By Gunjan Chhabra

Questions Answered in this Month’s CCDQ:

1. Can the Arbitrator Aid the Process of Proving a Claim?
2. Can the Jurisdiction of an Arbitrator still be challenged in the Execution Proceedings of an Award?
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In NTPC Limited v. Larsen & Toubro Limited. (#DelhiHighCourt, Single Judge, decided on  26.11.2021), which was a Petition under section 34, challenging the award, L&T had claimed in the arbitration that it was entitled for reimbursement of additional costs in terms of Clause 31 of the Contract, and had then proceeded to quantify its claim on a notional basis.

The AT against the aforesaid claim found that although L&T was entitled to be reimbursed, the reimbursement was required to be based on actual payments and not on any notional basis. The AT also held that L&T had failed prove its claim. However, instead of holding that as a result L&T was not entitled, the #Arbitrator held in the award that L&T was to prove its claim by providing additional evidence to NTPC & that that the additional evidence, if provided by L&T, would then be scrutinised by NTPC and both the parties would mutually arrive at an agreed amount. However, if the parties could not agree on such amount, they would to take assistance of a Chartered Accountant, who would determine and certify the amount payable to L&T.

The said portion of the award was challenged as being “Patently illegal” under Section 34 of the #Arbitration & Conciliation Act, 1996.

The Court, while holding the aforesaid portion patently illegal observed as follows:

1. Having concluded that L&T had failed to establish its claim, the only award that an Arbitral Tribunal could make was to deny L&T’s claim.

2. L&T’s claim was not one regarding damages, but one regarding reimbursement, under Clause 31 which is to be computed in terms of the said clause.

3. There is no mechanism under the Contract for reference of dispute regarding quantification to a Chartered Accountant, or that such a certificate issued would be final & binding.

4. The award passed by the Arbitral Tribunal directing NTPC to pay the amounts that may be determined in future along with interest from the date of filing of the SOC after having concluded that L&T had failed to establish the amount claimed by it, reflects illegality that strikes at the root of the matter

In view of the above, the impugned award was set aside to the limited extent.

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In the case of Canara Bank vs. Bank of India (MP High Court, Single Judge, decided on 06.01.2022), the Court was faced with a unique proposition.

The contention raised was as follows:

1. As per Section 36 of the #Arbitration & Conciliation Act, 1996, an arbitral award is to be executed by the civil court in the same manner as if it were a decree of the Court.

2. Since the award has to be executed as a decree, the executing court would be able to decide certain questions as provided under Section 47 of the Code of Civil Procedure, 1908.

3. Amongst the various questions which an executing court has power to determine it also has power to determine jurisdiction of the Court which passed the Decree (There is legal principle that the executing court shall not go behind the decree, but there are two exceptions to this rule, & the executing courts may deny to execute the decree if (a) decree is passed under fraud (b) the court which passed the decree lacks inherent jurisdiction.

4. As a consequence, the executing Court under Section 47 of the CPC, should have power to decide whether the #Arbitrator lacked jurisdiction to pass the award.

The Court, while rejecting the contention, held as follows:

1. The Arbitration & Conciliation Act, 1996 is a special and self contained code in itself, whereas CPC is a general law of procedure, thus in case of conflict, it is the special law which will prevail (Reliance placed on Deep Industries Ltd. v. ONGC, (2020) 15 SCC 706)

2. The ground of lack of jurisdiction has to be taken by a party at the threshold of the proceedings. It cannot be challenged under Section 47 of the CPC (Reliance placed on Gas Authority of India Limited v. Keti Construction (I) Limited & others (2007) 5 SCC 38).

3. If the contention of the Petitioner is accepted, it would defeat the whole purpose of Arbitration of expeditious relief, and lead to opening of pandora’s box even after an award has attained finality.

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In Ellora Paper Mills Ltd v. State of Madhya Pradesh, (#SupremeCourtofIndia, decided on 04.01.2022), Ellora had filed Application under Section 14 read with Sections 11 and 15 of the #Arbitration & Conciliation Act, 1996 seeking termination of mandate of the then constituted Arbitral Tribunal (AT) & to appoint a new arbitration, before the High Court of Madhya Pradesh.

The said Application had been dismissed by the MP High Court, against which Ellora had preferred an Appeal before the Supreme Court.

The main contention raised by Ellora was that the AT, being officers of the Respondent, had lost their mandate in view of Section 12(5) read with Seventh Schedule of the A&C Act.

