6. A consent decree operates as an estoppel & is valid & binding unless it is set aside by the court which passed the consent decree, by an order on an application under the proviso to Rule 3 Order 23. (Reliance placed on Pushpa Devi Bhagat v. Rajinder Singh, (2006) 5 SCC 566).
7. The only remedy available to avoid such consent decree, is to approach the court which recorded the compromise & made a decree in terms of it, & establish that there was no compromise. It is that Court alone which can examine & determine the question. (Reliance placed on Banwari Lal v. Chando Devi, (1993) 1 SCC 581] & Triloki Nath Singh v. Anirudh Singh, (2020) 6 SCC 629).

Accordingly the Appeals were allowed, & the Order of the Trial Court rejecting the suit under Order VII Rule 11 were upheld.

Another interesting observation by the Court was that mere clever drafting would not permit a plaintiff to make a suit maintainable which otherwise would not be maintainable. (Reliance placed on T. Arivandandam Vs. T.V. Satyapal, (1977) 4 SCC 467 & Ram Singh v. Gram Panchayat Mehal Kalan, (1986) 4 SCC 364).

 

Practical Difficulties & Implications when filing a Petition under the Arbitration & Conciliation Act, 1996?

Recently in the case of ArcelorMittal Nippon Steel India Limited v. MIDEAST INTEGRATED STEELS LIMITED (Delhi High Court, Order dated 04.02.2022), the single Judge observed certain difficulties & passed certain directions, regarding Petitions being filed under the 1996 Act.

The observations were as follows:

1. It is seen, in many cases, that petitions under Sections 9, 11 , 34, 36 and 37, arising out of the same dispute/arbitral proceedings, are coming up before different Benches.
2. In order to avoid any conflict of orders, it is appropriate that petitions under the 1996 Act arising out of a single agreement or arbitral #award should be listed before the same Bench.
3. Accordingly, the Registry was directed to issue practice directions, requiring Counsel filing petitions under the 1996 Act, to specifically indicate, over the index accompanying the petition:

• the details of any connected petition or appeal, arising out of the same agreement or arbitral award, if any, pending before this Court, 
• the Bench before which petition is listed, and
• the next date of hearing in the connected matter

4. Accordingly, now if any earlier petition or appeal is pending, the Registry will list it before the same bench. 

The registry, on the lines of this order has now passed practice directions to practically apply the judgment. 

The same are available here: https://delhihighcourt.nic.in/writereaddata/Upload/PublicNotices/PublicNotice_DFLHBDNUZMG.PDF        

 

Can you directly approach Court for Challenging the Appointment of an Arbitrator, if no mandatory grounds under Section 12(5) exist?

In the case of Union of India vs. APS Structures Pvt. Ltd. (Delhi High Court, decided on 06.01.2022), UOI had filed a Petition under Sections 14 and 15 of the #Arbitration & Conciliation Act, 1996, praying for the termination of mandate of the arbitrator appointed by themselves, and to appoint a substitute arbitrator in place.      

This was sought due to the fact that it was later revealed to the parties, that the arbitrator had been involved with the performance of the contract in question, which was only revealed to the UOI when he had filed a disclosure in some other proceeding. 

The Delhi High Court observed as follows:     

1. A challenge to the appointment of an arbitrator, other than on the ground of ineligibility as specified under Section 12 of the A&C Act, is required to be made as per the procedure set out in Section 13 of the A&C Act. 
2. Failing any agreement between the parties, such a challenge is to be made in the first instance before the arbitral tribunal. 
3. If the #arbitrator does not recuse from the proceedings, he is required to pass an order in respect of the challenge and if the arbitrator rejects the challenge, he has to proceed to make an award.
4. Thereafter, In terms of Section 13(5) of the A&C Act, the party challenging the arbitrator may challenge the arbitral award under Section 34 of the A&C Act.
5. However, it is not open for the party to seek recourse to this Court in this regard prior to the delivery of the award, that is at the pre-award stage [Reliance placed on Progressive Career Academy Pvt. Ltd. v FIITJEE Ltd 180(2011) DLT 714].
6. It is well settled that recourse to Section 14 of the A&C Act is not available in respect of any challenge to the arbitrator under Section 12(1) of the A&C Act. Such a recourse is permissible only in the event the arbitrator is ineligible by virtue of Section 12(5) of the A&C Act. (Reliance placed on HRD Corporation (Marcus Oil and Chemical Division) v. GAIL (India) Limited: (2018) 12 SCC 471).
7. In this case, none of the circumstances as specified in the Seventh Schedule existed. Therefore, the Arbitrator could not be held to be ineligible under Section 12(5) of the A&C Act to act as an arbitrator. 
   