The Court observed as below:

1. The AT was constituted in 2001, when the AT constituted of employees of Respondent. The employees have since retired also. However, since 2001 no other steps were taken in arbitration, and as such it can’t be said the proceedings had commenced.

2. As such after the 2015 Amendment Act, with the effect of Section 12(5) read with Seventh Schedule, all of the members of the constituted AT become ineligible to continue as arbitrators. (Reliance placed on Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited)

3. It cannot be said that merely because Ellora had participated in the arbitration proceedings before the AT, he could not have approached the High Court for fresh appointment of arbitrator. This is because the waiver of the disqualification under Section 12(5) has to be “expressly” and in writing, and cannot be implied by mere participation. (Reliance placed on Bharat Broadband Network Limited v. United Telecoms Limited, (2019) 5 SCC 755.

In view of the above, it was declared by the Supreme Court that the already constituted AT were ineligible to act as arbitrators, and accordingly, a fresh arbitrator was appointed to adjudicate the disputes between the parties.

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In UHL POWER COMPANY LIMITED vs. State of Himachal Pradesh (#SupremeCourtofIndia , three judge bench, decided on 07.01.2022), the Arbitrator had awarded compound interest in favour of UHL @ 9% per annum till the date of claim and in the event the awarded amount was not realized within a period of six months from the date of making the award, future interest was awarded @ 18% per annum on the principal claim with interest.

The question was whether the tribunal could have awarded compound interest on claims without there being an express clause under the contract.

Here the Division Bench had held that compound interest can be awarded only if there is a specific contract, or authority under a statute, for compounding of interest and that there is no general discretion vested arbitrators to award compound interest, either pre-award or post award period. (Relying on Haryana v. S.L. Arora and Co. MANU/SC/0131/2010 : (2010) 3 SCC 690)

The Court, while setting aside the judgment of the High Court, and upholding the award held as follows:

1. It has already been held by the SC that SL Arora has been wrongly decided. The Arbitral Tribunal, as per Section 31(7)(b) has power to grant interest on the “sum” awarded, and the “sum” awarded can include the interest component for the pre-reference and pendent-lite period. (Reliance placed on Hyder Consulting (UK) Ltd. v. Governor, State of Orissa through Chief Engineer (2015) 2 SCC 189)

2. The single judge committed a gross error in re-appreciating the findings returned by the Arbitral Tribunal and taking an entirely different view with respect to interpretation of contract terms, as it was not open for the Court to do so under Section 34 of the #Arbitration & Conciliation Act, 1996, by virtually acting as Court of appeal.

3. When it comes to scope of an Appeal under Section 37, the jurisdiction of Appellate Court is all the more circumscribed.

4. It is also settled law that where two views are possible, the Court cannot interfere in the plausible view taken by the arbitrator supported by reasoning. (Reliance placed on Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1)

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In Haryana Tourism Corporation Ltd. v. M/s Kandhari Beverages Ltd. (#SupremeCourtofIndia , decided on 11.01.2022), Haryana Tourism Corporation Ltd. (HTCL) had organised a mango mela, in which both parties were to jointly hold musical nights. As per the Agreement, Kandhari was to pay Rs. 20 lakhs to HTL for “Brand Promotion”. On failure to deposit the same, the dispute was referred to arbitration.

In #arbitration, Kandhari was directed to pay Rs. 9.5 Lakhs to HTCL, and its counterclaims of Rs. 13.92 (Alleged expenditure by Kandhari) were dismissed by the #arbitrator.

After the Section 34 Petition filed by Kandhari was dismissed, it filed a Section 37 Appeal which was allowed by the High Court of Punjab & Haryana (HC).

The grounds on which the Section 37 Appeal was allowed was that since no amount was spent by HTL, it could not be entitled to any claims, on the contrary Kandhari’s counterclaim for expenses should have been allowed. The HC did so after going into the evidence and merits of the dispute.

Against the said decision of the High Court of Punjab & Haryana, HTL had now come before the SC.

The Supreme Court, observed as follows:

1. In an Appeal under Section 37 of the Arbitration & Conciliation Act, 1996 it is not permissible to go into merits of the claim.

2. An award can be set aside only if the award is against the public policy of India. The award can be set aside under Sections 34/37 of the Arbitration Act, if the award is found to be contrary to, (a) fundamental policy of Indian Law; or (b) the interest of India; or (c) justice or morality; or (d) if it is patently illegal. This has been observed in a catena of judgments. But none of the grounds are applicable on the facts.

On the above grounds, the Court observed, that since the HC had entered into merits of the claim, the HC had exercised jurisdiction not vested in it, under Section 37, and thus the HC judgment was set aside.