   In view of the above, the Petition was held to be not maintainable and thus dismissed. 

 

Future Claim not Accepted by the IRP in CIPR? Can you invoke Arbitration after Approval of the Resolution Plan?

This question arose in Bharat PetroResources Limited vs JSW Ispat Special Products Limited, (Delhi High Court, 11.02.2022)

After parties had entered into contact, disputes had already ensued between the parties, after which JSW was admitted to the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC).

In the CIRP process, BPL claimed the amount due at present, and also the future claim it would have under its contract with JSW. While the Insolvency Resolution Professional (IRP), admitted the claimed amount due at that time, it rejected the future claim of BPL.

Thereafter, the Resolution Plan was approved, and the CIRP was concluded, as a result of which the moratorium was lifted with effect from that date. 

After this, BPL then invoked #arbitration under the contract, and appointed its nominee arbitrator calling JSW to appoint its nominee. JSW in response wrote that in terms of the approved Resolution Plan, all rights, obligations, and claims arising in respect of the Agreement stood extinguished and the contract between the parties did not survive. 

BPL then filed the present Petition under Section 11 praying that the nominee #arbitrator appointed on behalf of JSW should constitute the Arbitral Tribunal for adjudication of disputes between the parties.

The Court, while referring the parties to arbitration observed as follows:

1. The debt which the ‘Corporate Debtor’ owes for payment in future, if not taken into consideration in the ‘Resolution Plan’ does not extinguish automatically and the creditors, including the ‘Financial Creditor’ or ‘Operational Creditor’ or ‘Secured Creditor’ or ‘Unsecured Creditor’ has rights to claim the same. (Reliance placed on Andhra Bank v. M/s. F.M. Hammerle Textiles Limited., NCLAT, 13.07.2018)
2. The claims of BPL which were rejected were future claims, not due before the initiation of the CIRP and therefore had not been taken into consideration by the IRP.
3. Therefore whether the liability sought to be enforced by BPL against JSW stands extinguished or not, is a contentious issue. 
4. It is well settled that the scope of examination under an Application of Section 11 is limited to the existence of an arbitration agreement between the parties, unless it is ex facie clear that the disputes cannot be entertained. (Reliance placed on Vidya Drolia v. Durga Trading Corporation: (2021) 2 SCC 1 , N. N. Global Mercantile Private Limited v. Indo Unique Flame Limited & Ors.: 2021 SCC OnLine SC 13 and Bharat Sanchar Nigam Limited and Anr. v. Nortel Networks India Pvt. Ltd.: 2021 5 SCC 738). 
5. Only in exceptional cases where it is absolutely clear that the disputes cannot be entertained that the Court will decline to entertain a petition under Section 11. So no adjudicatory exercise needs to be carried out at this stage. 
6. As a matter of default, the parties must be referred to arbitration and it is only in cases where it is clear that the disputes are deadwood that the courts would refrain from appointing an arbitrator. ‘When in doubt refer’ (Reliance placed on InterContinental Hotels Group v. Waterline Hotels Arbitration Petition (Civil) No. 12 of 2019, decided on 25.01.2022, #SupremeCourtofIndia).

Therefore, since the question of the future claims off BPL being extinguished was still a contentious issue, the parties were relegated to arbitration, and the question was left for the arbitrator to decide.